REG - essensys PLC - FULL YEAR RESULTS
18/10/2022 07:00
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RNS Number : 1816D essensys PLC 18 October 2022
18 October 2022
essensys plc
("essensys" or the "Group")
FULL YEAR RESULTS
Performance in line with expectations
Momentum for long-term growth plan
Strong pipeline for FY23 and FY24
essensys plc (AIM:ESYS), the leading global provider of flexible workspace
technology, announces its unaudited results for the twelve months ended 31
July 2022 ("FY22"). All information relates to this period, unless otherwise
specified.
Good strategic progress
· Improving quality of earnings
o Strategy optimised for capital efficient growth and cash conservation
o Focus on high value customers that deliver significant long-term expansion
opportunities
o Improving customer mix reflects increased quantity of strategic accounts
and continued reduction of low-value, single site customers
o Key renewals of multi-year contracts for top customers with additional
multi-year renewals in final stages for other customers
· Further international expansion
o APAC and Europe operations fully established with new customer sites now
'live'
o Adapting our investment approach to drive sustainable, profitable growth
o High quality sales pipeline across all regions
· Investment in people and product
o Global leadership team in place to drive growth plan
o New 'capital light' model developed for entry into new geographies
o Investment in our platform and product roadmap as part of long-term growth
and margin strategy
Financial performance in line with market expectations
· Annual recurring revenues up 11%, reflecting improvement in
quality of earnings
· Group revenue - up 6% - and adjusted EBITDA in line with market
expectations
· Strong growth in the US, our largest market opportunity, up 17%
· UK revenues down 8%, reflecting churn of low value customers and
previously reported one-off customer insolvency
· Recurring revenues account for 86% of total (FY21: 87%)
Current trading and outlook
· Largest customers re-accelerating expansion plans after a period
of portfolio rebalancing, underpinning future revenue growth
· Strong demand reflected in healthy pipeline of new business,
helping to offset delays to sales cycles and capital deployment
· Contracted new business from sites not yet live expected to
deliver £2.3m ARR, as at 17 October 2022
· Strong balance sheet, net cash of £24m and continue to be
debt-free, supports long-term growth plan
· Revised investment approach to result in achieving profitability
at a lower revenue level within current cash resources
Financial summary:
£m unless otherwise stated 2022 2021 Change
Revenue 23.3 22.0 +6%
Recurring revenue( 1 ) 20.1 19.1 +5%
Run Rate Annual Recurring Revenue( 1 ) 21.9 19.8 +11%
Revenue at constant currency 22.8 22.0 +4%
Recurring revenue( 1 ) 19.7 19.1 +3%
Run Rate Annual Recurring Revenue( 1 ) 20.5 19.8 +4%
Statutory loss before tax (11.1) (2.9)
Adjusted EBITDA( 1 ) (7.0) 1.3
Loss per share (pence) (16.8p) (6.2p)
Proposed Final Dividend per share (pence) Nil Nil
Net Cash 24.1 36.9
Mark Furness, CEO of essensys, said:
"FY22 was a year of progress and resilience in challenging market
conditions. Revenues increased by 6%, in line with expectations, with our US
business continuing to perform strongly. Momentum with strategic customers
remains and underpins a significant pipeline of opportunities. The quality
of our customer base has helped us to manage near-term headwinds such as
delays to sales cycles and capital deployment, some portfolio rebalancing
among our larger flexible workspace operators and the expected churn at the
tail-end of our customer base.
essensys has a clear strategy, proven model and strong platform to drive
sustainable, profitable growth. The flexible workspace market has
attractive, long-term dynamics. Hybrid working is here to stay and plays to
our strengths. Whilst our long-term ambition is unchanged, we have moderated
our growth targets and adapted our strategy and investment approach to focus
on our return to profitability. Our momentum, allied to contracted new
business and a healthy long-term pipeline, supports our confidence of further
progress in FY23 and beyond."
The information contained within this announcement is deemed to constitute
inside information for the purposes of the UK Market Abuse Regulation.
For further information, please contact:
essensys plc +44 (0)20 3102 5252
Mark Furness, Chief Executive Officer
Alan Pepper, Chief Operating Officer
Sarah Harvey, Chief Financial Officer
Singer Capital Markets (Nominated Adviser and Broker) +44 (0)20 7496 3000
Peter Steel / Harry Gooden / George Tzimas
FTI Consulting
Jamie Ricketts / Eve Kirmatzis / Talia Shirion / Victoria Caton +44 (0)20 3727 1000
About essensys plc
essensys is the leading global provider of software and technology for
flexible, digitally-enabled buildings, spaces and portfolios. As the
intelligent digital backbone, essensys provides a powerful platform that
simplifies the delivery and management of next generation, flexible commercial
real estate.
The real estate industry is transforming - it must be flexible to changing
market demands, to accommodate hybrid working styles, agile, move-in ready
spaces and the delivery of on-demand digital services. The office sector is
becoming an increasingly digital-first landscape - driven by end-user demand,
delivering digitally enabled spaces is key to success. The essensys Platform
has been designed and developed to help solve the complex operational
challenges faced by landlords and flexible workspace operators as they grow
and scale their operations. It helps our customers to deliver a simple, secure
and scalable proposition, responding to changing occupier demands, providing
seamless occupier experiences, and realising smart building and ESG
ambitions.
Founded in 2006 and listed on the AIM market of the London Stock Exchange
since 2019, essensys is active in the UK, Europe, North America and APAC.
Chairman's statement
Our 2022 financial year was, once again, set against a rapidly changing and
unpredictable backdrop. I would like to start by recognising the efforts of
our people. Our people are at the heart of our vision and our success is a
testament to their hard work and resourcefulness.
essensys grew revenues by 6% in FY22, underlining the resilience of our
business model. Covid-19 and lockdowns curbed the high revenue growth we are
accustomed to, slowing sales cycles and our expansion plans; however, whilst
revenue growth was lower than our original plans, we maintained planned EBITDA
as our teams responded with energy and focus to this challenge. We end the
year with good momentum with existing and new customers.
essensys has an excellent platform for growth. During the year the team has
made good progress with its long-term growth plan. Notably, we have seen the
launch of essensys in APAC and Europe, the development and launch of the
essensys Platform to deliver significant new capabilities to our customers and
continued investment in the product roadmap for future growth. essensys is
built on strong foundations and a focus on strategic customers who will look
to essensys to deliver flexible workspaces in the long term and who have the
scale to deliver growth for our business. We have a strong balance sheet
with £24m net cash at year end.
essensys has added to its executive leadership team during the year with the
appointment of Sarah Harvey as Chief Financial Officer. Sarah's appointment
and Alan Pepper's move into the new stand-alone Chief Operating Officer role
are necessary to support essensys' ambitions to scale up in the coming years.
Sarah brings a wealth of relevant expertise and is well qualified to oversee
the continued financial management of the Group.
essensys remains extremely well placed to take advantage of the increasing
demand for flexible workspace. We continue to see opportunities to grow with
flexible workspace operators and traditional landlords, as they build their
presence in the flexible workspace industry. Notwithstanding the current
uncertainty in the wider macroeconomic environment the Group remains confident
of further progress in the year ahead and beyond.
Jon Lee
Non-Executive Chairman
17 October 2022
Strategic and operational review
A clear strategy to capture the flexible workspace opportunity
essensys has a clear strategy to capture the growth in the flexible workspace
industry. The long-term market opportunity remains very exciting and now
includes hybrid working, which is increasingly a feature of everyday working
life.
Our model is to act as the intelligent digital backbone for commercial real
estate. Since 2006 our software has automated and simplified technology
operations for real estate and flexible workspaces. This, in turn, removes
complexity and reduces cost. The essensys Platform allows landlords and flex
workspace providers to solve the complex challenges they face and deliver
seamless, digital-first in-building and cross-portfolio experiences.
Following our fundraising in FY21, our planned investment in international
expansion, people and product gives us the platform to drive long-term,
profitable growth. The expansion of our go-to-market activities was delayed in
the first half of our financial year, with Covid-19 restrictions slowing sales
cycles, the expansion of our sales teams and the wider return to the office.
However, against a challenging backdrop, we made good progress with this
strategy in FY22. It is a testament to the resilience of our business model,
the quality of our customer base and our people that revenues increased by 6%,
in line with market expectations. Momentum with existing strategic customers
remains strong and underpins a significant pipeline of opportunities. This
helped us manage extensions to sales cycles and capital deployment, some
portfolio rebalancing among landlords and the expected churn at the tail-end
of our customer base.
Exciting market opportunity
The flexible workspace industry benefits from attractive long-term structural
growth drivers.
We continue to see a clear shift towards hybrid working and flexible
workspaces. Among the largest corporates, two thirds say making hybrid work
is in their top three strategic priorities(1). Hybrid working is here to stay
for commercial real estate and global working practices. In JLL's recent
global survey of the commercial real estate industry, three in four landlords
and operators plan to make all office spaces open and collaborative, with no
dedicated desk spaces(2). 73% see remote and hybrid working as critical to
attracting and retaining talent(3).
Nevertheless, most organisations still expect the office to remain at the
heart of the work ecosystem and for this to include more 'flex'. This
includes more traditional sectors, such as law and finance. Occupier demand
will, in turn, drive greater demand for a range of flexible services and
amenities. The most sought-after attribute in today's office environment is
flexible open space(4). While there are many reasons for this shift, an
important factor for organisations is reducing cost.
The acceptance of hybrid working and the shift to flexible workspaces is, in
turn, driving demand for technology on a practical, day-to-day level. Most
real-estate organisations still depend on legacy technology which could
undermine their ability to compete and win. Eight in ten respondents in a
recent global commercial real estate survey do not have a fully modernised
core system that could easily incorporate emerging technologies(5).
( )
Three in four landlords and operators say investing in quality office space is
a higher priority than expanding total footprint(6). Whilst we saw some
evidence of this during the latter part of FY22 we are also seeing landlords
establish new flex operations and existing operators resuming their expansion
plans. A significant opportunity for essensys exists within our current
strategic customers who are aiming to scale their flex offerings across their
portfolio globally, such as Industrious, Hines, Carr Workplaces, JLL and
Tishman Speyer, so this trend is a positive development.
The opportunities presented by our market are expected to benefit essensys in
the medium to longer term, as a leading global provider of flexible workspace
software and technology. We expect future underlying occupier demand to be
enhanced by two more recently established areas. First, what we call
'enterprise flex space': dedicated move-in ready team space for a period of up
to three years with limited or no customisation. Second, what we call 'agile
flex space', consisting of plug and play spaces or networks of options for
individuals and small teams.
Progressing our long-term growth plan
We have a well-established plan to Land, Expand and Grow to capture the market
opportunity in the flexible workspace market and have evolved that plan this
year to focus on sustainable growth, targeting those customers that are key to
our long-term ambition whilst expanding and growing with our existing
strategic customer base. This focus led to an increase in churn in the
smaller, non-strategic customer base in FY22 in addition to the previously
reported UK customer who went into administration during the year. Our target
new customers are those that, in time, can deliver at least 20 sites, or $1m
of ARR. This focus on high-value strategic customers has also resulted in
improved unit pricing with monthly contracted recurring revenue on average 10%
higher per site than those sites which churned in FY22.
Our Operate business represented 8% of our revenue in the year (FY21: 9%).
Operate will continue to reduce as a proportion of total Group revenue over
time as strategic customers move to the essensys Platform and the remaining
long-tail of small customers migrate to non-essensys solutions.
We have continued our investment in people, product and international
expansion, which is the basis for our growth plan.
Land - Expand - Grow
Our simple, proven strategy allows us to direct resources to the areas of our
go-to-market efforts that provide the most compelling returns at that time. In
periods of rapid market expansion, this allowed us to increase our investment
considerably in the 'Land' phase; the acquisition of new customers, thus
improving our customer mix and expanding our geographic footprint. This
improvement and our adaptable model means that once we have acquired these
customers we are able to refocus resources towards the large expansion
opportunity that this provides - the 'Expand' phase. The result of this is
increased sales efficiency (improved LTV to CAC ratio) and a less aggressive
capital investment program aimed at new customer acquisition.
Land
We added 18 new customers in FY22, in addition to the 24 added in FY21. The
majority of these new customers are landlords and real-estate companies,
including large landlords in Sweden and the USA with whom we expect to expand
our business in FY23 and beyond.
New customers won this year include a top 10 European real estate investment
manager with significant scale in Europe, a significant Irish property company
as well as an established North American multi-site flex workspace operator.
Our well developed sales pipeline includes a well-known South East Asian
conglomerate, a number of multi-site flex workspace operators and further
significant real estate owners and operators in all our geographies.
We now have a full global leadership team in place to drive our growth plan.
Our leadership team includes regional CEOs in all three geographical
regions, a Group Chief People Officer and our new CFO, Sarah Harvey, who was
appointed in May 2022. As part of this transition to support our scaling up,
Alan Pepper moved from his role as CFO and COO to a fully dedicated COO
role.
Expand
We continue to see strong demand from our key strategic customers; during the
year we added 65 new sites with existing and new customers and currently have
a healthy contracted pipeline of 52 sites representing £2.3m annual recurring
revenue, the majority with our top 20 strategic customers.
Our existing customer base, particularly in the US, is indicating significant
growth plans over the next few years. We are increasingly engaged at senior
levels with large property organisations in assisting them with their
technology requirements. These types of strategic customers continue to
provide the Group with significant long term expansion opportunities. We are
engaged with a number of very large potential new customers and whilst these
have longer sales cycles the likely scale of business is significant.
Strategic customers who engage us for multiple sites generate higher revenue
per site and deliver stronger net margins due to the lower cost to serve that
their operational maturity provides.
As we continue to focus on high-value strategic customers, churn of small low
value legacy customers continued, primarily in the UK, which reduced our
overall site count during the year. These customers have largely been single
site operators that do not offer an expansion opportunity and have high
service costs. Expansion with our existing UK customers included a renewal and
new territory expansion into Ireland with a real estate owner dedicated to
life sciences, with further expansion anticipated in FY23 and a renewal with a
top five customer which gave us exclusivity for their entire portfolio.
The recent renewal of multi-year contracts with our top three customers
demonstrates our longevity with our strategically important customers and
underpins our future pipeline, both in the short-term and the long-term. These
renewals and consolidations are expected to continue in FY23. Those renewals
included customers rebalancing their portfolios following the Covid-19
pandemic to focus on quality locations as they look to their own future growth
plans. We anticipate renewing multi-year contracts with a number of other
strategic customers in FY23. Typically when we sign a new customer we are
engaged to provide services to a small number of pilot locations, followed by
the longer-term opportunity to roll out across a large portfolio.
As part of our international expansion plan, our APAC and European operations
were fully established during FY22. APAC is fully operational with new
customers and sites live, in delivery and under negotiation. Now that we
have the international platform in place, we are adopting a 'capital light'
model to reduce the investment required to support further expansion into new
geographic territories from our increasingly global customers.
Grow
Our targeted investment in product includes, notably, the evolution of the
essensys Platform and our smart access capability and associated products.
Our intention is for the essensys Platform to act as the intelligent digital
backbone for commercial real estate. Moving our customers onto the essensys
Platform presents a long-term opportunity for margin and revenue growth
through greater automation and greater access to in-building services and
amenities. We have migrated the first wave of our customers onto the new
platform and continue to invest in product and software development to enhance
its value to users. We have also expanded our global private network to
provide additional capacity to support significant site and ARR growth.
The essensys Platform has been developed and built to serve as its own
distribution vehicle for future value-add functionality and modules. This
product-led growth (PLG) strategy is designed to reduce sales cycles for
upsell, improve customer LTV (lifetime value) and drive gross margin
performance.
Regional performance
Continued growth in North America
The US market continues to be a strong driver of Group growth. The US market
represents a £1.7bn total addressable market, of which we believe
approximately £377m is currently serviceable by essensys. In addition, the US
acts as a gateway to global expansion, as US headquartered customers look to
expand their flexible offering across their respective global portfolio.
Site numbers in the US grew by 5% and we saw a 23% increase in North America
recurring revenue. We are starting to see growth in the US market accelerating
with a number of customers setting out ambitious expansion plans for the rest
of this calendar year and beyond. Evidence of the structural shift to a more
flexible way of working continues to grow with an increasing number of
landlords engaging with us on technology solutions to support their
repurposing of traditional office environments. Those engagements involve a
number of globally recognisable real estate operators which each individually
provide the opportunity for significant long-term account growth.
Prospects include a California mixed use landlord with 22 locations, a West
Coast landlord with 37 buildings and an APAC business and a pan US REIT with
29 identified flex locations. Expansion with our existing top 10 customers in
North America continues to underpin our growth ambitions in the next year.
UK and Europe
The UK and European market represents a £936m total addressable market, of
which we believe approximately £250m is currently serviceable by essensys.
The appointment of James Lowery as CEO of UK & Europe completed our senior
regional leadership appointments and will allow the implementation of tailored
growth strategies around the Group's international operations. James brings
significant industry experience from his time at British Land where he led
their flexible workspace operation and this knowledge will be instrumental in
opening up opportunities for discussions with similar organisations across
Europe.
Our total number of sites in the region was 17% lower, following the expected
churn of lower value, non-strategic customers, some portfolio rebalancing by
our larger customers and the previously reported unexpected insolvency of a
long-standing flexible workspace operator customer. Going into FY23 we
expect less volatility and reduced churn as the improvement in our customer
mix continues.
In line with our experience in the US we are seeing signs of activity levels
building in both the UK and mainland Europe. During the year we signed a
strategic customer in Sweden resulting in two initial pilot locations; we now
have a further four sites in active engagement. We also contracted with a
large European real estate investment manager towards the end of the year
which brings us significant future expansion opportunity. Further engagement
with a number of large European property companies and managers continues and,
whilst these have longer sales cycles, the opportunities with some of these
customers is significantly greater than we might have originally anticipated.
Our prospects include a 36 site Operate-only French customer moving onto the
essensys Platform; a UK operator with more than 50 buildings; a Swedish
private landlord with 35 CBD locations; and a German REIT with more than 500
buildings.
APAC
Asia represents a £663m total addressable market, of which we believe
approximately £225m is currently serviceable by essensys. As part of our
plan to expand in the APAC region, we have to date engaged with over 50% of
our target customers and we are making good progress establishing our business
in the region. We now have personnel in Hong Kong, Singapore and Australia,
with go to market capability now fully established in all three locations.
Business development activity and pipeline is increasing in all markets.
Australia, in particular, is expected to be a major opportunity for the Group.
Existing customer pull from the US led to the establishment of our first new
location in Sydney during the period and has resulted in a further sites live
in Australia and additional pipeline there. We are also well engaged with a
number of Australia's largest property companies and flexible workspace
operators.
Prospects in the region include a Singapore regional landlord with a flex
brand; a Singapore regional flex space operator with more than 40 locations; a
large Australian landlord with an established flex strategy; and a Singapore
based global landlord with an invested-in flex brand and a large number of
existing flex locations.
Current trading and outlook
Momentum with strategic customers remains strong and underpins a significant
pipeline of opportunities. This is helping us manage near-term headwinds
such as delays in sales cycles and capital deployment, some portfolio
rebalancing among landlords and churn at the tail-end of our customer base.
We continue to take steps to extend our cash runway, including optimising
our strategy and developing a capital light model for new territory entry, as
we have done in Sweden.
essensys has a healthy pipeline of new business, with contracted new business
expected to deliver £2.3m Annual Recurring Revenue (as at 17 October 2022)
and we have a strong balance sheet that supports a clear strategy, proven
model and strong platform to drive sustainable, profitable growth. The Group
remains debt-free, with a cash balance of £24m at the end of FY22.
The flexible workspace market has attractive, long-term dynamics; hybrid
working is here to stay and plays to our strengths. Our long-term growth
plan has not changed. Our momentum, allied to contracted new business and a
healthy long-term pipeline, supports our confidence of further progress in
FY23 and beyond.
As we enter the next phase of our growth, and given continued economic
uncertainty, we are adopting a more selective approach to investment both from
a capital and new customer acquisition perspective. This approach will reduce
cash burn to ensure we achieve profitability within our current cash
resources. Whilst we continue to expect healthy revenue growth from our
existing customers and new customer pipeline, total revenue for the new
financial year is expected to be at a lower level than previously anticipated.
Mark Furness
Chief Executive Officer
17 October 2022
Notes
1. JLL, The Future of Work Survey 2022
2. JLL, The Future of Work Survey 2022
3. JLL, The Future of Work Survey 2022
4. EMEA Office Occupier Sentiment Survey, 2022
5. Deloitte, 2022 Commercial Real Estate Outlook
6. JLL, The Future of Work Survey 2022
7. EMEA Office Occupier Sentiment Survey, 2022
Chief Financial Officer's Report
Scope of financial results
The unaudited financial results included in this announcement cover the
Group's consolidated activities for the 12 months ended 31 July 2022. The
comparatives for the previous 12 months were for the Group's consolidated
activities for the 12 months ended 31 July 2021.
Financial Key Performance Indicators
£'m unless otherwise stated 2022 2021 Change
Group Total Revenue 23.3 22.0 6%
North America 13.2 11.3 17%
UK & Europe 9.8 10.6 -8%
APAC 0.3 -
Recurring Revenue 20.1 19.1 5%
North America 11.0 8.9 23%
UK & Europe 9.0 10.2 -12%
APAC 0.1 -
Recurring Revenue %age of Total 86% 87%
Run Rate Annual Recurring Revenue 21.9 19.8 11%
Non-recurring revenue 3.2 2.9 10%
Gross Profit 14.1 14.2 -1%
Gross Profit percentage 61% 65%
Recurring Revenue margin %age 64% 69%
Statutory loss before tax (11.1) (2.9)
Adjusted EBITDA (7.0) 1.3
Adjusted EBITDA margin (30)% 6.0%
Net Cash 24.1 36.9
See commentary following and in the strategic and operational review above
together with the unaudited financial statements below for explanation of
significant movements in the above Financial Key Performance Indicators.
Revenue
Group total revenue increased by 6% to £23.3m in the year. As outlined in the
strategic and operational review, we saw growth in the US offset by a decline
in the UK. In the US, Connect sites grew to 300 at the year-end (FY21: 286).
The strengthening of the US Dollar compared to the Pound Sterling had a
benefit to reported revenue in the year of £0.5m.
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 2022 and 2021, 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 increased 5% in the year driven by the reasons set out
above. Run Rate ARR grew 11% to £21.9m (from £19.8m in 2021) driven
primarily by our momentum with strategic customers looking to expand their
flex capabilities. The net change in Group Connect/Platform sites was -3% to
458 at year end (2021: 474) as a result of large customer recontracts and
churn in lower value single-site customers.
Gross margins
Overall gross margins decreased to 61% (2021: 65%) and recurring revenue
margins decreased to 64% (2021: 69%) reflecting an increase in costs as the
Group invested towards expanding its international operations and invests for
future growth, particularly in the APAC region.
Administrative expenses
Excluding depreciation and amortisation charges, administrative expenses
increased by £8m in the year, as we continued our strategic investment plan.
This was driven primarily by increases in staff-related costs both from the
full-year effect of increases in overall headcount implemented in FY21 but
also by the impact of a 40% increase in average numbers of staff in FY22, a
significant proportion of which was in development personnel. In addition,
the Group spent an additional £0.5m on third party marketing activities in
FY22.
Statutory loss for the year
The Group made a loss before tax for the year of £11.1m (2021: loss of
£2.9m). The year-on-year change is primarily as a result of the investment
in the Group to deliver the growth plans.
£'m 2022 2021
Turnover 23.3 22.0
Cost of sales (9.2) (7.8)
Gross profit 14.1 14.2
Administrative expenses (24.3) (16.5)
Share based payment expense (0.8) (0.6)
Operating loss (11.0) (2.8)
Net interest payable (0.1) (0.1)
Loss before taxation (11.1) (2.9)
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 Note 7 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, impairment charges and share based payment expense) is calculated as
follows:
£'m 2022 2021
Operating loss (11.0) (2.8)
Add back:
Depreciation & Amortisation 3.1 3.6
EBITDA (7.9) 0.8
Less: Forex translation adjustments - (0.1)
Add back: Share based payment expense 0.8 0.6
Add back: Impairment charge 0.1 -
Adjusted EBITDA (7.0) 1.3
The share-based payment expense, impairment charge and forex translation
adjustments are excluded from Adjusted EBITDA as they are not considered
relevant for assessment of underlying profitability.
Taxation
The Group incurred a tax credit in the year of £286,000 (2021: tax charge
£411,000). This was made up of non-cash deferred tax movements arising from
timing differences on the taxation related to capitalised development costs.
Cash
Net cash at year end was £24.1m (2021: £36.9m) and the Group remains
debt-free. The most significant cash outflow during the year was on the
Group's personnel as part of the investment in product and go-to-market
capability. The Group also made additional inventory purchases during the
second half of the year in order to provide certainty of supply into FY23. The
Group's current cash reserves provide sufficient capital for the foreseeable
future and will enable it to fund the Group's 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 the UK and Europe, North America
and APAC 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 expanded its new
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
£4.1m in respect of software development (2021: £2.5m).
In implementing its accelerated product development strategy, the Group
anticipates capitalising software costs at a similar rate to FY22 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 2022 and does not
anticipate recommending a dividend within the next year but may do so in
future years.
Sarah Harvey
Chief Financial Officer
17 October 2022
Unaudited Consolidated Statement of Comprehensive Loss
for the year ended 31 July
Notes 2022 2021
£000 £000
Turnover 6 23,298 21,982
Cost of sales (9,190) (7,750)
_________ _________
Gross profit 14,108 14,232
Administrative expenses (24,399) (16,515)
Other operating income - 42
Share based payment expense (741) (560)
_________ _________
Operating loss 7 (11,032) (2,801)
Interest receivable and similar income 10 94 -
Interest payable and similar charges 11 (147) (127)
_________ _________
Loss before taxation (11,085) (2,928)
Taxation 12 286 (411)
_________ _________
Loss for the year from continuing operations (10,799) (3,339)
_________ _________
Other comprehensive loss
Items that may be reclassified to profit or loss:
Currency translation differences 583 (200)
_________ _________
Other comprehensive loss for the year 583 (200)
_________ _________
Total comprehensive loss for the year (10,216) (3,539)
_________ _________
Basic and diluted loss per share 13 (16.8p) (6.2p)
Unaudited Consolidated Statement of Financial Position
as at 31 July
Notes 2022 2021
£000 £000
ASSETS
Non-current assets
Intangible assets 14 8,922 6,198
Property, plant and equipment 15 2,819 1,471
Right of use assets 16 2,482 2,160
_________ _________
14,223 9,829
Current assets
Inventories 18 2,546 184
Trade and other receivables 19 6,434 5,279
Cash at bank and in hand 24,122 36,903
_________ _________
33,102 42,366
_________ _________
TOTAL ASSETS 47,325 52,195
_________ _________
EQUITY AND LIABILITIES
EQUITY
Shareholders' equity
Called up share capital 20 161 161
Share premium 21 51,660 51,660
Share based payment reserve 2,811 2,045
Merger reserve 28 28
Retained earnings (19,185) (8,969)
_________ _________
TOTAL EQUITY 35,475 44,925
LIABILITIES
Non-current liabilities
Lease liabilities 23 1,659 992
Deferred tax 24 485 779
_________ _________
2,144 1,771
Current liabilities
Trade and other payables 22 7,422 4,229
Contract liabilities 6E 815 323
Lease liabilities 23 1,469 943
Current taxes - 4
_________ _________
9,706 5,499
_________ _________
TOTAL LIABILITIES 11,850 7,270
_________ _________
TOTAL EQUITY AND LIABILITIES 47,325 52,195
_________ _________
Unaudited Consolidated Statement of Changes in Equity
for the Year Ended 31 July 2022
Share Share Share based payment Merger Retained Total
capital premium Reserve Reserve earnings equity
£000 £000 £000 £000 £000 £000
1 August 2021 161 51,660 2,045 28 (8,969) 44,925
Comprehensive loss for the year
Loss for the year - - - - (10,799) (10,799)
Currency translation differences - - 25 - 583 608
_______ _______ _______ _______ _______ _______
Total comprehensive loss for the year - - 25 - (10,216) (10,191)
_______ _______ _______ _______ _______ _______
Transactions with shareholders
Share based payment charge - - 741 - - 741
_______ _______ _______ _______ _______ _______
31 July 2022 161 51,660 2,811 28 (19,185) 35,475
_______ _______ _______ _______ _______ _______
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
_______ _______ _______ _______ _______ _______
Unaudited Consolidated Statement of Cash Flows
for the Year Ended 31 July
Notes 2022 2021
£000 £000
Cash (used by)/generated from operations 31 A (6,789) 1,808
Corporation tax paid (11) (36)
Foreign exchange - 122
_________ _________
Net cash generated (used by)/from operating activities (6,800) 1,894
_________ _________
Cash flows from investing activities
Purchases of intangible assets 14 (4,087) (2,493)
Purchases of property plant and equipment 15 (1,541) (786)
Interest received 94 -
_________ _________
Net cash used in investing activities (5,534) (3,279)
_________ _________
Cash flows from financing activities
Proceeds from the issuance of new shares - 33,179
Costs of issuing new shares - (1,371)
Repayment of lease principal 23 (893) (1,863)
Interest paid on lease liabilities 23 (147) (127)
_________ _________
Net cash (used in)/generated from financing activities (1,040) 29,818
_________ _________
Net increase in cash and cash equivalents (13,374) 28,433
Cash and cash equivalents at beginning of year 36,903 8,496
Effects of foreign exchange rate changes 593 (26)
_________ _________
Cash and cash equivalents at end of year 24,122 36,903
_________ _________
Cash and cash equivalents comprise:
Cash at bank and in hand 24,122 36,903
_________ _________
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 7(th) 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 Issue of unaudited financial statements
These unaudited financial statements have been approved for issue by the
Board. The audit of these financial statements is not yet fully complete and,
therefore they do not constitute the Group's full financial statements for
FY22 which are in the process of being audited and will be approved by the
Board and filed with the Registrar of Companies in the United Kingdom in the
coming days. Accordingly, the financial information for FY22 is unaudited and
does not constitute statutory accounts within the meaning of Section 434 of
the United Kingdom Companies Act 2006.
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 above. The financial position of the Group is described in the
Financial Review above.
Going concern
The Group's consolidated financial statements have been prepared on a going
concern basis.
As at 31 July 2022 the Group had net assets of £35.5m (2021: £44.9m),
including cash of £24.1m (2021: £36.9m) as set out in the Consolidated
Statement of Financial Position, with no external debt. In the year ended 31
July 2022 the Group generated a loss before tax of £11.1m (2021: loss of
£2.9m). The group used net cash before financing in the year of £12.3m
(2021: 1.4m) after investment in software development of £4.1m.
During the year, Group revenue increased by 6.0% with recurring revenue
increasing by 5.4% primarily as a result of a strengthening of the US dollar,
which increased the reported revenue from its US subsidiary which is an
increasing proportion of the Group's business. The Group generated an
operating loss of £11.0m (2021: £2.8m) as it continued to expand its
operations internationally. 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.
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.
(6) 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.
(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 lease liabilities. Interest on 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.
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.
(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 loss'
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 subsidiaries 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.
(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 of work in progress, which are items and third party
services that have been purchased and allocated to satisfy specific customer
contracts where title has not yet passed, and finished goods, which are items
purchased to secure sufficient resources, with a global shortage of silicon,
to satisfy expected future 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.
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.
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.
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 'GU'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.
In the event that the terms of equity-settled share-based payments are
modified these are valued at the date of modification and, where this results
in an increase to fair value, the charge is recognised in the statement of
comprehensive income over the remaining vesting period, or recognised
immediately where the vesting period has already passed.
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.
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 £741,000
(2021: £560,000).
The charge related to options in the Group granted at IPO, a modification to
the terms of certain of those options granted at IPO and new options granted
during the year ended 31 July 2022 is 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 modification
to the terms of certain options granted at IPO resulted in an increased fair
value for which a charge was recognised immediately as the original vesting
period had passed. 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 service.
6 Segmental Reporting (continued)
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 three 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:
2022 2021
£000 £000
Analysis of turnover by country of destination:
United Kingdom and Europe 9,797 10,610
North America 13,233 11,334
Asia Pacific region 268 -
Rest of World - 38
_________ _________
Total Income 23,298 21,982
_________ _________
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:
2022 2021
£000 £000
Connect 21,479 19,934
Operate 1,819 2,048
_________ _________
Total Income 23,298 21,982
_________ _________
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:
2022 2021
£000 £000
Revenue recognised at a point in time 3,158 2,868
Revenue recognised over time 20,140 19,114
_________ _________
Total Income 23,298 21,982
_________ _________
6D Revenue from customers greater than 10%
Revenue from customers greater than 10% in each reporting period is as
follows:
2022 2021
£000 £000
Customer 1 5,422 4,319
Customer 2 - 2,302
_________ _________
6E Contract assets and liabilities
Contract asset movements were as follows:
2022 2021
£000 £000
At 1 August 345 420
Transfers in the period from contract assets to trade receivables (85) (159)
Excess of revenue recognised over cash (or rights to cash) being recognised 558 75
during the period
Capital asset contract contributions capitalised 37 32
Capital asset contract contributions released as contract obligations are (28) (19)
fulfilled
Capitalised commission cost released as contract obligations fulfilled (111) (297)
Commission costs capitalised on contracts 171 293
_________ _________
At 31 July 887 345
_________ _________
Contract liability movements were as follows:
2022 2021
£000 £000
At 1 August 323 550
Amounts included in contract liabilities that were recognised as revenue (323) (550)
during the period
Cash received and receivables in advance of performance and not recognised as 815 323
revenue during the period
_________ _________
At 31 July 815 323
_________ _________
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
2022 2021
£000 £000
This is arrived at after charging/(crediting):
Amortisation of intangible assets 1,241 1,308
Depreciation of tangible fixed assets 617 969
Depreciation of right of use assets 1,268 1,205
Impairment of goodwill 122 -
Fees payable to the Group's auditor (see below) 260 197
Loss on disposal of tangible fixed assets 36 -
Amortisation of loan arrangement fee - 202
Exchange differences - (122)
Research & Development expense 3,006 1,345
Staff costs (note 8) 19,384 11,643
Share based payment charges 741 560
Increase to expected credit loss provision 54 45
_______ _______
Analysis of fees paid to the Group's auditor:
Annual financial statements - parent company 60 36
Annual financial statements - subsidiary companies 94 82
_________ _________
Audit Fee 154 118
_________ _________
Assurance services 35 35
Other services 71 44
_________ _________
Non audit services 106 79
_________ _________
Total fee 260 197
_______ _______
8 Employees
Staff costs (including directors) consist of:
2022 2021
£000 £000
Wages and salaries 13,898 8,663
Social security costs 1,546 1,003
Cost of defined contribution scheme 426 284
Other 3,514 1,693
_________ _________
19,384 11,643
_________ _________
Other staff costs comprise the cost of recruitment, other employee benefits,
redundancy and temporary staff.
The average number of employees (including directors) during the year was as
follows:
2022 2021
No. No.
Executive 9 6
Sales & Marketing 26 20
Finance & Administration 26 14
Support 38 32
Development 52 33
Provisioning 6 7
_________ _________
157 112
_________ _________
9 Key management remuneration
Key management personnel include all the directors of the Company and the
senior management and directors of essensys (UK) Limited and essensys, Inc,
the Group's principal trading subsidiaries, who together have authority and
responsibility for planning, directing, and controlling the activities of the
Group.
2022 2021
£000 £000
Salaries and fees 2,658 1,687
Social security costs 275 187
Short term non-monetary benefits 23 17
Company contributions to money purchase pension schemes 129 110
Share based payment expense 409 408
_________ _________
3,494 2,409
_________ _________
10 Interest receivable and similar income
2022 2021
£000 £000
Interest receivable from bank deposits 94 -
_________ _________
94 -
_________ _________
11 Interest payable and similar charges
2022 2021
£000 £000
Lease liabilities 147 127
_________ _________
147 127
_________ _________
12 Taxation on loss on ordinary activities
2022 2021
£000 £000
Current tax
UK corporation tax - -
Recovery of irrecoverable tax on loans to participators - -
Adjustment in respect of previous periods - -
Foreign tax on income for the year 8 41
_________ _________
Total current tax 8 41
_________ _________
Deferred tax
Origination and reversal of timing differences (260) 241
Adjustments in respect of prior periods (34) 129
_________ _________
Total deferred tax (294) 370
_________ _________
Taxation on profit on ordinary activities (286) 411
_________ _________
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:
2022 2021
£000 £000
Loss on ordinary activities before tax (11,085) (2,928)
_________ _________
Tax using the Group's domestic tax rates (19%) (2,106) (556)
Effects of:
Fixed asset differences 199 239
Expenses not deductible for tax purposes 351 19
Income not taxable for tax purposes (14) -
Adjust closing deferred tax to average rate (36) 19
Timing differences not recognised (24) (85)
Deferred tax not recognised 1,344 775
_________ _________
Total tax charge for period (286) 411
_________ _________
Changes to the UK corporation tax rates were substantively enacted as part of
Finance Bill 2022 (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
2022 2021
Basic weighted average number of shares 64,385,219 53,713,487
_________ _________
Fully diluted weighted average number of shares 64,385,219 53,713,487
_________ _________
2022 2021
£000 £000
Loss for the year attributable to owners of the group (10,799) (3,339)
_________ _________
Basic and diluted loss per share (pence) (16.8p) (6.2p)
_________ _________
The loss per share has been calculated using the loss for the year and the
weighted average number of ordinary shares outstanding during the period.
Share options held at the year-ended 31 July 2022 are anti-dilutive and so
have not been included 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 2021 1,412 335 7,832 280 1,263 11,122
Additions 215 - 3,872 - - 4,087
Transfers (1,412) - 1,412 - - -
_________ _________ _________ _________ _________ _________
At 31 July 2022 215 335 13,116 280 1,263 15,209
_________ _________ _________ _________ _________ _________
Amortisation
At 1 August 2021 - 335 4,309 280 - 4,924
Charge for year - - 1,241 - - 1,241
Impairment - - - - 122 122
_________ _________ _________ _________ _________ _________
At 31 July 2022 - 335 5,550 280 122 6,287
_________ _________ _________ _________ _________ _________
Net book value
At 31 July 2022 215 - 7,566 - 1,141 8,922
_________ _________ _________ _________ _________ _________
At 31 July 2021 1,412 - 3,523 - 1,263 6,198
_________ _________ _________ _________ _________ _________
The goodwill relates to the acquisition of Hubcreate Limited on 18 February
2016. The goodwill all relates to 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. 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 post-tax discount rate used in all periods is 12% derived from a WACC
calculation and benchmarked against similar organisations within the sector.
Management do not anticipate this CGU providing long term future cash flows
for the group. As such the latest projection shows a 11% decline in revenue
year on year which is consistent with the decline in revenue during FY22.
Using a discount rate of 12% resulted in an impairment of £122,000 and as
such an the impairment charge has been booked in this 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 - 335 6,751 280 1,263 8,629
At 1 August 2020 1,412 - 1,081 - - 2,493
Additions _________ _________ _________ _________ _________ _________
1,412 335 7,832 280 1,263 11,122
At 31 July 2021 _________ _________ _________ _________ _________ _________
Amortisation - 293 3,043 280 - 3,616
At 1 August 2020 - 42 1,266 - - 1,308
Charge for year _________ _________ _________ _________ _________ _________
- 335 4,309 280 - 4,924
At 31 July 2021 _________ _________ _________ _________ _________ _________
Net book value 1,412 - 3,523 - 1,263 6,198
At 31 July 2021 _________ _________ _________ _________ _________ _________
- 42 3,708 - 1,263 5,013
At 31 July 2020 _________ _________ _________ _________ _________ _________
15 Property, plant and equipment
Fixtures and Computer Leasehold
Group fittings equipment improvements Total
£000 £000 £000 £000
Cost
At 1 August 2021 382 8,387 130 8,899
Additions 34 1,504 3 1,541
Disposals (188) - (33) (221)
Transfers (note 16) - 180 584 764
Exchange adjustments 14 534 2 550
_________ _________ _________ _________
At 31 July 2022 242 10,605 686 11,533
_________ _________ _________ _________
Depreciation
At 1 August 2021 322 7,020 86 7,428
Charge for year 29 564 24 617
Disposals (152) - (33) (185)
Transfers (note 16) - 129 318 447
Exchange adjustments 8 396 3 407
_________ _________ _________ _________
At 31 July 2022 207 8,109 398 8,714
_________ _________ _________ _________
Net book value
At 31 July 2022 34 2,492 288 2,819
_________ _________ _________ _________
At 31 July 2021 60 1,367 44 1,471
_________ _________ _________ _________
Fixtures and Computer Leasehold
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
_________ _________ _________ _________
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 2021 5,482 - 342 584 6,408
Additions 1,062 - - - 1,062
Lease remeasurement 1,136 - - - 1,136
Disposal (872) - - - (872)
Transfers (note 15) - - (180) (584) (764)
Exchange adjustments 241 - - - 241
_________ _________ _________ _________ _________
At 31 July 2022 7,049 - 162 - 7,211
_________ _________ _________ _________ _________
Depreciation
At 1 August 2021 3,693 - 278 277 4,248
Charge for year 1,214 - 13 41 1,268
Disposal (462) - - - (462)
Transfers (note 15) - - (129) (318) (447)
Exchange adjustments 122 - - - 122
_________ _________ _________ _________ _________
At 31 July 2022 4,567 - 162 - 4,729
_________ _________ _________ ______ _________
Net book value
At 31 July 2022 2,482 - - - 2,482
_________ _________ _________ _________ _________
At 31 July 2021 1,789 - 64 307 2,160
_________ _________ _________ _________ _________
Leasehold Fixtures and Computer Leasehold
Property fittings equipment improvements Total
£000 £000 £000 £000 £000
Cost
At 1 August 2020 4,204 142 1,527 584 6,457
Lease remeasurement 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
_________ _________ _________ _________ _________
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
essensys (APAC Holdings) Ltd United Kingdom 100% Non-trading Provider of software and technology platforms to the flexible workspace
industry
essensys (Hong Kong) Ltd Hong Kong 100% Trading Provider of software and technology platforms to the flexible workspace
industry
essensys (Singapore) Pte Ltd Singapore 100% Trading Provider of software and technology platforms to the flexible workspace
industry
essensys (Australia) Pty Ltd Australia 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 (UK) Ltd, essensys (APAC Holdings) Ltd,
Hubcreate Limited, TVOC Limited and Spacebuddi Limited are as per the Company
as given on the company information page.
The office of essensys Inc is 600 5th Avenue, Floor 2, New York City, NY
10020, United States of America.
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 office of essensys (Hong Kong) Ltd Room 1901, 19/F, Lee Garden
One, 33 Hysan Avenue, Causeway Bay, Hong Kong.
The registered office of essensys (Singapore) Pte Ltd is 9 Raffles Place,
#26-01, Republic Plaza, 048619, Singapore.
The registered office of essensys (Australia) Pty Ltd is Suite 902, 146 Arthur
Street, North Sydney, NSW 2060, Australia.
18 Inventories
2022 2021
£000 £000
Finished goods 2,353 -
Work in progress 193 184
_________ _________
2,546 184
_________ _________
Work in progress are items and third-party services purchased to satisfy
specific customer contracts, where title has not yet passed. Finished goods
are items purchased to secure sufficient resources, with a global shortage of
silicon, to satisfy expected future customer contracts.
19 Trade and other receivables
2022 2021
£000 £000
Trade receivables (net) 3,684 3,462
Other receivables 465 409
Prepayments 1,316 1,063
Contract asset 887 345
Current taxes receivable 82 -
_________ _________
6,434 5,279
_________ _________
Analysis of trade receivables based on age of invoices
< 30 31 - 60 61 -90 > 90 Total Gross ECL Total Net
£'000 £'000 £'000 £'000 £'000 £'000 £'000
2022 1,762 256 429 1,871 4,318 (634) 3,684
2021 2,103 334 217 1,388 4,042 (580) 3,462
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 2022 the lifetime expected loss provision for trade receivables and
contract assets is as follows:
31 July 2022
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% 8.6% 31.2%
Gross carrying amount 2,650 256 429 1,871 5,206
ECL - 14 37 583 634
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
19 Trade and other receivables (continued)
Movements in the ECL are as follows:
2022 2021
£000 £000
Opening ECL at 1 August 580 535
Increase during the year 423 220
Receivables written off as uncollectable (369) (175)
_______ _______
ECL charge for the year 54 45
_______ _______
At 31 July 634 580
_______ _______
20 Share capital
2022 2021
£000 £000
Allotted, called up and fully paid
64,385,219 (2021 - 64,385,219) ordinary shares of 0.25p each (2021 - 0.25p) 161 161
_______ _______
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.
21 Share premium
2022 2021
£000 £000
Share premium at start of period 51,660 19,881
Issue of new shares - 33,150
Cost of issuing new shares recognised in equity - (1,371)
_______ _______
51,660 51,660
_______ _______
22 Trade and other payables
2022 2021
£000 £000
Amounts falling due within one year
Trade payables 4,487 2,376
Other taxes and social security 244 282
Other creditors 1,050 439
Accruals 1,641 1,132
_________ _________
7,422 4,229
_________ _________
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.
2022 2021
£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.
At both 31 July 2022 and 2021 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 2021 1,841 29 20 45 1,935
Additions 1,061 - - - 1,061
Interest expense 145 1 - 1 147
Effect of modifying lease term 877 - - - 877
Lease payments (944) (30) (20) (46) (1,040)
Foreign exchange movements 148 - - - 148
_________ _________ _________ _________ _________
At 31 July 2022 3,128 - - - 3,128
_________ _________ _________ _________ _________
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
_________ _________ _________ _________ _________
23 Lease liabilities (continued)
Lease maturity
Leasehold Fixtures and Computer Leasehold
property fittings equipment improvements Total
£000 £000 £000 £000 £000
2022 2022 2022 2022 2022
Up to 3 months - - - - -
3 to 12 months 135 - - - 135
1-2 years 389 - - - 389
2-5 years 2,604 - - - 2,604
_________ _________ _________ _________ _________
3,218 - - - 3,218
_________ _________ _________ _________ _________
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
More than 5 years _________ _________ _________ _________ _________
1,841 29 20 45 1,935
_________ _________ _________ _________ _________
Analysis by current and non-current
Leasehold Fixtures and Computer Leasehold
property fittings equipment improvements Total
£000 £000 £000 £000 £000
2022 2022 2022 2022 2022
Due within a year 1,469 - - - 1,469
Due in more than one year 1,659 - - - 1,659
_________ _________ _________ _________ _________
3,128 - - - 3,128
_________ _________ _________ _________ _________
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
_________ _________ _________ _________ _________
24 Deferred taxation
2022 2021
£000 £000
Brought forward 779 409
(Credited)/charged to the income statement (294) 370
_________ _________
Carried forward 485 779
_________ _________
The provision for deferred taxation is made up as follows:
2022 2021
£000 £000
Fixed asset timing differences 485 779
_________ _________
485 779
_________ _________
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. The UK government has
proposed the abolishment of the increase to the tax rate, but at the signing
date of these financial statements the reversal has not yet been substantively
enacted and so the rate has not been adjusted.
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
It is Group policy that no trading in financial instruments should be
undertaken.
25 Financial instruments (continued)
Financial instruments by category
2022 2021
£000 £000
Financial assets at amortised cost
Cash and cash equivalents 24,122 36,903
Trade and other receivables 4,707 3,946
_________ _________
Total financial assets at amortised cost 28,829 40,849
_________ _________
Financial liabilities
Trade and other payables 7,178 3,947
Lease liabilities 3,128 1,935
_________ _________
Total financial liabilities 10,306 5,882
_________ _________
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
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.
25 Financial instruments (continued)
Financial instruments not measured at fair value (continued)
(b) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises because the Group operates in the United Kingdom,
Europe, North America and the Asia Pacific region, 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.
2022 2021
£000 £000
Financial assets 21,541 35,683
Financial liabilities 3,368 2,443
_________ _________
The table below represents financial instruments that are denominated in
currencies other than the functional currencies of the group entities:
2022 2021
US$000 US$000
Financial assets 7,249 6,891
Financial liabilities 3,661 2,118
_________ _________
2022 2021
CA$000 CA$000
Financial assets 93 317
Financial liabilities 6 6
_________ _________
2022 2021
€000 €000
Financial assets 658 191
Financial liabilities 336 109
_________ _________
2022 2021
HK$000 HK$000
Financial assets 1,962 -
Financial liabilities 1,064 -
_________ _________
2022 2021
SG$000 SG$000
Financial assets 1,024 -
Financial liabilities 829 -
_________ _________
2022 2021
AU$000 AU$000
Financial assets 545 -
Financial liabilities 379 -
_________ _________
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:
2022 2021
$000 $000
Financial assets (541) (450)
Financial liabilities (273) (138)
_________ _________
(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 2022 there are no loans outstanding, (2021 - £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 2022 (2021: £nil).
A maturity analysis of the Group's trade and other payables is shown below:
2022 2021
£000 £000
Less than one year 7,178 3,947
_________ _________
7,178 3,947
_________ _________
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.
2022 2021
£000 £000
Pension charge 426 284
_______ _______
Pension liability 78 38
_______ _______
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
2022 2022 2021 2021
Outstanding at the beginning of the year 1.08 3,378,829 1.02 2,966,241
Granted during the year 0.25 89,219 1.56 576,479
Forfeited during the year 1.60 (110,545) 1.52 (163,891)
Exercised during the year - - - -
_________ _________
Outstanding at the end of the year 1.04 3,357,503 1.08 3,378,829
_________ _________
The weighted average exercise price of options outstanding at the end of the
year was 103.93p (2021: 108.48p) and their weighted average contractual life
was 7.1 years (2021: 8 years).
During the year the equity-settled share-based schemes under which options
were granted immediately prior to IPO vested at the end of their 3 year
vesting period. Given the volatility in the share price during the year the
Remuneration Committee agreed to extend the vesting period for the performance
share element of the scheme by a further two years. This modification gave
rise to an increase in the fair value of the Performance Share Plan options,
for which a charge was taken immediately as the original vesting period had
passed.
Of the total number of options outstanding at the end of the year and
following the modification to the options granted prior to IPO, no options had
vested or were exercisable.
Market Value Options were valued using the Black Scholes option pricing
model. Performance Share options granted and modifications made to
pre-existing 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:
2022 2021
Risk free investment 1.06% 0.22% - 0.73%
Expected life 3 2.6
Expected volatility 57.8% 42.8%
The volatility used for the share option grants during the current year was
from a median of peers, including that actually experienced by the group
during the period from the IPO 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 £741,000 in the
year (2021: £560,000), 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 and essensys, Inc,
the Group's principal trading subsidiaries, 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 2022 and 31 July
2021.
29 Capital commitments and contingent liabilities
The Group had no capital commitments or contingent liabilities at 31 July 2022
(2021: £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
2022 2021
£000 £000
Cash flows from operating activities
Loss for the financial year before taxation (11,085) (2,928)
Adjustments for non-cash/non-operating items:
Amortisation of intangible assets 1,268 1,308
Depreciation of property plant and equipment 617 969
Amortisation of loan arrangement fee - 203
Depreciation of right of use assets 1,269 1,205
Impairment of goodwill 122 -
Loss on disposal of fixed assets 36 -
Share based payment expense 741 560
Losses on foreign exchange transactions - (122)
Finance income (94) -
Finance expense 147 127
Other 50 -
_________ _________
(6,957) 1,322
Changes in working capital:
(Increase)/decrease in inventories (2,362) 139
Increase in trade and other debtors (1,155) (93)
Decrease in trade and other creditors 3,685 440
_________ _________
Cash (used by)/from operations (6,789) 1,808
_________ _________
31 B Movement in net debt
Cash and cash equivalents Total
Leases
£000 £000 £000
As at 1 August 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 charges - (127) (127)
Exchange movements (26) 64 38
_________ _________ _________
As at 31 July 2021 36,903 (1,935) 34,968
Lease additions - (1,061) (1,061)
Effect of modifying lease term - (877) (877)
Cashflow (13,374) 1,040 (12,334)
Interest charge - (147) (147)
Exchange movements 593 (148) 445
_________ _________ _________
As at 31 July 2022 24,122 (3,128) 20,944
_________ _________ _________
Cash and cash equivalents Total
Leases
£000 £000 £000
Balances as at 31 July 2022
Current assets 24,122 - -
Current liabilities - (1,469) (1,469)
Non-current liabilities - (1,659) (1,659)
_________ _________ _________
24,122 (3,128) 20,944
_________ _________ _________
Cash and cash equivalents Total
Leases
£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
_________ _________ _________
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. END FR MRBTTMTABTBTRecent news on essensys
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