REG - Cloudcoco Group PLC - Final Results
30/04/2024 07:00
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RNS Number : 5016M Cloudcoco Group PLC 30 April 2024
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.
30 April 2024
CloudCoCo Group plc
("CloudCoCo", the "Company" or the "Group")
Final Results
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 2023
("FY 2023").
Highlights:
· Revenue increased by 7% to £26.0 million (2022: £24.2 million), of which 64%
was generated from recurring contracts (2022: 67%)
· VAR revenues increased by 13% to £8.0 million (2022: £7.1 million) with 46%
being fulfilled online via the MoreCoCo e-commerce platform.
· Gross profit increased by 6% to £8.4 million (2022: £7.9 million), a margin
of 33% (2022: 33%)
· Trading Group EBITDA(1) increased by 19% to £1.9 million (2022: £1.6
million)
· Continued new customer wins and increased traction in multi-cloud and cyber
security divisions
· 85% increase in MoreCoCo e-commerce sales to £3.7m (FY22: £2.0m) in line
with growing demand for next-day delivery of technology products
· Expansion of strategic partnerships
· Post-period end extension of repayment date of legacy loan notes to 31 August
2026
(1) profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional costs and share-based payments
As announced this morning, Mark Halpin has stepped down from the Board and his
position as Chief Executive Officer with immediate effect. Ian Smith will
join CloudCoCo, initially as a consultant to the Board, acting as Interim CEO
of the Group's trading entities.
Simon Duckworth, Chairman of CloudCoCo, commented:
"The IT industry is evolving quickly and with change comes opportunity. In
order to capitalise on this, a great deal of hard work has been carried out
across the Group to enhance, reorganise and streamline different functions
with an emphasis on seamless collaboration. The year was not without its
challenges, but we are moving through FY24 as a leaner and more focused
business with everyone pulling in the same direction.
Looking ahead, the deferral of the 2024 Loan Notes until late 2026 will help
us to continue pursuing an organic growth strategy, responding quickly and
effectively to market developments while leveraging our strategic partners to
punch above our weight in the products and services we provide."
The Company's Annual Report will be available on the Company's website on 30
April 2024 and will be posted to shareholders tomorrow along with notice of
the Annual General Meeting to be held on 29 May 2024. Copies of these
documents are available on the Company's website at www.cloudcoco.co.uk
(http://www.cloudcoco.co.uk) .
Contacts:
CloudCoCo Group plc Via Alma
Simon Duckworth (Chairman)
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 Strategic Communications - (Financial PR) Tel: +44 (0)20 3405 0205
David Ison cloudcoco@almastrategic.com
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,
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
Overview
I am pleased to report our annual results for the year ended 30 September
2023.
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.
In the face of a challenging economic environment, we have steadfastly pursued
our strategic objectives, achieving a commendable financial performance. Our
focus on connectivity, multi-cloud, collaboration, and cyber security has
fortified our market position, driving both revenue and Trading Group
EBITDA(1) growth.
Whilst much of the year was spent looking at options to refinance the legacy
loan notes, which were due for repayment in October 2024, we were unable to
secure suitable terms in the current climate. Our loan note holder, MXC
Guernsey Limited, has agreed that the repayment date for the loan notes will
be extended to 31 August 2026. Further details of the loan note extension can
be found in the Financial Review and in Note 13 and Note 15. We thank MXC
Guernsey Limited for its continued support and flexibility.
As announced this morning, Mark Halpin has stepped down from the Board and his
position as Chief Executive Officer ("CEO") with immediate effect. Mark was an
original founder of the CloudCoCo Limited business, which was acquired into
the Group in October 2019. We would like to thank Mark for his service to the
business during a period of both organic and acquisitive growth and wish him
well with his future endeavours. Ian Smith (CEO of MXC Capital Limited, the
parent of MXC Guernsey Limited) will join CloudCoCo, initially as a consultant
to the Board, acting as Interim CEO of the Group's trading entities.
This report outlines the Group's solid performance in FY23 amidst economic
challenges, with growth in revenue and a significant increase in Trading Group
EBITDA(1). It details the Group's focus on growth through customer engagement
and expansion in key areas like Connectivity, Multi-Cloud, Collaboration, and
Cyber Security. The Group's efforts in rebranding assets, forming strategic
partnerships, and enhancing e-commerce platforms are highlighted. Despite
market challenges, we have made notable progress in sales, customer base
expansion, and operational efficiencies, setting a strong foundation for
future growth.
Our innovative approach and strategic investments in key technology areas
position us well for sustained growth in the evolving IT landscape.
People
Following the successful novation of the dedicated outsourced service desk
contract back to the customer in May 2023, CloudCoCo now comprises over 90
talented people.
We were pleased to be able to recruit some experienced industry specialists
into the Multi-Cloud and Cyber Security pillars during the year and we have
already seen some notable success from this investment. We have encouraged our
specialists to build an expert practice within our business, and actively
engage with our existing customer base. This activity has seen our pipeline of
sales orders increase and a number of new multi-year recurring contracts. We
expect this to continue in what is fast becoming an area of significant
potential for the business.
Our confidence in reaching our long-term growth ambitions rest on our ability
to develop our existing pool of talented people as well as attracting new
talent to the organisation. We have invested in expanding and optimising our
teams during the year, including a number of important hires in key strategic
areas including sales, new business and technical support. These hires
complement our existing team and will help shape the direction of the Group as
we continue to grow.
Outlook for the current financial year
While conscious of the prevailing economic headwinds and the impact on some of
our customers, we are well placed to continue to navigate them and are
confident of making continued steady strategic and commercial progress in the
current financial year.
Simon Duckworth
Chairman
29 April 2024
Trading Review
Introduction
Despite a challenging macroeconomic climate, the Group delivered an FY23
performance in line with market expectations. Revenue for the period was
£26.0 million and Trading Group EBITDA(1), a core KPI for the Group,
increased 19% to £1.9 million.
Our proposition
Our proposition remains 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.
Our aim is to help transform our customers' operations by supplying and
supporting technologies that deliver greater efficiency, connectivity, and
innovation to help them achieve their own objectives.
Trading Performance
Now that the acquisitions completed in 2021 have been fully integrated, we
have an expanded platform to drive organic growth. Trading performance in the
year was driven by a focus on sales across our four core pillars, supported by
growth in e-commerce revenues. We bolstered our sales function during the year
and reorganised our teams to ensure a cohesive, unified sales approach across
the Group.
During the latter part of the year, we focussed our marketing efforts on
multi-cloud and cyber security opportunities and this has seen an increase in
both areas of the business, attracting a number of new logo customers and
securing new revenue streams into our existing customer base. To this end we
made several key appointments across each of our four pillars of our
proposition and are excited about the value they will
bring.
We are also pleased to report growth in the number of new logo customers
acquired this year, while exceeding expectations in existing customer contract
renewals in the year. This is a particular highlight and testament to the
investments we have made in delivering high quality customer service over the
last few years.
Whilst the general increase in UK energy prices and the resulting inflationary
increases across all sectors puts pressure on our customers' own operations,
we recognise that this can lead to some cancellations, but we have been able
to deliver overall customer retention of 88% in the year to February 2024.
Progress against FY 2023 objectives
Accelerate sales
We achieved revenues of £26.0 million in the 12 months to 30 September 2023,
compared to £24.2 million in the year prior. .
Revenues 2023 2022
£'000
£'000
Managed IT Services 17,977 17,056
Value added resale 7,976 7,137
Total Revenue 25,953 24,193
We took the decision in the latter part of FY22 to invest and re-organise our
sales and marketing functions. The acquisitions we made in 2021 enhanced the
offerings available from the Group, introducing e-commerce sales, data centre
and colocation sites and a core fibre network. This complemented our existing
Managed IT services, collaboration and cyber security revenue streams.
We continue to attract new logo customers and build our new business pipeline
at a healthy rate despite these headwinds posed to organisations across the
UK.
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 was £13.7m, just under three times the same figure in
2021 but a reduction in the figure achieved during FY22 of £15.7m, mainly as
a result of the economic backdrop. Our sales teams continue to prioritise
larger, multi-year contracts and we added 42 new customers in the year across
a range of sectors.
MoreCoCo
MoreCoCo, our scalable e-commerce technology business, has been a particular
success following a rebrand and improvements made to the site. We saw
impressive growth in line with the growing demand across the wider e-commerce
industry for technology goods, with sales from the site increasing 85% to
£3.7m (FY22: £2.0m).
In H2, we announced a partnership with a global leader in the purchase,
restoration and sale of refurbished IT hardware. This partnership has further
supported the growth of MoreCoCo through the supply of more than 15,000
products, while also improving our sustainability credentials.
We have continued to see increased demand from businesses and consumers who
want to purchase IT hardware and consumables online. MoreCoCo gives us a
crucial competitive advantage in today's business environment and enables us
to deliver choice and convenience 24/7 with next day delivery and tracking
assured for a reliable customer experience.
Maintain excellent support levels
We retain our commitment to delivering a best-in-class customer service to our
customers, ensuring the
We retain our commitment to delivering a best-in-class customer service to our
customers, ensuring the best possible response times. With this in mind, as
previously reported, we restructured our customer services function in H1 in
order to unify our technical support operations, alongside investment into new
talent.
We also took steps to re-organise and optimise our sales and support functions
to enable a greater focus and collaboration across our teams. This came
hand-in-hand with investment in new talent and resources and has led to
further cost savings in the business. As a result, the Group has ended the
year as a significantly leaner and more efficient operation.
We remain focused on making every interaction our customers have with us a
delight and, reflecting this, our current customer satisfaction levels are
exceptional. These have been enhanced by a change to our customer service
structure in H1 2023, which unified our technical support operations, as well
as investments into new talent. As a result, we are pleased to report customer
satisfaction levels in excess of 95% in February 2024.
Drive efficiencies and strengthen financial position
A key focus for management during the period was the continued reduction of
costs and improving of efficiencies across the Group. Our proactive cost
reduction measures have continued through the review of supplier
relationships, resulting in a reduction from 450 to 220 suppliers and
identification of over £50,000 in ongoing monthly savings, enhancing the
Group's profitability into FY24.
However, this cost benefit was masked somewhat by the increases seen in the
cost of power in our data centre locations and the flow of annual retail price
index increases from connectivity and service providers. Our recurring
contracts allow us to pass third-party price increases on to customers.
Whilst we increased investment in our sales and marketing activities
throughout the year, we have continued to review and assess our supplier
relationships with a view to achieving further reduction in
costs.
Through these measures, alongside our continued positive trading performance,
we remain confident in the Group's ability to drive growth as economic
conditions improve.
Dedicated outsourced IT helpdesk
As part of the acquisition of CloudCoCo Connect in 2021, we inherited a
dedicated outsourced IT helpdesk contract, which had been run exclusively for
a UK health and leisure brand, seven days a week. In May 2023, we agreed to
novate this service back to the customer in-house, so that the staff dedicated
to this exclusive service could be employed directly by the customer. Whilst
this reduced annual recurring revenues by £0.9m per annum, the net impact on
trading profit was marginal as this freed up management resources to focus
attention on delivering new sales and shared IT services for our wider
business customer base.
Strategic partnerships
Strategic partnerships form another key area of the Group's strategy to expand
our range of opportunities. In April 2023, we announced a partnership with
Abstract Tech, a Leeds-based consultancy which specialises in the delivery of
large scale, digital transformation projects. This partnership provides
CloudCoCo with the talent and expertise of Abstract's 150 technicians,
enabling the Group to take on a broader range of Multi-Cloud projects.
Alongside this, the Group also announced the signing of a partnership with
Ingram Micro, the world's largest global business-to-business wholesale
provider of technology products and supply chain management services, for the
supply of Microsoft Azure and other cloud services. These beneficial
partnerships allow us to punch above our weight in Multi-Cloud (the
utilisation of Azure, AWS and Google Cloud platforms), an increasingly
important requirement when pursuing larger and more complex Managed Services
contracts. These partnerships open up a range of potential new revenue
opportunities.
Current trading and outlook
The extension of the loan note term agreed with MXC Guernsey will allow the
Group to focus on the development of its business.
While the current economic climate will continue to present near-term
challenges, the work that has been completed to streamline and focus the Group
positions it well for continued progress in FY24, particularly in the areas of
Cyber Security and Multi-cloud.
--
Darron Giddens
29 April 2024
(
1) profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional items and
share-based payments.
(2) Source: Mordor Intelligence (https://www (https://www)
.mordorintelligence.com/industry-reports/uk-cybersecurity-
market)
(3) Multi Cloud Computing Market Size, Share, Growth 2032
(marketresearchfuture.com)
Financial review
Revenue and gross margin
Group revenue for the year to 30 September 2023 grew by 7% to £26.0 million
(FY22 £24.2 million) during a challenging economic period for UK businesses.
The impact of the increased cost of power and high inflation rates saw a rise
in the wholesale price of IT services, which in turn also resulted in price
increases to our customers.
Our revenues produced a total gross profit of £8.4 million (FY22: £7.9
million) representing a gross margin of 32.3% (FY22: 32.6%) reflecting the
combination of services provided by our own people and the cost of software
and services that we buy from third-party vendors to deliver our managed
solutions.
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
69% (2022: 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 by £0.9 million to £18.0
million in the year, having produced £17.1 million of revenue in FY22.
In line with our objective to grow the recurring contracted revenue base, we
increased such revenues to £16.7 million (2022: £16.2 million). 93% (2022:
95%) of all Managed IT Services revenues were provided under recurring
contacts. In most instances, new customer contracts are sold for an initial
period of 3 years, although existing recurring contracts allows customers to
auto-renew on similar terms at each anniversary.
Providing a comprehensive service to our customers involves delivering the
necessary technical expertise, project coordination, and equipment for a
variety of IT projects that help support their business operations. Revenues
generated from professional services increased by 44% in FY23 to £1.3 million
having generated £0.9 million in the prior year. This significant increase
reflects the increased demand we are seeing for digital transformation and
cyber security projects.
Value added resale
Value added resale ("VAR") is the resale of one-time solutions (hardware and
software) from our leading technology partners, including revenues from the
MoreCoCo e-commerce platform.
Revenues from VAR were £8.0 million in FY23, increasing by £0.9 million from
£7.1 million achieved in FY22. In line with the continuing trend towards
online buying and next day delivery, 46% of VAR revenues were fulfilled online
via MoreCoCo, having represented 28% in the prior year.
One consequence of increasing sales from the highly competitive and price
sensitive VAR e-commerce market are lower gross profit margins required in
order to win business, although this is compensated by lower internal labour
costs with no or low touch transactions. Where VAR products form part of an IT
project, we are prepared to take a reduced profit margin on the hardware
element to support the more profitable professional services
revenues.
VAR generated a gross profit of £0.9 million (FY22: £1.4 million) and gross
margin of 11% (FY22: 25%).
Operating costs and performance
Excluding plc costs of £0.9 million (FY22: £0.8 million), our operational
trading overheads(2) increased to £6.5 million (FY22: 6.4 million) as a
result of increased investment in sales and marketing,
As an employee led business, 91% (FY22: 93%) of our operational trading
overheads relate to staff costs. Maintaining an optimal blend of talent and
skills to serve our customers effectively is key, ensuring no talent remains
underutilised. We are constantly exploring methods to enhance the value
derived from our operational costs, focusing on strategic collaborations and
leveraging 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 £0.3
million to £1.9 million in the year (2022: £1.6 million).
The acquisition of Connect in 2021 added 30 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 11). 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.
Plc costs
Plc costs in the year increased by £0.1 million to £0.9 million (2022: £0.8
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 relevant professional costs. Whilst this year includes a
full-year of cost for the Executive Directors, the increase in costs relates
primarily to insurances and financial audit fees for the acquired
subsidiaries. Following the completion of the subsidiary accounts for the
accounting periods ending in 2022, the Group undertook a review of its audit
partner and appointed Barnes Roffe LLP as its new independent external
auditors in November 2023.
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 £0.3 million (2022: £0.6
million), of which £0.1 million (2022: £0.5 million) relates to restructure
costs as we continue to right-size the business following the acquisitions
made in 2021. 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 £0.8 million (2022:
£0.8 million). £0.7 million (2022: £0.6 million) of this was accrued
interest on loan notes payable. The remaining £0.1 million (2022: £0.2
million) relates to £0.2 million of interest resulting from IFRS16 lease
liabilities, less a credit of £0.1 million relating to the unwinding of the
discount on provisions.
The Group incurred other costs including total amortisation and depreciation
charges of £2.4 million (2022: £2.0 million) and recognised a credit against
share-based payments charge of £119,000 (2022: £119,000). Depreciation
includes £0.9 million relating to IFRS16 data centre right of use assets
(2022: 0.5 million) and £0.2 million relating to tangible assets (2022: £0.2
million). After accounting for a deferred tax credit of £0.5 million (2022:
£0.3 million credit) arising as part of business combinations, the reported
loss for the year after tax was £2.1 million compared to a loss after tax for
the year to 30 September 2022 of £2.3 million.
Statement of Financial Position and cash
The Group had positive net assets at 30 September 2023 totalling £1.0 million
(2022: £3.0 million) and the cash position reduced by £0.7 million to £0.8
million (2022: £1.5 million). The requirement for us to amortise acquired
customer bases over 10 years, despite having business relationships that have
extended for over 20 years, causes net assets to deplete quicker than the
underlying revenues that support the intangible assets.
The Group had a net cash outflow during the year of £0.7 million (2022:
inflow £0.3 million), the main components being:
· Cash inflow generated from operating activities excluding the costs
of acquisition of £0.8 million (2022: cash inflow of £1.0 million);
· Payments of deferred consideration for the acquisition of the Connect
business of £50,000 during the period (2022: £25,000); and
· Investment in tangible assets of £0.3 million made up of £0.2
million for IT equipment to drive recurring revenues and £0.1 million
investment in developing the new MoreCoCo e-commerce platform.
· Payments of lease liabilities of £1.0 million (2022: £0.8 million)
Current assets reduced by £1.3 million to £5.7 million, mainly as a result
of the £0.7 reduction in cash balance but also as a result of other positive
outcomes including of an improvement in trade receivable days and a reduction
in stock and inventories held at year end. We also saw a reduction in contract
assets held for work carried out but waiting to be invoiced at year end.
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.
Contract liabilities reduced by £0.4 million to £2.1 million (2022: increase
£1.2 million) reflecting the fact that customers are consuming prepaid
services during the year and that our new standard recurring contracts are
generally being signed for 3 years with customers less inclined to signed 5+
year contracts, in the current economic climate. The prior year reflected the
acquisition of multi-year recurring customers contracts with the Connect
business.
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 £2.2 million to £6.3 million during the year.
Net debt comprises cash balances of £0.8 million less the loan notes and
rolled up interest of £5.3 million, together with £0.2 million deferred
consideration owed for the acquisition of Connect and shown at fair value. A
further £1.6 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 £1.2 million (FY22: £1.1
million).
Tangible assets at year-end increased by £0.2 million (2022: £0.2 million)
and the costs of additional capex in the year of £346k (FY22: £115k), the
majority of which were acquired to generate Managed IT services revenues from
customers. We also channelled investment into the MoreCoCo e-commerce
platform, which will deliver additional returns in FY24.
The acquisition of the Connect business came with a core fibre network and 30
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 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). This is shown as a separate provision in the financial statements.
Further details on the financial position of the Group are contained in the
going concern section of the Directors' Report.
Loan Notes
On 29 April 2024, MXC Guernsey Limited ("MXCG") agreed to extend the
redemption date of the loan notes detailed in Note 21 from 21 October 2024 to
31 August 2026. Interest will continue to accrue on the loan notes at the
current rate of 12% until redemption. All other terms of the loan notes remain
the same.
As consideration for the extension, effective from 22 October 2024, MXCG will
charge the Company a fee of £550,000 for providing the extension. Payment of
this fee will be deferred until the redemption of the loan notes and it will
accrue interest at the same rate as the loan notes. MXCG will also have the
right to appoint a consultant to, or an Executive Director of, the Company's
Board in addition to its current non-executive representative and will have
the right at any time to increase its loan security in the form of a full
debenture over all Group Companies.
(
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 2023
Note 2023 2022
£'000 £'000
Continuing operations
Revenue 3 25,953 24,193
Cost of sales (17,508) (16,246)
Gross profit 8,445 7,947
Administrative expenses (10,202) (9,784)
Trading Group EBITDA (1) 1,915 1,594
Amortisation of intangible assets 9 (1,285) (1,286)
Plc costs(2) (863) (770)
Depreciation of IFRS16 data centre right of use assets 10 (879) (530)
Depreciation of tangible assets and other right of use assets 10 (249) (164)
Exceptional items 4 (277) (562)
Share-based payments (119) (119)
Operating loss 5 (1,757) (1,837)
Interest receivable 6 4 1
Interest payable 6 (813) (772)
Loss before taxation (2,566) (2,608)
Taxation 7 475 321
Loss and total comprehensive loss for the year attributable to owners of the (2,091) (2,287)
parent
Loss per share
Basic and fully diluted 8 (0.30)p (0.32)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 2023
30 September 30 September 2022
2023
£'000 £'000
Non-current assets
Intangible assets 9 11,295 12,580
Property, plant and equipment 10 312 128
Right of Use assets 10 1,530 814
Total non-current assets 13,137 13,522
Current assets
Inventories 76 165
Trade and other receivables 4,443 4,766
Contract assets 395 558
Cash and cash equivalents 794 1,516
Total current assets 5,708 7,005
Total assets 18,845 20,527
Current liabilities
Trade and other payables (6,878) (6,890)
Contract liabilities (1,820) (1,891)
Provision for onerous contracts 11 (148) (148)
Borrowings (69) (69)
Lease liability 12 (1,138) (733)
Total current liabilities (10,053) (9,731)
Non-current liabilities
Contract liabilities (311) (601)
Provision for onerous contracts 11 (684) (927)
Borrowings (5,335) (4,723)
Lease liability 12 (476) (112)
Deferred tax liability (951) (1,426)
Total non-current liabilities (7,757) (7,789)
Total liabilities (17,810) (17,520)
Net assets 1,035 3,007
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 370 458
Retained earnings (32,513) (30,629)
Total equity 1,035 3,007
Consolidated statement of changes in equity
for the year ended 30 September 2023
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
Share Share Capital Merger Other Retained Total
capital premium redemption reserve reserve earnings £'000
£'000 £'000 reserve £'000 £'000 £'000
£'000
At 1 October 2022 7,062 17,630 6,489 1,997 458 (30,629) 3,007
Loss and total comprehensive loss for the period - - - - - (2,091) (2,091)
Transactions with owners in their capacity of owners
Share-based payments - - - - 119 - 119
Share options lapsed - - - - (207) 207 -
Total transactions with owners - - - - (88) (1,884) (1,972)
Total movements - - - - (88) (1,884) (1,972)
Equity at 30 September 2023 7,062 17,630 6,489 1,997 370 (32,513) 1,035
Consolidated statement of cash flows
for the year ended 30 September 2023
2023 2022
£'000 £'000
Cash flows from operating activities
Loss before taxation (2,566) (2,608)
Adjustments for:
Depreciation - IFRS data centre right of use assets 879 530
Depreciation - other right of use assets 87 50
Depreciation - owned assets 162 114
Amortisation 1,285 1,286
Share-based payments 119 119
Net finance expense 809 771
Costs relating to acquisitions - 58
Movements in provisions (140) (153)
Decrease / (increase) in trade and other receivables 414 (1,064)
Decrease / (increase) in inventories 88 (79)
(Decrease) / increase in trade payables, accruals and contract liabilities (298) 2,014
Net cash inflow / (outflow) from operating activities before acquisition costs 839 1,038
Costs relating to acquisitions - (58)
Net cash inflow / (outflow) from operating activities 839 980
Cash flows from investing activities
Purchase of property, plant and equipment (Note 10) (346) (115)
Acquisitions net of cash acquired - 497
Payment of deferred consideration relating to acquisitions (50) (180)
Interest received 4 -
Net cash inflow / (outflow) from investing activities (392) 202
Cash flows from financing activities
Repayment of COVD-19 bounce-back loan (22) (18)
Payment of lease liabilities (1,118) (813)
Interest paid (29) (18)
Net cash (outflow) / inflow from financing activities (1,169) (849)
Net increase in cash (722) 333
Cash at bank and in hand at beginning of period 1,516 1,183
Cash at bank and in hand at end of period 794 1,516
Comprising:
Cash at bank and in hand 794 1,516
Notes to the consolidated financial statements
1. General information
CloudCoCo Group plc is a public limited company incorporated and domiciled in
England and Wales under the Companies Act 2006. The address of the registered
office is given on the back cover of this report. The principal activity of
the Group is the provision of IT Services to small and medium-sized
enterprises in the UK. 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 2023 totalling £1.0 million
compared to £3.0 million at the end of FY22. This reduction being mainly
impacted by non-cash adjustments of £1.3 million of amortisation relating to
intangible assets and £0.5 million of deferred interest relating to the loan
note during the year.
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 together with the ongoing
restructuring of the originally distressed Connect business, the Group
reported a 19% percent improvement in underlying profitability as measured by
Trading Group EBITDA(1) (2023: £1.9 million; 2022: £1.6 million). Cash
inflow from operating activities before acquisition costs was £0.8 million
(FY22: £1.0 million) although cash balances overall reduced by £0.7million.
The Strategic Report describes the risks associated with the Group's
activities which 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 high inflation rate and the cost
of living crisis.
In assessing the Group's ability to continue as a going concern, the Directors
have reviewed the forecast sales growth, budgets and cash projections for the
period to 30(th) April 2025, including sensitivity analysis on the key
assumptions such as the potential impact of reduced sales or slower cash
receipts, for the next twelve months.
Based on these assumptions, 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 and accordingly 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
- IFRS 17 Insurance Contracts
- Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice
Statement 2
- Definition of Accounting Estimates - Amendments to IAS 8
- Deferred Tax related to Assets and Liabilities arising from a Single
Transaction - Amendments to
IAS 12
- International Tax Reform - Pillar Two Model Rules - Amendments to IAS 12
- Classification of Liabilities as Current or Non-current and Non-current
Liabilities with Covenants
- Amendments to IAS 1 - Lease Liability in a Sale and Leaseback - Amendments
to IFRS 16
- Disclosures: Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7
- Lack of exchangeability - Amendments to IAS 21
- Sale or Contribution of Assets between an Investor and its Associate or
Joint Venture, Amendments
to IFRS 10/IAS 28
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 2024 financial
statements are as follows
· IAS 1: Changes regarding the classification of liabilities and
accounting for covenants.
· IFRS 16: Updates related to lease liability in sale and leaseback
transactions.
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. 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 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.
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. 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
2023 2022
£'000
£'000
Managed IT Services 17,977 17,056
Value added resale 7,976 7,137
Total Revenue 25,953 24,193
3.1.2 Revenue
2023 2022
£'000
£'000
Recognised over time 16,670 16,187
Recognised at a point in time 9,283 8,006
Total Revenue 25,953 24,193
4. Exceptional Items
Items which are material and non-routine in nature are presented as
exceptional items in the Consolidated Income Statement.
2023 2022
£'000 £'000
Costs relating to acquisitions - (58)
Costs relating to re-finance of the loan notes (28) -
Dilapidations costs - (46)
Run-off costs relating to discontinued data centre services (92) (138)
Costs relating to onerous contracts settled in the year (54) -
Integration and restructure costs (103) (320)
Exceptional items (277) (562)
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 the internal
reorganisation. 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. Costs associated with exploring
options relating to the search for re-finance of the loan notes have also been
separately identified as have costs relating to onerous contracts settled
during the year.
5. Operating loss
2023 2022
£'000
£'000
Operating loss is stated after charging:
Depreciation of owned assets 162 50
Depreciation of right of use assets 966 644
Short life lease expense: IFRS16 data centre short-life leases 946 1,538
Amortisation of intangibles 1,285 1,286
Auditor's remuneration:
- Audit of parent company 30 53
- Audit of subsidiary companies 60 106
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:
2023 2022
£'000 £'000
Interest income resulting from short-term bank deposits 4 1
Finance income 4 1
Interest expense resulting from:
Lease liabilities 205 75
Interest on borrowings 7 17
Loan Note interest 601 651
Unwinding of the discount on provisions - 29
Finance costs 813 772
Loan Note interest includes £547,000 (2022: £526,000) which is accrued and
is only payable when the loan notes are repaid at the end of their term. The
original repayment date was 21 October 2024. On
29 April 2024, the repayment date for the loan notes were subsequently
extended to 31 August 2026. Further details are provided in Note 13.
7. Income tax
2023 2022
£'000 £'000
Current tax
Current tax -
UK corporation tax for the period at 22% (2022: 19%) -
Deferred tax 321
Deferred tax credit on intangible assets 475 321
The tax expense actually recognised in the Consolidated Income Statement can
be reconciled as follows:
2023 2022
£'000 £'000
Loss for the year before tax: (2,359) (2,608)
Tax rate 22% 19%
Expected tax credit (519) (496)
Adjusted for:
Non-deductible expenses (10) 57
Differences in tax rates (28) (1)
Recognition of deferred tax assets (238) -
Movement in unprovided deferred tax relating to losses 320 150
Short-term timing differences - (31)
Total tax credit for the year (475) (321)
The Group has unrecognised deferred tax assets in respect of tax losses
carried forward totalling £4,961,000 (2022: £2,824,000). 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. The substantively
enacted tax rate increased from 19% to 25% with effect from 1 April 2023.
Accordingly, a blended rate of 22.01%, calculated as an average monthly rate
over the financial year is applied in the measurement of deferred tax for the
year as reflected in the table above.
8. Loss per share 2023 2022
£'000 £'000
Loss attributable to ordinary shareholders (2,091) (2,287)
Weighted average number of Ordinary Shares in issue, basic and diluted 706,215,686 706,215,686
Basic and diluted loss per share (0.30)p (0.32)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. 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 2021 10,088 361 2,127 9,421 21,997
Business combinations 1,193 - 256 2,024 3,473
At 30 September 2022 and 30 September 2023 11,281 361 2,383 11,445 25,470
Accumulated amortisation
At 1 October 2021 - (184) (1,032) (4,523) (5,739)
Charge for the year - (18) (123) (1,145) (1,286)
At 1 October 2022 - (202) (1,155) (5,668) (7,025)
Charge for the year - (18) (122) (1,145) (1,285)
At 30 September 2023 - (220) (1,277) (6,813) (8,310)
Impairment
At 1 October 2021 (4,447) - (225) (1,193) (5,865)
Charge in the year - - - - -
At 1 October 2022 (4,447) - (225) (1,193) (5,865)
Charge in the year - - - - -
At 30 September 2023 (4,447) - (225) (1,193) (5,865)
Carrying amount
At 30 September 2023 6,834 141 881 3,439 11,295
At 30 September 2022 6,834 159 1,003 4,584 12,580
Average remaining amortisation period 7.8 years 7.2 years 3.0 years 3.5 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 2023, 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% (FY22: 13.25%) for each CGU. The pre-tax discount rate (weighted
average cost of capital) was calculated at 18% per annum (FY22:18%) and the
revenue growth rate is 5% per annum (FY22: 5%) for each CGU for 5 years and a
terminal growth rate of 2.3% (FY22: 2%).
Sensitivities have been run on cash flow forecasts for the CGU. Revenue growth
rates are considered to be the most sensitive assumption in determining future
cash flows for each CGU. Management is satisfied that the key assumptions of
revenue growth rates should be achievable and that reasonably possible changes
to those key assumptions would not lead to the carrying amount exceeding the
recoverable amount. Sensitivity analyses have been performed and the table
below summarises the effects of changing certain other key assumptions and the
resultant excess (or shortfall) of discounted cash flows against the aggregate
of goodwill and intangible assets.
Sensitivity analysis CloudCoCo Systems More CloudCoCo
£'000
Limited
Assurance
Computers
Connect
Limited
Limited
Limited (1)
Excess of recoverable amount over carrying value:
Base case - headroom 696 400 251 4,583
Pre-tax discount rate increased by 1% - resulting headroom 429 360 244 4,384
Revenue growth rate reduced in years 2 to 5 by 1% per annum - resulting 107 358 241 4,286
headroom
Base case calculations highlight that the impairment review in respect of
CloudCoCo Limited is most sensitive to the discount rate and growth rate.
Headroom was also evident when applying a growth rate of 2% in years 2 to 5 in
each of the CGU's but would trigger an impairment of £918,000 in CloudCoCo
Limited.
(1) formerly IDE Group Connect Limited
10. Property, plant and equipment Right of Use Assets IT E-commerce platform Fixtures, fittings and Total
equipment
leasehold
improvements
£'000 £'000 £'000 £'000 £'000
Cost of assets
At 30 September 2022 278 267 - 49 594
Additions 680 115 - - 795
Modifications 378 - - - 378
Disposals - (190) - (20) (210)
Business combinations 303 9 - 2 314
At 30 September 2023 1,639 201 - 31 1,871
Additions 1,294 199 107 40 1,640
Modifications 388 - - - 388
Disposals (33) - - - (33)
At 30 September 2023 3,288 400 107 71 3,866
Depreciation
At 1 October 2020 181 221 - 43 445
Charge for the year 644 42 - 8 694
Disposals - (190) - (20) (210)
At 30 September 2022 825 73 - 31 929
Charge for the year 966 113 41 8 1,128
Disposals (33) - - - (33)
At 30 September 2023 1,758 186 41 39 2,024
Net book value
At 30 September 2023 1,530 214 66 32 1,842
At 30 September 2022 814 128 - - 942
11. Provision for onerous contracts
2023 2022
£'000 £'000
Provisions for onerous contracts - short-term element 148 148
Provisions for onerous contracts - long-term element 684 927
Provisions for onerous contracts 832 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.
2023 2022
£'000 £'000
Opening balance 1,075 -
Business combinations - 1,199
Payments (140) (163)
Unwinding of discount on provisions (103) 39
Closing balance 832 `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
2023 were £0.8 million (2022: £1.1 million).
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.
2023 2022
£'000 £'000
Opening balance 845 97
Additions 1,294 711
Modifications 388 378
Leases acquired on the acquisition of CloudCoCo Connect Limited (formerly IDE - 397
Group Connect Limited)
Related interest expense 205 75
Repayment of lease liabilities (1,118) (813)
Closing balance 1,614 845
2023 2022
£'000 £'000
Current 1,138 733
Non-current 476 112
1,614 845
The total cash outflows from leases (including lower value and short-life
leases) in the financial year was £2,064,000 (2022: £2,351,000) of which
£946,000 relates to short-life leases (2022: £1,538,000).
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. On 29 April 2024, the repayment
date for the loan notes was subsequently extended to 31 August 2026. Further
details are provided in Note 15.
14. Net debt - net debt comprises: 2023 Cash Other 2022
movements
movements
£'000
£'000
£'000
£'000
Loan notes (see Note 13) 5,242 - 684 4,558
COVID-19 Bounce-back loans 60 (22) - 82
Deferred consideration 102 (50) - 152
Lease liabilities 1,614 (1,118) 1,887 845
Cash and cash equivalents (794) 722 - (1,516)
Total 6.224 (468) 2,571 4,121
15. Post Balance Sheet events
On 29 April 2024, MXC Guernsey Limited ("MXCG") agreed to extend the
redemption date of the loan notes detailed in Note 21 from 21 October 2024 to
31 August 2026. Interest will continue to accrue on the loan notes at the
current rate until redemption. All other terms of the loan notes remain the
same.
As consideration for the extension, effective from 22 October 2024, MXCG will
charge the Company a fee of £550,000 for providing the extension. Payment of
this fee will be deferred until the redemption of the loan notes and it will
accrue interest at the same rate as the loan notes. MXCG will also have the
right to appoint a consultant to, or an Executive Director of, the Company's
Board in addition to its current non-executive representative and will have
the right at any time to increase its loan security in the form of a full
debenture over all Group Companies.
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