REG - SysGroup PLC - Half-year Report
21/11/2022 07:00
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RNS Number : 9815G SysGroup PLC 21 November 2022
21 November 2022
SysGroup plc
("SysGroup" or the "Company" or the "Group")
Half year results for the six months ended 30 September 2022
SysGroup plc (AIM:SYS), the multi award-winning managed IT services, cyber
security and cloud hosting provider, is pleased to announce its unaudited half
year results for the six months ended 30 September 2022 ("H1 FY23").
Financial highlights
· Revenue increased by 49% to £11.32m (H1 FY22: £7.58m)
· Recurring Managed IT Services revenue represented 75% of total
revenue (H1 FY22: 86%), in line with expectations as a result of acquisitions
· Adjusted EBITDA(1)( )increased by 25% to £1.68m (H1 FY22: £1.34m)
· Adjusted profit before tax(2)( )of £1.10m (H1 FY22: £0.96m)
· Statutory loss before tax of £0.19m (H1 FY22: profit before tax
£0.25m)
· Adjusted basic EPS(3)( )of 2.0p (H1 FY22: 1.5p)
· Basic EPS of (0.2)p (H1 FY22: 0.3p)
· Cashflow from operations of £1.67m (H1 FY22: £1.14m)
· Net debt(4)( )on 30 September 2022 of £1.92m, excluding £2.94m of
contingent consideration relating to the acquisition of Truststream (30
September 2021: net cash of £1.96m)
Operational highlights
· First two acquisitions since 2019 as M&A difficulties caused
by pandemic and lockdowns ease
o Truststream Security Solutions Limited ("Truststream") acquired for up to
£7.9m, enhancing cyber security offering and adding Edinburgh location
o Orchard Computers Limited ("Orchard") acquired for £1m in cash,
strengthening south west operations
o Both acquisitions immediately earnings enhancing and integration largely
completed as a result of Project Fusion
· Consistently high customer satisfaction levels maintained above 97%
· Successful launch of multi-tenanted SysCloud 2.0 platform
· Early benefits seen from sales and marketing initiatives from
Manchester hub with growing pipeline of opportunities
· Workforce at optimal levels as recruitment market eases
Outlook
· Further potential for cross selling and client growth
· Continuing to monitor and assess acquisition opportunities
· The Board remains confident that trading for the current financial
year will be in line with its expectations
Adam Binks, Chief Executive Officer, commented:
"I am pleased to deliver results in line with expectations as the Group
benefits from the operational investments and improvements that have been made
over prior periods. Technology can help businesses improve efficiency and
protect margins which is increasingly relevant when set against the current
economic backdrop.
"The two acquisitions made in the period have strengthened our offering even
further and added more great team members to the Group. Additionally, they
have both brought a base of customers which we can service better from our
enhanced footprint which now covers the whole of Great Britain. As well as
being earnings enhancing, they are further evidence of our ambition to
continue to be a consolidator in this highly fragmented market."
Notes
1. Adjusted EBITDA is earnings before interest, taxation,
depreciation, amortisation of intangible assets, exceptional items and share
based payments.
2. Adjusted profit before tax 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 number of shares in issue.
4. Net debt represents cash balances less bank loans and lease
liabilities.
For further information please contact:
SysGroup Plc Tel: 0151 559 1777
Adam Binks, Chief Executive Officer
Martin Audcent, Chief Financial Officer
Zeus Capital (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
Overview
I am pleased to report on a strong first half for the Group, particularly in
light of the continuing difficult economic backdrop. This performance
highlights the strength of our strategy as we remain integral to our
customers, understanding their individual corporate needs and providing the
mission critical services required to meet their business ambitions. The
Company completed two acquisitions during the first six months and both are
performing in line with management's expectations whilst beginning to enable
future cross-selling opportunities.
Our financial performance was in line with expectations and reflects the
expected impact of the acquisitions. Revenue for the first six months was
£11.32m, an increase of 49% over the prior year (H1 FY22: £7.58m). As
expected, revenue mix changed back towards our previously guided split as both
acquired businesses have a greater proportion of value added resale ("VAR").
Recurring managed services accounted for 75% of total revenue compared to 86%
for the prior year, a blend that is expected to continue for the full year.
Gross profit margin of 50% reflects the higher proportion of lower margin VAR
sales (H1 FY22: 60%) and the Group delivered a strong increase of 25% in
Adjusted EBITDA to £1.68m (H1 FY22: £1.34m). Cash conversion was outstanding
at 120% (H1 FY22: 85%) and the Group ended the half with a healthy gross cash
balance of £4.22m (H1 FY22: £3.47m). The Group swung to a net debt position
of £1.92m (H1 FY22: net cash of £1.96m) excluding contingent consideration
of £2.94m relating to the acquisition of Truststream. The shift to a net debt
position is a result of the financing of the acquisitions via the Group's
committed debt facilities.
At the end of the last financial year, the Board highlighted that it was
starting to see the early signs of a recovery towards more normalised trading
conditions and the performance detailed for H1 FY23 demonstrates this.
Difficult economic conditions drive businesses to explore ways in which they
can maintain their competitive edge whilst also aiming to protect and improve
margins. Investing in technology delivers these outcomes and our sales and
marketing hub in Manchester has been working on a number of initiatives over
the course of the year which are beginning to prosper and build a growing
pipeline of future potential.
Operations
We are benefiting from the operational optimisation that became such a strong
focus through the pandemic, readying the business for these opportunities. The
investment in Project Fusion, which provided the Group with a single unified
platform, has been pivotal, vastly improving visibility and inter-operability
between locations as well enabling us to add scale at pace. There is still
work to do relating to the integration of the acquisitions. However, we have
made excellent progress in a short space of time.
The first half saw us launch SysCloud 2.0, the Group's multi-tenanted cloud
platform, which went fully live and operational in May 2022 with all existing
customers now migrated over from the legacy version. The design of the
platform allows us to scale quickly as needed in order to fulfil customer
demand. We support the full cloud lifecycle from design to deployment to
management of the platform as well as providing monitoring and maintenance of
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.
Power consumption is obviously an essential part of our business and as is
widely known the energy market continues to be unstable, often with increases
in costs coming at short notice. The Group has worked closely with both its
datacentre partners and energy brokers, where we are in control of our own
energy supply, to negotiate the best rates possible for both the Group and our
customers. In the majority of instances, we have been able to pass the
increases in costs we have seen through to customers.
The Company renewed its lease on our London offices, ensuring that we have a
necessary presence in the Capital. Following the closure of the office and
data centre in Telford, the Board is confident that the right structure is in
place to support further growth. Alongside existing operations in Bristol,
Liverpool, London, Manchester and Newport, the addition of our Edinburgh
location gives us a strong presence from which to grow our client base across
the United Kingdom.
Our people remain all important to our success. The recruitment market has
been a challenge in the post-pandemic world, however, this is beginning to
ease and we have seen increased levels of activity in our recent talent
acquisition drive and we are now seeing the benefits of maintaining our talent
acquisition strategy. For our existing team members, their commitment and
output remain outstanding and on behalf of the Board, I offer my sincere
thanks.
Strategy
The Group's strategy remains consistent: to expand its position as a trusted
provider of managed IT services to businesses in the UK mid-market. The Board
believes that a business focused on the provision of managed IT services
offers the highest growth opportunity, with the potential for increased
margins and longer-term contracts, thereby providing greater revenue
visibility.
To deliver against this strategy, the Group has positioned itself as an
extension of a customer's existing IT department, with an emphasis on
consultative-led sales to guide customers through the complexities and
developments in the managed IT services, cyber security and cloud hosting
marketplace. Our primary purpose is to remain abreast of developments in
technology and advise our customers accordingly. This leading role is
supplemented by exceptional customer service and support, resulting in strong
client engagement and embedding SysGroup into their organisations. The Group
continues to invest in R&D to ensure its clients are making use of the
latest and best solutions available to them whilst maintaining its vendor
agnostic approach.
Results and Trading
The Group delivered revenue of £11.32m (H1 FY22: £7.58m) and Adjusted EBITDA
of £1.68m (H1 FY22: £1.34m), increases of 49% and 25% respectively on the
comparative period last year.
Managed IT services revenue was £8.54m (H1 FY22: £6.50m), an increase of
31%, and VAR revenue was £2.78m (H1 FY22: £1.08m), an increase of 156%. The
higher VAR revenue performance shifted the revenue mix back to our target
model of 75%:25% (H1 FY22: 86%:14%) which had been anticipated on the
acquisitions of Truststream and Orchard. The Group's results reflect a full
half year of trading from the two acquisitions and we're pleased to have seen
single digit organic growth in revenue after the recent COVID impacted
periods.
Gross profit was £5.61m with a gross margin of 50% (H1 FY22: £4.56m and 60%
respectively). Whilst gross profit has increased, the gross margin percentage
has reduced which is in line with current guidance and relates to the revenue
mix of the two acquired businesses. Both Truststream and Orchard have a higher
number of VAR sales compared to the legacy SysGroup business, which is also
transacted at slightly lower gross margin.
Adjusted operating expenses of £3.94m were £0.72m above the same period last
year (H1 FY22: £3.22m) as the overheads of the acquired businesses have been
absorbed into the Group. Costs continue to be controlled well, though like
many other businesses we have seen a significant rise in energy costs. Our
contract terms with customers have largely allowed us to pass these increases
on although power consumption across our office footprint has been absorbed
into the overhead base.
The consolidated income statement includes £0.34m of exceptional costs which
are for the professional fees related to the acquisition of Truststream and
Orchard and costs associated with the post-acquisition integration and
restructuring.
Finance costs of £0.24m have increased compared to the same period last year
(H1 FY22: £0.05m). Finance costs include £0.12m of bank loan interest and
£0.10m of non-cash finance charges relating to the unwinding of discount on
contingent consideration and amortisation of the loan arrangement fee. The
bank loan interest has increased following the £4.5m drawdown to finance the
acquisition of Truststream and also from the increase in bank interest rates.
The Group has an Adjusted profit before tax of £1.10m (H1 FY22: £0.96m) and
a statutory loss before tax of £0.19m (H1 FY22: profit before tax £0.25m).
The statutory loss before tax results from having £0.34m of non-recurring
exceptional costs, a £0.25m increase in amortisation of acquired intangible
assets, and the increase in finance costs.
The taxation credit of £0.08m includes no significant one-off items. The tax
charge will increase in FY24 due to the increase in corporation tax rate from
19% to 25% which applies from 1 April 2023.
Adjusted basic earnings per share for H1 FY23 was 2.0 pence (H1 FY22: 1.5
pence) and basic loss per share for H1 FY23 was 0.2 pence (H1 FY22: earnings
per share 0.3 pence).
The consolidated statement of financial position includes the impact of the
Truststream and Orchard acquisitions with £6.3m of goodwill and £3.6m of
acquired intangible assets recognised on acquisition. The increase in the
Group's working capital balances primarily relate to the addition of the two
businesses and the full £2.9m discounted fair value of the contingent
consideration is included in current and non-current liabilities.
There were no significant items of capital expenditure in H1 FY23 and the
total tangible capex spend was £0.1m. In H1 FY22 the higher expenditure was
due to the refurbishments of our Newport & Manchester offices and
investing into our multi-tenanted SysCloud 2.0 platform. As planned, we
completed Project Fusion at the end of FY22 and there have been no system or
commercial development projects in H1 FY23.
The Group's financial position structurally shifted following the financing of
the two acquisitions in April. The net cash position of £1.96m at 31 March
2022 shifted to a net debt position of £1.92m at 30 September 2022, excluding
the £2.94m of contingent consideration. The £1m acquisition of Orchard was
financed from the Group's existing cash balance, and Truststream was acquired
using £4.5m of funds drawn from the new £8.0m revolving credit facility and
£0.85m from the Group's existing resources. The Group had a gross cash
balance of £4.22m at 30 September 2022 (30 Sept 2021: £3.47m).
Cashflow from operations was £1.67m (H1 FY22: £1.14m) and cash conversion
was higher than expected at 120% (H1 FY22: 85%). The target cash conversion
range for the Group is 80-90% but was higher than usual due to a small number
of VAR deals where payments had been received from customers in advance of the
related supplier payments falling due for payment. Working capital continues
to be managed well with debtor days below the target level of 25 days.
Corporation tax of £0.13m was paid in H1 FY23 (H1 FY22: £0.19m).
Acquisitions
In April, SysGroup completed its first two acquisitions since 2019, both of
which are strategically important for the Group. We are delighted with both
additions as they bring with them great teams, complement our existing
offering, provide opportunities for future cross selling and strengthen the
Group's geographical footprint.
We acquired Truststream for an initial cash consideration of £4.8m and a
maximum earn out consideration of up to £3.075m over a 24 month period.
Established in 2011, Truststream is one of the UK's fastest growing providers
of professional and managed cyber security services. The global managed
security services market is forecast to grow by a CAGR of 7.9% through to
2027*. Truststream has a strong and growing client base across both the
private and public sectors and is one of the UK's leading providers of
security transformation services. Its offering 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. Truststream has built long term sustainable relationships with key
vendors and is identified as a leading partner of choice for market leading
vendors by Gartner. Truststream has a number of relevant security
accreditations, including ISO 9001 and ISO 27001.
We subsequently acquired Independent Network Solutions Limited, which trades
as Orchard Computers, a Bristol based managed IT service provider, for £1.0m
in cash. Orchard has been in operation for over 30 years and has built a loyal
customer base totalling over 120 active clients in 2021, largely in the
Southwest of England. The average length of relationship amongst their 20
largest clients is 12 years, with no single customer representing more than 7%
of total revenues. Orchard represents customers 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.
At the time of the Truststream acquisition, the Company secured 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
with covenants that will be tested quarterly relating to total net debt to
Adjusted EBITDA leverage and minimum liquidity. The Group has drawn down
£4.5m against the new facility towards the funding of the Truststream
Acquisition.
As a result of Project Fusion, the integration of both businesses has been
both swift and seamless. The integration of both finance operations, customer
relationship management and team members have already been completed. By the
end of the current financial year, we expect to have completed integration of
all technical operations as well as have both businesses trading under the
SysGroup brand.
The Board is continuing to monitor and assess further acquisition
opportunities. The pipeline is looking healthy following the disruptions
caused by the pandemic and, as a well-capitalised and well-run business with
an increasing presence throughout the UK, we are well placed to add quality
businesses and further scale whilst continuing to maintain discipline in line
with our strict acquisition criteria.
Share Option Grants
In June 2022, the Remuneration Committee granted 284,010 performance shares to
Adam Binks, Chief Executive Officer, and 170,406 performance shares to Martin
Audcent, Chief Financial Officer in relation to the Group's performance in
FY22 and under the terms of the 2020 SysGroup Long Term Incentive Plan.
Outlook
Trading for the second half has continued with positive momentum and the Board
is therefore confident in meeting its full year expectations. Clearly, we are
conscious of the ongoing economic uncertainty but are continuing to work hard
to build a pipeline of opportunity. The business is continuing to benefit from
the operational investments and optimisation focus of previous periods and is
well placed to deliver further growth. Technology has the ability to drive
productivity and efficiency and with the landscape becoming increasingly
sophisticated and diverse, companies need outsourced expertise to deliver the
right outcomes for their individual needs.
The need for managed IT services remains prevalent and as businesses
increasingly seek to invest in technology to increase efficiencies and improve
their margins, SysGroup is ideally placed to capitalise on this market
opportunity.
The acquisitions of Truststream and Orchard demonstrate our desire and ability
to add quality businesses and we have the right infrastructure to integrate
them seamlessly and at pace. The market remains hugely fragmented and we will
look to consolidate further as opportunities arise.
*Source - "Managed Security Services Market Outlook to 2025: Global Report" by
Research and Markets
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHS ENDED 30 SEPTEMBER 2022
Unaudited Unaudited Audited
year to
six months to six months to
30-Sep-22 30-Sep-21 31-Mar-22
Notes £'000 £'000 £'000
Revenue 2 11,321 7,580 14,746
Cost of sales (5,708) (3,017) (5,826)
Gross profit 2 5,613 4,563 8,920
Operating expenses before depreciation, amortisation, exceptional items and (3,935) (3,219) (6,103)
share based payments
Adjusted EBITDA 1,678 1,344 2,817
Depreciation (330) (334) (654)
Amortisation of intangible assets (866) (615) (1,243)
Exceptional items 4 (337) - -
Share based payments (96) (93) (195)
Administrative expenses (5,564) (4,261) (8,195)
Operating profit 49 302 725
Finance costs 5 (243) (52) (127)
(Loss)/profit before taxation (194) 250 598
Taxation 77 (83) (147)
Total comprehensive (loss)/profit attributable (117) 167 451
to the equity holders of the company
Basic earnings per share (pence) 3 (0.2)p 0.3p 0.9p
Diluted earnings per share (pence) 3 (0.2)p 0.3p 0.9p
All the results arise from continuing operations.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2022
Unaudited Unaudited Audited
30-Sep-22 30-Sep-21 31-Mar-22
Notes £'000 £'000 £'000
Assets
Non-current assets
Goodwill 7 21,894 15,554 15,554
Intangible assets 7 7,005 4,822 4,318
Plant, property and equipment 2,139 1,614 1,478
31,038 21,990 21,350
Current assets
Trade and other receivables 8 4,090 1,926 2,079
Cash and cash equivalents 4,216 3,469 4,133
8,306 5,395 6,212
Total Assets 39,344 27,385 27,562
Equity and Liabilities
Equity attributable to the equity shareholders of the parent
Called up share capital 494 494 494
Share premium 9,080 9,080 9,080
Treasury reserve (201) (201) (201)
Other reserve 3,123 2,925 3,027
Translation reserve - 4 4
Retained earnings 8,741 8,570 8,854
21,237 20,872 21,258
Non-current liabilities
Lease liabilities 685 269 195
Contract liabilities 486 - 296
Contingent consideration 1,060 - -
Provisions 10 175 - -
Deferred taxation 1,642 948 1,011
Bank loan 11 5,187 595 387
9,235 1,812 1,889
Current liabilities
Trade and other payables 9 3,844 2,766 2,692
Lease liabilities 268 255 144
Contract liabilities 2,885 1,291 1,163
Contingent consideration 1,875 - -
Bank loan 11 - 389 416
8,872 4,701 4,415
Total Equity and Liabilities 39,344 27,385 27,562
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY
SIX MONTHS ENDED 30 SEPTEMBER 2022
Attributable to equity holders of the parent
Share capital Share premium Treasury reserve Other reserve Translation reserve Retained earnings Total
reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2021 494 9,080 (201) 2,832 4 8,403 20,612
Loss and total comprehensive income for the period - - - - - 167 167
Share options charge - - - 93 - - 93
At 30 September 2021 (unaudited) 494 9,080 (201) 2,925 4 8,570 20,872
Profit and total comprehensive income for the period - - - - - 284 284
Share options charge - - - 102 - - 102
At 31 March 2022 494 9,080 (201) 3,027 4 8,854 21,258
Loss and total comprehensive income for the period - - - - - (117) (117)
Reclass of translation reserve - - - - (4) 4 -
Share options charge - - - 96 - - 96
At 30 September 2022 (unaudited) 494 9,080 (201) 3,123 - 8,741 21,237
The following describes the nature and purpose of each reserve within equity:
Reserve Description and purpose
Share Premium Reserve Amount subscribed for share capital in excess of nominal values.
Treasury reserve Company owned shares held for the purpose of settling the exercise of employee
share options.
Other Reserve Amount reserved for share-based payments to be released over the life of the
instruments and the equity element of convertible loans
Translation Reserve Amount represents differences in relations to the consolidation of subsidiary
companies accounting for currencies other than the Group's functional
currency. In H1 FY23 the balance of the reserve was reclassified to Retained
earnings and no further translation differences are expected to occur.
Retained earnings All other net gains and losses and transactions with owners (e.g. dividends)
not recognised elsewhere.
CONSOLIDATED CONDENSED STATEMENT OF CASHFLOWS
SIX MONTHS ENDED 30 SEPTEMBER 2022
Unaudited Unaudited Audited
six months to
six months to
year to
31-Mar-22
30-Sep-22 30-Sep-21
£'000 £'000 £'000
Cashflows used in operating activities
(Loss)/profit after tax (117) 167 451
Adjustments for:
Depreciation and amortisation 1,196 949 1,897
Finance costs 243 52 127
Share based payments 96 93 195
Taxation (credit)/charge (77) 83 147
Operating cashflows before movement in working capital 1,341 1,344 2,817
Decrease/(increase) in trade and other receivables 68 (198) (354)
Increase/(decrease) in trade and other payables 260 (5) 5
Cashflow from operations 1,669 1,141 2,468
Taxation paid (128) (192) (159)
Net cash from operating activities 1,541 949 2,309
Cashflows from investing activities
Payments to acquire property, plant & equipment (105) (476) (620)
Payments to acquire intangible assets - (147) (271)
Acquisition of subsidiary companies net of cash acquired (5,390) - -
Net cash used in investing activities (5,495) (623) (891)
Cashflows from financing activities
RCF drawdown net of arrangement fees 4,373 - -
Repayment of bank loan (82) (189) (417)
Capital/principal paid on lease liabilities (102) (88) (256)
Interest paid on loan facility (138) (45) (67)
Interest paid on lease liabilities (14) (8) (18)
Net cash used in financing activities 4,037 (330) (758)
Net increase/(decrease) in cash and cash equivalents 83 (4) 660
Cash and cash equivalents at the beginning of the period /year 4,133 3,473 3,473
Cash and cash equivalents at the end of the period/year 4,216 3,469 4,133
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED 30 SEPTEMBER 2022
1. ACCOUNTING POLICIES
The accounting policies used in the preparation of the unaudited consolidated
condensed financial information for the six months ended 30 September 2022 are
prepared in accordance with UK adopted International Financial Reporting
Standards ("IFRS") and are consistent with those that will be adopted in the
annual statutory financial statements for the year ended 31 March 2023.
While the financial information included has been prepared in accordance with
the recognition and measurement criteria, in accordance with UK adopted
International Financial Reporting Standards, these consolidated condensed
financial statements do not contain sufficient information to comply with
IFRSs.
The financial information for the six-month period ended 30 September 2022 and
30 September 2021 does not constitute statutory accounts within the meaning of
Section 434(3) of the Companies Act 2006 and is unaudited but has been
reviewed by our auditors in accordance with the International Standard on
Review Engagement 2410 issued by the Auditing Practices Board. The comparative
financial information for the year ended 31 March 2022 included within this
report does not constitute the full statutory accounts for that period. The
statutory Annual Report and Financial Statements for 2022 have been filed with
the Registrar of Companies. The Independent Auditor's Report on that Annual
Report and Financial Statements for 2022 was unqualified, did not draw
attention to any matters by way of emphasis, and did not contain a statement
under 498(2) or 498(3) of the Companies Act 2006.
This Interim Report has been prepared solely to provide additional information
to shareholders to assess the Group's strategies and the potential for those
strategies to succeed. The Interim Report should not be relied on by any other
party or for any other purpose.
Exceptional items
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 (Note 6) as management
believe they should be considered separately to gain an understanding of the
underlying profitability of the trading businesses.
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 Group has an operating model with a high level of resilience to economic
downturn with circa 75% of revenue deriving from contracted managed IT
services which are business critical supplies to customers. This resilience
was demonstrated during the recent economic downturn when the Group continued
to operate at full capacity throughout the period with no use of the
government's furlough or loan assistance schemes. The Group has a gross cash
balance of £4.2m and a net debt position of £1.92m (excluding contingent
consideration of £2.94m) which is forecast to steadily reduce as the Group
continues to generate strong levels of operating cash inflow.
The Directors have reviewed the Group's financial forecasts and taken into
account the current UK economic outlook. The projected trading forecasts and
resultant cashflows, together with the confirmed loan facilities and other
sources of finance, 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 they continue to adopt the going concern basis of accounting in
preparing the financial statements.
2. SEGMENTAL REPORTING
The chief operating decision maker for the Group is the Board of Directors and
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
product and licence sales procured from supplier partners.
The monthly management accounts reported to the Board of Directors are
reviewed at a consolidated level and the Board review the results of the
operating segments at a revenue and gross profit level since the Group's
management and operational structure operate as unified 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, 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.
Unaudited Unaudited Audited
six months to six months to year to
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
Revenue
Managed IT Services 8,543 6,496 12,845
Value Added Resale 2,778 1,084 1,901
11,321 7,580 14,746
Gross Profit
Managed IT Services 5,157 4,329 8,511
Value Added Resale 456 234 409
5,613 4,563 8,920
3. EARNINGS PER SHARE
Unaudited Unaudited Audited year to
six months to six months to
30-Sep-22 30-Sep-21 31-Mar-22
(Loss)/profit for the financial period attributable to shareholders (117) 167 451
Adjusted profit for the financial period 974 741 1,748
Weighted number of equity shares in issue 48,859,690 48,859,690 48,859,690
Weighted number of equity shares for diluted calculation 52,189,652 51,786,614 51,983,666
Adjusted basic earnings per share (pence) 2.0p 1.5p 3.6p
Basic (loss)/earnings per share (pence) (0.2p) 0.3p 0.9p
Diluted (loss)/earnings per share (pence) (0.2p) 0.3p 0.9p
Unaudited Unaudited Audited year to
six months to six months to
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
(Loss)/profit after tax (117) 167 451
Amortisation of intangible assets 866 615 1,243
Exceptional items 337 - -
Share based payments 96 93 195
Tax adjustments (208) (134) (141)
Adjusted profit used for Adjusted earnings per share 974 741 1,748
The tax adjustments relate to current and deferred tax on the amortisation of
intangible assets, exceptional items and share based payments.
4. EXCEPTIONAL ITEMS
Unaudited Unaudited Audited
six months to six months to year to
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
Integration and restructuring costs 113 - -
Acquisition costs 224 - -
337 - -
5. FINANCE COSTS
Unaudited Unaudited Audited
six months to six months to year to
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
Interest payable on lease liabilities 26 2 20
Interest payable on bank loan 120 36 80
Arrangement fee amortisation on bank loan 18 14 27
Unwinding of discount on contingent consideration 79 - -
243 52 127
6. ALTERNATIVE PERFORMANCE MEASURES
Unaudited Unaudited Audited year to
Reconciliation of Operating profit to Adjusted EBITDA six months to six months to
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
Operating profit 49 302 725
Depreciation 330 334 654
Amortisation of intangible assets 866 615 1,243
EBITDA 1,245 1,251 2,622
Exceptional items 337 - -
Share based payments 96 93 195
Adjusted EBITDA 1,678 1,344 2,817
Reconciliation of loss before tax to Adjusted profit before tax Unaudited Unaudited Audited year to
six months to six months to
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
(Loss)/profit before tax (194) 250 598
Amortisation of intangible assets 866 615 1,243
Exceptional items 337 - -
Share based payments 96 93 195
Adjusted profit before tax 1,105 958 2,036
Cash conversion Unaudited Unaudited Audited year to
six months to six months to
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
Cashflow from operations 1,669 1,141 2,468
Adjustments:
Acquisitions, integration and restructuring cashflows 337 - -
Adjusted cashflow from operations 2,006 1,141 2,468
Adjusted EBITDA 1,678 1,344 2,817
Cash conversion 120% 85% 88%
Net debt Unaudited Unaudited Audited
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
Cash balances 4,216 3,469 4,133
Bank loans - current - (389) (416)
Bank loans - non-current (5,187) (595) (387)
Net (debt)/cash before lease liabilities (971) 2,485 3,330
Lease liabilities - equipment - - (8)
Lease liabilities - property (953) (524) (331)
Net (debt)/cash (1,924) 1,961 2,991
Contingent consideration (2,935) - -
Net (debt)/cash including contingent consideration (4,859) 1,961 2,991
7. INTANGIBLE ASSETS
Systems development Software licences Customer relationships Goodwill Total
£'000 £'000 £'000 £'000 £'000
Cost
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
At 1 April 2022 1,073 205 9,156 15,554 25,988
Additions - - 3,555 6,340 9,895
At 30 September 2022 1,073 205 12,711 21,894 35,883
Accumulated amortisation
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
At 1 April 2022 404 205 5,507 - 6,116
Charge for the year 86 - 782 - 868
At 30 September 2022 490 205 6,289 - 6,984
Net book value
At 31 March 2022 669 - 3,649 15,554 19,872
At 30 September 2022 583 - 6,422 21,894 28,899
8. TRADE AND OTHER RECEIVABLES
Unaudited Unaudited Audited
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
Trade receivables 1,723 991 1,154
Other receivables 2,367 935 925
4,090 1,926 2,079
9. TRADE AND OTHER PAYABLES
Unaudited Unaudited Audited
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
Trade payables 1,399 1,344 1,116
Corporation tax 427 153 188
Other taxes and social security 836 468 499
Accruals 1,182 801 889
3,844 2,766 2,692
10. PROVISIONS
Unaudited Unaudited Audited
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
Dilapidations provision 175 - -
This 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.
11. BANK LOAN
Unaudited Unaudited Audited
30-Sep-22 30-Sep-21 31-Mar-22
£'000 £'000 £'000
Bank loans - current - 389 416
Bank loans - non-current 5,187 595 387
5,187 984 803
In April 2022, 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.
12. ACQUISITIONS
In April 2022 SysGroup acquired 100% of the issued share capital in
Truststream and Independent Network Solutions Limited ("INSL") which is the
holding company of Orchard.
Truststream
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.
Truststream was acquired for £4.8m initial cash consideration on a cash-free
debt-free basis with an additional £0.5m paid for the net cash position
following the conclusion of the completion accounts exercise. The acquisition
agreement includes a two year earn-out mechanism with contingent consideration
payable up to £3.08m following the first and second anniversaries of the
transaction. 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 funded from a new £8.0m revolving credit
facility ("RCF") which was signed with Santander in April 2022. SysGroup
utilised £4.5m of funds from the RCF and £0.8m from existing Group cash
balances to finance the acquisition.
Orchard
SysGroup acquired INSL in April 2022 for £1.0m cash consideration with no
contingent or deferred consideration. The cash consideration was funded from
the Group's existing cash balances.
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 furthers strengthen SysGroup's presence in the south west of England.
Fair value of acquired net assets
The Directors have reviewed the intangible assets of both companies and have
recognized an intangible asset in respect of customer relationships for both
acquisitions. The asset values have been calculated using a discounted
cashflow method based on the estimated level of profit to be generated from
the customers acquired. A post tax discount rate of 9.40% was used in the
valuation and the customer relationships are amortised over an estimated
useful life of seven years for Truststream and ten years for Orchard. The
goodwill arising on the acquisitions is attributable to the technical skills
of the workforce and cross-selling opportunities achievable from combining the
acquired customer bases and trades with the existing Group.
The goodwill and intangible assets have been allocated to new CGUs,
Truststream & Orchard since the companies have their own distinct cash
operations and financial reporting processes.
The Directors consider it appropriate for both businesses to be reported
within the existing Group's operating segments, managed IT services and VAR,
since they are both managed within the Group's management and operating
structure and have revenues that align with the segments.
Orchard Truststream
Recognised amounts of net assets acquired and liabilities assumed Book value Fair value Adj. Fair value Book value Fair value Adj. Fair value
£'000 £'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 398 - 398 550 - 550
Trade and other receivables 311 (15) 296 1,783 - 1,783
Property, plant and equipment 32 (32) - - - -
Intangible assets - 1,028 1,028 - 2,526 2,526
Trade and other payables (385) (410) (795) (1,776) - (1,776)
Bank loan (82) - (82) - - -
Corporation tax (63) - (63) (119) - (119)
Deferred tax (5) (257) (262) - (632) (632)
Identifiable net assets 520 2,332
Goodwill 485 5,860
Total net assets 1,005 8,192
Satisfied by:
Cash consideration - paid on acquisition 1,005 5,337
Contingent consideration - 3,075
Discounting of contingent consideration - (220)
Total consideration 1,005 8,192
13. AVAILABILITY OF INTERIM REPORT
Copies of this report are available on the Company's website at
http://www.sysgroup.com (http://www.sysgroup.com)
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