IDE Group Holdings - Final Results
29/09/2022 10:05
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RNS Number : 1566B IDE Group Holdings PLC 29 September 2022
IDE Group Holdings Plc
("IDE", the "Group" or the "Company")
Audited Results for the Year Ended 31 December 2021
IDE, the mid-market IT Managed Services provider, announces its audited
results for the year ended 31 December 2021.
The Annual Report and Accounts for the year ended 31 December 2021 will
shortly be available on the Company's website at www.idegroup.com
(https://protect-eu.mimecast.com/s/AK2tCwrGyuGDY4XfVOw1x?domain=idegroup.com)
.
Copies of the Annual Report and Accounts will be posted to shareholders
shortly.
Contacts:
IDE Group Holdings Plc Tel: +44 (0)344 874 1000
Andy Parker, Non-Executive Chairman
finnCap Limited Tel: +44 (0)20 7220 0500
Nominated Adviser and Broker
Corporate finance: Jonny Franklin-Adams/ Abby Kelly
ECM: Tim Redfern
Business summary
· IDE Group is a UK based managed services provider delivering
outsourced services as a strategic technology partner primarily on behalf of
system integrators. After a series of acquisitions and divestments, the group
is now wholly focused on IDE Group Manage Limited.
· Within its portfolio of services, IDE specialises in activities
including the storage, build, configuration, and shipping of all end-user
devices as well as the provision of on-site support engineers, tech bars,
server maintenance and fully managed project deployments.
· Its support services have been developed to support clients with
all IT requirements, to either complement an existing in-house IT team or act
as a fully dedicated IT team on its customers' behalf.
· On 19 October 2021 IDE Group Connect Limited, Nimoveri Limited
and Nimoveri Holdings Limited were sold to CloudCoCo Group plc for a
consideration of £250,000 payable in 60 monthly instalments commencing April
2022.
· In 2020 IDE invested in software licences at the year-end
amounting to £1.8 million. These licences were purchased with a view to a
planned expansion of the group, resale to our clients in our Connect Business
and for operational use in the Connect Business. However, the planned
expansion didn't materialise and the Connect Business was sold in 2021.
Therefore, the directors believe that the Group would be unable to obtain the
full benefit of the licences in its remaining business. Accordingly, these
software licenses have been impaired and written down to £nil.
· Revenues from continuing operations increased by 25.4% or £2.9
million in 2021 to £14.5 million from £11.5 million in 2020, gross margins
were also increased by 7% to 43% (2020: 39%) reflecting continued strong
performance of our Manage business. Adjusted EBITDA** increased to £3.1
million from £1.4 million in 2020. Losses on ordinary activities before
taxation amount to £3.0 million (2020: £2.8 million).
· We have made an excellent start to 2022 within our Manage
business, demonstrating significant growth in revenues and profitability.
These results are based on developing long-term relationships with third-party
system integrators and supply contracts typically with 3-5-year terms.
Therefore, as we experience further growth, we are generating a strong annuity
income stream, with a strong pipeline of prospects.
We have built a strong base to support a period of sustained growth and we are
exploring organic and acquisitive methods to accelerate this development.
** Adjusted EBITDA is defined as earnings before interest, tax, depreciation,
amortisation, impairment charges, non-underlying items, loss on disposal of
fixed assets and share-based payment charges.
Chairman's Statement
2021 was an important year in the ongoing rationalisation of our trading
businesses continuing the good work from 2020 in positioning the Group for a
period of sustained growth which is now bearing fruit in 2022.
Notably in 2021 we exited the Connect division to CloudCoCo PLC having
determined that the group simply did not have sufficient resources to invest
in the growth of both trading divisions.
In January 2021 we announced a three year £22.5m contract win with an
existing partner which could be extended to five years. I'm delighted to say
that this contract is progressing well with significant new business being
awarded to IDE through this contract during the year.
We divested the loss-making IDE Connect Business in October 2021 to fully
concentrate on Manage, which is profitable at Adjusted EBITDA level, enabling
management to focus on expanding the existing Manage Business.
Manage
During 2021, IDE Manage revenue increased by 25.4% from £11.5 million to
£14.5 million.
Adjusted EBITDA for Manage, before unallocated group overheads, increased by
81.0% from £2.1 million to £3.8 million.
Employee numbers within the Manage business increased by 26% within the year
(whilst reducing Group headcount by 44% as a result of both restructuring and
the divestment of the IDE Connect Business).
Following divestment of the Connect business, a complete assessment of all
remaining licensing arrangements was undertaken, and this is expected to
produce £0.2 million worth of annualised savings when complete.
In April 2021, during the height of the pandemic, the Croydon head office of
the whole group was closed, reducing direct costs to the business by £0.3
million plus indirect costs of another £0.1 million.
At the start of 2021, a significant partnership was extended with a global
leader in digital transformation that guaranteed £22.5 million of additional
revenue over the following three years with an agreement to extend to five
years if both parties wish. As part of that agreement, the following
contracts have already been agreed:
· A multiyear £2.1 million per annum contract with a major US
Banking Group
· A £1.5 million two-year contract in the UK Nuclear Sector
· The award of an additional multiyear £1.2 million per annum
support contract for the same company
· Multiyear support contracts worth a combined £400,000 per annum
with two US manufacturing companies
· Four significant projects started during 2021, two for
broadcasters and two for UK Utility businesses, that will all achieve million
pound plus revenue
· A significant number of smaller long term support contracts were
signed
· A substantial one-off roll-out to a major UK Government
Department was carried out through the Lifecycle operation that produced in
excess of £1.35 million revenue during 2021.
Several additional long-term partner relationships were agreed during the
year, including a USA headquartered Global Software Business, as well as
renewing a framework agreement with an Indian Outsourcing Company.
Furthermore, IDE were awarded and incorporated onto the Tech Services 3
government framework.
The Group has invested a great deal of work on improving its Corporate and
Social Responsibility throughout 2021. This included external auditing and
improvements to a number of sustainability and decarbonisation functions
throughout the business. Additionally, IDE started the process towards the
attainment of ISO 14001. This has resulted in a number of external ratings
including achieving a silver award from Ecovadis. Work is underway with a
goal of achieving gold status in 2022.
In summary, 2021 was a pivotal moment in the history of IDE Group. The growth
in positive numbers demonstrated by the Manage Division was absolutely because
of our dedicated, hardworking team members.
Connect
The Connect division was sold in October 2021. This was principally to allow
the support of the Manage division and provide it with the resource that it
needed to grow.
In 2020 IDE invested in software licences at the year-end amounting to £1.8
million. These licences were purchased with a view to a planned expansion of
the group, resale to our clients in our Connect Business and for operational
use in the Connect Business. However, the planned expansion didn't materialise
and the Connect Business was sold in 2021. Therefore, the directors believe
that the Group would be unable to obtain the full benefit of the licences in
its remaining business. Accordingly, these software licenses have been
impaired and written down to £nil.
COVID-19
The wellbeing of staff and the customers with whom they interact continues to
be our overriding priority during this period of uncertainty. The measures
we instituted to ensure that our people can work safely and, in most cases,
remotely, ensuring the continuity of the business. To date there has been no
material effect on the business of the new working practices dictated by a
much-changed business and social landscape. As we at last enter a
post-pandemic business landscape we are confident that we have developed
robust business practices to provide a solid grounding for sustained growth
across our business.
Results
Revenue increased by 25.4% to £14.5 million for the full year (2020
continuing operations: £11.5 million), but significantly we have seen gross
profit margin growth by 10%, from 39% to 43%. Resulting gross profit has
increased year-on-year to £6.3 million (2020 continuing operations: £4.6
million). Adjusted EBITDA increased to £3.1 million (2020: Adjusted EBITDA
of £1.4 million). We received £0.04 million (2020 continuing
operations: £0.3 million) under the Covid Job Retention Scheme. The net loss
after tax for the year from continuing operations is £1.8 million (2020: loss
£2.1 million), after a £3.0 million amortisation and impairment charge (2020
continuing operations: £1.2 million amortisation and impairment charge).
People
The management team has made continued progress in simplifying the structure
of the business and aligning services better to support our clients. The
board would like to recognise and thank its employees who have worked hard to
deliver excellent client service and retain existing key clients. Whilst
headcount in IDE Manage has increased by 26% reflecting increased activity and
trading, we have reduced Group headcount by 4% as we continue to focus on
streamlining the costs and restructure the Group activities following the
disposal of the Connect division.
Strategy
Our plan is to continue with our organic initiatives that will continue to
demonstrate positive growth. We intend to expand our partner network and are
also looking to expansion into Europe. After three long years of
restructuring the Group is now considering growth through acquisition and
would consider synergistic targets that would expand and deepen our service
offerings.
As reported at the interims, management have been considering various ways to
target the shareholder loan notes. As has recently been reported, MXC, the
company's largest shareholder and largest loan note holder, is engaged in
exploratory talks with the company and its Nominated Adviser with a view to
converting the entirety of its loan notes. Further announcements will be made
if appropriate.
Financing and dividend
The company has £26.5 million loan notes of which £21.5 million are with MXC
(all figures based on end of term rolled up interest). The loan notes are due
for repayment in January 2025. A further £1m was issued in the year taking
the total to the current carrying value at 31 December 2021 of £17.0 million.
The company has looked at a fund raise from institutional investors but given
macro events and the history of the company there is currently little
appetite. This might change in future years. The company has also considered a
couple of approaches but nothing meaningful has come from this. Finally, the
company is looking into a bank loan that would enable an offer to be made to
loan note holders that would rather cash out earlier than the scheduled date
of January 2025. Any conversion of loan notes would require an accompanying
"whitewash" (waiver of the AIM Rule 9 requirements for Takeovers by
independent shareholders) for any loan note holder that would have in excess
of 30% post conversion holding, the most likely candidate being MXC who hold
the majority of the loan notes. The company needs to address the repayment of
the loan notes and now it is stable, profitable, and showing organic growth,
wishes to find the best way to achieve this for all shareholders.
The Board is not proposing to declare a dividend at this time but will keep
this policy under review subject to resolving the loan notes.
Current trading and outlook
Trading in the current financial year remains in line with Board expectations
in our Manage business with current financial performance broadly in line with
the same period last year. As our business grows, we are looking to expand our
partner channel and possible expansion of our business model into Europe.
Our outlook for the year is 85% of revenue covered by existing contracts and
end user customers, and together with a buoyant pipeline gives us great
confidence in another positive year of growth for the Group.
Andy Parker
Non-Executive Chairman
28 September 2022
Financial Review
The Group reported total revenues from continuing operations for the year to
31 December 2021 of £14.5 million, up from £11.5 million in 2020 and gross
profit of £6.3 million (2020: £4.6 million). This shows an improvement
in margins year-on-year of 10 percentage points which is encouraging and
reflects strong gross margin growth in the Manage business.
The Group uses Adjusted EBITDA which is a non-GAAP measure of performance as
it believes this more accurately reflects the underlying performance of the
business. This is one of the key operational performance measures monitored by
the Board. Adjusted EBITDA is defined as earnings before interest, tax,
depreciation, amortisation, impairment charges, non-underlying items, loss on
disposal of fixed assets and share-based payments.
The Adjusted EBITDA for the year to 31 December 2021 was a profit of £3.1
million (2020: profit of £1.4 million).
The administration costs excluding impairment have reduced by £0.7 million in
year largely due to the Group exiting the main administration offices in
Croydon and relocated to the existing operational facilities. Additional
savings were also made within IT systems and administration headcount.
There was a benefit to the Group of £0.1m as a result of the decrease in
trade receivables impairment provision, which was not required in 2021 due to
improved trade receivables collections.
A detailed review of the business is set out in the Chairman's Statement and
this Financial Review. Included in these reviews are comments on the key
performance indicators that are used by the Board on a monthly basis to
monitor and assess the performance of the business. These indicators include
the level of revenue, gross profit and Adjusted EBITDA together with net debt.
Manage
The revenue for the continuing operations all relates to the Manage Business.
There was an increase in revenues to £14.5 million (2020: £11.5 million).
For the year we have seen an improvement in gross profit margins to 43% (2020:
39%), as a result of the services mix and operational efficiencies.
Adjusted EBITDA attributable to Manage has moved to £3.8 million (2020:
profit of £2.1 million).
Connect
This business was sold in the year and treated as discontinued operations in
the Group Accounts, as explained below under 'Profit on discontinued
operations'.
Non-underlying items
Non-underlying items relating to restructuring and reorganisation amount to
£0.4 million in the year (2020: £0.4 million).
Finance costs
After incurring net finance costs of £2.5 million relating to interest and
arrangement fees for loan notes, leases and bank debt (2020: £1.8 million),
the loss before tax is £3.0 million (2020: loss of £2.8 million).
Taxation
The utilisation of tax losses and the benefit of the increase in the rate of
corporation tax on the deferred tax asset has resulted in a tax credit for the
year of £1.2 million (2020: £0.7 million).
Loss on continuing operations
Whilst the underlying trading performance of Manage shows significant positive
EBITDA, group costs, finance costs and impairment charges on the software
licences result in a loss after tax for the year on continuing operations of
£1.8 million (2020: loss on continuing operations £2.1 million), which
equates to a basic loss per share of 0.39 pence (2020: loss per share of pence
0.52).
Financial Review (continued)
Loss on discontinued operations
The loss on discontinued operations of £0.2 million (2020: loss of £16.3 million) arises on the disposal of the IDE Connect Business on 19 October 2021, and from the operations in the period up to the date of disposal.
The basic loss per share on discontinued operations was 0.04 pence per share (2020: loss per share of 4.09p).
Statement of Financial Position
Non-current assets
The Group has property, plant and equipment of £0.8 million (2020: £1.2
million) all of which are subject to depreciation as per the policies set out
in the accompanying financial statements. During the year there were additions
of £0.03 million (2020: £0.1 million additions).
In 2020 we invested in software licences at the year-end amounting to £1.8
million. These licences were purchased with a view to a planned expansion of
the group, resale to our clients in our Connect Business and for operational
use in the Connect Business and are payable in three tranches at the end of
2021, 2022 and 2023. The licences were capitalised as intangible assets at the
present value of the payments, which are included within trade payables at the
year end. Due to planned expansion which didn't materialise and the sale of
the Connect Business in 2021, the Group is unable to obtain the full benefit
of the licences in its remaining business. Accordingly, these software
licenses have been impaired and written down to £nil. They can no longer be
utilised by the continuing operations and as such are deemed unlikely to be
sold to the customers of the Connect Business, given its disposal in the year,
or sold to third parties.
Further, intangible assets of customer contracts and related relationships are
£8.2 million (2020: £9.4 million) and are subject to amortisation as per the
policies set out in the accompanying financial statements.
Trade and other receivables
Trade and other receivables have decreased from £5.5 million to £4.3
million. The major reason for the reduction was the Connect Business sale,
with 2020 balances amounting to £2.5 million. Trade receivables in Manage
have increased due to higher levels of activity but offset by improved
customer payments and credit control during the year.
Following the disposal of the Connect Business, working capital management has
improved as the underlying nature of the Managed Business has a reduced number
of customers; all of them are larger corporates with good credit ratings and
regular payment cycles.
Trade and other payables
Trade and other payables amounted to £6.0 million (2020: £10.1 million),
including trade payables of £3.8 million (2020: £7.2 million) taxation and
social security of £0.8 million (2020: £1.5 million) and accruals of £1.4
million (2020: £1.2 million).
The major reason for the reduction was the Connect Business sale, with 2020
balances amounting to £5.0 million.
Contract liabilities arise from customers being invoiced in advance of
services delivered, in accordance with individual contractual terms, at the
balance sheet date this amounted to £0.05 million (2020: £1.4 million). The
decrease reflects the different business models following the sale of Connect
as well as the mix of customers' contractual obligations for payment.
Following the disposal of the Connect Business, the number of suppliers has
been reduced and allows for better supplier management leading to improved
working capital.
Cashflow and net debt
Net cash generated from operating activities during the year was £0.6 million
(2020 £2.1 million generated). Our Manage business continues to be cash
generative and has developed excellent relationships with key strategic
partners. The Group invested £0.03 million (2020: £0.1 million) in fixed
assets. There was a new loan of £1.0 million (2020: £nil net), but repayment
of lease liabilities consumed £0.4 million (2020: £1.8 million) of cash. The
result is that as at 31 December 2021 there were no bank borrowings or
overdraft debt and the cash balance was £0.3 million (2020: £0.7
million).
Borrowings
On 11 May 2021 £2,397,519 of the unsecured convertible loan notes issued in
August 2018 were converted into 95,900,760 Ordinary shares of 2.5p each, at a
conversion price of 2.5p per share.
The Nimoveri Loan Notes issued on 1(st) June 2020 (£100,000) were redeemable
on 31 December 2021. On 13 December 2021 both parties agreed the Nimoveri Loan
Notes would be repaid in four equal monthly instalments commencing 31 January
2022.
The company issued a loan note net of expenses for proceeds of £1.0 million
in November 2021, which if not repaid by 31 March 2022 increases to £1.1875m
and incurs interest of 20.4 % per annum, repayable on 23 December 2025. The
loan note was not repaid by 31 March 2022.
Dividend
The Directors do not propose a dividend in respect of the current financial
year (2020: £nil).
Update and outlook for 2022
Set out within the Chairman's Statement are details of the current trading
performance and outlook. Trading in the first 6 months of 2022 has been
strong, including very positive further contract wins from our key partner.
Going concern
The Directors have produced detailed trading and cashflow forecasts. In
reaching their conclusion on the going concern basis of accounting, the
Directors note and rely on the improved trading performance, the positive cash
generation that the business is now experiencing and the current signed order
book. A reverse stress test of the model has been run to determine at what
level of shortfall in revenues the Group would run out of cash. Given the
committed orders already obtained and the visibility of future revenues, the
directors do not consider it likely that revenues could drop to such an extent
that the Group would run out of cash. They have also considered the impact of
any delayed customer payments and have developed plans to mitigate any such
delays to ensure that the group can continue to settle its liabilities as they
fall due and operate as a going concern. The directors therefore have an
expectation that the Group and Company have adequate resources available to
them to continue in operational existence for a period of at least 12 months
from the date of approval of these financial statements. Accordingly, the
Group and Company continue to adopt the going concern basis in preparing these
consolidated financial statements.
Strategic Report
Review of the Business
A detailed review of the business is set out in the Chairman's Statement and
the Financial Review. The year under review was a positive one for the
business with both continuing revenues and gross margin increasing
year-on-year and Adjusted EBITDA* remaining positive, although the Group
reported a post tax loss due to finance costs, impairments and restructuring.
Future developments and current trading and prospects are set out in the
Chairman's Statement and the Financial Review. These reports together with the
Corporate Governance Statement are incorporated into this
Strategic Report by reference and should be read as part of this
report. The Group's strategy is focused on maximising value for stakeholders
by increasing revenues and profits by upselling to our current customer base
as well as by bringing new customers on board.
At 31 December 2021, the Board comprised two Directors (2020: three) all of
which were male. At 31 December 2021 the Group had 165 employees including
Directors (2020: 221) of which 134 were male (2020:173) and 31 were females
(2020:48).
* Adjusted EBITDA is defined as earnings before interest, tax, depreciation,
amortisation, impairment charges, non-underlying items, loss on disposal of
fixed assets and share-based payments.
Principal Risks and Uncertainties
Identifying, evaluating, and managing the principal risks and uncertainties
facing the Group is an integral part of the way the Group does business. There
are policies and procedures in place throughout the operations, embedded
within our management structure and as part of our normal operating processes.
The Board reviews the principal risks on a bi-annual basis. The risks have
been amended following the sale of the Connect Business with the resultant
Group being greatly simplified. The impact, measures in place and tactics to
mitigate risks are assessed on a regular basis. The risk categories, set out
below, have been identified by the Board as those currently considered to
potentially have the most material impact on the Group's future performance.
In addition to these risks, note 24 contains details of financial risks.
Customer concentration
The Group has a significant revenue concentration with a single Partner
(83%). This is mitigated as there are a number of end customers, all with
different agreements and contract end dates. The Group has traded with the
Partner for over 20 years and has long standing relationships. The Group is
also focused on reducing this concentration and is working on several
opportunities to achieve this.
Market and Economic Conditions
Market and economic conditions are recognised as one of the principal risks in
the current trading environment. Risk is mitigated by the monitoring of
trading conditions and changes in government legislation, the development of
action plans to address specific legislative changes and the constant search
for ways to achieve new efficiencies in the business without impacting service
levels.
The Board does not believe the current macro-economic outlook has changed the
Group's prospects given the large proportion of the end-customers being in the
public sector. The Group has also undertaken stress testing of the detailed
trading forecasts and cashflows taking into account inflation and interest
rate increases. The Board does not consider that these will change the outlook
at present. In relation to interest rates increases, the Group's debt is at
a fixed rate.
Reliance on Key Personnel and Management
The success of the Group is dependent on the services of key management and
operating personnel. The Directors believe that the Group's future success
will be largely dependent on its ability to retain and attract highly skilled
and qualified personnel and to train and manage its employee base. During the
year, the restructuring programme continued which resulted in more members of
staff being made redundant and other members of staff moving into new roles.
For those who remain there are several employee benefits and active
communication is encouraged within the business to mitigate the risk of losing
skilled and qualified individuals. Furthermore, there is an apprenticeship
scheme which the Group believes will assist in training and retaining younger
individuals going forward.
Competition
The Group operates in a highly competitive marketplace and while the Directors
believe the Group enjoys certain strengths and advantages in competing for
business, some competitors are much larger with considerable scale. The Group
monitors competitors' activity and constantly reviews its own services and
prices to ensure a competitive position in the market is maintained.
Technology
The market for our services is in a state of constant innovation and change.
We devote significant resource to the development of new service lines,
ensuring new technologies can be incorporated and integrated with the Group's
core services. The nature of the Group's services means that they are exposed
to a range of technological risks, such as viruses, hacking and an
ever-changing spectrum of security risk. We maintain constant pro-active
vigilance against such risks and the Group maintains membership of some of the
highest levels of security accreditation as part of the service it offers its
customers.
s.172(1) Companies Act 2006: Statement of Directors' Duties to Stakeholders
Promoting the success of the Company
The Directors are aware of their duty under section 172(1) of the Companies
Act 2006 to act in the way which they consider, in good faith, would be most
likely to promote the success of the Company for the benefit of its members as
a whole and, in doing so, to have regard (amongst other matters) to:
· The likely consequences of any decision in the long term;
· The interests of the Company's employees;
· The need to foster the Company's business relationships with
suppliers, customers and others;
· The impact of the Company's operations on the community and the
environment;
· The desirability of the Company maintaining a reputation for high
standards of business conduct; and
· The need to act fairly between members of the Company.
The Board recognises that the long-term success of the Company requires
positive interaction with its stakeholders. Positive engagement with
stakeholders will enable our stakeholders to better understand the activities,
needs and challenges of the business and enable the Board to better understand
and address relevant stakeholder views which will assist the Board in its
decision making and to discharge its duties under Section 172 of the Companies
Act 2006.
Our Commitment
The Company is committed to operating with an inclusive, transparent, and
respectful culture and places particular emphasis on operating to the highest
ethical and environmental standards.
The Directors take personal ownership of the policies and maintenance of the
necessary exacting standards of business conduct throughout the organisation
and for delivering these corporate and social responsibilities.
Stakeholder Engagement
Recruitment and employee management are undertaken in line with the Company
Employment Policy which has committed to a working environment with equal
opportunities for all, without discrimination and regardless of sex, sexual
orientation, age, race, ethnicity, nationality, religion, or disability.
We are committed to being an equal opportunities employer and oppose all forms
of unlawful discrimination.
We believe that staff members should be treated on their merits and that
employment-related decisions should be
based on objective job-related criteria such as aptitude and skills. For these
reasons, all staff members, and
particularly managers with responsibility for employment-related decisions,
must comply with the practices
described below.
• recruitment;
• pay and benefits;
• promotion and training;
• disciplinary, performance improvement and redundancy procedures.
As part of the induction of all employees and on a recurring annual basis, all
employees have to complete a mandatory set of training courses, one of which
is on equality, diversity and inclusion in both the workplace and local
communities.
Stakeholder Engagement (continued)
We conduct a gender pay analysis annually and the report is published on the
company website.
IDE seeks to attract and retain staff by acting as a responsible employer. The
health, safety and well-being of employees is important to the Company. On the
sale of Connect, we engaged with the acquirer and supported all the employees
through the transition. All employees had access and were encouraged to use
the Employee Assistance Program with a 24-hour helpline.
Furthermore, the Company has committed to continuous development schemes and
will support employees to attain the best for themselves and the Company
through personal assessment, training and mentoring.
Externally, IDE has established long-term partnerships that complement its
in-house expertise and has built a network of specialised partners within the
industry and beyond.
The Directors have committed to promoting a company culture that treats
everyone fairly and with respect and this commitment extends to all principal
stakeholders including shareholders, employees, consultants, suppliers,
customers, and the communities where it is active.
All Directors are encouraged to act in a way they consider, in good faith, to
be most likely to promote the success of the Company for the benefit of its
shareholders. In doing so, they each have regard to a range of matters when
making decisions for the long-term success of the Company.
Health and Safety
IDE cares profoundly about the health and safety of our employees, customers
and the communities who could be affected by our activities and aims to
protect them from any foreseeable hazard or danger arising from our
activities. To this end in 2021 the Company completed a series of safety
related studies and reviews, including electrical and gas, quantified risk
assessments and layer of protection analysis using external experts to review
the product risk and the application on our Dartford site. In all instances
the findings of the safety risk assessments have demonstrated that the risk
arising from the IDE's activities is well within acceptable tolerable risk
levels. In 2022 and 2023 the Company will revisit these assessments to
identify any changes that have been introduced which may represent new or
variants of risk.
We have a Health and safety policy and as mentioned above all employees have
to complete a mandatory set of training courses, which include several health
and safety courses, including manual handling, mental health awareness, stress
awareness, bullying and harassment, display screen set-up and a general health
and safety course.
During 2021 the Board was particularly mindful of the impact of the ongoing
COVID-19 pandemic when making decisions. This has impacted all areas of
decision making and is not limited to ensuring that its impact on employees,
contractors, suppliers and the communities in which IDE operates is factored
into any decision, but also to ensure that its reputational, financial and
other impact is also considered.
The Directors recognise that the key to successful health and safety
management requires an effective policy, organisation, and arrangements which
reflect the commitment of senior management. The executive management team
implement the Company's health and safety policy and ensure that the Company
Health and Safety (HSE) management system and safety standards are all
maintained, monitored, and improved where necessary. During the COVID-19
pandemic and currently, the level of cleaning was improved and a high level of
cleanliness is maintained.
The Company's activities at its Dartford site were delivered HSE incident free
in 2021.
s.172 Companies Act 2006: Statement of Directors' Duties to Stakeholders (continued)
Environment Policies
The Company's Environmental Policy recognises the importance of our technology
from a global challenge perspective. The Company will regularly evaluate the
environmental impact of its activities, products, and services, taking all
actions necessary to continually improve the Company's and its products'
environmental performance.
At present, we are working towards achieving ISO-14001 certification and are
undergoing a third-party gap analysis prior to the certification audit.
IDE has a Carbon Reduction Strategy which is published on the company website.
We at IDE Group are committed to reducing our impact on the environment in
order to help safeguard our planet for future generations. We have committed
to a well-below 2 degrees Celsius trajectory and to maintaining our scope 1
and scope 2 greenhouse gas emissions at a level 30% lower than in our base
year of 2018. We are also investing in an environmental management system
certified to ISO 14001 to ensure that we can monitor and manage our activities
to meet our targets.
In addition to committing to maintaining our scope 1 and 2 emissions at 30%
less than they were in 2018, we will also work
to reduce our overall greenhouse gas emissions (scopes 1, 2 and 3) by 2.5%
every year from a 2021 baseline.
We have engaged with Science Based Targets (SBTi) to validate our 30%
reduction target. SBTi has confirmed that our
target of a 30% reduction from 2018 has been accepted and will be published on
their website. They have undertaken due
diligence on the 2018 information we provided and verified its accuracy. As
the work we have done in the last few years
has helped us achieve the 30% target already, we will now ensure that we
maintain this lower level.
As mentioned above all employees have to complete a mandatory set of training
courses, which include an environmental awareness course.
Strategy
The market for IT managed services in the United Kingdom is highly fragmented
and is served by a broad spectrum of businesses from global telecommunication
companies through hardware and software providers, system integrators and a
range of independent managed service providers of varying sizes through to
companies providing individual elements of the IT managed services spectrum.
The market is growing, driven by the continued move towards off-premise
solutions and mobile access to secure services.
Despite the continued challenges we met in 2021, the Board believes that the
Group's position between the very large system integrators and the smaller
competitors that may lack delivery structure, reputation, reliability, and
financial strength remains a very compelling one.
We have developed a delivery model that provides assurance and certainty for
customers. This underlying platform is the core strength of the Group and we
will continue to consider augmenting underlying organic growth in the Manage
business in 2022 with acquisitions to leverage this platform should there be a
compelling strategic and financial case.
The decision to dispose of Connect allows us to focus on the core business, as
part of this decision-making process which should result in the medium to
longer term the Group returning to sustained profits. Through our long
standing customer relationships, we have demonstrated a commitment to service
quality for over twenty years.
On behalf of the Board
Andy Parker Non-Executive Chairman
28 September 2022
24 Dublin Street Edinburgh EH1 3PP
Directors' Report
The Directors present their report together with the audited consolidated
financial statements for the year ended 31 December 2021 for IDE Group
Holdings plc ("IDE" or the "Company") and its subsidiaries (together, the
"Group").
Principal Activity
The principal activity of the Group during the year was the provision of
end-to-end solutions to enterprise scale end-customers, public and private,
concentrating on end-user device management and on-site support solutions. The
Company is a holding company.
Review of the Year
The review of the year and the Directors' strategy are set out in the
Chairman's Statement and in the separate Strategic Report on pages 3 to 12.
Dividends
The Company did not pay a dividend during the year ended 31 December 2021
(2020: £nil). The Directors do not recommend the payment of a dividend at 31
December 2021 (2020: £nil).
Directors
The Directors who held office during the period and up to the date of the
Annual Report are as follows:
Ian Smith
Andy Parker
Sebastian White (resigned 12 February 2021)
David Templeman (appointed 20 April 2021; resigned 12 August 2021)
Company Secretary
Delgany Corporate Services Limited
A brief biography of the current Directors can be found below:
Andy Parker - Non-Executive Chairman
On 10 August 2018 Andy was appointed as Non-Executive Director, on 5 October
2018 was appointed as Non-Executive Chairman and for the period 15 October
2018 to 21 May 2020 held the position of Executive Chairman. On 1 June 2020
Andy reverted to the role of Non-Executive Chairman.
Andy is an experienced commercial, operational and financial professional. A
chartered accountant, Andy has held a wide range of commercial and finance
roles culminating most recently in his tenure as Chief Executive Officer of
Capita Group plc, the FTSE 350 professional support services company. Andy has
held a number of finance director roles during his career and is a highly
experienced public markets board director.
Andy is the Chair of the Audit Committee and a Chair of the Remuneration
Committee.
Ian Smith - Executive Director
On 1 June 2018, Ian was appointed as Executive Director.
Ian has an extensive track record of investing in and managing technology
companies and is co-founder and CEO of MXC Capital Limited. Ian has sat on
numerous boards and either led or been involved in a large number of
transactions in the TMT sector. Ian led strategic change and value accretion
at Redstone plc and Accumuli plc and was previously deputy executive chairman
and CEO at Castleton Technology plc.
Ian holds no direct beneficial interest in IDE Group, however, is CEO and a
substantial shareholder of MXC Capital Limited, a substantial shareholder and
loan note holder in the Company.
Ian is a member of the Remuneration Committee and the Audit Committee.
Directors' Indemnity Insurance
As permitted by the Articles of Association, the Directors have the benefit of
an indemnity which is a qualifying third-party indemnity provision as defined
by Section 234 of the Companies Act 2006. The indemnity was in force
throughout the last financial year and is currently in force. The Company also
purchased and maintained Directors' and Officers' liability insurance
throughout the financial year in respect of itself and its Directors.
Re-election of Director
Andy Parker will retire in line with the terms of the articles of the Company
and being eligible, will offer himself for re- election at the forthcoming
Annual General Meeting.
Directors' Service Contracts
Details of the Directors' service contracts and their respective notice terms
are detailed in the Remuneration Committee report.
Directors' Interests
The Directors had no direct interests in the ordinary shares of the Company at
31 December 2021, or at 31 December 2020.
Ian Smith is Chief Executive Officer and a substantial shareholder of MXC
Capital Limited which holds shares in the Company.
Former director Sebastian White is the Investment Director of Kestrel Partners
LLP, whose clients hold shares in the Company.
Auditor
A resolution is to be proposed at the forthcoming AGM for the re-appointment
of RSM UK Audit LLP as auditor to the Company, at a rate of remuneration to be
determined by the Audit Committee.
Financial Risk Management Objectives and Policy
The Company's financial risk management objectives and policies are described
in note 24 to the financial statements.
Capital structure
The Company has a single class of share capital which is divided into Ordinary
shares of 2.5p each. Details of the Company's
issued share capital can be found in note 26 to the financial statements.
Employee involvement
The flow of information to staff has been maintained by our staff email
bulletins and staff meetings. Members of the management team regularly discuss
matters of current interest and concern to the business with members of staff;
in particular in regard to providing information on performance indicators,
encouraging employee participation and engendering a common awareness of
financial and economic factors which affect the Group's performance.
The Group continues to focus on building channels that ensure the company is
effectively listening and responding to employees. In doing so, we can
identify opportunities to better meet employee needs and interests, reflecting
these where possible in the principal decisions taken by the company.
Disabled persons
The Group is committed to a policy of recruitment and promotion on the basis
of aptitude and ability without discrimination of any kind. Management
actively pursues both the employment of disabled persons whenever a suitable
vacancy arises and the continued employment and retraining of employees who
become disabled whilst employed by the company. Particular attention is given
to training, career development and promotion of disabled employees with a
view to encouraging them to play an active role in our development.
Disclosure of Information to the Auditor
Each of the Directors who was in office on the date of approval of these
financial statements, having made enquiries of their fellow Directors,
confirms that:
· To the best of each Director's knowledge and belief, there is no
information relevant to the preparation of their report of
which the Group's auditor is unaware; and
· Each Director has taken all the steps a Director might reasonably
be expected to have taken to be aware of relevant
audit information and to establish that the Group's auditor is aware of that
information.
Future Developments
Future developments and current trading and prospects are set out in the
Chairman's Statement and the Financial Review.
On behalf of the Board
Ian Smith
Executive Director
28 September 2022
Remuneration Committee Report
Remuneration Committee
At 31 December 2021, the Remuneration Committee comprised Andy Parker (Chair),
and Ian Smith.
The Remuneration Committee is responsible for determining and agreeing with
the Board the framework for the remuneration of Executive Directors and other
designated senior executives and, within agreed terms of reference,
determining the total individual remuneration packages of such persons,
including, where appropriate, bonuses, incentive payments and share options or
other share awards. The remuneration of Non-Executive Directors is a matter
for the Executive Directors. No director is involved in any decision as to his
or her own remuneration or benefits.
As noted in the Corporate Governance Report set out in these Financial
Statements, the Board acknowledges that the lack of independent non-executive
Directors does not comply with the standards of the QCA Corporate Governance
Code in terms of composition of the Board and its Committees. With a Board
comprising two Directors for the majority of the year being reported, no
specific meetings of the Remuneration Committee were held in 2021 and relevant
matters were discussed by the Board as a whole.
For further details of the Remuneration Committee, please refer to the
Corporate Governance report in these financial statements.
Remuneration Policy
The Remuneration Committee is aware that the remuneration package should be
sufficiently competitive to attract, retain and motivate individuals capable
of achieving the Group's objectives and thereby enhancing shareholder value.
Basic Salary and Benefits
Basic salaries for the Executive Directors are reviewed in January each year.
The benefits provided to the Executive Directors may include contributions to
a Group defined contribution pension scheme, private medical insurance for
themselves, their spouse and their children, life assurance cover of 4 times
salary, critical illness and income protection cover, a company car allowance
and annual leave of 25 days.
Performance Related Bonus
The Remuneration Committee determines the criteria for the award of
performance bonuses for the Executive Directors in advance of each year. The
bonuses are pensionable. Non-Executive Directors do not receive a bonus.
Fees
The Board, within the limits stipulated by the Articles of Association and
following recommendations by the Executive Directors, determines Non-Executive
Directors' fees. The annual fees are £40,000 (2020: £30,000) for a
Non-Executive Director and £40,000 (2020: £50,000) for a Non-Executive
Chairman.
Remuneration Committee Report (continued)
Directors' emoluments
For Directors who held office during the year, emoluments for the year ended
31 December 2021 were as follows:
Salary/fees Benefits Pension 2021 total 2020 total
£ £ £ £ £
Executive
Ian Smith(1) 221,000 - - 221,000 202,315
David Templeman(4) 72,885 - 1,500 74,385 -
Non-Executive
Andy Parker(2) 40,000 - - 40,000 80,833
Sebastian White(3) 2,500 - - 2,500 30,000
Total 336,385 - 1,500 337,885 313,148
1. Director's emoluments in respect of Ian Smith were paid to MXC
Advisory Limited, a subsidiary of MXC Capital Limited.
2. Andy Parker stepped down from his role as Executive Chairman to
become Non-Executive Chairman on 1 June 2020.
3. Directors' emoluments in respect of Sebastian White were paid to
Kestrel Partners LLP. Sebastian White resigned from the Board on 12 February
2021.
4. Director's emoluments for his role as Chief Financial Officer for
the period 20 April 2021 to 12 August 2021.
The Executive Directors' salaries are paid by subsidiary companies within the
Group. The Non-Executive Director fees and the fee to MXC Advisory Limited for
Ian Smith's services are paid by the Company.
Andy Parker
Chair, Remuneration Committee On behalf of the Board
28 September 2022
Corporate Governance Statement
Introduction
The Directors attach great importance to maintaining high standards of
corporate governance to help achieve the Company's goals. To that end they
have adopted the principles set out in the Quoted Companies Alliance Corporate
Governance Code for Small and Mid- Size Quoted Companies (the 'QCA Code')
2018. The QCA Code, which is constructed around 10 broad principles, sets out
a standard of minimum best practice for small and mid-size quoted companies,
including AIM companies. Companies are required to disclose how the
implementation of the QCA Code has been applied or, to the extent not done so,
to explain any areas of departure from its requirements.
We have considered how we apply each principle to the extent that the Board
judges these to be appropriate for our circumstances, and below we provide an
explanation of the approach taken in relation to each. Our compliance with the
QCA Code is based on the Company's current practices.
IDE Group Holdings plc, whilst an established operation, continued its
programme of cost rationalisation and reorganisation in 2021. The wellbeing of
staff and the customers with whom they interact continues to be our overriding
priority during this period of uncertainty. The measures we instituted
ensure that our people can work safely and, in most cases, remotely, ensuring
the continuity of the business. To date there has been no material effect on
the business of the new working practices dictated by a much-changed business
and social landscape. As we at last enter a post-pandemic business landscape
we are confident that we have developed robust business practices to provide a
solid grounding for sustained growth across our business.
Our objective is to secure the long-term success of the Group by establishing
a sustainable and profitable operating model with an appropriate underlying
cost base. The Board believes that applying sensible corporate governance
practices at this crucial stage of the Company's development can only help
achieve our goals.
We have identified a number of areas where we are not in full compliance with
the guidelines of the QCA Code and these are Principle 5, Principle 6,
Principle 7 and Principle 9. We explain in detail under the relevant principle
why we have departed from the guidelines in these areas.
We operate in the way the Board believes is most suited to the Group at its
current stage of development. The Group has established a strong leadership
team and an appropriate cost base to enable it to focus on growing the
business to secure its long- term sustainable success whilst creating
long-term value for shareholders and stakeholders alike.
We trust that the result of our efforts to date provide stakeholders with
access to the information they need and the confidence that the Board holds
corporate governance compliance in the highest regard.
Principle 1 - Establish a strategy and business model which promote long-term value for shareholders.
The Board's objective is to secure long-term success by establishing a
sustainable and profitable operating model with an appropriate underlying cost
base in order to create long-term value for shareholders and stakeholders. The
Board has set out its strategy and business model in the Strategic Report of
the Annual Report and Financial Statements, giving further information in the
Chairman's Statement and the Financial Review about how we performed against
our stated strategy. The Strategic Report includes information on the
principal risks and uncertainties faced by the Group and how we have acted to
reduce our exposure to risk.
The Strategic Report describes how the Group's flexible and technically
skilled workforce enable it to deliver and support critical services and
solutions in a highly secure environment and how the Group seeks to
differentiate itself through innovation, reliability and value.
The Board will continue to monitor its progress against its stated strategy.
Principle 2 - Seek to understand and meet shareholder needs and expectations.
IDE Group is committed to open communication with all its shareholders.
Copies of the Annual Report and Financial Statements are issued to all
shareholders who have requested them and copies are available on the Group's
investor website www.idegroup.com. The Group's interim results are also made
available on the website. The Group makes full use of its investor website to
provide information to shareholders and other interested parties.
The Board reviews proxy voting reports and any significant dissent is
discussed with relevant shareholders and, if necessary, action is taken to
resolve any issues. In compliance with best practice, the level of proxy votes
(for, against and vote withheld) lodged on each resolution is declared at all
general meetings and announced.
Shareholders are given the opportunity to raise questions at the Annual
General Meeting ("AGM") and the Directors are available both before and after
the meeting for further discussion with shareholders.
Andy Parker, Non-Executive Chairman, and Ian Smith, Executive Director, are
primarily responsible for communicating with investors.
Meetings via the Company's broker are offered to major institutional
shareholders to discuss strategy, financial performance and investment
activity immediately after the full year and interim results announcements.
The Directors are available to meet with major shareholders if such meetings
are requested. Feedback from such meetings with shareholders is provided to
the Board to ensure the Directors have a balanced understanding of the issues
and concerns of major shareholders.
The Board receives share register analysis reports to monitor the Company's
shareholder base and help identify the types of
investors on the register.
Principle 3 - Take into account wider stakeholder and social responsibilities and their implications for long-term success.
The Group recognises its employees, customers, suppliers, advisors, banks and
shareholders as forming part of the wider stakeholder group. Management
identifies key relationships within the business and effort is directed to
ensuring these relationships are managed appropriately. Regular reviews are
undertaken to ensure any issues are addressed promptly.
The Board reviews its top clients and suppliers in its Board meetings and
these are identified in packs provided to the Board.
The Company has a good relationship with its Nomad, broker and other advisers.
Feedback from investors is provided by the broker as well as through direct
engagement with investors by the Board.
The Company meets frequently with customers and communicates regularly with
suppliers. There is a feedback system in place and issues raised can be
addressed.
The Company's internal stakeholders are its employees. The Group is committed
to employment policies which follow best practice, based on equal
opportunities for all employees, irrespective of ethnic origin, religion,
political opinion, gender, marital status, disability, age or sexual
orientation.
Staff policies
The Group's employment policies are designed to ensure that they meet the
statutory, social and market practices in the United Kingdom. The Group
systematically provides employees with information on matters of concern to
them, consulting them or their representatives regularly, so that their views
can be taken into account when making decisions that are likely to affect
their interests. Employee involvement in the Group is encouraged, as achieving
a common awareness on the part of all employees on the financial and economic
factors affecting the Group, plays a major role in maintaining its
relationship with its staff.
The Group gives full and fair consideration to applications for employment
from disabled persons, having regard to their particular aptitude and
abilities. Appropriate arrangements are made for the continued employment and
training, career development and promotion of disabled persons employed by the
Group. If members of staff become disabled, the Group continues employment,
either in the same or an alternative position, with appropriate retraining
being given, if necessary.
The Board believes that its investment in the wider stakeholder network is
expected to assist the Company's management in achieving its long-term goals
creating an environment of trust and communication which will have positive
implications for the long- term success of the Company.
Principle 4 - Embed effective risk management, considering both opportunities and threats, throughout the organisation.
Risk assessment and evaluation is an essential part of the Company's planning
and an important aspect of the Group's internal control system. The business
and management of the Company and its subsidiaries are the collective
responsibility of the Board. At each meeting, the Board considers and reviews
the trading performance of the Group. The Board has a formal written schedule
of matters reserved for its review and approval. These include the approval of
the annual budget, major capital expenditure, investment proposals, the
interim and annual results and a review of the overall system of internal
control and risk management.
The strategic realignment undertaken in 2020 followed by Group reorganisation
and cost rationalisation in 2021 have enabled the current Board to identify
the most critical risks and challenges facing the business and to take the
necessary steps to mitigate these risks by strengthening its control systems.
The risks have been significantly reduced following disposal of Connect, which
has also simplified the group. The revised and refined system of risk
management is designed to manage rather than eliminate the risk of failure to
achieve business objectives and is explained in the Strategic Report under the
heading Principal Risks and Uncertainties. The Board has established a risk
register which is bespoke to the Group's business. At least twice a year the
risk register is reviewed and the Board considers the appropriateness of the
risks identified and the mitigating action taken by management on a risk by
risk basis with a particular focus on those deemed most critical.
Principle 5 - Maintain the board as a well-functioning, balanced team led by the Chair.
Andy Parker, who joined the Board as a Non-Executive director in August 2018,
was appointed as Executive Chairman in October 2018. Andy stepped down from
this role in June 2020 to become Non-Executive Chairman. He is a chartered
accountant and has held a wide range of commercial and finance roles including
acting as Chief Executive Officer of Capita Group plc, the FTSE 100
professional support services company. Andy has also held a number of finance
director roles during his career and is a highly experienced public markets
board director. As Andy was previously an executive chairman, he is not
considered to be an independent director. Andy is Chair of the audit and
remuneration committees.
Ian Smith is an Executive Director and he led the Group's strategic and
operational review in 2018. Whilst Ian holds no beneficial interest in IDE
Group, he is the Chief Executive Officer and a substantial shareholder of MXC
Capital which is a substantial shareholder of the Company and as such is not
considered to be an independent director. Ian is a member of the audit and
remuneration committees.
The Board currently comprises one Non-Executive Director and one Executive
Director, supported by senior managers, and it oversees and implements the
Company's corporate governance programme. As chairman, Andy leads the Board
and is responsible for the Company's approach to corporate governance and the
application of the principles of the QCA Code.
Each board member commits sufficient time to fulfil their duties and
obligations to the Board and the Company. They attend regular board meetings
and join ad hoc board calls and offer availability for consultation when
needed. The contractual arrangements between the Directors and the Company
specify the minimum time commitments which are considered sufficient for the
proper discharge of their duties. However, in exceptional circumstances all
board members understand the need to commit additional time.
Detailed board packs include information on all business units and financial
performance and are circulated ahead of board meetings. Key issues are
highlighted and explained, providing board members with sufficient information
to enable a relevant discussion in the board meeting.
Board and committee meetings
The Board is supported by its Audit Committee and its Remuneration Committee.
Attendances of Directors at Board and committee meetings convened in 2021, and
which they were eligible to attend, are set out below:
Director Board Meetings Attended Remuneration Committee Attended Audit Committee Attended
Number of meetings in year 10 0 2
Andy Parker 10/10 N/A 2/2
Ian Smith 10/10 N/A 2/2
Sebastian White* 1/1 N/A N/A
David Templeman* 3/3 N/A 1/1
*Notes:
Sebastian White left the Board on 12 February 2021.
David Templeman joined the Board on 20 April 2021 and left on 12 August 2021.
Departures from the Code
Size and balance of the board
The Company accepts that having only two Directors on the Board is not a
long-term solution. However, the Company has undergone significant periods of
change in recent years and its focus has been on implementing the revised
strategy. The Board recognises the need for at least one independent director
and is looking to find appropriate candidates to fulfil that role at which
time the composition of the Board committees will be reviewed.
Remuneration Committee
The Remuneration Committee did not convene in 2021. Instead, matters such as
remuneration of new appointments to the Board and senior management were
handled by the Chief Executive Officer and Chairman. Whilst no director was
involved in determining his or her own remuneration, the Board recognises that
this is a departure from the Code.
Principle 6 - Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities.
The members of the Board and their experience and skills etc are set out on
page 13 of the Directors' Report and Financial Statements identifies the
members of the Board at the time of publication and describes the relevant
experience, skills and qualities they bring.
The Chairman believes that the Board has a suitable mix of skills and
competencies in order to drive the Group's strategy following completion of
the Strategic and Operational Review and is best placed to secure the future
of the Company and create long-term value for all stakeholders.
The nature of the Company's business requires the Directors to keep their
skillset up to date. Periodic updates to the Board on regulatory matters are
given by Company's professional advisers. The Company's financial adviser and
Nomad and lawyers are consulted on any significant matters where the Board
believes external expertise is required.
External advisers attend board meetings as invited by the Chairman to report
and/or discuss specific matters relevant to the Company and the markets in
which they operate. Additionally, MXC Advisory Limited, which is part of the
same group as the significant shareholder MXC Capital Limited, is a retained
financial adviser principally focused on acquisitions and provides the
services of Ian Smith, Executive Director.
The Company Secretary advises the Board on corporate governance and regulatory
matters, attends the Board meetings and reports directly to the Chairman on
governance matters. In keeping with best practice as set out the in the QCA
guidelines the Company has split the role of Chief Financial Officer (who
attends the board whilst not a statutory director) and Company Secretary.
Andy Parker and Ian Smith are primarily responsible for communicating with
investors.
Departures from the Code
The Company accepts that not having any independent Directors is not ideal.
The Board recognises the need for at least one independent director and is
looking to find appropriate candidates to fulfil that role and enhance the
balance and skillset of the Board.
Principle 7 - Evaluate board performance based on clear and relevant objectives, seeking continuous improvement.
The Board regularly reviews the effectiveness of its performance as that of
its committees and individual Directors. The Directors' Report in the Annual
Report and Financial Statements identifies the members of the Board at the
time of its publication and describes the relevant experience, skills and
qualities they bring.
Board appointments are made after consultation with advisers in all cases and
with major shareholders in some cases. The Nomad undertakes due diligence on
all new potential board candidates. Board members all have appropriate notice
periods so that if a board member indicates his/her intention to step down,
there is sufficient time to appoint a replacement, whether internal or
external. All Directors are required to retire by rotation and seek
re-election every three years.
Departures from the Code
The Board recognises that a more robust means of evaluating Board performance
needs to be adopted going forwards. The evaluation process is currently under
review. In the past, a review of the Board has been undertaken by external
advisers. The Board will consider using this method of review in future to
supplement its own processes.
Principle 8 - Promote a corporate culture that is based on ethical values and behaviours.
The Board firmly believes that sustained success will best be achieved by
adhering to our corporate culture of treating all our stakeholders fairly and
with respect.
Accordingly, in dealing with each of the Company's principal stakeholders, we
encourage our staff to operate in an honest and respectful manner. The Board
believes that achieving a common awareness across all employees plays a major
role in maintaining good employee relations. The Group's culture of honesty
and respect is reflected in the continued support and dedication shown by
employees to deliver value to our customers during what has been a challenging
year.
The Company is committed to promoting a culture based on ethical values and
behaviours across the business. Policies are in place covering key matters
such as bribery, protection of intellectual property and sensitive
information, conflicts of interest, whistleblowing and anti-slavery. These are
vigorously enforced and monitored. The Group has invested a great deal of work
to improve its Corporate and Social Responsibility throughout 2021. This
included external auditing and improvements to a number of sustainability and
decarbonisation functions throughout the business.
Central to the Company's culture and values are Collaboration, Respect,
Excellence, Speed, Trust and Accountability, known to the Company's employees
as CRESTA. Information on how the Company's beliefs are applied to the
business is set out on the website.
Certifications
The Company is proud to have been awarded ISO/IEC 20000-1, ISO 9001, and ISO
27001. Details of these and other certifications are included on the website:
https://www.idegroup.com/about/certification/
Additionally, IDE started the process towards the attainment of ISO 14001.
This has resulted in a number of external ratings including achieving a silver
award from Ecovadis. Work is underway with a goal of achieving gold status in
2022.
Principle 9 - Maintain governance structures and processes that are fit for purpose and support good decision-making by the board.
The principal governance structures and processes of the Company and its
subsidiaries are the collective responsibility of the Board and its
Committees. At each Board meeting, the Board considers and reviews the trading
performance of the Group. The Board has a formal written schedule of matters
reserved for its review and approval. These include the approval of the annual
budget, major capital expenditure, investment proposals, the interim and
annual results and a review of the overall system of internal control and risk
management.
Audit Committee
The duties of the Audit Committee include reviewing, in draft form, the
Company's annual and half-yearly report and accounts and providing advice to
the Board. Members of the Audit Committee are also responsible for reviewing
and supervising the financial reporting process and internal control systems
of IDE Group. The Audit Committee is currently comprised of one Non-Executive
Director and one Executive Director
Remuneration Committee
The Remuneration Committee is responsible for determining the policy for
Directors' remuneration and setting remuneration for the Company's chair,
executive Directors and senior management including share option schemes and
any bonus arrangements. No director plays any role in determining his or her
own remuneration.
Departures from the Code
The Company recognises that its lack of independent non-executive Directors
does not comply with the standards of the QCA Corporate Governance Code in
terms of composition of the Board and its Committees.
The Remuneration Committee did not convene in 2021. Instead, matters such as
remuneration of new appointments to the Board and senior management were
handled by the Chief Executive Officer and Chairman. Whilst no director was
involved in determining his or her own remuneration, the Board recognises that
this is a departure from the Code.
The Board recognises the need for at least one independent director and is
looking to find appropriate candidates to fulfil that role.
Principle 10 - Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders.
The Company reports formally to its shareholders and the market generally
twice each year with the release of its interim and full year results. The
full year results are audited by an external firm of auditors.
The Annual Report and Financial Statements set out how the corporate
governance of the Company has been applied in the period under review.
These reports contain full details of all the principal events of the relevant
period together with an assessment of current trading
and future prospects and the reports are made available via the Company's
website to anyone who wishes to review them.
The Group maintains a regular dialogue with stakeholders including
shareholders to enable interested parties to make informed decisions about the
Company and its performance. The Board believes that transparency in its
dealings offers a level of comfort to stakeholders and an understanding that
their views will be listened to. This proved to be of utmost importance during
2021 which was a period of significant change and challenge for the Company.
The Board intends to continue its policy of communication for the mutual
benefit of the Company and its stakeholders.
The Board discloses the result of general meetings by way of announcement and
discloses the proxy voting numbers to those attending the meetings. In order
to improve transparency, the Board implemented a policy to announce proxy
voting results following the Annual General Meeting in August 2021, as it had
committed to do. In the event that a significant portion of voters vote
against a resolution, an explanation of what actions the Board intends to take
to understand the reasons behind the vote will be included. The proxy voting
results were published.
Andy Parker
Non-Executive Chairman
Date: 28 September 2022
Statement of Directors' Responsibilities
The directors are responsible for preparing the Strategic Report, the
Directors' Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the directors to prepare group and company financial
statements for each financial year. The directors have elected under company
law and are required by the AIM Rules of the London Stock Exchange to prepare
the group financial statements in accordance with UK-adopted international
Accounting Standards and have elected under company law to prepare the company
financial statements in accordance with UK-adopted International Accounting
Standards and applicable law.
The group and company financial statements are required by law and UK-adopted
International Accounting Standards to present fairly the financial position of
the group and the company and the financial performance of the group. The
Companies Act 2006 provides in relation to such financial statements that
references in the relevant part of that Act to financial statements giving a
true and fair view are references to their achieving a fair presentation.
Under company law the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the group and the company and of the profit or loss of the group
for that period.
In preparing each of the group and company financial statements, the directors
are required to:
a. select suitable accounting policies and then apply them
consistently;
b. make judgements and accounting estimates that are reasonable
and prudent;
c. state whether they have been prepared in accordance with
UK-adopted International Accounting Standards.
d. prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and the company will
continue in business.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's and the Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
group and the company and enable them to ensure that the financial statements
comply with the requirements of the Companies Act 2006. They are also
responsible for safeguarding the assets of the group and the company and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the IDE Group Holdings plc
website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Ian Smith
Executive Director
On behalf of the Board 28 September 2022
Report of the Audit Committee
I am pleased to present the Audit Committee's report for the year ended 31
December 2021. The following pages provide an insight into how the Audit
Committee discharged its responsibilities during the year and the key topics
that it considered in doing so.
Composition
At the start of 2021 the Audit Committee was comprised of one non-executive
director, Sebastian White until he stepped down in February 2021, and Andy
Parker, who was Executive Chairman of the Group until June 2020 when he became
Non-Executive Chairman, with Andy Parker acting as Chair of the Committee.
Sebastian White was replaced on the Audit Committee by Ian Smith, Executive
Director. The Chair is considered by the Board to have recent and relevant
financial experience and the other member has competence and experience
relevant to the Company's sector of operation.
As noted in the Corporate Governance Report set out in these Financial
Statements, the Board acknowledges that the lack of independent non-executive
Directors does not comply with the standards of the QCA Corporate Governance
Code in terms of composition of the Board and its Committees. With a Board
currently comprising two Directors, both generally attend the meetings of the
Audit Committee. Other members of senior management may also be invited to
attend the meetings as guests.
Role and Responsibilities
The Audit Committee determines and examines any matters relating to the
financial affairs of the Group including the terms of engagement of the
Group's auditors and, in consultation with the auditors, the scope of the
audit. The Audit Committee meets at least twice in each financial year, either
in a dedicated meeting or as part of a Board meeting.
The Audit Committee is responsible for monitoring the integrity of the
Company's financial statements, reviewing significant financial reporting
issues, reviewing the effectiveness of the Group's internal control and risk
management systems. In addition, it considers the financial performance,
position and prospects of the Group and the Company and ensures they are
properly monitored and reported on. It oversees the relationship with the
Auditor (including advising on their appointment, agreeing the scope of the
audit and reviewing the audit findings).
The Board and the Audit Committee do not consider it appropriate for the
current size of the Group to establish an internal audit function.
Principal activities during the year
The Committee held one dedicated meeting during the year under review and
considered the following:
· The financial statements for the year ended 31 December 2020; and
· The draft interim results for the period ended 30 June 2021 were
considered in a meeting of the Board.
The Committee met in 2021 to consider the following:
· An overview of the planned work by the external auditors on the
2021 audit including the scope and regulatory requirements of the audit and
audit findings.
The Committee has held one meeting in 2022 to:
· Review and approve the FY21 external Auditor's plan, including
the proposed materiality threshold, the scope of the audit,
the significant audit risks and fees;
The Committee is planning the following activities during 2022:
· Review the Company's procedures, systems and controls for the
prevention of bribery or fraud;
· Review the adequacy and security of the Company's arrangements
for its employees to raise concerns, in confidence, about possible wrongdoing
in financial reporting or other matters. The Committee believe that these
arrangements allow proportionate and independent investigation of such
matters and appropriate follow up action;
· Review the Committee's internal audit role, in the absence of an
external provider of an internal audit service.
Report of the Audit Committee (continued)
External Auditor
RSM UK Audit LLP ("RSM") has been the external Auditor of the Group since
2019. The continued appointment of RSM is to be reviewed by the Committee each
year, taking into account relevant legislation, guidance and best practice
appropriate for a Company of IDE's size and nature.
The Committee will consider a number of areas when reviewing the external
Auditor appointment, namely its performance in discharging the audit, the
scope of the audit and terms of engagement, its independence and objectivity,
and its reappointment and remuneration.
The fees paid to RSM during the financial year are set out in note 6 to the
Group's consolidated financial statements. In addition to audit services RSM
have provided services in connection with the corporate simplification
programme.
Attendance at Audit Committee Meetings
Please see the report in the Corporate Governance Report in this document for
attendance by the members of the Audit Committee.
Andy Parker
Chairman of the Audit Committee 28 September 2022
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF IDE GROUP HOLDINGS PLC
Opinion
We have audited the financial statements of IDE Group Holdings plc (the
'parent company') and its subsidiaries (the 'group') for the year ended 31
December 2021 which comprise the consolidated statement of comprehensive
income, statements of financial position for the group and parent company,
statements of changes in equity for the group and parent company, statements
of cash flows for the group and parent company and notes to the financial
statements, including significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable law and
UK-adopted International Accounting Standards and, as regards the parent
company financial statements, as applied in accordance with the provisions of
the Companies Act 2006.
In our opinion:
· the financial statements give a true and fair view of the state
of the group's and of the parent company's affairs as at 31 December 2021 and
of the group's loss for the year then ended;
· the group financial statements have been properly prepared in
accordance with UK-adopted International Accounting Standards;
· the parent company financial statements have been properly
prepared in accordance with UK-adopted International Accounting Standards and
as applied in accordance with the Companies Act 2006; and
· the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We are independent of
the group and parent company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed entities and we have fulfilled our
other ethical responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Summary of our audit approach
Key audit matters Group
· Impairment of software licences
Materiality Group
· Overall materiality: £167,000 (2020: £312,000)
· Performance materiality: £125,000 (2020: £234,000)
Parent Company
· Overall materiality: £167,000 (2020: £306,000)
· Performance materiality: £125,000 (2020: £229,000)
Scope Our audit procedures covered 100% of revenue, 99% of total assets and 100% of
loss before tax.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the group financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on the overall audit strategy, the allocation of
resources in the audit and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the group financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Impairment of software licences
Key audit matter description Refer to notes 1.25 and 14.
In the previous year the group purchased software licences from a customer for
£1.833m. During the current year the carrying value of these licences was
fully impaired.
Due to the licences having only recently been acquired by the Group, and the
difficulty in obtaining relevant and reliable evidence regarding the reasons
for their impairment, we determined this to be a key audit matter.
How the matter was addressed in the audit Our work included:
· Revisiting the audit evidence obtained in the prior year
regarding the business rationale for the purchase of the licences;
· Challenging management's initial assertion that the impairment
was solely a result of the disposal of the Connect business; and
· Inquiring of all relevant personnel (the current directors, both
of whom were in office at the time of purchase, and the group's head of IT,
who was responsible for the implementation of the licences) as to the expected
application of the licences at the time of purchase and how/why this had
subsequently changed.
Our application of materiality
When establishing our overall audit strategy, we set certain thresholds which
help us to determine the nature, timing and extent of our audit procedures.
When evaluating whether the effects of misstatements, both individually and on
the financial statements as a whole, could reasonably influence the economic
decisions of the users we take into account the qualitative nature and the
size of the misstatements. Based on our professional judgement, we determined
materiality as follows:
Group Parent company
Overall materiality £167,000 (2020: £312,000) £167,000 (2020: £306,000)
Basis for determining overall materiality 1.2% of Revenue 2.7% of net assets
Rationale for benchmark applied Revenue is considered to the most appropriate measure used to assess the Net assets are considered to be the appropriate measure as the company's
performance of the group during the period in which it is seeking to grow activity is to hold investments in group companies.
revenues and return to profitability.
Performance materiality £125,000 (2020: £234,000) £125,000 (2020: £229,000))
Basis for determining performance materiality 75% of overall materiality 75% of overall materiality
Reporting of misstatements to the Audit Committee Misstatements in excess of £8,350 and misstatements below that threshold Misstatements in excess of £8,350 and misstatements below that threshold
that, in our view, warranted reporting on qualitative grounds. that, in our view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
The group consists of the parent company, one trading company (IDE Group
Manage Limited) and 13 other entities which were dormant or non-trading. The
parent and trading company are based in the UK.
The coverage achieved by our audit procedures was:
Number of components Revenue Total assets Loss before tax
Full scope audit 1 100% 99% 93%
Specific audit procedures* 1 0% 0% 7%
Total 2 100% 99% 100%
* Specific audit procedures were performed in order to obtain sufficient and
appropriate coverage over the group's loss before tax and borrowings.
Analytical procedures at group level were performed for the remaining 13
components.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors'
assessment of the group's and parent company's ability to continue to adopt
the going concern basis of accounting included:
· obtaining an understanding of management's going concern
evaluation and reviewing cashflow forecasts;
· evaluating management's ability to accurately forecast
performance through comparison of historic performance against forecast;
· performing sensitivity analysis to understand the impact of
reasonably possible outcomes, or changes to assumptions; and
· testing the integrity and mechanical accuracy of the forecast
model.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group's or the parent
company's ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report. Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit or otherwise
appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the Strategic Report and the Directors'
Report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the Strategic Report and the Directors' Report have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent
company and their environment obtained in the course of the audit, we have not
identified material misstatements in the Strategic Report or the Directors'
Report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received from
branches not visited by us; or
· the parent company financial statements are not in agreement with
the accounting records and returns; or
· certain disclosures of directors' remuneration specified by law
are not made; or
· we have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement set out
on page 25, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and
for such internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the group's and the parent company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that
includes our opinion. Reasonable assurance is a high level of assurance but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
The extent to which the audit was considered capable of detecting
irregularities, including fraud
Irregularities are instances of non-compliance with laws and regulations.
The objectives of our audit are to obtain sufficient appropriate audit
evidence regarding compliance with laws and regulations that have a direct
effect on the determination of material amounts and disclosures in the
financial statements, to perform audit procedures to help identify instances
of non-compliance with other laws and regulations that may have a material
effect on the financial statements, and to respond appropriately to identified
or suspected non-compliance with laws and regulations identified during the
audit.
In relation to fraud, the objectives of our audit are to identify and assess
the risk of material misstatement of the financial statements due to fraud, to
obtain sufficient appropriate audit evidence regarding the assessed risks of
material misstatement due to fraud through designing and implementing
appropriate responses and to respond appropriately to fraud or suspected fraud
identified during the audit.
However, it is the primary responsibility of management, with the oversight of
those charged with governance, to ensure that the entity's operations are
conducted in accordance with the provisions of laws and regulations and for
the prevention and detection of fraud.
In identifying and assessing risks of material misstatement in respect of
irregularities, including fraud, the group audit engagement team:
· obtained an understanding of the nature of the industry and
sector, including the legal and regulatory framework that the group and parent
company operate in and how the group and parent company are complying with the
legal and regulatory framework;
· inquired of management, and those charged with governance, about
their own identification and assessment of the risks of irregularities,
including any known actual, suspected or alleged instances of fraud;
· discussed matters about non-compliance with laws and regulations
and how fraud might occur including assessment of how and where the financial
statements may be susceptible to fraud.
The most significant laws and regulations were determined as follows:
Legislation / Regulation Additional audit procedures performed by the Group audit engagement team
included:
UK-adopted IAS and Companies Act 2006 Review of the financial statement disclosures and testing to supporting
documentation;
Completion of disclosure checklists to identify areas of non-compliance.
Tax compliance regulations Inspection of advice received from external tax advisors.
The areas that we identified as being susceptible to material misstatement due
to fraud were:
Risk Audit procedures performed by the audit engagement team:
Revenue cut-off For a sample of contract assets and liabilities, recalculating the revenue
recognised (and the associated accrual/deferral), based upon the terms of the
underlying contracts and invoices; and
For samples of monthly and quarterly billed revenue transactions, in the
identified cut-off periods, verifying that revenue has been recognised in the
correct period.
Management override of controls Testing the appropriateness of journal entries and other adjustments;
Assessing whether the judgements made in making accounting estimates are
indicative of a potential bias; and
Evaluating the business rationale of any significant transactions that are
unusual or outside the normal course of business.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
http://www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) . This description forms part
of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company's members those matters we
are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
GEOFF WIGHTWICK (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
Portland
25 High Street
Crawley
West Sussex RH10 1BG
Date:
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2021
Year ended Year ended
31 December 31 December
Note 2021 2020
£000 £000
Continuing operations
Revenue 3 14,456 11,527
Cost of sales 5 (8,185) (6,974)
Gross profit 6,271 4,553
Other operating income 4 40 286
Administrative expenses excluding impairment 5 (5,151) (5,889)
Impairment charge on intangibles 14 (1,833) -
Impairment credit on trade receivables 139 -
Total administrative expenses (6,845) (5,889)
Adjusted EBITDA* 3,099 1,375
Non underlying items 7 (433) (387)
Depreciation 13 (321) (837)
Amortisation 14 (1,169) (1,169)
Impairment charge on intangibles 14 (1,833) -
Impairment credit on trade receivables 16 139 -
Charges for share-based payments 27 (16) (32)
Operating loss (534) (1,050)
Finance costs 9 (2,453) (1,783)
Loss on ordinary activities before taxation (2,987) (2,833)
Income tax 11 1,204 729
Loss for the year from continuing operations (1,783) (2,104)
Loss for the year from discontinued operations 8 (193) (16,373)
Loss for the year and total comprehensive loss attributable to owners of the (1,976) (18,477)
parent company
From continuing operations
Basic and diluted loss per share 12 (0.39) p (0.52) p
From discontinued operations
Basic and diluted loss per share 12 (0.04) p (4.09) p
Total basic and diluted loss per share 12 (0.43) p (4.61) p
* Adjusted EBITDA is defined as earnings before interest, tax, depreciation,
amortisation, impairment charge, non-underlying items, loss on disposal of
fixed assets and share-based payments
The notes on pages 40 to 75 are an integral part of these financial
statements.
Statements of Financial Position
As at 31 December 2021
Note Group Company
2021 2020 2021 2020
£000 £000 £000 £000
32 Restated
Non-current
assets
Property, plant and equipment 13 813 1,208 - -
Intangible assets 14 8,231 11,429 - -
Investments 15 - - 7,877 7,877
Deferred tax asset 11 2,265 1,653 - -
Trade and other receivables 16 313 100 16,842 16,137
11,622 14,390 24,719 24,014
Current assets
Trade and other receivables 16 3,969 5,444 31 140
Cash and cash equivalents 17 349 693 2 7
4,318 6,137 33 147
Total assets 15,940 20,527 24,752 24,161
Current liabilities
Trade and other payables 18 5,318 8,487 2,445 1,830
Contract liabilities 19 49 1,370 - -
Borrowings 21 246 531 - -
Provisions 20 157 221 - 50
5,770 10,609 2,445 1,880
Non-current liabilities
Trade and other payables 18 730 1,584 - -
Contract liabilities 19 - 15 - -
Borrowings 21 17,737 14,847 17,027 13,988
Convertible loan notes 22 131 1,983 131 1,983
Provisions 20 202 91 - -
18,800 18,520 17,158 15,971
Total liabilities 24,570 29,129 19,603 17,851
Net (liabilities)/assets (8,630) (8,602) 5,149 6,310
Equity attributable to equity holders of the parent
Share capital 26 12,418 10,020 12,418 10,020
Share premium 35,882 35,439 35,882 35,439
Equity reserve 58 967 58 967
Retained earnings (56,838) (54,878) (43,209) (40,116)
Foreign currency translation reserve (150) (150) - -
Total equity (8,630) (8,602) 5,149 6,310
The notes on pages 40 to 75 are an integral part of these financial
statements. The Company made a loss of £3.1 million in the year ended 31
December 2021 (2020: £4.3 million) and in accordance with s408 of the
Companies Act 2006 has not presented a company statement of comprehensive
income. These financial statements were approved by the Board of Directors on
28 September 2022 and were signed on its behalf by:
Ian Smith
Executive
Director
Company registered number: SC368538
Statements of Changes in Equity
for the year ended 31 December 2021
Group Share Capital (a) Share Premium (b) Equity reserve (c) Retained Earnings (d) Foreign currency translation reserve(e) Total equity
£000 £000 £000 £000 £000 £000
Balance at 1 January 2020 10,020 35,439 967 (36,433) (150) 9,843
Loss for the financial year and total comprehensive expense - - - (18,477) - (18,477)
Transactions with owners recorded directly in equity
Share based payments charge - - - 32 - 32
At 31 December 2020 10,020 35,439 967 (54,878) (150) (8,602)
Balance at 1 January 2021 10,020 35,439 967 (54,878) (150) (8,602)
Loss for the financial year and total comprehensive expense - - - (1,976) - (1,976)
Shares issued for redemption of convertible loan notes (note 22) 2,398 443 (909) - - 1,932
Transactions with owners recorded directly in equity
Share based payment charge - - - 16 - 16
At 31 December 2021 12,418 35,882 58 (56,838) (150) (8,630)
(a) Share capital represents the nominal value of equity shares
(b) Share premium represents the excess over nominal value of the fair
value of consideration received for equity shares net of expenses of the share
issue
(c) The equity reserve consists of the equity component of convertible
loan notes that were issued as part of the fundraising in August 2018 less the
equity component of instruments converted or settled
The fair value of the equity component of convertible loan notes issued is the
residual value after deduction of the fair value of the debt component of the
instrument from the face value of the loan note
(d) Retained earnings represents retained profits and accumulated losses
(e) On consolidation, the balance sheets of the Group's foreign
subsidiaries are translated into sterling at the rates of exchange ruling at
the balance sheet date. Exchange gains or losses arising from the
consolidation of these foreign subsidiaries are recognised in the foreign
currency translation reserve.
Statements of Changes in Equity (continued)
for the year ended 31 December 2021
Company Share Capital (a) Share Premium (b) Equity reserve (c) Retained Earnings (d) Total equity
£000 £000 £000 £000 £000
Balance at 1 January 2020 10,020 35,439 967 (35,879) 10,547
Total comprehensive loss for the year
Loss for the year - - - (4,269) (4,269)
Transactions with owners recorded directly in equity:
Share based payments charge - - - 32 32
Balance at 31 December 2020 10,020 35,439 967 (40,116) 6,310
Total comprehensive loss for the year
Loss for the year - - - (3,109) (3,109)
Shares issued for redemption of convertible loan notes (note 22) 2,398 443 (909) - 1,932
Share based payment charge - - - 16 16
Balance at 31 December 2021 12,418 35,882 58 (43,209) 5,149
(a) Share capital represents the nominal value of equity shares
(b) Share premium represents the excess over nominal value of the fair
value of consideration received for equity shares net of expenses of the share
issue
(c) The equity reserve consists of the equity component of convertible
loan notes that were issued as part of the fundraising in August 2018 less the
equity component of instruments converted or settled
The fair value of the equity component of convertible loan notes issued is the
residual value after deduction of the fair value of the debt component of the
instrument from the face value of the loan note
(d) Retained earnings represents retained profits and accumulated losses
Statements of Cash Flows
for the year ended 31 December 2021
Group
Note 2021 2020
£000 £000
Cash flows from operating activities
Loss from continuing operations: (2,987) (2,833)
Profit/(loss) from discontinued operations (193) (18,747)
Total loss before tax (3,180) (21,580)
Adjustments for:
Depreciation of property, plant and equipment 13 321 2,616
Amortisation of intangible assets 14 1,169 3,233
Profit on disposal of discontinued operations 8 (1,286) -
Impairment charge on goodwill and 1,833 8,473
intangibles
14
Impairment charge on property, plant and equipment 13 - 5,481
Impairment credit on trade (139) -
receivables
16
Net finance expenses 9 2,453 1,799
Share based payments 27 16 32
Decrease in trade and other receivables (133) 2,175
Decrease in trade and other payables and contract liabilities* (513) (4)
Increase/(decrease) in provisions 47 (111)
Net cash generated from operating activities 588 2,114
Cash flows from investing activities
Acquisition of property, plant and equipment (28) (82)
Acquisition of Nimoveri, net of cash acquired - (72)
Disposal of subsidiaries (cash disposed and expenses) (586) -
Net cash used in investing activities (614) (154)
Cash flows from financing activities
Interest paid (334) (98)
Supplier finance repaid (550) -
New loans and borrowings, net of expenses 1,000 -
Repayment of lease liabilities 21 (434) (1,848)
Net cash generated from/ (absorbed by) financing activities (318) (1,946)
Net (decrease)/increase in cash and cash equivalents (344) 1
4
Cash and cash equivalents at 1 January 693 679
Cash and cash equivalents at 31 December 349 693
Cash and cash equivalents comprise
Cash at bank 17 349 693
349 693
* A balance of £1.8m has not been included in the additions of intangible
assets in 2020 as the invoice was outstanding at year end. This has been
deducted from the movement in trade and other payables.
Statements of Cash Flows (continued)
for the year ended 31 December 2021
Company
Note 2021 2020
£000 £000
Cash flows from operating activities
Loss before tax for the year (3,109) (4,268)
Adjustments for:
Net financial expenses 2,032 1,697
Impairment of intercompany loans - 1,769
Share based payments 16 32
(1,061) (770)
(Increase)/decrease in trade and other receivables (931) 28
Increase/(decrease) in trade and other payables 702 (388)
Decrease in provision (50) -
Net cash used in operating activities (1,340) (1.130)
Cash flows from investing activities
Amounts repaid by subsidiaries 335 1,034
Net cash generated from investing activities 335 1,034
Cash flows from financing activities
New loans and borrowings, net of expenses 1,000 -
Net cash generated from financing activities 1,000 -
Net decrease in cash and cash equivalents (5) (96)
Cash and cash equivalents at 1 January 7 103
Cash and cash equivalents at 31 December 17 2 7
Notes to the Consolidated Financial Statements
1 Accounting policies
IDE Group Holdings plc ("IDE Group") is a company incorporated in Scotland,
domiciled in the United Kingdom and limited by shares which are publicly
traded on AIM, the market of that name operated by the London Stock Exchange.
The registered office is 24 Dublin Street, Edinburgh EH1 3PP and the principal
place of business is in the United Kingdom.
The principal activity of the Group is the provision of network, cloud and IT
managed services.
The principal accounting policies, which have been applied consistently in the
preparation of these consolidated and parent company financial statements
throughout the year and all by subsidiary companies are set out below.
1.1 Basis of preparation
The consolidated and parent company financial statements of IDE Group have
been prepared on the going concern basis and in accordance with UK-adopted
International Accounting Standards. The consolidated financial statements have
been prepared under the historical cost convention. The Company has elected to
take the exemption under section 408 of the Companies Act 2006 to not present
the parent Company's Income Statement.
The accounting framework requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the
process of applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the consolidated financial statements are
disclosed in note 1.25 in the accounting policies. The financial statements
are prepared in GBP (being the functional currency of the Group) and rounded
to the nearest £1,000.
Going concern
The Directors have produced detailed trading and cashflow forecasts. In
reaching their conclusion on the going concern basis of accounting, the
Directors note and rely on the improved trading performance, the positive cash
generation that the business is now experiencing and the current signed order
book. A reverse stress test of the model has been run to determine at what
level of shortfall in revenues the Group would run out of cash. Given the
committed orders already obtained and the visibility of future revenues, the
directors do not consider it likely that revenues could drop to such an extent
that the Group would run out of cash. They have also considered the impact of
any delayed customer payments and have developed plans to mitigate any such
delays to ensure that the group can continue to settle its liabilities as they
fall due and operate as a going concern. The directors therefore have an
expectation that the Group and Company have adequate resources available to
them to continue in operational existence for a period of at least 12 months
from the date of approval of these financial statements. Accordingly, the
Group and Company continue to adopt the going concern basis in preparing these
consolidated financial statements.
1.2 Basis of consolidation
Subsidiaries are all entities (including structured entities) over which the
Group has control. The Group controls an entity when the Group is exposed to,
or has rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control
ceases.
The Group applies the acquisition method to account for business combinations.
The consideration transferred for the acquisition of a subsidiary is the total
of the fair values of the assets transferred, the liabilities incurred to the
former owners of the acquiree and the equity interests issued by the Group.
The consideration transferred includes the fair value of any asset or
liability resulting from a contingent consideration arrangement. Identifiable
assets acquired, liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition
date. The Group recognises any non-controlling interest in the acquiree on an
acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest's proportionate share of the recognised amounts of
the acquiree's identifiable net assets.
Acquisition related costs are expensed as incurred.
Intercompany transactions, balances and unrealised gains on transactions
between Group companies are eliminated on consolidation. Accounting policies
of subsidiaries have been changed where necessary to ensure consistency with
policies adopted by the Group.
Notes to the Consolidated Financial Statements (continued)
1 Accounting policies (continued)
1.3 Investments
Investments in subsidiaries are held at cost less accumulated impairment
losses. A formal assessment of the recoverability of the investment values is
undertaken on an annual basis by the Directors. Where indicators of impairment
identified, fixed asset investments are impaired accordingly.
1.4 Intangible assets
Goodwill
Goodwill is initially measured as the excess of the aggregate of the
consideration transferred and the fair value of any non- controlling interest
over the fair value of the net identifiable assets acquired and liabilities
assumed. If this consideration is lower than the fair value of the net assets
of the subsidiary acquired, the difference is recognised in the income
statement as a bargain purchase.
Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses.
For the purposes of impairment testing, goodwill acquired in a business
combination is allocated to a cash generating unit.
Goodwill impairment reviews are undertaken annually or more frequently if
events or changes in circumstances indicate a potential impairment. Any
impairment is recognised immediately as an expense and is not subsequently
reversed.
Other intangible assets arising from business combinations
Intangible assets that meet the criteria to be separately recognised as part
of a business combination are carried at cost (which is equal to their fair
value at the date of acquisition) less accumulated amortisation and impairment
losses. An intangible asset acquired as part of a business combination is
recognised outside of goodwill if the asset is separable or arises from
contractual or other legal rights and its fair value can be measured reliably.
Intangible assets acquired in this manner include trademarks and customer
contracts. They are amortised over their estimated useful lives on a
straight-line basis as follows:
· Customer contracts and related
relationships 13 years
·
Trademarks
5 years
Impairment and amortisation charges are included within the administrative
expenses line in the income statement.
Technology development
Expenditure on internally developed technology is capitalised if it can be
demonstrated that:
- it is technically feasible to develop the technology for it to be used or
sold
- adequate resources are available to complete the development
- there is an intention to complete and for the Group to use or sell the
technology
- use or sale of the asset will generate future economic benefits, and
- expenditure on the project can be measured reliably.
Capitalised development costs are amortised over the periods the Group expects
to benefit from using or selling the assets developed. The amortisation
expense is included within the administrative expenses line in the income
statement. Development expenditure not satisfying the above criteria and
expenditure on the research phase of internal projects are recognised in the
consolidated income statement as incurred.
Software and licensing
Separately acquired software and licenses are shown at historical cost less
accumulated amortisation and impairment losses.
They are amortised over their estimated useful lives on a straight-line basis
as follows:
· Software and
licensing
8 years
1 Accounting policies (continued)
1.5 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and any impairment in value. The cost includes the original price of the asset
and the cost attributable to bringing the asset to its current working
condition for its intended use.
Depreciation, down to residual value, is calculated on a straight-line basis
over the estimated useful life of the asset, which is reviewed on an annual
basis, as follows:
· Leasehold
property
Over remaining lease term
· Network
infrastructure
3 - 10 years
· Equipment, fixtures and
fittings
3 - 5 years
An item of property, plant and equipment is de-recognised upon disposal or
when no future economic benefits are expected to arise from the continued use
of the asset. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and the
carrying amount of the item) is included in the income statement in the year
the item is de-recognised.
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The
right-of-use asset is measured at cost, which comprises the initial amount of
the lease liability, adjusted for, as applicable, any lease payments made at
or before the commencement date net of any lease incentives received, any
initial direct costs incurred, and, except where included in the cost of
inventories, an estimate of costs expected to be incurred for dismantling and
removing the underlying asset, and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the
unexpired period of the lease or the estimated useful life of the asset,
whichever is the shorter. Where the Group expects to obtain ownership of the
leased asset at the end of the lease term, the depreciation is over its
estimated useful life. Right-of use assets are subject to impairment or
adjusted for any remeasurement of lease liabilities.
1.6 Impairment of assets
Goodwill is not subject to amortisation and is reviewed for impairment
annually or more frequently if events or changes in circumstances indicate the
carrying value may be impaired. As at the acquisition date, any goodwill
acquired is allocated to each of the cash generating units expected to benefit
from the business combination's synergies. Impairment is determined by
assessing the recoverable amount of each cash generating unit to which the
goodwill relates. When the recoverable amount of the cash generating unit is
less than the carrying amount, including goodwill, an impairment loss is
recognised.
Other intangible assets and property, plant and equipment are subject to
amortisation and depreciation and are reviewed for impairment whenever events
or changes in circumstances indicate the carrying values may not be
recoverable. If any such indication exists and where the carrying value
exceeds the estimated recoverable amount, the assets or cash generating units
are written down to their recoverable amount.
The recoverable amount of intangible assets and property, plant and equipment
is the greater of the fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to
their present values using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset. For an asset that does not generate largely independent cash inflows,
the recoverable amount is determined by the cash generating unit to which the
asset belongs. Fair value less costs to sell is, where known, based on actual
sales price net of costs incurred in completing the disposal. Non-financial
assets, other than goodwill, that were impaired in previous periods are
reviewed annually to assess whether the impairment is still relevant.
1.7 Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in equity as a
deduction from proceeds.
1.8 Leases
A lease liability is recognised at the commencement date of a lease. The lease
liability is initially recognised at the present value of the lease payments
to be made over the term of the lease, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, the
Group's incremental borrowing rate. Lease payments comprise of fixed payments
less any lease incentives receivable, variable lease payments that depend on
an index or a rate, amounts expected to be paid under residual value
guarantees, exercise price of a purchase option when the exercise of the
option is reasonably certain to occur, and any anticipated termination
penalties. The variable lease payments that do not depend on an index or a
rate are expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest
method. The carrying amounts are remeasured if there is a change in the
following: future lease payments arising from a change in an index or a rate
used; residual guarantee; lease term; certainty of a purchase option and
termination penalties. When a lease liability is remeasured, an adjustment is
made to the corresponding right-of use asset, or to profit or loss if the
carrying amount of the right-of-use asset is fully written down.
1.9 Provisions
Provisions are recognised when the Company has a present obligation (legal or
constructive) as a result of a past event where it is probable that an outflow
of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation. If the effect of the time value of money is material, provisions
are determined by discounting the expected future cash flows at a risk-free
rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability.
1.10 Current and deferred income tax
Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities, based on tax rates and
laws that are enacted or substantively enacted by the balance sheet date.
Deferred income tax is provided for on all temporary differences at the
balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes, with the following
exceptions:
· where the temporary difference arises from the initial
recognition of goodwill or an asset or liability in a transaction that is not
a business combination that at the time of the transaction neither affects
accounting nor taxable profit or loss;
· in respect of taxable temporary differences associated with
investments in subsidiaries, where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future; and
· deferred income tax assets are recognised only to the extent that
it is probable that taxable profits will be available against which deductible
temporary differences carried forward tax credits or tax losses can be
utilised.
1.11 Trade and other receivables
Trade receivables, which principally represent amounts due from customers, are
recognised at amortised cost as they meet the IFRS 9 classification test of
being held to collect, and the cash flow characteristics represent solely
payments of principal and interest.
The Group has applied the Simplified Approach applying a provision matrix
based on number of days past due to measure lifetime expected credit losses
and after taking into account customers with different credit risk profiles
and current and forecast trading conditions.
Trade receivables are written-off when there is no reasonable expectation of
recovery, such as a debtor failing to engage in a repayment plan with the
company. The Group's trade and other receivables are non-interest bearing.
1.12 Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in
hand and short-term deposits with an original maturity of three months or
less.
For the purposes of the consolidated cash flow statement, cash and cash
equivalents consist of cash and cash equivalents as defined above.
1.13 Foreign currencies
The presentational currency of the Group is Pound Sterling (£) and the Group
conducts the majority of its business in Sterling. Transactions in foreign
currencies are initially recorded in the presentational currency by applying
the rate of exchange ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are retranslated at the
presentational currency rate of exchange ruling at the balance sheet date. All
differences are taken to the income statement.
1.14 Accrual for employee benefits, including holiday pay
Provision is made for employee benefits, including holiday pay, to the extent
of the liability as if all employees of the Group had left the business at its
reporting date.
1.15 Financial assets and liabilities
The Group's financial assets and liabilities mainly comprise cash, borrowings,
trade and other receivables and trade and other payables. These are accounted
for in accordance with the relevant accounting policy note.
Trade and other payables are not interest bearing and are stated at their
amortised cost.
1.16 Convertible loan notes
The component parts of convertible loans issued by the Company are classified
separately as financial liabilities and equity in accordance with the
substance of the contractual arrangements and the definitions of a financial
liability and an equity instrument. At the date of issue, the fair value of
the liability portion of convertible loan notes is determined using a market
interest rate for a comparable loan note with no conversion option. This
amount is recorded as a liability on an amortised cost basis using the
effective interest method until the loan notes are redeemed or converted
either during or at the end of the term of the convertible loan notes. The
remainder of the carrying amount of the loan notes is allocated to the
conversion option and shown within equity and is not subsequently remeasured.
When the conversion option remains unexercised at the maturity date of the
convertible note, the balance recognised in equity will be transferred to
retained earnings. No gain or loss is recognised in the income statement upon
conversion or expiration of the conversion options.
1.17 Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly
attributable transaction costs. After initial recognition, interest-bearing
loans and borrowings are subsequently measured at amortised cost using the
effective interest method. Gains and losses arising on the repurchase,
settlement or otherwise cancellation of liabilities are recognised in the
finance cost line in the income statement.
1.18 Finance costs
Loans are carried at fair value on initial recognition, net of unamortised
issue costs of debt. These costs are amortised over the loan term.
All other borrowing costs are recognised in the income statement on an
accruals basis, using the effective rate method.
Notes to the Consolidated Financial Statements (continued)
1 Accounting policies (continued)
1.19 Revenue
Revenue is measured at the fair value of the consideration received or
receivable for the sale of goods and services in the ordinary course of the
Group's activities. Revenue is shown net of Valued Added Tax, returns, rebates
and discounts and after the elimination of sales within the Group.
The Group recognises revenue when the amount of revenue can be reliably
measured, it is probable that future economic benefits
will flow to the entity and when specific criteria have been met for each of
the Group's activities as described below.
Recurring revenue
The largest portion of the Group's revenues relates to a number of network,
cloud and IT managed services, which the Group offers to its customers. All of
the revenue in this category is contracted and includes a full range of
support, maintenance, subscription and service agreements. Revenue for these
types of services is recognised as the services are provided on the basis that
the customer simultaneously receives and consumes the benefits provided by the
Group's performance of the services over the contract term. In terms of
performance obligations, the customer can benefit from each service on its own
and the Group's promise to transfer the service to the customer is separately
identifiable from other promises in the contract. The transaction price for
each service is allocated to each performance obligation. The costs incurred
for these revenue streams typically match the revenue pattern. A contract
liability is recognised when billing occurs ahead of revenue recognition. A
contract asset is recognised when the revenue recognition criteria were met
but in accordance with the underlying contract, the sales invoice has not been
issued yet.
Project revenue
These project services include mainly installation and consultancy services.
Performance obligations are met once the hours or days have been worked.
Revenue is therefore recognised over time based on the hours or days worked at
the agreed price per hour or day. The costs incurred for this revenue stream
generally match the revenue pattern, as a significant portion of consultancy
costs relate to staff costs, which are recognised as incurred. Consultancy
services are generally provided on a time and material basis.
1.20 Government Grants
Grants from the government are recognised at their fair value where there is a
reasonable assurance that the grant will be received and the Group will comply
with all attached conditions.
1.21 Non-underlying items
It is the policy of the Group to identify certain costs, which are material
either because of their size or nature, separately on the face of the Income
Statement in order that the underlying profitability of the business can be
clearly understood. These costs are identified as non-underlying items, and
comprise;
a) Professional fees incurred in sourcing and completing acquisitions
and disposals including legal expenses
b) Professional fees incurred in restructuring and refinancing
acquisitions
c) Integration costs which are incurred by the Group when integrating
one trading business into another, including rebranding of acquired businesses
d) Redundancy costs, including employment related costs of staff made
redundant up to the date of their leaving as a consequence of integration
e) Property costs such as lease termination penalties and vacant
property provisions and third-party advisor fees
.
1.22 Discontinued operations
Cash flows and operations that relate to a major component of the business
that has been disposed of or is classified as held for sale or distribution
are shown separately from continuing operations.
1.23 Segmental reporting
The Chief Operating Decision Maker has been identified as the Executive Board.
The Chief Operating Decision Maker reviews the Group's internal reporting in
order to assess performance and allocate resources. For management reporting
purposes and operationally, the continuing operations of the Group consist of
IDE Group Manage and the prior period operation consisted of three operating
segments: IDE Group Manage, IDE Group Connect and Nimoveri Limited. IDE Group
Connect Limited and Nimoveri Holdings were sold in the year and the group
comprises only one segment, the Manage Business.
1.24 Standards and interpretations not yet applied by the Group
For the purposes of the preparation of these consolidated financial
statements, the Group has applied all standards and interpretations that are
effective for accounting periods beginning on or after 1 January 2021. There
was no significant impact of new standards and interpretations adopted in the
year, which include:
· Interest Rate Benchmark Reform - Phase 2 (Amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and -FRS 16) - effective 1 Jan 2021
No new standards, amendments or interpretations to existing standards that
have been published and that are mandatory for the Group's accounting periods
beginning on or after 1 January 2022, or later periods, have been adopted
early. The new standards and interpretations are not expected to have any
significant impact on the financial statements when applied.
1.25 Critical accounting estimates and judgements
Estimates
The Group makes estimates and assumptions concerning the future, which by
definition will seldom result in actual results that match the accounting
estimate. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amount of assets and liabilities
within the next financial year are discussed below:
Recoverability of deferred tax asset -This includes estimates of the level
of future profitability, and a judgement as to the likelihood of the group
undergoing a restructure of its finances which would result in significant
finance cost savings.
There are no reasonably plausible scenarios which would result in the future
profitability not being sufficient to enable full recovery of the tax losses
in the assessment period.
Impairment of intercompany balances - The directors use estimates in assessing
the level of impairment of intercompany balances at each period end, including
the likely methods of recovery of the balances and future profitability of the
underlying trade which would enable repayments to be made.
Judgements
In the process of applying the Group's accounting policies, management makes
various judgements which can significantly affect the amounts recognised in
the financial statements. Critical judgements are considered to be:
Classification of non-underlying items - the Directors have exercised
judgement when classifying certain costs arising during integration and
strategic reorganisation projects. The Directors believe that these costs are
all related to the types of costs described in 1.21 above and are
appropriately classified.
Recoverability of deferred tax asset - the Directors have exercised judgement
on the recoverability of tax losses attributable to future trading profits
generated by the Group, and in doing so this has given rise to a deferred tax
asset, details of which are shown in note 11 to the financial statements. The
judgement involves assessing the extent to which trading losses can be offset
against future profits.
Impairment of software licences - As set out in note 14, the directors
performed an impairment review in respect of software licences, which had a
carrying amount at the previous balance sheet date of £1.8m. The impairment
review was triggered both because the licences were not yet in use, and
because of an indicator of impairment due to planned expansion which didn't
materialise, and the sale of the Connect business, which meant the licences
had no addressable market. Following the review the licences were fully
impaired. The directors' judgement is that it is very unlikely that the
benefit of trying to earn revenues for the licences would exceed the cost of
funding the activities that would be required.
2 Segment reporting
With the sale of the Connect and Nimoveri Businesses the Group has only one
operating segment, the Manage Business.
3 Revenue
Disaggregation of revenue from contracts with customers is as follows:
Year ended 31 December 2021 Managed Projects Total
services
Geographical regions £000 £000 £000
United Kingdom 10,704 3,716 14,420
Europe 13 23 36
Total 10,717 3,739 14,456
Timing of revenue recognition
Goods transferred at a point in time 48 - 48
Services transferred over time 10,669 3,739 14,408
Total 10,717 3,739 14,456
The revenue from the largest customer was £11.7m (2020: £6.8 million) or 81%
of total revenue (2020: 63%). No other customers account for more than 10% of
revenue.
Year ended 31 December 2020 Managed Networks Projects Total
services
Geographical regions £000 £000 £000 £000
United Kingdom 8,083 7 3,354 11,444
Europe 54 - 29 83
Total 8,137 7 3,383 11,527
Timing of revenue recognition
Goods transferred at a point in time 372 - - 372
Services transferred over time 7,765 7 3,383 11,155
Total 8,137 7 3,383 11,527
Contract balances
2021 2020
£000 £000
Receivables included within trade and other receivables 2,677 4,598
Contract assets 837 178
3,514 4,776
Contract liabilities (49) (1,385)
Total 3,465 3,391
Contract assets predominantly relate to fulfilled obligations in respect of
projects and managed services which are billed monthly and in arrears. At the
point where completed work is invoiced, the contract asset is derecognised,
and a corresponding receivable recognised. Contract liabilities relate to
consideration received from customers in advance of work being completed.
The change in contract liabilities is a result of the sale of the Connect
business in the year ended 31 December 2021. The Connect business had £1.3
million of contract liabilities in the prior year. In the year, contract
liabilities of £1.4 million were recognised in revenue. The change in
contract assets is due to an increase in Manage revenues.
The Group's standard payment terms are 30 days from the date of invoice.
Refunds are only due in the exceptional circumstances where the Group does not
meet the performance obligations set out in a contract. The majority of
revenue for services is invoiced monthly, sometimes quarterly, in advance, and
goods are invoiced on delivery.
Unsatisfied performance obligations
All contracts for the provision of services are for periods of one year or
less or are billed based on resources utilised. As permitted under IFRS 15,
the transaction price allocated to these unsatisfied contracts is not
disclosed.
4 Other operating income
Other operating income comprises government grants receivable.
5 Expenses by nature
2021 2020
£000 £000
Direct staff costs 4,902 4,618
Third party cost of sales 3,283 2,356
Employee costs within administrative expenses 2,133 1,850
Amortisation of intangible assets 1,169 1,169
Depreciation 321 837
Impairment charge on intangible assets 1,833 -
Share-based payments 16 32
Non-underlying items 433 387
Impairment credit on trade receivables (139) -
Other administrative costs 1,079 1,614
Total cost of sales and administrative expenses 15,030 12,863
6 Auditor's remuneration
2021 2020
£000 £000
Audit of these financial statements 59 41
Amounts receivable by auditors and their associates in respect of:
Audit of financial statements of subsidiaries of the Company 59 85
Additional fees charged in respect of prior year's audit 33 30
Total 151 156
7 Non-underlying costs
In accordance with the Group's policy in respect of non-underlying costs, the
following charges were incurred for the year in relation to continuing
operations:
2021 2020
£000 £000
Restructuring and reorganisation costs 433 387
433 387
Restructuring and reorganisation costs in the year ended 31 December 2021 and
the year ended 31 December 2020 relate to costs incurred on the restructure of
the Group, predominantly redundancy costs, of which £0.3 million are staff
related as disclosed in note 10 (2020: £0.4 million).
8 Discontinued operations
On 19 October 2021, the Group completed the sale of 100% of the issued share
capital of IDE Group Connect Limited, Nimoveri Holdings Limited, and Nimoveri
Limited, to CloudCoCo Group plc for a consideration of £250,000 to enable
management to focus on growth of the Manage business. Immediately prior to the
sale, IDE Group Holdings plc wrote-off the inter-company loan of £15,235,000
owed to IDE Group Holdings plc and its subsidiaries.
Financial performance Period ended Year ended
Discontinued Operations 19 October 31 December
2021 2020
£000 £000
Revenue 10,542 13,291
Cost of sales (9,708) (12,078)
Gross profit 834 1,213
Other operating income 95 97
Administrative expenses (2,486) (20,042)
Operating loss (1,557) (18,732)
Finance costs (16) (16)
Loss for the year from discontinued operations (1,573) (18,748)
Tax - 2,375
Gain on sale of subsidiaries 1,380 -
Profit/(loss) for the financial period from discontinued operations (193) (16,373)
Carrying amounts of assets and liabilities disposed
£000
Cash and cash equivalents 490
Trade and other receivables 557
Other current assets 1,228
Deferred tax asset 592
Property, plant and equipment 17
Goodwill 196
Total assets 3,080
Trade and other payables (4,304)
Total liabilities (4,304)
Net Liabilities disposed (1,224)
8 Discontinued operations (continued)
Details of the sale of the subsidiaries
£000
Cash consideration receivable 250
Carrying amount of net liabilities sold 1,224
Less disposal costs incurred (94)
Gain on sale 1,380
Period ended Year ended
Cashflow statement 19 October 31 December
2021 2020
£'000 £'000
Net cash generated from/ (used in) operating activities 211 (7,887)
Net cash used in investing activities (27) (137)
Net cash used in financing activities (139) (1,471)
Net cash generated from/ (used in) the subsidiaries sold 45 (9,495)
9 Finance costs
Continuing Operations 2021 2020
£000 £000
Interest expense on lease liabilities 84 82
Unwind of discount on trade payables 242 -
Interest expense in respect of convertible loan notes 80 180
Interest expense in respect of loan notes 2,039 1,517
Other interest 8 4
2,453 1,783
10 Employee benefits expense
Staff costs for the year for the Group, including Directors, relating to
continuing operations amounted to:
2021 2020
£000 £000
Wages and salaries 6,065 5,760
Social security costs 552 526
Other pension costs 418 182
Restructuring costs 267 387
7,302 6,855
At 31 December 2021, the Group employed 166 staff, including Directors (2020:
173).
The average monthly number of persons employed by the Group during the year,
including Directors, analysed by category, and relating to continuing
operations, was as follows:
Number of employees
2021 2020
Operations 131 127
Sales and Marketing 7 10
Administration 26 33
Directors 2 3
Total average monthly headcount 166 173
The Company employed an average of 2 employees during 2021 (2020: 4), which
were the Non-Executive Chairman Andy Parker and the Executive Director Ian
Smith. Their remuneration is as shown below. No social security costs were
payable.
For Directors who held office during the year, emoluments for the year ended
31 December 2021 for the Group were as follows:
Salary/fees Salary/fees
2021 2020
£ £
Executive
Ian Smith1 221,000 202,315
David Templeman 72,885 -
Non-Executive
Andy Parker 40,000 80,833
Sebastian White2 2,500 30,000
Total 336,385 313,148
1. Directors' emoluments to Ian Smith were paid to MXC Advisory Limited, a
subsidiary of MXC Capital Limited
2. Directors' emoluments to Sebastian White were paid to Kestrel Partners LLP
Social security costs in respect of Directors' emoluments were £16,799 (2020:
£10,000). Pension contributions were made to a defined contribution scheme in
respect of one participating Director in 2021 of £1,500 (2020: nil).
None of the Directors made any gains on the exercise of share options in 2021
or 2020.
11 Taxation
2021 2020
£000 £000
Current tax
Current year - -
Current tax - -
Deferred tax credit (1,204) (729)
Total tax credit (1,204) (729)
(a) Tax on loss on ordinary activities
Reconciliation of the total income tax credit:
2021 2020
£000 £000
Loss before taxation from continuing operations (2,987) (2,833)
Tax using the United Kingdom corporation tax rate of 19% (2020: 19%) (568) (538)
Non-deductible expenses 95 8
Amortisation and impairment of goodwill and intangibles - non qualifying - 288
assets
Tax losses utilised - not previously recognised (188) (238)
Adjustment for rate change (543) (249)
Total tax credit (1,204) (729)
11 Taxation (continued)
(b) Deferred tax (asset)/liability
2021 2020
£000 £000
At 1 January (1,653) 1,451
On discontinued operations 592 (2,375)
Credit to income statement (1,204) (729)
At 31 December (2,265) (1,653)
(Asset) Liability Net (asset)/
liability
£000 £000 £000
At 1 January 2020 (2,371) 3,822 1,451
Business Combinations - (1) (1)
Credit to income statement
Timing differences in respect of intangible assets - (2,035) (2,035)
Timing differences in respect of tangible assets (40) - (40)
Recognition of losses (1,026) - (1,026)
Short term timing differences (2) - (2)
(1,068) (2,036) (3,103)
At 31 December 2020 (3,439) 1,786 (1,653)
Disposal of discontinued operations 592 - 592
Credit to income statement - - -
Timing differences in respect of tangible assets (47) - (47)
Timing differences in respect of intangible assets - 272 272
Short term timing differences (2) - (2)
Recognition of losses (1,427) - (1,427)
(1,476) 272 (1,204)
At 31 December 2021 (4,323) 2,058 (2,265)
(1,068)
(2,036)
(3,103)
At 31 December 2020
(3,439)
1,786
(1,653)
Disposal of discontinued operations
592
-
592
Credit to income statement
-
-
-
Timing differences in respect of tangible assets
(47)
-
(47)
Timing differences in respect of intangible assets
-
272
272
Short term timing differences
(2)
-
(2)
Recognition of losses
(1,427)
-
(1,427)
(1,476)
272
(1,204)
At 31 December 2021
(4,323)
2,058
(2,265)
Deferred tax liabilities arose in respect of the amortisation of intangible
assets recognised on acquisitions as follows:
2021 2020
£000 £000
Fixed asset timing differences 2,058 1,785
At 31 December 2,058 1,785
Deferred tax assets arose in respect of trade losses and fixed asset and other
differences, details as follows:
2021 2020
£000 £000
Tax losses recognised 3,758 2,832
Other temporary differences 9 17
Depreciation in advance of capital allowances 556 590
At 31 December 4,323 3,439
11 Taxation (continued)
Deferred tax assets are recognised for tax losses carried forward of £15.0
million (2020: £14.9 million) to the extent that the realisation of the
related tax benefit through future taxable profits is probable. In assessing
recoverability, management considers that the appropriate period over which
profits can be assessed with a reasonable degree of certainty, and therefore
used to offset the losses, is the period to 31 December 2027. The future
taxable profits are assumed to include the impact of the planned conversion of
borrowings to equity.
The evidence supporting the recognition of the deferred tax asset for losses
is the partial use of losses in the year.
The Group had unrecognised trading losses carried forward at 31 December 2021
of £3.1 million (2020: £18.5 million). The Company has no deferred tax
assets or deferred tax liabilities as at 31 December 2021 or 31 December 2020.
The Finance Bill 2021, which was substantively enacted on 24 May 2021,
included the announcement that the corporation tax rate for years starting
from April 2023 would increase to 25% on profits over £250,000 and that the
rate for small profits under £50,000 will remain at 19% and there will be a
tapered rate for businesses with profits under £250,000 so that they pay less
than the main rate. Deferred tax balances have been re-measured at the
reporting date taking into account the new rate of tax.
12 Earnings per share
Basic earnings per share has been calculated using the loss after tax for the
year for continuing operations of £1.8 million (2020:
£2.1 million), a loss after tax for the year for discontinued operations of
£0.2 million (2020 loss: £16.3 million) and a weighted average number of
ordinary shares of 461,185,527 (2020: 400,802,032). The weighted average
number of ordinary shares for the purpose of calculating the basic and diluted
measures is the same. This is because the outstanding warrants details of
which are given in note 27, would have the effect of reducing the loss from
continuing operations per ordinary share and therefore would be anti-dilutive
under the terms of IAS 33.
Continuing operations
2021 2020
Basic and diluted loss per share (pence) (0.39) p (0.52) p
Discontinued operations
Basic and diluted loss per share (pence) (0.04) p (4.09) p
Total basic and diluted loss per share (0.43) p (4.61) p
13 Property, plant and equipment Group
Group Leasehold property Network infrastructure Equipment, fixtures, and fittings Total
£000 £000 £000 £000
Cost
At 1 January 2021 2,181 14,637 3,726 20,544
Disposal of discontinued operations (632) (7,179) (2,279) (10,090)
Additions - - 28 28
Disposals - (4,429) (1,138) (5,567)
At 31 December 2021 1,549 3,029 337 4,915
Accumulated depreciation
At 1 January 2021 1,144 14,558 3,634 19,336
Disposal of discontinued operations (632) (7,172) (2,269) (10,073)
Charge for -the year - continuing 191 33 97 321
Charge for -the year - discontinued - - 4 4
Impairment - discontinued operations 81 - - 81
Disposals - (4,429) (1,138) (5,567)
At 31 December 2021 784 2,990 328 4,102
Net carrying amount
31 December 2021 765 39 9 813
31 December 2020 1,037 79 92 1,208
The impairment charge for the year arises from the impairment review carried
out in the year in respect of the Connect Business.
13 Property, plant and equipment (continued)
Group Leasehold property Network infrastructure Equipment, fixtures, and fittings Total
£000 £000 £000 £000
Cost
At 1 January 2020 2,669 14,583 3,701 20,953
Additions - 54 28 82
Acquisitions - - 6 6
Lease modification (488) - - (488)
Disposals - - (9) (9)
At 31 December 2020 2,181 14,637 3,726 20,544
Accumulated depreciation
At 1 January 2020 617 7,296 3,334 11,247
Charge for the year - continuing operations 300 321 216 837
Charge for the year - discontinued operations 227 1,460 92 1,779
Disposals - discontinued operations - - (8) (8)
Impairment - discontinued operations - 5,481 - 5,481
At 31 December 2020 1,144 14,558 3,634 19,336
Net carrying amount
31 December 2020 1,037 79 92 1,208
31 December 2019 2,052 7,287 367 9,706
13 Property, plant and equipment (continued)
Right of use assets
The carrying amounts of property, plant and equipment include right of use
assets as detailed below:
Leasehold Network Infrastructure Equipment, Fixtures & Fittings Total
Cost £000 £000 £000 £000
At 1 January 2020 2,542 85 307 2,934
Lease modification - continuing operations (488) - - (488)
At 31 December 2020 2,054 85 307 2,446
Disposal - discontinued operations (505) (85) (29) (619)
At 31 December 2021 1,549 - 278 1,827
Accumulated depreciation
At 1 January 2020 505 73 178 756
Charge for the year- continuing operations 300 - 74 374
Charge for the year - discontinued operations 212 12 9 233
At 31 December 2020 1,017 85 261 1,363
Charge for the year - continuing operations 191 - 33 224
Charge for the year - discontinued operations - - 4 4
Impairment - discontinued operations 70 - - 70
Disposal - discontinued operations (494) (85) (26) (605)
At 31 December 2021 784 - 272 1,056
Net carrying amount
31 December 2021 765 - 6 771
31 December 2020 1,037 - 46 1,083
Additions to the right-of-use assets during the year were nil (2020: £2m).
The depreciation charge for the year of £0.2 million (2020: £0.4 million)
relates to continuing operations and has been charged to administrative
expenses.
Company
The Company has no property, plant and equipment at 31 December 2021 or at 31
December 2020.
14 Intangible assets Group
Goodwill Trademarks Customer contracts and related relationships Technology development Software and Licensing Total
£000 £000 £000 £000 £000 £000
Cost:
At 1 January 2020 32,256 1,707 29,076 935 - 63,974
Additions 196 - - - 1,833 2,029
At 31 December 2020 32,452 1,707 29,076 935 1,833 66,003
Disposal - discontinued operations (16,854) - (13,880) - - (30,734)
Additions - - - - - -
At 31 December 2021 15,598 1,707 15,196 935 1,833 35,269
Impairment and amortisation:
At 1 January 2020 29,325 1,322 11,312 909 - 42,868
Amortisation for the year - 342 2,865 26 - 3,233
Impairment charge 2,931 43 5,499 - - 8,473
At 31 December 2020 32,256 1,707 19,676 935 - 54,574
Amortisation for the year - continuing operations* - - 1,169 - - 1,169
Impairment - charge - continuing operations - - - - 1,833 1,833
Disposal - discontinued operations (16,658) - (13,880) - - (30,538)
At 31 December 2021 15,598 1,707 6,965 935 1,833 27,038
Net carrying amount:
At 31 December 2021 - - 8,231 - - 8,231
At 31 December 2020 196 - 9,400 - 1,833 11,429
*£1.2 million of the amortisation charge is included in the loss for the year
from continued operations in the Income Statement within administrative
expenses.
The remaining unamortised life of the intangible assets at 31 December 2021 is
as follows:
· IDE Group Manage customer contracts and related relationships - 7
years, net carrying value £8.2 million.
Impairment of licences
In 2020 IDE invested in software licences at the year-end amounting to £1.8
million. These licences were purchased with a view to a planned expansion of
the group, resale to our clients in our Connect Business and for operational
use in the Connect Business. Because the planned expansion didn't materialise
and with the sale of the Connect Business in 2021, the directors believe that
the Group would be unable to obtain the full benefit of the licences in its
remaining business (see also note 1.25). The directors consider that the
investment required to be able to sell the licences to third parties would
exceed any potential benefit. Accordingly, these software licenses have been
impaired and written down to £nil.
Company
The company had no intangible assets at 1 January 2020, 31 December 2020 or 31
December 2021.
15 Investments
Company
2021 2020
£000 £000
At 1 January 2020, 31 December 2020 and 31 December 2021 7,877 7,877
The Company has the following investments in subsidiaries:
Country of Class of Ownership
Incorporation shares held 2021 2020
Held directly by IDE Group Holdings plc
IDE Group Limited England1 Ordinary 100% 100%
Connexions4London Limited Scotland2 Ordinary 100% 100%
Selection Services Investments Limited(5) Scotland2 Ordinary 100% 100%
Selection Services Limited(5) England1 Ordinary 100% 100%
Castle Digital Services, Inc.(6) USA3 Ordinary 100% 100%
Cupid.com, Inc.(6) USA3 Ordinary 100% 100%
Held indirectly by IDE Group Holdings plc
IDE Group Financing Limited England1 Ordinary 100% 100%
IDE Group Manage Limited England1 Ordinary 100% 100%
IDE Group Protect Limited(5) England1 Ordinary 100% 100%
IDE Group Subholdings Limited England1 Ordinary 100% 100%
IDE Group Voice Limited England1 Ordinary 100% 100%
Aggregated Telecom Limited(5) England1 Ordinary 100% 100%
Hooya Digital Limited(6) Cyprus4 Ordinary 100% 100%
Holdfast Systems Limited England1 Ordinary 100% 100%
1 Registered office is located at Unit 2, Quadrant
Court, Crossways Business Park, Greenhithe, Dartford, England, DA9 9AY
2 Registered office is located at 24 Dublin Street,
Edinburgh EH1 3PP
3 Registered office is located at 2711 Centerville
Road, Suite 400, New Castle, Wilmington, Delaware 19808, U.S.A.
4 Registered office is located at Faneromenis 115,
Antouanettas Building, 6031 Larnaca, Cyprus
5 On 27 April 2022 these non-trading entities were
put into Members Voluntary Liquidation
6 Liquidation of non-trading entities commenced post
year end.
At 31 December 2021, the only trading subsidiary of the Company was IDE Group
Manage Limited (31 December 2020: IDE Group Manage Limited, IDE Group Connect
Limited and Nimoveri Limited).
IDE Group Manage activity consists of IT Managed services.
All of the remaining subsidiaries are non-trading.
Connexions4London Limited, IDE Group Subholdings Limited, IDE Group Voice, IDE
Group Financing Limited, IDE Group Protect Limited, IDE Group Limited, and
Holdfast Systems Limited are exempt from the requirements of the Companies Act
relating to the audit of individual accounts by virtue of Section 479A and the
parent company has guaranteed all their liabilities at the reporting date.
16 Trade and other receivables
Group Company
Current 2021 2020 2021 2020
£000 £000 £000 £000
Trade receivables 2,677 4,598 - -
Less provision for impairment of trade receivables - (519) - -
Trade receivables - net 4.079 -
2,677 -
Contract assets 837 178 - -
Prepayments and other receivables 455 1,187 - 1
Taxation and social security - - 31 139
5,444 140
3,969 31
Group Company
Non-current 2021 2020
£000 £000 2021 2020
£000 £000
Other receivables 313 100 - -
Amounts due from subsidiary undertakings - - 65,575 66,870
Provision against amounts due from subsidiary undertakings - - (48,733) (50,733)
100 16,137
313 16,842
In accordance with IFRS 9, the Group reviews the amount of credit loss
associated with its trade receivables, and contract assets.
Customer credit risk is managed according to strict credit control policies.
The majority of the Group's revenues are derived from national or
multi-national organisations with no prior history of default with the Group.
There is low incidence of default in the top 50 customers. In respect of these
customers credit risk is deemed lower on customers that contribute higher
revenue due to an increased dependency on the group's services for business
continuity, and because they are larger more secure businesses.
The Group has applied the Simplified Approach applying a provision matrix
based on categorisation of the customer based on total revenue received by the
group per annum to measure lifetime expected credit losses and after taking
into account customers with different credit risk profiles and current and
forecast trading conditions and the days past due. The historical loss rates
will be adjusted to reflect current and forward-looking information on
macroeconomic factors affecting the ability of customers to settle the
receivables.
16 Trade and other receivables (continued)
At period end, customers were categorised into three categories based on spend
in the last 12 months:
1. Top 10
2. Top 50
3. Other
Impairment was calculated based on the category the customer falls in to:
Category Impairment Rate Carrying amount Credit loss allowance
(net of VAT)
2021 2020 2021 2020 2021 2020
% % £000 £000 £000 £000
Top 10 0 0 2,677 2,629 - -
Top 50 2 2 - 209 - 4
Other 5 5 - 1,178 - 49
Specific 100 100 - 582 - 466
2,677 4,598 - 519
The group is exposed to credit concentration risk with its largest customer
comprising 74% (2020: 37%) of outstanding trade receivables.
Specific provisions are also made based on known issues or changes in the
lifetime expected credit loss. As at 31 December 2021, trade receivables of
£nil (2020: £0.5 million) were impaired and fully provided for.
Movements on the Group provision for impairment of trade receivables are as
follows:
Group
2021 2020
£000 £000
At 1 January 519 597
Increase in impairment provision - 142
Provision relating to discontinued operations (317) -
Write offs (63) (220)
Released during the year (139) -
At 31 December 519
- -
The creation and release of a provision for impaired receivables has been in
the main included in "administrative expenses" in the Income Statement, with
an amount being set against contract assets, £nil (2020: £5,000). The other
asset classes within the Group's trade and other receivables do not contain
impaired assets.
Amounts due from subsidiary undertakings
The Company has funded the trading activities of its principal subsidiaries by
way of inter-company loans. The amounts advanced do not have any specific
terms relating to their repayment, are unsecured and are interest free. As all
loans to subsidiaries are to be treated as due on demand, they fall within the
scope of IFRS 9.
In accordance with IFRS 9, the Company is required to make an assessment of
expected credit losses. Having considered the quantum and probability of
credit losses expected to arise, management concluded that no additional
impairment charge was required for expected credit loss. The entire impairment
provision of £2.0m relating to Connect was removed following the sale of
the Connect business (2020: £1.7 million charged).
The calculation of the allowance for lifetime expected credit losses requires
a significant degree of estimation and judgement, in particular in determining
the probability weighted likely outcome for each scenario considered to
determine the expected credit loss in each scenario. Should the assumptions in
the business plan vary, this could have a significant impact on the carrying
value of the intercompany loans in following periods.
The recoverability is sensitive to the probability of the achievement of
future cash flows; however, given the trading projections and the level of
provisions, there is currently no reasonably plausible scenario in which the
provision would alter materially. A breakdown of the balances is set out in
note 29.
17 Cash and cash equivalents
Group Company
2021 2020 2021 2020
£000 £000 £000 £000
Cash and cash equivalents 349 693 2 7
The table below shows the balance with the major counterparty in respect of
cash and cash equivalents.
Group Company
2021 2020 2021 2020
Credit rating £000 £000 £000 £000
A 349 693 2 7
18 Trade and other payables
Group Company
2021 2020 2021 2020
£000 £000 £000 £000
Non-Current
Trade and other payables 730 1,584 - -
1,584 -
730 -
Current
Trade payables 3,079 5,603 949 518
Amounts due to subsidiary undertakings - - 1,203 1,204
Other payables 42
100 220 42
Taxation and social security 752 1,491 - -
Accruals 1,387 1,173 251 66
8,487 1,830
5,318 2,445
Amounts due to subsidiary undertakings are unsecured, interest free and are
repayable on demand.
19
Contract liabilities
Group Company
2021 2020 2021 2020
£000 £000 £000 £000
Contract liabilities recognisable within 12 months 49 1,370 - -
Contract liabilities recognisable after 12 months - 15 - -
Total contract liabilities 49 1,385 - -
Income is deferred to the Statement of Financial Position when invoicing of
revenue to customers occurs ahead of revenue recognition in the Income
Statement.
20 Provisions
Property provision
Dilapidation provisions are built up over the associated lease based on
estimates of costs of work required to fulfil the Group's contractual
obligation under the lease agreements to return the property to the same
condition as at the commencement of the lease. The provision is not expected
to be utilised until 2026.
Other provisions
Other provisions primarily relate to committed costs under various onerous
supplier contracts across hosting, connectivity, hardware and software
services, for example costs in relation to empty racks within data centres
which have to be paid for regardless of whether populated or not and costs in
relation to excess software licences which are not used. The onerous contract
provisions are expected to be resolved in 2022.
Group Property provision Other provision
Total
£000 £000 £000
Balance at 1 January 2021 140 172 312
Increase in year 62 95 157
Utilised - (110) (110)
Balance at 31 December 2021 359
202 157
2021 2020
£000 £000
Non-current 202 91
Current 157 221
312
359
Company Other Provision
Total
£000 £000
Balance at 1 January 2021 50 50
Released in the year (50) -
Balance at 31 December 2021 50
-
Non-current
- -
Current - 50
50
-
21 Borrowings
Group Company
2021 2020 2021 2020
£000 £000 £000 £000
Non-current
Lease liabilities 710 859 - -
Loan Note 2025 1,061 - 1,061 -
Loan Notes 15,966 13,988 15,966 13,988
14,847 13,988
17,737 17,027
Group Company
2021 2020 2021 2020
£000 £000 £000 £000
Current
Nimoveri Loan Notes 100 100 - -
Lease liabilities 146 431 - -
531 -
246 -
The carrying value is not materially different to the fair value of these
liabilities.
In January 2019 the Company issued £5.3 million of secured loan notes with a
six-year term and a 12% coupon which is compounded, rolled up and payable at
the end of the term ("Loan Notes"). In February and March 2019, a further
£4.7 million in total of secured Loan Notes were issued. The Loan Notes carry
an arrangement fee of 2.5 per cent., payable at the end of the term, and an
exit fee of 2.5 per cent., also payable at the end of the term. The security
comprises a debenture over all the assets of the Group.
In December 2019 the Company issued an additional £1.5 million of Loan Notes
(with the same terms as those issued in the first quarter of the year).
The Loan Notes are held at amortised cost using the effective interest rate
method. The effective interest rate for the Loan Notes has been calculated to
be 18%.
On 1 June 2020 the Group completed the acquisition of Nimoveri Holdings
Limited for £100,000 paid in cash on completion and the issue of £100,000 0%
loan notes by IDE Group Limited, a Group company (the "Nimoveri Loan
Notes"). The Nimoveri Loan Notes are secured over the assets of Nimoveri
Holdings Limited and redeemable on 31 December 2021. On 13 December 2021 both
parties agreed the Nimoveri Loan Notes would be repaid in four equal monthly
instalments commencing 31 January 2022.
21 The Company issued a further loan note ("Loan Note 2025") net of expenses for proceeds of £1m on 1 December 2021. The terms of the loan were that the rate of interest is 1.5% per month if repaid by 31 January 2022, 2.5% per month if repaid by 28 February 2022 and 3% per month if repaid by 31 March 2022. If not repaid by 31 March 2022 the amount due at that date including fees (£1.1875m) is then subject to interest at 20.4% per annum compound. The maturity date is 23 December 2025. At the year end management intended to settle the loan notes before 31 March 2022 and accordingly, they are classified as current liabilities.
Borrowings (continued)
Lease liabilities
The present value of lease liabilities is as follows:
31 December 2021 Gross contractual amounts payable Interest
Group Carrying amount
2021 2021 2021
£000 £000 £000
Less than one year 214 68 146
Between one and five years 829 150 679
Greater than five years 32 1 31
219
1,075 856
31 December 2020
Group Gross contractual
amounts Carrying
payable Interest amount
2020 2020 2020
£000 £000 £000
Less than one year 522 91 431
Between one and five years 836 201 635
Greater than five years 242 18 224
310
1,600 1,290
The Company has no lease liabilities at 31 December 2021 (31 December 2020:
nil)
Reconciliation of borrowings:
Group Non-current Lease liabilities Current Lease liabilities Non-current Borrowings Convertible Loan Notes Supplier Finance Current Borrowings Total Borrowings
£000 £000 £000 £000 £000 £000 £000
Balance at 1 January 2021 859 431 13,988 1,983 2,199 100 19,560
Non-cash changes
Transfer from non-current to current (149) 149 - - - - -
Loan note interest - - 2,039 80 - - 2,119
Interest - - - - 242 - 242
Lease interest - 84 - - - - 84
Conversion - - - (1,932) - - (1,932)
Cash flows
Lease interest paid - (84) - - - - (84)
Repayment - - - - (550) - (550)
Interest paid - - - - (242) - (242)
Loan, net of expenses - - 1,000 - - - 1,000
Repayment of lease liabilities - (434) - - - - (434)
Balance at 31 December 2021
710 146 17,027 131 1,649 100 19,763
The total cash outflow for leases in the year including interest was £518,000
(2020: £1,946,000).
Company Lease liabilities Current Borrowings Non-current Borrowings Total Borrowings
£000 £000 £000 £000
Balance at 1 January 2021 - - 13,988 13,988
Non-cash changes
Loan note interest - - 2,039 2,039
Cash changes
Proceeds of Loan Note 2025 - - 1,000 1,000
Balance at 31 December 2021
- - 17,027 17,027
22 Convertible loan notes
Group and Company
£000
Balance at 1 January 1,983
2021
Interest unwound 80
Issue of new shares (1,932)
Balance at 31 December 2021 131
On 21 August 2018, as part of a wider fundraising, the Company issued £2.55
million of unsecured loan notes, which have a term of 5 years and a zero per
cent coupon ("CLNs"). The CLNs can be converted into new ordinary shares in
the capital of IDE at a price of 2.5 pence per share. Conversion is at the
option of the holder at any time during the 5-year term. At the end of the
term, if the holder has not chosen to convert the CLNs, the CLNs will be
settled with a cash repayment. At issue, the CLNs have a fair value of £2.54
million, split into an equity component (£0.96 million) and a debt component
(£1.58 million).
On 7 June 2021 £2,397,519 of the unsecured convertible loan notes issued in
August 2018 were converted into 95,900,760 Ordinary shares of 2.5p each, at a
conversion price of 2.5p per share.
23 Financial instruments by category
The objectives of the Group's treasury activities are to manage financial
risk, secure cost-effective funding where necessary and minimise adverse
effects of fluctuations in the financial markets on the value of the Group's
financial assets and liabilities, on reported profitability and on cash flows
of the Group.
The Group's principal financial instruments for fundraising are convertible
loan notes and loan notes. The Group has various other financial instruments
such as cash, trade receivables and trade payables that arise directly from
its operations.
Group
2021 2020
Assets £000 £000
Amortised cost:
Trade receivables net of credit loss provision 2,677 4,079
Contract assets 837 178
Other receivables 226 264
Cash and cash equivalents 349 693
Total 4,089 5,214
23 Financial instruments by category (continued)
Company
2021 2020
Assets £000 £000
Amortised cost:
Amounts due from subsidiary undertakings 16,842 16,137
Cash and cash equivalents 2 7
Total 16,844 16,144
The carrying amount of these assets is equivalent to their fair value. At 31
December 2021, trade receivables are reported net of the expected credit loss
provision of £nil (2020: £0.5 million), amounts due from subsidiary
undertakings are reported net of the expected credit loss provision of
£48.7 million (2020: £50.7 million)
Group
2021 2020
Liabilities at amortised cost £000 £000
Trade payables 3,809 7,187
Accruals and other payables 1,486 1,393
Lease liabilities 856 1,290
Loan, net of expenses 1,061 -
Convertible loan notes 131 1,983
Loan Notes 16,066 14,088
Total 23,409 25,941
Company
2021 2020
Liabilities £000 £000
Trade payables 948 518
Accruals and other payables 293 108
Intercompany payables 1,203 1,204
Loan, net of expenses 1,061 -
Convertible loan notes 131 1,983
Loan Notes 15,966 13,988
Total 19,602 17,801
The carrying amount of these liabilities is equivalent to their fair value.
The Group has not entered into any derivative financial instruments in the
current or preceding period.
24 Financial risk management
The Group's activities are exposed to a variety of financial risks: market
risk (including cash flow interest rate risk and price risk), credit risk and
liquidity risk. The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse
effects on the Group's financial performance.
Risk management is carried out centrally under policies approved by the Board
of Directors. Management identifies, evaluates and seeks to mitigate financial
risks. The Board of Directors provides principles for overall risk management
as well as policies covering specific areas, such as foreign exchange risk,
interest rate risk, credit risk, use of derivative financial instruments and
non-derivative financial instruments, and investments of excess liquidity.
Cash flow interest risk
The Group pays interest on its borrowings.
The Group has no borrowings at variable rates which would expose the Group to
cash flow interest rate risk. Borrowings issued at fixed rates expose the
Group to fair value interest rate risk. The Group does not enter into
derivatives.
Price risk
The Group is not exposed to significant commodity or security price risk.
Credit risk
Credit risk is managed at a subsidiary level. Credit risk arises from cash and
cash equivalents as well as credit exposures to customers, including
outstanding receivables. Individual risk limits are set based on internal and
external ratings and reviewed by management. The utilisation of credit limits
is regularly monitored with appropriate action taken by management in the
event of the breach of a credit limit. The Group has applied the simplified
approach applying a provision matrix based on number of days past due to
measure lifetime expected credit losses and after taking into account
customers with different credit risk profiles and current and forecast trading
conditions. The Group has recognised a provision in respect of trade
receivables of £nil (2020: £0.5 million).
Liquidity risk
Management reviews cash forecasts of trading companies of the Group in
accordance with practice and limits set by the Group. The Group's liquidity
management policy involves projecting cash flows and considering the level of
liquid assets necessary to meet these.
The parent company's operations expose it to the following risks:
Interest rate risk
The Company pays interest on its loan note borrowings. These are at fixed
rates and therefore there is no exposure to cash flow interest rate risk.
Borrowings issued at fixed rates expose the Company to fair value interest
rate risk. The Company does not enter into derivatives.
Credit risk
The Company is exposed to credit risk mainly in respect of inter-company
receivables. Details of the approach to credit loss provisions in respect of
intercompany receivables is set out in note 16 and note 29.
The tables below analyse the Group and the Company's financial liabilities
into relevant maturity groupings based on the remaining period at the balance
sheet date to the contractual maturity date. These amounts disclosed in the
table are the contracted undiscounted cash flows. Balances within 12 months
equal their carrying balances as the impact of discounting is not significant.
Group
Within 1 year 1-2 years More than 2 years Total
At 31 December 2021 £000 £000 £000 £000
Trade and other payables 6,379 730 - 7,109
Lease liabilities 214 415 446 1,075
Loan Note 2025 - - 1,061 1,061
Convertible loan notes - - 152 152
Loan Notes 100 - 16,517 16,617
6,693 26,014
1,145 18,176
24 Financial risk management (continued)
Group
Within 1 year 1-2 years More than 2 years Total
At 31 December 2020 £000 £000 £000 £000
Trade and other payables 6,996 2,034 - 9,030
Lease liabilities 522 215 864 1,601
Convertible loan notes - - 2,550 2,550
Loan Notes 100 - 16,517 16,617
7,618 2,249 29,798
19,931
Company
Within 1 year 1-2 years More than 2 years Total
At 31 December 2021 £000 £000 £000 £000
Trade and other payables 2,414 - - 2,414
Intercompany payables 1,203 - - 1,203
Convertible loan notes - - 131 131
Loan Notes - - 17,578 17,578
3,617 - 17,709 21,326
Company
Within 1 year 1-2 years More than 2 years Total
At 31 December 2020 £000 £000 £000 £000
Trade and other payables 633 - - 633
Intercompany payables 1,204 - - 1,204
Convertible loan notes - - 2,550 2,550
Loan Notes - - 12,860 12,860
1,837 - 15,410 17,247
25 Capital risk management
The Group's objectives when managing capital are to safeguard the Group's
future growth and its ability to continue as a going concern in order to
provide returns for shareholders and to maintain an optimal capital structure
to reduce the cost of capital. The Group operates in the network and cloud
hosting sector, which, from time-to-time requires substantial fixed asset
investments, but the Group is financed predominately by equity.
In order to maintain or adjust the capital structure, the Group has previously
both issued new shares, bank debt and bank facilities, and both unsecured and
secured loan notes. The Group monitors capital on the basis of the ratio of
net debt to Adjusted EBITDA. As at 31 December 2021 the ratio was 3.1. Net
debt as at 31 December 2021 is calculated as total bank borrowings, as at 31
December 2021 nil, and loan notes (including 'current and non-current
borrowings' as shown in the consolidated balance sheet) ,plus loans, less cash
and cash equivalents. Adjusted EBITDA is defined as earnings before interest,
tax, depreciation, amortisation, impairment charge, non-underlying items,
(loss)/gain on disposal of fixed assets and share-based payments.
The loan note instrument under which the Secured Loan Notes were issued does
not contain any covenants, however, the Group continues to carefully monitor
its capital position. The Group adopts a risk-averse position with respect to
borrowings and maintains significant headroom to ensure that any unexpected
situations do not create financial stress.
The Group has not proposed a dividend for the current or prior year.
26 Called up share capital - Group and Company
Shares issued and fully paid 2021 2020
£000 £000
Beginning of the year 10,020 10,020
Issued during the year on redemption of £2,397,519 of convertible loan notes 2,398 -
Shares issued and fully paid 12,418 10,020
Share capital allotted, called up and fully paid 2021 2020
No. Ordinary Shares No. Ordinary Shares
Beginning of the year 400,802,032 400,802,032
Issued of 95,900,760 shares at 2.5p on redemption of convertible loan notes 95,900,760 -
End of the year 496,702,792 400,802,032
The par value of the shares is 2.5p.
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Company.
On 11 May 2021 95,900,760 new ordinary shares of 2.5p each were issued
following the receipt of conversion notices from Kestrel Opportunities and
Kestrel Partners LLP for the conversion of 78,638,640 and 17,262,120 new
ordinary shares of 2.5p respectively.
27 Share-based payment
The share-based payment charge comprises:
2021 2020
£000 £000
Equity-settled share-based charges arising from warrants 16 32
Total charge 16 32
27 Share-based payment (continued)
MXC warrants
Number
Warrants as at 1 January 2021 and 31 December 2021 20,040,101
The following table illustrates the number and weighted average exercise
prices (WAEP) of, and movements in warrants during the year:
2021 2021 2020 2020
Number WAEP Number WAEP
Opening balance 20,040,101 £0.17 20,040,101 £0.17
Granted during the year - - - -
Lapsed during the year - - - -
Closing balance 20,040,101 £0.17 20,040,101 £0.17
There were 20,040,101 warrants exercisable at 31 December 2021 (2020:
10,036,456).
The exercise price for warrants outstanding at the end of the year ranges from
£0.025 - £0.325 (2020: ranged from £0.025 - £0.325). There are 10,036,456
warrants with an exercise price of £0.30 to £0.325 which had a vesting date
of 31 December 2018 and expiry date of 31 December 2022 and a further
10,003,645 warrants have an exercise price of £0.025, a vesting date of 1
August 2021 and an expiry date of 31 December 2022.
The fair value of the equity-settled warrants granted is estimated at the date
of grant using a Black Scholes model to take into account market conditions
attaching to the options granted.
Volatility of 146% was calculated based upon the change in the daily share
price of the company over the previous 24 months. The risk-free rate of return
of -0.14% is the yield of zero-coupon UK government bonds of a term consistent
with the assumed life of the warrant.
The total fair value of the award is charged to the income statement over the
vesting period of the warrants.
The amount charged to the income statement in respect of the share-based
payments was £16,000 (2020: £32,000).
28 Pensions
The Group operates a defined contribution pension schemes for eligible
employees. The charge for the year ended 31 December 2021 relating to
continuing operations is £0.4 million (continuing operations 2020: £0.5
million). An amount of £0.06 million is included in creditors being
outstanding contributions at 31 December 2021 (2020: £0.06 million)
29 Related parties
Key management comprise of the Directors, Chief Financial Officer, the Group
Managing Director, and the Group Director. Directors' emoluments are disclosed
in note 10.
Key management personnel
Total remuneration for key management personnel 2021 2020
£000 £000
Compensation 1,187 521
Social security 134 34
Pension contributions to money purchase pension scheme 30 24
Total 1,351 579
Number of key management personnel accruing benefits under defined 3 3
contributions
Ian Smith, Executive Director at 31 December 2021, is Chief Executive Officer
and a substantial shareholder of MXC Capital Limited (MXC). MXC owned 34.8% of
the issued share capital of the Company at 31 December 2021.
During the year, the Group and Company paid MXC Capital Markets LLP, a
subsidiary of MXC, for corporate finance advice and other services amounting
to £29,000 (2020: £29,000). The balance owed to MXC Capital Markets LLP as
at 31 December 2021 was
£91,800 (2020: £55,800).
In addition, the Group paid MXC Advisory Limited, a subsidiary of MXC, fees of
£200,083 (2020: £242,505) in respect of the services of Ian Smith as
Executive Director and the services of an Interim Chief Financial Officer for
the year ended 31 December 2021. The balance owed to MXC Advisory Limited as
at 31 December 2021 was £612,123 (2020: £349,923).
The Group also paid MXC Guernsey Limited, a subsidiary of MXC Capital Limited
in the past in respect of underwriting of loan notes and guarantee fee of the
finance leases with Lombard. The balance owed to MXC Guernsey as at 31
December 2021 was £29,560 (2020: £29,560).
At 31 December 2021, in addition to owning shares in the Company, MXC Capital
Limited held warrants over 20,040,101 shares in the Company (2020: 20,040,101
warrants).
During the year, Kestrel Partners LLP invoiced the Company £2,500 (2020:
£30,000) in respect of the services of Sebastian White as Non-Executive
Director. The balance owed to Kestrel Partners LLP as at 31 December 2021 was
£nil (2020: £6,000).
The Company had the following balances with its subsidiary companies:
2021 2020
Receivables £000 £000
IDE Group Limited 53,664 53,652
IDE Group Manage Limited 11,846 11,027
IDE Group Connect Limited - 1,975
Assistance Genie Logiciel - 151
IDE Group Voice Limited 3 3
IDE Group Protect Limited 9 9
IDE Group Financing Limited 52 52
IDE Group Subholdings Limited 1 1
Total 65,575 66,870
There was a reduction of £2.0 million (2020: provision increase of £1.7
million) made in respect of the IDE Group Connect Limited receivable as a
result of the sale of the Connect business in the year.
2021 2020
Payables £000 £000
Cupid.com inc 1,033 1,033
Castle Digital services inc 61 61
Selection Services Limited 61 61
Hooya Digital Limited 42 42
Connexions4London Limited 5 6
Aggregated Telecom Limited 1 1
Total 1,203
1,204
30 Contingent liabilities
There is a contingent liability in respect of tax owed of £819,047 by a
former owner, when the business was privately owned relating to a tax scheme
from 2006. We expect this to be settled by the individual in 2022. The Board
is confident there will be no recourse to the Group as the Group would only
have a liability if the individual is unable to pay, which management
considers highly unlikely.
31 Other commitments
As part of the transaction to dispose of IDE Group Connect Limited, IDE Group
Holdings plc have agreed to provide CloudCoCo Group plc with a working capital
facility of up to £500,000 to help fund the initial restructure of the
CloudCoCo Connect Limited business. Amounts drawn would be convertible into
new ordinary shares of CloudCoCo Group plc at 1 pence per share, if not repaid
by 19 October 2022. This facility has not been utilised to date.
32 Prior year adjustment
In the prior year the deferred tax liability and asset were shown separately
in the Group statement of financial position. The balances should have been
netted off against each other as the Group has a legal right of set off,
management intends to settle the balances net and they arise in the same
jurisdiction. There is no effect on the Consolidated Statement of
Comprehensive Income.
The impact on the Group statement of financial position at 31 December 2020 is
as follows:
As previously reported Adjustment As restated
£'000s £'000s £'000s
Deferred tax asset at 31 December 2020 3,439 (1,786) 1,653
Deferred tax liability at 31 December 2020 1,786 (1,786) -
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