REG - Tialis Essential IT - Final Results
09/05/2023 07:15
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RNS Number : 6674Y Tialis Essential IT PLC 09 May 2023
Tialis Essential IT Plc
("Tialis" or the "Company")
9 May 2023
Audited Results for the Year Ended 31 December 2022
Tialis, the mid-market network, IT Managed Services provider, announces its
audited results for the year ended 31 December 2022.
The Annual Report and Accounts for the year ended 31 December 2022 will
shortly be available on the Company's website at www.idegroup.com.
Copies of the Annual Report and Accounts will be posted to shareholders
shortly along with the notice of annual general meeting which will be held at
10.00am on 28 June 2023 at the offices of finnCap, 1 Bartholomew Close, London
EC1A 7BL
For more information, contact:
Tialis Essential IT Plc Tel: +44 (0)344 874 1000
Andy Parker, Executive Chairman
finnCap Limited Tel: +44 (0)20 7220 0500
Nominated Adviser and Broker
Corporate finance: Jonny Franklin-Adams/ Abby Kelly
ECM: Tim Redfern
Chairman's Statement
2022 was an important year in the ongoing rationalisation of our trading
business and at a group level, with the conversion of the MXC debt into
equity.
In November 2022 the members at the General Meeting voted to reorganise the
Company's share structure so as enable the Company to issue new ordinary
shares. Immediately following the capital reorganisation, the loan notes
("Loan Notes") held by MXC were converted into equity, reducing the debt level
of the group to a sensible level. Note 27 sets-out in detail the Company's
capital reorganisation.
Manage
During 2022, Tialis Essential IT Manage Limited's turnover remained consistent
at £14.5 million (2021: £14.5 million).
Adjusted EBITDA for Manage, before unallocated group overheads, decreased from
£3.8 million to £2.6 million, this reflects the change in business mix and a
decrease in one-off projects experienced in 2022.
For the 2023 financial year, we have a higher level of visibility over
revenues. It is anticipated that the successful transition of some of our
traditional service contracts into our lifecycle facility will see margins
step back up year on year.
Employee numbers within the Manage business increased by 15% within the year
due to the company taking on more onsite managed service contracts. The number
of heads in our central function decreased by 12 in the year.
Highlights in the year include:
· The sale of IDE Connect in October 2021 enabled the company to
return to profit (before finance costs) in 2022 and allowed us to concentrate
on end user device and on-site support services rather than chase the market
in many different directions.
· Although revenue for 2022 was flat on 2021, the company is
fundamentally stronger as the income is derived from recurring revenue. 2021
revenue was bolstered by a number of very large, one-off projects.
· The acquisition of the profitable partner contracts from Allvotec
Limited, a division of Daisy Group, adds circa 50% to our revenues in 2023.
· In May 22, the company signed a seven figure multi-year contract
with a major nuclear organisation which has doubled the annualised revenue on
that account.
· Extended relationship with Indian Global outsourcer to mid-2023.
· Continued to expand our preferred supplier agreement with major
partner and over doubled the revenue from 2021 to 2022.
· Via our partnership with CloudCoCo two large charities started
large lifecycle contracts across all users within their organisations.
· Took over the Tech Bar support operation for major German
multinational in multi-year deal.
· Started two important support relationships with large City
insurance companies, which will both be experiencing significant expansion in
2023.
· Started year one of a three-year project with UK utility in 2022.
· Awarded Approved Supplier status with major UK IT service
provider.
· In December 2022, signed in excess of a million pound a year
contract for a minimum of 3 years with major UK print company which is due to
start in June 2023.
Results
Revenue remained steady for the full year at £14.5 million (2021 continuing
operations: £14.5 million), and we have seen gross profit margin fall by 8%,
from 43% to 35%. Resulting gross profit has decreased year-on-year to £5.1
million (2021 continuing operations: £6.3 million). Adjusted EBITDA
decreased to £2.0 million (2021: Adjusted EBITDA of £3.1 million). The net
loss after tax for the year from continuing operations is £0.6 million (2021:
£2.0 million), after £1.2 million amortisation expense and a £0.9 million
gain on conversion of the secured loan notes (2021 continuing operations:
£3.0 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. The
headcount in Tialis Essential IT Manage Limited has increased by 15%
reflecting increased activity and trading.
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 four 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.
Financing and dividend
The Company had been exploring several options for the secured loan notes, as
the final stage of its restructuring, to reduce the Company's indebtedness to
allow the Company to grow organically and through acquisition.
Prior to the secured loan note conversion on 2 November 2022, the balances
owed to the loan note holders were as summarised below:
Holder Value of loan notes Pre Conversion Value of loan notes Post Conversion at 31 December 2022
MXC £15,588,902 £-
Richard Griffiths £1,854,546 £1,891,435
Funds managed by Kestrel Partners LLP £1,354,963 £1,382,896
Other loan note holders £204,138 £215,660
Total secured loan note value £19,002,549 £3,489,991
The Company did not have adequate cash resources to repay the loan notes and
therefore, after exploring several options, the Board believed that the
capital reorganisation and loan note conversion was the best option available
to the Company. The loan note conversion resulted in MXC materially increasing
their percentage shareholding in the Company, MXC have confirmed to the
Company that it has no current intention in taking the Company private.
Note 27 sets out the full details of the capital reorganisation which took
place on 2 November 2022 having been approved by the Members in General
Meeting.
The capital reorganisation consisted of the following steps:
1. the amendment of the Articles to set out the rights and restrictions
attached to the Deferred Shares issued;
2. the sub-division of each existing Ordinary Share into 2 new shares - a
Redenominated Ordinary Share of 0.01p and a Deferred Share of £2.49p; and
3. every 100 Redenominated Ordinary Shares of 0.01p each were consolidated
into one New Ordinary Share of 1p each.
The Board is not proposing to declare a dividend at this time,
Current trading and outlook
Trading in the current financial year remains in line with Board expectations,
with current financial performance broadly in line with the same period last
year (excluding Allvotec). 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.
The key objective for 2023 is to increase the focus and utilisation of our
lifecycle facility which provides much greater efficiencies for our end-user
customers and higher levels of customer satisfaction. Initiatives are underway
with our most significant partner to see an increase in this area. In February
2023, the Group added three new large partners to the portfolio, providing the
group with further opportunities.
Financial Review
The Group reported total revenues from continuing operations for the year to
31 December 2022 of £14.5 million, the same as in 2021 (2021: £14.5 million)
and gross profit of £5.1 million (2021: £6.3 million). This shows a
reduction in margins year-on-year of 8 percentage points compared to the prior
year due to a shift in revenue streams.
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 2022 was a profit of £2.0
million (2021: profit of £3.1 million).
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.
Revenues remained consistent at £14.5 million (2021: £14.5 million). For the
year we have seen lower gross profit margins to 35% (2021: 43%), as a result
of the services mix and operational efficiencies.
Adjusted EBITDA attributable to Manage has moved to £2.6 million (2021:
profit of £3.8 million).
Non-underlying items
Non-underlying items relating to restructuring and reorganisation amount to
£0.4 million in the year (2021: £0.4 million).
Finance costs
After incurring net finance charges of £2.3 million relating to interest and
arrangement fees for loan notes, leases and bank debt (2021: £2.5 million),
the loss before tax is £1.3 million (2021: loss of £3.0 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 £0.8 million (2021: £1.2 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
£0.6 million (2021: loss on continuing operations £1.8 million), which
equates to a basic loss per share of 0.14 pence (2021: loss per share of pence
0.39).
Loss on discontinued operations
The loss on discontinued operations of £nil million (2021: loss of £0.2 million) arises on the disposal of the Connect Business on 19 October 2021, and from the operations in the period up to the date of disposal.
Statement of Financial Position
Non-current assets
The Group has property, plant and equipment of £1.1 million (2021: £0.8
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 £0.5 million (2021: £0.03 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 31
December 2021. 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 were impaired and written down to £nil in 2021. 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 prior
year, or sold to third parties.
Further, intangible assets of customer contracts and related relationships are
£7.1 million (2021: £8.2 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 to £3.8 million from £4.3
million.
Following the disposal of the Connect Business in 2021, 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 £4.5 million (2021: £6.0 million),
including trade payables of £2.7 million (2021: £3.8 million) taxation and
social security of £0.8 million (2021: £0.8 million) and accruals of £1.0
million (2021: £1.4 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 (2021: £0.05 million).
Contract liabilities remain materially unchanged year on year.
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 £1.5 million
(2021 £0.6 million generated). Our Manage business continues to be cash
generative and has developed excellent relationships with key strategic
partners. The Group invested £0.2 million (2021: £0.03 million) in fixed
assets. There were no new loans in 2022 (2021: £1.0 million net), but
repayment of lease liabilities consumed £0.3 million (2021: £0.4 million) of
cash. The result is that as at 31 December 2022 there were no bank borrowings
or overdraft debt and the cash balance was £0.4 million (2021: £0.3
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 2022, 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.
On 2 November 2022 the members meeting at the Annual General Meeting, and then
at the General Meeting that followed, voted to convert £15.5 million of loan
notes (including fees and interest) into share capital. Details of the capital
reorganisation and consolidation are set out in Note 27.
As at 31 December 2022, the convertible loan notes liability in the balance
sheet was £143,480 (2021: £130,437), and the secured loan notes liability
was £3,489,991 (£2021: £17,027,016).
Dividend
The Directors do not propose a dividend in respect of the current financial
year (2021: £nil).
Donations to charities
The Directors paid £33 to The Prince's Trust as part of the Company capital
reorganisation as set out in Note 27 (2021: £nil).
Update and outlook for 2023
Set out within the Chairman's Statement are details of the current trading
performance and outlook. Trading in the first four months of 2023 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 continuing revenues remaining consistent 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 2022, the Board comprised two Directors (2021: two) all of
which were male. At 31 December 2022 the Group had 196 employees including
Directors (2021: 165) of which 164 were male (2021:134) and 36 were female
(2021:31).
* 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 (84%).
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.
We conduct a gender pay analysis annually and the report is published on the
Company's website.
Tialis 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, Tialis 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
Tialis Group 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 2022 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 Tialis Group's activities is well within acceptable tolerable
risk levels. In 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 2022 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 Tialis Group 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 2022.
Environmental 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.
Tialis Group has a Carbon Reduction Strategy which is published on the company
website. We at Tialis 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 2022
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 2022, 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
Executive Chairman
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2022
Year ended Year ended
31 December 31 December
Note 2022 2021
£000 £000
Continuing operations
Revenue 3 14,463 14,456
Cost of sales 5 (9,408) (8,185)
Gross profit 5,055 6,271
Other operating income 4 - 40
Administrative expenses excluding impairment 5 (4,011) (5,151)
Impairment charge on intangibles 15 - (1,833)
Impairment credit on trade receivables - 139
Total administrative expenses (4,011) (6,845)
Adjusted EBITDA* 1,950 3,099
Non underlying items 7 (421) (433)
Depreciation 14 (208) (321)
Amortisation 15 (1,169) (1,169)
Gain on the conversion of secured loan notes 892 -
Impairment charge on intangibles 15 - (1,833)
Impairment credit on trade receivables 17 - 139
Charges for share-based payments 28 - (16)
Operating profit/(loss) 1,044 (534)
Finance income 9 10 -
Finance costs 10 (2,334) (2,453)
Loss on ordinary activities before taxation (1,280 ) (2,987)
Income tax 12 843 1,204
Loss for the year from continuing operations (437) (1,783)
Derecognition of foreign currency reserve (150) -
Loss for the year from discontinued operations 8 - (193)
Loss for the year and total comprehensive loss attributable to owners of the (587) (1,976)
parent company
From continuing operations
Basic and diluted loss per share 13 (0.10) p (0.39) p
From discontinued operations
Basic and diluted loss per share 13 (0.04)p (0.04) p
Total basic and diluted loss per share 13 (0.14) p (0.43) 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 are an integral part of these financial statements.
Statements of Financial Position
As at 31 December 2022
Note Group Company
2022 2021 2022 2021
£000 £000 £000 £000
Non-current
assets
Property, plant and equipment 14 1,076 813 - -
Intangible assets 15 7,062 8,231 - -
Investments 16 - - 18,211 7,877
Deferred tax asset 12 3,108 2,265 - -
Trade and other receivables 17 100 313 9 16,842
11,346 11,622 18,220 24,719
Current assets
Trade and other receivables 17 3,661 3,969 79 31
Cash and cash equivalents 18 414 349 3 2
4,075 4,318 82 33
Total assets 15,421 15,940 18,302 24,752
Current liabilities
Trade and other payables 19 4,544 5,318 778 2,445
Contract liabilities 20 51 49 - -
Borrowings 22 210 246 - -
Provisions 21 - 157 - -
4,805 5,770 778 2,445
Non-current liabilities
Trade and other payables 19 - 730 - -
Borrowings 22 4,255 17,737 3,490 17,027
Convertible loan notes 23 143 131 143 131
Provisions 21 245 202 - -
4,643 18,800 3,633 17,158
Total liabilities 9,448 24,570 4,411 19,603
Net (liabilities)/assets 5,973 (8,630) 13,891 5,149
Equity attributable to equity holders of the parent
Share capital 27 12,586 12,418 12,586 12,418
Share premium 50,754 35,882 50,754 35,882
Equity reserve 58 58 58 58
Retained earnings (57,425) (56,838) (49,507) (43,209)
Foreign currency translation reserve - (150) - -
Total equity 5,973 (8,630) 13,891 5,149
The notes are an integral part of these financial statements. The Company made
a loss of £6.3 million in the year ended 31 December 2022 (2021: Loss £3.1
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 Bord of Directors on 5 May 2023 and were
signed on its behalf by:
Ian Smith
Executive Director
Statements of Changes in Equity
for the year ended 31 December 2022
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 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 27) 2,398 443 (909) - - 1,932
Transactions with owners recorded directly in equity
Share based payments charge - - - 16 - 16
At 31 December 2021 12,418 35,882 58 (56,838) (150) (8,630)
Balance at 1 January 2022 12,418 35,882 58 (56,838) (150) (8,630)
Loss for the financial year and total comprehensive expense - - - (587) - (587)
Shares issued for the conversion of secured loan notes and in lieu of a bonus 168 14,872 - - - 15,040
to an employee (note 27)
Transactions with owners recorded directly in equity
Derecognition of foreign exchange reserve - - - - 150 150
At 31 December 2022 12,586 50,754 58 (57,425) - 5,973
(a) Share capital represents the nominal value of equity shares and
deferred 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 Cash Flows
for the year ended 31 December 2022
Group
Note 2022 2021
£000 £000
Cash flows from operating activities
Profit/(loss) from continuing operations: (1,280) (2,987)
Profit/(loss) from discontinued operations - (193)
Total loss before tax (1,280) (3,180)
Adjustments for:
Depreciation of property, plant and equipment 14 208 321
Amortisation of intangible assets 15 1,169 1,169
Profit/(loss) on disposal of discontinued operations 8 - (1,286)
Impairment charge on goodwill and - 1,833
intangibles
15
Impairment credit on trade - (139)
receivables
17
Net finance expenses 9,10 2,324 2,453
Share based payments 28 - 16
Gain on conversion of secured loan notes (892) -
Decrease/(increase) in trade and other receivables 521 (133)
Increase/(decrease) in trade and other payables and contract liabilities (461) (513)
Increase/(decrease) in provisions (114) 47
Net cash generated from operating activities 1,475 588
Cash flows from investing activities
Acquisition of property, plant and equipment (208) (28)
Disposal of subsidiaries (cash disposed and expenses) - (586)
Net cash used in investing activities (208) (614)
Cash flows from financing activities
Interest received 10 -
Interest paid (268) (334)
Supplier finance repaid (558) (550)
New loans and borrowings, net of expenses - 1,000
Nimoveri loan note repaid (100) -
Repayment of lease liabilities 22 (286) (434)
Net cash generated from/ (absorbed by) financing activities (1,202) (318)
Net (decrease)/increase in cash and cash equivalents 65 (
3
4
4
)
Cash and cash equivalents at 1 January 349 693
Cash and cash equivalents at 31 December 414 349
Cash and cash equivalents comprise
Cash at bank 18 414 349
414 349
Notes to the Consolidated Financial Statements
1 Accounting policies
Tialis Essential IT PLC (formerly IDE Group Holdings PLC) ("Tialis 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 Tialis 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.
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
are 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
1.5 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.
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
Tialis IT Essential Manage Limited for this year and the prior year.
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 2022. 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 2022
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.
A change in the estimate of future profits would result in an equivalent
change to the deferred tax asset recognised of 25% of the change in profits.
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 12 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 15, the directors
performed an impairment review in respect of software licences in 2021, 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 in 2021 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 2022 Managed Projects Total
services
Geographical regions £000 £000 £000
United Kingdom 10,770 3,632 14,402
Europe 61 - 61
Total 10,831 3,632 14,463
Timing of revenue recognition
Goods transferred at a point in time 84 - 84
Services transferred over time 10,747 3,632 14,379
Total 10,831 3,632 14,463
The revenue from the largest customer was £11.7m (2021: £6.8 million) or 84%
of total revenue (2021: 63%). No other customers account for more than 10% of
revenue.
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
Contract balances
2022 2021
£000 £000
Receivables included within trade and other receivables 2,499 2,677
Contract assets 664 837
3,163 3,514
Contract liabilities (51) (49)
Total 3,112 3,465
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 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
2022 2021
£000 £000
Direct staff costs 6,048 4,902
Third party cost of sales 3,360 3,283
Employee costs within administrative expenses 2,027 2,133
Amortisation of intangible assets 1,169 1,169
Depreciation 208 321
Impairment charge on intangible assets - 1,833
Share-based payments - 16
Non-underlying items 421 433
Impairment credit on trade receivables - (139)
Gain on the conversion of secured loan notes (892) -
Other administrative costs 1,078 1,079
Total cost of sales and administrative expenses 13,419 15,030
6 Auditor's remuneration
2022 2021
£000 £000
Audit of these financial statements 28 59
Amounts receivable by auditors and their associates in respect of:
Audit of financial statements of subsidiaries of the Company 45 59
Additional fees charged in respect of prior year's audit 14 33
Total 87 151
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:
2022 2021
£000 £000
Restructuring and reorganisation costs 421 433
421 433
Restructuring and reorganisation costs in the year ended 31 December 2022 and
the year ended 31 December 2021 relate to costs incurred on the restructure of
the Group, predominantly redundancy costs, of which £29k are staff related as
disclosed in note 11 (2021: £0.3 million) and £0.25m for cost relating to
the loan note conversion.
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, Tialis Essential IT PLC (formerly IDE Group Holdings PLC) wrote-off the
inter-company loan of £15,235,000 owed to Tialis Essential IT PLC (formerly
IDE Group Holdings PLC) and its subsidiaries.
Financial performance Period ended
Discontinued Operations 31 December
2021
£000
Revenue 10,542
Cost of sales (9,708)
Gross profit 834
Other operating income 95
Administrative expenses (2,486)
Operating loss (1,557)
Finance costs (16)
Loss for the year from discontinued operations (1,573)
Tax -
Gain on sale of subsidiaries 1,380
Profit/(loss) for the financial period from discontinued operations (193)
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)
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
Cashflow statement 19 October
2021
£'000
Net cash generated from/ (used in) operating activities 211
Net cash used in investing activities (27)
Net cash used in financing activities (139)
Net cash generated from/ (used in) the subsidiaries sold 45
9 Finance Income
Continuing Operations 2022 2021
£000 £000
Interest received 10 -
10 -
10 Finance costs
Continuing Operations 2022 2021
£000 £000
Interest expense on lease liabilities 98 84
Unwind of discount on trade payables 170 242
Interest expense in respect of convertible loan notes 12 80
Interest expense in respect of loan notes 2,054 2,039
Other interest - 8
2,334 2,453
11 Employee benefits expense
Staff costs for the year for the Group, including Directors, relating to
continuing operations amounted to:
2022 2021
£000 £000
Wages and salaries 6,750 6,065
Social security costs 739 552
Other pension costs 586 418
Restructuring costs - 267
8,075 7,302
At 31 December 2022, the Group employed 191 staff, including Directors (2021:
166).
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
2022 2021
Operations 168 131
Sales and Marketing 6 7
Administration 15 26
Directors 2 2
Total average monthly headcount 191 166
The Company employed an average of 2 employees during 2022 (2021: 2), 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 2022 for the Group were as follows:
Salary/fees Salary/fees
2022 2021
£ £
Executive
Ian Smith1 221,000 221,000
David Templeman - 72,885
Non-Executive
Andy Parker 53,333 40,000
Sebastian White2 - 2,500
Total 274,333 336,385
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 £6,354 (2021:
£16,799). Pension contributions were made to a defined contribution scheme in
respect of one participating Director in 2022 of £nil (2021: £1,500).
None of the Directors made any gains on the exercise of share options in 2022
or 2021.
12 Taxation
2022 2021
£000 £000
Current tax
Current year - -
Current tax - -
Deferred tax credit (843) (1,204)
Total tax credit (843) (1,204)
(a) Tax on loss on ordinary activities
Reconciliation of the total income tax credit:
2022 2021
£000 £000
Profit/(loss) before taxation from continuing operations (1,280) (2,987)
Tax using the United Kingdom corporation tax rate of 19% (2021: 19%) (243) (568)
Non-deductible expenses/(income) (117) 95
Amortisation and impairment of goodwill and intangibles - non qualifying - -
assets
Tax losses utilised - not previously recognised (279) (188)
Adjustment for rate change (202) (543)
Prior year adjustment (2) -
Total tax credit (843) (1,204)
(b) Deferred tax (asset)/liability
2022 2021
£000 £000
At 1 January (2,265) (1,653)
On discontinued operations - 592
Credit to income statement (843) (1,204)
At 31 December (3,108) (2,265)
(Asset) Liability Net (asset)/
liability
£000 £000 £000
At 1 January 2021 (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)
Credit to income statement - - -
Timing differences in respect of tangible assets 140 - 140
Timing differences in respect of intangible assets - (292) (292)
Short term timing differences 4 - 4
Recognition of losses (695) - (695)
(551) (292) (843)
At 31 December 2022 (4,874) 1,766 (3,108)
Deferred tax liabilities arose in respect of the amortisation of intangible
assets recognised on acquisitions as follows:
2022 2021
£000 £000
Fixed asset timing differences 1,766 2,058
At 31 December 1,766 2,058
Deferred tax assets arose in respect of trade losses and fixed asset and other
differences, details as follows:
2022 2021
£000 £000
Tax losses recognised 4,454 3,758
Other temporary differences 5 9
Depreciation in advance of capital allowances 415 556
At 31 December 4,874 4,323
Deferred tax assets are recognised for tax losses carried forward of £15.8
million (2021: £15.0 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 2029. 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 2022
of £3.1 million (2021: £3.1 million). The Company has no deferred tax assets
or deferred tax liabilities as at 31 December 2022 or 31 December 2021.
The Finance Bill 2022, which was substantively enacted on 24 May 2022,
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.
13 Earnings per share
Basic earnings per share has been calculated using the loss after tax for the
year for continuing operations of £0.4 million (2021: Loss £1.8 million), a
loss after tax for the year for discontinued operations of £0.2 million (2021
loss: £0.2 million) and a weighted average number of ordinary shares of
418,575,630 (2021: 461,185,527). 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 28, 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
2022 2021
Basic and diluted loss per share (pence) (0.10) p (0.39) p
Discontinued operations
Basic and diluted loss per share (pence) (0.04)p (0.04) p
Total basic and diluted loss per share (0.14 )p (0.43) p
14 Property, plant and equipment Group
Group Leasehold property Network infrastructure Equipment, fixtures, and fittings Total
£000 £000 £000 £000
Cost
At 1 January 2022 1,549 3,029 337 4,915
Additions 272 103 116 491
Disposals - (2,970) (337) (3,307)
At 31 December 2022 1,821 162 116 2,099
Accumulated depreciation
At 1 January 2022 784 2,990 328 4,102
Charge for the year 170 28 10 208
Disposals - (2,959) (328) (3,287)
At 31 December 2022 954 59 10 1,023
Net carrying amount
31 December 2022 867 103 106 1,076
31 December 2021 765 39 9 813
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)
Acquisitions - - 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 operations 191 33 97 321
Charge for the year - discontinued operations - - 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
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 £0000
At 1 January 2021 2,054 85 307 2,446
Disposal - discontinued operations (505) (85) (29) (619)
At 31 December 2021 1,549 - 278 1,827
Additions - continuing operations 272 - 11 283
Disposal - continuing operations - - (278) (278)
At 31 December 2022 1,821 - 11 1,832
Accumulated depreciation
At 1 January 2021 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
Charge for the year - continuing operations 170 - 8 178
Disposal - continuing operations - - (278) (278)
At 31 December 2022 954 - 2 956
Net carrying amount
31 December 2022 867 - 9 876
31 December 2021 765 - 6 771
Additions to the right-of-use assets during the year were £0.3 million (2021:
£nil).
The depreciation charge for the year of £0.2 million (2021: £0.2 million)
relates to continuing operations and has been charged to administrative
expenses.
15 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 2021 32,452 1,707 29,076 935 1,833 66,003
Disposal - discontinued operation (16,854) - (13,880) - - (30,734)
At 31 December 2021 15,598 1,707 15,196 935 1,833 35,269
Additions - - - - - -
At 31 December 2022 15,598 1,707 15,196 935 1,833 35,269
Impairment and amortisation:
At 1 January 2021 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
Amortisation for the year - continuing operations* - - 1,169 - - 1,169
At 31 December 2022 15,598 1,707 8,134 935 1,833 28,207
Net carrying amount:
At 31 December 2022 - - 7,062 - - 7,062
At 31 December 2021 - - 8,231 - - 8,231
*£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 2022 is
as follows:
· Tialis IT Essential Manage customer contracts and related
relationships - 6 years, net carrying value £7.1 million.
Impairment of licences
In 2020 Tialis Group 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 in 2021.
Company
The company had no intangible assets at 1 January 2021, 31 December 2021 or 31
December 2022.
16 Investments Company
2022 2021
£000 £000
At 1 January 2021 7,877 7,877
Additions 20,211 -
Impairment of investment in subsidiary companies (9,877) -
At 31 December 18,211 7,877
The Company has the following investments in subsidiaries:
Country of Class of Ownership
Incorporation shares held 2022 2021
Held directly by Tialis Essential IT PLC
IDE Group Limited England1 Ordinary 100% 100%
Connexions4London Limited(3) Scotland2 Ordinary 100% 100%
Selection Services Investments Limited(3) Scotland2 Ordinary 100% 100%
Selection Services Limited(3) England1 Ordinary 100% 100%
Tialis Essential IT Financing Limited England1 Ordinary 100% 100%
Held indirectly by Tialis Essential IT PLC
Tialis Essential IT Manage Limited England1 Ordinary 100% 100%
IDE Group Protect Limited(3) England1 Ordinary 100% 100%
IDE Group Subholdings Limited England1 Ordinary 100% 100%
IDE Group Voice Limited England1 Ordinary 100% 100%
Holdfast Systems Limited(3) 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 In solvent liquidation at the year-end 31 December
2022.
At 31 December, the only trading subsidiary of the Company was Tialis
Essential IT Manage Limited (31 December 2021: Tialis Essential IT Manage
Limited (formerly, IDE Group Manage Limited).
As part of the group restructuring in November 2022, the investment in Tialis
Essential IT Financing Limited was transferred from IDE Group Limited to
Tialis Essential IT PLC for £20.2m.
Tialis Essential IT Manage Limited's activity consists of IT Managed services.
All of the remaining subsidiaries are non-trading.
IDE Group Subholdings Limited, IDE Group Voice Limited, Tialis Essential IT
Financing Limited, and IDE Group 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.
17 Trade and other receivables
Group Company
Current 2022 2021 2022 2021
£000 £000 £000 £000
Trade receivables 2,499 2,677 - -
Less provision for impairment of trade receivables - - - -
Trade receivables - net 2,677 -
2,499 -
Contract assets 664 837 - -
Prepayments and other receivables 498 455 2 -
Taxation and social security - - 77 31
3,969 31
3,661 79
Group Company
Non-current 2022 2021
£000 £000 2022 2021
£000 £000
Other receivables 100 313 - -
Amounts due from subsidiary undertakings - - 9 65,575
Provision against amounts due from subsidiary undertakings - - - (48,733)
313 16,842
100 9
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.
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 Ccr credit loss allowance
(net of VAT)
2022 2021 2022 2021 2022 2021
% % £000 £000 £000 £000
Top 10 0 0 2,499 2,677 - -
Top 50 2 2 - - - -
Other 5 5 - - - -
Specific 100 100 - - - -
2,499 2,677 - -
The group is exposed to credit concentration risk with its largest customer
comprising 82% (2021: 74%) 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 2022, trade receivables of
£nil (2021: £nil) were impaired and fully provided for.
Movements on the Group provision for impairment of trade receivables are as
follows:
Group
2022 2021
£000 £000
At 1 January - 519
Increase in impairment provision - -
Provision relating to discontinued operations - (317)
Write offs - (63)
Released during the year - (139)
At 31 December -
- -
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 (2021: £nil). 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. There is no movement
in the provision.
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.
18. Cash and cash equivalents
Group Company
2022 2021 2022 2021
£000 £000 £000 £000
Cash and cash equivalents 414 349 3 2
The table below shows the balance with the major counterparty in respect of
cash and cash equivalents.
Group Company
2022 2021 2022 2021
Credit rating £000 £000 £000 £000
A 414 349 3 2
19. Trade and other payables
Group Company
2022 2021 2022 2021
£000 £000 £000 £000
Non-Current
Trade and other payables - 730 - -
730 -
- -
Current
Trade payables 2,719 3,079 536 949
Amounts due to subsidiary undertakings - - 175 1,203
Other payables 42
- 100 -
Taxation and social security 846 752 - -
Accruals 979 1,387 67 251
5,318 2,445
4,544 778
Amounts due to subsidiary undertakings are unsecured, interest free and are
repayable on demand.
20. Contract liabilities
Group Company
2022 2021 2022 2021
£000 £000 £000 £000
Contract liabilities recognisable within 12 months 51 49 - -
Contract liabilities recognisable after 12 months - - - -
Total contract liabilities 51 49 - -
Income is deferred to the Statement of Financial Position when invoicing of
revenue to customers occurs ahead of revenue recognition in the Income
Statement.
21. 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 all resolved in the current financial year.
Group Property provision Other provision
Total
£000 £000 £000
Balance at 1 January 2022 202 157 359
Increase in year 43 - 43
Utilised - (157) (157)
Balance at 31 December 2022 245
245 -
2022 2021
£000 £000
Non-current 245 202
Current - 157
359
245
Company Other Provision
Total
£000 £000
Balance at 1 January 2022 - 50
Released in the year - (50)
Balance at 31 December 2022 -
-
Non-current
- -
Current - -
-
-
22. Borrowings
Group Company
2022 2021 2022 2021
£000 £000 £000 £000
Non-current
Lease liabilities 765 710 - -
Loan Note 2025 - 1,061 - 1,061
Loan Notes 3,490 15,966 3,490 15,966
17,737 17,027
4,255 3,490
Group Company
2022 2021 2022 2021
£000 £000 £000 £000
Current
Nimoveri Loan Notes - 100 - -
Lease liabilities 210 146 - -
246 -
210 -
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 2021 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. The Nimoveri Loan Notes were fully
repaid during the financial year ended 31 December 2022.
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. The Loan Note 2025 was included in the 2 November 2022
conversion.
On 2 November 2022 the members meeting at the Annual General Meeting, and then
at the General Meeting that followed, voted to convert £15.9 million of loan
notes (including fees and interest) into share capital. Details of the capital
reorganisation and consolidation are set out in Note 2.
Lease liabilities
The present value of lease liabilities is as follows:
31 December 2022
Group Gross contractual amounts payable Interest
Carrying amount
2022 2022 2022
£000 £000 £000
Less than one year 288 78 210
Between one and five years 894 129 765
207
1,182 975
31 December 2021
Group Gross contractual
amounts Carrying
payable Interest 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
The Company has no lease liabilities at 31 December 2022 (31 December 2021:
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 2022 710 146 17,027 131 1,649 100 19,763
Non-cash changes
Transfer from current to non-current 55 (55) - - - - -
New finance leases 405 - - - - 405
Loan note interest - - 2,054 12 - - 2,066
Interest - - - - 170 - 170
Lease interest - 98 - - - - 98
Conversion - - (15,591) - - - (15,591)
Cash flows
Lease interest paid - (98) - - - - (98)
Repayment - - - - (558) - (558)
Interest paid - - - - (170) - (170)
Nimoveri loan note repaid - - - - - (100) (100)
Repayment of lease liabilities - (286) - - - - (286)
Balance at 31 December 2022
765 210 3,490 143 1,091 - 5,699
The total cash outflow for leases in the year including interest was £384,000
(2021: £518,000).
Company Lease liabilities Current Borrowings Non-current Borrowings Total Borrowings
£000 £000 £000 £000
Balance at 1 January 2022 - - 17,027 17,027
Non-cash changes
Loan note interest - - 2,054 2,054
Conversion of secured loan notes - - (15,591) (15,591)
Balance at 31 December 2022
- - 3,490 3,490
23 Convertible loan notes
Group and Company
£000
Balance at 1 January 131
2022
Interest unwound 12
Balance at 31 December 2022 143
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 Tialis Essential IT plc 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.
24 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
2022 2021
Assets £000 £000
Amortised cost:
Trade receivables net of credit loss provision 2,499 2,677
Contract assets 664 837
Other receivables 498 455
Cash and cash equivalents 414 349
Total 4,075 4,318
Company
2022 2021
Assets £000 £000
Amortised cost:
Amounts due from subsidiary undertakings 9 16,842
Cash and cash equivalents 3 2
Total 12 16,844
The carrying amount of these assets is equivalent to their fair value. At 31
December 2022, trade receivables are reported net of the expected credit loss
provision of £nil (2021: £nil million), amounts due from subsidiary
undertakings are reported net of the expected credit loss provision of £nil
(2021: £48.7 million)
Group
2022 2021
Liabilities at amortised cost £000 £000
Trade payables 2,719 3,809
Accruals and other payables 979 1,486
Lease liabilities 975 856
Loan, net of expenses - 1,061
Convertible loan notes 143 131
Loan Notes 3,490 16,066
Total 8,306 23,409
Company
2022 2021
Liabilities £000 £000
Trade payables 536 948
Accruals and other payables 67 293
Intercompany payables 175 1,203
Loan, net of expenses - 1,061
Convertible loan notes 143 131
Loan Notes 3,490 15,966
Total 4,411 19,602
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.
25 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 (2021: £nil)
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 17 and note 30.
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 2022 £000 £000 £000 £000
Trade and other payables 4,544 - - 4,544
Lease liabilities 210 728 37 975
Convertible loan notes - - 143 143
Loan Notes - - 3,490 3,490
4,754 9,152
728 3,670
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 1,145 26,014
18,176
Company
Within 1 year 1-2 years More than 2 years Total
At 31 December 2022 £000 £000 £000 £000
Trade and other payables 536 - - 536
Intercompany payables 175 - - 175
Convertible loan notes - - 143 143
Loan Notes - - 3,490 3,490
711 - 3,633 4,344
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
26 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 2022 the ratio was 2.3. Net
debt as at 31 December 2022 is calculated as total bank borrowings, as at 31
December 2022 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.
27 Called up share capital - Group and Company
Shares issued and fully paid 2022 2021
£000 £000
496,702,792 ordinary shares at 2.5p - 12,418
21,829,449 ordinary shares at 1p 218 -
496,702,800 deferred shares at 2.49p 12,368 -
Shares issued and fully paid 12,586 12,418
Shares issued and fully paid 2022 2021
£000 £000
Beginning of the year 12,418 10,020
Issued during 2021 on redemption of £2,397,519 of convertible loan notes - 2,398
Issued during the year on conversion of secured loan notes (see below) 167 -
Issued during the year in lieu of 2021 staff bonus (see below) 1 -
Shares issued and fully paid 12,586 12,418
Share capital allotted, called up and fully paid 2022 2022 2021
No. Ordinary Shares No. Deferred Shares No. Ordinary Shares
Beginning of the year 496,702,792 shares at 2.5p 496,702,792 - 400,802,032
Issued during 2021 of 95,900,760 shares at 2.5p on redemption of convertible - - 95,900,760
loan notes
Issue to the Company Secretary of 8 new shares at 2.5p 8 - -
Sub-division of 496,702,780 shares into a redenominated 0.01p share and a - 496,702,800 -
deferred share 2.49p
Consolidation of 496,702,800 redenominated 0.01p share to 4,967,028 shares at (491,735,772) - -
1p
Issue of 16,758,421 shares at 1p on conversion of secured loan notes 16,758,421 - -
Issue of 104,000 shares at 1p in lieu of 2021 staff bonus (first tranche of 104,000 - -
three tranches)
End of the year 21,829,449 496,702,800 496,702,792
The par value of the shares new Ordinary shares is 1p and the Deferred shares
is 2.49p (2021: old Ordinary shares 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.
The holders of Deferred shares are not entitled to receive dividends, nor are
they entitled to vote. The holders of Deferred shares are entitled to £1 for
the entire class on winding up. The Company at anytime may, at its option,
redeem all the Deferred shares for £1. The Directors' consider the Deferred
shares of no economic value.
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.
On 2 November 2022 the Members at the Annual General Meeting followed by the
General Meeting passed several resolutions as set out in the Directors'
Report. The capital reorganisation consisted of the following steps:
1. The amendment of the Articles of Association to set out the rights
and restrictions attaching to the new Deferred shares;
2. the sub-division of each existing Ordinary share into 2 new shares
- a redenominated Ordinary share of 0.01p and a Deferred share of £2.49p
each; and
3. every 100 redenominated Ordinary share of 0.01p be consolidated
into a new Ordinary share of 1p each.
Shareholders with fewer than 100 existing Ordinary shares as at 2 November
2022 ceased to be a shareholder.
The 8 existing shares issued to the Company Secretary and fractional
entitlements to a new Ordinary share, where any holding was not precisely
divisible by 100, no fractional share certificates were issued. The Board
decided in the best interest of the Company was to aggregate the fractional
shares and sell them in the market. The £33 proceeds of the sale was donated
to the Prince's Trust, a charity registered with the charities commission with
Charity number 1079675 and which was selected by the Board in accordance with
article 15 of the Company's Articles of Association.
On 2 November 2022 £20,995,862 secured loan notes (including interest and
fees), held by MXC at a rate equivalent to 70 pence in the pound, were
converted into 16,476,574 new Ordinary shares of 1p at an assumed share price
of £0.892 per new ordinary share. Another 3 secure loan note holders
converted their 1,578 secure loan notes to new Ordinary 1p shares on the same
terms as the MXC conversion receiving. Fees relating to the capital
reorganisation were £250,000.
On 24 November 2022 104,000 new Ordinary 1p shares were allotted to a member
of staff in lieu of one-third of his 2021 bonus.
As at 31 December 2022 the Company has a total number of shares in issue of
518,532,249 with a total nominal value of £12,586,194. The Company has
21,829,449 new Ordinary shares of 1p and 496,702,800 Deferred shares of 2.49p
28 Share-based payment
The share-based payment charge comprises:
2022 2021
£000 £000
Equity-settled share-based charges arising from warrants - 16
Total charge - 16
MXC warrants
Number
Warrants as at 1 January 2022 20,040,101
Lapsed during the year (20,040,10)
Warrants as at 31 December 2022 -
The following table illustrates the number and weighted average exercise
prices (WAEP) of, and movements in warrants during the year:
2022 2022 2021 2021
Number WAEP Number WAEP
Opening balance 20,040,101 £0.17 20,040,101 £0.17
Lapsed during the year (20,040,101) £0.17 (20,040,101) -
Closing balance - - - -
There were no warrants exercisable at 31 December 2022 (2021: 20,040,101). All
warrants expired during the year.
The amount charged to the income statement in respect of the share-based
payments was £nil (2021: £16,000).
On 24 November 2022 104,000 new Ordinary 1p shares were allotted to a member
of staff in lieu of one-third of his 2021 bonus. As these new shares were
issued at market value no additional accounting was required under IFRS 2.
29 Pensions
The Group operates a defined contribution pension schemes for eligible
employees. The charge for the year ended 31 December 2022 relating to
continuing operations is £0.7 million (continuing operations 2021: £0.4
million). An amount of £0.06 million is included in creditors being
outstanding contributions at 31 December 2022 (2021: £0.06 million).
30 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 11.
Key management personnel
Total remuneration for key management personnel 2022 2021
£000 £000
Compensation 622 1,187
Social security 19 134
Pension contributions to money purchase pension scheme 73 30
Total 889 1,351
Number of key management personnel accruing benefits under defined 3 3
contributions
Ian Smith, Executive Director at 31 December 2022, held 0.54% (2021: 0%)
through his Self-Invested Pension Plan. Mr Smith is also Chief Executive
Officer and a substantial shareholder of MXC Capital Limited (MXC). MXC owned
83.4% (2021: 34.8%) of the issued share capital of the Company at 31 December
2022. Together, Mr Smith and MXC owned 83.9% (2021: 34.8%) of the issued share
capital of the Company at 31 December 2022.
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 £30,000 (2021: £29,000). The balance owed to MXC Capital Markets LLP as
at 31 December 2022 was £33,000 (2021: £91,800).
In addition, the Group paid MXC Advisory Limited, a subsidiary of MXC, fees of
£221,000 (2021: £200,083) in respect of the services of Ian Smith as
Executive Director. The balance owed to MXC Advisory Limited as at 31 December
2022 was £265,200 (2021: £612,123).
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 2022 was £nil (2021: £29,560).
During the year, Kestrel Partners LLP invoiced the Company £nil (2021:
£2,500) in respect of the services of Sebastian White as Non-Executive
Director. The balance owed to Kestrel Partners LLP as at 31 December 2022 was
£nil (2021: £nil).
The Company had the following balances with its subsidiary companies:
2022 2021
Receivables £000 £000
IDE Group Limited - 53,664
Tialis Essential IT Manage Limited - 11,846
IDE Group Voice Limited - 3
IDE Group Protect Limited 9 9
Tialis Essential IT Financing Limited - 52
IDE Group Subholdings Limited - 1
Total 9 65,575
2022 2021
Payables £000 £000
Cupid.com inc - 1,033
Castle Digital services inc - 61
Tialis Essential IT Manage Limited 66 -
Selection Services Limited 61 61
Hooya Digital Limited 42 42
Connexions4London Limited 5 5
Aggregated Telecom Limited 1 1
Total 175
1,203
31 Contingent liabilities
There is a contingent liability in respect of tax owed of £499,404 (2021:
£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
instalments in 2023. 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.
32 Other commitments
None.
33 Post balance sheet event
On 1 February 2023, Tialis Essential IT Manage Limited, the trading subsidiary
of Tialis Essential IT PLC, acquired the profitable partner contracts from
Allvotec Limited, a division of Daisy Group, for an initial consideration of
£2.037 million. The acquisition will bring three new channel partners to
Tialis, supporting the diversification of Tialis' partner base and will build
on the existing relationship that Tialis has with its largest channel partner.
The initial acquisition of £2.037 million was satisfied through the issue of
2,289,295 ordinary shares of 1p each in the Company. An estimated £0.1
million of deferred consideration will be paid in shares, subject to certain
performance conditions being met by February 2025, also at an effective price
of 89.2 pence per ordinary share.
34 Group reorganisation
During the year ended 31 December 2022, there was an internal reorganisation
of the group structure impacting many non-trading subsidiaries of the Company.
Several of the Company's non-trading subsidiaries were put into liquidation on
a solvent liquidation basis and since all subsidiaries are under common
control of the Company, all the trade and assets were transferred to the
Company or one of its subsidiaries under the predecessor values method of
accounting. All subsidiaries were wholly owned either directly or indirectly
by the Company.
35 Ultimate controlling party
Following the Secure Loan Note exchange on 2(nd) November 2022 MXC Capital
Limited, a company incorporated and domiciled in Guernsey, became the ultimate
controlling party with 83.4% of the voting shares. There is no ultimate
controlling party of MXC Capital Limited.
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