REG - Cloudcoco Group PLC - Final Results
16/03/2023 07:00
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RNS Number : 1974T Cloudcoco Group PLC 16 March 2023
The information contained within this announcement is deemed by CloudCoCo to
constitute inside information pursuant to Article 7 of EU Regulation 596/2014
as it forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 as amended.
16 March 2023
CloudCoCo Group plc
("CloudCoCo", the "Company" or the "Group")
Final Results
A transformational year and primed to scale
CloudCoCo (AIM: CLCO), a leading UK provider of Managed IT services and
communications solutions to private and public sector organisations, is
pleased announce its full year results for the year ended 30 September 2022
("FY 2022").
Financial highlights:
· Revenue increased by 198% to £24.2 million (2021: £8.1 million), of which
67% was generated from recurring contracts (2021: 62%)
· Gross profit increased by 147% to £7.9 million (2021: £3.2 million), a
margin of 33% (2021: 40%)
· Trading Group EBITDA(1) increased by 129% to £1.6 million (2021: £0.7
million)
· Adjusted Trading Group EBITDA(2) of £1.1 million (2021:£0.7 million) after
the impact of £0.5 million of data centre contracts in the acquired Connect
business as IFRS 16 right of use assets
· Pre-tax loss of £2.6 million (2021: loss of £2.0 million) after combined
amortisation and depreciation costs of £2.0 million (2021: 1.1 million)
· Cash at bank of £1.5 million at 30 September 2022 (2021: £1.2 million)
· Net assets of £3.0 million at 30 September 2022 (2021: £5.2 million)
Operational highlights:
· Record submitted sales performance for the Group, delivering a Total Contract
Value(3) of £15.7 million (2021: £5.2 million)
· 39 new customers added in the year (2021: 34)
· New multi-year customer wins including Wall Street Docs, Healthcare Quality
Improvement Partnership, St. John Ambulance and Abbott Laboratories
· Successful integration of the four acquired businesses
· Key senior appointments across the Group including Head of People and,
post-period, Group Commercial Director and Vendor Alliance Manager.
· MoreComputers rebranded to MoreCoCo and consumer and B2B ecommerce website
launched
· CloudCoCo Sales Academy launched to cultivate homegrown talent and support
revenue growth
· Launch of Project IGNITE, a programme to accelerate pipeline build and organic
growth
(1) profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional costs and share-based
payments
(2) Trading Group EBITDA(1) adjusted following deduction of the IFRS 16 data
centre depreciation charge
(3) TCV measures the total revenue that we expect to generate from new
customer contracts signed in the year over their contractual term.
Mark Halpin, CEO of CloudCoCo, commented:
"Our central focus during the year centred around the swift and effective
integration of the four acquisitions made in the second half of 2021, while
also making sure the group was advancing as a single, unified unit.
Through this process, we have taken important steps to rationalise our cost
base and uncovered the significant potential we saw in these acquisitions. I
am delighted to see the results of the hard work of all our teams in achieving
this transformation and would like to thank all our colleagues for their vital
support during the period.
Now a stronger and leaner outfit, we remain excited by the trajectory ahead
for the business. Our market opportunity remains vast, underpinned by the
significant capabilities and synergies unlocked through acquisition and
integration and our investments into our sales functions. On this basis, we
remain focused on driving our organic growth alongside identifying and
executing on strategic M&A opportunities to accelerate our growth and
deliver shareholder value."
The Company's Annual Report will be available on the Company's website by 17
March 2023 and will be posted to shareholders along with notice of the Annual
General Meeting to be held on 6 April 2023.
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 / Daniel Dearden-Williams - Corporate Finance
Tony Quirke / Amrit Nahal - Equity Sales
Alma PR - (Financial PR) Tel: +44 (0)20 3405 0205
David Ison cloudcoco@almapr.co.uk
Kieran Breheny
Pippa Crabtree
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,
Multi-Cloud, Collaboration, Cyber Security, IT Hardware, Licencing, Support
and Professional Services.
CloudCoCo has headquarters in Leeds and regional offices in Warrington,
Sheffield and Bournemouth.
www.cloudcoco.co.uk (http://www.cloudcoco.co.uk)
Chairman's statement
I am pleased to report our annual results for the year ended 30 September
2022.
We approached the year with a focus on three key areas:
· to accelerate sales;
· to maintain excellent support levels; and
· to drive efficiencies and strengthen financial position.
An additional priority was the accelerated 'Get Well' programme for the
Group's newly acquired businesses, with a particular emphasis on managing
costs, driving efficiencies and realising the synergy benefits across these
businesses. We undertook this strategy with a view to supporting long-term,
sustainable and profitable growth across the business.
I am therefore delighted to report an increase in Trading Group EBITDA(1) to
£1.6 million (2021: £0.7 million).
People
Through the major steps taken to grow the business in the last two years,
CloudCoCo now comprises over 125 talented people. I am delighted that all
parts of the business worked collaboratively through the necessary initiatives
to operate as a single, cohesive business and I would like to thank all
colleagues for their efforts.
One of the significant milestones during the year was the acquisition of
CloudCoCo Connect Limited ("the Connect business"), acquired as IDE Group
Connect Limited in October 2021 and the subsequent and successful execution of
the internal project known as "Project 150", a strategy designed to generate
£150k per month of additional benefit from sales and cost savings for the
enlarged business. This was a collaborative effort from everyone involved
where all ideas were welcome and I'm delighted with the outcome.
In view of the significantly expanded team and proposition as a result of our
acquisitions, the Group also made key appointments to oversee the continued
expansion of the business.
Post-period end, in October 2022, we promoted internally to create a new role
of Group Commercial Director (a non-board position) to consolidate our vendor
and partnership relationships and ensure we obtain best price and consistent
delivery of service from our third-party suppliers. This has progressed well
with the additional hire of a Vendor Alliance Manager to concentrate on
solidifying our strategic relationships with key providers within our
ecosystem.
We also appointed a Head of People (a non-board position) to ensure the right
people systems and practices are in place to support growth and to promote our
collaborative, inclusive and high-performance culture.
With a view to cultivating homegrown talent and to contribute to the
acceleration of our organic revenue growth, in July 2022 we launched our
CloudCoCo sales academy. Initially comprising five entry-level sales staff,
the academy has proven a great success and I look forward to seeing the
expansion of this project to incorporate new colleagues in FY 2023.
Ambitions for the financial year
Through organic growth and acquisition, CloudCoCo has fortified its position
within the Managed Services and Value Added Reseller space.
With the necessary corrective actions taken to ensure positive Trading Group
EBITDA(1) across the business during FY 2022, the Group is now positioned as a
larger and significantly more efficient platform from which it can scale and
capture the considerable market opportunity available to it.
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
15 March 2023
(1) earnings before net finance costs, tax, depreciation, amortisation, plc
costs, exceptional costs and share-based payments
Chief Executive's Review
Introduction
I am pleased to have overseen another year of significant strategic and
commercial progress for CloudCoCo.
The acquisition of four businesses over the last 18 months has brought about a
step-change in the Group's capabilities. The addition of data centre
locations, private managed core dark fibre network services and e-commerce
capabilities, for example, have opened up a wealth of new revenue
opportunities.
While we recognised the massive potential across each of these businesses, we
knew it would take a tremendous amount of hard work and dedication through
intensive integration and optimisation phases before we began to see the
commercial benefits filter through. Those initial phases are now complete and,
with all parts of the Group now operating profitably at the Trading Group
EBITDA(1) level, I am proud of what our teams have been able to achieve in
such a short space of time.
With the steps taken to stabilise the acquired businesses, in the second half
of the year, we launched a comprehensive programme to grow our sales pipeline.
Referred to internally as Project IGNITE, this was a multi-channel marketing
project focused on lead generation, comprising the implementation of
additional sales systems and the introduction of new talent in our new
business, mobile, alliances, sales academy, retention, and ecommerce teams.
The new systems implemented in the second half have enabled us to identify
sales opportunities more intelligently and efficiently. This, combined with
the positive impact of our recently established sales academy, saw our
pipeline gain some further momentum post-period.
As we move through the new financial year, CloudCoCo now operates as a single,
cohesive unit. We have built a platform ripe for scaling and, with our
colleagues, old and new, all pulling in the same direction.
Our strategy
Having spent the last few years building a strong, scalable platform, we can
now plot a path towards our long-term goal of becoming one of the larger UK
Managed Services businesses with revenues of over £100m. This will be
achieved through a combination of carefully selected acquisitions in our
chosen markets, a single-minded focus on attracting and delighting new
customers, and increased spend from existing customers.
Our proposition will be built around four principal areas: Connectivity,
Multi-Cloud, Collaboration and Cyber Security.
Connectivity: following the acquisitions, we have an extraordinary set of
network assets at our disposal that are not being used to their fullest
potential. It is our intention to rebrand these and leverage them to create
new revenue streams and win contracts with much larger, multisite
organisations where speed and secure access to data centres around the UK are
essential.
Multi-Cloud: we are committed to building CloudCoCo into a northern,
multi-cloud powerhouse; a truly agnostic partner able to offer customers the
solution that best suits their business needs. This will be a key area of
investment.
Collaboration: telephony is in CloudCoCo's DNA. We have most of the building
blocks to accelerate growth in this area and are actively exploring strategic
partnerships that will take us to the next level.
Cyber Security: CloudCoCo has built a reputation for its cyber security
offering, centred around our relationships with industry giants such as
Fortinet. It is our intention to continue in a similar vein, bolstering our
capabilities and accreditations through new and extended
partnerships.
Integration of our acquisitions
This year saw the full impact of the value-added reseller ("VAR") acquisitions
of Systems Assurance and More Computers, having been acquired on 6 September
2021. The acquisitions signalled the start of the Company's "Get Bigger" phase
to provide scale to the business. This followed the successful completion of
the "Get Well" and "Get Fit" phases leading up to that point. More Computers
introduced a proven and scalable hardware engine into CloudCoCo's business
which helped increase operational efficiency and drive margins which assisted
the Group in driving VAR revenues by 190% during the year.
As reported at the interim results, we were delighted to see the IDE Connect
business acquired in October 2021 reach monthly EBITDA breakeven (before
exceptional costs) in March 2022, ahead of our initial timeline, as a result
of the corrective actions taken in the first half of the financial year
("H1"). The first phase of the "Get Well" actions are largely complete, with
some supplier rationalisation and contract negotiations still to complete.
This was achieved through the execution of "Project 150", referring to the c.
£150k of additional benefit from sales initiatives and monthly savings we
sought to achieve to deliver a swift turnaround of the Connect business from
delivering £800k of losses per annum. This was achieved through the
implementation of careful cost-savings and an improvement of the business's
sales function, which is now able to provide a wider portfolio and greater
support to customers.
As part of the Connect acquisition, we inherited 83,000 IPv4 addresses which
are in short-supply globally and present the Group with an opportunity to add
value. We are currently carrying out a comprehensive audit to inform a
decision to either dispose of excess addresses or manage the assets on behalf
of clients. Sales of IP addresses generated £0.1 million of revenue in the
year.
The acquisition of Connect added a core fibre network and 32 data centre
locations to the Group. The relatively low acquisition price paid for Connect
in part reflected the fact that an element of this core fibre network was
discontinued prior to acquisition but remained in long-term contract with the
underlying dark-fibre supplier. This onerous contract liability has been
recorded in the acquired Balance Sheet of Connect (see note 15).
Now that the rationalisation of many elements of the core network and
data-centre estate obtained through the Connect acquisition has been achieved,
we intend to bring those assets to the fore of our offering. The high speed
and secure connectivity they provide to data centres in the UK is impressive
and enables us to pursue larger, multi-site customers with conviction.
To modernise our web-offering and improve the customer buying experience, we
successfully completed the rebrand of our VAR business More Computers, which
we acquired in September 2021. Now rebranded as MoreCoCo, the business
comprises a consumer-facing website, with a comprehensive range of consumer
and personal electronics, as well as a dedicated alternative website for
businesses, both launched in the second half of the year. We are already
seeing how incorporating the automated ecommerce engine is benefitting the
existing CloudCoCo customer base with an improved choice of goods and
streamlined buying experience.
I am pleased to report all acquisitions are now operating profitably and on
track to fulfil their potential. With the integration process of the four
acquisitions made since September 2021 now complete, we move forward with a
proven blueprint for expanding the Group through adding complementary
businesses.
Progress against FY 2022 objectives
Accelerate sales
The business achieved revenues of £24.2 million in the 12 months to 30
September 2022 compared with £8.1 million in the prior year.
2022 2021
£'000
£'000
Managed IT Services 17,056 5,648
Value added resale 7,137 2,459
Total Revenue 24,193 8,107
The results were impacted positively by the acquisitions made in late 2021 as
follows:
2022 2021
£'000
£'000
CloudCoCo Limited 6,928 8,107
Systems Assurance Limited 3,695 -
More Computers Limited 1,963 -
CloudCoCo Connect Limited (formerly IDE Group Connect Limited) and its 11,607 -
subsidiary
Total Revenue 24,193 8,107
Total Contract Value, the measure used to reflect the total revenue that we
can expect to generate from new customer contracts signed in the year over
their contractual term, increased to £15.7 million (2021: £5.2 million).
Managed IT services represented 70% of revenues (2021: 70%) of which 95%
related to recurring contracted services, a key focus for the Group. We
continue to see demand for the Group's services, including customers investing
in solutions to protect their sensitive data and improve their cyber security
provisions.
Whilst the most recent industry trend is to help business customers to make
the most of their existing digital investments by "doing more with less", we
were also able to increase value added resale revenues during the year by 184%
from £2.5m in FY 2021 to £7.1m in FY 2022 as a result of the larger customer
base and broader service offering as a result of the acquisitions made in late
2021, which accounted for the majority of the increase in the year.
A continued focus for the Group during the year was to secure new and larger,
multi-year contracts. The increased capabilities and scale derived from our
newly acquired businesses put us in a strong position to achieve this
ambition, and our multi-year agreements with Wall Street Docs, Healthcare
Quality Improvement Partnership, St John Ambulance and The ID Register are
evidence of delivery. We added 39 new logo customers in the year (2021: 35)
and remain focussed on increasing our reach into new sectors through organic
growth. Indeed, we have already seen the number of new logo customers won in
the first half of FY 2023 surpass those won in the first half of FY 2022 by
33% .
In addition to increasing new sales opportunities, we were able to extend the
number of the existing recurring customers into new term-based contracts
during the year. A large percentage of the existing customer base have
recurring contracts that will auto-renew, but often we will sit with the
customer, redesign their solution, and agree a new roadmap to optimise their
managed services solution in a new multi-year term agreement. We signed key
renewals during the year with leading UK property consultants Allsop and the
American multi-national medical business Abbott Laboratories.
The four acquisitions made in late 2021 and the combined focus on developing
our sales engine whilst continuing to look for opportunities to improve our
cost-base efficiencies, helped us to deliver Trading Group EBITDA(1) growth
during the year of 129% to £1.6 million (2021: £0.7 million). There remain
further opportunities for us to consolidate our buying power as we look to
rationalise the number of key partners we use for the £16.2 million of
third-party cost of sales.
With our expanded capabilities derived through acquisition, we have actively
pursued cross-selling across different parts of the Group and are beginning to
see early signs of success.
Maintain excellent support levels
Despite the introduction of 79 new colleagues and inheriting a dramatically
larger service offering, we remain as committed as ever to delivering
best-in-class customer service. Culture is vital to the success of any
business and it has been heartening to see our new joiners buy into our
service-orientated approach so quickly.
Response times to support requests continued to improve in the period, with
customer satisfaction levels remaining high. More than 90% of support events
during the year were rated "good" or better, and we are exploring ways to use
artificial intelligence to increase the speed and quality of delivery for
repetitive service requests. Additionally, time to close tickets and call
answer times all improved in the year.
Drive efficiencies and strengthen financial position
During the year we established a formal commercial procurement team to build
on the excellent work carried out so far to ensure the Group continues to
rationalise its suppliers and contracts and find cost savings where possible.
We have made significant progress in this respect, but there is further work
required. We aim to have completed a full line-by-line analysis by the end of
H1 FY 2023 which will form the basis for any further action.
To further strengthen our position, as previously announced we are currently
working towards addressing the onerous contracts we acquired from the IDE
acquisition (see note 11) by swapping disconnected circuits out for new
connections into our core fibre network. Good progress has been made to date
and we are optimistic about achieving a satisfactory outcome. Data centre
locations that have excess capacity are also being marketed to increase
utilisation.
We have also reviewed and consolidated colleague roles where possible,
identified synergies, and maintained our disciplined approach to reducing cost
of sales and overheads without compromising quality of service.
We continue to prioritise improving our financial strength and liquidity and
are exploring ways to bolster our position. This includes improving speed of
invoicing by offering discounts to customers with multi-year contracts for
paying in advance and enhancing our due diligence in the credit control
process.
The market
As organisations both large and small experience an impact on their bottom
line due to the inflationary environment, many businesses across our four
areas of focus are now looking for good-value, customer-oriented partners to
help them manage their IT solutions and spend.
This is prompting an evolution in the market, with many of these organisations
now looking to move away from the larger and typically less agile Managed
Services Providers. We are seeing particular traction in Microsoft related
skills such as SharePoint and Azure Migrations, as well as the refresh of IT
hardware.
Additionally, an increase in remote working has seen demand for laptops,
monitors and remote telephony solutions grow as companies ensure that remote
staff are provided with modern, company-owned hardware that can be securely
managed and protected centrally. As an agile, customer-driven Managed Services
Provider and VAR, CloudCoCo is well-positioned to capitalise on these trends.
Current trading and outlook
In FY 2023, with all four acquisitions(2) now integrated and increasingly
solid foundations on which to build, we will again look to drive organic
growth. At the same time, we will look to scale through selective acquisitions
where they are a good strategic fit, particularly those that can enhance the
network and cloud technology infrastructure acquired through the Connect
business, which we see as forming an important part of our future.
The Group, as expected, has experienced some impact from increased costs
relating to power and energy, particularly in relation to its data centre
sites, which have resulted in price increases to our customers. We continue to
monitor the situation carefully and are working closely with customers to
ensure that they understand their energy consumption and are making
recommendations to improve efficiency where possible.
Our sales pipeline is increasing at a healthy rate, particularly with larger
and multi-year deals. There has been an uptick in this since the end of FY
2022, together with the signing of multiple longer-term new logo contracts
which is testament to the strategy and investments made.
Despite the economic challenges, we are confident in our ability to deliver
improved revenues and profitability in FY23.
Mark Halpin
Chief Executive Officer
15 March 2023
(1) profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional items and share-based payments.(
2) acquisitions of Systems Assurance Limited and More Computers Limited in
September 2021 and IDE Group Connect Limited and Nimoveri Limited in October
2021.
Financial review
Acquisition of IDE Group Connect Limited and Nimoveri Limited
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 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 net liabilities acquired under the
transaction included a cash balance of £497,000.
IDE agreed to provide the Group with a working capital facility of up to
£500,000 on request for the first twelve months of acquisition, should it
have been required to help fund the initial restructure of the Connect
business. No amounts were drawn under this facility.
Revenue and gross margin
Group revenue for the year to 30 September 2022 grew by 198% to £24.2 million
(FY21 £8.1million) assisted by the acquisitions at the end of 2021, which
perfectly complimented the existing service portfolio as well as adding new
revenue streams which enhanced our proposition during the year.
These revenues produced a total gross profit of £7.9 million (FY21: £3.2
million) representing a gross margin of 32.8% (FY21: 39.6%) reflecting the
fact that a large percentage of our revenues are derived from third-party
vendors to allow the Group to remain asset-light.
The analysis of revenue from each of our operating segments is shown in note 3
to the accounts.
Managed IT Services
Managed IT Services, which comprises recurring services and ongoing IT support
often utilising the data centre locations, core network or technical skills at
our disposal, continues to dominate the profile of our revenues, representing
70% (2021: 70%) of group revenues during the year, adding significant value to
our customers providing specialist IT skills on-demand, so that they can focus
on their core business activities. This grew to £17.1 million in FY 2022,
from £5.6 million in FY 2021, underpinning the need for best of breed IT
Managed services from UK business customers.
In line with our objective to grow the recurring contracted revenue base, it
was pleasing to note that 95% (2021: 90%) of all Managed IT Services revenues
were provided under recurring contacts. On average, new customer contracts
sold are for an initial period of just under 2 years, although recurring
contracts allows customers to auto-renew on similar terms at each
anniversary.
The key to providing a one-stop solution for our customers is being able to
deliver technical skills, project management and the hardware they require to
undertake numerous IT projects that transform the way that they do business.
During FY 2022, we saw professional services revenues which utilise our
technical skills increase by 49% over FY 2021 to £0.9 million, as customers
took the opportunity, post-COVID-19, to invest in core technologies to allow
them to optimise efficiencies in new hybrid working era.
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 £4.6 million higher in FY22 than the prior year at
£7.1 million (FY21: £2.5 million), due to the acquisitions of Systems
Assurance and More Computers in September 2021, who specialise in sourcing a
diverse range of hardware from major vendors at cost-effective price.
VAR generated a gross profit of £1.4 million (FY21: £0.6 million) and gross
margin of 20% (FY21: 25%), although the majority of VAR orders were delivered
direct to site by our chosen hardware partners using our unique ERP links and
therefore carrying a much lower overall cost to fulfil
orders.
Operating costs and performance
Excluding plc costs of £0.8 million (FY21: £0.5 million), our trading
overheads(2) increased to £6.4 million (FY21: 2.5 million) following the
acquisitions completed in late 2021. Driving efficiencies in our overheads was
a key priority during the year as the Connect business we acquired from IDE
Group in October 2021 had been trading at an annual reported loss of £0.8
million per annum, prior to joining our Group.
As an employee led business, 93% of our operational trading overheads relate
to staff costs. Ensuring that we have the right mix of talent and skills
available to support our customers is key, without leaving talent on the
bench. We continue to look for ways to maximise value from our overheads
through strategic partnerships and automation.
Whilst revenue, gross profit and cash balances remain the primary measures,
one of our main financial key performance indicators is our Trading Group
EBITDA(1) - our operational trading performance before plc costs, depreciation
and amortisation, share based payments and exceptional items. This is a key
industry measure, reflecting the underlying trading profits before the costs
of assets and liabilities. Our Trading Group EBITDA(1) increased by £0.9
million to £1.6 million in the year (2021: £0.7 million, 2020: £0.3
million).
The acquisition of Connect added 32 data centre locations to the Group. A
number of these data centre contracts meet the IFRS 16 definition of right of
use assets (see note 10). Thus, rather than recognising an operating expense
in respect of the cost of these data centres, they are instead recognised as
assets, with an associated lease liability, impacting profit or loss as
depreciation and interest expenses and are therefore not recognised in Trading
Group EBITDA. To provide transparency in respect of these costs, we have
introduced a second non-statutory measure, being Adjusted Trading Group
EBITDA. This gives the Trading Group EBITDA(1) after deduction of the IFRS 16
data centre depreciation charge, and best equates to the cash profitability of
the Group before plc costs, exceptional items and net finance expenses.
Adjusted Trading Group EBITDA for the year was £1.1 million (2021: £0.7
million) as follows:
2022 2021
£'000
£'000
Trading Group EBITDA(1) 1,594 745
Deprecation of IFRS 16 data centre right of use assets (530) -
Adjusted Trading Group EBITDA 1,064 745
Plc costs
Plc costs in the year increased by £0.3 million to £0.8 million (FY21: £0.5
million). These are non-trading costs, relating to the Board of Directors of
the parent company, the costs of being listed on the AIM Market of the London
Stock Exchange and its associated professional advisors. Whilst this year
includes a full-year of cost for the Executive Directors, we have also seen
increases in costs relating to insurances, audit and advisory fees.
The whole industry has seen an upward trend in insurance premiums and policy
costs over the past few years due to a greater number of claims against
directors together with the expansion of regulations governing corporate
behaviour. The backdrop of general rising insurance costs in the country has
also been impacted by the uncertainty and volatility of the insurance market
following COVID-19 and an increase in cyber-security incidents across the
globe, further driving up costs. The Company takes proactive steps to minimise
its exposure to risk, such as implementing strong governance practices and
having robust risk management processes in place. Insurance costs increased by
£70,000 during the year.
In addition, the costs relating to audit increased during the year following
the enhanced scope as a result of the sizeable acquisitions made and the fact
that the trade of the business is spread over a number of separate entities.
The cost of financial audits in the United Kingdom has increased in recent
years due to a number of factors, including the increasing complexity of
financial reporting and regulatory requirements, which has increased the
overall scope and workload for auditors. Audit costs increased by £40,000
during the year.
Exceptional Items
During the year we incurred certain non-recurring 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 £0.6 million (2021: £0.5
million), of which £0.5 million (2021: £0.3 million) relates the
acquisitions made in 2021 and their associated restructure costs as we
right-sized the business during the year. Further details of the exceptional
items are shown in note 4.
Net finance expenses, depreciation, amortisation and financial results for the
full year
During the year the Group incurred net finance costs of £0.7 million (FY21:
£0.5 million). £0.6 million (2021: £0.5 million) of this was accrued
interest on loan notes payable at the end of the loan notes' term in October
2024. The remaining £0.1 million (2021: nil) in this financial year relates
to interest resulting from lease liabilities.
The Group incurred other costs including total amortisation and depreciation
charges of £2.0 million (FY21: £1.1 million) and share-based payments charge
of £119,000 (FY21: £217,000). Depreciation includes £0.5 million relating
to IFRS16 data centre right of use assets and £0.2 million relating to
tangible assets. After accounting for a deferred tax credit of £0.3 million
(FY21: £0.1 million charge) arising as part of business, the reported loss
for the year after tax was £2.3 million compared to a loss after tax for the
year to 30 September 2021 of £2.1 million.
Statement of Financial Position and cash
The Group had positive net assets at 30 September 2022 totalling £3.0 million
(FY21: £5.2 million) and the cash position improved by £0.3 million to £1.5
million (FY21: £1.2 million). The four now cash generative businesses
acquired in 2021, provide the business with a solid platform for growth.
The Group had a net cash inflow during the year of £0.3 million (FY21: £0.6
million), the main components being:
· Cash inflow generated from operating activities excluding the costs
of acquisition of £1.0 million (FY21: cash outflow of £0.3 million);
· Net cash inflow of £0.5 million (net of cash acquired) to acquire
the Connect business;
· Payments of deferred consideration for the acquisition of Systems
Assurance Limited of £155,000 and for the Connect business of £25,000 during
the period; and
· Payments of lease liabilities of £0.8 million (FY21: £0.1 million)
Current assets increased by £2.8 million to £7.0 million as a result of the
acquisitions, although 76% of these relate to Trade and other receivables. We
continue to operate an asset-light business and hold very little stock and
work in progress relative to our revenues, preferring to ship-to-order direct
from our vendor partners. £0.8 million of the increase during the year
relates to prepayments as vendor contracts require us to pay for data centre
rentals and leased line in advance. This practice is also mirrored in our
end-user customer contracts, reflected in the increase in contract liabilities
below.
Contract liabilities increased by £1.2 million to £2.5 million (FY21: £1.3
million) reflecting the acquisition of multi-year recurring customers
contracts with the Connect business, coupled with the continued success that
the Group had during the year, signing customers onto new longer term
recurring revenue contracts, billed in advance.
In so far as possible, management look to balance movements in trade
receivables and trade payables throughout the year to maintain a consistent
bank balance.
Overall Net debt increased by £1.0 million to £4.1 million during the year.
Net debt comprises cash balances of £1.5 million less the loan notes and
rolled up interest of £4.4 million, together with £0.2 million deferred
consideration owed for the acquisition of Connect and shown at fair value (see
note 15). A further £0.9 million is owed in lease liabilities and COVID-19
bounce back loans. The Trading Group EBITDA(1) of the business exceeded the
loan note interest in the year by £1.1 million (FY21: £0.3 million).
Tangible assets at year-end remained stable as £0.2 million (FY21: £0.2
million) and the costs of additional capex in the year of £115k (FY21:
£31k), the majority of which were acquired to generate Managed IT services
revenues to customers.
The acquisition of the Connect business delivered with it a core fibre network
and 32 data centre locations. The majority of data centres are leased from
third-party suppliers on renewable contract terms of up to 5 years in
duration. Many of these data centre leases can be auto-renewed, resized or
terminated in the months leading up to the end of the term, creating a new or
modified leases in excess of twelve months, which then fall under IFRS16 as a
right of use asset with associated lease. During the year, the Group entered
into new or modified IFRS16 right of use leases of £1.1 million (see note
10). These leases, which had less than 12 months remaining on the date of
acquisition, were treated as short-term leases up until the point at which
they were renewed or modified. The acquisition also contained onerous
contracts of £1.2 million over various terms up until November 2032 (see note
11).
(
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 2022
Note 2022 2021
£'000 £'000
Continuing operations
Revenue 3 24,193 8,107
Cost of sales (16,246) (4,891)
Gross profit 7,947 3,216
Other income - 67
Administrative expenses (9,784) (4,794)
Trading Group EBITDA (1) 1,594 745
Amortisation of intangible assets (1,286) (1,009)
Plc costs(2) (770) (492)
Depreciation of IFRS16 data centre right of use assets 10 (530) -
Depreciation of tangible assets and other right of use assets 10 (164) (97)
Exceptional items 4 (562) (441)
Share-based payments (119) (217)
Operating loss 5 (1,837) (1,511)
Interest receivable 6 1 1
Interest payable 6 (772) (535)
Loss before taxation (2,608) (2,045)
Taxation 7 321 (83)
Loss and total comprehensive loss for the year attributable to owners of the (2,287) (2,128)
parent
Loss per share
Basic and fully diluted 8 (0.32)p (0.42)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, the costs of being listed on the AIM
Market of the London Stock Exchange and its associated professional
advisors.
Consolidated statement of financial position
as at 30 September 2022
30 September 30 September 2021
2022
£'000 £'000
Non-current assets
Intangible assets 9 12,580 10,393
Property, plant and equipment 10 128 52
Right of Use assets 10 814 97
Total non-current assets 13,522 10,542
Current assets
Inventories 165 86
Trade and other receivables 4,766 2,721
Contract assets 558 232
Cash and cash equivalents 1,516 1,183
Total current assets 7,005 4,222
Total assets 20,527 14,764
Current liabilities
Trade and other payables (6,890) (2,872)
Contract liabilities (1,891) (177)
Provision for onerous contracts 11 (148) -
Borrowings (69) (172)
Lease liability 12 (733) (86)
Total current liabilities (9,731) (3,307)
Non-current liabilities
Contract liabilities (601) (1,092)
Provision for onerous contracts 11 (927) -
Borrowings (4,723) (3,991)
Lease liability 12 (112) (11)
Deferred tax liability (1,426) (1,188)
Total non-current liabilities (7,789) (6,282)
Total liabilities (17,520) (9,589)
Net assets 3,007 5,175
Equity
Share capital 7,062 7,062
Share premium account 17,630 17,630
Capital redemption reserve 6,489 6,489
Merger reserve 1,997 1,997
Other reserve 458 339
Retained earnings (30,629) (28,342)
Total equity 3,007 5,175
Consolidated statement of changes in equity
for the year ended 30 September 2022
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 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
Share Share Capital Merger Other Retained Total
capital premium redemption reserve reserve earnings £'000
£'000 £'000 reserve £'000 £'000 £'000
£'000
At 1 October 2021 7,062 17,630 6,489 1,997 339 (28,342) 5,175
Loss and total comprehensive loss for the period - - - - - (2,287) (2,287)
Transactions with owners in their capacity of owners
Share-based payments - - - - 119 - 119
Total transactions with owners - - - - 119 - 119
Total movements - - - - 119 (2,287) (2,168)
Equity at 30 September 2022 7,062 17,630 6,489 1,997 458 (30,629) 3,007
Consolidated statement of cash flows
for the year ended 30 September 2022
2022 2021
£'000 £'000
Cash flows from operating activities
Loss before taxation (2,608) (2,045)
Adjustments for:
Depreciation - IFRS data centre right of use assets 530 -
Depreciation - owned assets 50 29
Depreciation - right of use assets 114 68
Amortisation 1,286 1,009
Share-based payments 119 217
Net finance expense 771 534
Costs relating to acquisitions(1) 58 202
Movements in provisions (153) -
Costs relating to Placing of 210,990,000 shares - 171
Increase in trade and other receivables (1,064) (408)
Increase in inventories (79) (24)
Increase / (decrease) in trade payables, accruals and contract liabilities 2,014 (57)
Net cash inflow / (outflow) from operating activities before acquisition costs 1,038 (304)
Costs relating to acquisitions(1) (58) (202)
Net cash inflow / (outflow) from operating activities 980 (506)
Cash flows from investing activities
Purchase of property, plant and equipment (note 10) (115) (31)
Acquisitions net of cash acquired(1) (note 15) 497 (563)
Payment of deferred consideration relating to acquisitions (note 15) (180) -
Interest received - 1
Net cash inflow / (outflow) from investing activities 202 (593)
Cash flows from financing activities
Proceeds from Placing of 210,990,000 shares - 2,110
Less transaction fees relating to the Placing - (171)
Repayment of loan funds from MXCG - (100)
Repayment of COVD-19 bounce-back loan (18) -
Payment of lease liabilities (813) (120)
Interest paid (18) (25)
Net cash (outflow) / inflow from financing activities (849) 1,694
Net increase in cash 333 595
Cash at bank and in hand at beginning of period 1,183 588
Cash at bank and in hand at end of period 1,516 1,183
Comprising:
Cash at bank and in hand 1,516 1,183
(1) FY22 relates to the acquisition of CloudCoCo Connect Limited (formerly IDE
Group Connect Limited) and Nimoveri Limited.
FY21 relates to the acquisition of Systems Assurance Limited and More
Computers Limited.
Notes to the consolidated financial statements
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 announcement on 15 March 2023.
Whilst the financial information included in this announcement has been
prepared international accounting standards in accordance with UK-adopted
International Accounting Standards and applicable law, 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 2022 and 2021. 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 2021 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
2022 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. The financial statements are presented in
pounds sterling (rounded to the nearest thousand (£'000)) because that is the
currency of the primary economic environment in which each of the Group's
subsidiaries operates.
1.1 Basis of preparation
The consolidated financial statements have been prepared in accordance with
UK-adopted international accounting standards. 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 2022 totalling £3.0 million
compared to £5.2 million at the end of FY21. The acquisition of CloudCoCo
Connect Limited (formerly IDE Group Connect Limited) ("Connect") contributed
cash to the Group and the net cash inflow from operating activities exceeded
lease payments.
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 Strategic Report. Despite continued uncertainty and
disruption as a result of the cost of living crisis and the initial losses
incurred when acquiring the originally distressed Connect business, the Group
reported a 129% percent improvement in underlying profitability as measured by
Trading Group EBITDA1 (2022: £1.6 million; 2021: £0.7 million). Cash inflow
from operating activities before acquisition costs was £1.0 million (FY21:
£0.3 million cash outflow) and cash balances increased by £0.3m overall.
The risks associated with the Group's activities are reviewed by the Directors
on a regular basis. The key operational risk the Group faces is the general
economic outlook including the energy costs crisis and uncertainty caused by
the cost of living crisis. Although COVID-19 did not have a material impact on
the Group's ability to operate in FY22, it did result in some delays in sales
cycles for certain services and delays in project delivery as customers
continued to assess the impact of COVID-19 on their own businesses. In
addition, there is financial, operational and executional risk associated
with the business combinations completed in late 2021.
The Directors have reviewed the forecast sales growth, budgets and cash
projections for the period to September 2024, 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 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 2021 were
interest rate reforms - amendments to IFRS 9.
None of the new standards or interpretations of existing standards above had a
material impact on the Group during the year ended 30 September 2022.
1.3 New standards and interpretations of existing standards that are not yet
effective and have not been adopted early by the Group
The new standards or amendments that may be applicable to the 2023 financial
statements are as follows:
· Onerous Contracts - Costs of Fulfilling a Contract - Amendments
to IAS 37
· Reference to the Conceptual Framework - Amendments to IFRS 3
· Property, Plant and Equipment: Proceeds before Intended Use -
Amendments to IAS 16
· Annual improvements to IFRS Standards 2018-2020.
None of these are expected to have a material impact on the Group.
2. Principal accounting policies
a) Basis of consolidation
The Group financial statements incorporate 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.
c) Revenue and revenue recognition
Revenue arises from the sale of goods and the rendering of services as they
are 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, data centre locations, network
connectivity 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 goods 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 evenly 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 as this is
when the customer takes possession and is able to use the software.
Rendering of services
The Group generates revenues from managed services, data centre 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.
Revenue from the delivery of professional services is recognised over the
period of the project and measured on a time-based method using hourly rates.
Contracts for managed IT services are usually 12 months in duration and are
automatically renewed unless termination rights are exercised. Revenue is
recognised equally over the term of the contract as this fairly reflects the
delivery of services to the customer.
Sales commission and third-party costs (where relevant) relating to these
services are shown within Contract Assets and are recognised 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) Right of use assets
A right-of-use asset is recognised at the commencement date of a lease. The
right-of-use asset is measured at cost, which comprises the initial amount of
the lease liability, adjusted for, as applicable, any lease payments made at
or before the commencement date net of any lease incentives received and any
initial direct costs incurred
Right-of-use assets are depreciated on a straight-line basis over the
unexpired period of the lease or the estimated useful life of the asset,
whichever is the shorter. Where the Group expects to obtain ownership of the
leased asset at the end of the lease term, the depreciation is over its
estimated useful life. Right-of use assets are subject to impairment or
adjusted for any remeasurement of lease liabilities.
The Group has elected not to recognise a right-of-use asset and corresponding
lease liability for short-term leases with terms of 12 months or less and
leases of low-value assets. Lease payments on these assets are expensed to
profit or loss as incurred.
e) Leases
A lease liability is recognised at the commencement date of a lease. The lease
liability is initially recognised at the present value of the lease payments
to be made over the term of the lease, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, the
Group's incremental borrowing rate. Lease payments comprise of fixed payments
less any lease incentives receivable, variable lease payments that depend on
an index or a rate, amounts expected to be paid under residual value
guarantees, exercise price of a purchase option when the exercise of the
option is reasonably certain to occur, and any anticipated termination
penalties. Any variable lease payments that do not depend on an index or a
rate are expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest
method. The carrying amounts are remeasured if there is a change in the
following: future lease payments arising from a change in an index or a rate
used; residual guarantee; lease term; certainty of a purchase option and
termination penalties. When a lease liability is remeasured, an adjustment is
made to the corresponding right-of-use asset, or to profit or loss if the
carrying amount of the right-of-use asset is fully written down.
f) Onerous contracts
Provisions are recognised when the consolidated entity has a present (legal or
constructive) obligation as a result of a past event, it is probable the
consolidated entity will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation. The amount recognised as
a provision is the best estimate of the consideration required to settle the
present obligation at the reporting date, taking into account the risks and
uncertainties surrounding the obligation. If the time value of money is
material, provisions are discounted using a current pre-tax rate specific to
the liability. The increase in the provision resulting from the passage of
time is recognised as a finance cost.
The recognition of the onerous contract liability is based on a reliable
estimate of the expected costs and benefits of the contract. This estimate
takes into account all relevant information, including the terms and
conditions of the contract, market conditions, and the Company's own
experience.
g) Exceptional items and Plc costs
Non-recurring items which are material either because of their size or their
nature, are highlighted separately on the face of the Consolidated Income
Statement. The separate reporting of these items helps provide a better
picture of the Group's underlying performance. Items which may be included
within this category include, but are not limited to, acquisition costs, spend
on the integration of significant acquisitions and other major restructuring
or rationalisation programmes, significant goodwill or other asset impairments
and other particularly significant or unusual items.
Exceptional items are excluded from the headline profit measures used by the
Group and are highlighted separately in the Consolidated Income Statement as
management believe that they need to be considered separately to gain an
understanding of the underlying profitability of the trading businesses.
Note 4 contains more detail on exceptional items.
Plc costs are non-trading costs, relating to the Board of Directors of the
Parent Company, the costs of being listed on the AIM Market of the London
Stock Exchange and its associated professional advisors.
h) Critical accounting judgements and key sources of estimation uncertainty
Critical judgements in applying the Group's accounting policies
The allocation of fair values to the tangible assets and the identification
and valuation of intangible assets requires judgement in the selection of
appropriate valuation techniques and inputs and affect the goodwill and the
assignment of that to each cash generating unit, recognised in respect of the
acquisitions (note 15).
Judgement was also applied in determining whether contracts for dark fibre
connections included the lease of identifiable assets for which a right of use
asset and lease liability should be recognised. The directors concluded that
except for last mile connections (if any) between the supplier's core network
and the Company's customer, the Company did not have control over the use of
specific fibres or utilise a significant proportion of the supplier's core
network.
Judgement has been applied in the analysis of agreements relating to the lease
of data centre assets including the impact of termination and extension
options on the lease term. Management have exercised judgement in assessing
the recoverability of right of use assets, or provision for onerous operating
leases, for each of the lease arrangements relating to data centre
assets.
Judgement has also been applied in the measurement of the economic benefit to
be received when testing for impairment of ROU assets or onerous contracts and
the selection of an appropriate discount rate with which to measure the
provision described in note 11.
Intangible assets are non-physical assets which have been obtained as part of
an acquisition and which have an identifiable future economic benefit to the
Group at the point of acquisition. Customer bases are valued at acquisition by
measuring the estimated future discounted cash flows over a ten-year period
from the date of acquisition, depending on class and date of acquisition and
assuming a diminution for retention rate specific to each customer base,
calculated using the average actual retention rate over the prior three or
five-year period. All future cash flows are discounted using a discount rate,
based on the internal rate of return for each asset, calculated over its
useful economic life.
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. A
reconciliation between the non-statutory measure of Trading Group EBITDA(1)
and the statutory operating loss is shown in the Income Statement. A
reconciliation of Adjusted Trading Group EBITDA is shown in the Financial
Review. 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 condense our reporting
segments into two 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(1) is
reported as a single segment.
3.1.1 Revenue
2022 2021
£'000
£'000
Managed IT Services 17,056 5,648
Value added resale 7,137 2,459
Total Revenue 24,193 8,107
3.1.2 Revenue
2022 2021
£'000
£'000
Recognised over time 16,187 5,066
Recognised at a point in time 8,006 3,041
Total Revenue 24,193 8,107
4. Exceptional Items
Items which are material and non-routine in nature are presented as
exceptional items in the Consolidated Income Statement.
2022 2021
£'000 £'000
Costs relating to the acquisition of CloudCoCo Connect Limited (formerly IDE (58) -
Group Connect Limited)
Dilapidations costs (46) -
Run-off costs relating to discontinued data centre services (138) -
Costs relating to the acquisition of Systems Assurance Limited and More - (202)
Computers Limited
Costs relating to the Placing - (171)
Integration and restructure costs (320) (68)
Exceptional items (562) (441)
Integration and restructure costs relate to notice period, redundancy, holiday
pay and severance payments made to staff whose roles were duplicate or whose
employment was terminated during the year as part of integrating the
acquisitions made in late 2021.
Run-off costs relating to discontinued data centre services contain
unrecoverable operating expenses incurred during the year for data centre
racks that were empty on acquisition.
5. Operating loss
2022 2021
£'000
£'000
Operating loss is stated after charging:
Depreciation of owned assets 50 29
Depreciation of right of use assets 644 68
Short life lease expense: IFRS16 data centre short-life leases 1,538 34
Amortisation of intangibles 1,286 1,009
Auditor's remuneration:
- Audit of parent company 53 27
- Audit of subsidiary companies 106 53
Government grants were received in the year of £nil (2021: £67,000) as
part of the Coronavirus Job Retention Scheme ("furlough") and 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:
2022 2021
£'000 £'000
Interest income resulting from short-term bank deposits 1 1
Finance income 1 1
Interest expense resulting from:
Lease liabilities 75 12
Interest on borrowings 17 12
Loan note interest 651 505
Interest on Government related COVID19 VAT deferral scheme - 6
Unwinding of the discount on provisions 29 -
Finance costs 772 535
Loan note interest includes £526,000 (2021: £420,000) which is accrued and
is only payable when the loan notes are repaid in October 2024 or earlier if
the Group chooses.
7. Income tax
2022 2021
£'000 £'000
Current tax
UK corporation tax for the period at 19% (2021: 19%) - -
Deferred tax
Deferred tax credit/ (charge) on intangible assets 321 (83)
Total tax credit / (charge) for the year 321 (83)
The relationship between expected tax (credit) / expense based on the standard
rate of tax in the UK of 19% (2021: 19%).
The tax expense actually recognised in the Consolidated Income Statement can
be reconciled as follows:
2022 2021
£'000 £'000
Loss for the year before tax: (2,608) (2,045)
Tax rate 19% 19%
Expected tax credit (496) (389)
Adjusted for:
Non-deductible expenses 57 59
Change in tax rates - 334
Differences in tax rates (1) (60)
Movement in unprovided deferred tax relating to losses 150 135
Short-term timing differences (31) 4
Total tax (credit) / charge for the year (321) 83
The Group has unrecognised deferred tax assets in respect of tax losses
carried forward totalling £2,824,000 (2021: £2,196,000). There are no
restrictions in the use of tax losses. 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 FY21, the
substantively enacted tax rate increased from 19% to 25% with effect from 1
April 2023, and is applied in the measurement of deferred tax as reflected in
the table above.
8. Loss per share 2022 2021
£'000 £'000
Loss attributable to ordinary shareholders (2,287) (2,128)
Weighted average number of Ordinary Shares in issue, basic and diluted 706,215,686 510,759,930
Basic and diluted loss per share (0.32)p (0.42)p
The weighted average number of ordinary shares for the purpose of calculating
the basic and diluted measures is the same.
9. Intangible assets
Intangible assets are non-physical assets which have been obtained as part of
an acquisition or research and development activities, such as innovations,
introduction and improvement of products and procedures to improve existing or
new products. All intangible assets have an identifiable future economic
benefit to the Group at the point the costs are incurred. The amortisation
expense is recorded in administrative expenses in the Consolidated Income
Statement
Intangible assets Goodwill IT, billing and Brand Customer Total
£'000 website £'000 lists £'000
systems £'000
£'000
Cost
At 1 October 2020 9,835 182 1,657 9,280 20,954
Business combinations 253 179 470 141 1,043
At 30 September 2021 10,088 361 2,127 9,421 21,997
Business combinations (note 15) 1,193 - 256 2,024 3,473
At 30 September 2022 11,281 361 2,383 11,445 25,470
Accumulated amortisation
At 1 October 2020 - (158) (978) (3,594) (4,730)
Charge for the year - (26) (54) (929) (1,009)
At 1 October 2021 - (184) (1,032) (4,523) (5,739)
Charge for the year - (18) (123) (1,145) (1,286)
At 30 September 2022 - (202) (1,155) (5,668) (7,025)
Impairment
At 1 October 2020 (4,447) - (225) (1,193) (5,865)
Charge in the year - - - - -
At 1 October 2021 (4,447) - (225) (1,193) (5,865)
Charge in the year - - - - -
At 30 September 2022 (4,447) - (225) (1,193) (5,865)
Carrying amount
At 30 September 2022 6,834 159 1,003 4,584 12,580
At 30 September 2021 5,641 177 870 3,705 10,393
Average remaining amortisation period 8.8 years 8.2 years 4.0 years 4.5 years
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are independent cash inflows (cash generating units).
Goodwill is allocated to those assets that are expected to benefit from
synergies of the related business combination and represent the lowest level
within the Group at which management monitors the related cash inflows. The
directors concluded that at 30 September 2022, there were four CGUs being
CloudCoCo Limited, CloudCoCo Connect Limited (formerly IDE Group Connect
Limited), Systems Assurance Limited and More Computers Limited.
Each year, management prepares the resulting cash flow projections using a
value in use approach to compare the recoverable amount of the CGU to the
carrying value of goodwill and allocated assets and liabilities. Any material
variance in this calculation results in an impairment charge to the
Consolidated Income Statement.
The calculations used to compute cash flows for the CGU level are based on the
Group's Board approved budget for the next twelve months, and business plan,
growth rates for the next five years, weighted average cost of capital
("WACC") and other known variables. The calculations are sensitive to
movements in both WACC and the revenue growth projections. The impairment
calculations were performed using post-tax cash flows at post-tax WACC of
13.25% (FY21: 11.25%) for each CGU. The pre-tax discount rate (weighted
average cost of capital) was calculated at 18% per annum (FY21:15%) and the
revenue growth rate is 5% per annum (FY21: 5%) for each CGU for 5 years and a
terminal growth rate of 2% (FY21: 2%).
10. Property, plant and equipment Right of Use Assets IT equipment Fixtures, Total
£'000 £'000 fittings and £'000
leasehold
improvements
£'000
Cost of assets
At 1 October 2020 336 243 41 620
Additions - 24 7 31
Disposals (58) - - (58)
Business combinations - - 1 1
At 30 September 2021 278 267 49 594
Additions 680 115 - 795
Modifications 378 - - 378
Disposals - (190) (20) (210)
Business combinations (note 15) 303 9 2 314
At 30 September 2022 1,639 201 31 1,871
Depreciation
At 1 October 2020 164 194 41 399
Charge for the year 68 27 2 97
Disposals (51) - - (51)
At 30 September 2021 181 221 43 445
Charge for the year 644 42 8 694
Disposals - (190) (20) (210)
At 30 September 2022 825 73 31 929
Net book value
At 30 September 2022 814 128 - 942
At 30 September 2021 97 46 6 149
The net book value of right of use assets at 30 September 2022 comprised:
Land & Data Centre Motor Vehicles Total
buildings
Assets
£'000 £'000 £'000
£'000
At 30 September 2022 55 756 3 814
At 30 September 2021 85 - 12 97
The depreciation charge in respect of right of use assets comprises £530k in
respect of data centre assets and £114k in respect of property and other
assets. Data centre assets are described in more detail in Note 12.
11. Provision for onerous contracts
2022 2021
£'000 £'000
Provisions for onerous contracts - short-term element 148 -
Provisions for onerous contracts - long-term element 927 -
Provisions for onerous contracts 1,075 -
As part of the acquisition of CloudCoCo Connect Limited (formerly IDE Group
Connect Limited) the Group become party to a number of onerous contracts for
redundant dark-fibre circuits that remain under term contracts which expire
over numerous accounting periods up until November 2032. The total amount
payable over the term in relation to onerous contracts is £1.3 million and
was reflected in the lower acquisition price paid for the business in October
2021.
2022 2021
£'000 £'000
Opening balance - -
Business combinations (see note 15) 1,199 -
Payments (153) -
Unwinding of discount 29 -
Closing balance 1,075 -
An onerous contract is one where the cost of fulfilling the contract exceeds
the economic benefits that will be received. In other words, it is a contract
that is expected to result in a loss. Under IFRS, we are required to recognise
the expected losses from an onerous contract as a liability in the financial
statements.
The recognition of the onerous liability is based on a reliable estimate of
the expected costs and benefits of the contract. The liability has been
recognised in the opening balance sheet for Connect and has been measured at
the present value of the expected future cash outflows, using a discount rate
equivalent to the current risk-free rate of government bonds over the term of
the onerous contracts. The provision for these contracts at 30 September
2022 were £1.1 million (2021: nil).
12. Lease Liabilities
The acquisition of the Connect business delivered with it 32 data centre
locations. The majority of data centres are leased from third-party suppliers
on renewable contract terms of up to 5 years in duration. Many of these data
centre leases can be auto-renewed, resized or terminated in the months leading
up to the end of the term, creating a new or modified leases in excess of
twelve months, which then fall under IFRS16 as a right of use asset with
associated lease.
During the year, the Group entered into new or modified IFRS16 right of use
leases of £1.1 million. Those leases, which had less than 12 months remaining
on the date of acquisition, were treated as short-term leases up until the
point at which they were renewed or modified.
2022 2021
£'000 £'000
Opening balance 97 183
Additions 711 -
Modifications 378 -
Leases acquired on the acquisition of CloudCoCo Connect Limited (formerly IDE 397 -
Group Connect Limited)
Leases acquired on the acquisition of Systems Assurance Limited - 34
Related interest expense 75 8
Repayment of lease liabilities (813) (128)
Closing balance 845 97
2022 2021
£'000 £'000
Current 733 86
Non-current 112 11
845 97
The total cash outflows from leases (including lower value and short-life
leases) in the financial year was £2,351,000 (2021: £154,000) of which
£1,538,000 relates to short-life leases (2021: £34,000).
13. Financial instrument
As part of a loan note consolidation on 21 October 2019, the Company agreed to
modify a loan note originally provided to Business Growth Fund ("BGF") on 26
May 2016. The original loan note contained a provision for share options which
were immediately exercised. The directors considered 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, was derecognised and
recorded in equity.
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.
14. Net debt - net debt comprises: 2022 Cash Other 2021
movements
movements
£'000
£'000
£'000
£'000
Loan notes (see note 13) 4,558 - 650 3,908
COVID-19 Bounce-back loans 82 (18) - 100
Deferred consideration 152 (180) 177 155
Lease liabilities 845 (814) 1,562 97
Cash and cash equivalents (1,516) (333) - (1,183)
Total 4,121 (1,345) 2,389 3,077
15. Acquisition of CloudCoCo Connect Limited (formerly IDE Group Connect
Limited)
On 19 October 2021, the Company acquired IDE Group Connect Limited and its
subsidiary Nimoveri Limited (together, the "Acquisitions") from IDE Group
Holdings PLC ("IDE") for a deferred 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 fair value of the deferred consideration, £143,000, was
measured using a rate of 12% reflecting the Company's cost of borrowing based
on its loan notes.
The acquisition of 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. The
Group assessed the fair value of the acquisition of CloudCoCo Connect Limited
as follows:
Book Cost Fair Value Adjustment Fair Value
£'000 £'000 £'000
Non-current assets
Intangible assets - brand - 256 256
Intangible assets - customer lists 15 2,009 2,024
Property, plant and equipment 11 - 11
Right of use assets - 303 303
Total non-current assets 26 2,568 2,594
Current assets
Trade and other receivables 1,382 (74) 1,308
Cash at bank 497 - 497
Total current assets 1,879 (74) 1,805
Total assets 1,905 2,494 4,399
Current liabilities
Lease liability (92) (258) (350)
Trade and other payables (1,838) 207 (1,631)
Other taxes and social security costs (192) - (192)
Contract liabilities (1,063) - (1,063)
Provisions for onerous contracts - (160) (160)
Accruals (382) - (382)
(3,567) (211) (3,778)
Non-current liabilities
Contract liabilities (15) - (15)
Lease liability (2) (45) (47)
Provisions for onerous contracts - (1,039) (1,039)
Deferred tax liability - (570) (570)
Total liabilities (3,584) (1,865) (5,449)
Net Liabilities (1,679) 629 (1,050)
Consideration in cash -
Fair value of deferred consideration loan 143
Fair value of cost of acquisition 143
Goodwill 1,193
The goodwill arising on this acquisition was attributable to the management
team, technical skills and product knowledge and know-how, which will benefit
the Group. Direct acquisition costs amounting to £58,000 were written off to
the income statement within exceptional items and included in cash flows from
operating activities.
The acquisition of Connect added a core fibre network and 32 data centre
locations to the Group. The acquisition contained a number of onerous
contracts for redundant dark-fibre circuits that remain under term contracts
which expire over numerous accounting periods up until November 2032. The
total amount payable over the term in relation to onerous contracts is £1.3
million and was reflected in the lower acquisition price paid for the business
in October 2021. This was recorded at fair value in the acquired balance sheet
as a provision of £1.2 million.
The majority of data centres are leased from third-party suppliers on
renewable contract terms of up to 5 years in duration. Many of these data
centre leases can be modified in the months leading up to renewal, creating a
new or modified leases in excess of twelve months, which then fall under
IFRS16 as a right of use asset with associated lease. These new or modified
leases are recorded at fair value in the acquired balance sheet at £0.3
million as right of use assets.
Gross trade receivables acquired were £1,653,000 before a loss allowance of
£271,000. Further analysis showed an additional loss allowance of £74,000
was required and was recognised on acquisition, giving a net trade receivables
balance of £1,308,000.
The Group acquired over 300 business customers as part of the business
combination with Connect. Intangible assets in respect of customer lists
reflect the contractual recurring nature of the entity's revenue base. The
fair value of the customer lists was estimated by discounting the future
cashflows that will be generated from the acquired customer base, including an
estimate of customer attrition over time. During the year, the Connect
acquisition contributed £11.6 million of revenues. Due to the use of shared
overheads it is not possible to accurately calculate the impact that the
acquisition had on operating profits during the year.
16. Post Balance Sheet events
There are no post balance sheet events to report.
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