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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
SysGroup Plc | AQSE:SYS.GB | Aquis Stock Exchange | Ordinary Share | GB00BYT18182 |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 36.50 | 34.00 | 39.00 | 36.50 | 36.50 | 36.50 | 0.00 | 06:57:55 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMSYS
RNS Number : 9815G
SysGroup PLC
21 November 2022
21 November 2022
SysGroup plc
("SysGroup" or the "Company" or the "Group")
Half year results for the six months ended 30 September 2022
SysGroup plc (AIM:SYS), the multi award-winning managed IT services, cyber security and cloud hosting provider , is pleased to announce its unaudited half year results for the six months ended 30 September 2022 ("H1 FY23").
Financial highlights
-- Revenue increased by 49% to GBP11.32m (H1 FY22: GBP7.58m)
-- Recurring Managed IT Services revenue represented 75% of total revenue (H1 FY22: 86%), in line with expectations as a result of acquisitions
-- Adjusted EBITDA(1) increased by 25% to GBP1.68m (H1 FY22: GBP1.34m) -- Adjusted profit before tax(2) of GBP1.10m (H1 FY22: GBP0.96m) -- Statutory loss before tax of GBP0.19m (H1 FY22: profit before tax GBP0.25m) -- Adjusted basic EPS(3) of 2.0p (H1 FY22: 1.5p) -- Basic EPS of (0.2)p (H1 FY22: 0.3p) -- Cashflow from operations of GBP1.67m (H1 FY22: GBP1.14m)
-- Net debt (4) on 30 September 2022 of GBP1.92m, excluding GBP2.94m of contingent consideration relating to the acquisition of Truststream (30 September 2021: net cash of GBP1.96m)
Operational highlights
-- First two acquisitions since 2019 as M&A difficulties caused by pandemic and lockdowns ease
o Truststream Security Solutions Limited ("Truststream") acquired for up to GBP7.9m, enhancing cyber security offering and adding Edinburgh location
o Orchard Computers Limited ("Orchard") acquired for GBP1m in cash, strengthening south west operations
o Both acquisitions immediately earnings enhancing and integration largely completed as a result of Project Fusion
-- Consistently high customer satisfaction levels maintained above 97% -- Successful launch of multi-tenanted SysCloud 2.0 platform
-- Early benefits seen from sales and marketing initiatives from Manchester hub with growing pipeline of opportunities
-- Workforce at optimal levels as recruitment market eases
Outlook
-- Further potential for cross selling and client growth -- Continuing to monitor and assess acquisition opportunities
-- The Board remains confident that trading for the current financial year will be in line with its expectations
Adam Binks, Chief Executive Officer, commented:
" I am pleased to deliver results in line with expectations as the Group benefits from the operational investments and improvements that have been made over prior periods. Technology can help businesses improve efficiency and protect margins which is increasingly relevant when set against the current economic backdrop.
"The two acquisitions made in the period have strengthened our offering even further and added more great team members to the Group. Additionally, they have both brought a base of customers which we can service better from our enhanced footprint which now covers the whole of Great Britain. As well as being earnings enhancing, they are further evidence of our ambition to continue to be a consolidator in this highly fragmented market."
Notes
1. Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation of intangible assets, exceptional items and share based payments.
2. Adjusted profit before tax is profit before tax after adding back amortisation of intangible assets, exceptional items and share based payments.
3. Adjusted basic EPS is profit after tax after adding back amortisation of intangible assets, exceptional items, share based payments and associated tax, divided by the number of shares in issue.
4. Net debt represents cash balances less bank loans and lease liabilities. For further information please contact: Tel: 0151 559 SysGroup Plc 1777 Adam Binks, Chief Executive Officer Martin Audcent, Chief Financial Officer Zeus Capital (Nominated Adviser Tel: 0161 831 and Broker) 1512 Dan Bate James Edis Alma PR (Financial PR) Tel: 07780 Josh Royston 901 979 Matthew Young
About SysGroup
SysGroup is a leading provider of managed IT services, cloud hosting, cyber security and expert IT consultancy. The Group delivers solutions that enable clients to benefit from industry leading technologies and delivers managed solutions with security, compliance and governance from the core. SysGroup focuses on a customer's strategic and operational requirements - enabling clients to free up resources, grow their core business and avoid the distractions and complexity of managing IT services.
The Group has offices in Bristol, Edinburgh, Liverpool, London, Manchester and Newport.
For more information, visit http://www.sysgroup.com
Overview
I am pleased to report on a strong first half for the Group, particularly in light of the continuing difficult economic backdrop. This performance highlights the strength of our strategy as we remain integral to our customers, understanding their individual corporate needs and providing the mission critical services required to meet their business ambitions. The Company completed two acquisitions during the first six months and both are performing in line with management's expectations whilst beginning to enable future cross-selling opportunities.
Our financial performance was in line with expectations and reflects the expected impact of the acquisitions. Revenue for the first six months was GBP11.32m, an increase of 49% over the prior year (H1 FY22: GBP7.58m). As expected, revenue mix changed back towards our previously guided split as both acquired businesses have a greater proportion of value added resale ("VAR"). Recurring managed services accounted for 75% of total revenue compared to 86% for the prior year, a blend that is expected to continue for the full year.
Gross profit margin of 50% reflects the higher proportion of lower margin VAR sales (H1 FY22: 60%) and the Group delivered a strong increase of 25% in Adjusted EBITDA to GBP1.68m (H1 FY22: GBP1.34m). Cash conversion was outstanding at 120% (H1 FY22: 85%) and the Group ended the half with a healthy gross cash balance of GBP4.22m (H1 FY22: GBP3.47m). The Group swung to a net debt position of GBP1.92m (H1 FY22: net cash of GBP1.96m) excluding contingent consideration of GBP2.94m relating to the acquisition of Truststream. The shift to a net debt position is a result of the financing of the acquisitions via the Group's committed debt facilities.
At the end of the last financial year, the Board highlighted that it was starting to see the early signs of a recovery towards more normalised trading conditions and the performance detailed for H1 FY23 demonstrates this. Difficult economic conditions drive businesses to explore ways in which they can maintain their competitive edge whilst also aiming to protect and improve margins. Investing in technology delivers these outcomes and our sales and marketing hub in Manchester has been working on a number of initiatives over the course of the year which are beginning to prosper and build a growing pipeline of future potential.
Operations
We are benefiting from the operational optimisation that became such a strong focus through the pandemic, readying the business for these opportunities. The investment in Project Fusion, which provided the Group with a single unified platform, has been pivotal, vastly improving visibility and inter-operability between locations as well enabling us to add scale at pace. There is still work to do relating to the integration of the acquisitions. However, we have made excellent progress in a short space of time.
The first half saw us launch SysCloud 2.0, the Group's multi-tenanted cloud platform, which went fully live and operational in May 2022 with all existing customers now migrated over from the legacy version. The design of the platform allows us to scale quickly as needed in order to fulfil customer demand. We support the full cloud lifecycle from design to deployment to management of the platform as well as providing monitoring and maintenance of customers' applications and data to ongoing service and change management. SysCloud 2.0 provides our clients with even better performance and provides the Group with greater efficiency, giving more capacity from less physical space.
Power consumption is obviously an essential part of our business and as is widely known the energy market continues to be unstable, often with increases in costs coming at short notice. The Group has worked closely with both its datacentre partners and energy brokers, where we are in control of our own energy supply, to negotiate the best rates possible for both the Group and our customers. In the majority of instances, we have been able to pass the increases in costs we have seen through to customers.
The Company renewed its lease on our London offices, ensuring that we have a necessary presence in the Capital. Following the closure of the office and data centre in Telford, the Board is confident that the right structure is in place to support further growth. Alongside existing operations in Bristol, Liverpool, London, Manchester and Newport, the addition of our Edinburgh location gives us a strong presence from which to grow our client base across the United Kingdom.
Our people remain all important to our success. The recruitment market has been a challenge in the post-pandemic world, however, this is beginning to ease and we have seen increased levels of activity in our recent talent acquisition drive and we are now seeing the benefits of maintaining our talent acquisition strategy. For our existing team members, their commitment and output remain outstanding and on behalf of the Board, I offer my sincere thanks.
Strategy
The Group's strategy remains consistent: to expand its position as a trusted provider of managed IT services to businesses in the UK mid-market. The Board believes that a business focused on the provision of managed IT services offers the highest growth opportunity, with the potential for increased margins and longer-term contracts, thereby providing greater revenue visibility.
To deliver against this strategy, the Group has positioned itself as an extension of a customer's existing IT department, with an emphasis on consultative-led sales to guide customers through the complexities and developments in the managed IT services, cyber security and cloud hosting marketplace. Our primary purpose is to remain abreast of developments in technology and advise our customers accordingly. This leading role is supplemented by exceptional customer service and support, resulting in strong client engagement and embedding SysGroup into their organisations. The Group continues to invest in R&D to ensure its clients are making use of the latest and best solutions available to them whilst maintaining its vendor agnostic approach.
Results and Trading
The Group delivered revenue of GBP11.32m (H1 FY22: GBP7.58m) and Adjusted EBITDA of GBP1.68m (H1 FY22: GBP1.34m), increases of 49% and 25% respectively on the comparative period last year.
Managed IT services revenue was GBP8.54m (H1 FY22: GBP6.50m), an increase of 31%, and VAR revenue was GBP2.78m (H1 FY22: GBP1.08m), an increase of 156%. The higher VAR revenue performance shifted the revenue mix back to our target model of 75%:25% (H1 FY22: 86%:14%) which had been anticipated on the acquisitions of Truststream and Orchard. The Group's results reflect a full half year of trading from the two acquisitions and we're pleased to have seen single digit organic growth in revenue after the recent COVID impacted periods.
Gross profit was GBP5.61m with a gross margin of 50% (H1 FY22: GBP4.56m and 60% respectively). Whilst gross profit has increased, the gross margin percentage has reduced which is in line with current guidance and relates to the revenue mix of the two acquired businesses. Both Truststream and Orchard have a higher number of VAR sales compared to the legacy SysGroup business, which is also transacted at slightly lower gross margin.
Adjusted operating expenses of GBP3.94m were GBP0.72m above the same period last year (H1 FY22: GBP3.22m) as the overheads of the acquired businesses have been absorbed into the Group. Costs continue to be controlled well, though like many other businesses we have seen a significant rise in energy costs. Our contract terms with customers have largely allowed us to pass these increases on although power consumption across our office footprint has been absorbed into the overhead base.
The consolidated income statement includes GBP0.34m of exceptional costs which are for the professional fees related to the acquisition of Truststream and Orchard and costs associated with the post-acquisition integration and restructuring.
Finance costs of GBP0.24m have increased compared to the same period last year (H1 FY22: GBP0.05m). Finance costs include GBP0.12m of bank loan interest and GBP0.10m of non-cash finance charges relating to the unwinding of discount on contingent consideration and amortisation of the loan arrangement fee. The bank loan interest has increased following the GBP4.5m drawdown to finance the acquisition of Truststream and also from the increase in bank interest rates.
The Group has an Adjusted profit before tax of GBP1.10m (H1 FY22: GBP0.96m) and a statutory loss before tax of GBP0.19m (H1 FY22: profit before tax GBP0.25m). The statutory loss before tax results from having GBP0.34m of non-recurring exceptional costs, a GBP0.25m increase in amortisation of acquired intangible assets, and the increase in finance costs.
The taxation credit of GBP0.08m includes no significant one-off items. The tax charge will increase in FY24 due to the increase in corporation tax rate from 19% to 25% which applies from 1 April 2023.
Adjusted basic earnings per share for H1 FY23 was 2.0 pence (H1 FY22: 1.5 pence) and basic loss per share for H1 FY23 was 0.2 pence (H1 FY22: earnings per share 0.3 pence).
The consolidated statement of financial position includes the impact of the Truststream and Orchard acquisitions with GBP6.3m of goodwill and GBP3.6m of acquired intangible assets recognised on acquisition. The increase in the Group's working capital balances primarily relate to the addition of the two businesses and the full GBP2.9m discounted fair value of the contingent consideration is included in current and non-current liabilities.
There were no significant items of capital expenditure in H1 FY23 and the total tangible capex spend was GBP0.1m. In H1 FY22 the higher expenditure was due to the refurbishments of our Newport & Manchester offices and investing into our multi-tenanted SysCloud 2.0 platform. As planned, we completed Project Fusion at the end of FY22 and there have been no system or commercial development projects in H1 FY23.
The Group's financial position structurally shifted following the financing of the two acquisitions in April. The net cash position of GBP1.96m at 31 March 2022 shifted to a net debt position of GBP1.92m at 30 September 2022, excluding the GBP2.94m of contingent consideration. The GBP1m acquisition of Orchard was financed from the Group's existing cash balance, and Truststream was acquired using GBP4.5m of funds drawn from the new GBP8.0m revolving credit facility and GBP0.85m from the Group's existing resources. The Group had a gross cash balance of GBP4.22m at 30 September 2022 (30 Sept 2021: GBP3.47m).
Cashflow from operations was GBP1.67m (H1 FY22: GBP1.14m) and cash conversion was higher than expected at 120% (H1 FY22: 85%). The target cash conversion range for the Group is 80-90% but was higher than usual due to a small number of VAR deals where payments had been received from customers in advance of the related supplier payments falling due for payment. Working capital continues to be managed well with debtor days below the target level of 25 days. Corporation tax of GBP0.13m was paid in H1 FY23 (H1 FY22: GBP0.19m).
Acquisitions
In April, SysGroup completed its first two acquisitions since 2019, both of which are strategically important for the Group. We are delighted with both additions as they bring with them great teams, complement our existing offering, provide opportunities for future cross selling and strengthen the Group's geographical footprint.
We acquired Truststream for an initial cash consideration of GBP4.8m and a maximum earn out consideration of up to GBP3.075m over a 24 month period. Established in 2011, Truststream is one of the UK's fastest growing providers of professional and managed cyber security services. The global managed security services market is forecast to grow by a CAGR of 7.9% through to 2027*. Truststream has a strong and growing client base across both the private and public sectors and is one of the UK's leading providers of security transformation services. Its offering covers all aspects of cyber security from analysis and threat detection, through protection architecture and implementation, to incident response and ongoing 24/7 support and training. Truststream has built long term sustainable relationships with key vendors and is identified as a leading partner of choice for market leading vendors by Gartner. Truststream has a number of relevant security accreditations, including ISO 9001 and ISO 27001.
We subsequently acquired Independent Network Solutions Limited, which trades as Orchard Computers, a Bristol based managed IT service provider, for GBP1.0m in cash. Orchard has been in operation for over 30 years and has built a loyal customer base totalling over 120 active clients in 2021, largely in the Southwest of England. The average length of relationship amongst their 20 largest clients is 12 years, with no single customer representing more than 7% of total revenues. Orchard represents customers across a broad range of sectors, covering both the private and public sectors. Its managed IT service offering mirrors that of SysGroup, providing high quality consulting services and building tailor made, vendor agnostic solutions, designed specifically to meet individual customer needs, followed by ongoing support.
At the time of the Truststream acquisition, the Company secured a new GBP8.0m revolving credit facility with Santander to provide additional financial flexibility for the Group. The new banking facility has a term of five years with covenants that will be tested quarterly relating to total net debt to Adjusted EBITDA leverage and minimum liquidity. The Group has drawn down GBP4.5m against the new facility towards the funding of the Truststream Acquisition.
As a result of Project Fusion, the integration of both businesses has been both swift and seamless. The integration of both finance operations, customer relationship management and team members have already been completed. By the end of the current financial year, we expect to have completed integration of all technical operations as well as have both businesses trading under the SysGroup brand.
The Board is continuing to monitor and assess further acquisition opportunities. The pipeline is looking healthy following the disruptions caused by the pandemic and, as a well-capitalised and well-run business with an increasing presence throughout the UK, we are well placed to add quality businesses and further scale whilst continuing to maintain discipline in line with our strict acquisition criteria.
Share Option Grants
In June 2022, the Remuneration Committee granted 284,010 performance shares to Adam Binks, Chief Executive Officer, and 170,406 performance shares to Martin Audcent, Chief Financial Officer in relation to the Group's performance in FY22 and under the terms of the 2020 SysGroup Long Term Incentive Plan.
Outlook
Trading for the second half has continued with positive momentum and the Board is therefore confident in meeting its full year expectations. Clearly, we are conscious of the ongoing economic uncertainty but are continuing to work hard to build a pipeline of opportunity. The business is continuing to benefit from the operational investments and optimisation focus of previous periods and is well placed to deliver further growth. Technology has the ability to drive productivity and efficiency and with the landscape becoming increasingly sophisticated and diverse, companies need outsourced expertise to deliver the right outcomes for their individual needs.
The need for managed IT services remains prevalent and as businesses increasingly seek to invest in technology to increase efficiencies and improve their margins, SysGroup is ideally placed to capitalise on this market opportunity.
The acquisitions of Truststream and Orchard demonstrate our desire and ability to add quality businesses and we have the right infrastructure to integrate them seamlessly and at pace. The market remains hugely fragmented and we will look to consolidate further as opportunities arise.
*Source - "Managed Security Services Market Outlook to 2025: Global Report" by Research and Markets
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHSED 30 SEPTEMBER 2022
Unaudited Unaudited Audited six months six months year to to to 30-Sep-22 30-Sep-21 31-Mar-22 Notes GBP'000 GBP'000 GBP'000 Revenue 2 11,321 7,580 14,746 Cost of sales (5,708) (3,017) (5,826) Gross profit 2 5,613 4,563 8,920 ----------------------------------------- ------ ------------ ------------ ---------- Operating expenses before depreciation, amortisation, exceptional items and share based payments (3,935) (3,219) (6,103) ----------------------------------------- ------ ------------ ------------ ---------- Adjusted EBITDA 1,678 1,344 2,817 ----------------------------------------- ------ ------------ ------------ ---------- Depreciation (330) (334) (654) Amortisation of intangible assets (866) (615) (1,243) Exceptional items 4 (337) - - Share based payments (96) (93) (195) Administrative expenses (5,564) (4,261) (8,195) ----------------------------------------- ------ ------------ ------------ ---------- Operating profit 49 302 725 Finance costs 5 (243) (52) (127) ----------------------------------------- ------ ------------ ------------ ---------- (Loss)/profit before taxation (194) 250 598 Taxation 77 (83) (147) Total comprehensive (loss)/profit attributable to the equity holders of the company (117) 167 451 ----------------------------------------- ------ ------------ ------------ ---------- Basic earnings per share (pence) 3 (0.2)p 0.3p 0.9p Diluted earnings per share (pence) 3 (0.2)p 0.3p 0.9p ----------------------------------------- ------ ------------ ------------ ----------
All the results arise from continuing operations.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2022
Unaudited Unaudited Audited 30-Sep-22 30-Sep-21 31-Mar-22 Notes GBP'000 GBP'000 GBP'000 Assets Non-current assets Goodwill 7 21,894 15,554 15,554 Intangible assets 7 7,005 4,822 4,318 Plant, property and equipment 2,139 1,614 1,478 ------------------------------- ------ ---------- ---------- ---------- 31,038 21,990 21,350 Current assets Trade and other receivables 8 4,090 1,926 2,079 Cash and cash equivalents 4,216 3,469 4,133 ------------------------------- ------ ---------- ---------- ---------- 8,306 5,395 6,212 Total Assets 39,344 27,385 27,562 ------------------------------- ------ ---------- ---------- ---------- Equity and Liabilities Equity attributable to the equity shareholders of the parent Called up share capital 494 494 494 Share premium 9,080 9,080 9,080 Treasury reserve (201) (201) (201) Other reserve 3,123 2,925 3,027 Translation reserve - 4 4 Retained earnings 8,741 8,570 8,854 ------------------------------- ------ ---------- ---------- ---------- 21,237 20,872 21,258 Non-current liabilities Lease liabilities 685 269 195 Contract liabilities 486 - 296 Contingent consideration 1,060 - - Provisions 10 175 - - Deferred taxation 1,642 948 1,011 Bank loan 11 5,187 595 387 9,235 1,812 1,889 ------------------------------- ------ ---------- ---------- ---------- Current liabilities Trade and other payables 9 3,844 2,766 2,692 Lease liabilities 268 255 144 Contract liabilities 2,885 1,291 1,163 Contingent consideration 1,875 - - Bank loan 11 - 389 416 8,872 4,701 4,415 ------------------------------- ------ ---------- ---------- ---------- Total Equity and Liabilities 39,344 27,385 27,562 ------------------------------- ------ ---------- ---------- ----------
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY
SIX MONTHSED 30 SEPTEMBER 2022
Attributable to equity holders of the parent Share Share Treasury Other Translation Retained Total capital premium reserve reserve reserve earnings reserve GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 At 1 April 2021 494 9,080 (201) 2,832 4 8,403 20,612 Loss and total comprehensive income for the period - - - - - 167 167 Share options charge - - - 93 - - 93 -------------------------------- --------- --------- --------- --------- ------------ ---------- -------- At 30 September 2021 (unaudited) 494 9,080 (201) 2,925 4 8,570 20,872 Profit and total comprehensive income for the period - - - - - 284 284 Share options charge - - - 102 - - 102 -------------------------------- --------- --------- --------- --------- ------------ ---------- -------- At 31 March 2022 494 9,080 (201) 3,027 4 8,854 21,258 Loss and total comprehensive income for the period - - - - - (117) (117) Reclass of translation reserve - - - - (4) 4 - Share options charge - - - 96 - - 96 -------------------------------- At 30 September 2022 (unaudited) 494 9,080 (201) 3,123 - 8,741 21,237 -------------------------------- --------- --------- --------- --------- ------------ ---------- --------
The following describes the nature and purpose of each reserve within equity:
Reserve Description and purpose ---------------------- -------------------------------------------------------- Share Premium Reserve Amount subscribed for share capital in excess of nominal values. Treasury reserve Company owned shares held for the purpose of settling the exercise of employee share options. Other Reserve Amount reserved for share-based payments to be released over the life of the instruments and the equity element of convertible loans Translation Reserve Amount represents differences in relations to the consolidation of subsidiary companies accounting for currencies other than the Group's functional currency. In H1 FY23 the balance of the reserve was reclassified to Retained earnings and no further translation differences are expected to occur. Retained earnings All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. ---------------------- --------------------------------------------------------
CONSOLIDATED CONDENSED STATEMENT OF CASHFLOWS
SIX MONTHSED 30 SEPTEMBER 2022
Unaudited Unaudited Audited six months six months year to to to 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 Cashflows used in operating activities (Loss)/profit after tax (117) 167 451 Adjustments for: Depreciation and amortisation 1,196 949 1,897 Finance costs 243 52 127 Share based payments 96 93 195 Taxation (credit)/charge (77) 83 147 ---------------------------------------------- ------------ ------------ ----------- Operating cashflows before movement in working capital 1,341 1,344 2,817 ---------------------------------------------- ------------ ------------ ----------- Decrease/(increase) in trade and other receivables 68 (198) (354) Increase/(decrease) in trade and other payables 260 (5) 5 Cashflow from operations 1,669 1,141 2,468 ---------------------------------------------- ------------ ------------ ----------- Taxation paid (128) (192) (159) Net cash from operating activities 1,541 949 2,309 ---------------------------------------------- ------------ ------------ ----------- Cashflows from investing activities Payments to acquire property, plant & equipment (105) (476) (620) Payments to acquire intangible assets - (147) (271) Acquisition of subsidiary companies (5,390) - - net of cash acquired Net cash used in investing activities (5,495) (623) (891) ---------------------------------------------- ------------ ------------ ----------- Cashflows from financing activities RCF drawdown net of arrangement fees 4,373 - - Repayment of bank loan (82) (189) (417) Capital/principal paid on lease liabilities (102) (88) (256) Interest paid on loan facility (138) (45) (67) Interest paid on lease liabilities (14) (8) (18) Net cash used in financing activities 4,037 (330) (758) ---------------------------------------------- ------------ ------------ ----------- Net increase/(decrease) in cash and cash equivalents 83 (4) 660 ---------------------------------------------- ------------ ------------ ----------- Cash and cash equivalents at the beginning of the period /year 4,133 3,473 3,473 Cash and cash equivalents at the end of the period/year 4,216 3,469 4,133 ---------------------------------------------- ------------ ------------ -----------
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHSED 30 SEPTEMBER 2022
1. ACCOUNTING POLICIES
The accounting policies used in the preparation of the unaudited consolidated condensed financial information for the six months ended 30 September 2022 are prepared in accordance with UK adopted International Financial Reporting Standards ("IFRS") and are consistent with those that will be adopted in the annual statutory financial statements for the year ended 31 March 2023.
While the financial information included has been prepared in accordance with the recognition and measurement criteria, in accordance with UK adopted International Financial Reporting Standards, these consolidated condensed financial statements do not contain sufficient information to comply with IFRSs.
The financial information for the six-month period ended 30 September 2022 and 30 September 2021 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited but has been reviewed by our auditors in accordance with the International Standard on Review Engagement 2410 issued by the Auditing Practices Board. The comparative financial information for the year ended 31 March 2022 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2022 have been filed with the Registrar of Companies. The Independent Auditor's Report on that Annual Report and Financial Statements for 2022 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
This Interim Report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The Interim Report should not be relied on by any other party or for any other purpose.
Exceptional items
The Group presents as exceptional items on the face of the Statement of Comprehensive Income those material items of income and expense which the Directors consider, because of their size or nature and expected non-recurrence, merit separate presentation to facilitate financial comparison with prior periods and to assess trends in financial performance. Exceptional items are included in Administration expenses in the Consolidated Statement of Comprehensive Income but excluded from Adjusted EBITDA (Note 6) as management believe they should be considered separately to gain an understanding of the underlying profitability of the trading businesses.
Going concern
The Directors have prepared the financial statements on a going concern basis which assumes that the Group and the Company will continue to meet liabilities as they fall due.
The Group has an operating model with a high level of resilience to economic downturn with circa 75% of revenue deriving from contracted managed IT services which are business critical supplies to customers. This resilience was demonstrated during the recent economic downturn when the Group continued to operate at full capacity throughout the period with no use of the government's furlough or loan assistance schemes. The Group has a gross cash balance of GBP4.2m and a net debt position of GBP1.92m (excluding contingent consideration of GBP2.94m) which is forecast to steadily reduce as the Group continues to generate strong levels of operating cash inflow.
The Directors have reviewed the Group's financial forecasts and taken into account the current UK economic outlook. The projected trading forecasts and resultant cashflows, together with the confirmed loan facilities and other sources of finance, taking account of reasonably possible changes in trading performance, show that the Group can continue to operate within the current facilities available to it.
The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and they continue to adopt the going concern basis of accounting in preparing the financial statements.
2. SEGMENTAL REPORTING
The chief operating decision maker for the Group is the Board of Directors and the Group reports in two segments:
-- Managed IT Services - this segment provides all forms of managed services to customers and includes professional services.
-- Value Added Resale (VAR) - this segment provides all forms of product and licence sales procured from supplier partners.
The monthly management accounts reported to the Board of Directors are reviewed at a consolidated level and the Board review the results of the operating segments at a revenue and gross profit level since the Group's management and operational structure operate as unified Group functions. In this respect, assets and liabilities are also not reviewed on a segmental basis. All assets are located in the UK. All segments are continuing operations and there are no transactions between segments, and all revenue is earned from external customers. The business segments' gross profit is reconciled to profit before taxation as per the consolidated income statement. The Group's overheads are managed centrally by the Board and consequently there is no reconciliation to profit before tax at a segmental level.
Unaudited Unaudited Audited six months six months year to to to 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 --------------------- ------------ ------------ ---------- Revenue Managed IT Services 8,543 6,496 12,845 Value Added Resale 2,778 1,084 1,901 11,321 7,580 14,746 --------------------- ------------ ------------ ---------- Gross Profit Managed IT Services 5,157 4,329 8,511 Value Added Resale 456 234 409 5,613 4,563 8,920 --------------------- ------------ ------------ ---------- 3. EARNINGS PER SHARE Unaudited Unaudited Audited six months six months year to to to 30-Sep-22 30-Sep-21 31-Mar-22 (Loss)/profit for the financial period attributable to shareholders (117) 167 451 Adjusted profit for the financial period 974 741 1,748 Weighted number of equity shares in issue 48,859,690 48,859,690 48,859,690 Weighted number of equity shares for diluted calculation 52,189,652 51,786,614 51,983,666 Adjusted basic earnings per share (pence) 2.0p 1.5p 3.6p Basic (loss)/earnings per share (pence) (0.2p) 0.3p 0.9p Diluted (loss)/earnings per share (pence) (0.2p) 0.3p 0.9p ----------------------------------------- ------------ -------------- ------------------ Unaudited Unaudited Audited six months six months year to to to 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 (Loss)/profit after tax (117) 167 451 Amortisation of intangible assets 866 615 1,243 Exceptional items 337 - - Share based payments 96 93 195 Tax adjustments (208) (134) (141) ----------------------------------------- ------------ -------------- ------------------ Adjusted profit used for Adjusted earnings per share 974 741 1,748 ----------------------------------------- ------------ -------------- ------------------
The tax adjustments relate to current and deferred tax on the amortisation of intangible assets, exceptional items and share based payments.
4. EXCEPTIONAL ITEMS Unaudited Unaudited Audited six months six months year to to to 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 ------------------------------ ------------ ------------ ---------- Integration and restructuring 113 - - costs Acquisition costs 224 - - 337 - - ------------------------------ ------------ ------------ ---------- 5. FINANCE COSTS Unaudited Unaudited Audited six months six months year to to to 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 --------------------------------------- ------------ ------------ ---------- Interest payable on lease liabilities 26 2 20 Interest payable on bank loan 120 36 80 Arrangement fee amortisation on bank loan 18 14 27 Unwinding of discount on contingent 79 - - consideration 243 52 127 --------------------------------------- ------------ ------------ ---------- 6. ALTERNATIVE PERFORMANCE MEASURES Unaudited Unaudited Audited Reconciliation of Operating six months six months year to profit to Adjusted EBITDA to to 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 Operating profit 49 302 725 Depreciation 330 334 654 Amortisation of intangible assets 866 615 1,243 EBITDA 1,245 1,251 2,622 ----------------------------------- ------------ ------------ ---------------- Exceptional items 337 - - Share based payments 96 93 195 Adjusted EBITDA 1,678 1,344 2,817 ----------------------------------- ------------ ------------ ---------------- Reconciliation of loss before Unaudited Unaudited Audited tax to Adjusted profit before six months six months year to tax to to 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 (Loss)/profit before tax (194) 250 598 Amortisation of intangible assets 866 615 1,243 Exceptional items 337 - - Share based payments 96 93 195 ----------------------------------- ------------ ------------ ---------------- Adjusted profit before tax 1,105 958 2,036 ----------------------------------- ------------ ------------ ---------------- Cash conversion Unaudited Unaudited Audited six months six months year to to to 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 Cashflow from operations 1,669 1,141 2,468 Adjustments: Acquisitions, integration and 337 - - restructuring cashflows Adjusted cashflow from operations 2,006 1,141 2,468 ----------------------------------- ------------ ------------ ------------- Adjusted EBITDA 1,678 1,344 2,817 ----------------------------------- ------------ ------------ ------------- Cash conversion 120% 85% 88% ----------------------------------- ------------ ------------ ------------- Net debt Unaudited Unaudited Audited 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 Cash balances 4,216 3,469 4,133 Bank loans - current - (389) (416) Bank loans - non-current (5,187) (595) (387) Net (debt)/cash before lease liabilities (971) 2,485 3,330 Lease liabilities - equipment - - (8)
Lease liabilities - property (953) (524) (331) Net (debt)/cash (1,924) 1,961 2,991 Contingent consideration (2,935) - - Net (debt)/cash including contingent consideration (4,859) 1,961 2,991 -------------------------------------- ---------- ---------- --------------- 7. INTANGIBLE ASSETS Software Customer Systems development licences relationships Goodwill Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ---------------------- -------------------- ---------- --------------- --------- -------- Cost At 1 April 2021 802 205 9,156 15,554 25,717 Additions 271 - - - 271 At 31 March 2022 1,073 205 9,156 15,554 25,988 ---------------------- -------------------- ---------- --------------- --------- -------- At 1 April 2022 1,073 205 9,156 15,554 25,988 Additions - - 3,555 6,340 9,895 ---------------------- -------------------- ---------- --------------- --------- -------- At 30 September 2022 1,073 205 12,711 21,894 35,883 ---------------------- -------------------- ---------- --------------- --------- -------- Accumulated amortisation At 1 April 2021 264 201 4,408 - 4,873 Charge for the year 140 4 1,099 - 1,243 At 31 March 2022 404 205 5,507 - 6,116 ---------------------- -------------------- ---------- --------------- --------- -------- At 1 April 2022 404 205 5,507 - 6,116 Charge for the year 86 - 782 - 868 ---------------------- -------------------- ---------- --------------- --------- -------- At 30 September 2022 490 205 6,289 - 6,984 ---------------------- -------------------- ---------- --------------- --------- -------- Net book value At 31 March 2022 669 - 3,649 15,554 19,872 At 30 September 2022 583 - 6,422 21,894 28,899 ---------------------- -------------------- ---------- --------------- --------- -------- 8. TRADE AND OTHER RECEIVABLES Unaudited Unaudited Audited 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 Trade receivables 1,723 991 1,154 Other receivables 2,367 935 925 -------------------- ---------- ---------- ---------------- 4,090 1,926 2,079 ------------------- ---------- ---------- ---------------- 9. TRADE AND OTHER PAYABLES Unaudited Unaudited Audited 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 Trade payables 1,399 1,344 1,116 Corporation tax 427 153 188 Other taxes and social security 836 468 499 Accruals 1,182 801 889 ------------------------- ---------- ---------- ---------------- 3,844 2,766 2,692 ------------------------ ---------- ---------- ----------------
10. PROVISIONS
Unaudited Unaudited Audited 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 Dilapidations provision 175 - - ------------------------ ---------- ---------- ----------------
This provision is for the estimated aggregate cost of returning the Group's offices to their original condition on the expiry and exit of the property leases.
11. BANK LOAN
Unaudited Unaudited Audited 30-Sep-22 30-Sep-21 31-Mar-22 GBP'000 GBP'000 GBP'000 Bank loans - current - 389 416 Bank loans - non-current 5,187 595 387 5,187 984 803 -------------------------- ---------- ---------- ----------------
In April 2022, SysGroup plc re-financed its existing term loan facility of GBP1.75m and its undrawn acquisition revolving credit facility of GBP3.25m and replaced both with a new GBP8.0m revolving credit facility with Santander to provide additional financial flexibility for the Group. The new banking facility has a term of five years, an interest rate of Base Rate +3.25% margin on drawn funds and covenants that will be tested quarterly relating to total net debt to Adjusted EBITDA leverage and minimum liquidity.
12. ACQUISITIONS
In April 2022 SysGroup acquired 100% of the issued share capital in Truststream and Independent Network Solutions Limited ("INSL") which is the holding company of Orchard.
Truststream
Established in 2011 and based in Edinburgh, Truststream is one of the UK's fastest growing providers of professional and managed cyber security services. Truststream covers all aspects of cyber security from analysis and threat detection, through protection architecture and implementation, to incident response and ongoing 24/7 support and training. The acquisition further enhances SysGroup's service offering and is complementary to the Group's core expertise and key areas of focus. In addition, the acquisition enables the Group to further strengthen its UK presence by opening up Scotland as an attractive hub for the Group.
Truststream was acquired for GBP4.8m initial cash consideration on a cash-free debt-free basis with an additional GBP0.5m paid for the net cash position following the conclusion of the completion accounts exercise. The acquisition agreement includes a two year earn-out mechanism with contingent consideration payable up to GBP3.08m following the first and second anniversaries of the transaction. The earn-out is subject to the achievement of certain maintainable EBITDA performance targets in the first and second 12-month periods following the completion of the acquisition.
The Truststream acquisition was funded from a new GBP8.0m revolving credit facility ("RCF") which was signed with Santander in April 2022. SysGroup utilised GBP4.5m of funds from the RCF and GBP0.8m from existing Group cash balances to finance the acquisition.
Orchard
SysGroup acquired INSL in April 2022 for GBP1.0m cash consideration with no contingent or deferred consideration. The cash consideration was funded from the Group's existing cash balances.
Orchard has been in operation for over 30 years and has built a loyal customer base largely in the south west of England and across a broad range of sectors, covering both the private and public sectors. Its managed IT service offering mirrors that of SysGroup, providing high quality consulting services and building tailor made, vendor agnostic solutions, designed specifically to meet individual customer needs, followed by ongoing support. The acquisition of Orchard furthers strengthen SysGroup's presence in the south west of England.
Fair value of acquired net assets
The Directors have reviewed the intangible assets of both companies and have recognized an intangible asset in respect of customer relationships for both acquisitions. The asset values have been calculated using a discounted cashflow method based on the estimated level of profit to be generated from the customers acquired. A post tax discount rate of 9.40% was used in the valuation and the customer relationships are amortised over an estimated useful life of seven years for Truststream and ten years for Orchard. The goodwill arising on the acquisitions is attributable to the technical skills of the workforce and cross-selling opportunities achievable from combining the acquired customer bases and trades with the existing Group.
The goodwill and intangible assets have been allocated to new CGUs, Truststream & Orchard since the companies have their own distinct cash operations and financial reporting processes.
The Directors consider it appropriate for both businesses to be reported within the existing Group's operating segments, managed IT services and VAR, since they are both managed within the Group's management and operating structure and have revenues that align with the segments.
Orchard Truststream Recognised amounts of Fair Fair net assets acquired and Book value Fair Book value Fair liabilities assumed value Adj. value value Adj. value GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ---------------------------------- ---------- -------- -------- -------- -------- -------- Cash and cash equivalents 398 - 398 550 - 550
Trade and other receivables 311 (15) 296 1,783 - 1,783 Property, plant and equipment 32 (32) - - - - Intangible assets - 1,028 1,028 - 2,526 2,526 Trade and other payables (385) (410) (795) (1,776) - (1,776) Bank loan (82) - (82) - - - Corporation tax (63) - (63) (119) - (119) Deferred tax (5) (257) (262) - (632) (632) ---------------------------------- ---------- -------- -------- -------- -------- -------- Identifiable net assets 520 2,332 Goodwill 485 5,860 Total net assets 1,005 8,192 ---------------------------------- ---------- -------- -------- -------- -------- -------- Satisfied by: Cash consideration - paid on acquisition 1,005 5,337 Contingent consideration - 3,075 Discounting of contingent consideration - (220) Total consideration 1,005 8,192 ---------------------------------- ---------- -------- -------- -------- -------- --------
13. AVAILABILITY OF INTERIM REPORT
Copies of this report are available on the Company's website at http://www.sysgroup.com
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November 21, 2022 02:00 ET (07:00 GMT)
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