REG - SysGroup PLC - Final Results
20/06/2022 07:00
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RNS Number : 3846P SysGroup PLC 20 June 2022
20 June 2022
SysGroup plc
("SysGroup" or the "Company" or the "Group")
Final results for the year ended 31 March 2022
SysGroup plc (AIM:SYS), the multi award-winning managed IT services, cyber
security and cloud hosting provider, is pleased to announce its audited final
results for the period ended 31 March 2022.
HIGHLIGHTS
Financial
2022 2021 Change %
Revenue £14.75m £18.13m -19%
Recurring revenue as a % of total revenue 87% 79% +8%
Gross profit £8.92m £10.50m -15%
Adjusted EBITDA(1) £2.82m £2.91m -3%
Adjusted EBITDA(1) margin % 19% 16% +3%
Adjusted PBT(2) £2.04m £2.09m -2%
Adjusted Basic EPS(3) 3.6p 3.5p +3%
Profit before tax £0.60m £0.21m +192%
Basic EPS 0.9p 0.5p +80%
Cashflow from operations £2.47m £2.93m -16%
Net cash(4) £2.99m £1.88m +59%
Operational
· Completion of the Group's project to deliver a unified platform of systems
("Project Fusion"), delivering significant benefits across all operations
· Successful migration to SysCloud 2.0, the Group's multi-tenanted cloud
platform which went fully live in May 2022, delivering higher client
performance and Group efficiency with greater capacity from less physical
space
· Unified sales and marketing hub opened in Manchester with a number of highly
targeted campaigns planned for FY23 to drive new customer engagement and
continue to build sales pipeline
· Customer approval scores comfortably ahead of 97% target throughout entire
year
· Office rationalisation complete with refurbishment programme delivered in
Newport and closure of Telford
Post period-end developments
· Acquisition of Edinburgh based Truststream Security Solutions Limited
("Truststream") - a fast growing provider of cyber security solutions which
enhances SysGroup's security services and gives the Group a presence in
Scotland from which to grow
· Acquisition of Independent Network Solutions Limited, which trades as Orchard
Computers ("Orchard"), further enhancing the Group's presence in the Southwest
region and complementing its South Wales based operations
· Both acquisitions expected to be immediately earnings enhancing
· Telford office successfully closed which will generate a small operational
saving
1. Adjusted EBITDA is earnings before interest, taxation,
depreciation, amortisation of intangible assets, exceptional items, and share
based payments.
2. Adjusted profit before tax ("Adjusted PBT") is profit before tax
after adding back amortisation of intangible assets, exceptional items, and
share based payments.
3. Adjusted Basic EPS is profit after tax after adding back
amortisation of intangible assets, exceptional items, share based payments and
associated tax, divided by the weighted average number of shares in issue.
4. Net cash represents cash balances less bank loans, lease
liabilities and contingent consideration.
Adam Binks, Chief Executive Officer, commented:
"The Adjusted EBITDA performance and strong cash generation in a year when
turnover was impacted by COVID highlights the strength of our business model.
We have invested to drive future growth whilst maintaining prudent financial
discipline throughout the business. Operationally, the Group is ideally placed
to take advantage of conditions as they begin to normalise and we have started
to see the early green shoots of such a recovery.
The acquisitions of Truststream and Orchard added further customers, expertise
and geographical reach and demonstrate our ongoing commitment to be
consolidators in this highly fragmented market. M&A activity in our sector
is picking up and we believe there will be further opportunities that we can
take advantage of during the course of this year. With a clear strategy for
both organic and inorganic growth, the Board is confident in the future."
For further information please contact:
SysGroup plc Tel: 0151 559 1777
Adam Binks, Chief Executive Officer
Martin Audcent, Chief Financial Officer
Zeus (Nominated Adviser and Broker) Tel: 0161 831 1512
Dan Bate
James Edis
Alma PR (Financial PR)
Josh Royston Tel: 07780 901 979
Matthew Young
About SysGroup
SysGroup is a leading provider of managed IT services, cloud hosting, cyber
security and expert IT consultancy. The Group delivers solutions that enable
clients to benefit from industry leading technologies and delivers managed
solutions with security, compliance and governance from the core. SysGroup
focuses on a customer's strategic and operational requirements - enabling
clients to free up resources, grow their core business and avoid the
distractions and complexity of managing IT services.
The Group has offices in Bristol, Edinburgh, Liverpool, London, Manchester and
Newport.
For more information, visit http://www.sysgroup.com
STRATEGIC REPORT
Chairman's Statement
The financial performance of SysGroup over the past year, whilst highly
credible, does not represent the wider progress made. Revenue decreased as
expected due to the impact of the pandemic but through strong management the
Group was able to deliver an Adjusted EBITDA performance in line with
management's expectations coupled with stronger than expected cash generation,
whilst also investing in the business to prepare it for future growth.
Despite the short-term frustrations caused by the pandemic and wider economic
uncertainty, the market opportunity for SysGroup has not diminished and, in
fact, continues to grow. With this in mind, the management team has focused on
optimising the Group's operations in readiness for when the market returns to
growth, and the increased activity seen towards the end of the financial year
are grounds for cautious optimism.
Our people are the bedrock of the business and the culture that pervades
across SysGroup has helped us to endure difficult conditions with great
dignity and professionalism. It is their focus which has resulted in customer
satisfaction levels comfortably ahead of our target and on behalf of the
Board, I offer them my sincere thanks.
The Board is pleased to present its first ESG report this year and in the
forthcoming year we anticipate focusing on how SysGroup can further improve as
a good corporate citizen. It is the first step in our commitment to do more
and having reported our baseline position this year we will now progress to
establishing the measures we are taking and KPI's against which we will be
measured and be held accountable. It is an exciting and important step in our
evolution.
The two acquisitions completed post the period end complement our existing
operations, bringing talented teams, enhanced offering and geographical reach
as well as new clients and strong recurring revenue streams. Further, they
signal our ongoing commitment to the Group's buy and build strategy and to act
as a consolidator in a highly fragmented market. The pandemic and associated
lockdowns subdued activity but we are starting to see increasing levels of
M&A activity in our sector and are confident that further opportunities
will present themselves.
Michael Edelson
Chairman
17 June 2022
Chief Executive Officer's report
Introduction
I am pleased to report a very robust performance for the Group despite a
number of sector wide headwinds throughout the period. The resilience that
SysGroup has shown exemplifies the continued demand for our core services, the
quality of our service offering and our highly talented team. Alongside this
performance we have further improved the operational structure of the business
to enable us to drive growth as demand returns.
As a result of solid trading in the year, the Group achieved Adjusted EBITDA
in line with management's expectations at £2.82m, which has been achieved
despite the anticipated decrease in revenue to £14.75m. The strong Adjusted
EBITDA performance has been driven by a greater mix of managed IT services,
representing 87.1% of the Group's total revenue, with lower margin value added
resale ("VAR") contributing the balance of 12.9% as businesses deferred asset
refresh spending. It also reflects the synergies throughout the Group and
careful control of overheads, whilst investing in areas that will drive future
performance.
Cash conversion was again typically strong during the period, ending the year
ahead of management's expectations with net cash of £2.99m. This performance
was achieved in a financial year that was dominated by the effects of the
global pandemic with economic uncertainty throughout and a return to office
working only coming through in the second half.
We have used these difficult markets to focus on all areas within our control,
to improve our business where possible and to ensure it is ideally placed to
benefit as confidence and economic stability returns. I am pleased to say that
we have achieved a huge amount and with customer engagement increasing on new
project discussions and sales opportunities beginning to convert towards the
end of the financial year, we are confident in our opportunity to succeed.
Market
The pandemic has greatly enhanced the demand for digital transformation and
managed IT services with businesses needing reliable technology solutions to
ensure the continued smooth running of their operations in an increasingly
hybrid working environment. The pace of the transition away from on-premise IT
to cloud and hybrid solutions has continued as flexible working becomes the
norm for many businesses and cloud-based services offer the efficiency and
practicality required to accommodate businesses' evolving needs.
Security is increasingly important to businesses as people continue to work
from home, presenting greater threats through increased access points as well
as traditional dangers through email and web. Similarly, connectivity, storage
and backup are focus areas where customers need the right solutions for their
staff to be effective.
With the technology landscape becoming increasingly complicated and solutions
evolving continuously, outsourced managed IT services are recognised as the
go-to solution. SysGroup's well established reputation as an industry leader
in this field will ensure accelerated growth as spending commitment returns.
Strategy
The Group's strategy is to consolidate its position as a leading managed IT
services, cyber security and cloud hosting provider to UK businesses. We are
dedicated to remaining up to date with all recent developments in technology
to pre-empt our customers' demands, so as to offer each individual
organisation the solutions they require in a timely manner.
We have a clear understanding of the market that we can best serve with our
customers typically ranging from 50 to 500 and above employees.
We place a great emphasis on understanding and servicing the needs of existing
customers through dedicated field-based account management resources. As a
result, we continue to enjoy very high levels of recurring business and our
customer satisfaction levels remained comfortably ahead of our 97% target
throughout the entire year, meaning we are a highly trusted partner to our
clients and can benefit from any increasing needs within their IT
infrastructure.
Our sales teams have been strengthened and during the year we were pleased to
open the new office in Manchester which creates a unified marketing and sales
team from which to target new clients. Working closely together provides the
unit with the ability to be more agile and react quickly to any changes in
market demand. The hub is still in its infancy but there are a number of key
marketing campaigns scheduled for the new financial year centred around our
core competencies and tailored specifically towards individual sector
verticals. We are confident these will help us reach new audiences, encourage
engagement and build our sales pipeline.
Through a combination of existing customer focus, increased relevant service
offerings and targeted new client acquisition we are confident that we can
deliver solid and sustainable organic growth.
Acquisitions
To support the Group's ambitious growth strategy, the Board continues to
monitor the market for complementary acquisitions, backed by the strong bank
support with increased credit facility and a solid shareholder register all
supportive of the M&A strategy.
Our goal is to find businesses with distinct characteristics that mirror those
of SysGroup. Typically, they will benefit from high levels of recurring income
with an engaged and talented team and the opportunity to provide cross-selling
opportunities. Geographical reach is also a consideration in helping us to
broaden our national sales coverage, as is the potential to enhance our
existing product expertise.
Post period end, we were pleased to announce the acquisitions of Truststream
and Orchard, prime examples of the characteristics described above. Both deals
have significantly enhanced the existing service offering, creating additional
cross-selling opportunities, bringing in new talent and expanding the Group's
geographic reach into Scotland whilst enhancing the existing position in the
Southwest.
The expansion of the business enables SysGroup to offer customers an enhanced
suite of IT solutions, providing a competitive edge over competitors and
better positioning the Company to take advantage of the market opportunities
in the near future. We continue to engage with potential targets and assess
businesses that could enable the continued growth of the Group and ensure that
our customers continue to receive the best possible service available.
Operational focus
Alongside the opening of the Manchester sales hub, this year has seen a number
of strategic developments completed and from which we are already experiencing
significant benefits. We were able to close down our Telford office, with all
customers continuing to be supported from other Group locations and we
refurbished the offices in Newport to create a greater working environment for
the team.
In March 2022 we completed Project Fusion, the project to deliver a unified
platform of systems across the Group. In FY21, we successfully implemented a
new and unified CRM, marketing, service desk, projects and billing system. In
FY22 we completed the project with further functionality for marketing
automation, people management and reporting. As well as providing greater
transparency and efficiency across the existing Group, the platform has
enabled us to immediately commence the integration programme for the two
recent acquisitions. Systems integration for both Truststream and Orchard are
both underway with people integration already completed and CRM, service desk
and billing on track to be completed by the end of the first half of the
current financial year.
SysCloud 2.0, the Group's multi-tenanted cloud platform went fully live and
operational in May 2022. SysGroup offers full cloud support from the
environment, platform, virtualisation up to the operating system for
infrastructure as a service (IaaS) or database platforms for platform as a
service (PaaS). We support the full cloud lifecycle from design, deployment,
provisioning of the platform as well as customers' applications and data to
ongoing service and change management. SysCloud 2.0 provides our clients with
even better performance and provides the Group with greater efficiency, giving
more capacity from less physical space.
People
As a people led business, our staff are at the very centre of everything that
we do and we have gone to great lengths to both attract and retain the best
talent available in the market.
The recruitment market remains challenging with many companies competing to
hire the best talent available and SysGroup is committed to investing in this
regard. We have revamped our recruitment process and moved to a direct
sourcing model with the addition of our own talent acquisition partner. The
aim is to give us better access to a wider talent pool and reduce our overall
cost of talent acquisition.
I am proud of the commitment our team members have shown in the face of
challenging conditions brought about by the pandemic. Our people have returned
to the office, largely on a full-time basis and I am pleased to see the
benefits of in-person collaboration and innovation coming to fruition. The
quality of the work produced by our team is industry-leading and this is
reflected in our customer satisfaction levels remaining above our 97% target
throughout the 12 month period.
ESG
SysGroup is a people first business and we hold social responsibility at the
very core of our ethos. As such we continue to push ourselves to be a more
conscientious business and welcome accountability as we work towards becoming
a more socially impactful business. We are dedicated to our sense of purpose
and are proud to have supported our team throughout the pandemic without
utilising the furlough scheme.
As part of our ongoing social responsibility programme, the Group has
commenced an ESG programme and has chosen to voluntarily disclose our ESG
activities and position. A copy of our summary ESG report is available to view
on our website and the full ESG report will be available alongside publication
of our annual report and accounts. We believe that being a good corporate
citizen, good employer and working to reduce carbon emissions are of the
utmost importance and are committed to improving in this regard. Through this
disclosure, we will establish a baseline for reporting moving forward as we
set out actionable KPI's and execute on this commitment.
As a technology focused business, our environmental impact is relatively low
and our recently refurbished offices allow us to reduce our carbon emissions
further. Our management team, staff and stakeholders are collectively
committed to further combat climate change and we look forward to setting our
path to doing so in the near future.
Summary and Outlook
The Group has delivered strong financial results with high levels of Adjusted
EBITDA and cash generation throughout a prolonged difficult period caused by
the pandemic and the ongoing macro-economic situation which are beyond the
Group's control. We are well aware that challenges remain. There can be no
doubt though that SysGroup today is a stronger business than at the onset of
the global pandemic.
We have the right service portfolio and technical expertise to meet the
individual and evolving needs of the UK mid-market. We have an established and
engaged customer base that we can provide a broader range of solutions to and
we have a unified sales and marketing team who can help us convey the SysGroup
value proposition to a broader audience through concise, targeted campaigns.
We also remain committed to exploring further M&A opportunities which can
accelerate this growth.
Towards the end of the last financial year we began to see the green shoots of
recovery for new business, with existing clients beginning to engage on
projects and an increasing pipeline of opportunities from new potential
clients. Whilst these are still early days and we must remain cautious, I am
confident that we will see improvements to both revenue and EBITDA performance
in this new financial year.
Adam Binks
Chief Executive Officer
17 June 2022
Chief Financial Officer's Report
Group Statement of Comprehensive Income
The Group delivered revenue of £14.75m (FY21: £18.13m), a decrease of 19% on
the prior year and an Adjusted EBITDA of £2.82m (FY21: £2.91m), a decrease
of 3% against the FY21 performance.
This has been another challenging period as COVID restrictions continued for
most of the year, and the economy was affected by high inflation and rising
energy costs. During H1 the Government implemented the roadmap for lifting
lockdown to return the public and businesses to normal home and working life
but throughout the year most businesses continued to operate homeworking
policies which limited the ability to have valued face to face meetings or
attend business facilities. Whilst SysGroup continued to operate with minimal
disruption throughout the COVID period and without using the furlough scheme,
there has been a negative impact on revenue as customers and prospects
deferred spending decisions. Contract churn also increased beyond normal
levels as customers were forced to reduce or cancel their contracted services
on renewal. This arose from their need to save costs to manage their financial
position or from a reduction in their staff numbers meaning less resources
where required.
Managed IT services revenue was £12.85m (FY21: £14.34m), a decrease of 10%
on the prior year. We entered this financial year at a lower level of
contracted income than last year due to the higher level of churn in FY21 and
as previously described we continued to see contract churn in FY22. With most
businesses continuing to enforce homeworking policies, this also meant that
our sales and technical consulting teams were unable to visit many of our
customers until Q4 of FY22. This has eased as we have entered FY23 with
companies gradually returning to the office and firmly placing IT strategy on
board agendas with an increased interest in cloud hosted solutions. Value
added resale ("VAR") revenue was £1.90m (FY21: £3.79m), a decrease of 50%,
as companies deferred spending decisions on tech refresh activity and extended
the useful life of on-premise IT assets.
In the short and medium term, managed IT services and VAR revenue is expected
to increase but in the long term, as businesses opt to move more towards our
higher margin cloud hosted service offerings, we can expect to see VAR
revenues continue to trend down.
The revenue mix of 87% managed IT services and 13% VAR is ahead of the Group's
target business model of 75% managed IT services and 25% VAR which was
predominantly due to the lower relative VAR sales in the year. The FY21
revenue mix was 79%:21%.
Revenue by Operating Segment 2022 2022 2021 2021
£'000 % £'000 %
Managed IT Services 12,845 87% 14,344 79%
Value Added Resale 1,901 13% 3,787 21%
Total 14,746 100% 18,131 100%
Gross profit was £8.92m with a gross margin of 60.5% (FY21: £10.50m and
57.9% respectively). The higher gross margin percentage reflects good cost
control and an increase in revenue mix towards higher margin managed IT
services. The gross margin for managed IT services was 66.3% (FY21: 66.9%) and
the gross margin for VAR was 21.5% (FY21: 23.9%).
Adjusted operating expenses of £6.10m were £1.49m below last year (FY21:
£7.59m) with a ratio of overhead to revenue of 41.4% (FY21: 41.8%). The main
driver for this was a reduction in employee costs as headcount reduced in full
realisation of post-acquisition synergies and we had a slightly higher vacancy
rate in the face of a challenging recruitment market. The Group made no use of
the government furlough scheme throughout the COVID period. Other overhead
costs were well managed throughout the year and we continued to invest into
strategic areas of value such as employee training and development and the ESG
programme. During the year we opened a new office in Manchester which has
given us good presence in a strong tech sector location and the lease has been
recognised under the IFRS16 lease accounting policy.
Adjusted EBITDA was £2.82m for the twelve months to 31 March 2022 which is
slightly lower than FY21 Adjusted EBITDA of £2.91m. The Adjusted EBITDA
margin was 19.1% in FY22 compared to 16.1% in FY21 which continues the
progressive improvement in profit efficiency as the Group has scaled up and
synergised the cost base.
The Group had no exceptional items in FY22 (FY21: £0.08m). Amortisation of
intangible assets was £1.24m (FY21: £1.29m), of which £1.10m (FY21:
£1.22m) relates to the amortisation of acquired intangible assets from
acquisitions and £0.14m (FY21: £0.07m) relates to the amortisation of
Project Fusion software development costs.
Finance costs of £0.13m remain low (FY21: £0.11m) as the term loan continued
to amortise through fixed quarterly loan repayments and the remaining lease
contracts are generally for office leases. The share-based payments charge of
£0.20m for the year (FY21: £0.50m) 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 2022 2021
£'000 £'000
Operating profit 725 313
Depreciation 654 722
Amortisation of intangible assets 1,243 1,294
EBITDA 2,622 2,329
Exceptional items - 82
Share based payments 195 504
Adjusted EBITDA 2,817 2,915
The Group has reported a statutory profit before tax of £0.60m which compares
to a profit before tax of £0.21m in FY21, an increase of 192%. Whilst
Adjusted EBITDA is slightly lower this year, profit before tax is higher due
to the lower charges for depreciation, amortisation and share based payments.
The table below shows the reconciliation of profit before taxation to Adjusted
PBT.
Adjusted Profit before tax 2022 2021
£'000 £'000
Profit before taxation 598 205
Amortisation of intangible assets 1,243 1,294
Exceptional items - 82
Share based payments 195 504
Total 2,036 2,085
Adjusted basic earnings per share was 3.6p (FY21: 3.5p) and basic earnings per
share was 0.9p (FY21: 0.5p), both showing a marginal improvement on the prior
year.
Taxation
The Group has a tax charge of £0.15m (FY21: £0.04m credit) and this includes
a £0.17m one-off deferred tax adjustment to reflect the increase in the
corporation tax rate that will apply from 1 April 2023.
The corporation tax current charge has reduced this year to £0.03m (FY21:
£0.28m). This reduction is partly from having a slightly lower trading profit
but is also due to a £0.1m prior year adjustment and the availability of
accelerated capital allowances using the new scheme put in place by the UK
Government.
The deferred tax charge has increased to £0.12m (FY21: £0.31m credit) which
includes the one-off £0.17m charge. This adjustment is to recognise the
expected higher future tax liability which will arise from the increase in
corporation tax rate to 25% in April 2023. The deferred tax charge also
includes a £0.08m prior year adjustment for fixed asset timing differences,
unrelated to the change in tax rate.
As an outlook, we expect the tax charge to increase in FY23 since brought
forward trading losses have been fully utilised in FY22 and Project Fusion,
which has allowed the Group to claim for R&D tax credits, has now been
completed. Looking further out to FY24, we expect the tax charge to increase
further since the rate of corporation tax increases on 1 April 2023 from 19%
to 25% and the accelerated capital allowances scheme comes to an end.
Cashflow & Net Cash
The Group had a strong net cash position of £2.99m at the end of the year, an
increase of £1.11m from FY21 net cash of £1.88m, and had a gross cash
balance of £4.13m (FY21: £3.47m). Cashflow from operations was £2.47m
(FY21: £2.93m) and cash conversion of 88% was at the higher end of our target
range of 80-90% (FY21: 103%).
Working capital continues to be managed well with debtor days at year end
below the target level of 25 days and suppliers routinely paid in our monthly
payment runs to agreed terms. Corporation tax paid was £0.16m (FY21: £0.10m)
reflecting the general increase in the Group's tax liability. The cash outflow
from investing activities of £0.89m (FY21: £1.55m) includes £0.30m (FY21:
£nil) expenditure on office refurbishments for the Newport and Manchester
offices, and £0.27m (FY21: £0.40m) of Project Fusion capitalised software
development costs. Cashflow from financing activities includes interest
payments, which have been re-categorised from operating activities in the
Consolidated Cashflow Statement, and bank loan repayments which as expected,
stepped up this financial year in accordance with the terms of the loan
agreement.
The Group's net cash position of £2.99m (FY21: £1.88m), an increase of 59%
and £1.11m, reflects the strength of the business model for cash generation.
We consider net 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.
Net cash 2022 2021
£'000 £'000
Cash balances 4,133 3,473
Bank loans - current (416) (416)
Bank loans - non-current (387) (757)
Lease liabilities - equipment (8) (86)
Lease liabilities - property (331) (334)
Total 2,991 1,880
Cash conversion 2022 2021
£'000 £'000
Cashflow from operations 2,468 2,931
Adjustments:
Acquisition, integration and restructuring cashflows - 82
Cash generated from operations 2,468 3,013
Adjusted EBITDA 2,817 2,915
Cash conversion 88% 103%
Cash conversion
We have previously reported our cash conversion ratio to include tax and
interest payments as part of operating cash but we have made the decision to
amend the calculation to be more consistent with our listed peer group by
measuring operating cashflows generated after movements in working capital.
The cash conversion ratio is therefore calculated as cashflow from operations,
adjusted for exceptional cashflow, as a percentage of Adjusted EBITDA. This
performance measure is reported as a KPI to the Board of Directors each month
and is a key indicator of the quality of adjusted profit as it converts into
cash. In FY22 cash conversion was 88% (FY21: 103%).
Consolidated Statement of Financial Position
The Group's net assets of £21.3m at 31 March 2022 represent an increase of
£0.7m compared to the prior year (FY21: £20.6m).
Non-current assets of £21.35m (FY21: £22.13m) have reduced by £0.78m and
this movement represents capital additions of £1.13m less £1.90m of
depreciation charge and amortisation of intangible assets. During the year, we
invested £0.86m of tangible capex into our business and office locations. As
well as investing £0.30m in the office refurbishments, we also invested
£0.13m to significantly enhance our multi-tenanted cloud hosting platform for
greater capacity and resilience. We invested a further £0.27m (FY21: £0.39m)
into Project Fusion as capitalised development costs and the final phase of
Project Fusion was completed in March 2022.
Working capital was managed well throughout the year. The gross trade debtor
balance of £2.08m compares to £1.73m in the previous year and the trade and
other payables balance of £2.69m compares to £2.68m in the prior year.
At the year end, the remaining balance on the senior term loan liability was
£0.80m (FY21: £1.17m). There were no further drawdowns of the bank
facilities during the year and the bank loan covenants were met throughout the
year.
New £8.0m Revolving Credit Facility
Following the 31 March 2022 year end, the Company re-financed its existing
term loan facility of £1.75m and its undrawn acquisition revolving credit
facility ("RCF") of £3.25m and replaced both with a new £8.0m RCF provided
by Santander to provide additional financial flexibility for acquisitions and
working capital requirements. The Group drew down £4.5m of RCF funds to
finance the acquisition of Truststream.
The new 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 will be tested quarterly and
calculated on total net debt to Adjusted EBITDA leverage and minimum
liquidity.
Project Fusion
The project to deliver a unified platform of systems across the Group has
continued to deliver significant improvements to our business operations. In
FY21, we successfully implemented a unified CRM, marketing, service desk,
projects and billing system and in FY22 we have gone live with further
functionality for marketing automation, people management and business
reporting. As anticipated, the project was completed in March 2022 with all
core operational systems now on a single platform. This provides a robust,
efficient and single pane of glass view of our business which will be used as
the platform for integrating newly acquired businesses in the future.
Capitalised software development costs comprising employee and third-party
supplier costs were £0.27m in FY22 (FY21: £0.39m).
Share Option Grants
During the period the Company granted options over 336,000 shares to employees
and 250,000 shares to senior management under the 2018 SysGroup EMI Scheme. In
June 2021, the Remuneration Committee granted 179,675 performance shares to
Adam Binks, Chief Executive Officer, and 107,805 performance shares to Martin
Audcent, Chief Financial Officer, in relation the Group's performance in FY21
and under the terms of the 2020 SysGroup Long Term Incentive Plan.
Martin Audcent
Chief Financial Officer
17 June 2022
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2022
2022 2021
Group Group
Notes £'000 £'000
Revenue 3 14,746 18,131
Cost of sales (5,826) (7,630)
Gross profit 8,920 10,501
Operating expenses before depreciation, amortisation, exceptional items and (6,103) (7,586)
share based payments
Adjusted EBITDA 2,817 2,915
Depreciation (654) (722)
Amortisation of intangibles 6 (1,243) (1,294)
Exceptional items - (82)
Share based payments (195) (504)
Administrative expenses (8,195) (10,188)
Operating profit 725 313
Finance costs (127) (108)
Profit before taxation 598 205
Taxation 5 (147) 35
Total comprehensive profit attributable to the equity holders of the company 451 240
Basic earnings per share (EPS) 4 0.9p 0.5p
Diluted earnings per share (EPS) 4 0.9p 0.5p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2022
2022 2021
Group Group
Notes £'000 £'000
Assets
Non-current assets
Goodwill 6 15,554 15,554
Intangible assets 6 4,318 5,290
Property, plant and equipment 1,478 1,281
21,350 22,125
Current assets
Trade and other receivables 7 2,079 1,728
Cash and cash equivalents 4,133 3,473
6,212 5,201
Total Assets 27,562 27,326
Equity and Liabilities
Equity attributable to the equity shareholders of the parent
Called up share capital 11 494 494
Share premium reserve 9,080 9,080
Treasury reserve (201) (201)
Other reserve 3,027 2,832
Translation reserve 4 4
Retained earnings 8,854 8,403
21,258 20,612
Non-current liabilities
Deferred taxation 5 1,011 889
Lease liabilities 9 195 190
Bank loan 9 387 757
Contract liabilities 10 296 481
1,889 2,317
Current liabilities
Trade and other payables 8 2,692 2,683
Lease liabilities 9 144 230
Bank loan 9 416 416
Contract liabilities 10 1,163 1,068
4,415 4,397
Total Equity and Liabilities 27,562 27,326
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2022
Attributable to equity holders of the parent
Share capital Share premium account Treasury reserve Other reserve Translation reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 April 2020 494 9,080 - 2,328 4 8,163 20,069
Comprehensive income
Profit for the period - - - - - 240 240
Total Comprehensive income - - - - - 240 240
Distributions to owners
Share buy back - - (201) - - - (201)
Share options charge - - - 504 - - 504
Total Distributions to owners - - (201) 504 - - 303
At 31 March 2021 494 9,080 (201) 2,832 4 8,403 20,612
As at 1 April 2021 494 9,080 (201) 2,832 4 8,403 20,612
Comprehensive income
Profit for the period - - - - - 451 451
Total Comprehensive income - - - - - 451 451
Distributions to owners
Share options charge - - - 195 - - 195
Total Distributions to owners - - - 195 - - 195
At 31 March 2022 494 9,080 (201) 3,027 4 8,854 21,258
CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED 31 MARCH 2022
2022 2021
Group Group
Notes £'000 £'000
Cashflows used in operating activities
Profit after tax 451 240
Adjustments for:
Depreciation and amortisation 1,897 2,016
Finance costs 127 108
Share based payments 195 504
Taxation charge/(credit) 5 147 (35)
Operating cashflows before movement in working capital 2,817 2,833
(Increase)/decrease in trade and other receivables (354) 987
Increase/(decrease) in trade and other payables 5 (889)
Cashflow from operations 2,468 2,931
Taxation paid (159) (98)
Net cash from operating activities 2,309 2,833
Cashflows from investing activities
Payments to acquire property, plant & equipment (620) (179)
Payments to acquire intangible assets 6 (271) (396)
Acquisition of subsidiary companies - (975)
Net cash used in investing activities (891) (1,550)
Cashflows from financing activities
Payments for share buy-back - (201)
Repayment of loan facility including fees (417) (224)
Capital/principal paid on lease liabilities (256) (288)
Interest paid on loan facility (67) (105)
Interest paid on lease liabilities (18) (28)
Net cash used in financing activities (758) (846)
Net increase in cash and cash equivalents 660 437
Cash and cash equivalents at the beginning of the year 3,473 3,036
Cash and cash equivalents at the end of the year 4,133 3,473
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
FOR THE YEAR ENDED 31 MARCH 2022
1. Accounting policies
SysGroup Plc (the 'Company') is a Company incorporated and domiciled in the
United Kingdom. The Company's registered office is at Walker House, Exchange
Flags, Liverpool, L2 3YL. These consolidated financial statements comprise the
Company and its subsidiaries (together referred to as the 'Group').
Statement of compliance
The 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.
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 2021 are an extract of the
Company's statutory accounts for the year ended 31 March 2021, prepared in
accordance with International Financial Reporting Standards (IFRS), approved
by the Board of Directors on 18 June 2021 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 2022 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.
Basis of preparation
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 adopted 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.
Going concern
The Directors have prepared the financial statements 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 for the period to 31
March 2024 and a sensitised version which models the financial consequences of
a considerable downside scenario. In assessing the forecasts, the Directors
have considered the potential impacts on the world and UK economies from the
Russian invasion of Ukraine and prolonged rises in inflation and energy costs.
In the base forecast there is significant and increasing headroom in the bank
covenants as the business continues to generate cash and reduce net debt. In
the sensitised forecast, and despite lower 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 2022, the Group had cash balances of £4.1m and a net cash position of
£3.0m. Subsequent to the year end, the Group re-financed with Santander and
now has an £8.0m Revolving Credit Facility ("RCF") which can be used for
acquisitions and working capital requirements and has no fixed repayment
terms. This provides further financing flexibility to the Group.
The forecasts, the resultant cashflows, together with the confirmed new 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 2022. The Group has adopted all of
the new and revised standards and interpretations issued by the IASB and the
International Financial Reporting Interpretations Committee (IFRIC) of the
IASB that are relevant to its operations. Other new amended standards and
interpretations issued by the IASB 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 by the IASB 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.
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.
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 PBT, 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.
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. No impairment has been
identified.
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.
Significant accounting judgements
Going concern
The Board have approved an Annual Operating Plan for FY23 and a forecast to 31
March 2024, and management have exercised judgement in the preparation of the
financial forecasts particularly on the level of future sales, customer
contract uplifts and cancellations, and working capital assumptions. The Board
have reviewed the Group's financial forecasts and a sensitised model in order
to assess the Group's business viability and to form a judgement on going
concern. Having reviewed the forecasts the Board were satisfied that the Group
remains a going concern.
Revenue
Management make judgements in determining the appropriate application of
revenue recognition policies to the sale of services and products.
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
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 & management of the business have been
successfully integrated, whichever is earlier. At 31 March 2022, the Board
exercised their judgement and concluded that the Group continues to have one
CGU, "Managed IT Services", which is the same as in the prior year.
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 and previous financial year in relation to Project
Fusion, a project to integrate all of the legacy business systems into one new
CRM, Marketing, People, Projects, Billing & Service Desk system. The
System Development intangible asset is being amortised over a five-year useful
life which the Directors consider appropriate for the Group's core business
system. Project Fusion was completed in March 2022.
IFR16 - Leases
Management make 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.
3 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.
2022 2022 2021 2021
Revenue by operating segment £'000 % £'000 %
Managed IT Services 12,845 87% 14,344 79%
Value Added Resale 1,901 13% 3,787 21%
Total 14,746 100% 18,131 100%
No individual customer account for more than 6% of the Group's revenue. The
revenue by geographic location for where services are delivered to customers
is shown below.
2022 2022 2021 2021
£'000 % £'000 %
UK 14,706 100% 18,091 100%
Rest of World 40 - 40 -
14,746 100% 18,131 100%
2022 2021
£'000 £'000
Revenue
Managed IT Services 12,845 14,344
Value Added Resale 1,901 3,787
Total 14,746 18,131
Gross profit
Managed IT Services 8,511 9,594
Value Added Resale 409 907
Total 8,920 10,501
4 Earnings per share
2022 2021
Profit for the financial year attributable to shareholders £451,264 £240,000
Weighted number of issued equity shares 48,859,690 49,234,036
Weighted number of equity shares for diluted EPS calculation 51,983,666 51,811,233
Adjusted basic earnings per share (pence) 3.6p 3.5p
Basic earnings per share (pence) 0.9p 0.5p
Diluted earnings per share (pence) 0.9p 0.5p
2022 2021
£'000 £'000
Profit after tax used for basic earnings per share 451 240
Amortisation of intangible assets 1,243 1,294
Exceptional items - 82
Share based payments 195 504
Tax adjustments (141) (376)
Adjusted profit used for Adjusted Earnings per Share 1,748 1,744
5 Taxation
2022 2021
Current tax £'000 £'000
Current tax - current year 120 260
Adjustments in respect of prior years (94) 16
Total current tax charge 26 276
Deferred tax
Deferred tax - timing differences 121 (311)
Total deferred tax 121 (311)
Total tax charge/(credit) 147 (35)
The effective tax rate for the year to 31 March 2022 is higher (FY21: lower)
than the standard rate of corporation tax in the UK. The differences are
explained below:
2022 2021
£'000 £'000
Profit on ordinary activities before tax 598 205
Profit on ordinary activities before taxation multiplied by the standard rate 114 39
of UK corporation tax of 19% (FY21:19%)
Effects of:
Expenses not deductible 34 53
Prior year adjustment (94) 17
Re-measurement of deferred tax due to changes in UK rate 142 51
Deferred tax asset on share-based payments 6 (122)
Use of brought forward losses (55) (73)
Total tax charge/(credit) 147 (35)
The Group recognised deferred tax assets and liabilities as follows:
2022 2021
£'000 £'000
Deferred tax liability on customer relationships (846) (927)
Deferred tax asset on share based payments 116 122
Capital allowances timing differences (281) (84)
Deferred tax liability (1,011) (889)
Recognition of deferred tax assets is restricted to those instances where it
is highly probable that relief against taxable profit will be available.
The movement in the deferred tax account during the year was:
Capital allowances timing differences Customer relationships Total
£'000 £'000 £'000
Balance at 1 April 2021 38 (927) (889)
Debited/credited to statement of comprehensive income (197) 81 (116)
Deferred tax asset on share-based payments (6) - (6)
Balance at 31 March 2022 (165) (846) (1,011)
Factors affecting future tax charges:
Deferred tax balances are recognised at 25% (2021: 19%) following UK
government legislation to increase the rate of corporation tax from 19% to 25%
on 1 April 2023.
6 Intangible assets
Systems Development Software licences Customer relationships Positive goodwill Total
Cost £'000 £'000 £'000 £'000 £'000
At 1 April 2020 407 204 9,156 15,554 25,321
Additions 395 1 - - 396
At 31 March 2021 802 205 9,156 15,554 25,717
At 1 April 2021 802 205 9,156 15,554 25,717
Additions 271 - - - 271
At 31 March 2022 1,073 205 9,156 15,554 25,988
Accumulated amortisation
At 1 April 2020 215 181 3,183 - 3,579
Charge for the year 49 20 1,225 - 1,294
At 31 March 2021 264 201 4,408 - 4,873
At 1 April 2021 264 201 4,408 - 4,873
Charge for the year 140 4 1,099 - 1,243
At 31 March 2022 404 205 5,507 - 6,116
Net book value
At 31 March 2021 538 4 4,748 15,554 20,844
At 31 March 2022 669 - 3,649 15,554 19,872
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 single CGU of "Managed IT Services".
As the Group acquires new businesses they will form their own CGU until they
have been integrated into the Group's core operational structure.
The allocation of goodwill and carrying amounts of assets for each CGU is as
follows:
Allocation of goodwill Carrying value of assets
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Managed IT Services 15,554 15,554 21,280 19,331
Total 15,554 15,554 21,280 19,331
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: pre-tax cash flow projections; long-term growth
rates; and a pre-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.
Managed IT Services
2022
Discount rate 9.40%
Revenue growth rate year 2 to year 5 2.50%
Terminal growth rate 2.50%
2021
Discount rate 9.50%
Revenue growth rate year 2 to year 5 2.50%
Terminal growth rate 2.50%
7 Trade and other receivables
Group Group
2022 2021
Amounts due within one year £'000 £'000
Trade debtors 1,154 916
Other debtors - -
Prepayments 925 812
Deferred tax asset - -
Total 2,079 1,728
8 Trade and other payables
Group Group
2022 2021
Amounts due within one year £'000 £'000
Trade payables 1,116 811
Amounts due to subsidiaries - -
Accruals 889 990
Total financial liabilities, excluding loans and borrowings measured at 2,005 1,801
amortised cost
Corporation tax 188 254
Other taxes and social security costs 499 628
Total 2,692 2,683
9 Loans and borrowings
Group Group
2022 2021
Non-current £'000 £'000
Lease liabilities 195 190
Bank loan 387 757
Total 582 947
Group Group
2022 2021
Current £'000 £'000
Lease liabilities 144 230
Bank loan 416 416
Total 560 646
Following the 31 March 2022 year end, SysGroup plc re-financed its existing
term loan facility of £1.75m and its undrawn acquisition revolving credit
facility of £3.25m and replaced both with a new £8.0m revolving credit
facility with Santander to provide additional financial flexibility for the
Group. The new banking facility has a term of five years, 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.
10 Contract liabilities
Group Group
2022 2021
£'000 £'000
Current - contract liabilities 1,163 1,068
Non-current - contract liabilities 296 481
Total 1,459 1,549
11 Share Capital
Group Group
Number £'000
Allotted, called up and fully paid ordinary shares of £0.01 each
At 1 April 2020 49,419,690 494
At 31 March 2021 49,419,690 494
At 31 March 2022 49,419,690 494
12 Post balance sheet events
Following the year end date, 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).
The acquisition purchase price accounting calculation has not been calculated
at the date of this Annual Report but the exercise will be undertaken and
completed ahead of SysGroup's Interim Announcement later in the year. The
acquired book values of the net assets has been provided for both acquisitions
below.
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
£3.075m. 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.
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.
Independent Network Solutions Limited
INSL is the holding company of Orchard Computers Limited ("Orchard") which is
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. The acquisition of Orchard will further strengthen SysGroup's
presence in the South West of England.
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 Orchard NBV Truststream NBV
£'000 £'000
Cash and cash equivalents 398 550
Trade and other receivables 305 1,783
Property, plant and equipment 34 1
Trade and other payables (299) (1,709)
Current income tax liability (54) (62)
Deferred tax liability (6) -
Identifiable net assets 378 563
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