REG - essensys PLC - Full Year Results
19 October 2021
essensys plc
("essensys" or the "Group")Full Year Results
Resilient performance in line with market expectations
Momentum building and structural change taking shape
essensys plc (AIM:ESYS), the leading global provider of mission critical software-as-a-service (SaaS) platforms and on-demand cloud services to the flexible workspace industry, announces audited results for the year ended 31 July 2021.
Financial summary:
£m unless otherwise stated
2021
2020
Change
Revenue
22.0
22.5
-2%
Recurring revenue
19.1
19.4
-2%
Run Rate Annual Recurring Revenue
19.8
19.7
+1%
Revenue at constant currency
22.9
22.5
+2%
Recurring revenue at constant currency
19.8
19.4
+2%
Run Rate Annual Recurring Revenue at constant currency
20.6
19.7
+5%
Statutory (loss) / profit before tax
(2.9)
0.3
Adjusted EBITDA
1.3
4.2
-69%
(Loss) / profit per share (pence)
(6.2p)
0.3p
Proposed Final Dividend per share (pence)
Nil
Nil
Net Cash
36.9
8.5
Platform to capture structural market shift
· US business continues to grow strongly, with US Dollar recurring revenues up 20%
· Long-term structural drivers for flexible real estate offerings accelerated by Covid-19
o Traditional landlords and corporate real estate operators seeking flexible workspace solutions
· Clear plan to capture global market opportunity
o £33.2m oversubscribed fundraising to accelerate growth strategy
o Flex Services Platform launched and customer migrations underway
o Appointment of CEOs in North America and Asia Pacific to accelerate international growth; UK/EMEA CEO appointment agreed
· Demand from existing and new customers continues to underpin future growth
o 474 Connect live sites at year end, up 13% (2020: 419)
o 33 new Connect sites contracted;
o Addition of 24 new customers during the year further underpinning future growth
Resilient performance, in line with expectations
· Group revenue up 2% on a constant currency basis
· Constant currency recurring revenue up 2%; Recurring revenue represented 87% of Group revenue (2020: 86%)
· Constant currency Annual Recurring Revenue (ARR) up 5% (run rate as at 31 July 2021)
· Revenue at reported currency and Adjusted EBITDA in line with market expectations following planned expansion of business in the year
· Group remains debt free; £36.9m net cash at year end, including net proceeds of £31.8m from successful equity fundraising
Current trading and outlook
· Sales pipeline from new and existing customers underpins confidence for continued progress in 2022 - 91 existing customer locations in current sales pipeline
· Asia Pacific business established based in Hong Kong; First Asia Pacific Connect site contracted and due to 'go live' in Q2 FY22; Singapore office expected to open shortly
· Major renewal with our largest customer, Industrious, as part of new three-year global framework contract
· Largest UK customer also renewed
· Investment in future go-to-market and further product and software development underway following fundraising
Mark Furness, CEO of essensys, said:
"essensys' performance in the last twelve months underlines the resilience of our business model. Against the backdrop of Covid-19, we have delivered results in line with expectations, with underlying recurring revenue growth and strong growth in the US. Covid-19 is accelerating the shift towards flexible workspace, particularly from traditional landlords and commercial real estate operators and have taken proactive steps to capture this long-term growth opportunity in the flexible workspace market. In March we launched our new Flex Services Platform to provide real estate leaders a single software and digital infrastructure platform to operate and scale up their flexible workspaces. In July, we successfully raised c.£33m to accelerate our proven growth strategy. These actions support our long-term goal to increase our market share by 10% in North America, Asia Pacific, the UK and Europe.
"Our strong platform for growth, combined with our pipeline of activity with current and new customers, gives us confidence of further progress in the year ahead, notwithstanding the uncertainty relating to Covid-19."
For further information, please contact:
essensys plc
+44 (0)20 3102 5252
Mark Furness (Chief Executive Officer)
Alan Pepper (Chief Financial Officer)
Singer Capital Markets (nominated adviser and joint broker)
+44 (0)20 7496 3000
Peter Steel / Harry Gooden / George Tzimas
Berenberg (joint broker)
+44 (0)20 3207 7800
Ben Wright / Mark Whitmore
FTI Consulting (public relations adviser)
+44 (0)20 3727 1000
Jamie Ricketts / Eve Kirmatzis / Talia Jessener / Victoria Caton
About essensys plc
essensys is the leading global provider of mission-critical SaaS platforms and on-demand cloud services to the high growth flexible workspace industry. essensys' software is specifically designed and developed to help solve the complex operational challenges faced by multi-site flexible workspace operators as they grow and scale their operations. The Group's technology allows operators to deliver a range of differentiated, flexible and customer-specific services to a broad base of tenants across multiple locations and helps operators to manage the cost, operational and technological challenges they typically encounter.
essensys' Flex Services Platform, addresses these complex operational challenges, and reduces costs by simplifying the day-to-day management of flexible workspaces and the provision of on-demand IT, technology and infrastructure services to tenants. essensys' platforms automate key tasks and processes and help flexible workspace providers deliver highly efficient, customer-centric workspace solutions and member experiences with enterprise class services.
Chairman's Statement
In another successful year, I would like to start with the contribution of our people who are the first and most important pillar in our success. Their role in essensys' progress cannot be underestimated. We have now lived through 19 months of the largest global crisis for decades. The Board continues to be impressed - but not surprised - by the commitment, talent and positivity of our teams. That focus on our people will be a continued element of our future success as we continue to expand the business.
Our financial performance was in line with market expectations, with continued growth in recurring revenues and in our US business. Despite some weakness in the UK which was primarily Covid-19 related, Group revenue was up 2% on a constant currency basis, US recurring revenues were up 20% (in US Dollars) and EBITDA was in line with market expectations. Our underlying business has continued to grow during the pandemic and as restrictions have been eased we have seen market activity increase in our current regions and those geographies where we are just launching.
essensys has an excellent platform for long-term growth. We owe this to the scalable nature of our business model, the clarity of our strategy and - in the last twelve months - our resilient performance in the ongoing context of COVID-19. essensys has been debt-free since IPO, and, following our recent oversubscribed equity fundraising, has a strong balance sheet with £36.9m net cash at year end.
Our growth platform has been clearly communicated not just to customers but also to investors. In July 2021, we raised gross proceeds of c.£33.2m in an oversubscribed fundraising, to support the acceleration of our long-term growth strategy. We have a supportive investor base that understands our plans to capture the opportunity in the flexible workspace market and this is reflected in their recent financial support. I am delighted to see early progress following the fundraising, including the appointment of Eric Schaffer to lead our newly established Asia Pacific business and some initial business in that region.
essensys remains extremely well placed to take advantage of expected increasing demand for flexible workspace, in spite of the continued uncertainty relating to Covid-19. We see opportunities to grow not just with existing flexible workspace operators, but also with traditional landlords and the broader real estate sector, as they take more steps to enter the flexible workspace industry. The launch of our Flex Services Platform in recent months is an example of our commitment to product development to meet these demands and has been well received by customers. Notwithstanding the current uncertainty in the wider environment the Group remains confident of further progress in the year ahead and beyond.
Jon Lee
Non-Executive Chairman
18 October 2021
CEO Report
Vision, purpose and offering
essensys' vision is to power the world's largest community of tech-driven flexible workspaces. Our technology has two fundamental purposes. First, we allow operators to deliver a range of differentiated, flexible and customer-specific services to a broad base of tenants across multiple locations. Second, we help operators to manage the cost, operational and technological challenges they typically encounter.
The problem we solve
Occupiers are demanding greater flexibility and exceptional in-building experiences. For landlords, meeting these expectations can bring significant risk, cost and complexity. As the leading global provider of mission-critical SaaS platforms and on-demand cloud services to the flexible workspace segment of the commercial real estate industry, essensys' software is specifically designed and developed to help solve the complex operational challenges faced by landlords and multi-site flexible workspace operators as they grow and scale their operations.
Strong platform for long-term growth
In our 2021 financial year, we performed in line with market expectations and made strong progress in the key North American market, growing our US recurring revenues by 20%. At constant currency we grew Annual Recurring Revenue by 5% in the year.
Our business model is characterised by high visibility and resilience and strong SaaS metrics, with recurring revenues now accounting for 87% of Group revenues. Our overall gross margin has grown slightly to 65% due to an increase in the proportion of recurring revenue, our ARR gross margin is stable at 69% and net retention over the last three years has averaged 104%. Our customer base continues to diversify both in terms of type and location with new customers in new regions and an increasing number of more traditional landlords and commercial real estate operators becoming customers. We see these trends continuing.
Our progress is particularly pleasing in the context of the greatest global crisis in decades. This is testament to a proven growth strategy which we define as land, expand and grow with the landlords and flex operators we support. essensys has very few direct competitors within our target markets. Our initial expansion into new territories is typically driven by existing customer demand, as customers seek to realise their own growth plans and we offer a solution not already available locally. It is estimated that by 2025 the Group's target addressable markets will have grown to £375 million in North America, £225 million in Asia Pacific and £250 million across the United Kingdom and Continental Europe (source; extrapolated from JLL data and information).
Oversubscribed fundraising to support long-term growth strategy
essensys has built a strong platform to capture the flexible workspace opportunity. We believe there is a significant opportunity to increase the Group's market share ahead of the rapid expansion expected in the market and the recent fundraising will underpin the next phase of our long-term growth strategy.
We are investing the proceeds of that fundraising in accelerating our go-to-market, geographic expansion and product development plans. Specifically, we will focus on four key areas:
1. "Land-grab" opportunity in the flexible real estate market. We have identified a significant "land-grab" opportunity resulting from the massive structural shift in commercial real estate, as landlords respond to the increased demand for flexible real-estate solutions from their customers;
2. Increase market share in a growing market. We aim to increase market share in a growing market through our go-to-market strategy, focusing on the key markets of North America, the United Kingdom and Continental Europe and Asia Pacific, with a long-term plan to increase market share by 10% across these regions.
3. Accelerate our proven strategy. We aim to accelerate our proven strategy by targeting the expansion opportunity within the existing customer base and through developing key, high value, strategic accounts to build a pipeline which underpins significant future runway; and
4. Accelerate product development to strengthen market position. We intend to achieve this by reducing time-to-market, time-to-differentiation and accelerating disruptive innovation.
"Land-grab" opportunity in the flexible real estate market
essensys' industry, the flexible workspace market, has undergone significant growth in recent years. This trend has been strengthened by traditional landlords and commercial real estate ("CRE") firms accelerating the development of their own flexible workspace products and services to meet the evolving needs of their tenants. 30% of all office space is expected to be consumed flexibly by 2030 (source: JLL), by which time the market is expected to be worth £4 billion (source: Berenberg).
At the same time, landlords of traditional office spaces are facing increased operating costs, increased vacancy rates and reduced rents.
Covid-19 has underlined the increase in appetite for agile workspace solutions to both occupiers and landlords. For example, a recent CBRE survey showed 86% of occupiers in September 2020 (compared to 73% in June 2020) saw flexible office space as a key component of their future real estate strategy. Recent research by the Worktech Academy (2021) suggests that demand for flex workspace in the UK alone will grow by more than 20% per annum by 2023.
Increase market share in a growing market
essensys is well positioned to capitalise on demand for powerful digital and in-building experiences, having developed the most comprehensive, end-to-end software and technology solution for flexible workspace providers available today.
Currently, property technology investment is still an insignificant proportion of CRE total expenditure. To meet the demand for flexible workspace solutions, it is expected that there will be a substantial structural change and digital transformation of existing office solutions over the next decade. Market studies show that consumers of flexible space are prepared to pay a premium for tech-driven services, with CRE firms increasingly seeking ways to make the management of flexible space more efficient and improve client experience.
Based on independent market studies, flexible office space across North America, Continental Europe, Asia Pacific and the United Kingdom, is expected to increase at a CAGR of 31%. between 2020 and 2030, accounting for approximately 2.6 billion square feet by the end of this period (0.2 billion square feet in 2020). The total addressable market in essensys' key regions is expected to grow significantly in the next decade. These markets are expected to be worth, in aggregate, approximately £3.4 billion by 2030, broken down as follows:
· North America £1.7 billion;
· Europe £0.9 billion;
· Asia Pacific £0.7 billion; and
· United Kingdom £0.1 billion.
Accelerate our go-to-market strategy
There is a significant expansion opportunity within the Group's existing portfolio of customers across landlords, flexible space operators and other distribution channels such as property agents, brokers and franchise operators. We estimate that these customers have the long-term potential to deliver over £1 billion in annual recurring revenues ("ARR").
In particular, the Group's existing high-value strategic accounts can provide significant long-term expansion opportunities, as the Group's growth is also driven by customers expanding their own operations. One existing customer represents real estate assets comprising over 62 million square feet within the Group's addressable markets alone. Assuming a penetration rate of 30%., which we believe is achievable, the future expansion opportunity for essensys' Flex Services Platform could equate to 18 million square feet of office space with this one customer.
We intend to capitalise on this opportunity by increasing the penetration of the Group's products in each building essensys serves. By increasing the adoption of the Flex Services Platform within a building, the Group's services become embedded and can generate significantly higher ARR and gross margins due to its 'per square foot' pricing model.
In addition, essensys' current new customer pipeline includes leading CRE landlords, asset managers and flexible workspace operators, which provides a further substantial future high value and longer-term ARR opportunity.
Accelerate product development to strengthen market position
To maintain the competitive advantage of essensys' products and services, the Group will increase its investment in product and software development with a focus on introducing technically and commercially disruptive innovation to create seamless digital experiences and extend the reach of the Flex Service Platform launched in March 2021.
The Flex Services Platform is a modular, integrated platform designed to address the unique challenges of flexible workspaces. It gives real estate leaders a single software and digital infrastructure platform to operate and scale up their flexible workspaces.
Using essensys' digital infrastructure and IP developed over the last 15 years, the Flex Services Platform allows landlords and flexible workspace operators to provide next-generation experiences for occupiers and meet their rapidly evolving needs in coming years.
Built on private network and cloud infrastructure, the platform supports the four key components that determine the quality of occupier experience: secure digital infrastructure, effective space setup, flexible operations management, and easy-to-use mobile-first occupier interactions. We are in the process of migrating existing customers onto the new platform in order that they can take advantage of its increased functionality.
The Company intends to accelerate its software development roadmap and expects to deliver additional capabilities including environmental and occupancy sensors as well as space visualisation by the end of 2021.
Our combined product and software development capability now numbers some 51 personnel, with 43 based in the UK - over one third of our employees.
International expansion
In the last year, we have made significant progress with our international expansion plans in North America, Asia and Europe. This is in line with the strategy we laid out at the time of our recent fundraising.
Appointment of CEO North America
In November 2020, we appointed Jeremy Bernard as CEO of our North American business to lead our scale-up in the region. Jeremy most recently served as the Global Head of Real Estate for Knotel, one of the world's largest flexible office providers. Since Jeremy's appointment, we have seen a significant increase in engagement with the broader real estate market driving increased pipeline activity which is already resulting in a higher volume of sales proposals.
Appointment of CEO Asia Pacific
In August 2021, we appointed Eric Schaffer as CEO of our Asia Pacific business to establish our business in that region. Eric previously served as Head of Real Estate Advisory for APAC for WeWork. Following his appointment we have implemented our staff hiring plan for APAC and have a number of new employees in process together with a developing new business pipeline. Eric has commenced engagement with a number of large potential customers across APAC, both flexible workspace operators and landlords and we have our first Connect site contracted to go live in Australia in Q2 FY22.
Expansion into continental Europe & Appointment of CEO UK & Europe
During the year we established our European business development operation, based in Paris. This has generated wide interest across mainland Europe from Sweden to Spain and eastwards to Poland. We are now seeing active engagement with a number of local, pan-European and global property operators and expect our first sites to be live in mainland Europe by Q3 FY22. We have recently agreed the appointment of a well-known industry figure as the CEO for the UK & European region - he is expected to join in February 2022.
Existing customer activity and expansion
Our target market remains large, multi-site operators of flexible workspace, be they specialist operators, traditional landlords or broader real estate operators. During FY21 a number of our existing customers continued to expand their businesses, albeit slower than previously due to the continued impact of the pandemic. Our software is mission critical to those operators and we work hard with our customers to ensure that our software meets their needs and allows them to provide a great customer experience to their own customers. The recent recontracting with our largest customer, Industrious and the renewal of the existing contract with our largest UK customer during FY21 demonstrate our success in these areas.
As Covid-19 restrictions continue to be eased we are seeing existing customer activity increase and we currently have an additional 92 existing customer locations in our sales pipeline.
Growth targets
As announced at the time of our fundraising in July 2021, we have set an internal target for 2025 of ARR of £68 million, equalling approximately 8%. market share and representing an increase of £22 million against existing targets, growing to £100 million ARR in 2026.
essensys' longer-term plan is to increase its market share by 10% from current levels. If achieved, this would result in a market share across North America, Asia Pacific and the United Kingdom and Europe of 18%, 10% and 22% respectively, and an overall market share of 17% by 2030.
Current trading and outlook
essensys remains mission critical to our customers and our business remains underpinned by a high proportion of contracted, recurring revenue. We provide flexible workspace providers with operational efficiencies and cost savings whilst removing complexity from their businesses. In addition to established flexible workspace operators, these attributes are particularly attractive to new landlord and CRE entrants into the market where we can de-risk their establishment and delivery to their, increasingly corporate, customers.
We remain confident that the structural shift to flexible working will continue and, if anything, accelerate due to Covid-19; notwithstanding the ongoing challenges and uncertainty the pandemic still represents and the additional risks to the UK economy resulting from Brexit. This is evidenced by traditional landlords and major commercial real estate companies looking to increase their flexible workspace footprint since the outbreak of the pandemic. We expect this trend to continue globally. The acceleration of our product development, go-to-market strategy, and international expansion in FY21 have given us a strong platform to capture the opportunities we see in the flexible workspace market.
The Group continues to trade in line with the Board's expectations. Sales activity levels continue to increase in all geographies and our early engagement in the Asia Pacific region is very encouraging. As noted above we are seeing existing customers in both the UK and US continue or re-establish their growth plans and this is translating into an active sales pipeline. Sales cycles continue to be longer than prior to the Covid-19 pandemic as landlords in particular remain uncertain about the timing of new projects however we are now seeing an acceleration of activity and are confident that we will continue to make good progress towards our longer-term growth targets this year.
Mark Furness
Chief Executive Officer
18 October 2021
Financial Review
This is the third full year results issued by essensys plc following its admission to trading on AIM on 29 May 2019 (the "IPO") and represents the second full year of the Group being listed on AIM.
Scope of financial results, original incorporation & pre-IPO reorganisation
The financial results included in this announcement cover the Group's combined activities for the 12 months ended 31 July 2021. The comparatives for the previous 12 months were for the Group's combined activities for the 12 months ended 31 July 2020.
Financial Key Performance Indicators
£'m unless otherwise stated
2021
2020
Change
Group Total Revenue
22.0
22.5
-2%
UK
10.6
12.2
-13%
USA
11.3
10.3
+10%
ROW
0.1
-
-
Recurring Revenue
19.1
19.4
-2%
UK
10.1
11.3
-11%
USA
9.0
8.1
+11%
Recurring Revenue %age of Total
87%
86%
Run Rate Annual Recurring Revenue
19.8
19.7
+1%
Non-recurring revenue
2.9
3.1
-6%
Product Revenue
Connect
20.0
20.6
-2%
Operate
2.0
1.9
+5%
Gross Profit
14.2
14.3
-1%
Gross Profit percentage
65%
64%
Recurring Revenue margin %age
69%
69%
Statutory (loss) / profit before tax
(2.9)
0.3
Adjusted EBITDA
1. 3
4.2
-69%
Adjusted EBITDA margin
6.0%
19%
Net Cash
36.9
8.5
See commentary following and in the CEO report above together with the financial statements below for explanation of significant movements in the above Financial Key Performance Indicators.
Revenue
Group total revenue fell by 2% to £22.0m in the year driven primarily by a reduction in revenue in the UK from a combination of fewer sites going live in FY21, a slight reduction in customer site numbers and reduced Marketplace revenue resulting from lower occupancy as a consequence of the Covid-19 pandemic. In addition non cash deferred income related to a pre-IPO transaction ceased in FY20 and was not repeated in FY21. This was largely offset by continued growth in revenue from the Group's North American business where active Connect sites grew to 286 at the year-end from 223 (as at 31 July 2021). Operate revenue grew by 5% in the full year to £2.0m (2020: £1.9m). The weakening of the US Dollar compared to the Pound Sterling also impacted reported revenue in the year by £0.9m compared to FY20.
Recurring revenue comprises income invoiced for services that are repeatable and consumed and delivered monthly over the term of a customer contract. Run Rate Annual Recurring Revenue (Run Rate ARR) is an annualisation of the recurring revenue for the month identified (July 2021 and 2020, as appropriate), and is used an indication of the annual value of the recurring revenue for that month. Run Rate ARR is also used by management to monitor long term revenue growth of the business.
Non-recurring revenue comprises activation fees charged to customers in respect of installations of hardware and services at locations together with training and customer onboarding.
Recurring revenue fell by 2% in the year driven by the reasons set out above. Run Rate ARR grew 1% to £19.8m (from £19.7m in 2020) (5% at constant currency) driven primarily by the net increase in Group Connect sites by 13% to 474 at year end (2020: 419).
Gross margins
Overall gross margins increased slightly to 65% (2020: 64%) with margin improvements across all areas of the business, in particular in the Group's North American business. Recurring revenue margins were in line with 2020 from a combination of continued increasing margins in the Group's North American business offset by its increasing proportion of overall Group revenue.
Administrative expenses
Excluding depreciation charges, administrative expenses increased by £2.3m in the year, as we continued our strategic investment plan. This was driven primarily by increases in staff costs both from the full-year effect of increases in overall headcount implemented in FY20 but also by the impact of a 22% increase in average numbers of staff in FY21, a significant proportion of which was in development personnel. In addition, the Group spent an additional £0.6m on third party marketing activities in FY21.
Other operating income: Covid-19 support payments
During the year the Group continued to utilise government support schemes related to the Covid-19 pandemic in the UK, albeit modestly, receiving £42,000 under the Coronavirus Job Retention Scheme (2020: £386,000).
Statutory (loss) / profit for the year
The Group made a loss before tax for the year of £2.9m (2020: profit of £0.3m). The year-on-year change is primarily as a result of the investment in the Group to deliver the growth plans:
£'m
2021
2020
UK
-
1.7
North America (US & Canada)
0.5
2.1
ROW
(0.2)
-
Group central costs
(2.6)
(3.0)
Profit / (loss) before tax (pre-share based payments)
(2.3)
0.8
Share based payment expense
(0.6)
(0.5)
(Loss) / profit before taxation
(2.9)
0.3
Adjusted EBITDA
Adjusted results are prepared to provide a more comparable indication of the Group's core business performance by removing the impact of certain items including exceptional items (material and non-recurring), and other, non-trading, items that are reported separately. Adjusted results exclude adjusting items as set out in the statement of consolidated loss and below, with further details given in Notes 7, 14, 15, 16 and 27 of the financial statements. In addition, the Group also measures and presents performance in relation to various other non-IFRS measures, such as recurring revenue, run-rate annual recurring revenue and revenue growth.
Adjusted results are not intended to replace statutory results. These have been presented to provide users with additional information and analysis of the Group's performance, consistent with how the Board monitors results.
Adjusted EBITDA (being EBITDA prior to exceptional costs, forex translation costs and share based payment expense) is calculated as follows:
£'m
2021
2020
Operating (loss) / profit
(2.8)
0.5
Add back:
Depreciation & Amortisation
3.6
3.1
EBITDA
0.8
3.6
Add back:
Forex translation adjustments
(0.1)
0.1
Share based payment expense
0.6
0.5
Adjusted EBITDA
1.3
4.2
The share-based payment expense and forex translation adjustments are excluded from Adjusted EBITDA as they are non-cash charges and not considered relevant for assessment of underlying profitability.
Taxation
The Group incurred a tax charge in the year of £411,000 (2020: £191,000). This was entirely made up of non-cash deferred tax charges arising from timing differences on the taxation related to capitalised development costs.
July 2021 Share Placing
On 26 July 2021 the Company issued 11,641,890 new ordinary shares of 0.25 pence each at a price of 285 pence per share by way of a share placing (the "Share Placing"). Gross funds raised were approximately £33.2m and the Company's issued ordinary share capital increased to 64,385,219 shares. The funds were raised to provide funds to accelerate the Group's geographical expansion.
Net proceeds of the Share Placing were £31.8m after costs of £1.4m which were all charged to the share premium account.
Cash
Net cash at year end was £36.9m (2020: £8.5m) following the receipt of the proceeds of the Share Placing. The Group's current cash reserves provide sufficient capital for the foreseeable future and will enable it to fund the accelerated geographic expansion, continued product and software development, and additional working capital as the business continues to grow.
Capital Expenditure
During the year the Group continued to execute the planned expansion and upgrading of its digital infrastructure in both the UK and North America in order to provide additional capacity, resilience and improved service to customers.
Capitalised Software Development Costs
The Group continues to invest in software development resulting in ongoing enhancements to its software platforms. During the year it launched its new Flex Services Platform which will, in time, replace its existing platforms, Connect and Operate. The Group continues to increase its onshore software development capacity following a strategic decision in FY20 to bring the majority of the Group's development work back to the UK. Where such work is expected to result in future revenue, costs incurred that meet the definition of software development in accordance with IAS38, Intangible Assets, are capitalised in the statement of financial position. During the year the Group capitalised £2.5m in respect of software development (2020: £2.3m).
In implementing its accelerated product development strategy the Group anticipates capitalising software costs at a similar rate to FY21 in the next few years.
Dividend policy
It remains the Group's intention in the short to medium-term to invest in order to deliver capital growth for shareholders. The Board has not recommended a dividend in respect of the year ended 31 July 2021 and does not anticipate recommending a dividend within the next year but may do so in future years.
Alan Pepper
Chief Financial Officer
18 October 2021
essensys plc
Consolidated Statement of Comprehensive Loss
for the year ended 31 July 2021
Notes
2021
2020
£000
£000
Turnover
6
21,982
22,499
Cost of sales
(7,750)
(8,117)
_________
_________
Gross profit
14,232
14,382
Administrative expenses
(16,515)
(13,778)
Other operating income
42
386
Share based payment expense
(560)
(514)
_________
_________
Operating (loss)/profit
7
(2,801)
476
Interest receivable and similar income
10
-
2
Interest payable and similar charges
11
(127)
(132)
_________
_________
(Loss)/profit before taxation
(2,928)
346
Taxation
12
(411)
(191)
_________
_________
(Loss)/profit for the year from continuing operations
(3,339)
155
_________
_________
Other comprehensive loss
Items that may be reclassified to profit or loss:
Currency translation differences
(200)
(272)
_________
_________
Other comprehensive loss for the year
(200)
(272)
_________
_________
Total comprehensive loss for the year
(3,539)
(117)
_________
_________
Basic and Diluted (loss)/profit per share
13
(6.2p)
0.3p
essensys plc
Registered Number: 11780413
Consolidated Statement of Financial Position
as at 31 July 2021
Notes
2021
2020
£000
£000
ASSETS
Non-current assets
Intangible assets
14
6,198
5,013
Property, plant and equipment
15
1,471
1,695
Right of use assets
16
2,160
2,055
_________
_________
9,829
8,763
Current assets
Inventories
18
184
323
Trade and other receivables
19
5,279
5,186
Cash at bank and in hand
36,903
8,496
_________
_________
42,366
14,005
_________
_________
TOTAL ASSETS
52,195
22,768
_________
_________
EQUITY AND LIABILITIES
EQUITY
Shareholders' equity
Called up share capital
20
161
132
Share premium
21
51,660
19,881
Share based payment reserve
2,045
1,490
Merger reserve
28
28
Retained earnings
(8,969)
(5,435)
_________
_________
TOTAL EQUITY
44,925
16,096
LIABILITIES
Non-current liabilities
Lease liabilities
23
992
796
Deferred tax
24
779
409
_________
_________
1,771
1,205
Current liabilities
Trade and other payables
22
4,229
3,561
Contract liabilities
6E
323
550
Lease liabilities
23
943
1,346
Current taxes
4
10
_________
_________
5,499
5,467
_________
_________
TOTAL LIABILITIES
7,270
6,672
_________
_________
TOTAL EQUITY AND LIABILITIES
52,195
22,768
_________
_________
The financial statements were approved by the Board of Directors and authorised for issue on 18 October 2021.
Alan Pepper
Director
essensys plc
Consolidated Statement of Changes in Equity
for the Year Ended 31 July 2021
Share
Share
Share based payment
Merger
Retained
Total
capital
premium
Reserve
Reserve
earnings
equity
£000
£000
£000
£000
£000
£000
1 August 2020
132
19,881
1,490
28
(5,435)
16,096
Comprehensive loss for the year
Loss for the year
-
-
-
-
(3,339)
(3,339)
Currency translation differences
-
-
(5)
-
(195)
(200)
_______
_______
_______
_______
_______
_______
Total comprehensive loss for the year
-
-
(5)
-
(3,534)
(3,539)
_______
_______
_______
_______
_______
_______
Transactions with shareholders
New shares issued
29
33,150
-
-
-
33,179
Cost incurred in issuing new shares
-
(1,371)
-
-
-
(1,371)
Share based payment charge
-
-
560
-
-
560
_______
_______
_______
_______
_______
_______
31 July 2021
161
51,660
2,045
28
(8,969)
44,925
_______
_______
_______
_______
_______
_______
Consolidated Statement of Changes in Equity
For the Year Ended 31 July 2020
Share
Share
Share based payment
Merger
Retained
Total
capital
premium
Reserve
Reserve
earnings
equity
£000
£000
£000
£000
£000
£000
1 August 2019
120
13,184
979
28
(5,318)
8,993
Comprehensive loss for the year
Profit for the year
-
-
-
-
155
155
Currency translation differences
-
-
(3)
-
(272)
(275)
_______
_______
_______
_______
_______
_______
Total comprehensive loss for the year
-
-
(3)
-
(117)
(120)
_______
_______
_______
_______
_______
_______
Transactions with shareholders
New shares issued
12
6,988
-
-
-
7,000
Cost incurred in issuing new shares
-
(291)
-
-
-
(291)
Share based payment charge
-
-
514
-
-
514
_______
_______
_______
_______
_______
_______
31 July 2020
132
19,881
1,490
28
(5,435)
16,096
_______
_______
_______
_______
_______
_______
essensys plc
Consolidated Statement of Cash Flows
for the Year Ended 31 July 2021
Notes
2021
2020
£000
£000
Cash from operations
31 A
1,808
4,026
Corporation tax (paid)/received
(36)
185
Foreign exchange
122
(140)
_________
_________
Net cash generated from operating activities
1,894
4,071
_________
_________
Cash flows from investing activities
Purchases of intangible assets
14
(2,493)
(2,290)
Purchases of property plant and equipment
15
(786)
(992)
Interest received
-
2
_________
_________
Net cash used in investing activities
(3,279)
(3,280)
_________
_________
Cash flows from financing activities
Proceeds from the issuance of new shares
33,179
7,000
Costs of issuing new shares
(1,371)
(291)
Receipts from government grants
-
386
Repayment lease liabilities
23
(1,863)
(1,926)
Interest paid on lease liabilities
23
(127)
(132)
_________
_________
Net cash generated from financing activities
29,818
5,037
_________
_________
Net increase in cash and cash equivalents
28,433
5,828
Cash and cash equivalents at beginning of year
8,496
2,688
Effects of foreign exchange rate changes
(26)
(20)
_________
_________
Cash and cash equivalents at end of year
36,903
8,496
_________
_________
Cash and cash equivalents comprise:
Cash at bank and in hand
36,903
8,496
_________
_________
1
General information
essensys plc (the "Company") is a public limited company, incorporated in the United Kingdom under the Companies Act 2006 (registration number 11780413). The Company is domiciled in the United Kingdom and its registered address is Aldgate Tower 7th Floor, 2 Leman Street, London, E1 8FA. The Company's ordinary shares are traded on the Alternate Investment Market (AIM) of the London Stock Exchange.
The Group's principal activities are the provision of software and technology platforms that manage critical digital infrastructure and business processes, primarily of operators of flexible workspace within the real estate industry. These activities are carried out by the Group's wholly owned subsidiaries.
The Company's principal activity is to provide funding and management services to its subsidiaries.
2
Authorisation of financial statements and statement of compliance with IFRS
The financial statements for the year ended 31 July 2021 were authorised for issue by the Board of Directors and the Statements of Financial Position were signed on the Board's behalf by Mark Furness and Alan Pepper on 18 October 2021.
The Group's financial statements have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006.
The financial statements of the Company have been prepared in a manner consistent with those of the Group.
3
Basis of Preparation
These financial statements have been prepared under the historical cost basis and are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated.
The Group's business activities, together with factors likely to affects its future development, performance and position are set out in the Strategic Report section of the Annual Report and Accounts which will be published shortly. The financial position of the Group is described in the Financial Review above.
Publication of non-statutory accounts
In accordance with section 435 of the Companies Act 2006, the Directors advise that the financial information set out in this announcement for the years ended 31 July 2020 and 31 July 2019 do not constitute the Group's statutory financial statements for those years but is derived from those financial statements.
The statutory financial statements for the year ended 31 July 2020 have been audited and filed with the Registrar of Companies. The statutory financial statements for the year ended 31 July 2021 have been audited and will be delivered to the Registrar of Companies in due course.
The Independent Auditor's Reports on the Group's financial statements for the years ended 31 July 2021 and 31 July 2020 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
Going concern
The Group's consolidated financial statements have been prepared on a going concern basis.
As at 31 July 2021 the Group had net assets of £44.9m (2020: £16.1m), including cash of £36.9m (2020: £8.5m) as set out in the Consolidated Statement of Financial Position, with no external debt. In the year ended 31 July 2021 the Group generated a loss before tax of £2.9m (2020: profit of £0.3m). The group used net cash before financing in the year of £1.4m (2020: net cash generated of £0.8m) after investment in software development of £2.5m.
During the year, Group revenue decreased by 2.3% with recurring revenue falling by 1.3% primarily as a result of reduced occupancy based marketplace revenue. The Group generated an operating loss of £2.8m (2020: profit of £0.5m) as it started to expand its operations internationally. The reduction in revenue was also driven in part due to a weakening of the US dollar, which reduced the reported revenue from its US subsidiary which is an increasing proportion of the Group's business. The Group has long term contracts with a number of customers and suppliers across different geographical areas and industries.
The Directors have prepared a detailed budget and forecast of the Group's expected performance over a period covering at least the next twelve months from the date of the approval of these financial statements. As well as modelling the realisation of the sales pipeline, these forecasts also cover a number of scenarios and sensitivities in order for the Board to satisfy itself that the Group remains within its current cash facilities.
Whilst the Directors are confident in the Group's ability to grow revenue, the Board's sensitivity modelling shows that the Group can remain within its cash facilities in the event that revenue growth is delayed (i.e. new sales bookings are not achieved) for a period in excess of twelve months. The Directors' financial forecasts and operational planning and modelling also include the actions, under the control of the Group, that they could take to further significantly reduce the cash outflow expected as the Group expands geographically. On the basis of this financial and operational modelling, the Directors believe that the Group has the capability and the operational agility to react quickly, cut further costs from the business and ensure that the cost base of the business is aligned with its revenue and funding scale.
As a consequence, the Directors have a reasonable expectation that the Group can continue to operate and be able to meet its commitments and discharge its liabilities in the normal course of business for a period of not less than twelve months from the date of approval of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing the Group financial statements.
3
Basis of Preparation (continued)
Basis of consolidation
The consolidated financial statements incorporate the results of essensys plc and all of its subsidiary undertakings.
essensys plc was incorporated on 22 January 2019, and on 18 May 2019 it acquired the issued share capital of essensys (UK) Ltd, previously essensys Limited, by way of a share for share exchange. The latter had four wholly owned subsidiaries:
· essensys, Inc
· Hubcreate Limited
· TVOC Limited
· Spacebuddi Limited
The consideration for the acquisition was satisfied by the issue of 38,836,044 ordinary shares in essensys plc to the shareholders of essensys (UK) Limited.
The accounting treatment for the year to 31 July 2020 in relation to the addition of essensys plc as a new UK holding company of the group falls outside the scope of IFRS 3 'Business Combinations'. The share scheme arrangement constituted a combination of entities under common control due to all shareholders of essensys (UK) Ltd being issued shares in the same proportion, and the continuity of ultimate controlling parties. The reconstructed group was consolidated using merger accounting principles which treated the reconstructed group as if it had always been in existence. Any difference between the nominal value of shares issued in the share exchange and the book value of the shares obtained was recognised in a merger reserve.
The company applied the statutory relief as prescribed by Companies Act 2006 in respect of the share for share exchange as the issuing company has secured more than 90% equity in the other entity. The carrying value of the investment is carried at the nominal value of the shares issued.
4
Summary of significant accounting policies
Revenue
The Group generates revenue primarily in the UK and the United States of America (USA). Turnover represents services provided in the normal course of business; net of value added tax. Services provided to clients during the year, including any amounts which at the reporting date have not yet been billed to the clients, have been recognised as revenue.
(a) Contract
Set up and installation costs are partially invoiced once the customer contract is signed with the remaining balance invoiced when the service goes live. Fixed monthly costs are invoiced one month in advance and revenue is recognised in the month the service is provided. Deferred revenue is recognised for the Group's obligation to transfer services to customers for which they have already received consideration (or an amount of consideration is due) from the customer. Variable monthly costs (including internet usage and telephone call charges) are invoiced monthly in arrears and accrued revenue is recognised in the month that the services were consumed.
(b) Contractual obligation
The majority of customer contracts have two main services that the Group provides to the customer:
· Set up / installation
· Ongoing monthly software, services and support
Where a contract is modified and the remaining services are distinct from the services transferred on or before the date of the contract modification, then the Group accounts for the contract modifications as if it were a termination of the existing contract and the creation of a new contract.
The amount of consideration allocated to the remaining performance obligations is the sum of the consideration promised by the customer and the consideration promised as part of the contract modification.
(c) Determining the transaction price
The transaction price is determined as the fair value of the consideration the Group expects to receive over the course of the contract. There are no incentives given to customers that would have a material effect on the financial statements.
(d) Allocate the transaction price to the performance obligations in the contract
The allocation of the transaction price to the performance obligations in the contract is non-complex for the Group. There is a fixed unit price for each product sold. Therefore, there is limited judgement involved in allocating the contract price to each unit ordered.
4
Summary of significant accounting policies (continued)
Revenue (continued)
(e) Recognise revenue when or as the entity satisfies its performance obligations
The contracts may cover multiple sites, but the overarching terms are consistent in each contract. The set up/installation is seen as a distinct performance obligation and revenue is recognised at a point in time, when the installation is completed, and any hardware is provided to the client for their use. The customer can benefit from the set up / installation such as new internet connectivity or new hardware provided, and therefore revenue is recognised in full when these services are provided.
The second performance obligation is the provision of software, infrastructure and on-demand services over the term of the contract, and the Group recognises the revenue each month as it provides these services for the duration of the contract, i.e. over time.
(f) Costs to obtain and fulfil a contract
Set up and installation costs are partially invoiced once the customer contract is signed. The value of the invoiced amount is held as a contract liability until the performance obligation is satisfied.
The company incurs incremental costs in obtaining a contract in the form of sales commissions. The Company recognises the sales commissions as an asset in relation to costs to obtain a contract. The company believes that the costs are recoverable as the proceeds from the customer over the contract period exceed the costs to obtain the contract. The asset is amortised over the contract life on a systematic basis.
Contract assets arise from the group's revenue contracts, where work is performed in advance of invoicing customers, and contract liabilities arise where revenue is received in advance of work performed. Cumulatively, payments received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts. Commission costs capitalised on contracts represents internal sales commission costs incurred on signing of customer contracts and, in line with the requirements of IFRS15, spread over the life of the customer contract.
Finance income
Finance income comprises interest receivable on funds invested and loans to related parties. Interest income is recognised in profit or loss as it accrues using the effective interest method.
Finance costs
Finance costs comprise interest on bank loans and lease liabilities. Interest on bank loans and lease liabilities is charged to the consolidated statement of comprehensive income over the term of the debt using the effective interest rate method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
Government grants
Government grants comprise payments from those governments where the Group has operations that have been impacted by the Covid-19 pandemic. The grants are specific to providing business support where there has been clear impact of the pandemic. Payment of the grants have substantive conditions where repayment of the grant is not required. Where management are certain that these repayment measures are met the grant is treated as other operating income.
Intangible assets
(a) Internal software development
Research expenditure is written off in the year in which it is incurred.
Expenditure on internally developed products is capitalised if it can be demonstrated that:
· it is technically and commercially feasible to develop the asset for future economic benefit;
· adequate resources are available to maintain and complete the development;
· there is the intention to complete and develop the asset for future economic benefit;
· the company is able to use the asset;
· use of the asset will generate future economic benefit; and
· expenditure on the development of the asset can be measured reliably.
Where the costs are capitalised, they are written off over their economic life which is considered by the directors to be 5 to 7 years.
Internally developed products in the course of construction are carried at cost, less any recognised impairment loss. Amortisation of these assets, determined on the same basis as other property assets, commences when the assets are ready for their intended use.
4
Summary of significant accounting policies (continued)
Intangible assets (continued)
(b) Goodwill
Goodwill arising on the acquisition of a business represents the excess of the fair value of the consideration and the fair value of the Group's share of the identifiable assets and liabilities acquired. The identifiable assets and liabilities acquired are incorporated into the consolidated financial statements at their fair value to the Group.
Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is tested for impairment annually. Any impairment is recognised immediately in the Consolidated Statement of Comprehensive Income and is not subsequently reversed. On disposal of a business, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
(c) Other intangible assets
Other intangible assets are initially recognised at cost or, if recognised as part of a business combination, at fair value. After recognition, intangible assets are measured at cost or fair value less any accumulated amortisation and any accumulated impairment losses. Amortisation is calculated to write off the cost or fair value of intangible assets in equal annual instalments over their estimated useful lives and is included within administrative expenses.
The estimated useful lives for other intangible fixed assets range as follows:
Customer relationships
-
6.3 years
Website
-
1 year
Acquired software
-
5 years
Property, plant and equipment
Property, plant and equipment is carried at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost comprises the aggregate amount paid to acquire assets and includes costs directly attributable to making the asset capable of operating as intended.
At each reporting date the Group assesses whether there is an indication of impairment. If such indication exists, the recoverable amount of the asset is determined which is the higher of its fair value less costs to sell and its value in use. An impairment loss is recognised where the carrying value exceeds the recoverable amount.
Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives or, if held under a finance lease, over the shorter of the lease term and the estimated useful life, using the straight line method. Depreciation is provided at the following annual rates:
Leasehold improvements
-
20%
Fixtures and fittings
-
25%
Computer equipment
-
10% - 25%
The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, if there is an indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within 'other operating income or losses' in the statement of comprehensive income.
Leasehold improvements include security equipment purchased.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial information is presented in 'sterling', which is essensys plc's functional and the Group's presentation currency.
On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date, including any goodwill in relation to that entity. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income.
4
Summary of significant accounting policies (continued)
Foreign currency translation (continued)
(b) Transactions and balances
Foreign currency transactions are translated into essensys plc's functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within 'finance income or costs. All other foreign exchange gains and losses are presented in the statement of comprehensive income within 'other operating income or expense'.
Inventories
Inventories are valued at the lower of cost and net realisable value. Inventories consist exclusively of work in progress, which are items that have been purchased and allocated to satisfy specific customer contracts. As the items have yet to be installed at the customer location, and where title has not yet passed, they remain on the statement of financial position until title has passed.
Trade and other receivables
Trade receivables, which are generally received by the end of the month following terms, are recognised and carried at the lower of their original invoiced value less provision for expected credit losses.
Cash and cash equivalents
All cash and short-term investments with original maturities of three months or less are considered cash and cash equivalents, since they are readily convertible to cash. These short-term investments are stated at cost, which approximates fair value.
Trade and other payables
Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are recognised at original cost.
Exceptional items
Exceptional items are those that, in the Directors' view, are required to be separately disclosed by virtue of the size or incidence to enable a full understanding of the Group's financial performance.
Taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income, except that a charge attributable to an item of income or expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where essensys plc's subsidiaries operate and generate taxable income.
Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the statement of financial position date, except:
· The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits;
· Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and
· Where timing differences relate to interests in subsidiaries, associates, branches and joint ventures and the Group can control their reversal and such reversal is not considered probable in the foreseeable future.
Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
Share capital
Ordinary shares are classified as equity. There is one class of ordinary share in issue, as detailed in note 20.
4
Summary of significant accounting policies (continued)
Reserves
The Group and Company's reserves are as follows:
· Called up share capital reserve represents the nominal value of the shares issued;
· The share premium account includes the premium on issue of equity shares, net of any issue costs;
· Share based payment reserve represents the total value expensed at the balance sheet date in relation to the fair value of the share options at their grant date expensed over the vesting period under the relevant share option schemes;
· Merger reserve arose on the business combination that was accounted for as a merger in accordance with FRS 102;
· Retained earnings represents cumulative profits or losses, net of dividends paid and other adjustments.
Financial assets
The Group classifies all of its financial assets at amortised cost. Financial assets do not comprise prepayments, or contract assets, although contract assets are in scope of IFRS 9's impairment requirements as discussed below. Management determines the classification of its financial assets at initial recognition.
Financial assets (continued)
The Group's financial assets held at amortised cost comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold their assets in order to collect contractual cash flows and the contractual cash flows are solely payments of the principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net; such provisions are recorded in a separate provision account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
The expected loss rates are based on the Group's historical credit losses experienced over the last three periods prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers. The Group has identified the gross domestic product (GDP), unemployment rates and inflation rate as the key macroeconomic factors in the countries that the Group operates.
Impairment provisions for other receivables are recognised based on the general impairment model within IFRS 9. Under the General approach, at each reporting date, the Group determines whether there has been a significant increase in credit risk (SICR) since initial recognition and whether the loan is credit impaired. This determines whether the loan is in Stage 1, Stage 2 or Stage 3, which in turn determines both the amount of ECL to be recognised i.e. 12-month ECL or Lifetime ECL.
Financial liabilities
The Group classifies its financial liabilities in the category of financial liabilities at amortised cost. All financial liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provision of the instrument.
Financial liabilities measured at amortised cost include:
· Trade payables and other short-dated monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.
· Bank and other borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Unless otherwise indicated, the carrying values of the Group's financial liabilities measured at amortised cost represents a reasonable approximation of their fair values.
4
Summary of significant accounting policies (continued)
Impairment of assets
Assets that are subject to depreciation or amortisation are assessed at each reporting date to determine whether there is any indication that the assets are impaired. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGUs).
Where there is any indication that an asset may be impaired, the carrying value of the asset (or CGUs to which the asset has been allocated) is tested for impairment. 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 an asset's (or CGU's) fair value less costs to sell and value in use. Non-financial assets that have been previously impaired are reviewed at each reporting date to assess whether there is any indication that the impairment losses recognised in prior periods may no longer exist or may have decreased. Goodwill is reviewed for impairment on an annual basis, with any impairment to goodwill not reversed at a later period.
Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired.
The consideration transferred for the acquisition of a subsidiary comprises the:
· fair values of the assets transferred
· liabilities incurred to the former owners of the acquired business
· equity interests issued by the essensys Group
· fair value of any asset or liability resulting from a contingent consideration arrangement, and
· fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. Acquisition related costs are expensed as incurred.
The excess of the consideration transferred and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
Share-based payments
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate on the number of equity investments expected to vest. The impact of the revision of the original estimates, if any, is recognised in the Statement of Comprehensive Income over the remaining vesting period, with a corresponding adjustment to the Share Based Payment Reserve.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for leases of low value assets; and leases with a duration of twelve months or less, in line with the requirements of IFRS 16.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also includes:
· Amounts expected to be payable under any residual value guarantee;
· The exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option;
· Any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.
4
Summary of significant accounting policies (continued)
Leases (continued)
Right-of-use assets ("ROUA") are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:
· Lease payments made at or before commencement of the lease;
· Initial direct costs incurred; and
· The amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.
When the Group renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification:
· If the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease in accordance with the above policy;
· In all other cases where the renegotiated increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount;
· If the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial or full termination of the lease with any difference recognised in profit or loss. The lease liability is then further adjusted to ensure its carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the same amount.
For contracts that both convey a right to The Group to use an identified asset and require services to be provided to The Group by the lessor, The Group has elected to account for the entire contract as a lease, i.e. it does allocate any amount of the contractual payments to, and account separately for, any services provided by the supplier as part of the contract.
Retirement benefits
The Group operates a number of defined contribution plans. A defined contribution plan is a pension plan under which the employer pays fixed contributions into a separate entity. Contributions payable to the plan are charged to the income statement in the period in which they relate. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Holiday pay accrual
All employees accrue holiday pay during the calendar year, the Board encourages all employees to use their full entitlement throughout the year. A liability is recognised to the extent of any unused holiday pay entitlement which has accrued at the statement of financial position date and carried forward to future periods. This is measured at the undiscounted salary cost of the future holiday entitlement so accrued at the balance sheet date.
Standards adopted in the year
No new standards have been adopted in the reporting period as all were adopted previously.
Standards, amendments and interpretations not yet effective
There are no standards issued not yet effective that will have a material effect on the Group's financial statements. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.
5
Significant accounting judgements, estimates and assumptions
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including the expectation of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are detailed below.
Capitalisation of development costs
Costs are capitalised in relation to the development of the underlying software utilised within the Group. The most critical judgement is establishing whether the costs capitalised meet the criteria set out within IAS 38. Further, the most critical estimate is how the intangible asset can generate future economic benefit. Projects that are maintenance in nature are expensed as incurred whereas development that generates benefits to the group are capitalised. After capitalisation management monitors whether the recognition requirements continue to be met and whether there are any indicators that the capitalised costs are required to be impaired. See note 14 for details of amounts capitalised.
Measurement and impairment of goodwill and intangible assets
As set out in note 4 above the carrying value of goodwill is reviewed for impairment at least annually and for other intangible assets when an indication of impairment is identified. In determining whether goodwill or intangible assets are impaired, an estimation of the value in use of the Group is required. This calculation of value in use requires estimates to be made relating to the timing and amount of future cash flows expected and suitable discount rates based on the Group's weighted average cost of capital, in addition to the estimation involved in preparing the initial projected cash flows for the next 5 years.
These estimates have been used to conclude that no impairment is required to either goodwill or intangible assets but are judgemental in nature. See note 14 for details of the key assumptions made.
Valuation of Share Options
During the year the Group incurred a share-based payment charge of £560,000 (2020: £514,000).
The charge related to options in the Group at IPO and during the year ended 31 July 2021 are based on valuations undertaken using a Black Scholes or Monte Carlo Simulation option pricing models, depending on the type of option. Judgements were required when assessing the valuation in relation to share price volatility, the expected life of the options issued, the proportion that would be exercised, the risk-free rate applicable and the likely achievement of performance targets where applicable. The valuation of those options issued after IPO is spread over the vesting period and there will, therefore, be further share based payment expenses in future years in relation to those options. See note 27 for details.
6
Segmental Reporting
The Group generates revenue largely in the UK and the USA. The majority of the Group's customers provide flexible office facilities together with ancillary services (e.g. meeting rooms and virtual services) including technology connectivity.
The Group generates revenue from the following activities:
· Establishing services at customer sites (e.g. providing and managing installations, equipment and training on software);
· Recurring monthly fees for using the Group's software platforms;
· Revenue from usage of on demand services such as internet and telephone usage and other, on demand, variable services; and
· Other ad-hoc services.
The Group has one single business segment which is the provision of software and technology platforms that manage the critical infrastructure and business processes, primarily to the flexible workspace segment of the real estate industry. The Group has two revenue segments and two geographical segments, as detailed in the tables below.
6A
Revenue analysis by geographic area
The Group operates in two main geographic areas, the United Kingdom and the United States of America. The whole of the turnover is attributed to the principal activity. The Group's revenue per geographical segment is as follows:
2021
2020
£000
£000
Analysis of turnover by country of destination:
United Kingdom
10,610
12,193
United States of America
11,334
10,306
Rest of World
38
-
_________
_________
Total Income
21,982
22,499
_________
_________
6
Segmental Reporting (continued)
6B
Revenue analysis by revenue streams
The Group has two main revenue streams, Operate and Connect. The Group's revenue per revenue stream is as follows:
2021
2020
£000
£000
Connect
19,934
20,552
Operate
2,048
1,947
_________
_________
Total Income
21,982
22,499
_________
_________
Connect revenue includes all revenue generated in relation to the Group's Connect product. It includes revenue recognised at a point in time as well as recognised over a period of time.
Operate revenue includes all revenue generated in relation to the Group's Operate product. The revenue is recognised over a period of time.
6C
Revenue disaggregated by 'point in time' and 'over time'
The Group revenue disaggregated between revenue recognised 'at a point in time' and 'over time' is as follows:
2021
2020
£000
£000
Revenue recognised at a point in time
2,868
3,138
Revenue recognised over time
19,114
19,361
_________
_________
Total Income
21,982
22,499
_________
_________
6D
Revenue from customers greater than 10%
Revenue from customers greater than 10% in each reporting period is as follows:
2021
2020
£000
£000
Customer 1
4,319
3,377
Customer 2
2,302
2,787
_________
_________
6
Segmental Reporting (continued)
6E
Contract assets and liabilities
Contract asset movements were as follows:
2021
2020
£000
£000
At 1 August
420
475
Transfers in the period from contract assets to trade receivables
(159)
(271)
Excess of revenue recognised over cash (or rights to cash) being recognised during the period
75
164
Capital asset contract contributions capitalised
32
-
Capital asset contract contributions released as contract obligations are fulfilled
(19)
-
Capitalised commission cost released as contract obligations fulfilled
(297)
(159)
Commission costs capitalised on contracts
293
211
_________
_________
At 31 July
345
420
_________
_________
Contract liability movements were as follows:
2021
2020
£000
£000
At 1 August
550
1,044
Amounts included in contract liabilities that were recognised as revenue during the period
(550)
(1,044)
Cash received and receivables in advance of performance and not recognised as revenue during the period
323
550
_________
_________
At 31 July
323
550
_________
_________
Contract assets are included within 'trade and other receivables' and contract liabilities is shown separately on the face of the statement of financial position. Contract assets arise from the group's revenue contracts, where work is performed in advance of invoicing customers, and contract liabilities arise where revenue is received in advance of work performed. Cumulatively, payments received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts. Capital asset contract contributions represents costs incurred by the Group in the form of customer incentives spread over the life of the customer contract. Commission costs capitalised on contracts represents internal sales commission costs incurred on signing of customer contracts and, in line with the requirements of IFRS15, spread over the life of the customer contract.
7
Operating (loss)/profit
2021
2020
£000
£000
This is arrived at after charging/(crediting):
Depreciation of tangible fixed assets
969
587
Amortisation of intangible assets
1,308
1,009
Depreciation of right of use assets
1,205
1,424
Fees payable to the Group's auditor (see below)
197
130
Amortisation of loan arrangement fee
202
66
Write off loan arrangement fees
-
-
Exchange differences
(122)
140
Research & Development expense
1,345
363
Staff costs (note 8)
11,643
8,149
Share based payment charges
560
514
Increase to expected credit loss provision
45
470
_______
_______
Analysis of fees paid to the Group's auditor:
Annual financial statements - parent company
36
19
Annual financial statements - subsidiary companies
82
81
_________
_________
Audit Fee
118
100
_________
_________
Assurance services
35
30
Other services
44
-
_________
_________
Non audit services
79
30
_________
_________
Total fee
197
130
_______
_______
8
Employees
Staff costs (including directors) consist of:
2021
2020
£000
£000
Wages and salaries
8,663
6,186
Social security costs
1,003
794
Cost of defined contribution scheme
284
213
Other
1,693
956
_________
_________
11,643
8,149
_________
_________
The average number of employees (including directors) during the year was as follows:
2021
2020
No.
No.
Executive
6
5
Sales & Marketing
20
18
Finance & Administration
14
12
Support
32
29
Development
33
20
Provisioning
7
8
_________
_________
112
92
_________
_________
9
Key management remuneration
Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited, the Group's principal trading subsidiary, who together have authority and responsibility for planning, directing, and controlling the activities of the Group.
2021
2020
£000
£000
Salaries and fees
1,687
1,838
Social security costs
187
243
Short term non-monetary benefits
17
15
Company contributions to money purchase pension schemes
110
108
Share based payment expense
408
317
_________
_________
2,409
2,521
_________
_________
Full details of directors' remuneration are included within the Remuneration Committee Report section of the Annual Report and Accounts.
10
Interest receivable and similar income
2021
2020
£000
£000
Interest receivable from related parties
-
2
_________
_________
-
2
_________
_________
11
Interest payable and similar charges
2021
2020
£000
£000
Lease liabilities
127
132
_________
_________
127
132
_________
_________
12
Taxation on (loss)/profit on ordinary activities
2021
2020
£000
£000
Current tax
UK corporation tax
-
-
Recovery of irrecoverable tax on loans to participators
-
(159)
Adjustment in respect of previous periods
-
(4)
Foreign tax on income for the year
41
12
_________
_________
Total current tax
41
(151)
_________
_________
Deferred tax
Origination and reversal of timing differences
241
334
Adjustments in respect of prior periods
129
8
_________
_________
Total deferred tax
370
342
_________
_________
Taxation on profit on ordinary activities
411
191
_________
_________
The tax assessed for the year is higher than the standard rate of corporation tax in the UK applied to profit before tax. The differences are explained below:
2021
2020
£000
£000
(Loss)/profit on ordinary activities before tax
(2,928)
346
_________
_________
Tax using the Group's domestic tax rates (19%)
(556)
66
Effects of:
Fixed asset differences
239
110
Expenses not deductible for tax purposes
19
102
Adjustments to tax charge in respect of previous periods
-
11
Irrecoverable tax on loans to participators
-
(159)
Adjustment in respect of prior periods
-
(4)
Adjustment to losses
-
(225)
Deduction for R&D expenditure
-
(123)
Foreign tax on income for the year
-
18
Current tax (other)
-
63
Adjust closing deferred tax to average rate
19
7
Adjust opening deferred tax to average rate
-
(18)
Timing differences not recognised
(85)
228
Deferred tax not recognised
775
115
_________
_________
Total tax charge for period
411
191
_________
_________
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2021 (on 10 June 2021). This included an increase to the main rate to increase the rate to 25% from 1 April 2023.
The deferred tax arises primarily from timing differences on the taxation related to capitalised development costs.
13
Earnings per share
2021
2020
Basic weighted average number of shares
53,713,487
49,652,821
_________
_________
Fully diluted weighted average number of shares
53,713,487
49,794,049
_________
_________
2021
2020
£000
£000
(Loss)/profit for the year attributable to owners of the group
(3,339)
155
_________
_________
Basic and diluted (loss)/profit per share (pence)
(6.2p)
0.3p
_________
_________
The (loss)/profit per share has been calculated using the (loss)/profit for the year and the weighted average number of ordinary shares outstanding during the period.
Share options held at the year-ended 31 July 2021 are anti-dilutive and so have not been excluded in the diluted earnings per share calculation.
14
Intangible assets
Assets in the course
Customer
Internal software
Group
Of construction
relationships
development
Software
Goodwill
Total
£000
£000
£000
£000
£000
£000
Cost
At 1 August 2020
-
335
6,751
280
1,263
8,629
Additions
1,412
-
1,081
-
-
2,493
_________
_________
_________
_________
_________
_________
At 31 July 2021
1,412
335
7,832
280
1,263
11,122
_________
_________
_________
_________
_________
_________
Amortisation
At 1 August 2020
-
293
3,043
280
-
3,616
Charge for year
-
42
1,266
-
-
1,308
_________
_________
_________
_________
_________
_________
At 31 July 2021
-
335
4,309
280
-
4,924
_________
_________
_________
_________
_________
_________
Net book value
At 31 July 2021
1,412
-
3,523
-
1,263
6,198
_________
_________
_________
_________
_________
_________
At 31 July 2020
-
42
3,708
-
1,263
5,013
_________
_________
_________
_________
_________
_________
The goodwill relates to the acquisition of Hubcreate Limited on 18 February 2016 and has not been impaired since acquisition. The goodwill all relates to the one cash generating unit (CGU).
The Group estimates the recoverable amount of the CGU using a value in use model by projecting pre-tax cash flows for the next 5 years together with a terminal value using the long-term growth rate. The key assumptions underpinning the recoverable amount of the CGU are forecast revenue and forecast EBITDA percentage. The forecast revenues in the model are based on management's past experience and future expectations of performance. The pre-tax discount rate used in all periods is 12% derived from a WACC calculation and benchmarked against similar organisations within the sector. The long-term growth rate used is 2% in all periods which is the underlying growth rate of the economy. Using a discount rate of 15% and a long-term growth rate of 1% as sensitised assumptions also does not result in any impairment. The total recoverable amount in respect of goodwill as assessed by management using the above assumptions is greater than the carrying amount and therefore no impairment charge has been booked in each period.
14
Intangible assets
Assets in the course
Customer
Internal software
Group
Of construction
relationships
development
Software
Goodwill
Total
£000
£000
£000
£000
£000
£000
Cost
-
At 1 August 2019
-
335
4,461
280
1,263
6,339
Additions
-
2,290
-
-
2,290
_________
_________
_________
_________
_________
_________
At 31 July 2020
-
335
6,751
280
1,263
8,629
_________
_________
_________
_________
_________
_________
Amortisation
At 1 August 2019
-
217
2,162
228
-
2,607
Charge for year
-
76
881
52
-
1,009
_________
_________
_________
_________
_________
_________
At 31 July 2020
-
293
3,043
280
-
3,616
_________
_________
_________
_________
_________
_________
Net book value
At 31 July 2020
-
42
3,708
-
1,263
5,013
_________
_________
_________
_________
_________
_________
At 31 July 2019
-
118
2,299
52
1,263
3,732
_________
_________
_________
_________
_________
_________
15
Property, plant and equipment
Fixtures and
Computer
Leasehold
Group
fittings
equipment
improvements
Total
£000
£000
£000
£000
Cost
At 1 August 2020
247
6,601
132
6,980
Additions
3
783
-
786
Transfers (note 16)
142
1,185
-
1,327
Exchange adjustments
(10)
(182)
(2)
(194)
_________
_________
_________
_________
At 31 July 2021
382
8,387
130
8,899
_________
_________
_________
_________
Depreciation
At 1 August 2020
154
5,053
78
5,285
Charge for year
33
926
10
969
Transfers (note 16)
142
1,185
-
1,327
Exchange adjustments
(7)
(144)
(2)
(153)
_________
_________
_________
_________
At 31 July 2021
322
7,020
86
7,428
_________
_________
_________
_________
Net book value
At 31 July 2021
60
1,367
44
1,471
_________
_________
_________
_________
At 31 July 2020
94
1,547
54
1,695
_________
_________
_________
_________
Fixtures and
Computer
Leasehold
fittings
equipment
improvements
Total
£000
£000
£000
£000
Cost
At 1 August 2019
186
4,763
133
5,082
Additions
73
917
2
992
Transfers (note 16)
-
1,305
-
1,305
Exchange adjustments
(12)
(384)
(3)
(399)
_________
_________
_________
_________
At 31 July 2020
247
6,601
132
6,980
_________
_________
_________
_________
Depreciation
At 1 August 2019
120
3,513
73
3,706
Charge for year
41
531
15
587
Transfers (note 16)
-
1,138
-
1,138
Exchange adjustments
(7)
(125)
(10)
(142)
_________
_________
_________
_________
At 31 July 2020
154
5,053
78
5,285
_________
_________
_________
_________
Net book value
At 31 July 2020
93
1,548
54
1,695
_________
_________
_________
_________
At 31 July 2019
66
1,250
60
1,376
_________
_________
_________
_________
Transfers represent right of use assets which reached their contract term and where legal title transferred to the Group.
16
Right of use assets
Leasehold
Fixtures and
Computer
Leasehold
Group
property
fittings
equipment
improvements
Total
£000
£000
£000
£000
£000
Cost
At 1 August 2020
4,204
142
1,527
584
6,457
Additions
1,237
-
-
-
1,237
Transfers (note 15)
-
(142)
(1,185)
-
(1,327)
Exchange adjustments
41
-
-
-
41
_________
_________
_________
_________
_________
At 31 July 2021
5,482
-
342
584
6,408
_________
_________
_________
_________
_________
Depreciation
At 1 August 2020
2,609
134
1,440
219
4,402
Charge for year
1,116
8
23
58
1,205
Transfers (note 15)
-
(142)
(1,185)
-
(1,327)
Exchange adjustments
(32)
-
-
-
(32)
_________
_________
_________
_________
_________
At 31 July 2021
3,693
-
278
277
4,248
_________
_________
_________
______
_________
Net book value
At 31 July 2021
1,789
-
64
307
2,160
_________
_________
_________
_________
_________
At 31 July 2020
1,595
8
87
365
2,055
_________
_________
_________
_________
_________
Leasehold
Fixtures and
Computer
Leasehold
Property
fittings
equipment
improvements
Total
£000
£000
£000
£000
£000
Cost
At 1 August 2019
4,362
142
2,815
584
7,903
Lease remeasurement
(37)
-
64
-
27
Transfers (note 15)
-
-
(1,305)
-
(1,305)
Exchange adjustments
(121)
-
(47)
-
(168)
_________
_________
_________
_________
_________
At 31 July 2020
4,204
142
1,527
584
6,457
_________
_________
_________
_________
_________
Depreciation
At 1 August 2019
2,260
99
2,265
160
4,784
Charge for year
985
35
345
59
1,424
Lease remeasurement
(596)
-
-
-
(596)
Transfers (note 15)
-
-
(1,138)
-
(1,138)
Disposals
(38)
-
-
-
(38)
Exchange adjustments
(40)
-
(32)
-
(72)
_________
_________
_________
_________
_________
At 31 July 2020
2,609
134
1,440
219
4,402
_________
_________
_________
_________
_________
Net book value
At 31 July 2020
1,595
8
87
365
2,055
_________
_________
_________
_________
_________
At 31 July 2019
2,102
43
550
424
3,119
_________
_________
_________
_________
_________
17
Subsidiaries
Subsidiary undertakings, associated undertakings and other investments
The following were subsidiary undertakings of the company:
Proportion of
Country of
voting rights
incorporation
and ordinary
Name
or registration
share capital held
Status
Nature of business
essensys (UK) Ltd
United Kingdom
100%
Trading
Provider of software and technology platforms to the flexible workspace industry
essensys, Inc
United States of America
100%
Trading
Provider of software and technology platforms to the flexible workspace industry
essensys (Canada) Inc
Canada
100%
Trading
Provider of software and technology platforms to the flexible workspace industry
essensys (Europe) BV
Netherlands
100%
Trading
Provider of software and technology platforms to the flexible workspace industry
Hubcreate Limited
United Kingdom
100%
Non-trading
Provider of workspace management software
TVOC Limited
United Kingdom
100%
Non-trading
Virtual office provider
Spacebuddi Limited
United Kingdom
95%
Dormant
-
The registered office of essensys Inc is Nelson Tower, 450 7th Avenue, New York, NY 10123.
The registered office of essensys (Canada) Inc is 550 Burrard Street, Vancouver, British Columbia, V6C 0A3
The registered office of essensys (Europe) BV is Herikerbergweg 88, Amsterdam, 1101CM.
The registered offices of Hubcreate Limited, TVOC Limited and Spacebuddi Limited are as per the Company.
18
Inventories
2021
2020
£000
£000
Work in progress
184
323
_________
_________
184
323
_________
_________
Work in progress are items and third party services purchased to satisfy specific customer contracts, where title has not yet passed.
19
Trade and other receivables
2021
2020
£000
£000
Trade receivables (net)
3,462
3,116
Other receivables
409
491
Prepayments
1,063
1,159
Contract asset
345
420
_________
_________
5,279
5,186
_________
_________
19
Trade and other receivables (continued)
Analysis of trade receivables based on age of invoices
< 30
£'000
31 - 60
£'000
61 -90
£'000
> 90
£'000
Total Gross
£'000
ECL
£'000
Total Net
£'000
2021
2,103
334
217
1,388
4,042
(580)
3,462
2020
1,922
280
254
1,195
3,696
(535)
3,116
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. The majority of trade and other receivables are non-interest bearing. Where the effect is material, trade and other receivables are discounted using discount rates which reflect the relevant costs of financing. The carrying amount of trade and other receivables approximates fair value.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses (ECL) which uses a lifetime expected loss allowance for all trade receivables. The ECL balance has been determined based on historical data available to management in addition to forward looking information utilising management knowledge.
At 31 July 2021 the lifetime expected loss provision for trade receivables and contract assets is as follows:
31 July 2021
Less than 30
31 to 60
61 to 90
91 or more
days past due
days past due
days past due
days past due
Total
£000
£000
£000
£000
£000
Expected loss rate
0%
5.4%
10.6%
38.8%
Gross carrying amount
2,448
334
217
1,388
4,387
ECL
-
18
23
539
580
31 July 2020
Less than 30
31 to 60
61 to 90
91 or more
days past due
days past due
days past due
days past due
Total
£000
£000
£000
£000
£000
Expected loss rate
0%
5.7%
10.6%
39.6%
Gross carrying amount
2,294
280
254
1,243
4,071
ECL
-
16
27
492
535
Movements in the ECL are as follows:
2021
2020
£000
£000
Opening ECL at 1 August
535
65
Increase during the year
220
656
Receivables written off as uncollectable
(175)
(186)
_______
_______
ECL charge for the year
45
470
_______
_______
At 31 July
580
535
_______
_______
20
Share capital
2021
2020
£000
£000
Allotted, called up and fully paid
64,385,219 (2020 - 52,743,329) ordinary shares of 0.25p each (2020 - 0.25p)
161
132
_______
_______
On 26 July 2021 the Company issued 11,641,890 new ordinary shares of 0.25 pence each at a price of 285 pence per share by way of a share placing.
On 9 April 2020 the Company issued 4,635,762 new ordinary shares of 0.25 pence each at a price of 151 pence per share by way of a share placing.
21
Share premium
2021
2020
£000
£000
Share premium at start of period
19,881
13,184
Issue of new shares
33,150
6,988
Cost of issuing new shares recognised in equity
(1,371)
(291)
_______
_______
51,660
19,881
_______
_______
22
Trade and other payables
2021
2020
£000
£000
Amounts falling due within one year
Trade payables
2,376
1,912
Other taxes and social security
282
456
Other creditors
439
404
Accruals
1,132
789
_________
_________
4,229
3,561
_________
_________
23
Lease liabilities
Nature of leasing activities
The Group leases a number of assets in the jurisdictions from which it operates in with all lease payments fixed over the lease term.
2021
2020
£000
£000
Number of active leases
15
15
_________
_________
The Group sometimes negotiates break clauses in its leases. On a case-by-case basis, the Group will consider whether the absence of a break clause would expose the Group to excessive risk. Typically, factors considered in deciding to negotiate a break clause include:
· The length of the lease term;
· The economic stability of the environment in which the property is located; and
· Whether the location represents a new area of operations for the Group.
23
Lease liabilities (continued)
At both 31 July 2021 and 2020 the carrying amounts of lease liabilities are not reduced by the amount of payments that would be avoided from exercising break clauses because on both dates it was considered reasonably certain that the Group would not exercise its right to exercise any right to break the lease. Where extensions to leases are permitted the Group has chosen to assume that the extensions will be taken and liabilities reflect this position.
Leasehold
Fixtures and
Computer
Leasehold
property
fittings
equipment
improvements
Total
£000
£000
£000
£000
£000
At 1 August 2020
1,820
57
88
177
2,142
Additions
1,514
-
-
-
1,514
Interest expense
108
4
4
11
127
Effect of modifying lease term
79
-
-
-
79
Lease payments
(1,616)
(32)
(72)
(143)
(1,863)
Foreign exchange movements
(64)
-
-
-
(64)
_________
_________
_________
_________
_________
At 31 July 2021
1,841
29
20
45
1,935
_________
_________
_________
_________
_________
Leasehold
Fixtures and
Computer
Leasehold
property
fittings
equipment
improvements
Total
£000
£000
£000
£000
£000
At 1 August 2019
2,444
86
620
298
3,448
Additions
586
-
-
-
586
Interest expense
78
6
25
23
132
Lease payments
(1,204)
(35)
(543)
(144)
(1,926)
Foreign exchange movements
(84)
-
(14)
-
(98)
_________
_________
_________
_________
_________
At 31 July 2020
1,820
57
88
177
2,142
_________
_________
_________
_________
_________
Lease maturity
Leasehold
Fixtures and
Computer
Leasehold
property
fittings
equipment
improvements
Total
£000
£000
£000
£000
£000
2021
2021
2021
2021
2021
Up to 3 months
4
-
-
45
49
3 to 12 months
126
29
20
-
175
1-2 years
252
-
-
-
252
2-5 years
1,459
-
-
-
1,459
_________
_________
_________
_________
_________
1,841
29
20
45
1,935
_________
_________
_________
_________
_________
Leasehold
Fixtures and
Computer
Leasehold
property
fittings
equipment
improvements
Total
£000
£000
£000
£000
£000
2020
2020
2020
2020
2020
Up to 3 months
-
-
-
-
-
3 to 12 months
706
-
34
-
740
1-2 years
126
57
54
177
414
2-5 years
510
-
-
-
510
More than 5 years
478
-
-
-
478
_________
_________
_________
_________
_________
1,820
57
88
177
2,142
_________
_________
_________
_________
_________
23
Lease liabilities (continued)
Analysis by current and non-current
Leasehold
Fixtures and
Computer
Leasehold
property
fittings
equipment
improvements
Total
£000
£000
£000
£000
£000
2021
2021
2021
2021
2021
Due within a year
849
29
20
45
943
Due in more than one year
992
-
-
-
992
_________
_________
_________
_________
_________
1,841
29
20
45
1,935
_________
_________
_________
_________
_________
Leasehold
Fixtures and
Computer
Leasehold
property
fittings
equipment
improvements
Total
£000
£000
£000
£000
£000
2020
2020
2020
2020
2020
Due within a year
1,113
31
71
131
1,346
Due in more than one year
707
26
17
46
796
_________
_________
_________
_________
_________
1,820
57
88
177
2,142
_________
_________
_________
_________
_________
24
Deferred taxation
2021
2020
£000
£000
Brought forward
409
67
Charged to the income statement
370
342
_________
_________
Carried forward
779
409
_________
_________
The provision for deferred taxation is made up as follows:
2021
2020
£000
£000
Fixed asset timing differences
779
409
_________
_________
779
409
_________
_________
Factors that may affect future tax charges
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7 September 2016). These included reductions to the main rate to reduce the rate to 19 per cent. from 1 April 2017 and to 17 per cent. from 1 April 2021. However, on 17 March 2021 the rate reduction due to come in effect on 1 April 2021 was substantively reversed so that the main rate of taxation will remain at 19 per cent, and this has been reflected in these financial statements.
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2021 (on 10 June 2021). This included an increase to the main rate to increase the rate to 25% from 1 April 2023.
25
Financial instruments
The Group is exposed through its operations to the following financial risks:
· Credit risk
· Foreign exchange risk
· Liquidity risk
In common with all other business, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect to these risks is presented throughout these financial statements.
There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and procedures for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises are as follows:
· Trade receivables
· Cash and cash equivalents
· Trade and other payables
· Bank overdrafts
· Bank loan
It is Group policy that no trading in financial instruments should be undertaken.
Financial instruments by category
2021
2020
£000
£000
Financial assets at amortised cost
Cash and cash equivalents
36,903
8,496
Trade and other receivables
3,946
3,771
_________
_________
Total financial assets at amortised cost
40,849
12,267
_________
_________
Financial liabilities
Trade and other payables
3,947
3,105
Lease liabilities
1,935
2,142
_________
_________
Total financial liabilities
5,882
5,247
_________
_________
Financial instruments not measured at fair value
These include cash and cash equivalents, trade and other receivables, trade and other payables, and loans and borrowings. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables and trade and other payables approximates their fair value.
The Group's activities expose it to a variety of financial risks:
· Market risk (including foreign exchange risk, price risk and interest rate risk)
· Credit risk
· Liquidity risk
The financial risks relate to the following financial instruments:
· Cash and cash equivalents
· Trade and other receivables
· Trade and other payables
· Loans and borrowings
25
Financial instruments (continued)
The accounting policies with respect to these financial instruments are described above.
Risk management is carried out by the key management personnel. Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited, the Group's principal trading subsidiary, who together have authority and responsibility for planning, directing, and controlling the activities of the Group. The key management personnel identify and evaluate financial risks and provide principals for overall risk management.
(a) Credit Risk
Credit risk is the risk of financial loss to the Group if a customer fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts.
(b) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises because the Group operates in the United Kingdom and the United States of America, whose functional currency is not the same as the presentational currency of the Group. Foreign exchange risk also arises when individual companies within the group enter into transactions denominated in currencies other than their functional currency. Such transactions are kept to a minimum either through the choice of suppliers or presenting sales invoices in the functional currency.
Certain assets of the group companies are denominated in foreign currencies. Similarly, the Group has financial liabilities denominated in those same currencies. In general, the Group seeks to maintain the financial assets and financial liabilities in each of the foreign currencies at a reasonably comparable level, thus providing a natural hedge against foreign exchange risk and reducing foreign exchange exposure to a minimal level.
2021
2020
£000
£000
Financial assets
35,683
9,027
Financial liabilities
2,443
1,640
_________
_________
The table below represents financial instruments that are denominated in currencies other than the functional currencies of the group entities:
2021
2020
US$000
US$000
Financial assets
6,891
4,212
Financial liabilities
2,118
1,916
_________
_________
2021
2020
CA$000
CA$000
Financial assets
317
56
Financial liabilities
6
11
_________
_________
2021
2020
€000
€000
Financial assets
191
-
Financial liabilities
109
-
_________
_________
25
Financial instruments (continued)
A 10 per cent weakening of the Group's reporting currency against the United States Dollar would have the following impacts on the groups reporting currency on the financial assets and liabilities listed above in United States Dollar:
2021
2020
$000
$000
Financial assets
(450)
(323)
Financial liabilities
(138)
(145)
_________
_________
(ii) Interest rate risk
The Group's interest rate exposure arises mainly from the interest-bearing borrowings as disclosed in note 23. All the Group's facilities were floating rates excluding interest from leases, which exposed the group to cash flow risk. As at 31 July 2021 there are no loans outstanding, (2020 - £nil) and the overdraft facility is available but not in use. Therefore, there is no material exposure to interest rate risk.
(c) Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash flows for operations. The Group manages its risk to shortage of funds by monitoring forecast and actual cash flows. The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the majority of both its borrowings and payables.
The Group has no borrowings at 31 July 2021 (2020 £nil).
A maturity analysis of the Group's trade and other payables is shown below:
2021
2020
£000
£000
Less than one year
3,947
3,561
_________
_________
3,947
3,561
_________
_________
26
Pension commitments
The group operates defined contribution pension schemes. The assets of the schemes are held separately from those of the group in an independently administered fund. The pension cost charge represents contributions payable by the group to the funds.
2021
2020
£000
£000
Pension charge
284
213
_______
_______
Pension liability
38
35
_______
_______
27
Share based payments
The Company operates five equity-settled share-based remuneration schemes for employees; two United Kingdom tax authority approved schemes (one EMI and one CSOP), an unapproved Performance Share Plan scheme, a share option plan for non-United Kingdom employees and an unapproved Non-Executive Director Plan. The UK plans includes employees from the Company and its main UK trading subsidiary essensys (UK) Ltd.
Weighted
Weighted
average
average
exercise
exercise
price
price
(£)
Number
(£)
Number
2021
2021
2020
2020
Outstanding at the beginning of the year
1.02
2,966,241
£0.95
2,694,954
Granted during the year
1.56
576,479
£1.60
467,818
Forfeited during the year
1.52
(163,891)
£1.52
(196,531)
Exercised during the year
-
-
-
-
_________
_________
Outstanding at the end of the year
1.08
3,378,829
£1.02
2,966,241
_________
_________
The weighted average exercise price of options outstanding at the end of the year was 108.48p (2020: 101.67p) and their weighted average contractual life was 8.0 years (2020: 8.9 years).
Of the total number of options outstanding at the end of the year, no options had vested and were exercisable.
Market Value Options were valued using the Black Scholes option pricing model. Performance Share options were valued using a Monte Carlo Simulation option pricing model. Expected dividends are not incorporated into the fair value calculations. The assumptions used in the calculations are as follows:
2021
2020
Risk free investment
0.22% - 0.73%
0.23% - 0.54%
Expected life
2.6 years
3.5 years
Expected volatility
42.8%
50%
The volatility used for the share option grants during the current year was that actually experienced during the period from the IPO. The expected life was based initially on the minimum vesting period with an assumption that more senior personnel would not exercise immediately. The risk-free rate was based on the yield on UK government 10-year gilts at the time of the grant.
The Group recognised a total Share based payment expense of £560,000 in the year (2020: £514,000), all of which related to options in the Company issued immediately prior to the IPO or subsequent thereto.
28
Related party transactions
The Group has taken advantage of the exemption available under IAS 24 Related Party Disclosures not to disclose transactions between Group Undertakings which are eliminated on consolidation.
Key management personnel
Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited, the Group's principal trading subsidiary, who together have authority and responsibility for planning, directing, and controlling the activities of the Group. Details of key management compensation is shown in note 9.
Directors Loans
There were no directors loans during the years ended 31 July 2021 and 31 July 2020.
29
Capital commitments and contingent liabilities
The Group had no capital commitments or contingent liabilities at 31 July 2021 (2020: £NIL)
30
Events after the reporting date
There are no events of any materiality after the reporting date to report.
31
Notes supporting statement of cash flows
31 A Cash from operations
2021
2020
£000
£000
Cash flows from operating activities
(Loss)/profit for the financial year before taxation
(2,928)
346
Adjustments for non-cash/non-operating items:
Amortisation of intangible assets
1,308
1,009
Depreciation of property plant and equipment
969
587
Amortisation of loan arrangement fee
203
66
Depreciation of right of use assets
1,205
1,424
Share based payment expense
560
514
Gains and losses on foreign exchange transactions
(122)
140
Finance income
-
(2)
Finance expense
127
132
Receipts from government furlough grants treated as operating income
-
(386)
_________
_________
1,322
3,830
Changes in working capital:
Decrease/(Increase) in inventories
139
(31)
(Increase)/decrease in trade and other debtors
(93)
541
(Increase)/decrease in trade and other creditors
440
(314)
_________
_________
Cash from operations
1,808
4,026
_________
_________
31
Notes supporting statement of cash flows (continued)
31 B
Movement in net debt
Cash and cash equivalents
Leases
Total
£000
£000
£000
As at 1 August 2019
2,688
(3,448)
(760)
Lease additions
-
(586)
(586)
Cashflow
5,828
1,926
7,754
Interest charges
-
(132)
(132)
Exchange movements
(20)
98
78
_________
_________
_________
As at 31 July 2020
8,496
(2,142)
6,354
Lease additions
-
(1,514)
(1,514)
Effect of modifying lease term
-
(79)
(79)
Cashflow
28,433
1,863
30,296
Interest charge
-
(127)
(127)
Exchange movements
(26)
64
38
_________
_________
_________
As at 31 July 2021
36,903
(1,935)
34,968
_________
_________
_________
Cash and cash equivalents
Leases
Total
£000
£000
£000
Balances as at 31 July 2021
Current assets
36,903
-
36,903
Current liabilities
-
(943)
(943)
Non-current liabilities
-
(992)
(992)
_________
_________
_________
36,903
(1,935)
34,968
_________
_________
_________
Cash and cash equivalents
Leases
Total
£000
£000
£000
Balances as at 31 July 2020
Current assets
8,496
-
8,496
Current liabilities
-
(1,346)
(1,346)
Non-current liabilities
-
(796)
(796)
_________
_________
_________
8,496
(2,142)
6,354
_________
_________
_________
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