REG - Cloudcoco Group PLC - Interim Results
28/06/2022 07:00
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RNS Number : 3771Q Cloudcoco Group PLC 28 June 2022
28 June 2022
CloudCoCo Group plc
("CloudCoCo", "the Group" or "the Company")
Interim Results
Record sales performance and significant strategic progress
CloudCoCo (AIM: CLCO), a leading UK provider of managed IT services and
communications solutions to private and public sector organisations, announces
its unaudited interim results for the six months ended 31 March 2022.
Financial highlights
· Revenue increased 183% to £11.6m (H1 2021: £4.1m), of which 70% was
generated from recurring contracts
· Gross Profit increased by 119% to £3.5m (H1 2021: £1.6m), a margin of 30%
· Trading Group EBITDA(1) of £426k before expected transitional losses from the
acquired IDE Group Connect Limited of £124k resulting in a net Trading Group
EBITDA(1) of £302k (H1 2021: £364k)
· Corrective measures implemented in IDE Group Connect Limited, acquired in
October 2021 with annual losses of £0.8m, now performing at monthly breakeven
by March 2022
· Cash of £1.3m at 31 March 2022 (H1 2021: £0.6m) and undrawn £0.5m working
capital facility
(1) Profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional items and share-based payments.
Operational highlights
· Record sales performance for the Group delivered Total Contract Value of
£9.7m (H1 2021: £2.9m) largely as a result of the enhanced service
propositions, improvements in inbound marketing leads and the wider sales and
technical delivery capabilities in the now more mature business
· Increased multi-year new customer wins including Wall Street Docs, Healthcare
Quality Improvement Partnership and The ID Register (Services) Limited
· Successful integration of four newly acquired businesses adding data centre
locations, private managed network services and e-commerce capabilities to the
business
· 'Get Well' actions in acquired businesses in H1 2022 expected to deliver
benefits in H2 2022
· Appointment of Mike Chester as Group Operations Director (a non-board
position) in February 2022 to ensure high levels of customer service across
900+ customers
· Appointment of a Head of People (a non-board position) to ensure the right
people systems and practices are in place to support growth and to promote our
collaborative, inclusive and high-performance culture.
Post-period highlights
· Continued to sign significant multi-year contracts including with St John
Ambulance and Abbott Laboratories
· MoreComputers rebranded to MoreCoCo and consumer and B2B ecommerce website
launched
· CloudCoCo Sales Academy launched to cultivate homegrown talent and support
revenue growth
· Ecommerce website for existing customers, using the MoreComputers UX, due to
launch in the second half
Mark Halpin, CEO of CloudCoCo, commented:
"To have made this level of strategic and commercial progress in such a short
space of time, including most notably the successful correction of the
acquired Connect business to monthly breakeven ahead of schedule, is a
significant achievement and testament to the quality and teamwork of our
people.
The integration and optimisation of our four acquisitions is now largely
complete, and with that we are moving through the second half in a strong
position, with all parts of the Group pulling in the same direction and on an
exciting trajectory. We are now a very different proposition to a year ago,
with an expanded customer base; increased capability; significantly larger
sales, support and technical teams; a focus on cross-selling; and several
forward-thinking strategic initiatives that are already delivering.
With the marked headway that has been made, we expect to see additional growth
in trading performance in the second half as our pipeline of larger multi-year
deals is continuing to grow. There is still work to be done to enable the
Group to reach its full potential and the macro-economic environment remains
unpredictable, but with the hard work that has taken place in the first half
to lay the foundations for sustainable and profitable growth in the future, we
are confident of continued progress in the second half and moving into FY23."
Contacts
CloudCoCo Group plc Via Alma PR
Mark Halpin (CEO)
Darron Giddens (CFO)
Allenby Capital Limited - (Nominated Adviser & Broker) Tel: +44 (0)20 3328 5656
Jeremy Porter / Freddie Wooding - Corporate Finance
Tony Quirke / Amrit Nahal - Sales & Corporate Broking
Alma PR - (Financial PR Adviser)
David Ison
Josh Royston
Kieran Breheny
Pippa Crabtree
About CloudCoCo
Supported by a team of industry experts and harnessing a diverse ecosystem of
partnerships with blue-chip technology vendors, CloudCoCo makes it easy for
private and public sector organisations to work smarter, faster and more
securely by providing a single point of purchase for their connectivity,
telephony, cyber security, cloud, IT hardware and support needs.
CloudCoCo has offices in Warrington, Leeds, Bournemouth and Sheffield in the
UK.
www.cloudcoco.co.uk (http://www.cloudcoco.co.uk)
CHIEF EXECUTIVE'S REVIEW
Introduction
The first half of the year has been very encouraging from both a strategic and
a commercial perspective.
The Group is now a very different proposition to a year ago, in terms of
scale, customer base, capability and prospects, and we are optimistic about
what we can achieve. The original business is now in excellent condition,
there are encouraging signs that we are successfully unlocking the value in
the new additions, and we have effectively doubled the size of our sales,
support and technical functions while bringing on board a new Group Operations
Director to ensure the Group works together as a cohesive unit, providing
exceptional service at every touchpoint.
All Group companies are now using a shared enterprise resource planning
platform ("ERP") incorporating ticket management; customer relationship
management ("CRM"); monitoring; and billing, making cross-division
collaboration straightforward and opening a range of new revenue opportunities
across our customer base. This has been a significant undertaking and will
leave us well-positioned for many years to come.
We are now moving through the second half of the year as a single, cohesive
unit with firm foundations for future growth and a solid multi-channel sales
strategy. I am excited about our near and longer-term prospects.
Results
Revenues for the first half only included a five-month contribution from the
acquired IDE Group Connect Limited ("Connect") and Nimoveri Limited
("Nimoveri") businesses, and yet at £11.6 million and generating £3.6
million of gross profit still comfortably surpassed the full year numbers for
2021.
Ecommerce sales in the first half were £0.9 million, a new revenue stream for
the Group stemming from the September 2021 acquisition of MoreComputers,
rebranded to MoreCoCo post-period.
Cash increased by £0.1 million in the first half to £1.3 million as at 31
March 2022, including £0.5 million acquired with the Connect and Nimoveri
businesses, funding £0.3 million of exceptional costs in the period.
Debtor balances were higher at period end as a result of the acquisitions and
also because of some customers with multi-year contracts paying invoices
post-year end and several projects awaiting settlement of milestone payments,
but these are expected to normalise through the second half.
Analysis of Revenues by operating segment
Unaudited Unaudited Unaudited Audited
6 months to 6 months to 6 months to Year to
31 March 30 September 31 March 30 September
2022
2021
2021
2021
£'000
£'000
£'000
£'000
By operating segment
Managed IT Services 8,582 2,738 2,910 5,648
Valued Added Resale 3,062 1,225 1,234 2,459
Total revenue 11,644 3,963 4,144 8,107
Recurring revenues included within the Managed IT Services segment to March
2022 equate to £8.2 million (H1 2021: £2.5 million) reflecting the high
percentage of recurring multi-year contracted services in the organic growth
and in the Connect customer base. Growth in Value Added Resale has been
boosted by the September 2021 acquisition of Systems Assurance and the
addition of the e-commerce hardware platform in MoreCoCo.
Progress against strategy
We have a clear strategy to become a large Managed Services provider with
turnover a multiple of what it is today and growing in a sustainable and
profitable way. This is based on driving organic growth, exploring
opportunities to expand through acquisition, and ensuring the entire Group
works together in an increasingly joined up and efficient way. All while
constantly striving to delight customers through delivering impeccable
service.
Since my appointment, the focus has been on turning around the legacy business
we inherited and building a platform that was ready for and would benefit from
expansion through M&A. In the six months under review, we have been
working hard to integrate and optimise the acquisitions we have made, and
having done so successfully can now look ahead without any drags on the
business and a wealth of exciting opportunities to drive growth.
Acquisitions and integration
Having acquired four complementary businesses in the latter months of 2021 to
help us realise our growth ambitions, our teams have been working hard to
integrate them.
One of the key milestones in the half was getting CloudCoCo Group Connect
Limited ("the Connect business"), acquired as IDE Group Connect Limited, to
monthly breakeven from delivering £800k of losses per annum through executing
a plan known internally as "Project 150", a strategy to generate £150k per
month of additional benefit from sales and cost savings. This was a
collaborative effort from everyone involved where all ideas were welcome and
I'm delighted with the outcome.
In addition to the recurring monthly savings generated from Project 150, the
painstaking task of matching supplier costs with individual customer revenue
streams also identified further benefit to us, in the form of over £300k of
one-off backdated supplier credit notes relating to overcharges. In accordance
with International Accounting Standards, whilst pre-acquisition supplier
credit notes cannot be treated as trading income in the period, they aid
cashflow and reduce the acquired net liabilities in the Connect business (see
note 10). This level of detail and diligence has helped us turn the Connect
business around inside six months of the acquisition.
Now, with the ship steadied ahead of schedule, we can focus on selling more
from across the Group into the substantial number of high-quality customers
that came across with the acquisition. We are already seeing meaningful
cross-selling success and expect this trend to gather steam in the second
half.
There is still important work to be done but to get Connect to this stage
after just a few months is a significant achievement and we look forward to
driving sustainable, increasingly profitable growth in this part of the Group
in the second half of the year and beyond. It is testament to the quality of
our teams that we were able to see the potential Connect had and, taking a
similar approach to the one we took with the Adept business, successfully
completed the first phase of the turnaround.
Elsewhere, following the acquisition of value-added reseller ("VAR")
MoreComputers in September 2021, the Group has been working on a rebrand to
MoreCoCo. MoreCoCo comprises a consumer-facing website, boasting a wide range
of consumer and personal electronics, and a dedicated alternative website for
businesses, which were both launched post-period in June 2022.
As part of the process, we completed a significant overhaul and optimisation
of the original website, which included a new look and feel. With the
improvements to MoreCoCo's functionality and user experience, and leveraging
CloudCoCo's customer service and marketing functions, the Group expects to see
traffic gradually increase, with the sites in time becoming an important
revenue stream for the Group and a key means of new customer acquisition,
expansion and upselling. Investors can visit the relaunched website at
https://www.morecoco.co.uk/ (https://www.morecoco.co.uk/) .
Encouragingly, the 'Get Well' actions in the acquired businesses undertaken in
the first half are expected to deliver additional benefits in the second half.
With the integration process of the four acquisitions now largely complete, we
move forward with a proven blueprint for expanding the business through adding
complementary businesses, and continue to proactively appraise new
opportunities to continue in the same vein.
Accelerate sales
The decision to focus on building our pipeline of new business while ramping
up cross-selling into our significantly enlarged customer base
post-acquisition is now bearing fruit, with Revenues of £11.6m, up 183% on
the corresponding period last year (H1 2021: £4.1m). At £9.7m (H1 2021:
£2.9m), total contract value ("TCV") in the period was at a record level,
with demand for the Group's services increasing with the normalisation of
trading conditions following Covid-19. TCV measures the total revenue that we
expect to generate from new customer contracts signed in the year over their
contractual term.
The increased capabilities and scale that the newly acquired businesses
provide are already enabling us to compete for and win larger contracts, as
evidenced by the new multi-year agreements with Wall Street Docs, Healthcare
Quality Improvement Partnership and The ID Register (Services) Limited. At the
same time, the Group now has close to 1,000 active customers versus 450 at the
half-year point in FY 2021, and we have had encouraging early success in
selling them more products and services from across the Group's divisions.
Development of a new website for existing CloudCoCo business customers to
purchase IT hardware is nearing completion, with the launch expected later in
the second half. This will enable customers to choose to buy online rather
than through an account manager at the Group, ensuring a swift and
straightforward procurement process at their convenience. Its introduction is
part of the Group's strategy to deepen relationships with its customers and is
expected to be the catalyst for a gradual acceleration of hardware purchases.
With an exhaustive range of products available to buy 24/7 in just a few
clicks, the Group also anticipates a greater number of its Managed Services
customers choosing to purchase hardware from its VAR division, rather than
from several third-party suppliers.
To support our sales efforts, we have invested in additional marketing
resource and introduced product and solution specialisms through a new sales
overlay programme. We are already seeing evidence of successful cross-selling
as a result, and expect to see momentum to continue to build through the
second half. We have also implemented new technology and systems to ensure our
teams have everything they need to source and convert leads while tracking and
sharing their progress with the rest of the Group.
Post-period, in June, we established a sales academy at the Group's head
office in Leeds. Initially comprising five new hires, the Academy will provide
a structured environment for training and developing homegrown talent, giving
ambitious individuals the skills and experience necessary to grow into
important members of the CloudCoCo sales team and make a meaningful
contribution to the Group's revenue growth.
With a growing number of new opportunities and the steps we have taken to make
it easier and more beneficial for existing customers to buy a more diverse
range of products and services from us, we are confident in our ability to
continue to accelerate sales.
Maintain excellent support levels
Delighting customers through best-in-class customer service is our ultimate
goal as a business and we continue to strive to achieve excellence in this
area, introducing several initiatives in the first half including combining
the service desks from Connect and CloudCoCo to improve coverage in core hours
and enhance our 24/7 support function, and establishing a new team in January
2022 to proactively review our customers' hardware estate and alert patterns
before recommending corrective actions if necessary.
Response times to support requests continued to improve in the period, with
customer satisfaction levels remaining high. More than 90% of support events
were rated "good" or better, and we are currently evaluating ways to further
improve resolution times in the second half.
Drive efficiencies and strengthen financial position
A priority in the first half was to review and renegotiate key supplier
contracts across the newly acquired businesses. We also reviewed and
consolidated colleague roles where possible across the Group, identified
synergies, and maintained our disciplined approach to driving down cost of
sales and overheads without compromising quality of service. While there are
still efficiencies to be realised with the integration of the new businesses,
we have made rapid progress to date and anticipate further progress in the
second half.
Improving our financial strength and liquidity remains a key area of focus the
Group. We continue to explore ways to bolster our position, including
improving speed of invoicing by offering discounts to customers with
multi-year contracts for paying in advance, and enhancing our due diligence in
the credit control process.
Our people
We now have 125 staff, an increase of 78 compared to the same period last
financial year. While this gives us much greater capacity, the additional
skills and talent that were brought into the business via the acquisitions
means we now have significantly increased capability to deliver a much broader
range of solutions without having to undertake significant new hiring and
training of colleagues.
In November 2021 we appointed Mike Chester as Group Operations Director. A
newly created role, Mike is responsible for overseeing the day-to-day
operational functions of CloudCoCo and ensuring the Group continues to provide
the very highest standards of proactive customer support as it looks to expand
further.
Mike has a track record of positioning organisations for operational success
in a career spanning over 25 years, 18 of which have been in the Managed
Service Provider space, and he has made an excellent start to life at
CloudCoCo, having already played an instrumental role in the integration of
the newly acquired businesses and ensuring the different parts of the Group
are able to collaborate as effectively and efficiently as possible.
We are looking at the best way to create a more modern working environment for
our colleagues, including the proposed location of a new UK service management
centre to complement our current facilities in Warrington, Leeds, Bournemouth
and Sheffield.
During the period, we also appointed a Head of People as part of our ongoing
CoCo-One initiative. Our collaborative, inclusive and high-performance culture
is vital to our success, and we are now of a size where we will benefit from
having someone responsible for ensuring we have the right people systems and
practices in place across the Group to ensure it thrives.
As mentioned above, our new sales academy is now up and running, and I look
forward to seeing what our new recruits can achieve.
Current trading and outlook
Trading in the second half to date has been encouraging, largely as a result
of the significant strategic progress that has taken place ahead of schedule.
We continue to successfully sign large multi-year agreements - much larger
than we would have been able to before we made the acquisitions - with St John
Ambulance and Abbott Laboratories already secured, and our pipeline of
opportunities continues to grow.
With the correction of the Connect business behind us, we enter the second
half of the year with a clean bill of health, a more joined up organisational
infrastructure and a common objective across the Group to drive sustainable,
increasingly profitable growth. Growing our customer base further will be a
key priority going forwards but capturing increased value from our expanded
customer base post-acquisitions will be equally as important.
As a team we have taken decisive action in the first half to put the Group on
a sound footing, and expect to see the benefits to the bottom line of the hard
work done become evident in the second half, and realised fully in the next
financial year.
Our M&A strategy is showing early signs of success, we have a blueprint
for integration that is proven, and we continue to look at further
opportunities to expand the Group through acquisition. That said, we will only
move forwards where we believe the terms are favourable and that the business
is a good strategic fit.
While we have made material progress and have moved up the food chain
considerably, we are an ambitious organisation, and have no intention of
letting up in our pursuit of our growth ambitions. We are monitoring the
external environment, but demand trends remain healthy, and with the
improvements that have been made across the Group to date to unlock its
potential, we are confident of continued progress in the second half and
beyond.
Mark Halpin
CEO
28 June 2022
Consolidated income statement
for the six-month period ended 31 March 2022
Note Unaudited Unaudited Unaudited Audited
6 months to
6 months to
6 months to
Year to
31 March
30 September
31 March
30 September
2022
2021
2021
2021
£'000
£'000 £'000
£'000
Continuing operations
Revenue 3 11,644 3,963 4,144 8,107
Cost of sales (8,123) (2,392) (2,499) (4,891)
Gross profit 3,521 1,571 1,645 3,216
Other income - 21 46 67
Administrative expenses (4,730) (2,713) (2,081) (4,794)
Trading Group EBITDA (1) - non statutory measure 302 381 364 745
Amortisation of intangible assets 6 (654) (514) (495) (1,009)
Plc costs(2) (345) (270) (222) (492)
Depreciation (61) (50) (47) (97)
Exceptional items - other 4 (280) (400) (41) (441)
Share-based payments (171) (268) 51 (217)
Operating loss (1,209) (1,121) (390) (1,511)
Interest receivable - 1 - 1
Interest payable (323) (256) (279) (535)
Loss before taxation (1,532) (1,376) (669) (2,045)
Taxation 164 (177) 94 (83)
Loss and total comprehensive loss for the year attributable to owners of the (1,368) (1,553) (575) (2,128)
parent
Loss per share
Basic and fully diluted 5 (0.19)p (0.30)p (0.12)p (0.42)p
( )
(1) Profit or loss before net finance costs, tax, depreciation, amortisation,
plc costs, exceptional items and share-based payments.
(2) Plc costs are non-trading costs relating to the Board of Directors of the
Parent Company, its listing on the AIM Market of the London
Stock Exchange and its associated professional advisors.
Consolidated statement of financial position
as at 31 March 2022
Note Unaudited Unaudited Audited
31 March
31 March
30 September
2022 2021 2021
£'000 £'000 £'000
Non-current assets
Intangible assets 6 12,492 9,864 10,393
Property, plant and equipment 154 159 149
Total non-current assets 12,646 10,023 10,542
Current assets
Inventories 223 75 86
Trade and other receivables 7 5,438 2,148 2,953
Cash and cash equivalents 1,312 575 1,183
Total current assets 6,973 2,798 4,222
Total assets 19,619 12,821 14,764
Current liabilities
Trade and other payables 8 (6,863) (2,482) (2,872)
Contract liabilities (2,303) (969) (177)
Borrowings 9 (69) (109) (172)
Lease liability (109) (78) (86)
Total current liabilities (9,344) (3,638) (3,307)
Non-current liabilities
Contract liabilities (178) (235) (1,092)
Borrowings 9 (4,400) (3,719) (3,991)
Lease liability (194) (33) (11)
Deferred tax liability (1,525) (846) (1,188)
Total non-current liabilities (6,297) (4,833) (6,282)
Total liabilities (15,641) (8,471) (9,589)
Net assets 3,978 4,350 5,175
Equity
Share capital 7,062 4,952 7,062
Share premium account 17,630 17,630 17,630
Capital redemption reserve 6,489 6,489 6,489
Merger reserve 1,997 1,997 1,997
Other reserve 510 71 339
Retained earnings (29,710) (26,789) (28,342)
Total equity 3,978 4,350 5,175
Consolidated statement of changes in equity
for the six-month period ended 31 March 2022
Share Share Capital Merger Other Retained Total
capital premium redemption reserve reserve earnings £'000
£'000 £'000 reserve £'000 £'000 £'000
£'000
At 1 October 2020 4,952 17.630 6,489 1,997 122 (26,214) 4,976
Loss and total comprehensive loss for the period - - - - - (575) (575)
Share-based payments - - - - (51) - (51)
Total movements - - - - (51) (575) (626)
Equity at 31 March 2021 4,952 17,630 6,489 1,997 71 (26,789) 4,350
Share Share Capital Merger Other Retained Total
capital premium redemption reserve reserve earnings £'000
£'000 £'000 reserve £'000 £'000 £'000
£'000
At 1 April 2021 4,952 17,630 6,489 1,997 71 (26,789) 4,350
Loss and total comprehensive loss for the period - - - - - (1,553) (1,553)
Transactions with owners in their capacity of owners
Issue of 210,990,000 shares at 1p per share via a Placing. 2,110 - - - - - 2,110
Share-based payments - - - - 268 - 268
Total transactions with owners 2,110 - - - 268 - 2,378
Total movements 2,110 - - - 268 (1,553) 825
Equity at 30 September 2021 7,062 17,630 6,489 1,997 339 (28,342) 5,175
Share Share Capital Merger Other Retained Total
capital premium redemption reserve reserve earnings £'000
£'000 £'000 reserve £'000 £'000 £'000
£'000
At 1 October 2021 7,062 17,630 6,489 1,997 339 (28,342) 5,175
Loss and total comprehensive loss for the period - - - - - (1,368) (1,368)
Share-based payments - - - - 171 - 171
Total movements - - - - 171 (1,368) (1,197)
Equity at 31 March 2022 7,062 17,630 6,489 1,997 510 (29,710) 3,978
Consolidated statement of cash flows
for the six-month period ended 31 March 2022
Unaudited Unaudited Unaudited Audited
6 months to
6 months to
6 months to
Year to
31 March
30September
31 March
30 September
2022
2021
2021
2021
£'000
£'000 £'000
£'000
Cash flows from operating activities
Loss before taxation (1,532) (1,376) (669) (2,045)
Adjustments for:
Depreciation - owned assets 61 5 17 22
Depreciation - right of use assets - 45 30 75
Amortisation 654 514 495 1,009
Share-based payments 171 268 (51) 217
Net finance expense 323 255 279 534
Costs relating to acquisitions(1) 93 202 - 202
Costs relating to Placing of 210,990,000 shares - 171 - 171
Increase in trade and other receivables (1,020) (116) (292) (408)
(Increase) / decrease in inventories (137) 20 (44) (24)
Increase / (decrease) in trade payables, accruals and contract liabilities 1,146 (375) 318 (57)
Net cash (outflow) / inflow from operating activities before acquisition costs (241) (387) 83 (304)
Costs relating to acquisitions(1) (93) (202) - (202)
Net cash (outflow) / inflow from operating activities (334) (589) 83 (506)
Cash flows from investing activities
Purchase of property, plant and equipment (16) (14) (17) (31)
Acquisitions net of cash acquired(1) 498 (563) - (563)
Interest received - 1 - 1
Net cash inflow / (outflow) from investing activities 482 (576) (17) (593)
Cash flows from financing activities
Proceeds from Placing of 210,990,000 shares - 2,110 - 2,110
Less transaction fees relating to the Placing - (171) - (171)
Repayment of loan funds from MXCG - (100) - (100)
Payment of lease liabilities (18) (48) (72) (120)
Interest paid (1) (18) (7) (25)
Net cash (outflow) / inflow from financing activities (19) 1,773 (79) 1,694
Net increase in cash 129 608 (13) 595
Cash at bank and in hand at beginning of period 1,183 575 588 588
Cash at bank and in hand at end of period 1,312 1,183 575 1,183
Comprising:
Cash at bank and in hand 1,312 1.183 575 1,183
(1) Six months to 30 September 2021 relates to the acquisition of Systems
Assurance Limited and More Computers Limited.
Six months to 31 March 2022 relates to the acquisition of CloudCoCo Connect
Limited (formerly IDE Group Connect Limited) and
Nimoveri Limited.
Notes to the consolidated interim financial statements
1. General information
CloudCoCo Group plc (the "Group") is a public limited company incorporated in
England and Wales under the Companies Act 2006. The address of the registered
office is 5 Fleet Place, London, EC4M 7RD.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 because that is
the currency of the primary economic environment in which each of the Group's
subsidiaries operates.
2. Basis of Preparation
2.1 Accounting Policies
The accounting policies used in the presentation of the unaudited consolidated
interim financial statements for the six months ended 31 March 2022 are in
accordance with applicable International Financial Reporting Standards (IFRSs)
as applied in accordance with provisions of the Companies Act 2006. The
principal accounting policies of the Group have been consistently applied to
all periods presented unless otherwise stated.
2.2 Going concern
The Directors have prepared the financial statements on a going concern basis
which assumes that the Group will continue to meet liabilities as they fall
due.
The Directors have reviewed the forecast sales growth, budgets and cash
projections for the period to June 2023, including sensitivity analysis on the
key assumptions such as the potential impact of reduced sales or slower cash
receipts for the next twelve months and 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 unaudited interim financial statements.
The Directors have not identified any material uncertainties that may cast
doubt over the ability of the Group and Company to continue as a going concern
and the Directors continue to adopt the going concern basis in preparing these
unaudited interim financial statements.
3. Segment reporting
The executive directors of the Company and its subsidiaries review the Group's
internal reporting in order to assess performance and to allocate resources.
Profit performance is principally assessed through adjusted profit measures
consistent with those disclosed in the Annual Report and Accounts. The Board
believes that the Group comprises a single reporting segment, being the
provision of IT managed services to customers. Whilst the Directors review 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
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
MoreCoCo
e-commerce platform.
No customer accounts for more than 10% of external revenues in any reported
period.
3.1 Analysis of continuing results
All revenues from continuing operations are derived from customers within the
UK. In order to simplify our reporting of revenue, we have taken the decision
to condense our reporting segments into two new categories - Managed IT
Services and Value Added Resale. This analysis is consistent with that used
internally by the CODM and, in the opinion of the Board, reflects the nature
of the revenue. Trading EBITDA is reported as a single segment.
Unaudited Unaudited Unaudited Audited
6 months to 6 months to 6 months to Year to
31 March 30 September 31 March 30 September
2022
2021
2021
2021
£'000
£'000
£'000
£'000
By operating segment
Managed IT Services 8,582 2,738 2,910 5,648
Valued Added Resale 3,062 1,225 1,234 2,459
Total revenue 11,644 3,963 4,144 8,107
4. Exceptional Items
Items which are material and non-routine in nature are presented as
exceptional items in the Consolidated Income Statement.
Unaudited Unaudited Unaudited Audited
6 months to 6 months to 6 months to Year to
31 March 30 September 31 March 30 September
2022 2021 2021 2021
£'000
£'000
£'000
£'000
Costs relating to acquisitions(1) (93) (202) - (202)
Costs relating to the Placing - (171) - (171)
Integration and restructure costs (187) (27) (41) (68)
Exceptional items (280) (400) (41) (441)
(1) Six months to 30 September 2021 relates to the acquisition of Systems
Assurance Limited and More Computers Limited.
Six months to 31 March 2022 relates to the acquisition of CloudCoCo Connect
Limited (formerly IDE Group Connect Limited) and
Nimoveri Limited.
5. Loss per share
Unaudited Unaudited Unaudited Audited
6 months to
6 months to 6 months to Year to
31 March 30 September 31 March 30 September
2022 2021 2021 2021
£'000 £'000 £'000 £'000
Loss attributable to ordinary shareholders (1,368) (1,553) (575) (2,128)
Number Number Number Number
Weighted average number of Ordinary Shares in issue, 706,215,686 510,759,930 495,225,986 510,759,930
basic and diluted
Basic and diluted loss per share (0.19)p (0.30)p (0.12)p (0.42)p
6. Intangible assets
Intangible assets are non-physical assets which have been obtained as part of
an acquisition or research and development activities, such as innovations,
introduction and improvement of products and procedures to improve existing or
new products. All intangible assets have an identifiable future economic
benefit to the Group at the point the costs are incurred. The amortisation
expense is recorded in administrative expenses in the Consolidated Income
Statement
Intangible assets Goodwill IT, billing and Brand Customer Total
£'000 website £'000 lists £'000
systems £'000
£'000
Cost
At 1 October 2020 and 31 March 2021 9,835 182 1,657 9,280 20,954
Additions - acquisition of Systems Assurance Limited 253 179 470 141 1,043
At 30 September 2021 10,088 361 2,127 9,421 21,997
Additions - acquisition of CloudCoCo Connect Limited (formerly IDE Group 247 - 298 2,208 2,753
Connect Limited)
At 31 March 2022 10,335 361 2,425 11,629 24,750
Accumulated amortisation
At 1 October 2020 - (158) (978) (3,594) (4,730)
Charge for the period - (6) (25) (464) (495)
At 31 March 2021 - (164) (1,003) (4,058) (5,225)
Charge for the period - (20) (29) (465) (514)
At 30 September 2021 - (184) (1,032) (4,523) (5,739)
Charge for the period - (9) (63) (582) (654)
At 31 March 2022 - (193) (1,095) (5,105) (6,393)
Impairment
At 1 October 2020 (4,447) - (225) (1,193) (5,865)
Charge for the period - - - - -
At 31 March 2021 (4,447) - (225) (1,193) (5,865)
Charge for the period - - - - -
At 30 September 2021 (4,447) - (225) (1,193) (5,865)
Charge for the period - - - - -
At 31 March 2022 (4,447) - (225) (1,193) (5,865)
Carrying amount
At 31 March 2022 5,888 168 1,105 5,331 12,492
At 30 September 2021 5,641 177 870 3,705 10,393
At 31 March 2021 5,388 18 429 4,029 9,864
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are independent cash flows (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 flows. The
directors concluded that at 31 March 2022, there were four CGUs being
CloudCoCo Limited, Systems Assurance Limited, More Computers Limited and
CloudCoCo Connect Limited (formerly IDE Group Connect 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 budget, growth rates, 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 11.25%. The pre-tax discount rate (weighted average cost of
capital) was calculated at 15% per annum (FY21:15%) and the revenue growth
rate is 5% per annum (FY21: 5%) for 5 years and a terminal growth rate of 2%
(FY21: 2%) per annum.
Sensitivities have been run on cash flow forecasts for the 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 key assumptions and the resultant excess (or shortfall) of
discounted cash flows against the aggregate of goodwill and intangible assets.
Sensitivity analysis CloudCoCo Group plc
£'000
Excess of recoverable amount over carrying value:
Base case - headroom £7,118
Discount rate increased by 1% - resulting headroom £6,450
Revenue growth rate reduced by 1% per annum - resulting headroom £4,030
Base case calculations highlight that the impairment review is sensitive to
the discount rate and growth rate. Given the Group's value proposition is
centred around generating monthly recurring fees for IT and communication
solutions, the Directors are satisfied that the Group's objectives are to
maximise the cash flows generated through the sales of Recurring Services.
In determining whether intangible assets including goodwill were impaired, the
Directors estimated the discounted future cash flows associated with the
intangible assets over a ten-year period, using a discount rate equivalent to
the WACC. The Directors also considered the impact of the customer notices of
termination received and the improvement in Trading EBITDA during the period
as indicators that there is no impairment of intangible assets.
7. Trade and other receivables
Unaudited Unaudited Audited 30 September 2021
31 March 2022 31 March 2021 £'000
£'000 £'000
Trade receivables 3,043 1,041 1,781
Other debtors 111 13 112
Contract assets 586 202 232
Prepayments 1,698 892 828
Trade and other receivables 5,438 2,148 2,953
The Group reviews the amount of expected credit loss associated with its trade
receivables and contract assets under IFRS 9 based on forward looking
estimates that take into account current and forecast credit conditions as
opposed to relying on past historical default rates. In adopting IFRS 9 the
Group applied the Simplified Approach applying a provision matrix based on
number of days past due to measure lifetime expected credit losses and after
taking into account customers with different credit risk profiles and current
and forecast trading conditions.
8. Trade and other payables
Unaudited Unaudited Audited 30 September 2021
31 March 2022 31 March 2021 £'000
£'000 £'000
Trade payables 4,492 1,551 2,008
Accruals 1,633 407 433
Other taxes and social security costs 738 524 431
Trade and other payables 6,863 2,482 2,872
9. Borrowings
9.1 Current
Unaudited Unaudited Audited 30 September 2021
31 March 2022 31 March 2021 £'000
£'000 £'000
COVID-19 Bounce-back loan repayable - short-term element 19 9 17
Deferred consideration relating to the acquisition of Systems Assurance - - 155
Limited.
Deferred consideration relating to the acquisition of CloudCoCo Connect 50 - -
Limited (formerly IDE Group Connect Limited) - short term element at Fair
Value
MXC Guernsey Limited working capital facility - 100 -
69 109 172
9.2 Non-current
Unaudited Unaudited Audited 30 September 2021
31 March 2022 31 March 2021 £'000
£'000 £'000
Loan notes 3,698 3,229 3,412
Accrued interest on loan notes repayable in October 2024 526 449 496
Loan notes 4,224 3,678 3,908
COVID-19 Business Bounce-back loan repayable - long-term element 73 41 83
Deferred consideration relating to the acquisition of CloudCoCo Connect 103 - -
Limited (formerly IDE Group Connect Limited) - long term element at Fair Value
4,400 3,719 3,991
On 10 May 2020, the Company borrowed £50,000 from HSBC Bank UK Plc, under the
COVID-19 Business Bounce-back loan scheme. In accordance with the UK
Government's Business Interruption Payment scheme, the interest on the loan
for the first 12 months is covered by the UK Government and the Company will
repay the loan in 59 equal monthly instalments, commencing June 2021.
As part of the acquisition of More Computers Limited on 6 September 2021, the
Company inherited a COVID-19 Business Bounce-back loan of £50,000 between
More Computers Limited and NatWest Bank Plc. In accordance with the UK
Government's Business Interruption Payment scheme, the interest on the loan
for the first 12 months is covered by the UK Government and the Company will
repay the loan in 59 equal monthly instalments, commencing March 2022.
9.3 Net debt - net debt comprises: 2022 Cash Other 2021
movements
movements
£'000
£'000
£'000
£'000
Loan notes 4,224 - 316 3,908
COVID-19 Bounce-back loans 92 (4) - 100
Deferred consideration relating to the acquisition of CloudCoCo Connect 153 - 153 -
Limited (formerly IDE Group Connect Limited) - Fair Value
Lease liabilities 303 (18) 224 97
Cash and cash equivalents (1,312) (129) - (1,183)
Total 3,460 (155) 693 2,922
10. Acquisition of CloudCoCo Connect Limited (formerly IDE Group Connect
Limited) and Nimoveri Limited
On 21 October 2021, the Group acquired the entire issued share capital of
CloudCoCo Connect Limited (formerly IDE Group Connect Limited) and its wholly
owned subsidiary Nimoveri Limited for a total consideration of £0.2 million
at fair value in accordance with IFRS 3. The acquisition was acquired from IDE
Group Plc ("IDE"), on a normalised net cash basis funded via a loan note from
IDE for £250,000 to be repaid over five years with an annual interest rate of
Bank of England base rate +3% with no payments due in the first six months.
IDE also agreed to provide the Group with a working capital facility of up to
£500,000 on request, should it be required to help fund the initial
restructure of the Connect business. Amounts drawn would be convertible into
new ordinary shares in the Group at 1 pence per share, if not repaid in full
by 19 October 2022. As at 28 June 2022, none of the working capital facility
has been drawn down.
The consideration terms reflected the financial state of the Connect business
at the date of the acquisition, the limited-scope warranties offered by IDE
and the small number of unprofitable contracts contained within the business.
Since acquisition, the Group's management team have implemented a number of
steps to help improve the profitability of the Connect business, such that the
business is at monthly breakeven performance from March 2022.
The acquisition of Connect and Nimoveri was a related party transaction
pursuant to rule 13 of the AIM Rules for Companies, due to MXC Guernsey
Limited owning 10.6%. of the Company's issued share capital and 34.8% of IDE's
issued share capital.
The Directors of the Company (save for Jill Collighan who was not deemed
independent for this purpose) having consulted with the Company's Nominated
Adviser, agreed that the terms of the transaction were fair and reasonable
insofar as the Company's shareholders were concerned.
Given the relatively short period of time since the acquisition, the Group
have prepared a provisional opening balance sheet and have provisionally
assessed the fair value of the acquisition of CloudCoCo Connect Limited
(formerly IDE Group Connect Limited) as follows:
Book Fair Value
Cost
Adjustment
Fair Value
£'000 £'000 £'000
Non-current assets
Intangible assets - customer lists 15 2,193 2,208
Intangible assets - brand - 298 298
Property, plant and equipment 76 (66) 10
Total non-current assets 91 2,425 2,516
Current assets
Trade and other receivables 1,473 (33) 1,440
Cash at bank 498 - 498
Total current assets 1,971 (33) 1,938
Total assets 2,062 2,392 4,454
Current liabilities
Trade and other payables (1,605) 298 (1,307)
Accruals (587) (205) (792)
Other taxes and social security costs (576) - (576)
Contract liabilities (1,063) - (1,063)
Lease liability (92) - (92)
(3,923) 93 (3,830)
Non-current liabilities
Contract liabilities (15) - (15)
Accruals - (200) (200)
Lease liability (2) - (2)
Deferred tax liability - (501) (501)
Total liabilities (3,940) (608) (4,548)
Net Liabilities (1,878) 1,784 (94)
Consideration in cash -
Fair value of deferred consideration loan 153
Consideration in shares -
Fair value of cost of acquisition 153
Goodwill 247
2022
£'000
Cash consideration paid -
Cash acquired 498
Acquisition of CloudCoCo Limited, net of cash 498
The goodwill arising on this acquisition was attributable to the brand and the
customer base. Direct acquisition costs amounting to £93,000 were written off
to the income statement within exceptional items.
END
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