REG - Cloudcoco Group PLC - Final Results
31/03/2025 07:15
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RNS Number : 8705C Cloudcoco Group PLC 31 March 2025
31 March 2025
CloudCoCo Group plc
("CloudCoCo", the "Company" or the "Group")
Final Results
CloudCoCo (AIM: CLCO), a growth-focused technology business specialising in IT
procurement solutions via its direct sales team and e-commerce platform at
www.morecoco.co.uk, is pleased announce its full year results for the year
ended 30 September 2024 ("FY 2024").
Highlights:
· Revenue increased by 6% to £27.5 million (FY23: £25.9 million), of
which 27% was generated by E-commerce sales channels (FY23: 14%)
· Post period-end: Completed the sale of CloudCoCo Limited and
CloudCoCo Connect Limited on 31 October 2024, for an initial £7.75 million,
enabling full repayment of £6.2 million MXC loan notes and strengthening the
balance sheet with minimal debt
· Currently exploring new areas for expansion, particularly in
consultancy and investment, to broaden our revenue base and accelerate the
path to sustainable profitability
· E-commerce Revenues doubled to £7.4 million (FY23: £3.7 million),
driven by rising demand for gaming and IT hardware
· Trading Group EBITDA(1) of £1.6 million down 16% from £1.9 million
as a result of sector challenges
· Gross profit reduced by 10% to £7.6 million (FY23: £8.4 million), a
margin of 28% (FY23: 33%)
· Cash at bank of £1.0 million (FY23: £0.8 million).
(1) profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional costs and share-based payments
Simon Duckworth, Chairman of CloudCoCo, commented:
"2024 marked a pivotal year in our company's evolution. The decision to sell a
significant portion of our trading assets was necessary to repay the loan
notes but also value-enhancing for our shareholders. Since the sale, we've
seen promising growth in the trading business, led by Peter Nailer. While the
current business is both viable and growing, it is not yet sufficient to fully
support the associated plc costs. We continue to look for new
opportunities-particularly in consultancy and investment-to create a broader,
scalable platform for long-term growth."
The Company's Annual Report is available on the Company's website and will be
posted to shareholders today along with notice of the Annual General Meeting
to be held on 28 April 2025. 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 Tel: +44 (0) 330 236 9070
Simon Duckworth (Chairman)
Darron Giddens (CFO)
Peter Nailer (Managing Director)
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
About CloudCoCo
CloudCoCo is a streamlined, growth-focused technology business based in
Sheffield. Combining expert IT procurement solutions through Systems Assurance
with the scalable e-commerce capabilities of MoreCoCo, helping organisations
deliver enhanced efficiency, security, and agility. Backed by strong vendor
partnerships and a team of industry specialists, we deliver tailored solutions
and next-day access to thousands of IT products.
www.cloudcoco.co.uk (http://www.cloudcoco.co.uk)
Chairman's statement
Introduction
I am pleased to present the annual results for CloudCoCo Group plc for the
year ended 30 September 2024, a transformative year in our company's journey.
This year, we made a pivotal strategic decision to divest our IT managed
services businesses, CloudCoCo Limited and CloudCoCo Connect Limited, marking
a significant shift in our operational focus and positioning us for a
growth-oriented future with a strengthened financial position with minimal
debt.
Strategic Transformation
The sale of our IT managed services businesses, which completed post year end,
was a carefully considered decision. While we recognised the potential to grow
these divisions, the Managed IT Services sector faced mounting challenges,
including rising energy costs, downward pricing pressures, and increasing
customer churn. Additionally, the trend of customers leaving data centres due
to escalating hosting costs further highlighted structural challenges for our
business model.
By divesting these businesses for a cash consideration of approximately £7.75
million, we successfully repaid outstanding debts, including the MXC Loan
Notes, and avoided an associated £550,000 re-arrangement fee. This decisive
action left the Group with an improved balance sheet with working capital to
invest in our remaining operations.
While the sale marked the end of an era, it also paved the way for a more
focused and scalable growth strategy centered on our e-commerce platform and
IT product reseller business. This decision reflects our unwavering commitment
to delivering long-term shareholder value and ensures the Group is
well-positioned to navigate the rapidly evolving technological landscape.
A New Focus
Following the sale, CloudCoCo Group is leaner, more agile, and singularly
focused on scaling our e-commerce and IT procurement businesses. Our
e-commerce platform, generating approximately £7 million in annual revenue,
provides significant opportunities for growth through direct sales, brand
development, and deeper partnerships with vendors.
Our Systems Assurance business has also undergone a transformation, evolving
into a specialised IT procurement and consultancy provider. With expertise in
middleware solutions, cloud services, and cybersecurity, it now serves as a
trusted partner for customers seeking tailored IT solutions that enhance
efficiency and drive value.
Our People
Our greatest asset remains our team, whose expertise, dedication, and
resilience have been instrumental during this period of transition. Although
the Group is now smaller, our culture of innovation, customer-centricity, and
entrepreneurial spirit remains stronger than ever. We continue to invest in
our people, fostering a creative mentality that empowers them to contribute to
our success. In November 2024, we appointed Peter Nailer as Managing Director
of the trading business (non-Board position) to lead the team and grow the
business. Accordingly, whilst he remains on hand to advise the Board, Ian
Smith has ended his consultancy role with the Company and position as interim
CEO.
Looking Ahead
Following the successful sale of a significant portion of our assets,
CloudCoCo enters the new financial year with a stronger balance sheet, a
streamlined business model, and a renewed focus on long-term growth. The
decision to divest was not only necessary to repay the loan notes but has also
proven to be the right one - delivering real value for shareholders and
allowing the Group to refocus on its core strengths.
We are excited about the opportunities ahead. Under the leadership of Peter
Nailer, our trading business is showing promising growth. While the current
operations are viable and increasingly profitable, we recognise that, in their
current form, they are unlikely to fully absorb the plc-level costs in the
near term. As such, we are actively exploring new areas for expansion,
particularly in consultancy and investment, to broaden our revenue base and
accelerate the path to sustainable profitability.
Despite the broader economic challenges, we are confident in our ability to
navigate the evolving market dynamics and achieve our strategic objectives. On
behalf of the Board, I want to thank our shareholders, customers, and
employees for their continued support. Together, we are building a stronger,
more resilient business positioned for long-term success.
Simon Duckworth
Chairman
30 March 2025
Trading Review
Introduction
The year ended 30 September 2024 was marked by both significant challenges and
transformative changes for CloudCoCo Group plc. While our Managed IT Services
businesses faced considerable market pressures, including rising energy costs,
pricing compression, and customer churn, our e-commerce and IT procurement
operations demonstrated resilience and provided a solid foundation for future
growth.
The decision to divest our IT managed services businesses, CloudCoCo Limited
and CloudCoCo Connect Limited ("discontinued operations") was pivotal to
addressing these challenges. The £7.75 million cash consideration allowed us
to repay the MXC Loan Notes in full, avoid a £550,000 re-arrangement fee, and
transition into a strengthened financial position with minimal debt. This
restructuring has enabled us to refocus our efforts on scalable opportunities
within the e-commerce and IT procurement
sectors.
Managed IT Services Performance
The Managed IT Services division experienced a difficult year, with several
external factors compounding the challenges, including rising energy prices
that significantly impacted our cost base, downward pricing trends and
increased competition from larger providers that intensified margin pressures,
and growing customer churn as more clients exited data-centres due to rising
hosting costs, which conflicted with our model of renting larger fixed spaces
within third-party facilities.
Recognising the structural disadvantages of operating on a smaller scale in
this sector, the sale of these businesses to a larger UK market player was
both a strategic and necessary step. While this marked a significant change in
our operations, it has better positioned the Group for long-term stability and
growth.
The financial performance for the year includes contributions from both
continuing and discontinued operations. In accordance with IFRS5, assets
relating to the discontinued operations are shown at 30 September 2024 as
Assets held for Sale. Our Trading Review will focus primarily on the
continuing e-commerce business, which forms the core of the Group's ongoing
operations.
Trading Performance
For the year ended 30 September 2024, the Group's total performance, including
both continuing and discontinued operations, is as follows:
· Total Revenue: £27.5 million (FY23: £26.0 million)
· Gross Profit: £7.6 million (FY23: 8.4 million)
· Trading Group EBITDA(1): £1.6 million (FY23: £1.9 million)
The financial statements present the discontinued operations separately in
accordance with IFRS 5. The continuing e-commerce business is now the primary
contributor to the Group's revenue and profitability.
Discontinued Operations
The Group including the discontinued operations achieved revenues of £27.5
million in the 12 months to 30 September 2024, compared to £26 million in the
year prior.
Revenues 2024 2023
£'000
£'000
Managed IT Services 16,656 17,977
Value added resale 10,868 7,976
Total Revenue 27,524 25,953
Continuing Operations Performance
Our continuing operations, comprising the e-commerce business through Systems
Assurance and MoreCoCo, delivered solid performance during the year. This
segment focuses on providing IT hardware, components, and related products to
both business and consumer customers through our online platform.
Key highlights for the continuing operations include:
· Revenue growth driven by strong demand for IT hardware and gaming
components.
· Customer engagement improved through targeted online marketing and
SEO initiatives.
· Operational efficiencies achieved by optimising our platform and
streamlining processes.
MoreCoCo E-Commerce Platform
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 during the year in MoreCoCo which saw sales from the site
increasing 100% to £7.4m (FY23: £3.7m). This is in line with the demand
across the wider e-commerce industry for technology goods.
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.
Our e-commerce platform continues to deliver consistent performance,
generating annual revenues of approximately £7 million. Currently over 85% of
this revenue is delivered via the Amazon Marketplace, which provides
significant reach to both consumer and business customers. However, the
associated costs of selling on Amazon remain high, impacting our gross
margins.
Looking ahead, we aim to shift more of our sales to our own website to improve
margins and enhance brand visibility. Achieving this will require investment
in scalable systems and targeted marketing initiatives to drive direct traffic
and conversions.
Additionally, we plan to build stronger relationships with key vendors and
manufacturers. By committing to stock specific items, we can secure better
pricing and manufacturer support, enhancing our competitiveness and
profitability. While this approach introduces inventory risk, it also provides
an opportunity to increase gross margins.
Systems Assurance
Traditionally Systems Assurance has operated as an IT solutions provider,
specialising in IT procurement for business customers. Historically, a large
percentage of its recurring revenues were generated from Microsoft licensing
and cloud installations, but the loss of several large customers to
competitors who were selling at cost saw revenues in FY24 reduce to £1.3
million compared to £2.5 million in FY23.
The Systems Assurance business has successfully adapted to market changes,
evolving from a traditional IT solutions provider to an outsourced IT
procurement broker. This transformation has broadened the scope of its
services, which now include:
· IT Procurement and Consultancy: Delivering tailored purchasing
solutions that optimise costs and productivity for business customers.
· Middleware Development: Creating seamless integrations between
diverse business systems, enabling automation and real-time data
communication.
· Cloud Services and Cybersecurity: Providing comprehensive
solutions to enhance operational efficiency and protect customers from
evolving threats.
· Interactive Dashboards and Reporting: Designing custom data
insights tools that empower businesses to make informed, real-time decisions.
With its dedicated team of consultants and a history of serving large
commercial and education organisations, Systems Assurance remains a key driver
of value for the Group.
Strategic Focus and Future Opportunities
Post-divestment, our focus is firmly on driving growth in our remaining
businesses by capitalising on scalable opportunities, including expanding
direct web sales to complement the significant reach and customer access
provided by third-party marketplaces like Amazon, developing white-label
versions of our e-commerce platform to target professional associations and
affinity marketing groups, strengthening partnerships with key manufacturers
to secure better pricing and product availability, and expanding Systems
Assurance's consultancy and middleware solutions to address the evolving needs
of business customers.
Risks and Challenges
While the Group is well-positioned for growth, we remain conscious of
challenges ahead, such as broader economic pressures impacting consumer and
business spending, risks associated with holding inventory and potential
obsolescence, and the competitive nature of the IT procurement and e-commerce
markets; however, with a strengthened Balance Sheet and minimal debt, a lean
operational structure, and a clear strategic focus, we are confident in our
ability to address these challenges and drive sustainable growth.
Conclusion
The 2024 financial year was a transformative period for CloudCoCo Group plc.
While the post-period divestment of our Managed IT Services businesses was
necessary to repay the loan notes, it also laid the foundations for a more
focused, scalable, and growth-oriented business model. Our commitment to
leveraging strengths in e-commerce and IT procurement remains central to
delivering value to our customers, shareholders, and stakeholders.
Looking ahead, CloudCoCo Group plc is well-positioned to drive growth within
its e-commerce operations, particularly in the gaming and PC hardware sectors,
which present significant opportunities for expansion. Our strategy includes
enhancing our online presence through targeted marketing campaigns, broadening
our product offering to include PC games and accessories, and strengthening
partnerships with suppliers to secure competitive pricing and reliable
availability.
To support our long-term goals, we are exploring growth opportunities in
consultancy and investment, which will complement our existing operations and
help drive sustainable profitability.
With a strengthened financial position and minimal debt, a streamlined
structure, and a clear focus on our core operations, we are confident in our
ability to achieve sustainable growth, deliver value to shareholders, and
position CloudCoCo Group plc for growth in our chosen markets.
--Darron Giddens
Director
30 March 2025
(1) profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional items and share-based
payments.
Financial review
Income Statement
Trading performance in the year for the Group (including discontinued
operations) saw positive revenue growth, increasing by 6%, from £26.0 million
in 2023 to £27.5 million in 2024 as we continued to focus the Group on
driving sales activity across our original four core pillars of connectivity,
multi-cloud, collaboration and cyber-security. Our marketing efforts for
Direct Sales channels focussed mainly on the multi-cloud and cyber security
markets which saw 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.
However, despite bolstering our direct sales team during the year, we saw
revenues generated by Direct Sales channels fall by 11% to £20.1m (FY23:
£22.3m) mainly as a result of customer's downsizing and taking services
in-house, either as part of a cost-cutting exercise or in order to reduce the
impact of the power price increases the UK experienced from October 2023
onwards. This was countered by the growth seen in e-commerce channels as
below.
Revenues 2024 2023
£'000
£'000
Revenues generated by Direct Sales channels 20,118 22,280
Revenues generated by E-Commerce channels 7,406 3,673
Total Revenue 27,524 25,953
In the continuing businesses, More Computers Limited saw revenues increase by
100% to £7.4 million in the year from £3.7 million in 2023. This reflects
the successful execution of certain strategies to expand market presence and
customer reach in the e-commerce platform. In contrast, Systems Assurance
Limited saw revenues decline by 47% to £1.3 million (FY23: £2.5 million)
mainly as a result of the loss of several key customers during the year,
albeit at lower gross profit margins. Revenues from continuing operations
increased overall by 41% to £8.7 million in 2024, up from £6.2 million in
2023.
Revenues 2024 2023
£'000
£'000
Revenues generated by More Computers Limited (E-commerce) 7,406 3,673
Revenues generated by Systems Assurance Limited (Direct Sales) 1,331 2,518
Continuing operations 8,737 6,191
Revenues in the discontinued operations generated £18.8 million in 2024, 5%
lower than £19.8 million in 2023. This reduction was driven mainly by the
agreed hand back of the outsourced help desk service to a UK leisure company
in April 2023, which accounts for £0.5 million and £0.7 million relating to
customers exiting our data centre locations as a result of the increased costs
of power seen since October 2023.
Revenues 2024 2023
£'000
£'000
Revenues generated by CloudCoCo Limited (Direct Sales) 7,479 7,264
Revenues generated by CloudCoCo Connect Limited (Direct Sales) 11,308 12,498
Discontinued operations 18,787 19,762
The Group's revenue growth highlights the potential of its e-commerce
activities whilst highlighting the need to address the challenges in some
direct sales areas. These results reinforce the need to continue investing in
high-performing segments while addressing underperforming areas.
Cost of Sales
Although revenues increased, cost of sales also rose sharply from £17.5
million in 2023 to £19.9 million in 2024. The high proportion of cost of
sales relative to revenues reflects the significant contribution of
third-party products and services to the overall revenue, as well as rising
data-centre costs for space and power. In some data centre locations, we
experienced increased power costs in excess of 250% during the year mentioned
above.
Growing revenues through our low-touch e-commerce platform allows us to remain
competitive in the fast-paced, price-sensitive IT hardware market. However,
sales made via the Amazon marketplace incur seller fees, which can sometimes
reduce gross profit margins to below 5%. In contrast, sales through our direct
website, morecoco.co.uk, achieve higher gross profit margins but require
marketing investment to drive customer traffic.
Gross Profit
Outside of volume-related factors, the rising data centre costs impacted gross
profit margins and also led to cancellations or reduced gross profit margins
at contract renewal date. While cancellations lower "in-rack" power usage,
fixed cooling costs per rack increase the cost per unit for remaining
customers.
The rise in cost of sales negatively impacted overall gross profit, which
declined from £8.4 million in 2023 to £7.6 million in 2024. Gross profit
margins also fell, from 32.5% of revenue in 2023 to 27.7% in 2024. As noted
earlier, the higher mix of sales through the e-commerce platform lowered gross
margin percentages but requires less administrative overhead to deliver the
service.
Administrative expenses
Administrative expenses reduced slightly in 2024 to £10.0 million compared to
£10.2 million in 2023, reflecting our efforts to manage overheads despite
external pressures. Whilst amortisation of intangible assets reduced by £0.4
million during the year we saw a similar increase in data centre lease rentals
accounted under IFRS16. Including shared-based payments, amortisation of
intangible assets and accrued interest on the loan notes, the income statement
contains £1.7 million of non-cash costs (FY23: £2.0 million).
Trading Group EBITDA decreased to £1.6 million in 2024, down from £1.9
million in 2023. The reduction is largely a result of the increased operating
costs and margin pressures. The analysis of revenue from each of our operating
segments is shown in note 3.
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 during the year represented the larger part of our revenues,
representing 61% (2023: 69%) of group revenues during the year, adding value
to our customers providing specialist IT skills on-demand. This fell by £1.3
million to £16.7 million in the year, having produced £18.0 million of
revenue in FY23.
Of the total Revenues, £15.7 million related to recurring contracts in 2024,
down from £16.7 million in 2023. Overall recurring contracts represented 57%
of the 2024 Revenue figures down from 64% in the prior year. In most
instances, new customer contracts were sold for an initial period of 3 years,
although existing recurring contracts allows customers to auto-renew on
similar terms at each anniversary.
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 £10.9 million in FY24, increasing by £2.9 million
from £8.0 million achieved in FY23. In line with the continuing trend towards
online buying and next day delivery, 68% of VAR revenues were fulfilled online
via MoreCoCo, having represented 46% 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 £1.2 million (FY23: £0.9 million) and gross
margin of 12% (FY23: 11%).
Operating costs and performance
Excluding plc costs of £0.8 million (FY23: £0.9 million), our operational
trading overheads(2) reduced to £6.1 million (FY23: 6.5 million) as a result
of cost efficiencies generated through process automation and reduced
headcount.
As an employee led business, 92% (FY23: 91%) of our operational trading
overheads relate to staff costs. Maintaining an optimal blend of talent and
skills to serve customers effectively is key. In terms of continuing trading
operations, staff costs represented 86% of trading overheads during the year
(FY23: 49%).
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) reduced by £0.3
million to £1.6 million in the year (2023: £1.9 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 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 included in
Trading Group EBITDA.
Plc costs
Plc costs in the year reduced by £0.1 million to £0.8 million (2023: £0.9
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. This reduction mainly occurred
as a result of reduced Executive Director fees offset by the increasing cost
of cyber-insurance which are typical for a public company operating in the
Managed IT Services sector. Insurance costs will decrease in FY25 due to the
reduced risk in the continuing businesses.
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 £0.5 million (2023: £0.3
million), of which £0.4 million represents the increased run-off costs
relating to dormant and discontinued data centre space acquired in the Connect
business 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 £1.0 million (2023:
£0.8 million). £0.9 million (2023: £0.7 million) of this was accrued
interest on loan notes during the year, but settled on 31 October 2024. The
remaining £0.1 million (2023: £0.1 million) relates to interest resulting
from IFRS16 lease liabilities.
The Group incurred other costs including total amortisation and depreciation
charges of £2.5 million (2023: £2.4 million) and recognised a share-based
payments charge of £26,000 (2023: £119,000). Depreciation includes £1.4
million relating to IFRS16 data centre right of use assets (2023: 0.9 million)
and £0.3 million relating to tangible assets (2023: £0.2 million). After
accounting for a deferred tax credit of £0.2 million (2023: £0.5 million
credit) arising as part of business combinations, the reported loss for the
year after tax was £3.0 million compared to a loss after tax for the year to
30 September 2023 of £2.1 million.
Statement of Financial Position and cash
The Group had negative net assets at 30 September 2024 totalling £2.1 million
(2023: positive £1.0 million). However, this is shown before the £3.5
million gain made as a result of the sale of CloudCoCo Limited and CloudCoCo
Connect Limited on 31 October 2024 as detailed in Note 14. The 30 September
2024 figures include Assets held for sale, reflecting the reclassification of
balances in these subsidiaries prior to their disposal.
As at 30 September Continuing Discontinued Group Group
2024
2024
2024
2023
£'000
£'000
£'000
£'000
Non-current assets
Intangible Assets 799 9,635 10,434 11,295
Tangible assets 89 1,531 1,620 1,842
888 11,166 12,054 13,137
Current Assets
Inventories 75 21 96 76
Trade and other receivables 515 3,394 3,909 4,443
Contract Assets - 395 395 395
Cash and cash equivalents 1,042 - 1,042 794
1,632 3,810 5,442 5,708
Total Assets 2,520 14,976 17,496 18,845
Less Total Liabilities
Trade and other payables (1,690) (6,982) (8,672) (6,878)
Contract Liabilities - (1,749) (1,749) (2,131)
Provision for onerous contracts - (799) (799) (832)
Borrowings (6,184) - (6,184) (5,404)
Lease liability (3) (1,445) (1,448) (1,614)
Deferred Tax liability (136) (600) (736) (951)
(8,013) (11,575) (19,588) (17,810)
Net Assets before disposal (5,493) 3,401 (2,092) 1,035
Net Assets to Continuing 3,401 (3,401) - -
Net Assets following disposal (2,092) - (2,092) 1,035
The Group's cash position increased by £0.2 million to £1.0 million (2023:
£0.8 million). The net cash inflow for the year was £0.2 million (2023:
outflow £0.7 million). Current assets reduced by £0.3 million to £5.4
million, primarily due to enhanced cash collections within Trade Debtors at
period end.
Total liabilities increased by £1.6 million over the period, mainly within
Trade and other payables which increased by £1.8 million to £8.7 million,
due to trade creditor stretch applied at year-end and extended payment plans
in place within the discontinued businesses, which were subsequently
transferred as part of the sale.
In so far as possible, management looked to balance movements in trade
receivables and trade payables throughout the year to maintain a relatively
consistent bank balance.
The Group had a net cash inflow during the year of £0.2 million (2023:
outflow £0.7 million), the main components being:
· Cash inflow generated from operating activities of £1.5 million
(2023: £0.8 million);
· Cash inflow from discontinued operations of £0.4 million;
· Payments of deferred consideration for the acquisition of the Connect
business of £50,000 during the period (2023: £50,000); and
· Investment in tangible assets of £12,000 to refresh IT equipment to
drive recurring revenues and £45,000 investment in developing the new
MoreCoCo e-commerce platform.
· Payments of lease liabilities of £1.5 million (2023: £1.1 million)
Contract assets held for work carried out were all held in the discontinued
businesses and were re-classified as assets held for sale. Full details of the
assets held for sale are included in Note 11. 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 in the year to £1.7 million
(2023: £2.1 million) partly reflecting the reduction in recurring Managed IT
services in the year but also the annal run-off of some contracts originally
billed in advance for a five year period.
With the original term of the loan notes becoming payable on 31 October 2024,
this £6.0 million liability has moved into current liabilities as part of
borrowings.
Following the re-classification of assets and liabilities held for sale, the
overall Net debt reduced by £1.2 million to £5.1 million. Net debt comprises
cash balances of £1.0 million less the loan notes and rolled up interest of
£6.0 million, together with £0.1 million deferred consideration owed for the
acquisition of Connect and shown at fair value. Further details of the loans
and loan notes can be found in Note 12. The loan notes were repaid in full on
31 October 2024.
Tangible assets at year-end reduced by £0.2 million (2023: increase £0.2
million) and the costs of additional capex in the year of £57k (FY23:
£346k), the majority of which was incurred improving the back-end systems for
MoreCoCo.
The acquisition of the Connect business in 2021 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. The balance of leases at period end
totalled £1.4 million. 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. These data-centre lease liabilities were
transferred together with the Connect business sold on 31 October 2024.
Further details on the financial position of the Group are contained in the
going concern section of the Directors' Report.
Loan Notes
As part of a finance consolidation on 21 October 2019, loan notes with a
principal amount of £3.5m were acquired by a MXC Guernsey Limited ("MXCG"), 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 which was set at to 21 October 2024. Further details are
provided in Note 12.
On 29 February 2024, we agreed with MXCG that in the event that the loan notes
were not repaid in October 2024 that the redemption date of the loan notes
would be extended to 31 August 2026, in return for a fee of £550,000 for
providing the extension. Following the sale of the discontinued operations,
the loan notes were repaid in full on 31 October 2024 and so the extension was
not executed. Further details are included in Note 14.
Consolidated income statement
for the year ended 30 September 2024
(
)
Note Group Group Continuing Continuing Discontinued Discontinued
2024
2023
2024
2023
2024
2023
£'000
£'000
£'000
£'000
£'000
£'000
Revenue 3 27,524 25,953 8,737 6,191 18,787 19,762
Cost of sales (19,909) (17,508) (8,238) (5,596) (11,671) (11,912)
Gross profit 7,615 8,445 499 595 7,116 7,850
Administrative expenses (9,951) (10,202) (1,039) (1,199) (8,912) (9,003)
Trading Group EBITDA (1) 1,557 1,915 63 47 1,494 1,868
Amortisation of intangible assets 9 (861) (1,285) (105) (100) (756) (1,185)
Plc costs(2) (840) (863) (472) (469) (368) (394)
Depreciation of IFRS16 data 10 (1,392) (879) (14) (11) (1,378) (868)
centre right of use assets
Depreciation of tangible assets and other right of use assets 10 (293) (249) (1) (1) (292) (248)
Exceptional items 4 (481) (277) - - (481) (277)
Share-based payments (26) (119) (11) (70) (15) (49)
Operating loss 5 (2,336) (1,757) (540) (604) (1,796) (1,153)
Interest receivable 6 1 4 1 4 - -
Interest payable 6 (1,033) (813) (14) (3) (1,019) (810)
Loss before taxation (3,368) (2,566) (553) (603) (2,815) (1,963)
Taxation 7 215 475 20 25 195 450
Loss and total comprehensive loss for the year attributable to owners of the (3,153) (2,091) (533) (578) (2,620) (1,513)
parent
Loss per share
Basic and fully diluted 9 (0.45)p (0.30)p (0.08)p (0.08)p (0.37)p (0.22)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 associated professional costs.
Consolidated statement of financial position
as at 30 September 2024
September September
2024 2023
£'000 £'000
Non-current assets
Intangible assets 9 799 11,295
Property, plant and equipment 10 85 312
Right of Use assets 10 3 1,530
Total non-current assets 887 13,137
Current assets
Inventories 76 76
Trade and other receivables 516 4,443
Contract assets - 395
Cash and cash equivalents 1,042 794
Current assets excluding assets held for sale 1,634 5,708
Assets classified as held for sale 11 14,976 ─
Total current assets 16,610 5,708
Total assets 17,497 18,845
Current liabilities
Trade and other payables (1,690) (6,878)
Contract liabilities - (1,820)
Provision for onerous contracts - (148)
Borrowings 12 (6,085) (69)
Lease liability (3) (1,138)
Current liabilities excluding those associated with assets held for sale (7,778) (10,053)
Liabilities associated with assets held for sale (11,575) -
Total current liabilities (19,353) (10,053)
Non-current liabilities
Contract liabilities - (311)
Provision for onerous contracts - (684)
Borrowings 12 (100) (5,335)
Lease liability - (476)
Deferred tax liability 13 (136) (951)
Total non-current liabilities (236) (7,757)
Total liabilities (19,589) (17,810)
Net assets (2,092) 1,035
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 341 370
Retained earnings (35,611) (32,513)
Total equity (see note 14 for post balance sheet event) (2,092) 1,035
Consolidated statement of changes in equity
for the year ended 30 September 2024
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
Share Share Capital Merger Other Retained Total
capital premium redemption reserve reserve earnings £'000
£'000 £'000 reserve £'000 £'000 £'000
£'000
At 1 October 2023 7,062 17,630 6,489 1,997 370 (32,513) 1,035
Loss and total comprehensive loss for the period - - - - - (3,153) (3,153)
Transactions with owners in their capacity of owners
Share-based payments - - - - 26 - 26
Share options lapsed - - - - (55) 55 -
Total transactions with owners - - - - (29) 55 26
Total movements - - - - (29) 55 26
Equity at 30 September 2024 7,062 17,630 6,489 1,997 341 (35,611) (2,092)
(see note 14 for post balance sheet event)
Consolidated statement of cash flows
for the year ended 30 September 2024
2024 2023
£'000 £'000
Cash flows from operating activities
Loss before taxation (3,368) (2,566)
Adjustments for:
Depreciation - IFRS data centre right of use assets 1,392 879
Depreciation - other right of use assets 140 87
Depreciation - owned assets 153 162
Amortisation 861 1,285
Share-based payments 26 119
Net finance expense 1,032 809
Movements in provisions (133) (140)
Decrease in trade and other receivables 522 414
(Increase) / decrease in inventories (20) 88
Increase / (decrease) in trade payables, accruals and contract liabilities 929 (298)
Net cash inflow from operating activities 1,534 839
Net cash inflow from discontinued operations: 391 -
Cash flows from investing activities
Purchase of property, plant and equipment (note 10) (57) (346)
Payment of deferred consideration relating to acquisitions (50) (50)
Interest received 1 4
Net cash outflow from investing activities (106) (392)
Cash flows from financing activities
Repayment of COVD-19 bounce-back loan (16) (22)
Payment of lease liabilities (1,504) (1,118)
Interest paid (51) (29)
Net cash outflow from financing activities (1,571) (1,169)
Net increase / (decrease) in cash 248 (722)
Cash at bank and in hand at beginning of period 794 1,516
Cash at bank and in hand at end of period 1,042 794
Comprising:
Cash at bank and in hand - assets held for sale 855 -
Cash at bank and in hand - continuing operations 187 794
Cash at bank and in hand at end of period 1,042 794
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 negative net assets at 30 September 2024 totalling £2.1 million
(2023: positive £1.0 million). However, as detailed in Note 14 the Group sold
CloudCoCo Limited and CloudCoCo Connect Limited on 31 October 2024 for initial
consideration of £7.75 million, which replenished the Group's cash reserves
and facilitated the full repayment of the MXC Loan Notes, leaving the Company
free from long-term debt. This transaction has significantly strengthened the
Group's financial position, reducing credit risk due to the more immediate
cash cycle associated with the e-commerce
business.
The Group remains committed to its key objectives of increasing sales,
reducing costs, and returning to net cash generation at the Group level as
described in the Strategic Report.
The Group continues to trade through its e-commerce platform (morecoco.co.uk)
and outsourced procurement businesses, which the Directors believe provide
opportunities for growth. The continuing e-commerce business and the re-focus
on the Systems Assurance business is expected to generate a positive
contribution towards Plc costs, which have been reduced following the
restructuring. The Group remains committed to its key objectives of increasing
sales, reducing costs, and returning to net cash generation.
The key operational risks the Group faces include the general UK economic
outlook, rising borrowing costs, and high inflation, which could impact
consumer spending and investment in IT infrastructure. However, the Directors
remain confident in the e-commerce, IT hardware, and gaming components markets
and have taken measures to reduce ongoing operational costs, ensuring that
cash reserves can sustain the business going forward.
In assessing the Group's ability to continue as a going concern, the Directors
have reviewed forecast sales growth, budgets, and cash projections for the
period to 31 March 2026, including sensitivity analysis on key assumptions
such as the potential impact of reduced sales or slower cash receipts. Based
on these assumptions, the Directors have reasonable expectations that the
Group and the Company have adequate resources to continue operations for 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
- Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)
- Classification of Liabilities as Current or Non-Current and Non-current
Liabilities with Covenants (Amendments to IAS 1)
- Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7)
- IFRS S1: General Requirements for Sustainability-related Financial
Disclosures
- IFRS S2: Climate-related Disclosures
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 2025 financial
statements are as follows:
- Amendments to the Classification and Measurement of Financial
Instruments (Amendments to IFRS 9 and IFRS 7)
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) 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.
f) Depreciation
Depreciation is calculated on a straight-line basis so as to write off the
cost of an asset, less its estimated residual value, over the useful economic
life of that asset as follows:
IT
equipment
- three to four years
Fixtures, fittings and leasehold improvements -
three to four years
E-commerce
platform
- three to four years
Right of use
asset
- over the remaining term of the lease
Material residual value estimates are updated as required, but at least
annually.
g) Intangible assets
Intangible assets mainly comprise the fair value of customer bases and other
identifiable assets acquired which are not included on the balance sheets of
the acquired companies. A fair value calculation is carried out based on
evaluating the net recurring income stream from each type of intangible asset.
Intangible assets are initially recognised at fair value, and are subsequently
carried at this fair value, less accumulated amortisation and impairment. The
following items were identified as part of the acquisitions of entities by the
Group and were still owned at 30 September 2024:
· Billing and website systems amortised over three years;
· customer lists amortised over five to ten years; and
· brands amortised over ten years.
Judgement is used in the allocation of fair values to the tangible assets and
the identification and valuation of intangible assets which affect the
calculation of goodwill recognised in respect of an acquisition. Refer to
principal accounting policy (x).
h) Impairment testing of goodwill, other intangible assets and property, plant
and equipment
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash inflows (cash
generating units). As a result, some assets are tested individually for
impairment and some are tested at cash generating unit ("CGU") level. Goodwill
is allocated to those CGUs that are expected to benefit from the synergies of
the related business combination and represent the lowest level within the
Group at which management monitors the related cash flows.
Impairment reviews are carried out using multi-year cash flow projections from
the approved budgets of the Group. These are discounted using a discount rate
specific to each CGU. Forecast cash flows beyond 5 years assume steady growth
at no more than the long-term average growth rate for the United Kingdom. The
discount rate for each CGU reflects the time value of money and the nature and
risks of the CGU.
An impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
fair value, reflecting market conditions less costs to sell, and value in use
based on an internal discounted cash flow evaluation. Impairment losses are
credited to the carrying amount of the relevant asset. With the exception of
goodwill, all assets are subsequently reassessed for indications that an
impairment loss previously recognised may no longer exist.
i) 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.
j) Financial assets
Financial assets comprise of cash and cash equivalents and trade and other
receivables. All financial assets are initially recognised at fair value, plus
transaction costs and subsequently measured at amortised cost.
Trade receivables are held in order to collect the contractual cash flows and
are initially measured at the transaction price as defined in IFRS 15, as the
contracts of the Group do not contain significant financing components.
Impairment losses are recognised based on lifetime expected credit losses in
profit or loss.
The Group reviews the amount of credit loss associated with its trade
receivables based on forward looking estimates, taking into account current
and forecast credit conditions.
All financial assets are recognised when the Group becomes a party to the
contractual provisions of the instrument. Derecognition of financial assets
occurs when the rights to receive cash flows from the instruments expire or
are transferred and substantially all of the risks and rewards of ownership
have been transferred. An assessment for impairment is undertaken, at least,
at each reporting date.
Interest and other cash flows resulting from holding financial assets are
recognised in the Consolidated Income Statement when receivable.
k) Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale when
they are actively marketed, management is committed to selling, and a sale is
expected within 12 months. These assets are measured at the lower of their
carrying amount and fair value less disposal costs and are not depreciated
once classified. The results of disposed operations are included in the
consolidated statement of comprehensive income up to the disposal date but are
shown separately in order to identify the profit/(loss) associated with the
discontinued operations.
l) 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 9).
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 10.
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. Further details are shown in Note 9.
Key sources of estimation uncertainty
The key assumptions concerning the future and other sources of estimation
uncertainty at the reporting date that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
Valuation of Intangible assets
Determining whether intangible assets, including goodwill, are impaired
requires an estimate of whether there is an impairment indicator. The key
estimates for the carrying value of intangible assets are the cash flows
associated with the intangible assets and a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset. Each of the intangible assets held by the Group is
measured regularly to ensure that they generate discounted positive cash
flows. Where there is indication of impairment, the intangible asset is
impaired by a charge to the Consolidated Income Statement. Further details on
the impairment tests are shown in principal accounting policy (g) above and
note 9.
Incremental borrowing rate
Where the interest rate implicit in a lease cannot be readily determined, an
incremental borrowing rate is estimated to discount future lease payments to
measure the present value of the lease liability at the lease commencement
date. Such a rate is based on what the company estimates it would have to pay
a third party to borrow the funds necessary to obtain an asset of a similar
value to the right-of-use asset, with similar terms, security and economic
environment. An internal borrowing rate of 10% per annum was applied when
measuring the fair value of the right of use assets. A change of 1% in this
borrowing rate would increase the carrying value of right of use assets at 30
September 2024 by £16,600.
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
Continuing Continuing Discontinued Discontinued
2024
2023
2024
2023
£'000
£'000
£'000
£'000
Managed IT Services 420 728 16,236 17,249
Value added resale 8,317 5,463 2,551 2,513
Total Revenue 8,737 6,191 18,787 19,762
3.1.2
Revenue
Continuing Continuing Discontinued Discontinued
2024
2023
2024
2023
£'000
£'000
£'000
£'000
Recognised over time 420 728 15,283 15,942
Recognised at a point in time 8,317 5,463 3,504 3,820
Total Revenue 8,737 6,191 18,787 19,762
4. Exceptional Items
Items which are material and non-routine in nature are presented as
exceptional items in the Consolidated Income Statement.
Discontinued Discontinued 2023
2024
£'000
£'000
Costs relating to re-finance of the loan notes (40) (28)
Run-off costs relating to discontinued data centre services (353) (92)
Costs relating to onerous contracts settled in the year (18) (54)
Integration and restructure costs (70) (103)
Exceptional items (481) (277)
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
Continuing Continuing Discontinued 2024 Discontinued 2023
2024
2023
£'000
£'000
£'000
£'000
Operating loss is stated after charging:
Depreciation of owned assets 26 42 127 120
Depreciation of right of use assets 13 7 1,519 959
Short life lease expense: IFRS16 data centre short-life leases - - 446 946
Amortisation of intangibles 105 100 756 1,185
Auditor's remuneration:
- Audit of parent company 35 30 - -
- Audit of subsidiary companies 15 15 48 45
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:
Continuing Continuing Discontinued Discontinued
2024
2023
2024
2023
£'000 £'000 £'000 £'000
Interest income resulting from short-term bank deposits 1 4 - -
Finance income 1 4 - -
Interest expense resulting from:
Lease liabilities 1 1 46 204
Interest on borrowings 13 3 27 24
Loan note interest - - 846 684
Unwinding of the discount on provisions - - 100 (103)
Finance costs 14 4 1,019 809
Loan note interest includes £786,000 (2023: £547,000) 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 but were
repaid on 31 October 2024. Further details are provided in Note 14.
7. Income tax
2024 2023
£'000 £'000
Current tax
UK corporation tax for the period at 25% (2023: 22%) - -
Deferred tax
Deferred tax credit on intangible assets 215 475
Total tax credit for the year 215 475
The tax expense actually recognised in the Consolidated Income Statement can
be reconciled as follows:
2024 2023
£'000 £'000
Loss for the year before tax: (3,310) (2,566)
Tax rate 25% 22%
Expected tax credit (828) (565)
Adjusted for:
Non-deductible expenses (14) (10)
Differences in tax rates - (28)
Recognition of deferred tax assets (534) (238)
Movement in unprovided deferred tax relating to losses 180 366
Short-term timing differences (245) -
Total tax credit for the year (215) (475)
The Group has unrecognised deferred tax assets in respect of tax losses
carried forward totalling £4,735,000 (2023: £4,961,000). 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% was applied in the financial year to
September 2023, calculated as an average monthly rate over in the measurement
of deferred tax for the year as reflected in the table above. The tax rate for
the financial year to September 2024 was 25%.
8. Loss per share 2024 2023
£'000 £'000
Loss attributable to ordinary shareholders (3,153) (2,091)
Weighted average number of Ordinary Shares in issue, basic and diluted 706,215,686 706,215,686
Basic and diluted loss per share (0.45)p (0.30)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 2022 and 30 September 2023 11,281 361 2,383 11,445 25,470
Re-classified as assets held for sale (11,028) (182) (1,913) (11,304) (24,427)
At 30 September 2024 253 179 470 141 1,043
Accumulated amortisation
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)
Charge for the year - (18) (122) (721) (861)
Re-classified as assets held for sale - 183 1,254 7,490 8,927
At 30 September 2024 - (55) (145) (44) (244)
Impairment
At 1 October 2022 (4,447) - (225) (1,193) (5,865)
Charge in the year - - - - -
At 1 October 2023 (4,447) - (225) (1,193) (5,865)
Re-classified as assets held for sale 4,447 - 225 1,193 5,865
At 30 September 2024 - - - - -
Carrying amount
At 30 September 2024 253 124 325 97 799
At 30 September 2023 6,834 141 881 3,439 11,295
Average remaining amortisation period 6.9 years for each category of intangible asset
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 2024, there were two CGUs being
Systems Assurance Limited and More Computers Limited, with CloudCoCo Limited
and CloudCoCo Connect Limited classified as assets held for sale.
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 as below, the 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% (FY23: 13.25%) for each
CGU. The pre-tax discount rate (weighted average cost of capital) was
calculated at 18% per annum (FY23:18%) and the revenue growth rate is 5% per
annum (FY23: 5%) for each CGU for 5 years and a terminal growth rate of 2.3%
(FY23: 2.0%).
Sensitivities have been run on cash flow forecasts for each 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 Systems More
£'000
Assurance
Computers
Limited
Limited
Excess of recoverable amount over carrying value:
Base case - headroom 129 256
Pre-tax discount rate increased by 1% - resulting headroom 109 229
Revenue growth rate reduced in years 2 to 5 by 1% per annum - resulting 91 224
headroom
Base case calculations highlight that the impairment review in respect of
Systems Assurance Limited is most sensitive to the discount rate and growth
rate.
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 1 October 2022 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
Additions 172 10 45 2 229
Modifications 1.234 - - - 1,234
Disposals (115) (6) - (2) (123)
Re-classified as assets held for sale (4,560) (378) - (59) (4,997)
At 30 September 2024 19 26 152 12 209
Depreciation
At 1 October 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
Charge for the year 1,532 110 26 17 1,685
Disposals (115) (6) - (2) (123)
Re-classified as assets held for sale (3,159) (264) - (42) (3,465)
At 30 September 2024 16 26 67 12 121
Net book value
At 30 September 2024 3 - 85 - 88
At 30 September 2023 1,530 214 66 32 1,842
£1,532k of net book value relating to Property, Plant and Equipment held
within discontinued operations at
30 September 2024 are classified as assets held for sale. The net book value
of right of use assets at 30 September 2024 comprised:
Land & Data Centre Motor Total
buildings
Assets
Vehicles
£'000
£'000
£'000 £'000
At 30 September 2024 3 - - 3
At 30 September 2023 523 990 17 1,530
The depreciation charge in respect of right of use assets comprises £1,392k
in respect of data centre assets (FY23: £879k) and £140k in respect of
property and other assets (FY23: £87k). Data centre assets are described in
more detail in Note 10.
11. Assets and liabilities classified as held for sale
Following a strategic review carried out during 2024, the Board concluded that
Company should seek to dispose of some trading assets in order to raise funds
to repay the loan notes. This was seen as the most attractive option to
improve financial stability and to enhance shareholder value. As a
consequence, during August 2024, the Company reached agreement to sell its
interests in CloudCoCo Limited and CloudCoCo Connect Limited, subject to due
diligence and shareholder approval. On 31 October 2024 having received
shareholder approval, both transactions were concluded initially raising
£7.75 million of cash of which £6.2 million was immediately used to repay
the loan notes, therefore avoiding further costs for extending the loan note
term.
The following major classes of assets and liabilities relating to these
disposals have been classified as held for sale in the consolidated statement
of financial position on 30 September 2024.
CloudCoCo Limited CloudCoCo Connect Limited Total
£'000
£'000
£'000
Intangible assets 6,847 2,788 9,635
Property, plant and equipment 112 19 131
Right of Use assets 114 1,287 1,401
Trade and other receivables 1,970 1,839 3,809
Assets held for sale 9,043 5,933 14,976
Trade and other payables 3,756 3,226 6,982
Contract liabilities 929 820 1,749
Provision for onerous contracts - 799 799
Lease liability 157 1,288 1,445
Deferred tax liability 201 399 600
Liabilities associated with assets held for sale 5,043 6,532 11,575
12. 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 A 2025, the repayment
date for the loan notes was subsequently extended to 31 August 2026. Following
the sale of the discontinued operations, the loan notes were repaid in full on
31 October 2024 and so the extension was not executed. Further details are
included in Note 14.
13. Deferred tax liabilities
Deferred tax
on acquired
intangibles
£'000
Deferred tax liability at 30 September 2022 1,426
Credited to income statement - on intangibles (475)
Deferred tax liability at 30 September 2023 951
Credited to income statement - on intangibles (215)
Re-classified as "Assets held-for-sale" (600)
Deferred tax liability at 30 September 2024 136
14. Post Balance Sheet events
On 31 October 2024, the Company sold its interest in CloudCoCo Limited and
CloudCoCo Connect Limited, initially raising £7.75 million of cash of which
£6.2 million was immediately used to repay the MXCG loan notes in order to
avoid further costs for extending the loan note term. Details of the disposals
are set out below, based on unaudited completion accounts which are currently
being agreed with the buyers.
CloudCoCo Limited CloudCoCo Connect Limited Total
£'000 £'000 £'000
Non-current assets
Intangible assets 6,847 2,788 9,635
Property, plant and equipment 124 18 142
Right of Use assets 112 1,278 1,390
Total non-current assets 7,083 4,084 11,167
Current assets
Inventories 37 - 7
Trade and other receivables 1,920 1,847 3,767
Contract assets 407 18 425
Cash and cash equivalents 16 102 118
Total current assets 2,380 1,967 4,347
Total assets 9,463 6,051 15,514
Liabilities
Trade and other payables (3,789) (2,797) (6,586)
Contract liabilities (1,141) (610) (1,751)
Provision for onerous contracts - (790) (790)
Lease liability (152) (1,278) (1,430)
Deferred tax liability (365) (399) (764)
Total Liabilities (5,447) (5,874) (11,321)
Net assets at book value 4,016 177 4,193
Proceeds from Sale 7,500 250 7,750
Gain/(loss) on sale of subsidiary 3,484 73 3,557
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