REG - Cloudcoco Group PLC - Final Results
07/03/2022 07:00
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RNS Number : 7785D Cloudcoco Group PLC 07 March 2022
7 March 2022
CloudCoCo Group plc
("CloudCoCo", "the Group" or "the Company")
Final Results
A transformational year laying the foundations for long-term growth
CloudCoCo (AIM: CLCO), a leading UK provider of managed IT services and
communications solutions to private and public sector organisations, announces
its final results for the year ended 30 September 2021.
Financial highlights
· Revenue of £8.1 million (2020: £8.0 million)
· Trading Group EBITDA(1) increased 185% to £745k (2020: £261k)
· Pre-tax loss decreased to £2.0 million (2020: loss of £3.0 million)
· Cash at bank of £1.2 million at 30 September 2021 (2020: £0.6 million)
· Net assets of £5.2 million at 30 September 2021 (2020: £5.0 million)
(1 )profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional items and share-based
payments
Operational highlights
· Successful fundraising of £2.1 million (gross) to fund acquisitions and
future growth
· Acquisition of Systems Assurance Limited and More Computers Limited
· 35 new logo customers added, providing significant opportunity for further
revenue growth
· Multi-year contract renewals with Vantage Motor Group, Kings College London
and boohoo
· Appointment of Darron Giddens as Chief Financial Officer
· Appointment of Nigel Redwood, former CEO of AIM-listed IT service management
company Nasstar PLC, as Strategic Consultant to support the Group's
acquisition strategy
Post-period highlights
· Record total contract value sales performance in Q1 of FY22, representing 129%
of the total contract value sales achievement in FY21
o Includes significant new logo contract win worth c.£3 million revenue
over three years with a global leader in the digital transformation services
industry, with an additional £1 million revenue upside already secured.
o Recurring Managed Services representing 72% of Q1 sales (2020: 41%)
· Acquisitions completed of IDE Group Connect Limited ("Connect") and Nimoveri
Limited from IDE Group Holdings PLC
· Appointment of Mark Ward, former CEO of Hunter Macdonald, as Strategic Advisor
to support the Group's growth initiatives
· Appointment of Mike Chester as Group Operations Director to ensure the Group
continues to provide the very highest standard of customer support as it
expands further
Outlook
· Strong start to the year and easing of travel restrictions has paved the way
for a year of continued commercial progress, with a significantly enlarged
customer base and enhanced capabilities from acquisitions expected to have a
transformative impact on FY22 revenues
· Significant upside from the acquisitions anticipated in FY22, following the
expected completion of decisive corrective actions to stem the losses and
achieve monthly profitability in the Connect business in the second half
· Strengthened management team, staff and customer base means the Group now has
the scale and experience to leverage and unlock new opportunities
Mark Halpin, CEO of CloudCoCo, commented:
"I'm delighted to report on another period of significant progress for
CloudCoCo, with our platform now primed for sustainable, long-term growth.
Since October 2019 we have shaped our future success and laid the foundations
for the 'Get Bigger' stage of our strategy. After executing on a successful
fundraise in August, we acquired a number of complementary businesses. The
focus now is on stabilising and optimising these businesses while realising
synergistic benefits and, ultimately, unlocking the huge potential within
them.
We will continue this strategy in a similar vein through the new financial
year while pursuing opportunities for organic growth as our core objective. As
appropriate, we will also continue to explore the possibility of further
accretive acquisitions where they are a good strategic fit.
With an enlarged Group serving circa 1,000 customers, we now have the ability
and impetus to provide a broader range of services to a broader range of
customers. We have made an exceptional start to the new financial year - our
best ever quarter by sales - and have made excellent progress in integrating
the acquisitions, with the actions taken to get Connect from loss-making to
anticipated profitability later in FY22 a particularly noteworthy achievement.
FY21 was a landmark year for the Group and we are now a very different
proposition in terms of scale and opportunity, which will be reflected in our
FY22 financials. With an exceptional team in place, improving market
conditions and having demonstrated our ability to overcome challenges as and
when they arise, we remain confident in our ability to continue making good
progress towards our growth ambitions."
Simon Duckworth, Chairman of CloudCoCo, said:
"Mark and the CloudCoCo team have once again met and exceeded the Board's
expectations, successfully transforming the existing business while delivering
on our ambitious acquisition strategy.
Customer feedback remains exceptionally positive. We have a growing reputation
for consistently delivering quality which, coupled with our enhanced service
propositions, has allowed the Company to record its most successful sales
quarter yet at the start of FY22.
I am grateful to all our colleagues - new and old - for their contributions to
the progress we have made during the year under review. Their hard work and
enthusiasm for the business has driven us forward and makes me excited for
what we can achieve together in the new financial year and beyond."
Contacts
CloudCoCo Group plc
Via Alma PR
Mark Halpin (CEO)
Darron Giddens (CFO)
Allenby Capital Limited (Nominated Adviser & Broker)
Tel: +44 (0)20 3328 5656
Jeremy Porter / James Reeve - Corporate Finance
Tony Quirke / Amrit Nahal - Sales & Corporate Broking
Alma PR (Financial PR)
cloudcoco@almapr.co.uk
David Ison
Tel:
+44 (0)20 3405 0205
Josh Royston
Kieran Breheny
About CloudCoCo
Supported by a team of industry experts and harnessing a diverse ecosystem of
partnerships with blue-chip technology vendors, CloudCoCo makes it easy for
private and public sector organisations to work smarter, faster and more
securely by providing a single point of purchase for their connectivity,
telephony, cyber security, cloud, IT hardware and support needs.
CloudCoCo has offices in Warrington, Leeds and Sheffield in the UK.
www.cloudcoco.co.uk (http://www.cloudcoco.co.uk)
Chairman's statement
Overview
Since the formation of CloudCoCo Group plc in 2019, the business has been on a
journey towards excellence and has consistently delivered against its
objectives. We have viewed the development of the business in phases, defined
internally as:
• Get Well
• Get Fit
• Get Bigger
This year saw us enjoy the benefits of the 'Get Well' phase, implemented in
2020, which allowed us to concentrate on the 'Get Fit' and 'Get Bigger' phases
of our plan, resulting in a greater focus on new business development and the
acquisition of four companies towards the end of FY21 and the beginning of
FY22 as detailed below.
As we have progressed through each phase, we have maintained our focus on four
key areas. These are: accelerate sales, maintain excellent support levels,
maintain cost vigilance and improve the cash position.
In September 2021, the Company raised £2.1m to fund acquisitions to broaden
its service offering, increase revenue, and provide scope for a substantial
increase in profitability going forward. The additional funds will be used for
the integration of the acquisitions and to strengthen the balance sheet and
working capital.
This laser focus by our leadership team, led by our CEO Mark Halpin, has been
delivering improvements day-by-day, project-by-project and has successfully
built a strong platform for long-term, sustainable growth. We have reduced our
costs, improved our customer service levels, and secured new business and
multi-year renewals with existing customers, despite the considerable
disruption caused by the pandemic.
Prior to year-end, as part of our plan to "Get Bigger", we acquired Systems
Assurance Limited and More Computers Limited into the Group, to build on the
success seen in FY21 through delivering Value Added Resale services to
customers, and just after the year-end, we also acquired IDE Group Connect
Limited and Nimoveri Limited, to support growth through the significantly
enlarged customer base, technical capabilities and talented staff provided by
these businesses.
The Group is currently working through an accelerated 'Get Well' programme for
the newly acquired businesses, focusing on managing costs, driving
efficiencies and realising synergy benefits, with a view to supporting
sustainable, profitable growth.
We are delighted with the talented staff, customers, and new services that
these most recent acquisitions have brought to the Group and are optimistic
about how the combined business will perform.
People
Our colleagues old and new have demonstrated a fantastic dedication to our
shared mission, particularly in the challenging circumstances posed by the
pandemic. I would like to thank them all for their valuable contribution
during the year.
CloudCoCo prides itself on its strong corporate culture which places an
emphasis on cultivating the passion and creativity of our colleagues while
always ensuring we are set apart by first-class customer service. Our
colleagues who have joined the Group through acquisition and new hires have
proven an excellent cultural fit and I am delighted to see them settle in
well.
As a reflection of this inclusive culture and focus on improving the working
lives of our people, we launched CoCo-One, our Group-wide people initiative
encompassing a number of projects, during the period. This initiative includes
a share options plan, currently providing qualifying employees with
performance-based share options to align colleague incentivisation with
shareholders' interests.
Other projects carried out during the year include investment into a new
employee experience platform that increases employee engagement through
regular surveys and polls, encouraging colleagues to provide instant feedback
to each other from within our everyday business applications. Engaging with
our colleagues allows us to make better decisions and drive meaningful change,
taking all opinions into account.
Recognising the critical importance of our colleagues to our success, we
always look to reward exceptional performance and do what we can to make
CloudCoCo a great place to work. We look forward to welcoming our new
colleagues onto the programme.
In line with our growth ambitions, the Group's senior leadership and advisory
team has been strengthened significantly. As announced on 9 June 2021, we were
pleased to welcome Darron Giddens as Chief Financial Officer and to the Board.
Darron has been with the Group since 2009 and was promoted from his previous
role as Group Finance Director. His transition has been seamless, and he has
already played a vital role in integrating the acquisitions and further
strengthening the finance function of the business following the recent
acquisitions.
Darron replaced Mike Lacey, who had joined the Board of Directors in January
2020 and played an important role in stabilising the Group's finances and
cementing the foundations for long-term growth. I would like to wholeheartedly
thank Mike for his contribution to the Group and wish him well in his future
endeavours.
In June 2021 we announced the appointment of Nigel Redwood, former CEO of
AIM-listed Nasstar PLC, as Strategic Consultant (a non-board position).
Nigel's experience leading high-growth IT and managed service businesses has
proven highly valuable in executing the Group's acquisition, integration and
people strategies, and he continues to play an important role in assessing a
pipeline of further acquisition opportunities.
Post-period, in October 2021, we also announced the appointment of Mark Ward,
former founder and CEO of Hunter Macdonald, as a Strategic Adviser (a
non-board position) to the Group. Mark's wealth of experience scaling
businesses in the technology sector has already proven extremely useful and I
have no doubt he will continue to play a pivotal role in the Group's
development.
As announced post-period on 1 February 2022, we have appointed Mike Chester as
Group Operations Director (a non-board position), to ensure CloudCoCo
continues to provide the very highest standard of customer support as it
expands. Mike has an extensive, 25-year track record of positioning
organisations for operational success and has been responsible for the
operational integration of acquisitions ranging from c. £3m to £40m and has
played a pivotal role in the planning and delivery of over £5m of synergy
savings and significant headcount expansion.
I would like to welcome these new appointments to CloudCoCo and we look
forward to working with them in 2022 as we move through the next stage of the
Company's growth strategy.
Ambitions for this financial year
Having successfully met our key areas of focus for 2021, as detailed above, we
now look forward to building on our progress and scaling the business as part
of our "Get Bigger" strategy.
We approach the new year with the same objectives across the larger business,
looking to replicate the good work done in managing costs and improving
efficiency across our new acquisitions while integrating them into the Group.
While our teams are focused on driving new business development in the new
year, we will continue to appraise further acquisition opportunities, only
progressing those that have exceptional potential and are a good strategic
fit.
Simon Duckworth
Chairman
6 March 2022
Chief Executive's Review
Introduction
CloudCoCo provides IT and communications solutions to organisations across the
UK public and private sectors, enabling business optimisation and
transformation, team-working, streamlined workflows and reduced costs. We
collaborate with an extensive range of partners, service providers,
distributors, and vendors.
The year under review has been a transformational period for the Group.
Despite the persistence of national and local restrictions as a result of the
pandemic, we have delivered a resilient financial performance. The Group
achieved revenues of £8.1 million (FY20: £8.0 million) and total contract
value of £5.2 million (FY20: £5.2 million). Cash at 30 September 2021 was
£1.2 million (FY20: £0.6 million). I am particularly pleased with the
progress we have made in Trading Group EBITDA(1), an important metric for the
Group's progress, which increased over 185% to £745k (FY20: £261k).
Acquisitions
Supported by the appointment of Nigel Redwood during the period, we have
significantly expanded the Group's offering and customer base through
acquisitions and expect these to have a major long-term impact on the Group's
ability to scale and compete against the larger players in our space.
In August 2021 we announced the acquisition of Systems Assurance Limited
("Systems Assurance"), an IT group comprised of a B2B value-added reseller
("VAR") and an automated B2C cloud-based VAR and IT managed service provider
for an initial net consideration of £0.83m. This acquisition provides the
Group with a proven, scalable hardware engine alongside expanding its IT
managed services offering. Additionally, the acquisition of Systems Assurance
provided the Group with a further 125 customers, offering the potential for
up-sell and cross-sell from the Group's existing services. Importantly, the
More Computers B2C e-commerce platform acquired provides us with automation
capabilities and access to a large number of UK distributors and vendors that
will benefit the wider Group in the coming years. The strategy this year is to
further improve the More Computers engine in H1-FY22 and then launch a B2B
version for our now circa 1,000 public and private business customers.
Post-period, in October 2021, we announced further acquisitions in the shape
of IDE Group Connect Limited ("Connect"), a specialist cloud, advanced
support, connectivity and co-location data centre provider and Nimoveri
Limited, an IT managed services business, from IDE Group Holdings PLC for a
combined deferred consideration of £250,000.
Connect significantly boosts the Group's overall offering, providing an
additional 85 talented staff members, 33 data centres, an impressive lifecycle
device management capability, circa 100,000 IPv4 addresses and a 100Gb
fibre-network in London and the South of England. The Connect business
recorded an adjusted EBITDA(2) loss of £0.7 million on revenues of £13.0
million in the audited accounts for the year to 31 December 2020. Our
immediate focus has been to rapidly improve this business with a view to
reaching profitability, which we expect to achieve during the second half of
FY22. Following the acquisition, we engaged in an in-depth consultation with
management and the wider team, including conducting a skills matrix survey to
ensure we capitalise on the immense talent and technology available. We are
now working through clear steps to realise synergistic benefits while growing
sales. We believe that there is significant upside to be generated from the
Connect business once we have completed the "Get Well" actions.
Progress against FY21 objectives
Accelerate sales
The business achieved revenues of £8.1m in the 12 months to 30 September 2021
in line with the prior year (FY20: £8.0m).
2021 2020
£'000
£'000
Managed IT Services 5,648 6,131
Value added resale 2,459 1,839
Total Revenue 8,107 7,970
A key focus for the year was securing a greater number of multi-year contracts
in order to provide the business with the enhanced security of contracted and
committed revenues and the opportunity to develop its partnerships with
customers long-term.
Total contract value ("TCV") measures the total revenue that we expect to
generate from new customer contracts signed in the year over their contractual
term. TCV remains an important indicator for the Group. This was flat relative
to 2020 at £5.2m, predominantly due to the pandemic's impact on our Managed
IT Services division.
Our Managed IT Services division provides a range of IT infrastructure and
services, enabling our customers to focus on their day-to-day business needs
and priorities. The period under review was characterised by national and
local lockdowns and restrictions as well as working from home measures. We
experienced a slowdown and delay in customer decision making, primarily in H1,
as a result of general uncertainty prompted by COVID-19 resulting in
downsizing of license types and closure of locations by our end customers.
Despite this, and a few cancellations as a result of customers in trading
difficulty, we have successfully navigated the effects of the pandemic to date
and saw an increase in customer spend in Q4 2021 with positive signs moving
through FY22. We secured 35 new logo customers in the period, and made key
renewals with existing customers including Vantage Motor Group, Kings College
London and boohoo.
We expect the healthy trading seen in Q4 of FY21 and into Q1 of the current
financial year to continue as restrictions ease, face-to-face meetings become
more frequent and organisations begin to increase their IT spend in the face
of a more stable and certain external environment. We also expect our enhanced
capabilities and increasing activity across our target markets to deliver
greater returns.
Managed IT Services constitutes c.70% of the Group's revenues. In line with
the normalisation of trading patterns post-pandemic, we expect this proportion
to increase over the next few financial years.
Our Value Added Resale division provides a range of additional IT products and
services. This division experienced strong demand for collaboration and cyber
security solutions throughout the period as organisations across the public
and private sectors adapted to home working measures. This includes existing
customer boohoo, who expanded the range and depth of services they take from
us during the year.
Maintaining excellent support levels
CloudCoCo is built around the ethos of providing the highest levels of support
to our customers and going above and beyond expectations. There is no room for
complacency, but I am delighted with the continually exceptional levels of
customer support, contributing to a further reduction in customer churn.
Our excellent levels of support are further strengthened by the recent
appointment of Mike Chester, as announced on
1 February 2022.
Maintain cost vigilance
Following our comprehensive spending review in FY20, we remain vigilant around
the reduction of costs and optimising expenditure in the business, including
our newly acquired businesses.
Improve cash position
We have performed excellently in our aim to improve the Group's cash position,
supplemented by the Group's £2.1 million fundraise through a conditional
placing in August 2021. During the period, cash increased to £1.18m (FY20:
£0.6m), and we have significantly increased our Trading EBITDA(1) to £745k
(FY20: £261k).
A portion of the proceeds from fundraising was utilised to pay down the £0.1
million working capital debt to MXC Capital.
The market
We target our services across all industries and sectors where there is a need
for digital change. In line with wider market trends, we continue to observe a
strong demand for our range of products across our four principal areas of
expertise - cloud, collaboration, connectivity and cyber security.
While many organisations have adopted hybrid working patterns as a standard
practice, as pandemic-related restrictions ease, we are now seeing
organisations shift their focus towards optimising their core long-term
communications and cyber security infrastructure.
Given the Group's position in the market, this represents a good opportunity
and we expect to see demand for these services continue to grow across both
the public and private sectors.
Partnership ecosystem
A core element of CloudCoCo's business model is the development of its
partnership ecosystem with world-class vendors and innovative technology
partners. This represents a key competitive advantage for the Group, and it
has continued to strengthen in this area in the period.
We are pleased to be one of a limited number of UK partners to be listed on
the AWS (Amazon Web Services) Marketplace for Dynamic Cloud Security
solutions, while THG Hosting, THG PLC's web hosting business also announced
CloudCoCo as a UK partner in H2. During the year we have also progressed
through status bands with our existing partners Fortinet, Lenovo, and Dell, as
well as maintaining the 'Gold' partner status with Mitel.
Current trading and outlook
We have made an excellent start to H1 2022, recording a record sales
performance in the first quarter. The Group's teams have done an outstanding
job to achieve this, with total contract value from submitted sales in Q1 FY22
of £6.7 million representing 129% of the prior financial year. While in part
due to the normalising of activity as COVID-19 related delays abate, it is
also an important reflection of the strong foundations we have put in place in
prior periods, including targeted marketing strategies and our new and
improved website.
New business wins in the current year are drawn from a range of sectors
including manufacturing, charity, accountancy and financial services. The
Group continues to focus on winning longer and larger contracts and, as
announced in November 2021, we secured a significant new contract worth
approximately £3m over three years with a new customer in the digital
transformation services industry with an additional £1m upside secured in
December 2021. While we recognise the effects of COVID-19 are likely to
continue to have a suppressing effect on customer confidence in the near-term,
we are seeing positive signs as conditions normalise.
We now have around 1,000 customers and demand for our products remains strong,
enhanced by the significantly enlarged service offering and customer base
provided by the Group's recent acquisitions. In the immediate term we remain
focused on using our experience to drive efficiencies in the acquired
businesses and ensure they are seamlessly integrated into the Group.
As anticipated by the Board, the loss-making nature of Connect at acquisition
is expected to impact Group profitability for the first half of FY22. A
positive monthly contribution is expected from Connect later in FY22 as a
result of the completion of decisive corrective actions, together with the
transition to the accelerated 'Get Fit' phase of this business in the second
half of the year. We are already making strong progress towards getting
Connect to breakeven and see significant upside potential for this business.
In line with the 'Get Bigger' phase of our strategy, we will continue to
appraise potential new acquisition opportunities, only progressing those with
exceptional potential that would be a sound strategic and cultural fit.
With an enhanced service offering, significantly expanded customer base, a
healthy financial position and a team of passionate, talented IT specialists,
the future is exciting for CloudCoCo. I would like to thank all our
colleagues, shareholders, partners and customers for their continued support,
and look forward to providing a further update on FY22 at the interim results
later this year.
Mark Halpin
Chief Executive Officer
6 March 2022
(1 )profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional items and share-based payments.
(2 )adjusted EBITDA is defined by IDE as profit or loss before interest, tax,
depreciation, amortisation, impairment charges, exceptional
items, loss on disposal of fixed assets and share-based payments.
Financial review
Placing
On 2 September 2021, the Company raised £2.1 million before expenses through
a conditional placing arranged by Allenby Capital of 210,990,000 new Ordinary
Shares at a price of 1 penny per share to fund growth by acquisition and
provide additional working capital to fund the subsequent integration. The
Placing was carried out at an approximate 13 per cent. discount to the
Company's closing price of 1.15p per share on Monday 16 August
2021.
Acquisition of Systems Assurance Limited and More Computers Limited
On 6 September 2021, the Group acquired the entire share capital of Systems
Assurance Limited and its wholly owned subsidiary More Computers Limited on a
cash-free debt-free basis, for an initial cash consideration payment of £0.83
million before associated expenses. The initial consideration represented
approximately four times the Trading EBITDA(1) of the acquired companies in
the year to 31 December 2020, excluding remuneration costs of the vendors.
Further details are provided in Note 11.
In return for assisting the Company integrate the acquired businesses into the
Group and to provide an incentive for their continued support and advice, the
vendors were issued with an aggregate of 4,000,000 share warrants between
them, giving them the right to subscribe in cash for Ordinary Shares in the
Group, at a subscription price of 1.5p per Ordinary Share, subject to certain
pre-conditions during the ten-year exercise period, commencing 3 March 2022.
The pre-conditions to be satisfied on the exercise date are that i) the
current market price of the Company is not less than 2 pence per share and ii)
that the prior six-month revenues of the acquired businesses are at least
£3.2 million, calculated in accordance with the share warrant agreement
signed on 3 September 2021. Provided that the pre-conditions are met on the
exercise date, the share warrants may be exercised in whole or part, subject
to the vendors issuing a notice to the Company in agreed form during the
exercise period.
Revenue and gross margin
Group revenue for the year to 30 September 2021 grew by 1% overall to £8.1
million (FY20 £8.0 million) with sales of Managed IT Services falling by 8%
in the period, mainly as a result of the impact of COVID-19 and a reduction in
the requirement for in-office managed IT solutions during lockdown and a
customer reluctance to sign longer term IT service contracts with the
uncertainty caused by the pandemic. The reduction in Managed IT Services was
more than offset by a 34% increase in value added resale ("VAR") sales during
the year, as UK business customers mobilised their workforce in order to work
from home. This trend in customer spend shifted once more at the end of FY21
back towards Managed IT Services, as business customers took the opportunity
to refresh their core IT infrastructure and invest in new cloud-based
solutions. This shift in investment could be seen mainly from on-line and
e-commerce related business and international service-related business
customers with a requirement for 24 x 7 Managed IT support across multiple
countries.
This produced a total gross profit of £3.2 million (FY20: £3.4 million)
representing a gross margin of 39.7% (FY20: 42.9%). The reduction in margin
related to the increase mix of VAR revenues, which has an element of
third-party costs.
The analysis of revenue from each of our operating segments is shown in Note 3
and is detailed below.
Managed IT Services
Managed IT Services relate to the provision of recurring IT services which
either have an ongoing billing and support element or utilise the technical
expertise of our people.
Revenues from Managed IT Services were £5.6 million (FY20: £6.1 million) the
reduction of £0.5 million being represented by incentives provided to
customers for longer term renewals and a few cancellations at the end of their
contractual term as a result of customers in trading difficulty during the
pandemic. Managed IT Services generated a gross profit of £2.6 million (FY20:
£3.0 million) and a gross margin of 46% (FY20: 49%). The reduction in the
gross margin is due to the mix of services provided between in house and third
party resources.
The proportion of our total revenue derived from Managed IT Services
continued to be high at 70% (FY20: 77%).
Value added resale
VAR is the resale of one-time solutions (hardware and software) from our
leading technology partners, including revenues from the More Computers
e-commerce platform.
Revenues from VAR were £0.7 million higher than those in FY20 at £2.5
million (FY20: £1.8 million) due to hardware sales in advance of multi-year
support contracts and assisting customers who were transitioning to home
working. VAR generated a gross profit of £0.6 million (FY20: £0.4 million)
and gross margin of 24% (FY20: 22%).
Operating performance, costs and Trading Group EBITDA
As well as revenue, gross profit and cash balances, one of our main financial
key performance indicators is our Trading Group EBITDA(1) - our operational
trading performance before plc costs. This measure best equates to the cash
profitability of the Group before plc costs, exceptional items and net finance
expenses.
With sustainable recurring profits in mind, our core objectives for the
financial year were to accelerate sales, maintain excellent support levels,
maintain cost vigilance and improve cash position.
Excluding plc costs of £0.5 million (FY20: £0.5 million), our trading
overheads(2) during the year fell by 22% over FY20 to £2.5 million (FY20:
£3.2 million), of which staff costs comprised 85% (FY20: 81%). Following the
COVID-19 pandemic, various measures were taken in the second half of FY20 and
early FY21 to help protect the business, including temporary pay cuts and use
of the Government furlough scheme.
In addition, a number of initiatives from the "Get Well" and "Get Fit" phases
of our plan helped to improve trading performance. These included a review of
customer profitability on a line-by-line basis - a process of re-matching and
re-negotiating supplier costs at the individual service level. A further
initiative saw us re-focus our technical service team as a separate
cost-centre - as we challenged our Technical teams to cover their salary costs
through additional chargeable time from customers as opposed to business as
usual recurring support work.
The effect of focussing on the key objectives of increasing sales, reducing
customer churn, reducing costs, and returning to net cash generation is
described in the Chairman's Statement. Despite the continued uncertainty and
disruption as a result of the pandemic, the Group reported a 285% improvement
in underlying profitability as measured by Trading Group EBITDA(1) (2021:
£0.7m; 2020: £0.3m). The acquisition of Systems Assurance Limited and More
Computers Limited increased FY21 Trading Group EBITDA(1) in the year by
£30,000, results for those companies being included since their acquisition
on 3 September 2021.
Plc costs
Plc costs in the year remained in-line with FY20 at £0.5 million. These are
non-trading costs, relating to the Board of Directors of the Parent Company,
it's listing on the AIM Market of the London Stock Exchange and its associated
professional advisors.
Exceptional Items
During the year we incurred certain costs which were not directly related to
the generation of revenue and trading profits. Given their size and nature,
they have been classified as exceptional items within the Consolidated Income
Statement. These items totalled £0.4 million, of which £0.2 million relates
to Systems Assurance Limited and More Computers Limited acquisition costs and
£0.2 million relates to placing fees, integration and reorganisation costs.
In the year to 30 September 2020, exceptional items were £0.5 million of
which £0.3m related to the acquisition of CloudCoCo Limited and £0.2 million
related to integration and reorganisation costs.
Net finance expenses, depreciation, amortisation and financial results for the
full year
During the year the Group incurred net finance costs of £0.5 million (FY20:
£0.5 million). £0.4 million of this was accrued interest on loan notes
payable at the end of the loan notes' term. The Group incurred other non-cash
costs including total amortisation and depreciation charges of £1.1 million
(FY20: £1.7 million) and share-based payments charge of £217,000 (FY20:
£26,000 credit). After accounting for a deferred tax charge of £0.1 million
(FY20: £0.3 million credit) arising as part of business combinations but also
impacted by the rise in corporation tax rates from 2023, the reported loss for
the year after tax was £2.1 million compared to a loss after tax for the year
to 30 September 2020 of £2.7 million.
Statement of Financial Position and cash
The Group had positive net assets at 30 September 2021 totalling £5.2 million
(FY20: £5.0 million) and the cash position improved by £0.6 million to £1.2
million (FY20: £0.6 million). The placing, completed in September 2021, the
underlying trading performance of CloudCoCo Limited and the subsequent
acquisition of two cash generative businesses in Systems Assurance Limited and
More Computers Limited, provides the business with a solid platform for
growth.
Contract liabilities increased by £0.4 million to £1.3 million (FY20: £0.9
million) reflecting the success that the Group had during the year, signing
customers onto new longer term recurring revenue contracts, billed in advance.
A number of larger deals were signed towards the end of the financial year,
reflected in the £1.1 million increase in Trade and other receivables at
September 2021, compared to September 2020. This will benefit working capital
in FY22 as these balances are received. In so far as possible, the Directors
look to balance movements in trade receivables and trade payables throughout
the year to maintain a consistent bank balance, hence the small outflow in net
cash from operating activities before acquisition costs.
In order to reduce interest expense and overall net debt, the Group repaid the
£100,000 working capital loan from MXC Guernsey Limited ("MXCG") in September
2021. Overall Net debt reduced by £0.3 million to £2.9 million during the
year. Net debt comprises cash balances of £1.2 million less the loan notes
and rolled up interest of £3.9 million together with £0.1 million of lease
liabilities and a COVID-19 Bounce Back Loan of some £50,000. The Trading
Group EBITDA(1) of the business exceeded the loan note interest in the year by
£0.3 million (FY20: a shortfall of £0.1 million).
CloudCoCo remains asset light, reflected in the £0.1 million carrying value
of tangible assets at year-end (FY20: £0.2 million) and the costs of
additional capex in the year of only £31k (FY20:
£37k).
The Group had a net cash inflow during the year of £0.6 million (FY20: £0.3
million), the main components being:
· Small outflow in cash generated from operating activities
excluding the costs of acquisition of £0.3 million;
· costs of £0.6 million (net of cash acquired) to acquire Systems
Assurance Limited and More Computers Limited;
· proceeds of £2.1 million before associated costs of £0.2m from
Placing in September 2021;
· repayment of MXCG working capital facility of £0.1 million; and
· repayment of lease liabilities in the year of £0.1 million.
Further details on the financial position of the Group are contained in note
1.
Darron Giddens
Chief Financial Officer
6 March 2022
(1 )profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional items and share-based payments.
(2) trading overheads are the group's administrative costs excluding
depreciation and amortisation, plc costs, exceptional items
and share-based payments
Consolidated income statement
for the year ended 30 September 2021
Note 2021 2020
£'000 £'000
Continuing operations
Revenue 3 8,107 7,970
Cost of sales (4,891) (4,554)
Gross profit 3,216 3,416
Other income 67 97
Administrative expenses (4,794) (5,963)
Trading Group EBITDA (1) - non statutory measure 745 261
Amortisation of intangible assets (1,009) (1,623)
Plc costs(2) (492) (461)
Depreciation (97) (113)
Exceptional items - other 4 (441) (540)
Share-based payments (217) 26
Operating loss 5 (1,511) (2,450)
Interest receivable 6 1 1
Interest payable 6 (535) (518)
Loss before taxation (2,045) (2,967)
Taxation 7 (83) 288
Loss and total comprehensive loss for the year attributable to owners of the (2,128) (2,679)
parent
Loss per share
Basic and fully diluted 8 (0.42)p (0.56)p
( )
(1 )profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional items and share-based payments.
(2) Plc costs are non-trading costs relating to the Board of Directors of the
Parent Company, its listing on the AIM Market of the London
Stock Exchange and its associated professional advisors.
Consolidated statement of financial position
as at 30 September 2021
30 September 30 September
2021 2020
£'000 £'000
Non-current assets
Intangible assets 10,393 10,359
Property, plant and equipment 149 221
Total non-current assets 10,542 10,580
Current assets
Inventories 86 31
Trade and other receivables 2,953 1,856
Cash and cash equivalents 1,183 588
Total current assets 4,222 2,475
Total assets 14,764 13,055
Current liabilities
Trade and other payables (2,872) (2,465)
Contract liabilities (177) (565)
Borrowings (172) (104)
Lease liability (86) (122)
Total current liabilities (3,307) (3,256)
Non-current liabilities
Contract liabilities (1,092) (364)
Borrowings (3,991) (3,458)
Lease liability (11) (61)
Deferred tax liability (1,188) (940)
Total non-current liabilities (6,282) (4,823)
Total liabilities (9,589) (8,079)
Net assets 5,175 4,976
Equity
Share capital 7,062 4,952
Share premium account 17,630 17,630
Capital redemption reserve 6,489 6,489
Merger reserve 1,997 1,997
Other reserve 339 122
Retained earnings (28,342) (26,214)
Total equity 5,175 4,976
Consolidated statement of changes in equity
for the year ended 30 September 2021
Share Share Capital Merger Other Retained Total
capital premium redemption reserve reserve earnings £'000
£'000 £'000 reserve £'000 £'000 £'000
£'000
At 1 October 2019 2,271 11,337 6,489 1,997 1,720 (24,925) (1,111)
Loss and total comprehensive loss for the period - - - - - (2,679) (2,679)
Transactions with owners in their capacity of owners
Extinguishment of BGF Loan Notes in consideration for issue of 50,000,000 500 1,275 - - (1,330) 1,148 1,593
shares at 0.35p per share (note 9)
Issue of 218,160,586 shares to CloudCoCo vendors at 3.3p per share (note 9) 2,181 5,018 - - - - 7,199
Cancellation of 11,353,255 share warrants held by MXC Guernsey on acquisition - - - - (242) 242 -
of CloudCoCo Ltd
Share-based payments - - - - (26) - (26)
Total transactions with owners 2,681 6,293 - - (1,598) 1,390 8,766
Total movements 2,681 6,293 - - (1,598) (1,289) 6,087
Equity at 30 September 2020 4,952 17,630 6,489 1,997 122 (26,214) 4,976
Share Share Capital Merger Other Retained Total
capital premium redemption reserve reserve earnings £'000
£'000 £'000 reserve £'000 £'000 £'000
£'000
At 1 October 2020 4,952 17,630 6,489 1,997 122 (26,214) 4,976
Loss and total comprehensive loss for the period - - - - - (2,128) (2,128)
Transactions with owners in their capacity of owners
Issue of 210,990,000 shares at 1p per share via a Placing (note 10) 2,110 - - - - - 2,110
Share-based payments - - - - 217 - 217
Total transactions with owners 2,110 - - - 217 - 2,327
Total movements 2,110 - - - 217 (2,128) 199
Equity at 30 September 2021 7,062 17,630 6,489 1,997 339 (28,342) 5,175
Consolidated statement of cash flows
for the year ended 30 September 2021
2021 2020
£'000 £'000
Cash flows from operating activities
Loss before taxation (2,045) (2,967)
Adjustments for:
Depreciation - owned assets 22 36
Depreciation - right of use assets 75 77
Amortisation 1,009 1,623
Share-based payments 217 (26)
Net finance expense 534 517
Costs relating to acquisitions(1) 202 435
Costs relating to Placing of 210,990,000 shares (note 10) 171 -
Increase in trade and other receivables (408) (65)
(Increase) / decrease in inventories (24) 1
(Decrease) / increase in trade payables, accruals and contract liabilities (57) 866
Cash flows from taxation - -
Net cash (outflow) / inflow from operating activities before acquisition costs (304) 497
Costs relating to acquisitions(1) (202) (435)
Net cash (outflow) / inflow from operating activities (506) 62
Cash flows from investing activities
Purchase of property, plant and equipment (31) (37)
Acquisitions net of cash acquired(1) (563) 157
Interest received 1 1
Net cash (outflow) / inflow from investing activities (593) 121
Cash flows from financing activities
Proceeds from Placing of 210,990,000 shares (note 10) 2,110 -
Less transaction fees relating to the Placing (171) -
Proceeds from exercise of BGF share options - 175
(Repayment) / receipt of loan funds from MXCG (100) 100
Receipt of loan funds from COVID-19 Bounce Back Loan - 50
Payment of lease liabilities (120) (183)
Interest paid (25) (48)
Net cash inflow from financing activities 1,694 94
Net increase in cash 595 277
Cash at bank and in hand at beginning of period 588 311
Cash at bank and in hand at end of period 1,183 588
Comprising:
Cash at bank and in hand 1,183 588
(1 )FY21 relates to the acquisition of Systems Assurance Limited and More
Computers Limited.
FY20 relates to the acquisition of CloudCoCo Limited
Notes to the financial information
1. General information
CloudCoCo Group plc is a public limited company incorporated in England and
Wales under the Companies Act 2006. The principal activity of the Group is the
provision of IT Services to small and medium-sized enterprises in the UK. The
Board of Directors approved this preliminary announcement on 6 March 2022.
Whilst the financial information included in the preliminary announcement has
been prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006, this announcement
does not itself contain sufficient information to comply with all the
disclosure requirements of IFRS and does not constitute statutory accounts of
the Company for the years ended 30 September 2021 and 2020. The financial
statements are presented in pounds sterling because that is the currency of
the primary economic environment in which each of the Group's subsidiaries
operates.
The financial information for the period ended 30 September 2020 is derived
from the statutory accounts for that year which have been delivered to the
Registrar of Companies. The statutory accounts for the year ended 30 September
2021 will be delivered to the Registrar of Companies as soon as practicable
following approval. The auditors have reported on those accounts; their
reports were unqualified and did not contain a statement under s498(2) or
s498(3) of the Companies Act 2006.
1.1 Basis of preparation
The consolidated financial statements have been prepared in accordance with
international accounting standards in conformity with the requirements
of the Companies Act 2006. The measurement bases and principal accounting
policies of the Group are set out below. These policies have been consistently
applied to all years presented unless otherwise stated.
Going concern
The Group had positive net assets at 30 September 2021 totalling £5.2 million
compared to £5.0 million at the end of FY20. The net proceeds from the
Placing referred to in the Financial Review and the subsequent acquisition of
Systems Assurance Limited and More Computers increased the net asset position,
due to the issue of share capital of £2.1 million.
The Group's progress towards its key objectives of increasing sales, reducing
customer churn, reducing costs, and returning to net cash generation is
described in the Chairman's and Chief Executive's review. Despite continued
uncertainty and disruption as a result of the pandemic, the Group reported a
three-fold improvement in underlying profitability as measured by Trading
Group EBITDA (2021: £0.75 million; 2020: £0.27 million). Cash outflow from
operating activities before acquisition costs was £0.3 million (FY20: £0.5
million inflow).
The key operational risk the Group faces is the general economic outlook
including the continued uncertainty caused by the pandemic. Although COVID-19
has not had a material impact on the Group's ability to operate, it has
resulted in delays in sales cycles for certain services and delays in project
delivery as customers assess the impact of COVID-19 on their own businesses.
The Group responded during the year by taking action to conserve cash
including temporary pay cuts, use of the Government's furlough and VAT
deferral schemes and a COVID-19 Bounce Back Loan.
The Directors have reviewed the forecast sales growth, budgets and cash
projections for the period to March 2023, including sensitivity analysis on
the key assumptions such as the potential impact of reduced sales or slower
cash receipts, for the next twelve months and beyond and the Directors have
reasonable expectations that the Group and the Company have adequate resources
to continue operations for the period of at least one year from the date of
approval of these financial statements. The Directors have not identified any
material uncertainties that may cast doubt over the ability of the Group and
Company to continue as a going concern and the Directors continue to adopt the
going concern basis in preparing these financial statements.
1.2 New standards and interpretations of existing standards that have been
adopted by the Group for the first time
New standards or amendments to existing standards and interpretations that
became effective for the annual period commencing on 1 October 2020 include
Definition of Material - Amendment to IAS 1 and IAS 8 and Amendment to IFRS3
Conceptual framework of financial reporting Interest Rate Benchmark Reforms as
well as Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
None of the new standards or interpretations of existing standards above had a
material impact on the Group during the year ended 30 September
2021.
2. Principal accounting policies
a) Basis of consolidation
The financial information provided incorporates the financial statements of
the Company and entities controlled by the Company (its subsidiaries) prepared
to 30 September each year. Control is achieved where the Company is exposed
to, or has the rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its power over the
entity. The Group obtains and exercises control through voting rights.
Unrealised gains on transactions between the Group and its subsidiaries are
eliminated. Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Amounts reported
in the financial statements of subsidiaries have been adjusted where necessary
to ensure consistency with the accounting policies adopted by the Group.
Acquisitions of subsidiaries are dealt with using the acquisition method. The
acquisition method involves the recognition at fair value of all identifiable
assets and liabilities, including contingent liabilities of the subsidiary, at
the acquisition date, regardless of whether or not they were recorded in the
financial statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the subsidiary are included in the
Consolidated Statement of Financial Position at their fair values, which are
also used as the cost bases for subsequent measurement in accordance with the
Group accounting policies.
Goodwill is stated after separating out identifiable intangible assets.
Goodwill represents the excess of acquisition costs over the fair value of the
Group's share of the identifiable net assets of the acquired subsidiary at the
date of acquisition.
b) Goodwill
Goodwill representing the excess of the cost of acquisition over the fair
value of the Group's share of the identifiable net assets acquired is
capitalised and reviewed annually for impairment. Goodwill is carried at cost
less accumulated impairment losses. Refer to principal accounting policy (k)
for a description of impairment testing procedures.
c) Revenue and revenue recognition
Revenue arises from the sale of goods and the rendering of services as it is
performed and the performance obligations fulfilled. It is measured by
reference to the fair value of consideration received or receivable, excluding
valued added tax, rebates, trade discounts and other sales-related taxes.
The Group enters into sales transactions involving a range of the Group's
products and services; for example, for the delivery of hardware, software,
support services, managed services and professional services. At the inception
of each contract the Group assesses the goods or services that have been
promised to the customer. Goods or services can be classified as either i)
distinct or ii) substantially the same, having the same pattern of transfer to
the customer as part of a series. Using this analysis, the Company identifies
the separately identifiable performance obligations over the term of the
contract. A contract liability is recognised when billing occurs ahead of
revenue recognition. A contract asset is recognised when the revenue
recognition criteria were met but in accordance with the underlying contract
the sales invoice had not been issued.
Goods and services are classified as distinct if the customer can benefit from
the good or services on their own or in conjunction with other readily
available resources. A series of goods or services, such as Recurring
Services, would be an example of a performance obligation that is transferred
to the customer consecutively over time. The Group applies the revenue
recognition criteria set out below to each separately identifiable performance
obligation of the sale transaction. The consideration received from
multiple-component transactions is allocated to each separately identifiable
performance obligation in proportion to its relative fair value.
Sale of goods (hardware and software)
Sale of goods is recognised at the point in time when the customer obtains
control of the goods. Revenue from the sale of software with no significant
service obligation is recognised on delivery at a point in time.
Rendering of services
The Group generates revenues from managed services, support services,
maintenance, resale of telecommunications and professional services ("Managed
IT Services"). Consideration received for these services is initially deferred
(when invoiced in advance), included in accruals and contract liabilities and
recognised as revenue in the period when the service is performed and the
performance obligation fulfilled, measured by reference to hourly rates.
In recognising recurring Managed IT Services revenues, the Group recognises
revenue equally over the duration of the contractual term. Sales commission
and third-party costs (where relevant) relating to these services are shown
within Contract Assets and are spread equally over the duration of the
contractual term, in line with when the customer benefits from the services.
Internal technical resources utilised in setting up recurring Managed IT
Services over twelve months in duration are capitalised at the start of the
contract within Contract Assets and spread equally over the duration of the
contractual term.
d) Financial assets
All financial assets are initially recognised at fair value, plus transaction
costs and subsequently measured at amortised cost.
Trade receivables are held in order to collect the contractual cash flows and
are initially measured at the transaction price as defined in IFRS 15, as the
contracts of the Group do not contain significant financing components.
Impairment losses are recognised based on lifetime expected credit losses in
profit or loss.
The Group reviews the amount of credit loss associated with its trade
receivables based on forward looking estimates, taking into account current
and forecast credit conditions.
Other receivables are held in order to collect the contractual cash flows and
accordingly are measured at initial recognition at fair value, which
ordinarily equates to cost and are subsequently measured at cost less
impairment due to their short-term nature. A provision for impairment is
established based on 12-month expected credit losses unless there has been a
significant increase in credit risk when lifetime expected credit losses are
recognised. The amount of any provision is recognised in profit or loss.
All financial assets are recognised when the Group becomes a party to the
contractual provisions of the instrument. Derecognition of financial assets
occurs when the rights to receive cash flows from the instruments expire or
are transferred and substantially all of the risks and rewards of ownership
have been transferred. An assessment for impairment is undertaken, at least,
at each reporting date.
Interest and other cash flows resulting from holding financial assets are
recognised in the Consolidated Income Statement when receivable.
3. Segment reporting
The Chief Operating Decision Maker ("CODM") has been identified as the
executive directors of the Company and its subsidiaries, who review the
Group's internal reporting in order to assess performance and to allocate
resources.
The CODM assess profit performance principally through adjusted profit
measures consistent with those disclosed in the Annual Report and Accounts.
The Board believes that the Group comprises a single reporting segment, being
the provision of IT managed services to customers. Whilst the CODM reviews the
revenue streams and related gross profits of two categories separately
(Managed IT Services and Value added resale), the operating costs and
operating asset base used to derive these revenue streams are the same for
both categories and are presented as such in the Group's internal reporting.
The segmental analysis below is shown at a revenue level in line with the
CODM's internal assessment based on the following reportable operating
categories:
Managed IT Services - This category comprises the provision of recurring IT services
which either have an ongoing billing and support element or utilise the
technical expertise of our people.
Value added resale - This category comprises the resale of one-time solutions
(hardware and software) from our leading technology partners, including
revenues from the More Computers e-commerce platform.
All revenues are derived from customers within the UK and no customer accounts
for more than 10% of external revenues in both financial years. Inter-category
transactions are accounted for using an arm's length commercial basis.
3.1 Analysis of continuing results
All revenues from continuing operations are derived from customers within the
UK. In order to simplify our reporting of revenue, we have taken the decision
to condense our reporting segments into two new categories - Managed IT
Services and Value Added Resale. This analysis is consistent with that used
internally by the CODM and, in the opinion of the Board, reflects the nature
of the revenue. Trading EBITDA is reported as a single segment.
3.1.1 Revenue
2021 2020
£'000
£'000
Managed IT Services 5,648 6,131
Value added resale 2,459 1,839
Total Revenue 8,107 7,970
3.1.2 Revenue
2021 2020
£'000
£'000
Recognised at a point in time 3,041 2,558
Recognised over time 5,066 5,412
Total Revenue 8,107 7,970
4. Exceptional Items
Items which are material and non-routine in nature are presented as
exceptional items in the Consolidated Income Statement.
2021 2020
£'000 £'000
Costs relating to the acquisition of CloudCoCo Limited - (435)
Costs relating to the acquisition of Systems Assurance Limited and More (202) -
Computers Limited
Costs relating to the Placing (171) -
Integration and restructure costs (68) (105)
Exceptional items (441) (540)
5. Operating loss
2021 2021
£'000
£'000
Operating loss is stated after charging:
Depreciation of owned assets 22 36
Depreciation of right of use assets 75 77
Short life lease expense 34 50
Amortisation of intangibles 1,009 1,623
Auditor's remuneration:
- Audit of parent company 20 20
- Audit of subsidiary companies 53 50
- Other audit-related assurance services 7 7
Government grants of £67,000 (2020: £97,000) received as part of the
Coronavirus Job Retention Scheme ("furlough") are recorded as Other Income in
the income statement.
6. Finance income and finance costs
Finance cost includes all interest-related income and expenses. The following
amounts have been included in the Consolidated Income Statement line for the
reporting periods presented:
2021 2020
£'000 £'000
Interest income resulting from short-term bank deposits 1 1
Finance income 1 1
Interest expense resulting from:
Lease liabilities 12 27
MXC rolling working capital facility 12 9
Loan note interest 420 398
Interest on Government related COVID19 VAT deferral scheme 6 3
Effective interest on liability element of the loan notes measured at 85 81
amortised cost
Finance costs 535 518
Loan note interest includes £420,000 (2020: £398,000) which is accrued and
is only payable when the loan notes are repaid in 2024 or earlier if the Group
chooses.
7. Income tax
2021 2020
£'000 £'000
Current tax
UK corporation tax for the period at 19% (2020: 19%) - -
Deferred tax
Deferred tax charge / (credit) on intangible assets 83 (288)
Total tax charge / (credit) for the year 83 (288)
The relationship between expected tax (credit) / expense based on the standard
rate of tax in the UK of 19% (2020: 19%) and the tax expense actually
recognised in the Consolidated Income Statement can be reconciled as follows:
2021 2020
£'000 £'000
Loss for the year before tax: (2,045) (2,967)
Tax rate 19% 19%
Expected tax credit (389) (564)
Adjusted for:
Non-deductible expenses 59 91
Change in tax rates 334 -
Difference in tax rates (60) -
Movement in unprovided deferred tax relating to losses 135 191
Short-term timing differences 4 (6)
Total tax charge / (credit) for the year 83 (288)
The Group has unrecognised deferred tax assets in respect of tax losses
carried forward totalling £2,196,000 (2020: £1,522,000). Deferred tax assets
remain unrecognised until it becomes probable that the underlying deductible
temporary differences will be able to be utilised against future taxable
income. During the year, the substantively enacted tax rate increased from 19%
to 25%, the impact shown in the table above.
8. Loss per share
2021 2020
£'000 £'000
Loss attributable to ordinary shareholders (2,128) (2,679)
Number
Weighted average number of Ordinary Shares in issue, basic and diluted 510,759,930 478,427,400
Basic and diluted loss per share (0.42)p (0.56)p
The weighted average number of ordinary shares for the purpose of calculating
the basic and diluted measures is the same. This is because the outstanding
share incentives would have the effect of reducing the loss per ordinary share
and therefore would be anti-dilutive under the terms of IAS 33.
9. Financial instrument
On 26 May 2016, the Company issued £5m unsecured loan notes ("Loan Notes") to
the Business Growth Fund ("BGF") with a seven-year term (although redemption
was permissible from the third anniversary) with repayment between the fifth
and seventh anniversaries in equal semi-annual repayments that carry interest
at 8% per annum ("Coupon"). On the same date, the Company also agreed to grant
the BGF an option to subscribe for 50,000,000 Ordinary Shares of 1p at a
subscription price of 6p any time before 26 May 2031. As the Loan Notes were
unsecured, no collateral was offered to the BGF as security. The Loan Notes
were not exposed to market interest rate increases over the term.
In the opinion of the directors, the Loan Notes and share option elements were
linked and were therefore treated as a single financial instrument. In
accordance with IAS 32, the Loan Notes were recorded at a fair value of £3.6m
which was measured using a discounted cash flow model over the seven-year term
of the instrument and an effective interest rate of 15%. The difference to the
consideration received represented the element attributable to the options,
which was credited to equity. The Loan Notes were subsequently measured at
amortised cost whereby the difference between the face value of the Loan Notes
and their fair value on initial recognition is recognised as an effective
interest charge over the term of the instrument.
On 21 October 2019, the Company and BGF agreed to modify the exercise price of
the share options and the options were immediately exercised. The directors
consider this to be in consideration for the extinguishment of Loan Notes with
a principal amount of £1.5m and accrued interest of £0.1m. In accordance
with IAS 32, the carrying value of the Loan Notes that were extinguished,
£1.3m, has been derecognised and recorded in equity; no gain or loss has been
recognised in the Consolidated Income Statement.
On the same date, the remaining loan notes with a principal amount of £3.5m
were acquired by a MXC Guernsey Limited, a subsidiary of MXC Capital (UK)
Limited. The terms of the loan notes were revised by increasing the coupon to
12% per annum compound, rolled up and payable at maturity, and extending the
term to October 2024. When measured using the loan notes' original effective
interest rate, the present value of the cash flows of the revised instrument
were not significantly different to that of the instrument prior to the
modification. As a result, the Loan Notes were not treated as a new instrument
and continue to be measured at amortised cost.
10. Placing
On 2 September 2021, the Company raised £2.1 million before expenses through
a conditional Placing arranged by Allenby Capital of 210,990,000 new Ordinary
Shares at a price of 1 penny per share to fund growth by acquisition and
provide additional working capital to fund the subsequent integration. The
Placing was carried out at an approximate 13 per cent. discount to the
Company's closing price of 1.15p per share on Monday 16 August 2021. Costs
relating to the Placing were £171,000 and were expensed in the income
statement during the year.
11. Acquisition of Systems Assurance Limited
On 6 September 2021, the Group acquired the entire issued share capital of
Systems Assurance Limited and its wholly owned subsidiary More Computers
Limited, for £1.72 million, including the return of £731,000 of excess
cash-assets to the vendors to acquire the business on a cash-free debt-free
basis. The remaining £991,000 was settled as £836,000 on completion with the
remaining £155,000 being paid in November 2021, following agreement of the
Completion Statement.
The acquisition of Systems Assurance Limited and More Computers Limited
increased FY21 Trading EBITDA(1) performance in the year by £30,000, having
only been acquired on 3 September 2021. It is not practical to measure the
impact on the full FY21 trading results, given a number of material
differences in the cost and remuneration structure of the businesses
pre-acquisition. The Group has assessed the combined fair value of the
acquisition of Systems Assurance Limited and More Computers Limited as
follows:
Book Fair Value
Cost
Adjustment
Fair Value
£'000 £'000 £'000
Non-current assets
Intangible assets - brand - 470 470
Intangible assets - IT systems - 179 179
Intangible assets - customer lists - 141 141
Property, plant and equipment 1 34 35
Total non-current assets 1 824 825
Current assets
Inventories 31 - 31
Trade and other receivables 967 - 967
Cash at bank 1,004 - 1,004
Total current assets 2,002 - 2,002
Total assets 2,003 824 2,827
Current liabilities
Lease liability - (28) (28)
Trade and other payables (1,049) - (1,049)
Other taxes and social security costs (52) - (52)
Deferred Income and accruals (8) - (8)
(1,109) (28) (1,137)
Non-current liabilities
Borrowings (50) - (50)
Lease liability - (6) (6)
Deferred tax liability - (165) (165)
Total liabilities (1,159) (199) (1,358)
Net Assets 844 625 1,469
Consideration in cash - cash-free debt-free payment paid to vendors 731
Consideration in cash - initial consideration 836
Consideration in cash - deferred consideration 155
Fair value of cost of acquisition 1,722
Goodwill 253
Cash used to acquire the business net of cash acquired: £'000
Cash at bank 1,004
Less cash-free debt-free payment paid to vendors (731)
Net cash acquired 273
Acquisition date fair value of initial consideration transferred (836)
Net cash used (563)
Costs associated with the acquisition were £202,000 and were expensed during
the year and are included in the statement of profit or loss and in operating
cash flows in the statement of cash flows. The fair value of trade receivables
is £968,000, with gross contractual amounts for trade receivables due of
£983,000 of which £15,000 is not expected to be collected.
12. Post Balance Sheet events
On 19 October 2021, the Company acquired IDE Group Connect Limited ("Connect")
and Nimoveri Limited ("Nimoveri") (together, the "Acquisitions") from IDE
Group Holdings PLC ("IDE") for a deferred consideration of £250,000.
The Acquisitions provided the Group with circa 660 additional clients and a
significant opportunity to upsell and cross sell services across the Group.
The Acquisitions were acquired from IDE on a normalised net cash basis for a
consideration of £250,000, funded via a loan note from IDE for £250,000 to
be repaid over five years with an annual interest rate of Bank of England base
rate +3% with no payments due in the first six months. The book value of net
assets acquired under the transaction equate to £250,000, including a cash
balance of £400,000.
IDE agreed to provide the Group with a working capital facility of up to
£500,000 on request, should it be required to help fund the initial
restructure of the Connect business. Amounts drawn would be convertible into
new ordinary shares in the Group at 1 pence per share, if not repaid in full
by 19 October 2022. As at 6 March 2022, none of the working capital facility
has been drawn down.
The consideration terms reflected the financial state of the Connect business
at the date of the acquisition, the limited-scope warranties offered by IDE
and the small number of unprofitable contracts contained within the business.
The Group's management team have implemented a number of steps to help improve
the profitability of the Connect business.
The acquisition of IDE Group Connect and Nimoveri was a related party
transaction pursuant to rule 13 of the AIM Rules for Companies, due to MXC
Guernsey Limited owning 10.6%. of the Company's issued share capital and 34.8%
of IDE's issued share capital.
The Directors of the Company (save for Jill Collighan who was not deemed
independent for this purpose) having consulted with the Company's Nominated
Adviser, agreed that the terms of the transaction were fair and reasonable
insofar as the Company's shareholders were concerned.
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