REG - SysGroup PLC - Final Results for the year ended 31 March 2024
31/07/2024 07:00
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RNS Number : 4792Y SysGroup PLC 31 July 2024
31 July 2024
SysGroup plc
("SysGroup" or the "Group" or the "Company")
Final results for the year ended 31 March 2024
Well positioned for the future with a strong balance sheet to accelerate
growth and innovation
SysGroup plc (AIM:SYS), the technology partner for delivery and management of
cloud, data and security services to power Artificial Intelligence ("AI") and
Machine Learning ("ML") transformation, today announces its annual audited
financial results for the year ended 31 March 2024 ("FY24" or "Period").
Financial Highlights
· Revenue grew 5% to £22.7m (FY23: £21.6m) driven by growth in H2
in cybersecurity
· Recurring revenue as a % of total revenue increased to 76% (FY23:
75%)
· Gross margin declined to 46% (FY23: 50%) due to unmitigated
supplier cost increases combined with a change in product mix
· Adjusted EBITDA(1) £2.0m (FY23: £3.1m(2)) driven by substantial
investment in people and systems to support our new growth strategy coupled
with gross margin decrease
· Statutory loss before tax of £(6.6)m (FY23: £(0.3)m (2)) driven
in part by £1.8m exceptional costs (FY23: £0.4m) including upgrade of the
leadership team, and £3.7m impairment of historic acquisitions (FY23: £nil),
as part of the implementation of the new strategy
· Net debt(3) of £3.4m (FY23: £1.3m); increase due to payment of
Truststream acquisition earn-out and settlement with former CEO
Strategic & Organisational Highlights
· Heejae Chae acquired 14% share interest and was appointed
Executive Chairman
· Repositioned as technology partner for Small Medium Businesses
("SMBs") in their AI and digital transformation
· Replaced 11 senior leaders (including CEO and CFO) with 6 new
talents
· Recruited an AI team of software engineers with extensive
experience in ML and data architecture and a team of cloud experts
· Rebuilding of go-to-market organisation
· Refreshed the Board with seasoned professionals with extensive
and relevant experience
· Achieved AWS Select Tier Service Partner status (Level 2)
· Announced a strategic partnership with Softcat to become their
designated outsource partner for AI/ML offerings
Post Balance Sheet Highlights
· Raised £11.2m in oversubscribed equity placing to fund an
internal transformation project, strengthen the balance sheet to provide for
ongoing working capital requirements and liquidity for acquisitions
· Closed the second largest contract in SysGroup's history
totalling £2.2m over three years
· Progressed to AWS Advanced Tier Service Partners stratus (Level
3) qualifying for fundings and joint sales and marketing
· Authorised as one of only two UK Zscaler Managed Security Service
Partners
1) Adjusted EBITDA is earnings before interest, taxes, depreciation,
impairments and amortization of intangible assets, exceptional items, and
share based payments
2) Includes prior year adjustment. See accounting policies note within
financial statements
3) Net debt represents cash balances less bank loans and leases
liabilities
Heejae Chae, Executive Chairman, SysGroup Group, said:
"Over the past year, the Group has completely transformed its strategy,
execution and leadership. Since acquiring a 14% share and becoming the
Executive Chairman, we have repositioned the Company as the preferred
technology partner for Small Medium Businesses in their AI and digital
transformation efforts. AI will have a significant impact on businesses and
represents a key opportunity for transformation. Our goal is to guide SMBs
through the complex AI value chain and support their transformation journey
from start to finish.
We raised £11.2 million through an oversubscribed equity raise to accelerate
our growth and innovation. We have invested in additional R&D resources,
including offshore capabilities in India and Eastern Europe. In order to
showcase the impact of AI transformation, we are implementing 31 use cases
internally to transform SysGroup to demonstrate the benefits of AI. This will
allow us to serve as a live case study of best practices for our customers and
achieve significant productivity gain. Additionally, we are actively seeking
complementary acquisitions to expand our technical capabilities and customer
base.
I am very excited about the Company's potential and future prospects. AI
will be the transformational technology of our generation and will continue to
gather momentum as the technology improves and benefits are crystallised. As
with any innovation, its adoption will not be a straight line and will follow
a J-curve. Our mission is to inform and support British SMBs which accounts
for 99.2% of total business population in this journey.
For further information, please contact:
SysGroup plc www.sysgroup.com
Heejae Chae, Executive Chairman +44 (0) 333 101 9000
Owen Phillips, Chief Financial Officer
Zeus (Nominated Adviser and Broker) +44 (0) 161 831 1512
Jordan Warburton
Nick Cowles
Alex Campbell-Harris
Nick Searle
About SysGroup
SysGroup plc is a managed service provider of end-to-end data solutions
enabling us to take our customers on their AI data journey. The Group offers
an integrated set of modern technologies that collectively meets our customers
end-to-end data needs including connectivity, cloud hosting, delivery,
analytics and governance of customer data, as well as a security layer for
users and applications.
The Group has offices
in Bristol, Edinburgh, London, Manchester and Newport.
For more information, visit http://www.sysgroup.com
(http://www.sysgroup.com/)
Executive Chairman's statement
Overview
Over the past year, the Group has completely transformed its strategy,
execution and leadership. Since acquiring a 14% share and becoming the
Executive Chairman twelve months ago, we have repositioned the Company as a
preferred technology partner for Small Medium Businesses (SMBs) in their AI
and digital transformation efforts. AI will have a significant impact on
businesses and represents a key opportunity for transformation. Our goal is to
guide SMBs through the complex AI value chain and support their transformation
journey from start to finish.
Trading for the year has been strong with Group revenues increasing 5%
to £22.7m driven by a significant 14% increase in the second half of the
year compared to the same period in FY23. We have continued to maintain the
momentum into the new financial year across all our technology offerings and,
as previously announced, at the end of April, we closed the second largest
contract in SysGroup's history, totalling £2.2m of revenue over three
years. Our AI/ML proposition continues to gain traction amongst both new and
existing customers with a growing pipeline of opportunities.
Our progress has also been recognised by our partners, as evidenced by our
achieving AWS Select Partner Level 3 Status, approval for the Zscaler Global
MSSP Program and our partnership with Softcat plc (one of UK's largest Valued
Added Resellers) to be their ML partner of choice.
We have also received considerable support from existing and new investors and
in June 2024 we closed an oversubscribed placing, subscription and retail
offer that raised just over £11.2m; clear validation of our strategic
direction and affirmation that others share our vision for the business and
the next stage of its growth. The funds raised will be used for a variety of
purposes: (i) approximately £2m of the proceeds will be used to fund our
internal transformation programme, referred to in more detail below; (ii) a
further £2m will be used to meet the contingent earn-out payment in relation
to the acquisition of Truststream back in 2022; and (iii) the remainder has
left us with a strong balance sheet and given us liquidity for the M&A
opportunities we are pursuing.
We have made substantial investment in both in our IT infrastructure and
people during the year and will continue to make these investments. These
include upgrading our SysCloud infrastructure with the latest hardware and
enhancing our internal security architecture with a leading cloud-based
security platform. Approximately £2m of the proceeds from the recent
fundraising are intended to be used to fund an internal transformation project
to provide the Group with systems using AI driven technologies. This will
enable the company to be a true AI adopter and innovator, acting as a live
case study of best practice to our customers. We have completed the
refurbishment of our offices to provide a positive and productive working
environment whilst we continue to operate flexible working practices. Finally,
we announced the closure of our Liverpool office and relocation of the
registered office to Manchester with effect from 1 March 2024.
To support our end-to-end data platform strategy, we have segmented our
technology into five key areas: (i) data analytics and ML (ii) data storage
and management (iii) data connectivity (iv) data engineering and (v)
cybersecurity. We will invest to enhance the existing competencies
organically as well as through acquisitions to fill the gaps in our technology
offerings and have, for example, recruited a team of AI/ML engineers from
industry leaders such as AWS, JP Morgan, Validus and McLaren.
We have significantly strengthened the senior management team, bringing
together the right skillsets and mindsets. Throughout the organisation we are
reinforcing a culture of customer focus and outstanding service underpinned by
innovation, entrepreneurialism and high performance.
Finally, the core business, which has more than 80% recurring revenues,
provides a very solid base from which we can expand, giving us very good
revenue certainty and visibility whilst the investment we are making in the
company will drive growth in future years.
Strategy
Our technology strategy is to build a modern, unified data solution platform
that is as simple for SysGroup to sell and support as it is for our customers
to consume and benefit from. This will comprise of an integrated set of
technologies that collectively meets our customers end-to-end data needs. It
will allow for connectivity, storage, preparation, delivery, analytics and
governance of customer data, as well as a security layer for users and
applications.
Since my appointment I have engaged with various stakeholders including
customers, employees, partners and competitors. These interactions have
provided valuable insights into both industry trends and company-specific
challenges. SysGroup is well positioned to participate in the burgeoning
field of AI/ML, a technology set to redefine our era. AI's prominence is
undeniable, with daily media coverage and increasing demand for AI strategies
at the board level of every company and organisation. AI is here to stay and
will be a powerful tool for those that embrace it.
Factors driving the AI/ML adoption include:
• The growing availability of data, crucial for training AI/ML
algorithms; as the amount of data that companies collect continues to grow, so
does the potential for AI/ML to deliver value.
• The decreasing costs of computing power, making AI/ML models more
accessible across varying company sizes and budgets.
• The increasing sophistication and user-friendliness of AI/ML tools
and technologies.
Our overall strategy is to position SysGroup as the go-to, end-to-end data
solution provider for SMBs embarking on their AI/ML journey. It is clear
from our conversations with our customers that there is a significant gap in
the market: while many SMBs are eager to adopt AI/ML, they often lack a clear
strategy or implementation path. There is a great demand for a partner to
support the development of an AI/ML strategy and transition from current
platforms and solutions. According to a recent IONOS/YouGov study of 4,807
SMB owners across the UK, US, France, Germany and Spain: (i) UK business
leaders have the lowest number of people already using AI frequently for work
(9% compared to 15% average) (ii) only 7% of UK SMBs consider their level of
AI knowledge to be very good compared to 32% in the US (iii) 48% of UK SMBs
state their knowledge of the technology to be fairly poor or very poor and
(iv) 56% of respondents have never used AI tools before in work, the highest
percentage of the countries surveyed. This failure to adopt is not due to a
lack of desire to engage with technology and we see this as a huge opportunity
for our business and its future growth.
Many providers claim to be AI/ML experts but lack the capability to provide an
end-to-end solution. Traditionally, most IT providers specialise in specific
technology stacks: AI/ML strategy requires a holistic approach where the
outcome is delivered from both software and hardware solutions. We know that
a significant proportion of all AI projects fail because they have not taken
this holistic approach, for example, by not defining the correct business case
or not employing appropriate data architecture framed by the right technology
infrastructure. Whilst gaps still exist in our offerings, we believe that we
have the framework to deliver our strategy, underpinned by the relationship
with our customers.
Finally, in order to build the size and scale of business we are looking to
create, we will continue to explore acquisitions with the focus on (i)
expanding capabilities in certain areas of technology expertise as well as
(ii) acquiring companies or businesses that have interesting and relevant
customer bases. Ideally opportunities will satisfy both criteria.
Board and Management Changes
During the financial year, we have refreshed the Board with people with
significant and relevant industry experience to match the expectation and
ambition of the Group. Paul Edwards joined as a Non-Executive Director in
September 2023 and brings extensive plc experience as the CFO of Tatton Asset
Management plc and previously Scapa Group plc and NCC Group plc.
Mark Reilly joined as a Non-Executive Director in December 2023 and is
currently Managing Partner, Technology at IP Group plc. Mark was previously
a Non-Executive Director at Actual Experience plc and Mirriad Advertising
plc.
Owen Phillips joined as Chief Financial Officer in March 2024 from Matillion
Limited, a leading provider of cloud data integration tools. Owen held
various financial management positions in the data/tech sector as well as
working in professional practice at Grant Thornton UK LLP.
Davin Cushman joined as Non-Executive Director in June 2024 and has over 25
years of experience within the technology industry. He served as CEO at
Ignite Technologies, an enterprise software company and founded Brightrose
Ventures to advise, acquire and operate software companies.
Wendy Baker was also appointed as Company Secretary and General Counsel,
providing oversight and guidance on governance. Wendy was previously at
Scapa Group plc, Promethean World plc and Volex Group plc.
We have also enhanced the senior management team with the appointments of
people with relevant experience from leading companies in the sector:
Paul Sullivan was appointed as Chief Technology Officer; Paul was the founder
of Truststream which SysGroup acquired in April 2022.
Heinrich Koorts joined as Chief Revenue Officer from Softcat plc where he
spent the past ten years in London and Bristol.
Ross Humphrey joined as the Chief AI Officer to lead our AI/ML initiative;
Ross has over a decade of experience in Machine Learning as one of the UK's
early adopters during his tenure at JP Morgan and Validus.
Charles Vivian joined as Director of Business Development to support our
M&A strategy; Charles was previously at MXC Capital, Marwyn Capital and
Freshfields Bruckhaus Deringer.
Rebecca Boyle joined as Chief People and Culture Officer; Rebecca has over 20
years HR experience gathered from large plcs such as Boots, Galliford Try and
Punch Taverns and more recently was at Cawood Limited, a private equity backed
buy-and-build.
All these individuals bring invaluable experience and expertise, positioning
SysGroup extremely well for future success.
Finally, we have taken steps to ensure robust corporate governance, reviewing
the board and committees' Terms of Reference and establishing a new Nomination
Committee to ensure that the composition and succession of the board is
reviewed and reflects a balance of skills, knowledge and experience which is
appropriate for the company.
Summary and Outlook
I'm enormously excited about the Company's potential and future prospects.
What gives me the greatest sense of optimism is the people within our
organisation and I wish to extend my thanks to each and every one for their
effort and commitment. Our greatest asset is those people and we are
building an extraordinary team. It is my mission to ensure SysGroup becomes
a place where everyone feels excited and proud to work and I am committed to
creating an environment that inspires people to give their best and strive for
excellence around our core values of Learning, Integrity, Kindness and
Entrepreneurship.
Over the next twelve months we will lead by example, revolutionising our
Company through data and AI. We have already identified 31 transformative
use cases that will significantly enhance our business operations. This is not
just about adopting new tools; it's about reimagining our entire way of doing
business. We will simultaneously be carrying this approach into our customer
engagements as we seek to take them on the same journey to transform their own
organisations and ways of doing business.
We are on the brink of very exciting times for both the market in which we
operate and our organisation and I look forward to taking all our stakeholders
on this journey.
Heejae Chae
Executive Chairman
30 July 2024
Chief Financial Officer's report
Group statement of comprehensive income
The Group delivered revenue of £22.71m (FY23: £21.65m), an increase of 5% on
the prior year, Adjusted EBITDA of £2.01m (FY23: £3.13m) and a statutory
loss before tax of £6.57m (FY23: loss before tax of £0.3m)
Organic growth drove an increase in revenue of 5% year on year, driven by a
14% increase in the second half of the year (compared to the same period
FY23), which offset a (3)% decline in the first half.
Managed IT services revenue was £18.59m (FY23: £17.44m), an increase of 7%
on the prior year, and VAR revenue was £4.12m (FY23: £4.21m), a decrease of
2%. The overall revenue mix stands at 82% managed IT services (including
professional services) and 18% VAR (FY23: 81%:19%).
Revenue by operating segment 2024 2023
£'000 £'000 %
Managed IT Services 18,592 17,441 7%
Value Added Resale 4,122 4,207 -2%
Total 22,714 21,648 5%
Gross profit was £10.40m with a gross margin of 46% (FY23: £10.9m and 50%
respectively). Gross margin has fallen in part due to certain supplier price
rises as well as a change in product mix, driven in particular by an increase
in cyber security revenue following the continued growth of our Truststream's
IT security services business, acquired in 2022, which typically carries a
lower margin than the remaining core managed services offerings.
Gross profit by operating segment 2024 2023*
restated
£'000 £'000 %
Managed IT Services 9,733 10,155 -4%
Value Added Resale 663 747 -11%
Total 10,396 10,902 -5%
Gross profit % by operating segment 2024 2023*
restated
£'000 £'000 %
Managed IT Services 52% 58% -6pp
Value Added Resale 16% 18% -2pp
Total 46% 50% -4pp
See accounting policies note 1 for details.
Operating expenses (before depreciation, amortisation, impairments,
exceptional items and share based payments) of £8.39m were £0.62m higher
than last year (FY23: £7.77m) as the Group underwent substantial investment
in people and systems to support our growth strategy. During the year we also
closed our office in Liverpool, moving the registered address to our
Manchester office.
Adjusted EBITDA was £2.01m for the twelve months to 31 March 2024 (FY23:
£3.13m) which is an Adjusted EBITDA margin of 8.8% (FY23: 14.5%). The lower
margin percentage reflects the reduced gross margin combined with the
additional operating expenses detailed above.
The consolidated income statement includes £1.83m (FY23: £0.41m) of
exceptional costs which include £0.74m costs associated with the CEO exit
settlement, £0.57m relating to costs associated with the restructuring of the
Senior Leadership Team (FY23: £0.19m) and £0.43m relating to supplier
payments in dispute.
Amortisation of intangible assets was £1.70m (FY23: £1.74m) in the year, of
which £1.47m (FY23: £1.56m) relates to the amortisation of acquired
intangible assets from acquisitions and £0.22m (FY23: £0.18m) relates to the
amortisation of software development and licence costs.
Impairment of intangible assets was £3.72m (FY23: £nil) in the year. The
Managed IT Services CGU goodwill is comprised of acquisitions dating from 2016
to 2022. Based upon a prudent assessment of the future performance of these
acquisitions (being the 'Managed IT Services CGU'), management's view is that
the CGU is impaired by £3.72m.
Finance costs increased in the year to £0.57m (FY23: £0.48m) relating to the
loan balance at 31 March 2024 of £4.7m (31 March 2023: £4.7m), mainly from
the increase in bank base rates during the period. Finance costs also include
£0.11m (FY23: £0.13m) of non-cash finance charges for the unwinding of
discount on contingent consideration and the amortisation of the loan
arrangement fee.
The share-based payments charge of £0.19m for the year (FY23: £0.18m)
relates to charges for the share options under the Executive Director LTIP and
Employee Management Incentive schemes.
The reconciliation of operating profit to Adjusted EBITDA is shown in the
table below. The Directors consider that Adjusted EBITDA is the most
appropriate measure to assess the business performance since this reflects the
underlying trading performance of the Group. Adjusted EBITDA is not a
statutory measure and is calculated differently by each Company.
Reconciliation of operating profit to adjusted EBITDA 2024 2023* restated
£'000 £'000
Operating (loss)/profit (5,996) 184
Depreciation 570 625
Amortisation of intangible assets 1,696 1,739
Impairment of intangible assets 3,718 -
EBITDA (13) 2,548
Exceptional items 1,826 408
Share based payments 194 178
Adjusted EBITDA 2,008 3,134
* See accounting policies (note 1) for further details of the restatement
Taxation
The Group has a tax credit of £0.67m this year (FY23: £0.10m) which
principally arises from the deferred tax credit movement in the period. The
corporation tax current credit of £0.08m (FY23: £(0.37)m charge) is as a
result of R&D tax credits claimed this year in relation to the prior year.
The deferred tax movement is a £0.59m credit (FY23: £0.47m credit) due to
the increase in amortisation of acquired intangibles recognised in the
Consolidated Statement of Comprehensive Income.
Cashflow and net debt
The Group's financial position is a net debt position at 31 March 2024 of
£3.40m (31 March 2023: £1.32m). This excludes contingent consideration at 31
March 2024 of £1.75m (31 March 2023: £2.68m). The gross cash balance at 31
March 2024 was £1.94m (FY23: £4.19m). Cash balances have been utilised in
satisfaction of: (i) £0.93m in the Truststream Year 1 earn-out (contingent
consideration) and (ii) £1.50m in settlement of the former CEO's contractual
departure terms including the Company's purchase of 2,076,394 ordinary
SysGroup shares (now held in treasury) following the exercise of share options
and immediate sale of those shares.
Net debt 2024 2023
£'000 £'000
Cash balances 1,943 4,186
Bank loans - current - -
Bank loans - non-current (4,738) (4,705)
Net (debt) before lease liabilities (2,795) (519)
Lease liabilities - property (604) (803)
Net (debt) (3,399) (1,322)
Contingent consideration (1,751) (2,681)
Net (debt) including contingent consideration (5,150) (4,003)
Adjusted cash generated from operations was £2.22m (FY23: £3.43m) and cash
conversion was strong at 111% (FY23: 109%) which compares favourably to the
target cash conversion range of 80-90%. We consider net (debt)/cash to be a
KPI of the business since the level of cash availability and financial
indebtedness of the Group is relevant for Board strategic decisions and a key
financial measure for the Group's shareholder base and potential investors.
Cash conversion 2024 2023*
restated
£'000 £'000
Cashflow from operations 1,104 3,020
Adjustments:
Acquisition, integration and restructuring cashflows 1,117 408
Adjusted cash generated from operations 2,221 3,428
Adjusted EBITDA(1) 2,008 3,134
Cash conversion 111% 109%
( )
( 1) Adjusted EBITDA is earnings before interest, taxation, depreciation,
amortisation of intangible assets, exceptional items, and share based payments
*See accounting policies (note 1) for further details of the restatement
The Consolidated Statement of Cashflows reflects a further £0.89m payment of
contingent consideration relating to the acquisition of Truststream. The
Company also made a further purchase of £0.76m shares into treasury, relating
to the exit settlement terms of the previous CEO. The cash outflow for
property, plant and equipment of £0.45m (FY23: £0.25m) includes expenditure
on various office fit-outs and the payments to acquire intangible assets of
£0.11m (FY23: £0.16m) includes the capitalisation of various software
development costs.
£8.0m revolving credit facility
The Company continues to hold a £8.0m RCF provided by Santander in April
2022, to provide financial flexibility for acquisitions and working capital
requirements. The Group drew down £4.5m of RCF funds to finance the
acquisition of Truststream in FY23. There have been no further drawdowns other
than interest charges.
The banking facility has a five-year term which expires in April 2027 and
carries an interest rate of base rate +3.25% on drawn funds and 1.3% on
undrawn funds. The bank covenants in the RCF are tested quarterly and
calculated on total net debt to Adjusted EBITDA leverage and minimum
liquidity. All bank covenants were met during the year.
Consolidated statement of financial position
At the year end, the Group's total net assets are £14.78m (FY23: £21.24m).
Non-current assets of £24.50m (FY23: £29.98m) include Intangible Assets of
£22.66m (FY23: 27.96m) and Property, Plant and Equipment ('PPE') of £1.85m
(FY23: £1.97m). There were £0.45m of PPE additions relating to office
expenditure. As noted above, an impairment of goodwill in the Managed IT
Services CGU of £3.72m has been recorded in the year. The remaining movement
year on year relates to ordinary amortisation and depreciation.
Working capital was managed well throughout the year with debtor days at the
target level of 25 days at year end and suppliers routinely paid in our
monthly payment runs to agreed terms. The gross trade debtor balance of
£1.58m compares to £1.71m in the previous year despite the increase in
trading revenue. The prepayment balance of £1.85m (FY23: £3.10m restated)
and the contract liabilities balance (i.e. 'deferred income') of £2.78m
(FY23: £4.02m) have both decreased. This is due to the working capital model
of the Truststream business where customers are typically invoiced annually in
advance and costs from suppliers are typically received annually in advance.
Accordingly, the respective income and costs are deferred on the balance sheet
and recognised over the period of the contracts.
Share option grants
During the year, the Remuneration Committee granted 362,709 performance shares
to Adam Binks (former Chief Executive Officer) and 204,024 performance shares
to Martin Audcent (former Chief Financial Officer), in relation the Group's
performance in FY23 under the terms of the 2020 SysGroup Long Term Incentive
Plan. During the year to 31 March 2023, the Remuneration Committee granted
284,010 performance shares to Adam Binks and 170,406 performance shares to
Martin Audcent in relation the Group's performance in FY22 under the terms of
the same plan.
KPIs
The Board of Directors review the performance of the Group using the financial
measures outlined below and an explanation of the financial results is
provided in the Financial Review above.
2024 2023* Change %
restated
Revenue £22.71m £21.65m 5%
Recurring revenue as a % of total revenue 76% 75% 2%
Gross profit £10.40m £10.90m (6)%
Gross margin % 46% 50% (9)%
Adjusted EBITDA(1) £2.01m £3.13m (36)%
Statutory (loss) before tax £(6.57)m £(0.30)m 854%
Net (debt)(2) £(3.40)m £(1.32)m 157%
* See accounting policies (note 1) for further details of the restatement
(1) Adjusted EBITDA is earnings before interest, taxation, depreciation,
amortisation of intangible assets, impairment, exceptional items, and share
based payments
(2) Net (debt) represents cash balances less bank loans and lease liabilities
Owen Phillips
Chief Financial Officer
30 July 2024
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2024
2024 2023*
Restated
Group Group
Notes £'000 £'000
Revenue 4 22,714 21,648
Cost of sales (12,318) (10,746)
Gross profit 10,396 10,902
Operating expenses before depreciation, amortisation, exceptional items and (8,388) (7,768)
share based payments
Adjusted EBITDA** 2,008 3,134
Depreciation 14 (570) (625)
Amortisation of intangibles 13 (1,696) (1,739)
Impairment of intangibles 13 (3,718) -
Exceptional items 8 (1,826) (408)
Share based payments 9 (194) (178)
Administrative expenses (16,392) (10,718)
Operating (loss) / profit (5,996) 184
Finance costs 6 (574) (483)
(Loss) before taxation (6,570) (299)
Taxation 12 670 98
Total comprehensive (loss) attributable to the equity holders of the company (5,900) (201)
Adjusted earnings per share (EPS)*** 11 2.1p 3.5p
Basic earnings per share (EPS) 11 (12.1)p 0.0p
Diluted earnings per share (EPS) 11 (12.1)p 0.0p
* See accounting policies (note 1) for further details of the restatement
** Adjusted EBITDA, which is defined as profit before net finance costs, tax,
depreciation, amortisation, impairments, shared based payment charge and
adjusting items is a non-GAAP metric used by management and is not an IFRS
disclosure
*** Adjusted Basic EPS is profit after tax after adding back amortisation of
intangible assets, impairments, exceptional items, share based payments and
associated tax, divided by the weighted average number of shares in issue.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2024
2024 2023*
Restated
Group Group
Notes £'000 £'000
Assets
Non-current assets
Goodwill 13 17,948 21,666
Intangible assets 13 4,708 6,295
Property, plant and equipment 14 1,846 1,966
24,502 29,927
Current assets
Trade and other receivables 16 4,003 4,813
Cash and cash equivalents 1,943 4,186
5,946 8,999
Total Assets 30,448 38,926
Equity and Liabilities
Equity attributable to the equity shareholders of the parent
Called up share capital 21 515 494
Share premium reserve 9,080 9,080
Treasury reserve (984) (201)
Other reserve 3,300 3,205
Retained earnings 2,856 8,657
14,767 21,235
Non-current liabilities
Lease liabilities 19 400 621
Contract liabilities 20 143 383
Contingent consideration 17 - 1,875
Provisions 18 148 191
Deferred taxation 12 849 1,434
Bank loan 19 4,738 4,705
6,278 9,209
Current liabilities
Trade and other payables 17 4,813 3,861
Lease liabilities 19 204 182
Contract liabilities 20 2,635 3,633
Contingent consideration 17 1,751 806
9,403 8,482
Total Equity and Liabilities 30,448 38,926
* See accounting policies (note 1) for further details of the restatement
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2024
Attributable to equity holders of the parent
Share capital Share premium account Treasury reserve Other reserve Translation reserve Retained earnings* Total*
Restated Restated
£'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 April 2022 494 9,080 (201) 3,027 4 8,854 21,258
Comprehensive income
Loss for the period - - - - (4) (197) (201)
Total Comprehensive income - - - - (4) (197) (201)
Distributions to owners
Share options charge - - - 178 - - 178
Total Distributions to owners - - - 178 - - 178
At 31 March 2023 494 9,080 (201) 3,205 - 8,657 21,235
As at 1 April 2023 494 9,080 (201) 3,205 - 8,657 21,235
Comprehensive income
Loss for the period - - - - - (5,900) (5,900)
Total Comprehensive income - - - - - (5,900) (5,900)
Distributions to owners
Issue of share capital 21 - - - - - 21
Purchase of own shares into Treasury - - (783) - - - (783)
Share options charge - - - 194 - - 194
Reserves transfer on forfeiture of share options - - - (99) - 99 -
Total Distributions to owners 21 - (783) 95 - 99 (568)
At 31 March 2024 515 9,080 (984) 3,300 - 2,856 14,767
* See accounting policies (note 1) for further details of the restatement
CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED 31 MARCH 2024
2024 2023*
Restated
Group Group
Notes £'000 £'000
Cashflows used in operating activities
(Loss) after tax (5,900) (201)
Adjustments for:
Depreciation and amortisation 13,14 2,266 2,364
Impairment of intangibles 13 3,718 -
Finance costs 6 574 483
Share based payments 194 178
Taxation (credit)/charge 12 (670) (98)
Operating cashflows before movement in working capital 182 2,726
Increase/decrease in trade and other receivables 819 (543)
Increase in trade and other payables 103 837
Cashflow from operations 1,104 3,020
Taxation paid (439) (303)
Net cash from operating activities 665 2,717
Cashflows from investing activities
Payments to acquire property, plant and equipment 14 (450) (252)
Payments to acquire intangible assets 13 (109) (163)
Acquisition of subsidiary net of cash acquired 10 - (5,389)
Net cash used in investing activities (559) (5,804)
Cashflows from financing activities
Payment of contingent consideration on acquisitions (885) -
Bank loans drawdown - 4,500
Payment of bank loan arrangement fee - (127)
Repayment of bank loans - (582)
Repurchase of shares into treasury (762) -
Capital/principal paid on lease liabilities (199) (303)
Interest paid on loan facility (475) (316)
Interest paid on lease liabilities (28) (32)
Net cash (used in) / from financing activities (2,349) 3,140
Net (decrease) / increase in cash and cash equivalents (2,243) 53
Cash and cash equivalents at the beginning of the year 4,186 4,133
Cash and cash equivalents at the end of the year 1,943 4,186
* See accounting policies (note 1) for further details of the restatement
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
1. Accounting policies
SysGroup Plc (the 'Company') is a Company incorporated and domiciled in the
United Kingdom. The Company changed its registered office during the year to
55 Spring Gardens, Manchester M2 2BY. These consolidated financial statements
comprise the Company and its subsidiaries (together referred to as the
'Group').
Statement of compliance
This consolidated financial information does not comprise statutory accounts
within the meaning of section 434 of the Companies Act 2006. The comparative
figures for the financial year ended 31 March 2023 are an extract of the
Company's statutory accounts for the year ended 31 March 2023, prepared in
accordance with International Financial Reporting Standards (IFRS), approved
by the Board of Directors on 23 June 2023 and delivered to the Registrar of
Companies. The report of the auditor on those accounts was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under section 498 (2) or (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 March 2024 will be delivered to
the Registrar of Companies following the Company's Annual General Meeting. The
Auditors have reported on those accounts; their report was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under section 498 (2) or (3) of the Companies Act 2006.
These Group financial statements have been prepared in accordance with UK
adopted international accounting standards ('endorsed IFRS') and with those
parts of the Companies Act 2006 applicable to companies preparing their
accounts under endorsed IFRS. The Company financial statements have been
prepared in accordance with Financial Reporting Standard 101 (FRS 101)
'Reduced Disclosure Framework' issued by the Financial Reporting Council
(FRC). While the financial information included in this annual financial
results announcement has been prepared in accordance with the recognition and
measurement principles of international accounting standards in conformity
with the requirements of Companies Act 2006, this announcement does not
contain sufficient information to comply with IFRS and FRS 101.
Basis of preparation - Group
The principal accounting policies adopted in the preparation of the Financial
Statements are set out below. The policies have been consistently applied to
all the years presented, unless otherwise stated. The consolidated financial
statements have been prepared under the historical cost basis, except for the
revaluation of certain financial liabilities and share based payments which
have been valued in accordance with IFRS9 and IFRS2 respectively.
The preparation of financial statements in compliance with IFRS requires the
use of certain critical accounting estimates. It also requires Group
management to exercise judgement in applying the Group's accounting policies.
The areas where significant judgements and estimates have been made in
preparing the financial statements and their effect are disclosed in note 2.
The financial statements are presented in pounds sterling, rounded to the
nearest thousand, unless otherwise stated.
Basis of preparation - Company
The Company financial statements are prepared under the historical cost
convention, except for certain financial instruments that are measured at fair
value. The company's financial statements are presented in pounds sterling
(£), which is also the functional currency of the company.
The preparation of financial statements in conformity with FRS 101 requires
the use of certain critical accounting estimates and assumptions. It also
requires management to exercise its judgment in applying the company's
accounting policies. Significant judgments and estimates are disclosed in the
relevant notes to the financial statements.
The company has elected to take advantage of certain disclosure exemptions
available under FRS 101, including:
· A cash flow statement and related notes under IAS 7 'Statement of
Cash Flows'
· Certain disclosures required by IFRS 7 'Financial Instruments:
Disclosures'
· Disclosures in respect of the fair value of financial instruments
under IFRS 13 'Fair Value Measurement'
Restatement of Cost of sales
We have identified an error relating to Managed IT services direct expenses
not being recognised for the year ended 31 March 2023 within the subsidiary:
SysGroup Trading Limited. Expenses were recognised as prepayments rather than
in the statement of comprehensive income. The total impact of this error is to
increase cost of sales by £193,678 and to decrease prepayments (shown within
Trade and other receivables) by the same amount. There is no impact on
comparative earnings per share as a result of this correction.
2023 Restatement 2023*
Restated
£'000 £'000 £'000
Consolidated Statement of Comprehensive Income
Cost of Sales (10,552) (194) (10,746)
Total comprehensive (loss) attributable to the equity holders of the company (7) (194) (201)
Consolidated Statement of Financial Position and Statement of Changes in
Equity
Trade and other receivables 5,007 (194) 4,813
Retained earnings 8,851 (194) 8,657
Shareholder funds 21,429 (194) 21,235
Consolidated Statement of Cashflows
(Loss) after tax (7) (194) (201)
Increase in trade and other receivables (737) (194) (543)
Going concern
The Directors have prepared the financial statements for the Group and the
Company on a going concern basis which assumes that the Group and the Company
will continue to meet liabilities as they fall due.
The Directors have reviewed the Base business forecast and a Sensitised
version for the period to 31 July 2025 .
The Group raised £10.6m net funds from a placing in June 2024. In the Base
forecast there is considered ample headroom in the bank covenants, due to both
the proceeds of this placing and as the business continues to operate with a
high level of cash conversion and a reducing level of net debt. In the
Sensitised forecast, which includes assumptions for a significant decline in
revenue and profits, the Group maintains positive gross cash balances, reduces
net debt and stays within the bank covenants. The Group has a business model
with a high degree of financial resilience since circa 80% of revenue is
derived from contracted managed IT services which is a continuous and business
critical service supply to customers. This provides a high level of operating
cash generation.
At 31 March 2024, the Group had a gross cash balance of £1.9m and a net debt
position excluding contingent consideration of £3.4m, excluding contingent
consideration of £1.8m. The Group has a £0.5m unused overdraft facility and
£3.3m of undrawn headroom in its RCF Loan facility (at the year-end date and
the date of issue of these financial statements) which is available for
working capital and acquisitions.
The forecasts, the resultant cashflows, together with the RCF loan facilities,
taking account of reasonably possible changes in trading performance, show
that the Group can continue to operate within the current facilities available
to it.
The Directors therefore have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable
future and thus they continue to adopt the going concern basis of accounting
in preparing the financial statements.
New standards and interpretations
A number of new standards and amendments to standards and interpretations have
been issued during the year ended 31 March 2024. The Group has adopted all of
the new and revised standards and interpretations issued that are relevant to
its operations. Other new amended standards and interpretations issued that
apply to the financial statements do not impact the Group as they are either
not relevant to the Group's activities or require accounting which is
consistent with the Group's current accounting policies.
New standards not yet effective
There are a number of standards and amendments to standards, and
interpretations which have been issued and in some cases not yet adopted by
the UK Endorsement Board that are effective in future accounting periods that
the Group has decided not to adopt early. SysGroup plc is currently assessing
the impact of these new standard and amendments. The Group does not expect any
other standards issued by the IASB, but not yet effective, to have a material
outcome on the Group.
IFRS16 - Leases
The group has no activities acting as a lessor. The group recognises right of
use assets in relation to the lease of office space and equipment.
Lease liabilities Land & Buildings Plant & Machinery Total
£'000 £'000 £'000
At 1 April 2023 803 - 803
Additions - - -
Disposal - - -
Interest expense 28 - 28
Lease payments (227) - (227)
At 31 March 2024 604 - 604
Repayment of lease liabilities are analysed as follows: 2024
£'000
Due within 1 year 204
Instalments due after 1 year but no more than 5 years 400
Instalments due after 5 years -
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. The
interest rate used was 4%. 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.
Right of use assets Land & Buildings Plant & Machinery Total
£'000 £'000 £'000
At 1 April 2023 996 - 996
Additions - - -
Disposals - - -
Depreciation (245) - (245)
At 31 March 2024 751 - 751
Right of use assets 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 the commencement of the lease;
· initial direct costs incurred; and
· the amount of any provision recognized where the group is
contractually required to dismantle, remove or restore the leased asset
(typically leasehold dilapidations - see note 18 to the Financial Statements).
The property lease rentals are fixed payments over the rental terms.
Basis of consolidation
Where the Company has control over an investee, it is classified as a
subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee; exposure to variable returns
from the investee; and the ability of the investor to use its power to affect
those variable returns. Control is re-assessed whenever facts and
circumstances indicate that there may be a change in any of these elements of
control.
The consolidated financial statements present the results of the Company and
its subsidiaries ('the Group') as if they formed a single entity. Intercompany
transactions and balances between Group companies are therefore eliminated in
full.
The consolidated financial statements incorporate the results of business
combinations using the acquisition method. In the statement of financial
position, the acquirer's identifiable assets, liabilities and contingent
liabilities are initially recognised at their fair values at the acquisition
date. The results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is obtained.
They are deconsolidated from the date on which control ceases.
Business combinations
All business combinations are accounted for by applying the purchase method.
On acquisition, all the subsidiaries' assets and liabilities that exist at the
date of acquisition are recorded at their fair values reflecting the
conditions at that date. The results of subsidiaries acquired in the period
are included in the income statement from the date on which control is
obtained.
Goodwill
Goodwill represents the excess of the cost of a business combination over the
total acquisition date fair value of the identifiable assets, liabilities and
contingent liabilities acquired. Goodwill is not amortised but is capitalised
as an intangible asset with any impairment in carrying value being charged to
the consolidated statement of comprehensive income. In determining the fair
value of consideration, the fair value of equity issued is the market value of
equity at the date of completion, and the fair value of contingent
consideration is based on the expected future cashflows based on whether the
Directors believe performance conditions will be met and thus the extent to
which the further consideration will be payable. Where the fair value of
identifiable assets, liabilities and contingent liabilities exceed the fair
value of consideration paid, the excess is credited in full to the
consolidated statement of comprehensive income on the acquisition date.
Impairment of non-financial assets
Impairment tests on goodwill and other intangible assets with indefinite
useful economic lives are undertaken annually at the financial year end. Other
non-financial assets are subject to impairment tests whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable. Where the carrying value of an asset exceeds its recoverable
amount (i.e. the higher of value in use and fair value less costs to sell),
the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the asset's cash-generating unit
(i.e. the lowest Group of assets in which the asset belongs for which there
are separable identifiable cash flows that are largely independent of the cash
flows from the other assets or Groups of assets). Goodwill is allocated on
initial recognition to each of the Group's cash-generating units that are
expected to benefit from the synergies of the combination giving rise to the
goodwill.
The estimated future cash flows are discounted to their present value using a
post-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the consolidated statement of comprehensive income. The results of
foreign subsidiaries that have a functional currency different from the
Group's presentation currency are translated at the average rates of exchange
for the year. Assets and liabilities of foreign subsidiaries that have a
functional currency different from the Group's presentation currency, are
translated at the exchange rates prevailing at the balance sheet date.
Exchange differences arising from the translation of the results of foreign
subsidiaries and their opening net assets are recognised as a separate
component of equity.
Revenue
Revenue is recognised to the extent that it is probable that the economic
benefits associated with the transaction will flow into the Group and revenue
represents the fair value of amounts received or receivable for goods and
services provided net of trade discounts and VAT.
The Group has three principal categories of performance obligation: managed
services, professional services and value-added resale. All customer sales are
signed as contracts or orders which separately specify the services and
products to be delivered and these are mapped to one of the three revenue
recognition categories. The contracts or orders specify, by service and
product, the sales price and the contracted term of the services. As such, the
separate performance obligations and allocation of transaction price can be
identified clearly from the customer sales contracts.
The revenue recognition policies can be summarised as follows:
Revenue category Performance delivery Revenue recognition
Managed services Contracted managed services are delivered from an agreed commencement date and Revenue is recognised evenly over the duration of the contract period based on
for a contracted term of one to three years. Managed services comprises the sales price as specified in the customer sales contract. This is on the
multiple streams of service including cloud hosting and support and operating basis that the customer receives and consumes the services evenly over the
licences. Due to the nature of this revenue the streams are considered term of the contract. Amounts invoiced in advance of service delivery periods
inter-dependant. The services are delivered uniformly over the duration of the are accounted for as contract liabilities and recognised as revenue in the
contract and invoiced annually, quarterly or monthly in advance of the service Consolidated Statement of Comprehensive Income to match the period in which
delivery period. the services are delivered.
Professional services Professional services are delivered by a team of technical consultants based Revenue is recognised based on chargeable days delivered using the sales day
on a scope of work agreed and signed with a customer. The scope of work rate specified in the customer contract. Revenue recognition is therefore
includes a specification of the work to be delivered, an estimation of the matched to the timing of when the customer receives the benefit of the
number of consultancy days required, and a sales value based on a day rate. consultancy services which is in line with the day the work is performed.
Professional services are invoiced either in advance of work performed, in Professional services are either invoiced in arrears for the actual days
arrears after the service is delivered or as part of a larger project contract delivered or invoiced in advance. When invoiced in advance, the sales value is
milestone. treated as contract liabilities and recognised as revenue in the Consolidated
Statement of Comprehensive Income in the period in which the consultancy days
are delivered.
Value added resale Value added resale ('VAR') comprises sales of IT hardware and licences where Revenue is recognised on delivery of the products from the supplier. Invoices
the Group satisfies its performance obligation by procuring the products from are typically raised in advance of delivery and treated as contract
suppliers for delivery to the customer. There are no further or ongoing liabilities until delivery has been fulfilled. At this point the revenue and
obligations to the Group after delivery. The sales price for each product is associated purchase cost is recognised in the Consolidated Statement of
separately specified in the customer sales contract. VAR sales are either Comprehensive Income.
invoiced in full in advance of delivery or invoiced according to an agreed
contract milestone if part of a larger contract.
For managed services and professional services revenue, these are recognised
over time as the entity's performance does not create an asset with an
alternative use to the entity and the entity has an enforceable right to
payment for performance completed to date.
Note that some contracts with customers combine a mix of managed services,
professional services and value-added resale. When this is the case,
performance obligations are identified and recognised in line with the
policies described above.
Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. The chief operating
decision maker has been identified as the Board of Directors.
Alternative profit measures
In reporting its results, the Directors have presented various alternative
profit measures (APMs) of financial performance, position or cashflows, which
are not defined or specified under the requirements of IFRS. On the basis that
these measures are not defined by IFRS, they may not be directly comparable
with other companies. The key APMs that the group uses include recurring
revenue as a percentage of revenue, Adjusted EBITDA, Adjusted EPS and Net
cash.
The Group makes certain adjustments to the statutory profit in order to derive
many of these APMs. These include exceptional items and share based payments.
The group presents as exceptional items on the face of the Statement of
Comprehensive Income those material items of income and expense which the
Directors consider, because of their size or nature and expected
non-recurrence, merit separate presentation to facilitate financial comparison
with prior periods and to assess trends in financial performance. Exceptional
items are included in Administration expenses in the Consolidated Statement of
Comprehensive Income but excluded from Adjusted EBITDA as management believe
they should be considered separately to gain an understanding of the
underlying profitability of the trading businesses on a consistent basis from
year to year.
Financial instruments
Financial instruments are classified and accounted for, according to the
substance of the contractual arrangement, as either financial assets,
financial liabilities or equity instruments. An equity instrument is any
contract that evidences a residual interest in the assets of the Company after
deducting all of its liabilities.
Financial assets
The Group's financial assets comprise trade and other receivables and cash and
cash equivalents in the consolidated statement of financial position. Trade
receivables are stated at their nominal value and an expected lifetime credit
loss will be recognised using the simplified approach and shown in
administrative expenses in the Consolidated Statement of Comprehensive Income.
Impairment reviews for other receivables, including those due from related
parties, use the general approach whereby twelve month expected credit losses
are provided for and lifetime credit losses are only recognised where there
has been a significant increase in credit risk, by monitoring the credit
worthiness of the other party. Cash and cash equivalents include cash in hand.
Contract assets
Costs incurred to fulfil a contract are recognised as an asset if and only if
all of the following criteria are met:
· the costs relate directly to a contract (or a specific
anticipated contract);
· the costs generate or enhance resources of the entity that will
be used in satisfying performance obligations in the future; and
· the costs are expected to be recovered.
These include costs such as direct labour, direct materials, and the
allocation of overheads that relate directly to the contract.
The asset recognised in respect of the costs to obtain or fulfil a contract is
amortised on a systematic basis that is consistent with the pattern of
transfer of the goods or services to which the asset relates.
Share capital
Financial instruments issued by the Group are classified as equity only to the
extent that they do not meet the definition of a financial liability or
financial asset. The Group's ordinary shares are classified as equity
instruments and are recorded at the proceeds received, net of direct issue
costs. Proceeds of any share issue in excess of the nominal value of the share
capital is recognised within the share premium account.
Financial liabilities
The Group classifies its financial liabilities into one of two categories,
depending on the purpose for which it was acquired. The Group's accounting
policy for each category is as follows:
Fair value through profit or loss
This category comprises only contingent consideration. They are carried in the
statement of financial position at fair values with changes in fair value
recognised in the consolidated income statement.
Other financial liabilities
Other financial liabilities include trade payables and other short-term
monetary liabilities, which are initially recognised at fair value and
subsequently carried at amortised cost using the effective interest rate
method.
Fair value measurement hierarchy
IFRS 9 requires certain disclosures which require the classification of
financial assets and financial liabilities measured at fair value to reflect
the significance of the inputs used in making the fair value measurement. The
fair value hierarchy has the following levels:
(a) Quoted prices in active markets for identical assets or liabilities
(Level 1);
(b) Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices) (Level 2); and
(c) Inputs from the asset or liability that are not based on observable
market data (Level 3).
The level in the fair value hierarchy within which the financial asset or
financial liability is categorised is determined on the basis of the lowest
level input that is significant to the fair value measurement. Financial
assets and financial liabilities are classified in their entirety into only
one of the three levels.
Share based payments
The fair value of employee options, along with any share warrants granted, is
charged to the consolidated statement of comprehensive income with a
corresponding increase in equity. The fair value is measured at grant date and
spread over the period during which the employees become unconditionally
entitled to the options. The fair value of the options granted is measured
using the Black Scholes pricing model, considering the terms and conditions
upon which the options were granted. The fair value of warrants is also
reviewed to the extent that exercise of the warrants is considered likely.
Property plant and equipment
Items of property, plant and equipment are stated at cost less depreciation.
Depreciation is provided at annual rates calculated to write off the cost less
estimated residual value of each asset over its expected useful life, as
follows:
Office equipment - 20% - 33% straight line
Motor vehicles - 25% straight line
Freehold property - 2% straight line
Right of use assets - over the period of the lease
Investment in subsidiaries
Fixed asset investments in the parent company are shown at cost less any
provision for impairment as necessary.
Research and development
Research expenditure is written off to the consolidated statement of
comprehensive income in the year in which the expenditure occurs. Development
expenditure is treated in the same way unless the Directors are satisfied as
to the technical, commercial and financial viability of individual projects,
there is an intention to complete and sell the product and the costs can be
easily measurable. In this situation, the expenditure is capitalised, and the
amortised expense is included in administrative expenses in the Consolidated
Statement of Comprehensive Income over the years during which the Group is to
benefit.
Intangible assets
Intangible assets are recognised on business combinations if they are
separable from the acquired entity or give rise to other contractual/legal
rights. The amounts ascribed to such intangibles are arrived at by using
appropriate valuation techniques (see section related to critical estimates
and judgements below).
The significant intangibles recognised by the Group, their estimated useful
economic lives and the methods used to determine the cost of intangibles
acquired in business combinations are as follows:
Intangible asset Estimated UEL
Customer relationships 5-10 years
Software licenses 3-5 years
System development 5 years
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the consolidated statement of financial position
differs from its tax base, except for differences arising on:
· the initial recognition of goodwill;
· the initial recognition of an asset or liability in a transaction
which is not a business combination and at the time of the transaction affects
neither accounting or taxable profit; and
· investments in subsidiaries and jointly controlled entities where
the Group is able to control the timing of the reversal of the difference and
it is probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it
is highly probable that relief against taxable profit will be available.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the reporting date and are expected
to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either the same taxable Group Company; or different Group
entities which intend either to settle current tax assets and liabilities on a
net basis, or to realise the assets and settle the liabilities simultaneously,
in each future period in which significant amounts of deferred tax assets or
liabilities are expected to be settled or recovered.
Deferred tax liabilities are recognised on intangible assets and other
temporary differences recognised in business combinations.
2 Significant accounting estimates and judgements
The preparation of this financial information requires management to make
estimates and judgements that affect the amounts reported for assets and
liabilities at the period end date and the amounts reported for revenues and
expenses during each period. The nature of the estimation or judgement means
that actual outcomes could differ from the estimates and judgements taken in
the preparation of the financial statements.
Significant accounting estimates
Impairment of goodwill and other intangibles
The Group tests goodwill for impairment annually and in line with the stated
accounting policy. This involves judgement regarding the future development of
the business and the estimation of the level of future profitability and cash
flows to support the carrying value of goodwill.
An impairment review has been performed at the reporting date taking into
account sensitivities around future business performance, covering a range of
outcomes and risks over levels of revenue, cost and cash generation.
Following this review an impairment of the IT Managed Services CGU of £3.7m
has been recorded (see note 13 for details).
Valuation of intangible assets acquired in business combinations
Determining the fair value of customer relationships acquired in business
combinations requires estimation of the value of the cash flows related to
those relationships and a suitable discount rate in order to calculate the
present value.
Impairment of investments (Company)
The Company holds investments in subsidiaries. In line with the Company
accounting policies investments are assessed for impairment when there is an
impairment trigger.
An impairment review has been performed at the reporting date considering
sensitivities around future business performance, covering a range of outcomes
and risks over levels of revenue, cost and cash generation. Following this
review an impairment of the investment in SysGroup Trading Limited of £7.6m
has been recorded (see note 15 for details).
Significant accounting judgements
Revenue
Management makes judgements in determining the appropriate application of
revenue recognition policies to the sale of services and products. An
explanation of the Group's revenue recognition policy is included in note 1.
Assessment of CGU's and carrying value of intangible assets
A CGU is the smallest identifiable group of assets that generate cash inflows
that are largely independent of the cash inflows from other assets or groups
of assets and the Board of Directors use their judgement to identify the CGUs
of the Group. When SysGroup acquire a company, the newly acquired business is
usually allocated its own CGU for the first year and until such time as either
the business and assets have been hived up into the main SysGroup trading
company or when the systems, finances and management of the business have been
successfully integrated, whichever is earlier. For the current year, there are
two CGUs, being the legacy SysGroup managed services acquisitions which
operate as one CGU, and then Truststream.
Useful economic lives of intangible assets
Intangible assets are amortised over their useful economic lives. Useful lives
are based on management's estimates of the period over which the assets will
generate revenue, which are periodically reviewed for continued
appropriateness. Changes to estimates can result in changes in the carrying
values and hence amounts charged to the income statement in particular periods
which could be significant. The Group have capitalised system development
expenditure in the current year and the intangible asset is being amortised
over a five-year useful life which the Directors consider appropriate.
IFRS16 - Leases
Management makes judgements in their assessment of lease contract agreements
to ensure the appropriate lease accounting recognition under IFRS16 - Leases.
The main elements of judgement are:
· Determining the inherent rate of interest which
applies to each lease or family of leases with similar characteristics;
· Establishing whether or not it is reasonably
certain that an extension option will be exercised; and
· Considering whether or not it is reasonably
certain that a termination option will not be exercised.
Exceptional costs
The classification of costs as being exceptional, and their quantum is viewed
as a key management judgement. For details of exceptional costs in the year
see note 8.
3 Financial instruments - risk management
The Group's financial instruments comprise cash and liquid resources and
various items such as trade receivables and trade payables that arise directly
from its operations. There have been no substantive changes in the Group's
objectives, policies and processes for managing those risks or the methods
used to measure them from previous periods. The Group's objective is to ensure
adequate funding for continued growth and expansion.
All the Group's financial instruments are carried at amortised cost with the
exception of contingent consideration. There is no material difference
between the carrying and fair value of its financial instruments, in the
current or prior year, due to the instruments bearing interest at fixed rates
or being of short-term nature.
The Group faces a financial risk that such financial assets are not recovered
but a provision is made where recoverability is in doubt.
A summary of financial instruments held by category is shown below:
Group Company
2024 2023 2024 2023
Financial Assets £'000 £'000 £'000 £'000
Assets held at amortised cost
Cash and cash equivalents 1,943 4,186 119 401
Amounts due from subsidiaries - - - 323
Trade receivables 1,577 1,706 - -
Total financial assets 3,520 5,892 119 724
Group Company
2024 2023 2024 2023
Financial Liabilities £'000 £'000 £'000 £'000
Amortised cost
Trade and other payables 4,472 2,801 805 632
Amounts due to subsidiaries - - 5,830 3,099
Loans and other borrowings 5,341 5,508 4,830 4,851
9,813 8,309 11,465 8,582
At fair value
Contingent consideration 1,751 2,681 1,751 2,681
Total financial liabilities 11,564 10,990 13,216 11,263
Contingent consideration £'000
At 1 April 2023 2,681
Payment of year 1 earn-out consideration (885)
Fair value adjustment of liability (117)
Unwinding of discount 72
At 31 March 2024 1,751
Fair value of financial instruments
The Group has adopted the following fair value hierarchy in relation to its
financial instruments that are carried in the balance sheet at the fair values
at the year-end:
· Quoted prices (unadjusted) in active markets for identical assets
or liabilities (level 1)
· Inputs other than quoted prices included within
level 1 that are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level 2)
· Inputs for the asset or liability that are not
based on observable market data (unobservable inputs) (level 3)
The following table sets out the fair value of all financial assets and
liabilities that are measured at fair value:
2024 2023
Group and Company Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000 £'000 £'000
Liabilities measured at fair value
Contingent consideration - - 1,751 - - 2,681
Total - - 1,751 - - 2,681
Contingent consideration is included in Level 3 of the fair value hierarchy.
The provision for contingent consideration is in respect of the Truststream
acquisition, further details of which can be found in Note 10. The fair value
is determined considering the expected payments, discounted to present value
using a risk adjusted discount rate.
The significant unobservable inputs were the financial performance forecasts
for the Year 1 and Year 2 twelve-month periods post-acquisition and the risk
adjusted discount rate of 4.0%.
The estimated fair value would increase or decrease if the EBITDA was higher
or lower or the risk adjusted discount rate was higher or lower. A reasonably
possible change to one of these significant unobservable inputs, holding the
other inputs constant, would have the following effects:
Group and Company Increase Decrease
Effect of change in assumption on income statement £'000 £'000
EBITDA movement by £100,000 66 300
Risk-adjusted discount rate change by 1.0% - -
Note that as the Truststream year 2 financial position is final, there is now
no judgement in the estimated payment.
Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
finance charges and principal repayments on its debt instruments. It is the
risk that the Group will encounter difficulty in meeting its financial
obligations as they fall due.
The Group prepare cashflow forecasts during the month and working capital
forecasts on a monthly basis. These allow the Directors to make an assessment
of the cash position and the future requirements of the Group to manage
liquidity risk. Cash resources are managed in accordance with planned
expenditure forecasts and the Directors have regard to the maintenance of
sufficient cash resources to fund the Group's operating requirements and
capital expenditure.
The following table sets out the contractual maturities (representing
undiscounted contractual cashflows) of financial liabilities:
Group Up to 3 months Between 3 & 12 months Between Between 2&5 years Over 5 years
1&2 years
At 31 March 2024 £'000 £'000 £'000 £'000 £'000
Trade and other payables 4,472 - - - -
Loans and borrowings 51 153 400 4,783 -
Contingent consideration 1,751 - - -
Total 4,523 1,904 400 4,738 -
At 31 March 2023
Trade and other payables 2,801 - - - -
Loans and borrowings 46 137 621 4,705 -
Contingent consideration 806 - 1,875 - -
Total 3,653 137 2,496 4,705 -
Company Up to 3 months Between 3 & 12 months Between Between 2&5 years Over 5 years
1&2 years
At 31 March 2024 £'000 £'000 £'000 £'000 £'000
Trade and other payables 805 - - - -
Amounts due to subsidiaries 5,830 - - - -
Loans and borrowings 11 31 50 4,738 -
Contingent consideration - 1,751 - - -
Total 6,646 1,782 50 4,738 -
At 31 March 2023
Trade and other payables 632 - - - -
Amounts due to subsidiaries 3,099 - - - -
Loans and borrowings 15 43 88 4,705 -
Contingent consideration 806 - 1,875 - -
Total 4,552 43 1,963 4,705 -
The Amounts due to subsidiaries shown in 'up to 3 months' category in the
table above are payable on demand (Note 17 to the Financial Statements).
Interest rate risk
The Group and Company finance their operations through a combination of
retained profits and bank borrowings. The Group's RCF Bank loan with Santander
has an interest charge of 3.25% above bank base rate and accordingly the
interest charge the Group incurs fluctuates according to any movement in the
bank base rates.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group's receivables from
customers. The Group's exposure to credit risk is influenced mainly by the
individual characteristics of each customer. The Group receives payments
either from automated banking receipts or from customers paying on direct
debit or 30-day credit terms. The Group has a dedicated credit control
function to manage customer payments and uses an external credit rating agency
to assess customers and prospects for creditworthiness. Doubtful debts are
provided for in accordance with IFRS9. For cash and cash equivalents, the
Group only uses recognised banks with high credit ratings of a negative or
above on the Standard & Poor's rating system.
Foreign exchange risk
A small number of suppliers invoice in USD. Foreign exchange exposure is
closely managed, including holding limited funds in USD. Alternate suppliers
invoicing in GBP are also sought where suitable.
Capital disclosures
The Group monitors capital which comprises all components of equity (i.e.
share capital, share premium and retained earnings).
The Group's objective when maintaining capital are to safeguard the entity's
ability to continue as a going concern, so that it can provide returns for
shareholders in future periods and benefits for other stakeholders, and to
provide an adequate return to shareholders by pricing products and services
commensurately with the level of risk. The Group sets the amount of capital it
requires in proportion to risk. The Group manages its capital structure and
adjusts it in the light of changes in economic conditions and the risk
characteristics of the underlying assets.
4 Segmental analysis
The chief operating decision maker for the Group is the Board of Directors.
The Group reports in two segments:
· Managed IT Services - this segment provides all forms of managed
services to customers and includes professional services.
· Value Added Resale (VAR) - this segment provides all forms of VAR
sales where the business sells products and licences from supplier partners.
The monthly management accounts reported to the Board of Directors are
reviewed at a consolidated level with the operating segments representative of
the business model for growth of recurring contract income in Managed IT
Services and VAR sales as a complementary business activity. The Board review
the results of the operating segments at a revenue and gross profit level
since the Group's management and operational structure supports both
operational segments as Group functions. In this respect, assets and
liabilities are also not reviewed on a segmental basis. All assets are located
in the UK. All segments are continuing operations and there are no
transactions between segments.
2024 2024 2023 2023
Revenue by operating segment £'000 % £'000 %
Managed IT Services 18,592 82% 17,441 81%
Value Added Resale 4,122 18% 4,207 19%
Total 22,714 100% 21,648 100%
No individual customer accounts for more than 7% of the Group's revenue.
The revenue by geographic location for where services are delivered to
customers is shown below.
2024 2024 2023 2023
£'000 % £'000 %
UK 22,573 99% 21,608 100%
Rest of World 141 1% 40 -
22,714 100% 21,648 100%
2024 2023*
Restated
£'000 £'000
Revenue
Managed IT Services 18,592 17,441
Value Added Resale 4,122 4,207
Total 22,714 21,648
Gross Profit
Managed IT Services 9,733 10,155
Value Added Resale 663 747
Total 10,396 10,902
* See accounting policies (note 1.) for further details of the restatement
Assets and liabilities related to contracts with customers
The Group has recognised the following assets and liabilities related to
contracts with customers:
2024 2023
£'000 £'000
Contract liabilities relating to deposits from customers 2,778 4,016
Release of contract liability recognised in revenue which was included in the 1,509 1,163
contract liability balance at the beginning of the year
There were no sales between the two business segments, and all revenue is
earned from external customers. The business segments' gross profit is
reconciled to profit before taxation as per the consolidated income statement.
The Group's overheads are managed centrally by the Board and consequently
there is no reconciliation to profit before tax at a segmental level . The
Group's assets are also managed centrally by the Board and consequently there
is no reconciliation between the Group's assets per the Statement of Financial
Position and the segment assets.
5 Operating profit
2024 2023
£'000 £'000
Operating profit is after charging the following:
Audit - Group 116 94
Audit - Company 5 4
Assurance related - interim review 12 12
Auditor's remuneration 133 110
Depreciation of tangible fixed assets 570 625
Amortisation of intangible assets 1,696 1,739
Impairment of intangible assets 3,718 -
Staff costs (note 7) 5,763 5,566
Share based payments (note 7, 9) 194 178
Short term lease costs 20 40
Exceptional items (note 8) 1,826 408
6 Finance expense
2024 2023
£'000 £'000
Interest payable on bank loan 440 307
Unwind of discounting on contingent consideration 72 105
Interest payable on lease liabilities 28 32
Arrangement fee amortisation on bank loan 34 29
Other interest - 10
574 483
7 Staff numbers and costs
The average monthly number of full-time persons employed by the Group,
including Executive Directors during the year was:
2024 2023
Technical Support 70 70
Sales and Marketing 23 18
Administration 18 20
Total 111 108
The aggregate payroll costs including Executive Directors and excluding
Non-Executive Directors were as follows:
2024 2023
£'000 £'000
Wages and salaries 5,034 4,793
Social security costs 520 547
Benefits in kind 41 55
Pension benefits 168 171
Share based payment expense 194 178
Total 5,957 5,744
Total staff costs for the Company are £5,957,000 (FY23: £5,744,000) and
average staff numbers for the Company are 111 (FY23: 108).
2024 2023
Directors £'000 £'000
Fees and salaries 970 662
Social security costs 101 69
Benefits in kind 29 3
Pension benefits contributions 17 18
Share based payment expense 162 132
Total 1,279 884
Key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the Group, they are
the Directors of the Company. The emoluments, including any contractual
settlement fees, of the highest paid Director are £504,038 (FY23: £329,000).
Total payments for loss of office amounted to £449,200 (FY23: £nil).
The Group does not operate a defined benefits pension scheme and Executive
Directors who are entitled to receive pension contributions may nominate a
defined contribution scheme into which the Company makes pension
contributions. The fees relating to Non-Executive Directors are in some
cases payable to third parties in connection with the provision of their
services. The balance outstanding at 31 March 2024 was nil (FY23: £Nil).
8 Exceptional items
2024 2023
£'000 £'000
CEO exit and settlement 744 -
Integration and restructuring costs 571 189
Supplier charges in dispute 434 -
M&A projects 194 -
Acquisition costs - 219
Fair value adjustment of contingent consideration liability (117)
Total 1,826 408
CEO exit and settlement relates to the settlement of the former CEO's
contractual terms. This is considered material and non-recurring and has
therefore been classified as exceptional.
The integration and restructuring costs relate to costs associated with the
restructuring of the Senior Leadership Team. This includes exit and hiring
expenses related to senior team members as well as wider restructuring
expenses within supporting teams. This is considered non-recurring and has
therefore been classified as exceptional.
The supplier charges in dispute are subject to ongoing action for which the
company is pursuing recovery. This is considered non-recurring and has
therefore been classified as exceptional.
The M&A projects expenditure relate to costs associated with the
evaluation of potential acquisition targets. This is considered material and
has therefore been classified as exceptional.
The adjustment to the contingent consideration liability relates to the
purchase of Truststream Security Solutions Limited in the prior year. This
is considered non-recurring and has therefore been classified as exceptional.
In 2023, the acquisition and integration costs relate to the two acquisitions
in April 2022, Truststream Security Solutions Limited and Independent Network
Services Limited (trading as 'Orchard IT'). This is considered material and
has therefore been classified as exceptional.
All of the items above, based upon the judgement of the management team, meet
the definition of an exceptional item as defined within the Group's accounting
policies (note 2 - Alternative Performance Measures).
9 Share based payments
The Company has granted share options to the Executive Directors under LTIP
Schemes and Group employees under an EMI Scheme. The Directors have the
discretion to grant options to subscribe for ordinary shares up to a maximum
of 10 per cent of the Company's issued share capital. For new share options
issued in the year, the volatility was estimated using the previous twelve
months of the Group's share price.
EMI Scheme
Share options can be granted to employees of the Group at the discretion of
and with approval from the Remuneration Committee. For EMI share options to
vest the employee must be employed by the Group at the vesting date. The
weighted average exercise price of options in issue is 42.0p per share.
No. of Ordinary Shares
Grant date Exercise period Exercise price At 31 March 2023 Granted Waived At 31 March 2024
17/03/2014 17/03/17 to 16/03/24 60.0p - - - -
21/02/2016 21/02/19 to 20/02/26 55.2p 11,875 - (6,875) 5,000
02/03/2018 02/03/21 to 01/03/28 35.5p 30,000 - (30,000) -
26/11/2018 26/11/21 to 25/11/28 42.5p 215,000 - (65,000) 150,000
16/04/2020 16/04/23 to 15/04/30 27.0p 150,000 - (150,000) -
06/04/2021 06/04/24 to 05/04/31 41.0p 206,000 - (75,000) 131,000
01/07/2021 01/07/24 to 30/06/31 1.0p 100,000 - (100,000) -
14/02/2022 14/02/25 to 13/04/32 26.0p 30,000 - (30,000) -
19/04/2023 19/04/26 to 18/04/36 28.5p - 30,000 (30,000) -
Total 742,875 30,000 (486,875) 286,000
The inputs to the share valuation model utilised at the grant of the option is
shown in the table below. Management has determined volatility using their
knowledge of the business. The options have been valued using the Black
Scholes method and using the following assumptions:
Number of instruments granted 11,875 30,000 215,000 150,000 206,000 100,000 30,000 30,000
Grant date 21-Feb16 02-Mar18 26-Nov18 16-Apr20 06-Apr21 01-Jul21 14-Feb22 19-Apr23
Expiry date 20-Feb26 01-Mar28 25-Nov28 15-Apr30 05-Apr31 30-Jun31 13-Feb32 18-Apr33
Contract term (years) 10 10 10 10 10 10 10 10
Exercise price 55.2p 35.5p 42.5p 27.0p 41.0p 1.0p 26.0p 28.5p
Share price at granting 70.8p 35.5p 42.5p 27.0p 41.0p 42.0p 26.0p 31.0p
Annual risk-free rate (%) 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 4.0% 4.0%
Annual expected dividend yield (%) 0% 0% 0% 0% 0% 0% 0% 0%
Volatility (%) 27% 27% 27% 27% 27% 27% 41% 41%
Fair value per grant instrument 30.2p 41.5p 17.9p 14.8p 26.0p 14.3p 15.0p 17.0p
Executive LTIP options
The Remuneration Committee is responsible for establishing the Executive LTIP
Schemes and also sets the targets by which the performance of the Executive
Directors is measured. The award of share options to the Executive Directors
is governed by the LTIP Scheme Rules. Further information on the Schemes is
presented in the Directors' Remuneration report. The weighted average exercise
price of options in issue is 1.0p per share.
No. of Ordinary Shares
Grant date Exercise period Exercise price At 31 March 2023 Granted Exercised At 31 March 2024
28/06/2018 28/06/21 to 27/06/28 1.0p 750,000 - (750,000) -
16/07/2018 16/07/21 to 15/07/28 1.0p 450,000 - - 450,000
15/07/2019 15/07/22 to 14/07/29 1.0p 400,000 - (250,000) 150,000
08/07/2020 08/07/22 to 07/07/30 1.0p 400,000 - (250,000) 150,000
21/06/2021 21/06/23 to 20/06/31 1.0p 287,480 - (179,675) 107,805
21/06/2022 21/06/24 to 20/06/32 1.0p 454,416 - (284,010) 170,406
17/04/2023 17/04/25 to 16/04/33 1.0p - 566,733 (362,709) 204,024
Total 2,741,896 566,733 (2,076,394) 1,232,235
The inputs to the share valuation model utilised at the grant of the option is
shown in the table below. Management has determined volatility using their
knowledge of the business. The options have been valued using the Black
Scholes method and using the following assumptions:
Number of instruments granted 750,000 450,000 400,000 400,000 287,480 454,416 566,733
Grant date 28-Jun-18 16-Jul-18 15-Jul-19 08-Jul-20 21-Jun-21 21-Jun-22 17-Apr-23
Expiry date 27-Jun-28 15-Jul-28 14-Jul-29 07-Jul-30 20-Jun-31 20-Jun-32 16-Apr-33
Contract term (years) 10 10 10 10 10 10 10
Exercise price 1.0p 1.0p 1.0p 1.0p 1.0p 1.0p 1.0p
Share price at granting 41.5p 46.5p 42.0p 33.0p 42.0p 27.0p 27.5p
Annual risk-free rate (%) 0.5% 0.5% 0.5% 0.5% 0.5% 4.0% 4.0%
Annual expected dividend yield (%) 0% 0% 0% 0% 0.0% 0.0% 0.0%
Volatility (%) 27% 27% 27% 27% 27% 41% 41%
Fair value per grant instrument 40.9p 43.7p 41.4p 32.0p 41.0p 26.0p 26.0p
On 26 May 2023, it was announced that Adam Binks would be stepping down as
Chief Executive Officer and the Board on 26 June 2023.The Board agreed that
the 826,394 unvested options granted to Adam Binks under the Company's 2020
LTIP Scheme would vest with immediate effect with all restrictions on all his
options waived. Adam Binks agreed to immediately exercise all his options
granted under the 2018 and 2020 LTIP schemes, totalling 2,076,394 ordinary
shares of 1p each ('Ordinary Shares') and further agreed to sell, and the
Company agreed to buy, a total of 2,076,394 Ordinary Shares at a price of
£0.375 per Ordinary Share. The Company will hold these Ordinary Shares in
treasury to satisfy the exercise of future share options under SysGroup's
share incentive schemes.
The share-based payment charge in the statement of comprehensive income in the
year was £194,000 (2023: £178,000).
10 Acquisitions
The Group has not made any acquisitions in the year to 31 March 2024. In
April 2022 of the prior year, SysGroup plc acquired 100% of the issued share
capital in Truststream Security Solutions Limited ('Truststream') and
Independent Network Solutions Limited ('INSL', holding company of Orchard
Computers Limited).
Truststream Security Solutions Limited
Established in 2011 and based in Edinburgh, Truststream is one of the UK's
fastest growing providers of professional and managed cyber security services.
Truststream covers all aspects of cyber security from analysis and threat
detection, through protection architecture and implementation, to incident
response and ongoing 24/7 support and training. The Acquisition further
enhances SysGroup's service offering and is complementary to the Group's core
expertise and key areas of focus. In addition, the Acquisition enables the
Group to further strengthen its UK presence by opening up Scotland as an
attractive hub for the Group.
SysGroup acquired Truststream on 4 April 2022 for £4.8m initial cash
consideration on a cash-free debt-free basis with an earn-out payable
following the first and second anniversaries of the transaction of up to
£3.1m. A payment of £0.5m was paid in respect of the cash and debt balances.
The earn-out is subject to the achievement of certain maintainable EBITDA
performance targets in the first and second 12-month periods following the
completion of the acquisition. £0.9m has been paid to date in relation to the
first earn out period and a further £1.8m is held as Contingent consideration
at 31 March 2024. Final earn out is expected to be
settled and paid within 12 months of the balance sheet date.
The Truststream acquisition was mainly funded from a new £8.0m revolving
credit facility ('RCF') which was signed with Santander on 4 April 2022.
SysGroup utilised £4.5m of funds from the RCF to finance the acquisition.
Further information on the RCF facility can be found in note 19 to the
Consolidated Financial Statements.
Recognised amounts of net assets acquired, and liabilities assumed Book Value FV Adj Fair Value
£'000 £'000 £'000
Cash and cash equivalents 550 - 550
Trade and other receivables 1,783 - 1,783
Property, plant and equipment 1 - 1
Intangible assets - 2,525 2,525
Trade and other payables (1,776) (24) (1,800)
Corporation tax (117) - (117)
Deferred tax - (631) (631)
Identifiable net assets 2,311
Goodwill 5,602
Total net assets 7,913
Satisfied by:
Cash consideration - paid on acquisition 5,337
Contingent consideration 3,075
Discounting of contingent consideration (499)
Total consideration 7,913
Independent Network Solutions Limited ('INSL')
INSL is the holding company of Orchard Computers Limited ('Orchard') which is
a business based in Bristol. Orchard has been in operation for over 30 years
and has built a loyal customer base largely in the South West of England and
across a broad range of sectors, covering both the private and public sectors.
Its managed IT service offering mirrors that of SysGroup, providing high
quality consulting services and building tailor made, vendor agnostic
solutions, designed specifically to meet individual customer needs, followed
by ongoing support.
SysGroup acquired INSL on 26 April 2022 for £1.0m cash consideration on a
cash-free debt-free basis. There is no contingent or deferred consideration
for this acquisition. The cash consideration was funded from the Group's
existing cash balances.
Recognised amounts of net assets acquired and liabilities assumed Book Value FV Adj Fair Value
£'000 £'000 £'000
Cash and cash equivalents 398 - 398
Trade and other receivables 311 (15) 296
Property, plant and equipment 32 (32) -
Intangible assets - 1,028 1,028
Trade and other payables (385) (435) (820)
Bank loan (82) - (82)
Corporation tax (63) (5) (68)
Deferred tax (5) (257) (264)
Identifiable net assets 490
Goodwill 510
Total net assets 1,000
Satisfied by:
Cash consideration - paid on acquisition 1,000
Total consideration 1,000
The Directors have considered the intangible assets acquired with the two
acquisitions and have recognized intangible assets for customer relationships
which have been calculated using a discounted cashflow method, based on the
estimated level of profit to be generated from the customer bases acquired. A
post tax discount rate of 9.40% was used in the valuations and the customer
relationships are being amortised over an estimated useful life of 7 years for
Truststream and 10 years for Orchard. The goodwill arising on both
acquisitions are attributable to the technical skills of the workforce and
cross-selling opportunities achievable from combining the acquired customer
bases and trade with the existing Group.
The goodwill and intangible assets of Truststream have been allocated to a new
CGU named 'Truststream' and the goodwill and intangible assets of Orchard have
been allocated to the CGU 'IT Managed Services'. See Note 13 for further
details. The Company incurred £218,000 of professional fees and other
acquisition costs in relation to the two acquisitions in the year to 31 March
2023. These costs are included as Exceptional costs in the Group's
consolidated statement of comprehensive income.
Truststream contributed to Group revenue £6.3m (2023: £4.9m) and £0.4m
(2023: £0.3m) profit before tax for the year to 31 March 2024. Orchard was
acquired on 26 April 2022 under a lock box mechanism which fixed the financial
returns to the Group from 1 April 2022. Orchard trading was fully hived into
SysGroup Trading Limited for the year to 31 March 2024. Orchard contributed
£1.8m to Group revenue and £0.1m profit before tax for the year to 31 March
2023.
11 Earnings per share
2024 2023*
Restated
(Loss) for the financial year attributable to shareholders (£5,900,000) (£201,000)
Adjusted profit for the financial year £1,010,000 £1,723,000
Weighted number of issued equity shares 48,923,389 48,859,690
Weighted number of equity shares for diluted EPS calculation 50,710,251 52,274,633
Adjusted basic earnings per share (pence) 2.1p 3.5p
Basic earnings per share (pence) (12.1)p 0.0p
Diluted earnings per share (pence) (12.1)p 0.0p
2024 2023*
Restated
£'000 £'000
(Loss) after tax used for basic earnings per share (5,900) (201)
Amortisation of intangible assets 1,696 1,739
Impairment of intangible assets 3,718 -
Exceptional items 1,826 408
Share based payments 194 178
Tax adjustments (524) (401)
Adjusted profit used for Adjusted Earnings per Share 1,010 1,723
*See accounting policies (note 1) for further details of the restatement
12 Taxation
2024 2023
Current tax £'000 £'000
Current tax - current year - 374
Adjustments in respect of prior years (84) -
Total current tax charge (84) 374
Deferred tax
Deferred tax - timing differences (609) (472)
Adjustments in respect of prior years 23 -
Total deferred tax (586) (472)
Total tax (credit) (670) (98)
The effective tax rate for the year to 31 March 2024 is higher (2023: higher)
than the standard rate of corporation tax in the UK. The differences are
explained below:
2024 2023*
Restated
£'000 £'000
(Loss) on ordinary activities before tax (6,570) (299)
(Loss)/profit on ordinary activities before taxation multiplied by the (1,642) (57)
standard rate of UK corporation tax of 25% (2023:19%)
Effects of:
Expenses not deductible 274 92
Income not taxable 899 -
Short term timing differences 374 136
R&D tax credits - (29)
Re-measurement of deferred tax due to changes in UK rate - (66)
Deferred tax on share based 31 32
Deferred tax on acquired intangibles (368) (206)
Adjustments in respect of prior years (61) -
Other permanent differences (177) -
Total tax credit (670) (98)
* See accounting policies (note 1) for further details of the restatement
The Group recognised deferred tax assets and liabilities as follows:
2024 2023
£'000 £'000
Deferred tax on customer relationships (1,042) (1,421)
Deferred tax asset on share-based payments 100 166
Fixed asset timing differences (196) (225)
Short term timing differences 21 -
Losses 268 (46)
Deferred tax liability (849) (1,434)
Recognition of deferred tax assets is restricted to those instances where it
is highly probable that relief against taxable profit will be available. There
are no unrecognised deferred tax assets.
Deferred tax balances are recognised at 25% (2023: 25%):
Losses Fixed asset timing differences Short term timing differences Share based payments Customer relationships Total
£'000 £'000 £'000 £'000
Balance at 1 April 2023 46 (225) - 166 (1,421) (1,434)
DT on share-based payments (31) (31)
DT on amortisation of intangibles 35 368 403
Fixed asset and other timing differences 222 (7) 22 (35) 11 213
Balance at 31 March 2024 268 (197) 22 100 (1,042) (849)
13 Intangible assets
Systems Development Software licences Customer relationships Positive goodwill Total
Group cost £'000 £'000 £'000 £'000 £'000
At 1 April 2022 1,073 205 9,156 15,554 25,988
Additions 163 - 3,553 6,112 9,828
Disposals (225) (205) - - (430)
At 31 March 2023 1,011 - 12,709 21,666 35,386
At 1 April 2023 1,011 - 12,709 21,666 35,386
Additions 109 - - - 109
Disposals - - - - -
Impairment - - - (3,718) (3,718)
At 31 March 2024 1,120 - 12,709 17,948 31,777
Accumulated amortisation
At 1 April 2022 404 205 5,507 - 6,116
Charge for the year 177 - 1,562 - 1,739
Disposals (225) (205) - - (430)
At 31 March 2023 356 - 7,069 - 7,425
At 1 April 2023 356 - 7,069 - 7,425
Charge for the year 224 - 1,472 - 1,696
Disposals - - - - -
At 31 March 2024 580 - 8,541 - 9,121
Net book value
At 31 March 2023 655 - 5,640 21,666 27,961
At 31 March 2024 540 - 4,168 17,948 22,656
Systems Development Total
Company cost £'000 £'000
At 1 April 2022 - -
Additions 28 28
At 31 March 2023 28 28
Additions 37 37
At 31 March 2024 65 65
Accumulated amortisation
At 1 April 2022 - -
Charge for the year 2 2
At 31 March 2023 2 2
Charge for the year 16 16
At 31 March 2023 18 18
Net book value
At 31 March 2023 26 26
At 31 March 2024 47 47
All amortisation and impairment charges are included in the depreciation,
amortisation and impairment of non-financial assets classification, which is
disclosed as administrative expenses in the statement of comprehensive income.
Customer relationships have a remaining amortisation period of between 2 and 5
years.
Cash-generating units ('CGUs')
Goodwill and intangible assets are allocated to CGUs in order to be assessed
for potential impairment. The Group has a core CGU of 'Managed IT Services'
and as the Group acquires new businesses they form their own CGU until they
have been integrated into the Group's core operational structure.
The Group has a Senior Leadership Team that manages the SysGroup business
within a single operational and delivery structure. Whilst the Truststream
business has been integrated within the SysGroup leadership structure and onto
the Group system platforms, the business continues to operate its own cash
transactions and balances and therefore remains a distinct cash generating
unit of the Group. As such, the Directors consider Truststream to be a
separate CGU.
The allocation of goodwill and carrying amounts of assets for each CGU is as
follows:
Allocation of goodwill Carrying value of assets
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Managed IT Services 16,064 16,064 17,213 19,366
Truststream Security Solutions 5,602 5,602 6,583 6,698
Total 21,666 21,666 23,796 26,064
Impairment review
When assessing impairment, the recoverable amount of each CGU is based on
value-in-use calculations (VIU). VIU calculations are an area of material
management estimate as set out in note 2. These calculations require the use
of estimates, specifically: post-tax cash flow projections; long-term growth
rates; and a post-tax discount rate. Cash flow projections are based on the
Group's detailed annual operating plan for the forthcoming financial year
which has been approved by the Board.
The VIU calculation is determined based on a discounted cash flow basis
prepared for each individual cash generating unit. Cash flows beyond the
forthcoming financial year use estimated growth rates which are stated below.
The assumptions for growth rates and margins are based on management's
experience of growth and knowledge of the industry sector, markets and our own
internal opportunities for growth. The projections beyond five years use an
estimated long-term growth rate of 2.0% (FY22: 2.5%) for net post tax cash
flows. This represents management's best estimate of a long-term annual growth
rate aligned to an assessment of long-term GDP growth rates. A higher
sector-specific growth rate would be a valid alternative estimate. A different
set of assumptions may be more appropriate in future years dependent on
changes in the macroeconomic environment.
The discount rates used are based on management's calculation of the WACC
using the capital asset pricing model to calculate the cost of equity. The
same rate is used for each CGU in the VIU calculation, and the rates reflect
management's assessment on the level of relative risk in each respective CGU.
Discount rates can change relatively quickly for reasons both inside and
outside management control. Those outside management direct control or
influence include changes in the Group's Beta, changes in risk free rates of
return and changes in Equity Risk Premia. Matters inside management control
are the delivery of performance in line with plans or budgets and the
production of high or low risk plans.
At the year-end reporting date, goodwill was reviewed for impairment in
accordance with IAS 36 'Impairment of Assets' and an impairment of the Managed
IT Services CGU of £3.7m has been recorded. No impairment of the Truststream
CGU arose because of this review.
Legacy Managed IT Services CGU
The Managed IT Services CGU goodwill is comprised of acquisitions dating from
2016 to 2022, as listed below:
System Professional - 2016
Rockford IT - 2017
Certus IT - 2019
Hub Network - 2020
Orchard IT - 2022
Based upon a prudent assessment of the future performance of these
acquisitions (being the "Managed IT Services CGU"), management's view is that
the CGU is impaired by £3.7m. The VIU model is sensitive to changes in key
assumptions, including revenue growth. If year 1 revenue growth were to reduce
to 0%, then the impairment would increase by a further £4.9m, assuming no
changes in other assumptions. Management is comfortable with the revenue
growth rate used in the VIU model.
Truststream CGU
The Truststream CGU has over 18% headroom of VIU compared to the carrying
value of assets. For the headroom to reduce to nil, the post-tax discount rate
would have to increase to over 11.8% on Truststream or future CGU profits
would have to be significantly below current forecast levels.
The VIU model for the Truststream GGU is particularly sensitive to changes in
two key assumptions, being year 1 revenue and gross margin %. Year 1 revenue
growth would have to drop by 4.7% from the base for there to be an impairment
of goodwill. As an example, If the revenue growth rate were to drop by 10%
then there would be an impairment of £2.7m (assuming all other assumptions
remain in line). Further, gross margin % would have to drop 1.0% from the base
for there to be an impairment of goodwill. Management is comfortable with the
revenue growth rate and gross margin % used in the VIU model.
The assumptions used for the impairment review are detailed below:
Legacy Managed IT Services Truststream
2024
Discount rate post-tax 10.3% 10.3%
Revenue growth rate year 2 to year 5 3.5% 6.0%
Terminal growth rate 2.0% 2.0%
2023
Discount rate post-tax 10.7% 10.7%
Revenue growth rate year 2 2.5% 10.0%
Revenue growth rate year 3 to year 5 2.5% 2.5%
Terminal growth rate 2.0% 2.5%
14 Property, plant and equipment
Office Equipment Right of Use Lease Freehold Property Total
Cost £'000 £'000 £'000 £'000
At 1 April 2022 2,744 2,181 382 5,307
Additions 249 935 - 1,184
Disposals (1,793) (1,851) - (3,644)
At 31 March 2023 1,200 1,265 382 2,847
At 1 April 2023 1,200 1,265 382 2,847
Additions 450 - - 450
Disposals - - - -
At 31 March 2024 1,650 1,265 382 3,297
Accumulated depreciation
At 1 April 2022 2,014 1,790 25 3,829
Charge for the year 358 259 8 625
Disposals (1,793) (1,780) - (3,573)
At 31 March 2023 579 269 33 881
At 1 April 2023 579 269 33 881
Charge for the year 317 245 8 570
Disposals - - - -
At 31 March 2024 896 514 41 1,451
Net book value
At 31 March 2023 621 996 349 1,966
At 31 March 2024 754 751 341 1,846
Office Equipment Right of Use Lease
Total
Company cost £'000 £'000 £'000
At 1 April 2022 320 346 666
Additions 150 47 197
Disposals (298) - (298)
At 31 March 2023 172 393 565
At 1 April 2023 172 393 565
Additions 163 - 163
Disposals - - -
At 31 March 2024 335 393 728
Accumulated depreciation
At 1 April 2022 278 134 412
Charge for the year 56 70 126
Disposals (298) - (298)
At 31 March 2023 36 204 240
At 1 April 2023 36 204 240
Charge for the year 82 76 158
Disposals - - -
At 31 March 2024 118 280 398
Net book value
At 31 March 2023 136 189 325
At 31 March 2024 217 113 331
15 Investments
2024 2023
Company £'000 £'000
At start of year 34,034 24,895
Acquisitions - 8,913
Investment in subsidiaries - 226
Impairment (7,635) -
At 31 March 26,399 34,034
The recoverable amounts have been determined from discounted cash flow
calculations based on cash flow projections from the forecasts covering the
period to 31 March 2026. The principal assumptions can be found in note 13.
In line with the rationale and conclusions drawn in note 13 regarding the
Legacy Managed IT Services CGU, an impairment of the SysGroup Trading Limited
investment of £7.6m is required and has been recorded in the period.
Following this impairment, the investment balance in SysGroup Trading Limited
is £18.5m. The remaining balance of £7.9m relates to Truststream Security
Solutions Limited.
The Company's subsidiary undertakings all of which are wholly owned and
included in the consolidated accounts are:
Undertakings Registration Principal activity
SysGroup Trading Limited England & Wales Managed IT Services
Truststream Security Solutions Limited Scotland Managed IT Services
Certus IT Limited England & Wales Non-trading
Hub Network Services Limited England & Wales Non-trading
Netplan LLC* USA Non-trading
Orchard Computers Limited England & Wales Dormant
Independent Network Solutions Limited England & Wales Non-trading
Netplan Internet Solutions Limited England & Wales Dormant
Rockford IT Limited England & Wales Dormant
System Professional Limited England & Wales Dormant
SysGroup (DIS) Limited England & Wales Dormant
* Netplan LLC is a wholly owned subsidiary of Netplan Internet Solutions
Limited
The registered office of all subsidiaries is the same as the registered office
of the parent Company with the exception of:
Netplan LLC
Truststream Security Solutions Limited
whose registered office
is:
whose registered office is:
c/o USA Corporate Services Inc 8th
Floor, Sugar Bond House
19 West 34th Street, Suite 1018,
Anderson Place, Leith, Edinburgh
New York,
10001
Scotland EH6 5NP
16 Trade and other receivables
Group Company Group Company
2024 2024 2023* 2023
Restated
Amounts due within one year £'000 £'000 £'000 £'000
Trade debtors 1,577 - 1,706 -
Amounts due from subsidiaries - - - 323
Other debtors 26 - - 81
Corporation tax asset 84 - - -
Prepayments and accrued income 2,316 105 3,107 221
Total 4,003 105 4,813 625
Amounts due from subsidiaries are due on demand and incur no interest.
The carrying value of trade and other receivables approximates to their fair
value.
Group Company Group Company
2024 2024 2023 2023
Debtor impairment £'000 £'000 £'000 £'000
Trade debtors 1,692 - 1,979 -
Impairment provision (115) - (273) -
Total 1,577 - 1,706 -
The Group have applied the simplified approach to calculate its impairment of
trade receivables. In completing this review, the Group have segregated its
receivables into categories based on the number of days past due for each
invoice and used this to estimate the expected lifetime credit loss, with the
historic credit losses being adjusted for expected forward cashflows given the
current economic environment.
Group Company
Current Over 1 month past due Total Current Over 1 month past due Total
£'000 £'000 £'000 £'000
Trade debtors 610 1,082 1,692 - - -
Expected credit loss - (115) (115) - - -
Net carrying amount 610 967 1,577 - - -
* See accounting policies (note 1) for further details of the restatement
17 Trade and other payables
Group Company Group Company
2024 2024 2023 2023
Amounts due within one year £'000 £'000 £'000 £'000
Trade payables 3,132 293 1,813 110
Amounts due to subsidiaries - 5,830 - 3,099
Accruals 1,340 512 988 522
Total financial liabilities, excluding loans and borrowings measured at 4,472 6,635 2,801 3,731
amortised cost
Corporation tax - - 438 -
Other taxes and social security costs 341 82 622 132
Total 4,813 6,717 3,861 3,863
Amounts due to subsidiaries are due on demand and incur no interest charge.
Contingent consideration Group Company Group Company
2024 2024 2023 2023
Amounts due within one year £'000 £'000 £'000 £'000
Contingent consideration 1,751 1,751 806 806
Amounts due after one year
Contingent consideration - - 1,949 1,949
Discounted value - - (74) (74)
Discounted contingent consideration - - 1,875 1,875
The contingent consideration is stated at its discounted fair value and is
expected to be paid following the completion of the Year 2 earn-out period.
To the extent trade payables and other payables are not carried at fair value
in the consolidated balance sheet, book value approximates to fair value at 31
March 2024 and 31 March 2023. The maturity of the financial liabilities,
excluding loans and borrowings, classified as financial liabilities and
measured at amortised cost is shown in note 3.
18 Provisions
Group Company Group Company
2024 2024 2023 2023
£'000 £'000 £'000 £'000
Dilapidations provision 148 68 191 68
Total 148 68 191 68
The provision is for the estimated aggregate cost of returning the Group's
offices to their original condition on
the expiry and exit of the property leases. Currently the leases extend to
between 2026 and 2028.
19 Loans and borrowings
Group Company Group Company
2024 2024 2023 2023
Non- current £'000 £'000 £'000 £'000
Lease liabilities 400 49 621 88
Bank loan 4,738 4,738 4,705 4,705
Total 5,138 4,787 5,326 4,793
Group Company Group Company
2024 2024 2023 2023
Current £'000 £'000 £'000 £'000
Lease liabilities 204 43 182 58
Bank loan - - - -
Total 204 43 182 58
The company has an RCF banking facility with a term of five years to April
2027, an interest rate of Base Rate +3.25% margin on drawn funds and covenants
that will be tested quarterly relating to total net debt to Adjusted EBITDA
leverage and minimum liquidity. The Group drew down £4.5m of RCF funds for
the Truststream acquisition in April 2022.
20 Contract liabilities
Group Company Group Company
2024 2024 2023 2023
Contract liabilities £'000 £'000 £'000 £'000
Current - contract liabilities 2,635 - 3,633 -
Non-current - contract liabilities 143 - 383 -
Total 2,778 - 4,016 -
21 Share capital
Group and Company Number £'000
Allotted, called up and fully paid ordinary shares of £0.01 each
At 1 April 2022 49,419,690 494
At 31 March 2023 49,419,690 494
Issue of share capital 2,076,394 21
At 31 March 2024 51,496,084 515
22 Reconciliation of net cashflow movements in net debt
1 April 2023 Non cashflow movements Cashflow Right of use Movement Maturity reclass 31 March 2024
£'000 £'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 4,186 - (2,243) - - 1,943
Debt due in less than one year:
Bank loans - - - - - -
Contingent consideration (806) (79) 885 - (1,751) (1,751)
Lease liabilities (182) - 199 - (221) (204)
Debt due in more than one year
Bank loans (4,705) (33) - - - (4,738)
Contingent consideration (1,875) 124 - - 1,751 -
Lease liabilities (621) - - - 221 (400)
Net cash/(debt) (4,003) (65) (1,082) - - (5,150)
The maturity reclass movements show the change in classification of the debt
item maturity periods due to contractual changes or new contracts incepted in
the year.
23 Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties of the Company, have been eliminated on consolidation and are not
disclosed in this note. Details of the transactions between the Group and
other related parties are disclosed below:
Arete Capital Partners, a Company of which Mike Fletcher (Non-Executive
Director) is a partner, invoiced SysGroup plc £420 (2023: £26,479) for a
shared cost of corporate services received by SysGroup plc and Arete Capital
Partners. At 31 March 2024, the balance outstanding was £nil (31 March 2023:
£nil).
24 Ultimate controlling party
The Directors consider the Group and Company have no controlling shareholder
and no ultimate controlling party.
25 Contingent asset
As disclosed in Note 8 the group has incurred £0.43m in relation to charges
in dispute with a third party supplier, which the group is actively seeking
recovery of. The group consider the probability of recovery of the charges as
possible. As the recovery is not virtually certain, an asset has not been
recorded on the balance sheet.
26 Post balance sheet events
The Group raised £10.6m net funds from a placing in June 2024. Gross proceeds
were £11.2m, including a £0.3m retail offering and a £10.9m placing.
There were no sales between the two business segments, and all revenue is
earned from external customers. The business segments' gross profit is
reconciled to profit before taxation as per the consolidated income statement.
The Group's overheads are managed centrally by the Board and consequently
there is no reconciliation to profit before tax at a segmental level . The
Group's assets are also managed centrally by the Board and consequently there
is no reconciliation between the Group's assets per the Statement of Financial
Position and the segment assets.
5 Operating profit
2024 2023
£'000 £'000
Operating profit is after charging the following:
Audit - Group 116 94
Audit - Company 5 4
Assurance related - interim review 12 12
Auditor's remuneration 133 110
Depreciation of tangible fixed assets 570 625
Amortisation of intangible assets 1,696 1,739
Impairment of intangible assets 3,718 -
Staff costs (note 7) 5,763 5,566
Share based payments (note 7, 9) 194 178
Short term lease costs 20 40
Exceptional items (note 8) 1,826 408
6 Finance expense
2024 2023
£'000 £'000
Interest payable on bank loan 440 307
Unwind of discounting on contingent consideration 72 105
Interest payable on lease liabilities 28 32
Arrangement fee amortisation on bank loan 34 29
Other interest - 10
574 483
7 Staff numbers and costs
The average monthly number of full-time persons employed by the Group,
including Executive Directors during the year was:
2024 2023
Technical Support 70 70
Sales and Marketing 23 18
Administration 18 20
Total 111 108
The aggregate payroll costs including Executive Directors and excluding
Non-Executive Directors were as follows:
2024 2023
£'000 £'000
Wages and salaries 5,034 4,793
Social security costs 520 547
Benefits in kind 41 55
Pension benefits 168 171
Share based payment expense 194 178
Total 5,957 5,744
Total staff costs for the Company are £5,957,000 (FY23: £5,744,000) and
average staff numbers for the Company are 111 (FY23: 108).
2024 2023
Directors £'000 £'000
Fees and salaries 970 662
Social security costs 101 69
Benefits in kind 29 3
Pension benefits contributions 17 18
Share based payment expense 162 132
Total 1,279 884
Key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the Group, they are
the Directors of the Company. The emoluments, including any contractual
settlement fees, of the highest paid Director are £504,038 (FY23: £329,000).
Total payments for loss of office amounted to £449,200 (FY23: £nil).
The Group does not operate a defined benefits pension scheme and Executive
Directors who are entitled to receive pension contributions may nominate a
defined contribution scheme into which the Company makes pension
contributions. The fees relating to Non-Executive Directors are in some
cases payable to third parties in connection with the provision of their
services. The balance outstanding at 31 March 2024 was nil (FY23: £Nil).
8 Exceptional items
2024 2023
£'000 £'000
CEO exit and settlement 744 -
Integration and restructuring costs 571 189
Supplier charges in dispute 434 -
M&A projects 194 -
Acquisition costs - 219
Fair value adjustment of contingent consideration liability (117)
Total 1,826 408
CEO exit and settlement relates to the settlement of the former CEO's
contractual terms. This is considered material and non-recurring and has
therefore been classified as exceptional.
The integration and restructuring costs relate to costs associated with the
restructuring of the Senior Leadership Team. This includes exit and hiring
expenses related to senior team members as well as wider restructuring
expenses within supporting teams. This is considered non-recurring and has
therefore been classified as exceptional.
The supplier charges in dispute are subject to ongoing action for which the
company is pursuing recovery. This is considered non-recurring and has
therefore been classified as exceptional.
The M&A projects expenditure relate to costs associated with the
evaluation of potential acquisition targets. This is considered material and
has therefore been classified as exceptional.
The adjustment to the contingent consideration liability relates to the
purchase of Truststream Security Solutions Limited in the prior year. This
is considered non-recurring and has therefore been classified as exceptional.
In 2023, the acquisition and integration costs relate to the two acquisitions
in April 2022, Truststream Security Solutions Limited and Independent Network
Services Limited (trading as 'Orchard IT'). This is considered material and
has therefore been classified as exceptional.
All of the items above, based upon the judgement of the management team, meet
the definition of an exceptional item as defined within the Group's accounting
policies (note 2 - Alternative Performance Measures).
9 Share based payments
The Company has granted share options to the Executive Directors under LTIP
Schemes and Group employees under an EMI Scheme. The Directors have the
discretion to grant options to subscribe for ordinary shares up to a maximum
of 10 per cent of the Company's issued share capital. For new share options
issued in the year, the volatility was estimated using the previous twelve
months of the Group's share price.
EMI Scheme
Share options can be granted to employees of the Group at the discretion of
and with approval from the Remuneration Committee. For EMI share options to
vest the employee must be employed by the Group at the vesting date. The
weighted average exercise price of options in issue is 42.0p per share.
No. of Ordinary Shares
Grant date Exercise period Exercise price At 31 March 2023 Granted Waived At 31 March 2024
17/03/2014 17/03/17 to 16/03/24 60.0p - - - -
21/02/2016 21/02/19 to 20/02/26 55.2p 11,875 - (6,875) 5,000
02/03/2018 02/03/21 to 01/03/28 35.5p 30,000 - (30,000) -
26/11/2018 26/11/21 to 25/11/28 42.5p 215,000 - (65,000) 150,000
16/04/2020 16/04/23 to 15/04/30 27.0p 150,000 - (150,000) -
06/04/2021 06/04/24 to 05/04/31 41.0p 206,000 - (75,000) 131,000
01/07/2021 01/07/24 to 30/06/31 1.0p 100,000 - (100,000) -
14/02/2022 14/02/25 to 13/04/32 26.0p 30,000 - (30,000) -
19/04/2023 19/04/26 to 18/04/36 28.5p - 30,000 (30,000) -
Total 742,875 30,000 (486,875) 286,000
The inputs to the share valuation model utilised at the grant of the option is
shown in the table below. Management has determined volatility using their
knowledge of the business. The options have been valued using the Black
Scholes method and using the following assumptions:
Number of instruments granted 11,875 30,000 215,000 150,000 206,000 100,000 30,000 30,000
Grant date 21-Feb16 02-Mar18 26-Nov18 16-Apr20 06-Apr21 01-Jul21 14-Feb22 19-Apr23
Expiry date 20-Feb26 01-Mar28 25-Nov28 15-Apr30 05-Apr31 30-Jun31 13-Feb32 18-Apr33
Contract term (years) 10 10 10 10 10 10 10 10
Exercise price 55.2p 35.5p 42.5p 27.0p 41.0p 1.0p 26.0p 28.5p
Share price at granting 70.8p 35.5p 42.5p 27.0p 41.0p 42.0p 26.0p 31.0p
Annual risk-free rate (%) 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 4.0% 4.0%
Annual expected dividend yield (%) 0% 0% 0% 0% 0% 0% 0% 0%
Volatility (%) 27% 27% 27% 27% 27% 27% 41% 41%
Fair value per grant instrument 30.2p 41.5p 17.9p 14.8p 26.0p 14.3p 15.0p 17.0p
Executive LTIP options
The Remuneration Committee is responsible for establishing the Executive LTIP
Schemes and also sets the targets by which the performance of the Executive
Directors is measured. The award of share options to the Executive Directors
is governed by the LTIP Scheme Rules. Further information on the Schemes is
presented in the Directors' Remuneration report. The weighted average exercise
price of options in issue is 1.0p per share.
No. of Ordinary Shares
Grant date Exercise period Exercise price At 31 March 2023 Granted Exercised At 31 March 2024
28/06/2018 28/06/21 to 27/06/28 1.0p 750,000 - (750,000) -
16/07/2018 16/07/21 to 15/07/28 1.0p 450,000 - - 450,000
15/07/2019 15/07/22 to 14/07/29 1.0p 400,000 - (250,000) 150,000
08/07/2020 08/07/22 to 07/07/30 1.0p 400,000 - (250,000) 150,000
21/06/2021 21/06/23 to 20/06/31 1.0p 287,480 - (179,675) 107,805
21/06/2022 21/06/24 to 20/06/32 1.0p 454,416 - (284,010) 170,406
17/04/2023 17/04/25 to 16/04/33 1.0p - 566,733 (362,709) 204,024
Total 2,741,896 566,733 (2,076,394) 1,232,235
The inputs to the share valuation model utilised at the grant of the option is
shown in the table below. Management has determined volatility using their
knowledge of the business. The options have been valued using the Black
Scholes method and using the following assumptions:
Number of instruments granted 750,000 450,000 400,000 400,000 287,480 454,416 566,733
Grant date 28-Jun-18 16-Jul-18 15-Jul-19 08-Jul-20 21-Jun-21 21-Jun-22 17-Apr-23
Expiry date 27-Jun-28 15-Jul-28 14-Jul-29 07-Jul-30 20-Jun-31 20-Jun-32 16-Apr-33
Contract term (years) 10 10 10 10 10 10 10
Exercise price 1.0p 1.0p 1.0p 1.0p 1.0p 1.0p 1.0p
Share price at granting 41.5p 46.5p 42.0p 33.0p 42.0p 27.0p 27.5p
Annual risk-free rate (%) 0.5% 0.5% 0.5% 0.5% 0.5% 4.0% 4.0%
Annual expected dividend yield (%) 0% 0% 0% 0% 0.0% 0.0% 0.0%
Volatility (%) 27% 27% 27% 27% 27% 41% 41%
Fair value per grant instrument 40.9p 43.7p 41.4p 32.0p 41.0p 26.0p 26.0p
On 26 May 2023, it was announced that Adam Binks would be stepping down as
Chief Executive Officer and the Board on 26 June 2023.The Board agreed that
the 826,394 unvested options granted to Adam Binks under the Company's 2020
LTIP Scheme would vest with immediate effect with all restrictions on all his
options waived. Adam Binks agreed to immediately exercise all his options
granted under the 2018 and 2020 LTIP schemes, totalling 2,076,394 ordinary
shares of 1p each ('Ordinary Shares') and further agreed to sell, and the
Company agreed to buy, a total of 2,076,394 Ordinary Shares at a price of
£0.375 per Ordinary Share. The Company will hold these Ordinary Shares in
treasury to satisfy the exercise of future share options under SysGroup's
share incentive schemes.
The share-based payment charge in the statement of comprehensive income in the
year was £194,000 (2023: £178,000).
10 Acquisitions
The Group has not made any acquisitions in the year to 31 March 2024. In
April 2022 of the prior year, SysGroup plc acquired 100% of the issued share
capital in Truststream Security Solutions Limited ('Truststream') and
Independent Network Solutions Limited ('INSL', holding company of Orchard
Computers Limited).
Truststream Security Solutions Limited
Established in 2011 and based in Edinburgh, Truststream is one of the UK's
fastest growing providers of professional and managed cyber security services.
Truststream covers all aspects of cyber security from analysis and threat
detection, through protection architecture and implementation, to incident
response and ongoing 24/7 support and training. The Acquisition further
enhances SysGroup's service offering and is complementary to the Group's core
expertise and key areas of focus. In addition, the Acquisition enables the
Group to further strengthen its UK presence by opening up Scotland as an
attractive hub for the Group.
SysGroup acquired Truststream on 4 April 2022 for £4.8m initial cash
consideration on a cash-free debt-free basis with an earn-out payable
following the first and second anniversaries of the transaction of up to
£3.1m. A payment of £0.5m was paid in respect of the cash and debt balances.
The earn-out is subject to the achievement of certain maintainable EBITDA
performance targets in the first and second 12-month periods following the
completion of the acquisition. £0.9m has been paid to date in relation to the
first earn out period and a further £1.8m is held as Contingent consideration
at 31 March 2024. Final earn out is expected to be
settled and paid within 12 months of the balance sheet date.
The Truststream acquisition was mainly funded from a new £8.0m revolving
credit facility ('RCF') which was signed with Santander on 4 April 2022.
SysGroup utilised £4.5m of funds from the RCF to finance the acquisition.
Further information on the RCF facility can be found in note 19 to the
Consolidated Financial Statements.
Recognised amounts of net assets acquired, and liabilities assumed Book Value FV Adj Fair Value
£'000 £'000 £'000
Cash and cash equivalents 550 - 550
Trade and other receivables 1,783 - 1,783
Property, plant and equipment 1 - 1
Intangible assets - 2,525 2,525
Trade and other payables (1,776) (24) (1,800)
Corporation tax (117) - (117)
Deferred tax - (631) (631)
Identifiable net assets 2,311
Goodwill 5,602
Total net assets 7,913
Satisfied by:
Cash consideration - paid on acquisition 5,337
Contingent consideration 3,075
Discounting of contingent consideration (499)
Total consideration 7,913
Independent Network Solutions Limited ('INSL')
INSL is the holding company of Orchard Computers Limited ('Orchard') which is
a business based in Bristol. Orchard has been in operation for over 30 years
and has built a loyal customer base largely in the South West of England and
across a broad range of sectors, covering both the private and public sectors.
Its managed IT service offering mirrors that of SysGroup, providing high
quality consulting services and building tailor made, vendor agnostic
solutions, designed specifically to meet individual customer needs, followed
by ongoing support.
SysGroup acquired INSL on 26 April 2022 for £1.0m cash consideration on a
cash-free debt-free basis. There is no contingent or deferred consideration
for this acquisition. The cash consideration was funded from the Group's
existing cash balances.
Recognised amounts of net assets acquired and liabilities assumed Book Value FV Adj Fair Value
£'000 £'000 £'000
Cash and cash equivalents 398 - 398
Trade and other receivables 311 (15) 296
Property, plant and equipment 32 (32) -
Intangible assets - 1,028 1,028
Trade and other payables (385) (435) (820)
Bank loan (82) - (82)
Corporation tax (63) (5) (68)
Deferred tax (5) (257) (264)
Identifiable net assets 490
Goodwill 510
Total net assets 1,000
Satisfied by:
Cash consideration - paid on acquisition 1,000
Total consideration 1,000
The Directors have considered the intangible assets acquired with the two
acquisitions and have recognized intangible assets for customer relationships
which have been calculated using a discounted cashflow method, based on the
estimated level of profit to be generated from the customer bases acquired. A
post tax discount rate of 9.40% was used in the valuations and the customer
relationships are being amortised over an estimated useful life of 7 years for
Truststream and 10 years for Orchard. The goodwill arising on both
acquisitions are attributable to the technical skills of the workforce and
cross-selling opportunities achievable from combining the acquired customer
bases and trade with the existing Group.
The goodwill and intangible assets of Truststream have been allocated to a new
CGU named 'Truststream' and the goodwill and intangible assets of Orchard have
been allocated to the CGU 'IT Managed Services'. See Note 13 for further
details. The Company incurred £218,000 of professional fees and other
acquisition costs in relation to the two acquisitions in the year to 31 March
2023. These costs are included as Exceptional costs in the Group's
consolidated statement of comprehensive income.
Truststream contributed to Group revenue £6.3m (2023: £4.9m) and £0.4m
(2023: £0.3m) profit before tax for the year to 31 March 2024. Orchard was
acquired on 26 April 2022 under a lock box mechanism which fixed the financial
returns to the Group from 1 April 2022. Orchard trading was fully hived into
SysGroup Trading Limited for the year to 31 March 2024. Orchard contributed
£1.8m to Group revenue and £0.1m profit before tax for the year to 31 March
2023.
11 Earnings per share
2024 2023*
Restated
(Loss) for the financial year attributable to shareholders (£5,900,000) (£201,000)
Adjusted profit for the financial year £1,010,000 £1,723,000
Weighted number of issued equity shares 48,923,389 48,859,690
Weighted number of equity shares for diluted EPS calculation 50,710,251 52,274,633
Adjusted basic earnings per share (pence) 2.1p 3.5p
Basic earnings per share (pence) (12.1)p 0.0p
Diluted earnings per share (pence) (12.1)p 0.0p
2024 2023*
Restated
£'000 £'000
(Loss) after tax used for basic earnings per share (5,900) (201)
Amortisation of intangible assets 1,696 1,739
Impairment of intangible assets 3,718 -
Exceptional items 1,826 408
Share based payments 194 178
Tax adjustments (524) (401)
Adjusted profit used for Adjusted Earnings per Share 1,010 1,723
*See accounting policies (note 1) for further details of the restatement
12 Taxation
2024 2023
Current tax £'000 £'000
Current tax - current year - 374
Adjustments in respect of prior years (84) -
Total current tax charge (84) 374
Deferred tax
Deferred tax - timing differences (609) (472)
Adjustments in respect of prior years 23 -
Total deferred tax (586) (472)
Total tax (credit) (670) (98)
The effective tax rate for the year to 31 March 2024 is higher (2023: higher)
than the standard rate of corporation tax in the UK. The differences are
explained below:
2024 2023*
Restated
£'000 £'000
(Loss) on ordinary activities before tax (6,570) (299)
(Loss)/profit on ordinary activities before taxation multiplied by the (1,642) (57)
standard rate of UK corporation tax of 25% (2023:19%)
Effects of:
Expenses not deductible 274 92
Income not taxable 899 -
Short term timing differences 374 136
R&D tax credits - (29)
Re-measurement of deferred tax due to changes in UK rate - (66)
Deferred tax on share based 31 32
Deferred tax on acquired intangibles (368) (206)
Adjustments in respect of prior years (61) -
Other permanent differences (177) -
Total tax credit (670) (98)
* See accounting policies (note 1) for further details of the restatement
The Group recognised deferred tax assets and liabilities as follows:
2024 2023
£'000 £'000
Deferred tax on customer relationships (1,042) (1,421)
Deferred tax asset on share-based payments 100 166
Fixed asset timing differences (196) (225)
Short term timing differences 21 -
Losses 268 (46)
Deferred tax liability (849) (1,434)
Recognition of deferred tax assets is restricted to those instances where it
is highly probable that relief against taxable profit will be available. There
are no unrecognised deferred tax assets.
Deferred tax balances are recognised at 25% (2023: 25%):
Losses Fixed asset timing differences Short term timing differences Share based payments Customer relationships Total
£'000 £'000 £'000 £'000
Balance at 1 April 2023 46 (225) - 166 (1,421) (1,434)
DT on share-based payments (31) (31)
DT on amortisation of intangibles 35 368 403
Fixed asset and other timing differences 222 (7) 22 (35) 11 213
Balance at 31 March 2024 268 (197) 22 100 (1,042) (849)
13 Intangible assets
Systems Development Software licences Customer relationships Positive goodwill Total
Group cost £'000 £'000 £'000 £'000 £'000
At 1 April 2022 1,073 205 9,156 15,554 25,988
Additions 163 - 3,553 6,112 9,828
Disposals (225) (205) - - (430)
At 31 March 2023 1,011 - 12,709 21,666 35,386
At 1 April 2023 1,011 - 12,709 21,666 35,386
Additions 109 - - - 109
Disposals - - - - -
Impairment - - - (3,718) (3,718)
At 31 March 2024 1,120 - 12,709 17,948 31,777
Accumulated amortisation
At 1 April 2022 404 205 5,507 - 6,116
Charge for the year 177 - 1,562 - 1,739
Disposals (225) (205) - - (430)
At 31 March 2023 356 - 7,069 - 7,425
At 1 April 2023 356 - 7,069 - 7,425
Charge for the year 224 - 1,472 - 1,696
Disposals - - - - -
At 31 March 2024 580 - 8,541 - 9,121
Net book value
At 31 March 2023 655 - 5,640 21,666 27,961
At 31 March 2024 540 - 4,168 17,948 22,656
Systems Development Total
Company cost £'000 £'000
At 1 April 2022 - -
Additions 28 28
At 31 March 2023 28 28
Additions 37 37
At 31 March 2024 65 65
Accumulated amortisation
At 1 April 2022 - -
Charge for the year 2 2
At 31 March 2023 2 2
Charge for the year 16 16
At 31 March 2023 18 18
Net book value
At 31 March 2023 26 26
At 31 March 2024 47 47
All amortisation and impairment charges are included in the depreciation,
amortisation and impairment of non-financial assets classification, which is
disclosed as administrative expenses in the statement of comprehensive income.
Customer relationships have a remaining amortisation period of between 2 and 5
years.
Cash-generating units ('CGUs')
Goodwill and intangible assets are allocated to CGUs in order to be assessed
for potential impairment. The Group has a core CGU of 'Managed IT Services'
and as the Group acquires new businesses they form their own CGU until they
have been integrated into the Group's core operational structure.
The Group has a Senior Leadership Team that manages the SysGroup business
within a single operational and delivery structure. Whilst the Truststream
business has been integrated within the SysGroup leadership structure and onto
the Group system platforms, the business continues to operate its own cash
transactions and balances and therefore remains a distinct cash generating
unit of the Group. As such, the Directors consider Truststream to be a
separate CGU.
The allocation of goodwill and carrying amounts of assets for each CGU is as
follows:
Allocation of goodwill Carrying value of assets
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Managed IT Services 16,064 16,064 17,213 19,366
Truststream Security Solutions 5,602 5,602 6,583 6,698
Total 21,666 21,666 23,796 26,064
Impairment review
When assessing impairment, the recoverable amount of each CGU is based on
value-in-use calculations (VIU). VIU calculations are an area of material
management estimate as set out in note 2. These calculations require the use
of estimates, specifically: post-tax cash flow projections; long-term growth
rates; and a post-tax discount rate. Cash flow projections are based on the
Group's detailed annual operating plan for the forthcoming financial year
which has been approved by the Board.
The VIU calculation is determined based on a discounted cash flow basis
prepared for each individual cash generating unit. Cash flows beyond the
forthcoming financial year use estimated growth rates which are stated below.
The assumptions for growth rates and margins are based on management's
experience of growth and knowledge of the industry sector, markets and our own
internal opportunities for growth. The projections beyond five years use an
estimated long-term growth rate of 2.0% (FY22: 2.5%) for net post tax cash
flows. This represents management's best estimate of a long-term annual growth
rate aligned to an assessment of long-term GDP growth rates. A higher
sector-specific growth rate would be a valid alternative estimate. A different
set of assumptions may be more appropriate in future years dependent on
changes in the macroeconomic environment.
The discount rates used are based on management's calculation of the WACC
using the capital asset pricing model to calculate the cost of equity. The
same rate is used for each CGU in the VIU calculation, and the rates reflect
management's assessment on the level of relative risk in each respective CGU.
Discount rates can change relatively quickly for reasons both inside and
outside management control. Those outside management direct control or
influence include changes in the Group's Beta, changes in risk free rates of
return and changes in Equity Risk Premia. Matters inside management control
are the delivery of performance in line with plans or budgets and the
production of high or low risk plans.
At the year-end reporting date, goodwill was reviewed for impairment in
accordance with IAS 36 'Impairment of Assets' and an impairment of the Managed
IT Services CGU of £3.7m has been recorded. No impairment of the Truststream
CGU arose because of this review.
Legacy Managed IT Services CGU
The Managed IT Services CGU goodwill is comprised of acquisitions dating from
2016 to 2022, as listed below:
System Professional - 2016
Rockford IT - 2017
Certus IT - 2019
Hub Network - 2020
Orchard IT - 2022
Based upon a prudent assessment of the future performance of these
acquisitions (being the "Managed IT Services CGU"), management's view is that
the CGU is impaired by £3.7m. The VIU model is sensitive to changes in key
assumptions, including revenue growth. If year 1 revenue growth were to reduce
to 0%, then the impairment would increase by a further £4.9m, assuming no
changes in other assumptions. Management is comfortable with the revenue
growth rate used in the VIU model.
Truststream CGU
The Truststream CGU has over 18% headroom of VIU compared to the carrying
value of assets. For the headroom to reduce to nil, the post-tax discount rate
would have to increase to over 11.8% on Truststream or future CGU profits
would have to be significantly below current forecast levels.
The VIU model for the Truststream GGU is particularly sensitive to changes in
two key assumptions, being year 1 revenue and gross margin %. Year 1 revenue
growth would have to drop by 4.7% from the base for there to be an impairment
of goodwill. As an example, If the revenue growth rate were to drop by 10%
then there would be an impairment of £2.7m (assuming all other assumptions
remain in line). Further, gross margin % would have to drop 1.0% from the base
for there to be an impairment of goodwill. Management is comfortable with the
revenue growth rate and gross margin % used in the VIU model.
The assumptions used for the impairment review are detailed below:
Legacy Managed IT Services Truststream
2024
Discount rate post-tax 10.3% 10.3%
Revenue growth rate year 2 to year 5 3.5% 6.0%
Terminal growth rate 2.0% 2.0%
2023
Discount rate post-tax 10.7% 10.7%
Revenue growth rate year 2 2.5% 10.0%
Revenue growth rate year 3 to year 5 2.5% 2.5%
Terminal growth rate 2.0% 2.5%
14 Property, plant and equipment
Office Equipment Right of Use Lease Freehold Property Total
Cost £'000 £'000 £'000 £'000
At 1 April 2022 2,744 2,181 382 5,307
Additions 249 935 - 1,184
Disposals (1,793) (1,851) - (3,644)
At 31 March 2023 1,200 1,265 382 2,847
At 1 April 2023 1,200 1,265 382 2,847
Additions 450 - - 450
Disposals - - - -
At 31 March 2024 1,650 1,265 382 3,297
Accumulated depreciation
At 1 April 2022 2,014 1,790 25 3,829
Charge for the year 358 259 8 625
Disposals (1,793) (1,780) - (3,573)
At 31 March 2023 579 269 33 881
At 1 April 2023 579 269 33 881
Charge for the year 317 245 8 570
Disposals - - - -
At 31 March 2024 896 514 41 1,451
Net book value
At 31 March 2023 621 996 349 1,966
At 31 March 2024 754 751 341 1,846
Office Equipment Right of Use Lease
Total
Company cost £'000 £'000 £'000
At 1 April 2022 320 346 666
Additions 150 47 197
Disposals (298) - (298)
At 31 March 2023 172 393 565
At 1 April 2023 172 393 565
Additions 163 - 163
Disposals - - -
At 31 March 2024 335 393 728
Accumulated depreciation
At 1 April 2022 278 134 412
Charge for the year 56 70 126
Disposals (298) - (298)
At 31 March 2023 36 204 240
At 1 April 2023 36 204 240
Charge for the year 82 76 158
Disposals - - -
At 31 March 2024 118 280 398
Net book value
At 31 March 2023 136 189 325
At 31 March 2024 217 113 331
15 Investments
2024 2023
Company £'000 £'000
At start of year 34,034 24,895
Acquisitions - 8,913
Investment in subsidiaries - 226
Impairment (7,635) -
At 31 March 26,399 34,034
The recoverable amounts have been determined from discounted cash flow
calculations based on cash flow projections from the forecasts covering the
period to 31 March 2026. The principal assumptions can be found in note 13.
In line with the rationale and conclusions drawn in note 13 regarding the
Legacy Managed IT Services CGU, an impairment of the SysGroup Trading Limited
investment of £7.6m is required and has been recorded in the period.
Following this impairment, the investment balance in SysGroup Trading Limited
is £18.5m. The remaining balance of £7.9m relates to Truststream Security
Solutions Limited.
The Company's subsidiary undertakings all of which are wholly owned and
included in the consolidated accounts are:
Undertakings Registration Principal activity
SysGroup Trading Limited England & Wales Managed IT Services
Truststream Security Solutions Limited Scotland Managed IT Services
Certus IT Limited England & Wales Non-trading
Hub Network Services Limited England & Wales Non-trading
Netplan LLC* USA Non-trading
Orchard Computers Limited England & Wales Dormant
Independent Network Solutions Limited England & Wales Non-trading
Netplan Internet Solutions Limited England & Wales Dormant
Rockford IT Limited England & Wales Dormant
System Professional Limited England & Wales Dormant
SysGroup (DIS) Limited England & Wales Dormant
* Netplan LLC is a wholly owned subsidiary of Netplan Internet Solutions
Limited
The registered office of all subsidiaries is the same as the registered office
of the parent Company with the exception of:
Netplan LLC
Truststream Security Solutions Limited
whose registered office
is:
whose registered office is:
c/o USA Corporate Services Inc 8th
Floor, Sugar Bond House
19 West 34th Street, Suite 1018,
Anderson Place, Leith, Edinburgh
New York,
10001
Scotland EH6 5NP
16 Trade and other receivables
Group Company Group Company
2024 2024 2023* 2023
Restated
Amounts due within one year £'000 £'000 £'000 £'000
Trade debtors 1,577 - 1,706 -
Amounts due from subsidiaries - - - 323
Other debtors 26 - - 81
Corporation tax asset 84 - - -
Prepayments and accrued income 2,316 105 3,107 221
Total 4,003 105 4,813 625
Amounts due from subsidiaries are due on demand and incur no interest.
The carrying value of trade and other receivables approximates to their fair
value.
Group Company Group Company
2024 2024 2023 2023
Debtor impairment £'000 £'000 £'000 £'000
Trade debtors 1,692 - 1,979 -
Impairment provision (115) - (273) -
Total 1,577 - 1,706 -
The Group have applied the simplified approach to calculate its impairment of
trade receivables. In completing this review, the Group have segregated its
receivables into categories based on the number of days past due for each
invoice and used this to estimate the expected lifetime credit loss, with the
historic credit losses being adjusted for expected forward cashflows given the
current economic environment.
Group Company
Current Over 1 month past due Total Current Over 1 month past due Total
£'000 £'000 £'000 £'000
Trade debtors 610 1,082 1,692 - - -
Expected credit loss - (115) (115) - - -
Net carrying amount 610 967 1,577 - - -
* See accounting policies (note 1) for further details of the restatement
17 Trade and other payables
Group Company Group Company
2024 2024 2023 2023
Amounts due within one year £'000 £'000 £'000 £'000
Trade payables 3,132 293 1,813 110
Amounts due to subsidiaries - 5,830 - 3,099
Accruals 1,340 512 988 522
Total financial liabilities, excluding loans and borrowings measured at 4,472 6,635 2,801 3,731
amortised cost
Corporation tax - - 438 -
Other taxes and social security costs 341 82 622 132
Total 4,813 6,717 3,861 3,863
Amounts due to subsidiaries are due on demand and incur no interest charge.
Contingent consideration Group Company Group Company
2024 2024 2023 2023
Amounts due within one year £'000 £'000 £'000 £'000
Contingent consideration 1,751 1,751 806 806
Amounts due after one year
Contingent consideration - - 1,949 1,949
Discounted value - - (74) (74)
Discounted contingent consideration - - 1,875 1,875
The contingent consideration is stated at its discounted fair value and is
expected to be paid following the completion of the Year 2 earn-out period.
To the extent trade payables and other payables are not carried at fair value
in the consolidated balance sheet, book value approximates to fair value at 31
March 2024 and 31 March 2023. The maturity of the financial liabilities,
excluding loans and borrowings, classified as financial liabilities and
measured at amortised cost is shown in note 3.
18 Provisions
Group Company Group Company
2024 2024 2023 2023
£'000 £'000 £'000 £'000
Dilapidations provision 148 68 191 68
Total 148 68 191 68
The provision is for the estimated aggregate cost of returning the Group's
offices to their original condition on
the expiry and exit of the property leases. Currently the leases extend to
between 2026 and 2028.
19 Loans and borrowings
Group Company Group Company
2024 2024 2023 2023
Non- current £'000 £'000 £'000 £'000
Lease liabilities 400 49 621 88
Bank loan 4,738 4,738 4,705 4,705
Total 5,138 4,787 5,326 4,793
Group Company Group Company
2024 2024 2023 2023
Current £'000 £'000 £'000 £'000
Lease liabilities 204 43 182 58
Bank loan - - - -
Total 204 43 182 58
The company has an RCF banking facility with a term of five years to April
2027, an interest rate of Base Rate +3.25% margin on drawn funds and covenants
that will be tested quarterly relating to total net debt to Adjusted EBITDA
leverage and minimum liquidity. The Group drew down £4.5m of RCF funds for
the Truststream acquisition in April 2022.
20 Contract liabilities
Group Company Group Company
2024 2024 2023 2023
Contract liabilities £'000 £'000 £'000 £'000
Current - contract liabilities 2,635 - 3,633 -
Non-current - contract liabilities 143 - 383 -
Total 2,778 - 4,016 -
21 Share capital
Group and Company Number £'000
Allotted, called up and fully paid ordinary shares of £0.01 each
At 1 April 2022 49,419,690 494
At 31 March 2023 49,419,690 494
Issue of share capital 2,076,394 21
At 31 March 2024 51,496,084 515
22 Reconciliation of net cashflow movements in net debt
1 April 2023 Non cashflow movements Cashflow Right of use Movement Maturity reclass 31 March 2024
£'000 £'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 4,186 - (2,243) - - 1,943
Debt due in less than one year:
Bank loans - - - - - -
Contingent consideration (806) (79) 885 - (1,751) (1,751)
Lease liabilities (182) - 199 - (221) (204)
Debt due in more than one year
Bank loans (4,705) (33) - - - (4,738)
Contingent consideration (1,875) 124 - - 1,751 -
Lease liabilities (621) - - - 221 (400)
Net cash/(debt) (4,003) (65) (1,082) - - (5,150)
The maturity reclass movements show the change in classification of the debt
item maturity periods due to contractual changes or new contracts incepted in
the year.
23 Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties of the Company, have been eliminated on consolidation and are not
disclosed in this note. Details of the transactions between the Group and
other related parties are disclosed below:
Arete Capital Partners, a Company of which Mike Fletcher (Non-Executive
Director) is a partner, invoiced SysGroup plc £420 (2023: £26,479) for a
shared cost of corporate services received by SysGroup plc and Arete Capital
Partners. At 31 March 2024, the balance outstanding was £nil (31 March 2023:
£nil).
24 Ultimate controlling party
The Directors consider the Group and Company have no controlling shareholder
and no ultimate controlling party.
25 Contingent asset
As disclosed in Note 8 the group has incurred £0.43m in relation to charges
in dispute with a third party supplier, which the group is actively seeking
recovery of. The group consider the probability of recovery of the charges as
possible. As the recovery is not virtually certain, an asset has not been
recorded on the balance sheet.
26 Post balance sheet events
The Group raised £10.6m net funds from a placing in June 2024. Gross proceeds
were £11.2m, including a £0.3m retail offering and a £10.9m placing.
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