REG - SysGroup PLC - Half-year Report
27/11/2023 07:00
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RNS Number : 6737U SysGroup PLC 27 November 2023
27 November 2023
SysGroup plc
("SysGroup" or the "Company" or the "Group")
Half year results for the six months ended 30 September 2023
SysGroup plc (AIM:SYS), the end-to-end data solution provider, is pleased to
announce its unaudited half year results for the six months ended 30 September
2023 ("H1 FY24" or the "Period").
Financial highlights
· Revenue decrease of 3% to £10.96m (H1 FY23: £11.32m)
· Managed IT Services revenue growth of 8% representing 84% of
total revenue (H1 FY23: 75%)
· Adjusted EBITDA(1)( )of £1.57m (H1 FY23: £1.68m)
· Adjusted profit before tax(2)( )of £0.99m (H1 FY23: £1.10m)
· Statutory loss before tax of £1.09m (H1 FY23: loss before tax of
£0.19m)
· Adjusted basic EPS(3)( )of 1.7p (H1 FY23: 2.0p)
· Basic EPS of (1.5)p (H1 FY23: (0.2)p)
· Adjusted cashflow from operations of £1.24m (H1 FY23: £2.01m)
· Net debt(4)( )of £3.43m at 30 September 2023 (30 September
2022: £1.92m)
Operational highlights
· A new strategy to provide end-to-end solutions focused on
Artificial Intelligence ("AI") and Machine Learning ("ML") with an associated
investment in a team of ML engineers from AWS, JP Morgan, Validus and McLaren
· Refreshed the SysCloud infrastructure with the latest hardware
and upgraded our internal security architecture with industry leading
cloud-based security platform
· Strengthened the senior management team with individuals with
invaluable experience and expertise from industry leading companies
· Heejae Chae appointed as Executive Chair and Paul Edwards as new
Non-Executive Director
Heejae Chae, Executive Chair, commented:
"Our strategy aims to position SysGroup as the go-to end-to-end data solution
provider for small and medium sized businesses ("SMB") embarking on their
AI/ML journey. AI's prominence is undeniable with daily media coverage and
increasing demand for AI strategies at the board level of every company. We
recognise a significant market gap: while many SMBs are eager to adopt AI/ML,
they often lack a clear strategy or implementation path. There is a great
demand for a partner to support their development of an AI/ML strategy and
transition from the current platform.
We have made significant investments in both technology and people. We have
recruited a team of ML engineers from industry leaders such as AWS, JP Morgan,
Validus and McLaren. We have significantly strengthened the senior
management team to help take us on this journey, bringing together the right
skillsets and mindsets. Throughout the organisation, we are reinforcing a
culture of customer focus and outstanding service underpinned by innovation,
entrepreneurialism and high performance. Whilst we are at the early stage of
our journey, I am excited at the potential of what we are building at SysGroup
combined with the considerable unexploited market opportunity that lays ahead
of us.
Finally, the core business, which has more than 80% recurring revenues
provides a very solid base from which we can expand, giving us very good
revenue certainty and visibility, albeit that in the short term we may see our
overall bottom line performance impacted marginally, reflecting the investment
we are making in the Company to drive revenue growth in future financial
years."
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, and excludes contingent consideration.
For further information please contact:
SysGroup Plc Tel: 0151 559 1777
Heejae Chae, Executive Chair
Martin Audcent, Chief Financial Officer
Zeus Capital (Nominated Adviser and Broker) Tel: 0161 831 1512
Jordan Warburton
Nick Cowles
Nick Searle
About us
SysGroup plc is a managed service provider of end-to-end data solutions
enabling us to take our customers on their AI data journey. The Group offers
an integrated set of modern technologies that collectively meets our customers
end-to-end data needs including connectivity, cloud hosting, delivery,
analytics and governance of customer data, as well as a security layer for
users and applications.
The Group has offices in Bristol, Edinburgh, Liverpool, London, Manchester and
Newport.
For more information, visit http://www.sysgroup.com
Overview & Strategy
During the Period, SysGroup maintained a stable revenue of £10.96m. This
consistency reflects growth in Truststream, our CyberSecurity acquisition in
April 2022, counterbalancing a decrease in traditional SysGroup revenues.
Notably, managed IT services now constitutes 84% of our revenues, an increase
from 75% last year, bolstering our financial stability and visibility. In the
Period we delivered Adjusted EBITDA of £1.57m, maintaining a margin
comparable to last year.
The Group's gross cash balance was £1.99m at the end of the Period (H1
FY23: £4.22m) following payments to satisfy the Truststream year one
earn-out and settle the contractual terms of the previous CEO's departure
including the acquisition of 2,076,394 ordinary shares of 1 pence each
("Ordinary Shares"), now held in Treasury. Excluding these one-off payments,
the cash conversion was 79%. The net debt(4) at the end of the Period
was £3.43m (H1 FY23: £1.92m), which excludes contingent consideration
payable within one year of £1.84m (H1 FY23: £2.93m).
Since my appointment as Executive Chair in June, I have engaged with various
stakeholders including customers, employees, partners and competitors. These
interactions have provided valuable insights into both industry trends and
company-specific challenges. SysGroup is well positioned to participate in the
burgeoning field of AI/ML, a technology set to redefine our era. AI's
prominence is undeniable, with daily media coverage and increasing demand for
AI strategies at the board level of every company. The reality is that AI
is here to stay and will be a powerful tool for those that embrace it.
Factors driving the AI/ML adoption include:
• The growing availability of data, crucial for training AI/ML
algorithms. As the amount of data that companies collect continues to grow, so
does the potential for AI and ML to deliver value;
• Decreasing costs of computing power, making AI/ML algorithms more
accessible across various company sizes and budgets; and
• The increasing sophistication and user-friendliness of AI/ML tools
and technologies
Our strategy is to position SysGroup as the go-to end-to-end data solution
provider for SMBs embarking on their AI/ML journey. It is clear from our
conversations with our customers we recognise a significant market gap: while
many SMBs are eager to adopt AI/ML, they often lack a clear strategy or
implementation path. There is a great demand for a partner to support their
development of an AI/ML strategy and transition from their current
platforms. Many providers claim to be AI/ML experts but lack the capability
to provide an end-to-end solution. Traditionally, most IT providers
specialise in specific technology stacks. AI/ML strategy requires a holistic
approach where the outcome is delivered from both software and hardware
solutions. Over 80% of all AI projects fail because they have not taken a
holistic approach, for example, by not defining the correct business case or
not employing appropriate data architecture framed by the right technology
infrastructure. Whilst gaps still exist in our offerings, we believe that we
have the framework to build our strategy, underpinned by the relationship with
our customers.
Our Technology Services strategy is to build a modern unified data solution
platform that is simple for SysGroup to sell and support and is simple for our
customers to consume and benefit from. This will comprise of an integrated
set of technologies that collectively meets our customers end-to-end data
needs. It will allow for connectivity, storage, preparation, delivery,
analytics and governance of customer data, as well as a security layer for
users and applications.
Operations
We have made substantial investments both in our IT infrastructure and people
during the Period. These include upgrading SysCloud infrastructure with the
latest hardware and enhancing our internal security architecture with a
leading cloud-based security platform. We have completed the refurbishment of
our offices to provide a positive and productive working environment as we
moved to more flexible working.
We have recruited a team of ML engineers with turnkey experience to deliver AI
solutions from design to delivery at an annual cost of £0.5m. They bring
considerable combined experience in a nascent field of technology having
worked at industry leaders such as AWS, JP Morgan, McLaren and Validus. To
support the end-to-end strategy, we have segmented our technology into five
key areas: (i) data analytics and ML; (ii) data storage and management; (iii)
data connectivity; (iv) data engineering; and (v) cybersecurity. We will
invest to enhance the existing competencies organically as well as through
acquisitions to fill the gaps in our technology offerings.
Board and Management Changes
We have taken steps to ensure robust corporate governance, reviewing the Board
and committees' Terms of Reference and establishing a new Nomination Committee
to ensure that the composition and succession of the Board is reviewed and
reflects a balance of skills, knowledge and experience which is appropriate
for the Company. Wendy Baker has been appointed as Company Secretary and
General Counsel, providing oversight and guidance on governance. Wendy was
previously at Scapa Group plc, Promethean World plc and Volex Group plc.
Paul Edwards joined as a Non-Executive Director on 26 September 2023 to
balance the independence in the Board. Paul brings extensive PLC experience as
the CFO of Tatton Asset Management plc and previously Scapa Group plc and NCC
Group plc.
We have also upgraded the senior management team with the appointments of
people with relevant experience from leading companies in the sector:
· Heinrich Koorts joined us as Chief Revenue Officer from Softcat
plc where he spent the past ten years in London and Bristol;
· Paul Sullivan has been appointed as Chief Technology Officer.
Paul was the founder of Truststream which SysGroup acquired in April 2022;
· Ross Humphrey has recently joined as the Chief AI Officer to lead
our AI/ML initiative. Ross has over a decade of experience in machine
learning as one of the UK's early adopters during his tenure at JP Morgan and
Validus; and
· Charles Vivian has joined as Director of Business Development to
support our M&A strategy as acquisitions will be part of our growth
plan. Charles was previously at MXC Capital, Marwyn Capital and Freshfields
Bruckhaus Deringer.
These individuals bring invaluable experience and expertise, positioning
SysGroup for future success.
Results and Trading
The Group has delivered revenue of £10.96m (H1 FY23: £11.32m) and Adjusted
EBITDA of £1.57m (H1 FY23: £1.68m) in H1 FY24. Managed IT services revenue
increased to £9.22m (H1 FY23: £8.54m), a growth of 8% on the comparative
period, whilst Value Added Resale ("VAR") revenue was £1.74m (H1 FY23:
£2.78m), a decrease of 37%. The driver of the Managed IT services growth has
been in IT security where this year we have seen more customers take up
contracted managed service support in addition to the provision of security
licences. In cases where managed services and licences are sold together the
revenue is recognised as Managed IT services uniformly across the contract
term. This also explains the reason for the reduction in VAR revenue since
fewer "licence only" contracts are being sold. The revenue mix in H1 FY24 is
84% Managed IT services and 16% VAR sales (H1 FY23: 75%:25%) and this is
expected to remain similar in H2 FY24.
Gross profit was £5.47m with a gross margin of 49.9% (H1 FY23: £5.61m and
49.6% respectively). Whilst the revenue mix has moved to higher margin Managed
IT Services, the IT security sales which led the contracted income growth
are lower margin than core managed services business. The gross margin has
also been impacted by supplier cost increases which have been prevalent in the
UK economy over the last twelve months.
Adjusted operating expenses of £3.90m were broadly flat with the same period
last year (H1 FY23: £3.94m). We expect overheads to increase in H2 FY24 from
our investments in the Senior Leadership Team and AI/Machine Learning team.
The consolidated income statement includes £1.05m of exceptional costs which
are for the settlement of the former CEO's contractual terms, payments of
supplier charges which are disputed and remain subject to ongoing action, and
restructuring activity with the Senior Leadership Team.
Finance costs of £0.29m have increased compared to the same period last year
(H1 FY23: £0.24m). Finance costs include £0.21m of bank loan interest, which
has increased due to the increase in the Bank of England's base rate, and
£0.06m of non-cash finance charges relating to the unwinding of discount on
contingent consideration and amortisation of the loan arrangement fee.
The Group delivered an adjusted profit before tax of £0.99m (H1 FY23:
£1.10m) and a statutory loss before tax of £1.09m (H1 FY23: loss before tax
£0.19m). The statutory loss before tax results from having £1.05m of
exceptional costs (H1 FY23: £0.34m) in the Period and from an increase in
share based payments.
The taxation credit of £0.34m (H1 FY23: credit of £0.08m) represents the
movement on deferred tax in the Period with no corporation tax charge arising
on the Group's trading position in H1 FY24. The corporation tax rate increased
on 1 April 2023 from 19% to 25%.
Adjusted basic earnings per share for H1 FY24 was 1.7p (H1 FY23: 2.0p) and
basic loss per share was (1.5p) (H1 FY23: loss per share (0.2p)).
Cashflow & Net Debt
The Group had a gross cash balance of £1.99m at 30 September 2023 (H1 FY23:
£4.22m) and net debt of £3.43m (H1 FY23: £1.92m). Cash balances were
utilised in H1 FY24 for the Truststream year one earn-out (£0.88m), the
acquisition of 2,076,394 Ordinary Shares into Treasury (£0.76m), and to
settle the former CEO's contractual terms (£0.66m). Cashflow from operations
was £0.23m (H1 FY23: £1.67m) and included £1.00m of exceptional cash costs.
Cash conversion of 79% was broadly in line with the target range and compares
to 120% in H1 FY23 which as explained at the time was due to a number of VAR
deals where customer payments had been received in advance. Capex expenditure
in H1 includes the refurbishment of the Bristol office which was completed in
July and development costs for the implementation of a new financial accounts
system.
The Truststream year 1 earn-out was finalised in H1 FY24 and in accordance
with the share purchase agreement 75% of the year 1 consideration was paid to
the vendors. Accordingly, £0.89m was paid in cash consideration and
£0.29m is deferred for payment to H1 FY25. The contingent consideration
liability held in the Consolidated Statement of Financial Position is £1.84m
which compares to £2.94m as at 31 March 2023 and 30 September 2022. The
liability is held at the maximum consideration payment value under the terms
of the earn-out agreement and this will be re-assessed for fair value at the
31 March 2024 year end.
Share Options
In April 2023, under the 2020 LTIP Scheme and in respect of performance for
the FY23 financial year, a grant of 362,709 performance shares was made to
Adam Binks, Chief Executive Officer, and 204,024 performance shares to Martin
Audcent, Chief Financial Officer. In May 2023, in respect of Mr Binks'
departure, the Board agreed that the unvested options held by Mr Binks would
vest with immediate effect with restrictions waived. Mr Binks exercised his
share options, totalling 2,076,394 Ordinary Shares and the Company acquired
them at a price of £0.375 per Ordinary Share. The Company holds these
Ordinary Shares in Treasury to satisfy the exercise of future share options
under SysGroup's share incentive schemes.
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHS ENDED 30 SEPTEMBER 2023
Unaudited Unaudited Audited
year to
six months to six months to
30-Sep-23 30-Sep-22 31-Mar-23
Notes £'000 £'000 £'000
Revenue 2 10,963 11,321 21,648
Cost of sales (5,497) (5,708) (10,552)
Gross profit 2 5,466 5,613 11,096
Operating expenses before depreciation, amortisation, exceptional items and (3,897) (3,935) (7,768)
share based payments
Adjusted EBITDA 1,569 1,678 3,328
Depreciation (297) (330) (625)
Amortisation of intangible assets (866) (866) (1,739)
Exceptional items 4 (1,052) (337) (408)
Share based payments (156) (96) (178)
Administrative expenses (6,268) (5,564) (10,718)
Operating (loss)/profit (802) 49 378
Finance costs 5 (287) (243) (483)
Loss before taxation (1,089) (194) (105)
Taxation 343 77 98
Total comprehensive loss attributable (746) (117) (7)
to the equity holders of the company
Basic loss per share (pence) 3 (1.5)p (0.2)p 0.0p
Diluted loss per share (pence) 3 (1.5)p (0.2)p 0.0p
All the results arise from continuing operations.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2023
Unaudited Unaudited Audited
30-Sep-23 30-Sep-22 31-Mar-23
Notes £'000 £'000 £'000
Assets
Non-current assets
Goodwill 7 21,666 21,894 21,666
Intangible assets 7 5,536 7,005 6,295
Plant, property and equipment 2,013 2,139 1,966
29,215 31,038 29,927
Current assets
Trade and other receivables 8 5,609 4,090 5,007
Cash and cash equivalents 1,986 4,216 4,186
7,595 8,306 9,193
Total Assets 36,810 39,344 39,120
Equity and Liabilities
Equity attributable to the equity shareholders of the parent
Called up share capital 12 515 494 494
Share premium 9,080 9,080 9,080
Treasury reserve (984) (201) (201)
Other reserve 3,293 3,123 3,205
Retained earnings 8,173 8,741 8,851
20,077 21,237 21,429
Non-current liabilities
Lease liabilities 520 685 621
Contract liabilities 174 486 383
Contingent consideration 11 - 1,060 1,875
Provisions 148 175 191
Deferred taxation 1,106 1,642 1,434
Bank loan 10 4,720 5,187 4,705
6,668 9,235 9,209
Current liabilities
Trade and other payables 9 4,576 3,844 3,861
Lease liabilities 176 268 182
Contract liabilities 3,475 2,885 3,633
Contingent consideration 11 1,838 1,875 806
10,065 8,872 8,482
Total Equity and Liabilities 36,810 39,344 39,120
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY
SIX MONTHS ENDED 30 SEPTEMBER 2023
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 2022 494 9,080 (201) 3,027 4 8,854 21,258
Loss and total comprehensive expense 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
Profit and total comprehensive income for the period - - - - - 110 110
Share options charge - - - 82 - - 82
At 31 March 2023 494 9,080 (201) 3,205 - 8,851 21,429
Loss and total comprehensive expense for the period - - - - - (746) (746)
Purchase of own shares into Treasury - - (783) - - - (783)
Issue of share capital 21 - - - - - 21
Share options charge - - - 156 - - 156
Reserves transfer on forfeiture of share options - - - (68) - 68 -
At 30 September 2023 (unaudited) 515 9,080 (984) 3,293 - 8,173 20,077
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.
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 2023
Unaudited Unaudited Audited
six months to
six months to
year to
31-Mar-23
30-Sep-23 30-Sep-22
£'000 £'000 £'000
Cashflows used in operating activities
Loss after tax (746) (117) (7)
Adjustments for:
Depreciation and amortisation 1,163 1,196 2,364
Finance costs 287 243 483
Share based payments 156 96 178
Taxation credit (343) (77) (98)
Operating cashflows before movement in working capital 517 1,341 2,920
(Increase)/decrease in trade and other receivables (713) 68 (737)
Increase in trade and other payables 430 260 837
Cashflow from operations 234 1,669 3,020
Taxation paid (64) (128) (303)
Net cash from operating activities 170 1,541 2,717
Cashflows from investing activities
Payments to acquire property, plant & equipment (180) (105) (252)
Payments to acquire intangible assets (139) - (163)
Acquisition of subsidiary companies net of cash acquired - (5,390) (5,389)
Net cash used in investing activities (319) (5,495) (5,804)
Cashflows from financing activities
Payment of contingent consideration on acquisitions (886) - -
RCF drawdown - 4,500 4,500
Payment of bank loan arrangement fee - (127) (127)
Repayment of bank loan - (82) (582)
Repurchase of shares into treasury (783) - -
Proceeds for issue of share capital 21 - -
Capital/principal paid on lease liabilities (171) (102) (303)
Interest paid on loan facility (217) (138) (316)
Interest paid on lease liabilities (15) (14) (32)
Net cash used in financing activities (2,051) 4,037 3,140
Net (decrease)/increase in cash and cash equivalents (2,200) 83 53
Cash and cash equivalents at the beginning of the period /year 4,186 4,133 4,133
Cash and cash equivalents at the end of the period/year 1,986 4,216 4,186
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED 30 SEPTEMBER 2023
1. ACCOUNTING POLICIES
The accounting policies used in the preparation of the unaudited consolidated
condensed financial information for the six months ended 30 September 2023 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 2024.
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 2023 and
30 September 2022 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 2023 included within this
report does not constitute the full statutory accounts for that period. The
statutory Annual Report and Financial Statements for 2023 have been filed with
the Registrar of Companies. The Independent Auditor's Report on that Annual
Report and Financial Statements for 2023 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.
This unaudited interim financial information has been prepared in accordance
with the requirement of the AIM Rules for Companies and in accordance with
this basis of preparation.
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 with 84% of
revenue deriving from contracted managed IT services which are business
critical supplies to customers. The Group has a gross cash balance of £1.99m
and a net debt position of £3.43m (excluding contingent consideration of
£1.84m) at 30 September 2023. The Group has undrawn RCF facilities available
of £3.2m which can be used for working capital and acquisitions, and an
unutilised overdraft facility of £0.5m. The Group is forecasting to generate
healthy operational cashflows and achieve the bank loan covenants for the full
period of the forecast to March 2025.
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 and overdraft
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 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 is for sales of IT
hardware and licences 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-23 30-Sep-22 31-Mar-23
£'000 £'000 £'000
Revenue
Managed IT Services 9,223 8,543 17,441
Value Added Resale 1,740 2,778 4,207
10,963 11,321 21,648
Gross Profit
Managed IT Services 5,167 5,157 10,349
Value Added Resale 299 456 747
5,466 5,613 11,096
3. EARNINGS PER SHARE
Unaudited Unaudited Audited year to
six months to six months to
30-Sep-23 30-Sep-22 31-Mar-23
Loss for the financial period attributable to shareholders (£746,336) (£117,000) (£7,000)
Adjusted profit for the financial period £809,553 £974,000 £1,917,000
Weighted number of equity shares in issue* 48,912,025 48,859,690 48,859,690
Weighted number of equity shares for diluted calculation* 50,935,963 52,189,652 52,274,633
Adjusted basic earnings per share (pence) 1.7p 2.0p 3.9p
Basic loss per share (pence) (1.5p) (0.2p) 0.0p
Diluted loss per share (pence) (1.5p) (0.2p) 0.0p
*The weighted number of equity shares in issue and for diluted calculation
excludes the Treasury shares held by the Company
Unaudited Unaudited Audited year to
six months to six months to
30-Sep-23 30-Sep-22 31-Mar-23
£'000 £'000 £'000
Loss after tax used for basic earnings per share (746) (117) (7)
Amortisation of intangible assets 866 866 1,739
Exceptional items 1,052 337 408
Share based payments 156 96 178
Tax adjustments (519) (208) (401)
Adjusted profit used for Adjusted earnings per share 809 974 1,917
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-23 30-Sep-22 31-Mar-23
£'000 £'000 £'000
Integration and restructuring costs 832 113 189
Supplier charges in dispute 220 - -
Acquisition costs - 224 219
1,052 337 408
The integration and restructuring costs relate to the settlement of the former
CEO's contractual terms and costs associated with the restructuring of the
Senior Leadership Team. The supplier charges in dispute are subject to ongoing
action for which the company is pursuing recovery. In the prior periods, the
acquisition and integration costs relate to two acquisitions in April 2022,
Truststream Security Solutions Limited and Independent Network Services
Limited (trading as "Orchard IT").
5. FINANCE COSTS
Unaudited Unaudited Audited
six months to six months to year to
30-Sep-23 30-Sep-22 31-Mar-23
£'000 £'000 £'000
Interest payable on lease liabilities 15 26 32
Interest payable on bank loan 212 120 307
Arrangement fee amortisation on bank loan 17 18 29
Unwinding of discount on contingent consideration 43 79 105
Other interest - - 10
287 243 483
6. ALTERNATIVE PERFORMANCE MEASURES
Unaudited Unaudited Audited year to
Reconciliation of operating profit to adjusted EBITDA six months to six months to
30-Sep-23 30-Sep-22 31-Mar-23
£'000 £'000 £'000
Operating (loss)/profit (802) 49 378
Depreciation 297 330 625
Amortisation of intangible assets 866 866 1,739
EBITDA 361 1,245 2,742
Exceptional items 1,052 337 408
Share based payments 156 96 178
Adjusted EBITDA 1,569 1,678 3,328
Reconciliation of loss before tax to adjusted profit before tax Unaudited Unaudited Audited year to
six months to six months to
30-Sep-23 30-Sep-22 31-Mar-23
£'000 £'000 £'000
Loss before tax (1,089) (194) (105)
Amortisation of intangible assets 866 866 1,739
Exceptional items 1,052 337 408
Share based payments 156 96 178
Adjusted profit before tax 985 1,105 2,220
Cash conversion Unaudited Unaudited Audited year to
six months to six months to
30-Sep-23 30-Sep-22 31-Mar-23
£'000 £'000 £'000
Cashflow from operations 234 1,669 3,020
Adjustments:
Acquisitions, integration and restructuring cashflows 1,005 337 408
Adjusted cashflow from operations 1,239 2,006 3,428
Adjusted EBITDA 1,569 1,678 3,328
Cash conversion 79% 120% 103%
Net debt Unaudited Unaudited Audited
30-Sep-23 30-Sep-22 31-Mar-23
£'000 £'000 £'000
Cash balances 1,986 4,216 4,186
Bank loans - non-current (4,720) (5,187) (4,705)
Net debt before lease liabilities (2,734) (971) (519)
Lease liabilities - property (696) (953) (803)
Net debt (3,430) (1,924) (1,322)
Contingent consideration (1,838) (2,935) (2,681)
Net debt including contingent consideration (5,268) (4,859) (4,003)
7. INTANGIBLE ASSETS
Systems development Software licences Customer relationships Goodwill Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 April 2022 1,073 205 9,156 15,554 25,988
Additions 163 - 3,553 6,112 9,828
Disposals (225) (205) - - (430)
At 31 March 2023 (audited) 1,011 - 12,709 21,666 35,386
At 1 April 2023 1,011 - 12,709 21,666 35,386
Additions 107 - - - 107
At 30 September 2023 (unaudited) 1,118 - 12,709 21,666 35,493
Accumulated amortisation
At 1 April 2022 404 205 5,507 - 6,116
Charge for the year 177 - 1,562 - 1,739
Disposals (225) (205) - - (430)
At 31 March 2023 (audited) 356 - 7,069 - 7,425
At 1 April 2023 356 - 7,069 - 7,425
Charge for the year 110 - 756 - 866
At 30 September 2023 (unaudited) 466 - 7,825 - 8,291
Net book value
At 31 March 2023 (audited) 655 - 5,640 21,666 27,961
At 30 September 2023 (unaudited) 652 - 4,884 21,666 27,202
8. TRADE AND OTHER RECEIVABLES
Unaudited Unaudited Audited
30-Sep-23 30-Sep-22 31-Mar-23
£'000 £'000 £'000
Trade receivables 2,067 1,723 1,706
Other receivables 3,542 2,367 3,301
5,609 4,090 5,007
9. TRADE AND OTHER PAYABLES
Unaudited Unaudited Audited
30-Sep-23 30-Sep-22 31-Mar-23
£'000 £'000 £'000
Trade payables 2,304 1,399 1,813
Corporation tax 360 427 438
Other taxes and social security 615 836 622
Accruals 1,297 1,182 988
4,576 3,844 3,861
10. BANK LOAN
Unaudited Unaudited Audited
30-Sep-23 30-Sep-22 31-Mar-23
£'000 £'000 £'000
Bank loan net of arrangement fee 4,720 5,187 4,705
4,720 5,187 4,705
The Group has an £8.0m revolving credit facility with Santander of which
£4.83m is drawn down at 30 September 2023. The banking facility has a term of
five years to April 2027, an interest rate of Base Rate +3.25% margin on drawn
funds and covenants that are tested quarterly relating to total net debt to
adjusted EBITDA leverage and minimum liquidity.
11. CONTINGENT CONSIDERATION
The Group acquired Truststream Security Solutions Limited in April 2022 and
the agreement included 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 Year 1 earn-out period was completed in April 2023 and a payment of
£1.18m was due to the Sellers based on the Maintainable EBITDA achieved. In
accordance with the SPA, 75% of this amount, £0.89m, was paid in August 2023
and £0.29m is deferred to be paid with the Year 2 payment in H1 FY25.
The contingent consideration liability of £1.84m has been assessed at its
discounted fair value at 30 September 2023, and includes the £0.29m payment
deferred from Year 1. The liability assumes that Truststream achieves its full
Maintainable EBITDA target in Year 2.
Unaudited Audited
Contingent consideration 30-Sep-23 31-Mar-23
Amounts due within one year £'000 £'000
Contingent consideration 1,869 806
Discounted value (31) -
1,838 806
Amounts due after one year
Contingent consideration - 1,949
Discounted value - (74)
- 1,875
Discounted contingent consideration 1,838 2,681
12. SHARE CAPITAL
Equity share capital Number £'000
Allotted, called up and fully paid
At 1 April 2022 49,419,690 494
At 31 March 2023 49,419,690 494
Issue of share capital - exercise of share options 2,076,394 21
At 30 September 2023 51,496,084 515
In May 2023, the Company issued 2,076,394 shares to the CEO, Adam Binks, on
the exercise of share options under the 2020 LTIP Scheme. These shares were
subsequently repurchased by the Company into Treasury reserves.
13. AVAILABILITY OF INTERIM REPORT
Copies of this report are available on the Company's website at
http://www.sysgroup.com
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