REG - essensys PLC - Half year results
30/04/2024 07:00
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RNS Number : 4906M essensys PLC 30 April 2024
30 April 2024
essensys plc
("essensys", the "Company" or the "Group")
Half year results
essensys plc (AIM:ESYS), the leading global provider of software and
technology to the flexible workspace industry, announces its unaudited results
for the six months ended 31 January 2024 ("H1 24"). All information relates
to this period, unless otherwise specified.
Financial summary:
£m unless otherwise stated Six months to January Six months to January Change
2024 2023
Revenue 11.7 12.9 -9%
Recurring revenue(1) 10.2 10.6 -4%
Non-recurring revenue(1) 1.5 2.3 -35%
Run Rate Annual Recurring Revenue (ARR)(1) 20.1 21.0 -4%
Revenue at constant currency(2) 12.2 12.9 -5%
Recurring revenue at constant currency 10.6 10.6 -
Run rate ARR at constant currency 20.5 21.0 -2%
Statutory loss before tax (2.8) (7.7) 61%
Adjusted EBITDA(3) (0.5) (4.2) 88%
Loss per share (pence) (4.14)p (11.89)p
Net Cash 3.5 12.6
Financial Highlights
· On track to deliver run-rate positive adjusted EBITDA from Q1
FY25 and cash generation in FY25
· Significant improvement in Adjusted EBITDA loss; expect to be
loss-making for FY24 overall
· £8m of annualised cost savings delivered reflecting ongoing
focus on operational efficiency
· Group revenue down 5% at constant currency reflecting lower level
of non-recurring revenue
· Non-recurring revenue down 35% reflecting continued pressure on
customer capex budgets
· Recurring revenues flat at constant currency as new strategic
customer ARR offset by non-strategic losses and lower occupancy-based
marketplace revenues
· Recurring revenue now 87% of total, up from 82%
· Company remains debt free with net cash of £3.5m at period end
Strategic Highlights
· Two milestone expansion MSAs signed with existing customers (£1.5m
minimum contracted ARR by September 2025)
· Strategic customers(4) now 81% of Group revenue, up from 77%
· Six new strategic customers signed in period including two
blue-chip global landlords
· Strategic customer Net Revenue Retention 103%, total customer Net
Revenue Retention 95%
· 99% of all customers now upgraded to essensys Platform
· Launch of essensys Platform Intelligence Engine
Current trading and outlook
· Largest customer moving to dual-vendor solution resulting in the
loss of up to 90 US sites that are due to renew in September 2024. Expected to
result in up to £2m reduction of essensys Cloud ARR and £1m Connect software
ARR
· Two major expansion contracts signed with strategic customers expected
to deliver minimum of £1.5m ARR by September 2025
· Macro conditions continue to curb customer spend, particularly on
non-recurring capex items
· Gross margin progression expected as buyer behaviour drives increased
demand for our pure-play SaaS product essensys Platform with demand drivers
decreasing for essensys Cloud
· Continuing improvement in operating margins as we focus on
simplification and operational efficiency
· Sales pipeline underpinned by strategic customers' expansion
plans and new customer opportunities
· ARR contracted but not yet live as of 31 January 2024 £1.5m
· Whilst recurring revenue continues to track in line with management
expectations full year revenue will be below market expectations due to lower
than expected non-recurring revenue as customer capex budget pressures persist
Board changes
As part of the streamlining and simplification of our organisation Elizabeth
Sandler and Alexandra Notay will be stepping down from the Board effective 30
June 2024, having served their four-year terms. I would like to thank them
both for their energy and contributions during their time with the Company.
Mark Furness, Chief Executive Officer of essensys, said:
"Whilst the persistent challenges posed by global economic uncertainty and the
headwinds faced by the global office sector have continued to impact our
operating environment we remain committed to the execution of our long-term
strategy.
Although the expected reduction in revenues from our largest customer is
disappointing we remain fully committed to our long-term relationship. We
continue to see new site growth in Europe where the customer has upgraded from
our legacy Connect product to essensys Platform.
Our focus on strategic customers continues to deliver results and I'm
particularly pleased to see this translate into the signing of two significant
contract expansions in the period. The first is with one of the world's
largest privately owned commercial real estate companies and the second with
an Australian listed REIT. The significant expansion opportunity that exists
within such strategic customers provides a strong foundation for our future
growth ambitions.
We have delivered £8m of annualised cost savings and continue to identify
further operational efficiencies. We are on track to return to run-rate
positive Adjusted EBITDA from Q1 FY25 and net cash generation in FY25 and we
remain confident in the long-term structural growth opportunity in the
flexible workspace market."
Notes
1. See CFO Review below for description and breakdown
2. Current period revenue and/or costs translated into GBP using the
average exchange rate for the comparative prior period
3. Adjusted EBITDA is earnings before interest, tax, depreciation,
amortisation, exceptional costs and other non-trading items such as share
option charges
4. Strategic customers are those customers who have potential for at
least $1m ARR
For further information, please contact:
essensys plc +44 (0)20 3102 5252
Mark Furness, Chief Executive Officer
Sarah Harvey, Chief Financial Officer
Singer Capital Markets (Nominated Adviser and Broker) +44 (0)20 7496 3000
Peter Steel / Harry Gooden / James Fischer
FTI Consulting
Jamie Ricketts / Eve Kirmatzis / Talia Shirion +44 (0)20 3727 1000
About essensys plc
essensys is the leading global provider of software and technology for
flexible, digitally-enabled spaces, buildings and portfolios. The essensys
Platform simplifies and automates the delivery and management of next
generation, flexible, multi-tenant real estate.
The real estate industry is transforming - it must be flexible to changing
market demands, accommodate hybrid working styles, provide move-in ready
spaces and deliver frictionless experiences and on-demand services. The office
sector is becoming an increasingly digital-first landscape - driven by
end-user demand and delivering digitally enabled spaces is key to success. The
essensys Platform has been designed and developed to help solve the complex
operational challenges faced by landlords and flexible workspace operators as
they grow and scale their operations. It helps our customers to deliver a
simple, secure and scalable proposition, respond to changing occupier demands,
provide seamless occupier experiences, and realise smart building and ESG
ambitions.
Founded in 2006 and listed on the AIM market of the London Stock Exchange
since 2019, essensys is active in the UK, Europe, North America and APAC.
Chief Executive Officer's Report
Platform for sustainable growth
One of the most significant highlights of this reporting period is the
progress we have made to streamline our operations and reduce our cash burn.
As well as delivering over £8m in annualised cost savings, creating a clear
path to profitability and cash generation, the move from a regional to a
centralised operating model has delivered a number of operational benefits. As
a leaner, more focussed business we have been able to invest more time and
effort into our relationships with strategic clients (large multi-site
landlords and flexible workspace operators). This helps us better align our
offerings with their evolving needs.
The expected downsizing of our largest customer would see a up to £3m
reduction in ARR for that account. The sites impacted are all based in the US
and were due for renewal in September of this year. The majority of this ARR
(£2m) is attached to our lower margin product essensys Cloud (c.35% gross
margin before data centre costs) whilst £1m of this ARR comes from our legacy
software product, Connect. Notwithstanding this we continue to see new
essensys Platform sites signed with this customer in Europe. It should be
noted that this is the last US customer that is using our legacy product
Connect, which is currently in the process of being retired.
We continue to see improvements in the quality of our customer base with
strategic customers now accounting for 81% of our revenues, up from 77% this
time last year. Accordingly, the majority of new sites now come from
strategic customers, with 95% of new site additions coming from this group in
the period. Net Revenue Retention of 103% within our strategic customer
cohort versus 95% across our whole customer base reflects our prioritising of
strategic customers and the underlying expansion opportunity that they provide
notwithstanding market challenges that currently persist.
Our Land, Expand and Grow strategy continues to guide our go-to-market
efforts. We added six new strategic customers in the period, including two
blue-chip landlords with global portfolios.
In the first half of 2024 we also signed two major expansion contracts with
existing customers. Both required us to work closely with them to develop a
strategic plan that ensured our product roadmap aligned with their long-term
goals. The first of these portfolio MSAs (Master Service Agreement) is with
one of the world's largest privately-owned commercial real estate companies.
Headquartered in the US and with a large global portfolio this customer is
contracted to deliver a minimum of US$1m ARR by September 2025 with the total
expansion opportunity being significantly larger. The second is a with an
Australian listed REIT which is rolling out essensys Platform across its
existing portfolio as part of a five-year contract and is expected to reach a
run-rate of US$1m ARR by July 2025.
A result of our focus on higher-value strategic customers is that we continue
to see a higher level of churn in the long tail of non-strategic clients.
These smaller customers, which now represent 19% of overall revenues, are
largely single site operators that do not offer an expansion opportunity and
have high service costs and we expect their numbers to continue to reduce
further in the year ahead.
Market conditions
Over the last four years the Group has had to adapt to the challenges posed by
global economic uncertainty and major headwinds in the office sector. In a
world of hybrid and flexible working companies of all sizes are still trying
to find the optimal working patterns and workspace solutions which support
flexibility and productivity. This uncertainty continues to impact the
commercial office market as landlords try to balance near-term tenant demand
and long-term structural shifts with short-term pressure on occupancy and
cashflows.
The global office market has become increasingly bifurcated, with premium
amenity rich buildings delivering high occupancy rates and premium rents
whilst older offices with limited amenities and functionality are becoming
functionally obsolete. The reality is that there is an excess of dated,
functionally obsolete office buildings and an undersupply of offices that
satisfy tenants changing needs(1). We believe that this long-term structural
shift translates into an enduring growth opportunity for essensys and our
products as landlords update their assets to meet tenant needs.
Tenant demand for more flexible, amenity rich office buildings and workspaces
is clear but the cost of this transition for landlords is significant. The
current challenges presented by high interest rates and global macro
uncertainty continue to put pressure on capital expenditure and development
budgets. Therefore, the speed with which landlords are able to respond to
these changing requirements has been limited. For essensys this has resulted
in elongated sales cycles and slower than anticipated roll-out of our
solutions. We are also seeing this translate into downward price pressure on
set-up and capex items (non-recurring revenue) and our private network
solution essensys Cloud, where a traditional internet connection can, for some
customers, be an appropriate alternative solution.
We expect the lower level of non-recurring revenues (-35%) recorded in the
first half to persist until the macroeconomic outlook improves and pressure on
customer capex budgets ease.
Notwithstanding current market challenges we believe that our focus on
strategic customers will deliver significant long-term benefits to the Group.
Whilst procurement processes are comprehensive and sales cycles long the value
of these enterprise level customers is clear. The benefits include significant
account expansion opportunity, lower cost up-sell and cross-sell and a more
efficient customer support structure.
Product innovation and proposition evolution
Our investment into essensys Platform to deliver a fully converged Access,
Intelligence and Experience solution for our customers continues to be a key
priority for our business. Our Product & Development team represents 30%
of our total headcount which we believe demonstrates our commitment to
delivering compelling differentiated solutions for our customers. The recently
announced launch of essensys Platform Intelligence Engine is one such example
and is an exciting new addition to our product line-up.
essensys Platform : Intelligence Engine
In its 2023-2024 Global Workplace & Occupancy Insights report CBRE notes
that the occupancy metric that matters most is utilisation rate. Contracted
occupancy has historically been a key performance measure for landlords and
workspace operators but since the pandemic it is office utilisation rates that
are increasingly being looked to as a predictor of performance and future
returns. With global average office utilisation of 35%, a 45% decrease from
the pre-pandemic global average of 64%, landlords and workspace providers are
needing to adapt their offerings to ensure increased occupier utilisation.
According to the same report 96% of office utilisation data is gleaned from
the single data source of security badge swipes.
Additional single source datasets from reservation/booking systems, Wi-Fi,
visual observation and sensors are also sometimes used. CBRE's report notes
that plans to increase the use of Wi-Fi/network data and sensors indicate a
need for more detailed, higher-quality data to support portfolio optimisation
and workplace experience goals.
Not only is space utilisation a critical measure but in the digital age we
believe the quality of the in-building digital experience (DX) is also
crucial. The challenge for multi-tenant buildings with shared workspaces and
amenities is that not only do you need frictionless access to the spaces and
services but you also need a seamless digital experience, so WiFi and internet
performance become key data points too.
Using space utilisation and DX as the foundations for Intelligence Engine we
have developed a solution that provides customers with deep insights that can
help understand how their spaces are actually used and experienced. We also
believe that as essensys Platform converges disparate systems and
traditionally unconnected data sources (eg Wi-Fi/network, bookings, access
control, IoT sensors) we are able provide the high-fidelity and
high-resolution insights that the commercial real estate industry is seeking.
essensys Cloud
We previously announced a decoupling of our global private network (essensys
Cloud) from essensys Platform. The key driver being the reduction of the
requirement for future, capex intensive, data centre expansion and to remove
the need for essensys Platform and essensys Cloud to be bundled together. This
provided lower barriers to entry for our customers as they could use existing
telecoms and internet access solutions and it also offered a solution in
geographies where essensys Cloud was not available. essensys Cloud is
currently delivered via our data centre network across the US, UK, Australia,
Hong Kong and Singapore. Following the decoupling it is increasingly evident
that the value of our private network and therefore essensys Cloud is limited
to only a small number of customers with specific requirements.
As we now offer essensys Platform, essensys Cloud and Operate (our billing
platform solution) as independent products we have been able to fully assess
the relative performance of each product both commercially and from a product
market fit perspective. The result of this is that it is clear essensys
Platform is the primary driver of customer demand with both essensys Cloud and
Operate increasingly being relevant to only a small proportion of strategic
customers. We expect this to result in a fundamental change to our revenue mix
over the coming years as essensys Cloud and Operate revenues reduce as
percentage of total ARR as essensys Platform revenues increase.
The impact of this will be the improvement in gross margins due to the
relative margin profiles of essensys Platform and essensys Cloud. To
illustrate this essensys Cloud currently delivers a recurring gross margin of
under 40% with associated data centre lease costs then reported below Adjusted
EBITDA in accordance with IFRS 16, whilst essensys Platform delivers a gross
margin in excess of 90%
essensys Platform : Smart Access
We have continued to make progress with the development of our embedded access
control and IoT hardware solution that we currently refer to as Smart Access.
Smart Access leverages the ubiquity of smartphone wallets to create a seamless
tap-book-open experience for occupiers. The solution converges access control,
space bookings and an IoT sensor gateway to provide a powerful answer to the
problem of managing real-time access and control of space in today's dynamic
and flex-enabled world. The hub's embedded IoT gateway will also enable the
collection of real-time sensor data further improving the quality of insights
Intelligence Engine can provide. As previously announced both hardware
elements (reader and hub) are now fully FCC and CE certified and we expect to
be ready for an initial production run early in FY25.
Current trading and outlook
We continue to take a long-term approach to investment into our pure-play SaaS
offering, essensys Platform, and this is now translating into increased
interest from our target customers. Our product development efforts are
focussed on solving the key operational challenges of large multi-site
landlords and flexible workspace operators whilst reducing time-to-value and
adoption costs of our solutions. We expect margins to improve materially over
time as essensys Platform revenues increase as an overall proportion of our
recurring revenues and lower margin essensys Cloud revenues decrease.
As we focus on reducing barriers to entry and simplify the customer onboarding
journey for essensys Platform, we expect lower future demand for the hardware
supply and installation services we offer. Over time we expect a reduction in
these lower margin non-recurring revenues (for example Wi-Fi and networking
equipment and essensys Cloud installations) and so whilst customer capex
budgets remain under pressure we see the reduction to these onboarding costs
as a positive enabler of future customer adoption.
The structural long-term growth drivers in the flexible workspace industry
remain intact, despite a challenging macro backdrop in which sales cycles and
capital deployment decisions are taking longer. This is reflected by signing
six new strategic customers in FY24 to date and two significant expansions for
existing customers. Our continued success with strategic customers underpins
our confidence in our long-term growth plans.
We remain debt-free and have a net cash position of £3.5m at the half year
end. essensys is now a leaner organisation and has an appropriate
operational structure to support our customers and deliver our long-term
growth strategy. As a result of our action on cost and momentum for our
focus on strategic customers, we are on track to return to run-rate positive
Adjusted EBITDA from Q1 FY25 and net cash generation in FY25.
Source 1: Brookfield - "The Misunderstood US Office Market"
Chief Financial Officer's Report
The unaudited financial results included in this announcement cover the
Group's consolidated activities for the six months ended 31 January 2024. The
comparatives for the previous six months were for the Group's consolidated
activities for the six months ended 31 January 2023.
Financial Key Performance Indicators
£'m unless otherwise stated Six months to January Six months to January Change
2024 2023
Group Total Revenue 11.7 12.9 -9%
North America 6.8 8.1 -16%
UK & Europe 4.4 4.5 -2%
APAC 0.5 0.3 67%
Recurring Revenue 1 10.2 10.6 -4%
North America 6.2 6.4 -3%
UK & Europe 3.7 4.0 -8%
APAC 0.3 0.2 50%
Recurring Revenue %age of Total 87.2% 82.2%
Run Rate Annual Recurring Revenue(1) 20.1 21.0 -4%
Recurring Revenue at constant currency 10.6 10.6 -
North America 6.6 6.4 3%
UK & Europe 3.7 4.0 -8%
APAC 0.3 0.2 50%
Run rate ARR 20.5 21.0 -2%
Non-recurring revenue 1.5 2.3 -35%
Gross Profit 7.0 7.3 -4%
Gross Profit percentage 59.8% 56.8%
Recurring Revenue margin %age 64.2% 61.0%
Statutory loss before tax (2.8) (7.7)
Adjusted EBITDA 2 (0.5) (4.2)
Cash 3.5 12.6
Note 1: See Revenue section for explanation
Note 2: See Adjusted EBITDA explanation
Revenue
Group total revenue decreased by 9% to £11.7m in H1 24 (H1 23 £12.9m),
primarily due to lower non-recurring revenue in a capital-constrained market
environment and a negative impact from the movement in the US dollar.
Recurring revenue comprises income invoiced for services that are repeatable
and are consumed and delivered on a monthly basis over the term of a customer
contract. Run Rate Annual Recurring Revenue (Run Rate ARR) is an annualisation
of the recurring revenue for the month identified (January 2024); this is used
by management as an indication of the annual value of the recurring revenue
for that month and to monitor long term revenue growth of the business.
Recurring revenue decreased by 4% compared to H1 23 (flat at constant
currency). North America underlying dollar denominated recurring revenue grew
by 3% but the strengthening of the US dollar compared with H1 23 meant that
reported recurring revenue decreased by 3% in the period. The US has seen a
net decline of 5 sites since the FY23 year end, primarily due to the loss of a
single 5-site customer. UK & Europe recurring revenue declined by 8%
year on year, a slowdown of previously reported declines of 12% in H1 23 and
11% in FY23. We have seen a return to net site growth in this region with
closing site numbers up 9 on FY23 year end. APAC growth continued with 4 new
sites live in the period.
Run Rate ARR decreased by 4% year on year, with £0.5m of the £0.9m decline
driven by adverse movements in the US dollar to GBP rate. At constant
currency, ARR decreased by 2%, driven by the expected continuing decline in
variable Marketplace revenues (£0.8m) and a small decline in Operate revenues
(£0.2m), partially offset by the net increase in contracted revenues from
essensys Platform sites with new and existing customers. Run Rate ARR at H1 24
is flat to the FY23 year end position.
Non-recurring revenue comprises set up and installation costs and is
recognised when a site is live. Non-recurring revenue reduced by 35% compared
to H1 23, reflecting challenging market conditions.
Gross margins
Gross profit decreased by 4% in the period but overall gross margins increased
from 56.8% to 59.8% as a result of a higher proportion of recurring revenue,
up from 82.2% to 87.2% of total revenue, and a focus on efficiencies in cost
of sales, which improved recurring gross margin from 61.0% to 64.2%.
Administrative expenses and other operating income and expense
Excluding exceptional costs and non-cash items of depreciation, amortisation,
impairment and share option charges, administrative expenses decreased by
£3.9m (34%) compared to the prior period. This reduction was driven by the
Group reorganisation which began at the end of H1 23 and completed at the
start of FY24. The Group will therefore continue to benefit from the year on
year saving in costs through H2 24.
The Group generated £0.1m of other operating income in H1 24 for specific
one-off bespoke product activity with a large US customer which does not fall
into the definition of revenue and is therefore reported as other income.
Statutory loss for the half year
The Group incurred a £2.8m statutory loss before tax for the half year to
January 2023 (H1 23: loss of £7.7m), with the improvement year on year due to
the global restructuring during H2 23, which more than offset the reduction in
gross profit.
Adjusted EBITDA
As previously reported, adjusted results are presented to provide a more
comparable indication of the Group's core business performance by removing the
impact of share-based payment expenses, exceptional costs (where material and
non-recurring), and other, non-trading, items that are reported separately.
Adjusted results exclude adjusting items as set out in the consolidated
statement of comprehensive income and as below, with further details given in
the notes to the unaudited interim financial information below, where
applicable. In addition, the Group also measures and presents performance in
relation to various other non-GAAP measures, such as recurring revenue,
run-rate annual recurring revenue and revenue growth as shown and defined
above.
Adjusted results are not intended to replace statutory results. These have
been presented to provide users with additional information and analysis of
the Group's performance, consistent with how the Board monitors results on an
ongoing basis.
Adjusted EBITDA (being EBITDA prior to share based payment expenses,
impairment charges and exceptional items) is calculated as follows:
£'m H1 FY24 H1 FY23
Operating (loss) (2.8) (7.7)
Add back:
Depreciation & Amortisation 2.1 2.3
Impairment charge - 0.6
EBITDA (0.7) (4.8)
Add back:
Share Option Charge 0.2 0.1
Exceptional costs - 0.5
Adjusted EBITDA (0.5) (4.2)
The Adjusted EBITDA loss of £0.5m for the half year was £3.7m lower than H1
23 due to the impact of the Group reorganisation and continued focus on
profitability and cash.
Taxation
The Group recognised a £0.2m tax credit in the period in respect of R&D
activities.
Cash
Cash at the half year end was £3.5m. The Group continues to maintain
sufficient cash reserves to fund its working capital requirements and its
return to cash generating operations. The Group has no debt and has an undrawn
£2m loan facility committed until 31 July 2025.
In light of the continued impacts of global macroeconomic uncertainty, the
Board has considered a number of different scenarios regarding trading and
financial performance over the balance of this financial year and into FY25
and beyond and is confident that, in the event of a significant long-term
downturn, the Group will have sufficient cash resources.
Working capital movements
The Group had a £2.3m negative working capital impact during H1 24 (H1 23:
£3.3m negative), of which £1m related to the final payment of exceptional
restructuring costs recognised in FY23. The Group has seasonal working capital
fluctuations as a result of the timing of sales and delivery activity in the
second half of each financial year and payment of operating costs such as
audit and other compliance during the first half of each financial year.
Leasehold payments
The Group's leasehold payments relate to its offices in London and New York
and its data centres in each region.
Capitalised Software Development costs
The Group continues to invest in product development in the UK. Where such
work is expected to result in future revenue, costs incurred that meet the
definition of software development in accordance with IAS38, Intangible
Assets, are capitalised in the statement of financial position. During the
half year the Group capitalised £1.1m in respect of software development
(H123: £1.8m).
Capital Expenditure
The Group has had no significant capital expenditure in H1 24. Capital
expenditure of £0.5m in H1 23 related to the final payments for data centres
established in the APAC region.
Going concern disclosure
The Group closed the half year with a £3.5m cash balance and access to a
committed £2m loan facility that covers the period to 31 July 2025 and which
remains undrawn. The directors have reviewed trading and liquidity forecasts
for the Group, as well as continuing to monitor the effects of macro-economic
risks on the business.
The Group continues to model its base case and downside scenarios, including
mitigations, consistently with the basis used for the annual financial
statements for the year ended 31 July 2023. Under the scenarios assessed, the
Group would remain within the headroom provided by its cash and committed
facility for at least the next 12 months.
The Group made significant progress in reducing its operational cost base
through H2 23 and has continued to take action to reduce cost further in the
current financial year which will bring additional future benefit. This has
included office cost, headcount and third party services and is included in
the base case forecast for the Group. Also included is the expected reduction
in revenue and margin from our largest customer as described above.
Offsetting this future reduction is revenue from two customer expansion
contracts, both signed in this financial year, which provide for a minimum of
£1.5m of annual recurring revenue and a significant level of non-recurring
revenues by September 2025.
Additional sensitivities applied to the forecast include lower levels of new
sales bookings, higher churn and lower achievement of planned cost savings.
Based on the analysis described above, the Group has sufficient liquidity
headroom through the forecast period. The directors therefore have reasonable
expectation that the Group has the financial resources to enable it to
continue in operational existence beyond 30 April 2025. Accordingly, the
directors conclude it to be appropriate that the interim condensed
consolidated financial statements be prepared on a going concern basis.
Sarah Harvey
Chief Financial Officer
30 April 2024
UNAUDITED INTERIM FINANCIAL INFORMATION OF ESSENSYS PLC GROUP
Consolidated statement of comprehensive income
Note Six months Six months
ended ended
31 January 31 January
2024 2023
£'000 £'000
(unaudited) (unaudited)
Revenue 3 11,733 12,909
Cost of sales (4,736) (5,580)
Gross profit 6,997 7,329
Administrative expenses (9,917) (15,041)
Other operating income 102 -
Operating loss (2,818) (7,712)
Operating loss analysed by:
Operating loss before share based payments and exceptional items (2,577) (7,054)
Share based payment expenses (241) (137)
Exceptional restructuring costs - (521)
Finance income 21 127
Finance expense (38) (67)
Loss before taxation (2,835) (7,652)
Taxation 156 -
Loss for the period (2,679) (7,652)
Other comprehensive loss
Exchange differences arising on translation of foreign operations (254) (518)
Total comprehensive loss for the period (2,933) (8,170)
Loss per share
Basic and diluted loss per share 4 (4.14p) (11.89p)
UNAUDITED INTERIM FINANCIAL INFORMATION OF ESSENSYS PLC GROUP
Consolidated statement of financial position
Note As at As at
31 January 31 July
2024 2023
£'000 £'000
(unaudited) (audited)
ASSETS
Non-current assets
Intangible assets 5 9,936 10,059
Property, plant and equipment 6 1,149 1.577
Right of use assets 7 1,093 1,140
12,178 12,776
Current assets
Inventories 2,332 2,260
Trade and other receivables 5,499 4,617
Cash at bank and in hand 10 3,462 7,862
11,293 14,739
TOTAL ASSETS 23,471 27,515
EQUITY AND LIABILITIES
Equity
Shareholders' equity
Called up share capital 8 162 162
Share premium 51,660 51,660
Share based payment reserve 3,629 3,382
Merger reserve 28 28
Retained earnings (37,585) (34,652)
Total equity 17,894 20,580
Non-current liabilities
Lease liabilities 9 - 307
Total non- current liabilities - 307
Current liabilities
Trade and other payables 3,412 4,762
Contract liabilities 3 881 420
Lease liabilities 9 1,284 1,264
Current taxes - 182
5,577 6,628
TOTAL LIABILITIES 5,577 6,935
TOTAL EQUITY AND LIABILITIES 23,471 27,515
UNAUDITED INTERIM FINANCIAL INFORMATION OF ESSENSYS PLC GROUP
Consolidated statement of changes in equity
Share capital Share premium Share based payment reserve Merger Reserve Retained Total
£'000 £'000 £'000 £'000 earnings £'000
£'000
Balance at 1 August 2023 (audited) 162 51,660 3,382 28 (34,652) 20,580
Comprehensive Income
Loss for the period - - - - (2,679) (2,679)
Currency translation differences - - 6 - (254) (248)
Total comprehensive loss - - 6 - (2,933) (2,927)
Transactions with owners
Currency translation differences - - - - - -
Share based payment expense - - 241 - - 241
Balance at 31 January 2024 (unaudited) 162 51,660 3,629 28 (37,585) 17,894
Balance at 1 August 2022 161 51,660 2,811 28 (18,700) 35,960
Comprehensive Income
Loss for the period - - - - (7,652) (7,652)
Currency translation differences - - (3) - (518) (521)
Total comprehensive loss - - (3) - (8,170) (8,173)
Currency translation differences - - - - - -
Share based payment expense - - 137 - - 137
Balance at 31 January 2023 (unaudited) 161 51,660 2,945 28 (26,870) 27,924
UNAUDITED INTERIM FINANCIAL INFORMATION OF ESSENSYS PLC GROUP
Consolidated cash flow statements
Six months ended Six months ended
31 January 2024 31 January 2023
£'000 £'000
(unaudited) (unaudited)
Cash flows from operating activities
Loss before taxation (2,835) (7,652)
Adjustments for non-cash/non-operating items:
Amortisation of intangible assets 1,175 1,056
Depreciation of property, plant and equipment 436 628
Impairment of property, plant and equipment - 305
Amortisation of right-of-use assets 513 602
Impairment of right-of-use assets - 303
Share based payment expense 241 137
Finance income (21) (127)
Finance expense 38 67
(453) (4,681)
Changes in working capital:
Increase in inventory (73) (538)
Increase in trade and other receivables (1,057) (529)
Decrease in trade and other payables (1,126) (2,277)
Cash used by operations (2,709) (8,025)
Taxation received 25 -
Net cash used from operating activities (2,684) (8,025)
Cash flows from investing activities
Purchase of intangible assets (1,052) (1,840)
Purchase of property, plant and equipment - (486)
Interest received 21 127
Net cash used in investing activities (1,031) (2,199)
Cash flows from financing activities
Repayment of lease liabilities (761) (779)
Interest on lease liabilities (30) (67)
Net cash used in financing activities (791) (846)
Net decrease in cash and cash equivalents (4,506) (11,070)
Cash and cash equivalents beginning of period 7,862 24,122
Effects of foreign exchange rate changes 106 (451)
Cash and cash equivalents at end of period 3,462 12,601
UNAUDITED INTERIM FINANCIAL INFORMATION OF ESSENSYS PLC GROUP
Notes to the unaudited interim financial information
1. Basis of preparation
The unaudited condensed interim financial information, which has been neither
audited nor reviewed by the auditor, presents the consolidated financial
results of essensys plc and its wholly owned subsidiaries (together, "essensys
plc Group" or "the Group") for the six-month period to 31 January 2024. The
annual financial statements of the Group are prepared in accordance with the
UK adopted international accounting standards and as applied in accordance
with the provisions of the Companies Act 2006. The condensed set of financial
statements included in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 Interim Financial
Reporting. This financial information does not include all disclosures that
would otherwise be required in a complete set of financial statements and
should be read in conjunction with the Annual Report for the year ended 31
July 2023. The financial information for the half year ended 31 January 2024
does not constitute statutory accounts within the meaning of Section 434 (3)
of the Companies Act 2006 and both periods are unaudited.
The comparative financial information presented herein for the year ended 31
July 2023 does not constitute full statutory accounts for that period. The
statutory Annual Report and Financial Statements for the year ended 31 July
2023 have been filed with the Registrar of Companies. The Independent
Auditors' Report on the Annual Report and Financial Statements for the year
ended 31 July 2023 was unqualified, did not draw attention to any matters by
way of emphasis and did not contain a statement under 498(2) or 498(3) of the
Companies Act 2006.
The Group has applied the same accounting policies and methods of computation
in its interim consolidated financial statements as in its 2023 annual
financial statements, except for those that relate to new standards and
interpretations effective for the first time for periods beginning on (or
after) 1 January 2023 and will be adopted in the 2024 financial statements.
There were no new standards impacting the Group that will be adopted in the
annual financial statements for the year ended 31 July 2024.
essensys plc is the Group's ultimate parent company. It is a public listed
company and is domiciled in the United Kingdom. The address of its registered
office and principal place of business is Aldgate Tower 7th Floor, 2 Leman
Street, London E1 8FA. essensys plc's shares are listed on the Alternative
Investment Market (AIM) of the London Stock Exchange.
2. Going Concern
The consolidated financial information has been prepared on a going concern
basis. In reaching their assessment, the directors have considered a period
extending to the end of July 2026. As well as modelling the realisation of the
sales pipeline, these forecasts also cover scenarios and sensitivities in
order for the Board to satisfy itself that the Group remains within its
current cash facilities. At 31 January 2024 the Group had cash reserves of
£3.5m and no debt. The Group also has a £2m undrawn loan facility in place
until 31 July 2025 to provide additional headroom.
The Board's sensitivity modelling shows that the Group can remain within its
cash facilities in the event that revenue decreases significantly. The
Directors' financial forecasts and operational planning and modelling also
include the actions, under the control of the Group, that they could take to
further conserve cash. On the basis of this financial and operational
modelling, the Directors believe that the Group has the capability and the
operational agility to react quickly, cut further costs from the business and
ensure that the cost base of the business aligns with its revenue and cash
resources. The Board is mindful of general levels of inflation and cost
increases that may impact the business. The Group is confident that its
capability to adjust its future investment plans and reduce its cost base will
sufficiently mitigate any impact from cost inflation.
The Group made significant progress in reducing its operational cost base
through H2 23 and has continued to take action to reduce cost further in the
current financial year which will bring additional future benefit from the
start of FY25. This has included office cost, headcount and third party
services and is included in the base case forecast for the Group. Also
included is the expected reduction in revenue and margin from our largest
customer as described above. Offsetting this future reduction is revenue from
two customer expansion contracts, both signed in this financial year, which
provide for a minimum of £1.5m of annual recurring revenue and a significant
level of non-recurring revenues by September 2025.
Additional sensitivities applied to the forecast include lower levels of new
sales bookings, higher churn and lower achievement of planned cost savings.
Based on the sensitised cash flow forecasts prepared, the directors are
confident that any funding needs required by the business will be sufficiently
covered by its current cash facilities.
As a consequence, the Directors have a reasonable expectation that the Group
can continue to operate and be able to meet its commitments and discharge its
liabilities in the normal course of business for a period of not less than
twelve months from the date of release of these interim financial statements.
Accordingly, they continue to adopt the going concern basis in preparing the
interim financial statements.
3. Segmental reporting
The Group has one single business reportable segment which is the provision of
software and technology platforms that manage the critical infrastructure and
business processes, primarily to the flexible workspace segment of the real
estate industry. The Group has two revenue segments and three geographical
segments, as detailed in the tables below.
The Group generates revenue from the following activities:
- Establishing services at customer sites (e.g. providing and managing
installation services, equipment and providing training on software and
services)
- Recurring monthly fees for using the Group's platforms
- Revenue from usage of on demand services such as internet and
telephone usage and other, on demand, variable services.
- Other ad-hoc services
The Group has one single business reportable segment which is the provision of
software and technology platforms that manage their critical infrastructure
and business processes, primarily to the flexible workspace industry.
The Group has two main revenue streams, the essensys Platform/Connect and
Operate. Given that support for both revenue streams is provided in such a
way as to make cost and therefore operating performance impractical, the two
revenue streams are combined into a single reportable segment. The essensys
plc Group's revenue per revenue stream is as follows:
The Group operates in three main geographic areas, North America; the United
Kingdom & Europe; and Asia Pacific region. The Group's revenue per
geographical area is as follows:
Six months ended Six months ended
31 January 2024 31 January 2023
unaudited unaudited
£'000 £'000
North America 6,861 8,063
United Kingdom & Europe 4,368 4,501
Asia Pacific 504 345
11,733 12,909
The Group has two main revenue streams, the essensys Platform/Connect and
Operate. The Group's revenue per revenue stream is as follows:
Six months ended Six months ended
31 January 2024 31 January 2023
unaudited unaudited
£'000 £'000
Connect/essensys Platform - software enabled infrastructure platform 10,997 12,029
Operate - workspace management software 736 880
11,733 12,909
Group revenue disaggregated between revenue recognised 'at a point in time'
and 'over time' is as follows:
Six months ended Six months ended
31 January 2024 31 January 2023
unaudited unaudited
£'000 £'000
Revenue recognised at a point in time 1,561 2,281
Revenue recognised over time 10,172 10,628
11,733 12,909
Revenue from customers greater than 10% in each reporting period is as
follows:
Six months ended Six months ended
31 January 2024 31 January 2023
unaudited unaudited
£'000 £'000
Customer 1 2,994 3,565
Contract assets and liabilities
Contract asset movements were as follows:
Unaudited £000
At 1 August 2023 468
Transfers in the period from contract assets to trade receivables (175)
Excess of revenue recognised over cash (or rights to cash) being recognised 87
during the period
Capitalised commission cost released as contract obligations fulfilled (44)
Commission costs capitalised on contracts 257
At 31 January 2024 593
Audited £000
At 1 August 2022 887
Transfers in the period from contract assets to trade receivables (544)
Excess of revenue recognised over cash (or rights to cash) being recognised 175
during the period
Capital asset contract contributions capitalised 57
Capital asset contract contributions released as contract obligations are (58)
fulfilled
Capitalised commission cost released as contract obligations fulfilled (210)
Commission costs capitalised on contracts 161
At 31 July 2023 468
Contract liability movements were as follows:
Unaudited £000
At 1 August 2023 420
Amounts included in contract liabilities that were recognised as revenue (420)
during the period
Cash received and receivables in advance of performance and not recognised as 881
revenue during the period
At 31 January 2024 881
Audited £000
At 1 August 2022 815
Amounts included in contract liabilities that were recognised as revenue (815)
during the period
Cash received and receivables in advance of performance and not recognised as 420
revenue during the period
At 31 July 2023 420
Contract assets are included within 'trade and other receivables' and contract
liabilities is shown separately on the face of the statement of financial
position. Contract assets arise from the group's revenue contracts, where work
is performed in advance of invoicing customers, and contract liabilities arise
where revenue is received in advance of work performed. Cumulatively, payments
received from customers at each balance sheet date do not necessarily equal
the amount of revenue recognised on the contracts. Capital asset contract
contributions represents costs incurred by the Group in the form of customer
incentives spread over the life of the customer contract. Commission costs
capitalised on contracts represents internal sales commission costs incurred
on signing of customer contracts and, in line with the requirements of IFRS15,
spread over the life of the customer contract.
4. Loss per share
The loss per share has been calculated using the loss for the period and the
weighted average number of ordinary shares outstanding during the period, as
follows:
Six months ended Six months ended
31 January 2024 31 January 2023
unaudited unaudited
£'000 £'000
Loss for the period attributable to equity holders of essensys Group (2,679) (7,652)
Weighted average number of ordinary shares 64,676,575 64,385,219
Loss per share (4.14p) (11.89p)
As the Group is loss making in both periods presented, the share options over
ordinary shares have an anti-dilutive effect and therefore no dilutive loss
per share is disclosed.
5. Intangible assets
Unaudited Assets in course Customer Internal software
of construction relationships development Software Goodwill Total
£000 £000 £000 £000 £000 £000
Cost
At 1 August 2023 622 335 16,552 280 1,263 19,052
Additions 127 - 925 - - 1,052
At 31 January 2024 749 335 17,477 280 1,263 20,104
Amortisation
At 1 August 2023 - 335 7,981 280 397 8,993
Charge for year - - 1,175 - - 1,175
At 31 January 2024 - 335 9,156 280 397 10,168
Net book value
At 31 January 2024 749 - 8,321 - 866 9,936
At 31 July 2023 622 - 8,571 - 866 10,059
Audited Assets in course Customer Internal software
of construction relationships development Software Goodwill Total
£000 £000 £000 £000 £000 £000
Cost
At 1 August 2022 215 335 13,116 280 1,263 15,209
Additions 407 - 3,436 - - 3,843
At 31 July 2023 622 335 16,552 280 1,263 19,052
Amortisation
At 1 August 2022 - 335 5,550 280 122 6,287
Charge for year - - 2,431 - - 2,431
Impairment - - - - 275 275
At 31 July 2023 - 335 7,981 280 397 8,993
Net book value
At 31 July 2023 622 - 8,571 - 866 10,059
At 31 July 2022 215 - 7,566 - 1,141 8,922
6. Property, plant and equipment
Unaudited Fixtures and fittings Computer equipment Leasehold improvements Total
£000 £000 £000 £000
Cost
At 1 August 2023 240 10,594 750 11,584
Exchange adjustments - 57 - 57
At 31 January 2024 240 10,651 750 11,641
Depreciation
At 1 August 2023 215 9,100 692 10,007
Charge for year 5 424 7 436
Exchange adjustments - 49 - 49
At 31 January 2024 220 9,573 699 10,492
Net book value
At 31 January 2024 20 1,078 51 1,149
At 31 July 2023 25 1,494 58 1,577
Audited Fixtures and fittings Computer equipment Leasehold improvements Total
£000 £000 £000 £000
Cost
At 1 August 2022 242 10,605 686 11,533
Additions - 566 64 630
Disposals - (313) - (313)
Exchange adjustments (2) (264) - (266)
At 31 July 2023 240 10,594 750 11,584
Depreciation
At 1 August 2022 207 8,109 398 8,714
Charge for year 10 1,101 294 1,405
Impairment - 313 - 313
Disposals - (198) - (198)
Exchange adjustments (2) (225) - (227)
At 31 July 2023 215 9,100 692 10,007
Net book value
At 31 July 2023 25 1,494 58 1,577
At 31 July 2022 35 2,496 288 2,819
In the prior period, as a result of the FY2023 reorganisation that centralised
the Group's APAC operations in Sydney, Australia and the evolution of the
'capital light' strategy, Management reviewed the carrying value of assets
within the APAC region and impaired those assets where the carrying value was
in excess of their recoverable value resulting in an impairment of £313,000
and as such the impairment charge was been booked in that period.
7. Right of use assets
Unaudited Leasehold Computer
property equipment Total
£000 £000 £000
Cost
At 1 August 2023 7,214 162 7,376
Lease remeasurement 465 - 465
Exchange adjustments 24 - 24
At 31 January 2024 7,703 162 7,865
Depreciation
At 1 August 2023 6,074 162 6,236
Charge for year 513 - 513
Exchange adjustments 23 - 23
At 31 January 2024 6,610 162 6,772
Net book value
At 31 January 2024 1,093 - 1,093
At 31 July 2023 1,140 - 1,140
Audited Leasehold Computer
property equipment Total
£000 £000 £000
Cost
At 1 August 2022 7,049 162 7,211
Additions 198 - 198
Lease remeasurement 95 - 98
Exchange adjustments (128) (128)
At 31 July 2023 7,214 162 7,376
Depreciation
At 1 August 2022 4,567 162 4,279
Charge for year 1,349 - 1,349
Impairment 274 - 274
Exchange adjustments (116) - (116)
At 31 July 2023 6,074 162 6,236
Net book value
At 31 July 2023 1,140 - 1,140
At 31 July 2022 2,482 - 2,482
In the prior period, as a result of the reorganisation that centralised the
Group's APAC operations in Sydney, Australia and the evolution of the 'capital
light' strategy, Management reviewed the carrying value of the right of use
assets within the APAC region and impaired those assets where the carrying
value was in excess of their recoverable value resulting in an impairment of
£274,000 and as such the impairment charge was been booked in that period.
8. Called up share capital
As at As at
31 January 31 July
2024 2023
unaudited audited
No. No.
Allotted, called up and fully paid
0.25p ordinary shares 64,649,260 64,385,219
31 January 31 July
2024 2023
unaudited audited
£'000 £'000
Allotted, called up and fully paid
0.25p ordinary shares 162 162
9. Lease liabilities
Unaudited Leasehold
Property Total
£000 £000
At 1 August 2023 1,571 1,571
Interest expense 30 30
Effect of modifying lease term 465 465
Lease payments (791) (791)
Foreign exchange movements 9 9
At 31 January 2024 1,284 1,284
Analysis by current and non-current:
Unaudited
Leasehold
property Total
£000 £000
Due within a year 1,284 1,284
Due in more than one year - -
1,284 1,284
Audited Leasehold
property Total
£000 £000
At 1 August 2022 3,128 3,128
Interest expense 164 164
Effect of modifying lease term 292 292
Variable lease payment adjustment 28 28
Lease payments (2,006) (2,006)
Foreign exchange movements (35) (35)
At 31 July 2023 1,571 1,571
Analysis by current and non-current:
Audited
Leasehold
property Total
£000 £000
Due within a year 1,264 1,264
Due in more than one year 307 307
1,571 1,571
10. Financial instruments
Financial assets
Financial assets measured at amortised cost comprise trade receivables, other
receivables, accrued income and cash, as follows:
As at As at
31 January 31 July
2024 2023
unaudited audited
£'000 £'000
Cash and cash equivalents 3,462 7,862
Trade and other receivables 4,037 3,495
7,499 11,357
Financial liabilities
Financial liabilities measured at amortised cost comprise trade payables,
accruals, other payables and lease liabilities, as follows:
As at As at
31 January 31 July
2024 2023
unaudited audited
£'000 £'000
Trade and other payables 3,218 4,233
Lease liabilities 1,284 1,571
4,502 5,804
The Group's activities expose it to a variety of financial risks:
· Market risk (including foreign exchange risk, price risk and
interest rate risk)
· Credit risk
· Liquidity risk
The financial risks relate to the following financial instruments:
· Cash and cash equivalents
· Trade and other receivables
· Trade and other payables
Risk management is carried out by the key management personnel. Key
management personnel include all the directors of the Company and the senior
management and directors of essensys (UK) Limited, the Group's principal
trading subsidiary, who together have authority and responsibility for
planning, directing, and controlling the activities of the Group. The key
management personnel identify and evaluate financial risks and provide
principals for overall risk management.
(a) Credit Risk
Credit risk is the risk of financial loss to the Group if a customer fails to
meet its contractual obligations. The Group is mainly exposed to credit risk
from credit sales. It is Group policy, implemented locally, to assess the
credit risk of new customers before entering contracts. There has been no
change to the credit risk in the period.
(b) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises because the Group operates in the United Kingdom,
Europe, North America and the Asia Pacific region, whose functional currency
is not the same as the presentational currency of the Group. Foreign
exchange risk also arises when individual companies within the group enter
into transactions denominated in currencies other than their functional
currency. Such transactions are kept to a minimum either through the choice
of suppliers or presenting sales invoices in the functional currency.
Certain assets of the group companies are denominated in foreign currencies.
Similarly, the Group has financial liabilities denominated in those same
currencies. In general, the Group seeks to maintain the financial assets and
financial liabilities in each of the foreign currencies at a reasonably
comparable level, thus providing a natural hedge against foreign exchange risk
and reducing foreign exchange exposure to a minimal level.
(ii) Interest rate risk
The Group's interest rate exposure arises mainly from the interest-bearing
borrowings. All the Group's facilities were floating rates excluding
interest from leases, which exposed the group to cash flow risk. As at 31
January 2024 there are no loans outstanding. Therefore, there is no material
exposure to interest rate risk.
(c) Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash flows
for operations. The Group manages its risk to shortage of funds by
monitoring forecast and actual cash flows. The Group monitors its risk to a
shortage of funds using a recurring liquidity planning tool. This tool
considers the majority of both its borrowings and payables.
11. Post balance sheet events
No post balance sheet events to report.
1 See Revenue section for explanation
2 See Adjusted EBITDA explanation
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