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Cloudcoco Group PLC Interim Results

30/06/2020 7:00am

UK Regulatory (RNS & others)


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TIDMCLCO

RNS Number : 4566R

Cloudcoco Group PLC

30 June 2020

30 June 2020

CloudCoCo Group plc

("CloudCoCo", "the Group" or "the Company")

Interim Results

CloudCoCo (AIM: CLCO), a UK provider of IT and communications solutions to businesses and public sector organisations, announces its unaudited interim results for the six months ended 31 March 2020.

Financial highlights

The six months prior to the period under review have been included for comparison to help investors gauge the initial progress the business has made since the completion of the acquisition of CloudCoCo Limited on 21 October 2019 and the introduction of a new management team.

 
      --   Revenue of GBP4.43m, up 44% against the previous six-month 
            period (H2 2019: GBP3.08m, H1 2019: GBP4.18m) 
 
      --   Recurring revenue of GBP2.79m, up 31% on the previous 
            six-month period (H2 2019: GBP2.13m, H1 2019: GBP3.02m), 
            a key focus for the Group in becoming a sustainable growth 
            business 
 
      --   Total contract value ("TCV") signed of GBP3.33m, up 158% 
            against the previous six-month period (H2 2019: GBP1.29m, 
            H1 2019: GBP1.37m), reflecting early successes in prioritising 
            multi-year over single-year deals 
 
      --   Positive Trading Group EBITDA1 of GBP68k from a loss of 
            GBP250k in the previous six-month period (H2 2019: loss 
            of GBP250k, H1 2019: profit of GBP15k) 
 
      --   Pre-tax loss reduced to GBP1.57m from a loss of GBP5.59m 
            in FY2019 (H1 2019: loss of GBP1.21m) 
 
      --   Cash at bank of GBP0.27m at 31 March 2020 (H2 2019: GBP0.31m, 
            H1 2019: GBP0.84m) and GBP0.4m undrawn working capital 
            facility 
 
      --   Net assets of GBP5.69m at 31 March 2020 (H2 2019 negative 
            GBP1.11m, H1 2019 GBP2.92m) 
 

(1) earnings before net finance costs, tax, depreciation, amortisation, plc costs, separately identifiable items and share-based

income and payments

Operational highlights

 
      --   Acquisition of CloudCoCo Limited on 21 October 2019 
 
      --   Rebrand and change of name to CloudCoCo Group plc on 29 
            November 2019 
 
      --   Refinancing of the Group's debt reducing loan note debt 
            from GBP5m to GBP3.5m and extension of new GBP0.5m working 
            capital facility 
 
      --   Appointment of new CEO, Mark Halpin, and CFO, Michael 
            Lacey 
 
      --   Encouraging early progress made against new strategy both 
            operationally and commercially 
 
      --   5-year cyber security management deal with a major operator 
            of franchised car dealerships 
 
      --   Voted Zen Internet New Partner of the Year 
 

Post-period highlights

 
      --   Move to new Leeds office completed in June 
 
      --   3-year cyber security management deal with major online 
            fashion retailer, boohoo 
 
      --   Resilient trading during pandemic but experiencing industry-wide 
            headwinds 
 
      --   Growing recurring revenue and margin, together with cost 
            reduction measures means the business is well-positioned 
            to withstand the current situation 
 

Simon Duckworth, non-executive chairman of CloudCoCo, commented:

"The new management team has made a promising start, implementing positive changes across the business and making progress against all four of the objectives outlined at the full year despite the significant operational and wider economic challenges posed by the outbreak of the pandemic. There will be more obstacles to overcome as CloudCoCo continues through its recovery phase, but there is renewed optimism in the business, and a sense that after a prolonged period of instability the business is now on the right track."

Mark Halpin, CEO of CloudCoCo, commented:

"We expect demand for our products and services to evolve as organisations seek to adapt to the 'new normal'. IT and communications infrastructure is increasingly extending beyond physical premises and with that comes fresh challenges, particularly around cyber security and collaborative working practices. We believe that through our expert skillset and deep partner relationships with industry-leading providers, we are well-positioned to help organisations meet these challenges.

"While we should not lose sight of the fact we are still in the early stages of our turnaround story and recognise we are operating against a backdrop of unprecedented uncertainty, we have a talented team in place and are already seeing benefits from the hard work done thus far, which gives us confidence that our strategy is the right one."

 
 Contacts 
 
 CloudCoCo                                  via Alma PR 
 Mark Halpin, CEO 
 Michael Lacey, CFO 
 
 N+1 Singer (nominated adviser & broker)    +44 (0)20 7496 3000 
 Peter Steel 
 Ben Farrow 
 
 Alma PR (financial PR adviser)             +44 (0)20 3405 0205 
 David Ison                                 cloudcoco@almapr.co.uk 
 Josh Royston 
 Kieran Breheny 
 

About CloudCoCo

Supported by a team of industry experts and harnessing a diverse ecosystem of partnerships with blue-chip technology vendors, CloudCoCo makes it easy for businesses and public sector organisations to work smarter, faster and more securely by providing a single point of purchase for their connectivity, telephony, cyber security, cloud, IT hardware and support needs.

CloudCoCo has offices in Warrington and Leeds in the UK.

www.cloudcoco.co.uk

CHIEF EXECUTIVE'S REVIEW

H1 2020 results

The financial results for the six months to 31 March 2020 should be viewed in the context of a period of significant change in the Group, with the completion of the acquisition of CloudCoCo Limited taking place on 21 October 2019 followed by the introduction of a new management team.

The focus for the period under review has been to address legacy issues and create a sustainable foundation for future growth.

Progress against objectives

At the final results for the last financial year released in February 2020, the chairman outlined four key objectives for the current financial year. These were:

 
      1.   Increase sales 
      2.   Reduce customer churn 
      3.   Reduce costs 
      4.   Return to net cash generation 
 

As noted at the time, while simple objectives, it was clear the business needed to return to basics and shore up its fundamentals before it could drive improved performance. Progress against each objective in the first half of the current financial year is summarised below:

Increasing sales

The business saw sales growth across all three of its reporting segments during the period as shown below:

 
                           6 months to    6 months to   6 months to 
                              31 March   30 September      31 March 
                                  2020           2019          2019 
                               GBP'000        GBP'000       GBP'000 
-----------------------   ------------  -------------  ------------ 
 By operating segment 
 Recurring services              2,785          2,131         3,022 
 Product                         1,208            612           793 
 Professional services             437            333           366 
------------------------  ------------  -------------  ------------ 
 Total revenue                   4,430          3,076         4,181 
------------------------  ------------  -------------  ------------ 
 

Total contract value signed, an important performance indicator, grew to GBP3.33m, an increase of 158% against the previous six-month period.

Product sales increased primarily due to hardware sales delivered in advance of multi-year support contracts.

One of the key benefits of the acquisition of CloudCoCo was the strong and experienced sales and business development team it brought to the Group. On appointment, the new management team identified a number of ways in which existing methods could be improved upon. While the changes made were substantial and will take time to yield sustained, positive results, the sales function is now a more professional and optimised operation with a clear plan. Reporting and accountability has improved, and there is a greater emphasis on liaising with the support team to better understand demand.

One of the most significant strategic objectives for the Company - and perhaps the biggest change in mindset from the way the legacy business tended to work - is a shift towards prioritising multi-year over single-year deals. This provides greater revenue visibility and reduces the need to re-negotiate contracts annually. Leveraging our partnership with Fortinet, in the first half we were able to secure a five-year cyber security management deal with a major operator of franchised car dealerships, a contract that exemplifies the kind of business we would like to take on going forwards. In what was a competitive pitch against several major managed service providers, we were selected because the customer was looking for a partner rather than a supplier, that showed a deep understanding of its business and held strong accreditations, relationships and expertise with the Fortinet security fabric technologies. Post-period, we were able to sign a similar three-year deal with a major online fashion retailer, boohoo.

Both names are among the biggest in their respective industries. Being trusted by organisations of this calibre is a valuable endorsement of CloudCoCo's cyber security capabilities, and indicative of our desire to move up a weight division in terms of customer and contract size.

The first half also saw our first sales of Nyotron's end point protection platform, Paranoid, which is a strong USP for CloudCoCo as the solution's exclusive UK supplier. We also secured a three-year WiFi and wide area network deal with one of the UK's leading charities, and saw encouraging traction in our telephony business, both in terms of signing new customers and meeting growing demand from major systems integrators looking to leverage the expertise we have in areas such as integrating older PBX systems with newer technologies like Microsoft Teams.

In March, we launched five new campaigns geared towards our preferred type of business, targeted at both new and existing customers:

 
      1.   Microsoft and modern working collaboration - leveraging 
            our accreditations and deep-level skills in Azure, Microsoft 
            Teams, Office 365 and Windows Virtual Desktop 
      2.   Cyber security - through our partnerships with American 
            corporations Fortinet and Nyotron, a key growth area 
      3.   Telephony and unified communications - including traditional 
            PBX (telephony systems) maintenance, modern cloud-hosted 
            telephony, contact centres and our rare ability to integrate 
            legacy PBX with more modern collaboration technology, 
            such as Microsoft Teams, helping organisations have the 
            best of both worlds while reducing spend 
      4.   "Risk Mitigation as a Service" - an audit and analysis 
            of an organisation's IT environment to highlight risk 
            in areas such as end of life Microsoft software, server 
            & PC hardware, anti-virus protection, patch management, 
            data back-up and Microsoft SharePoint & Teams access 
      5.   Network - connecting business premises and enabling home 
            working in the UK and EMEA with bandwidth from 10Mbps 
            to 10Gbps 
 

Despite the disruption caused by the pandemic, these campaigns have been well-received and continue to generate promising leads. This is particularly the case in Microsoft working collaboration and cyber security, driven by the change in enterprise IT created by the shift to remote working environments.

At this stage, while our primary focus remains optimising the sales function and making sure we do the basics right, we have already had some success in signing larger and longer-term deals, our pipeline of opportunities is growing, and notwithstanding external factors beyond our control, we expect to be in a position to accelerate this as we move into the next financial year.

Reducing customer churn

The initial steps we have taken to re-organise and re-energise our support teams and reduce response and ticket resolution times have yielded some early results, with positive feedback and a moderate reduction in churn rates. While we are still in the first months after the transaction and continue to navigate the effects of a global pandemic, we have made good progress to date in improving customer satisfaction and are optimistic about our ability to continue to improve retention levels.

Reducing costs

In the weeks immediately following Adept4's acquisition of CloudCoCo, we undertook a comprehensive spending review across both sites aimed at reducing and optimising costs. This exercise will not only result in a material cost reduction for the current financial year and significant annualised savings, but gave management the opportunity to introduce better and more efficient ways of working.

Cost optimisation remains a key objective. Management is partway through a further spending review and expects to be able to report on additional savings in more detail at the full year.

Returning to net cash generation

The business is making steady progress in returning to being cash generative. In the six months to 31 March 2020, the net decrease in cash was GBP37k which was a significant improvement on the six months to September 2019 where the net cash decrease was GBP530k. Returning the business to profitability at a Trading Group EBITDA level, and not having to pay interest on loan notes for much of the period following the restructure of the Group's debt facilities (see note 8), were key contributory factors.

Our people

We firmly believe our people are our most important asset in building CloudCoCo into a sustainable growth business. We also believe that high levels of morale lead to high levels of performance, so making the Company a great place to work has been an important priority.

In December, as part of the rebranding exercise, we asked colleagues to submit suggestions for how we can improve the working environment - the response was excellent and, while lockdown has slowed the implementation of some initiatives, we are incorporating them where we can.

Given the core of colleagues that came over from the legacy Adept4 business have been through a prolonged period of upheaval and uncertainty, their dedication, commitment, and openness to a different way of thinking has been exemplary.

Across the business, all of our colleagues have made a huge contribution to the Company since the acquisition and the energy and passion they have shown in coming together and producing results even in a few short months, has been remarkable.

On behalf of management I would like to take this opportunity to wholeheartedly thank our colleagues from across the business for the way they have applied themselves and risen to the challenges of the past months. Building a culture and getting everyone to buy into a set of values takes time, but we are proud of the way the team has responded and the progress we are making.

Partnership ecosystem

A key competitive advantage of CloudCoCo is its diverse ecosystem of partnerships with blue-chip technology vendors.

Microsoft collaborative working and Fortinet cyber security are two key growth areas in which we now have a powerful combination of in-house expertise and are continuing to widen and deepen our accreditations. We have seen significant commercial traction with both providers since the acquisition, and expect demand for their solutions to continue to be healthy through and as we begin to emerge from lockdown.

Similarly, our relationship with Nyotron continues to develop as evidenced by the Paranoid deals we have signed and the number of joint engagements and marketing ventures we continue to work on.

During the period, Zen Internet, a Which? and PC Pro multi-award-winning internet service provider, invited CloudCoCo to be one of ten companies on its partner advisory strategy board and voted it New Partner of the Year.

We are constantly looking at ways we can grow our relationships with our partners while enhancing our credentials and look forward to updating shareholders on further positive developments in our partnership ecosystem in the coming months.

Office move

In June, despite the obvious operational challenges posed by lockdown, we were able to complete the move to our new premises in Leeds. Finding the right location to fit our business plans while providing high quality facilities to support our teams has been high on the management team's agenda since the acquisition, and we are confident we have secured a space that will be an ideal platform from which to service our customers.

Management changes

The Company's management team has continued to strengthen this calendar year.

In March, Mark Halpin, who founded CloudCoCo Limited in 2018 and had been responsible for the Group's business development activities post-acquisition, replaced Andy Mills as CEO with Andy remaining on the board as a non-executive director.

In January, the Group appointed Michael Lacey as CFO replacing Jill Collighan who had previously fulfilled the role on a part-time basis. Jill remains on the board as a non-executive director.

COVID-19 response

Our priority from the outset has been the health and safety of our colleagues, partners, and customers. We transitioned to home working earlier than most businesses in the UK and we have seen minimal impact, with customer support, engineers and sales and marketing teams continuing to function.

The Company has taken a number of precautionary actions to ensure the business remains on a sound long-term financial footing including temporary voluntary pay reductions at all levels except those in the lowest earning bracket and the furloughing of some colleagues. These measures are being kept under review.

Business planning has been made more challenging by the current situation but by growing recurring revenue and margin and by taking steps to reduce overheads, we believe we are well-positioned to withstand the current situation.

Cash flow and debt remain in line with management's expectations and to date have not been materially affected by the pandemic. We have a separate working capital facility of which GBP0.4m remains unused.

Current trading and outlook

Initially, at the outbreak of the pandemic, we saw an uptick in trading as businesses and public sector organisations turned to us for additional support and hardware as they transitioned towards remote working. In the months since, while trading has remained generally resilient and we are tracking against budget to the end of June, we are experiencing some industry-wide headwinds as organisations delay and defer IT and communications-related decisions.

The impact of a prolonged COVID-19 lockdown on our customers is difficult to forecast, and in turn it is hard for us to be precise about our sales expectations for the rest of the year. However, while it is still only a short while since the acquisition completed - much of which has been spent in lockdown - we are cautiously optimistic and have made an encouraging amount of progress in steadying the ship and laying the foundations for future growth. We will remain focused on our strategic objectives in the second half.

We expect demand for our products and services to evolve as organisations seek to adapt to the 'new normal'. IT and communications infrastructure is increasingly extending beyond physical premises and with that comes fresh challenges, particularly around cyber security and collaborative working practices. We believe that through our expert skillset and deep partner relationships with industry-leading providers, we are well-positioned to help organisations meet these challenges.

While we should not lose sight of the fact we are still in the early stages of our turnaround story and recognise we are operating against a backdrop of unprecedented uncertainty, we have a talented team in place and are already seeing benefits from the hard work done thus far which gives us confidence that our strategy is the right one.

Note to shareholders

Since the acquisition, the new management team has been focused on the operations of the business but recognises this has come at the expense of clear and regular communications with shareholders. We are grateful to our investors for their continued support, value their feedback and have appointed external advisors to help us address this.

CONSOLIDATED INCOME STATEMENT

for the six-month period ended 31 March 2020

 
                                             6 months           6 months       6 months         Year to 
                                          to 31 March    to 30 September    to 31 March    30 September 
                                                 2020               2019           2019            2019 
                                  Note        GBP'000            GBP'000        GBP'000         GBP'000 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 Continuing operations 
 Revenue                           3            4,430              3,076          4,181           7,257 
 Cost of sales                                (2,513)            (1,490)        (2,040)         (3,530) 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 Gross profit                      3            1,917              1,586          2,141           3,727 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 
 Administrative expenses                      (2,083)            (2,065)        (2,318)         (4,383) 
 Amortisation of intangible 
  assets                           7            (799)              (453)          (454)           (907) 
 Depreciation                                    (28)               (42)           (58)           (100) 
 Separately identifiable 
  costs                            4            (381)            (3,112)          (143)         (3,255) 
 Share-based income/(payments)                     26                 10           (81)            (71) 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 Operating loss                               (1,348)            (4,076)          (913)         (4,989) 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 
 Interest receivable                                1                  1              2               3 
 Interest payable                               (227)              (299)          (303)           (602) 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 
 Net finance expense                            (226)              (298)          (301)           (599) 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 
 Loss before taxation                         (1,574)            (4,374)        (1,214)         (5,588) 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 
 Taxation                           5             150                354             84             438 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 Loss and total comprehensive 
  loss for the period attributable 
  to owners of the parent                     (1,424)            (4,020)        (1,130)         (5,150) 
--------------------------------------  -------------  -----------------  -------------  -------------- 
 
 Loss per share 
 Basic and fully diluted           6          (0.31)p            (1.77)p        (0.50)p         (2.27)p 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 
 Non-statutory measure: 
  Trading Group EBITDA(1) 
 Operating loss                               (1,348)            (4,076)          (913)         (4,989) 
 Plc costs                                        234                229            192             421 
 Amortisation of intangible 
  assets                           7              799                453            454             907 
 Depreciation                                      28                 42             58             100 
 Separately identifiable 
  costs                            4              381              3,112            143           3,255 
 Share-based (income)/payments                   (26)               (10)             81              71 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 Trading Group EBITDA(1)                           68              (250)             15           (235) 
-------------------------------  -----  -------------  -----------------  -------------  -------------- 
 

(1) earnings before net finance costs, tax, depreciation, amortisation, plc costs, separately identifiable items and share-based

income and payments

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 March 2020

 
                                                                        At 30 
                                              At 31   At 31 March   September 
                                              March 
                                               2020          2019        2019 
                                    Note    GBP'000       GBP'000     GBP'000 
---------------------------------  -----  ---------  ------------  ---------- 
 Non-current assets 
 Intangible assets                     7     11,540         7,849       4,394 
 Property, plant and equipment                   52           103          62 
 
 Total non-current assets                    11,592         7,952       4,456 
---------------------------------  -----  ---------  ------------  ---------- 
 
 Current assets 
 Inventories                                     52            86          32 
 Trade and other receivables                  2,454         2,443       1,489 
 Cash and cash equivalents                      274           841         311 
---------------------------------  -----             ------------  ---------- 
 
 Total current assets                         2,780         3,370       1,832 
---------------------------------  -----  ---------  ------------  ---------- 
 
 Total assets                                14,372        11,322       6,288 
---------------------------------  -----  ---------  ------------  ---------- 
 
 Liabilities 
 Short-term borrowings                 8       (95)          (32)        (32) 
 Trade and other payables                   (1,541)       (1,421)       (876) 
 Other taxes and social security 
  costs                                       (388)         (373)       (302) 
 Accruals and deferred income               (1,372)       (1,208)     (1,093) 
---------------------------------  -----  ---------  ------------  ---------- 
 
 Total current liabilities                  (3,396)       (3,034)     (2,303) 
---------------------------------  -----  ---------  ------------  ---------- 
 
 Non-current liabilities 
 Long-term borrowings                  8    (3,925)       (4,205)     (4,286) 
 Deferred tax liability                9    (1,357)       (1,164)       (810) 
---------------------------------  -----  ---------  ------------  ---------- 
                                            (5,282)       (5,369)     (5,096) 
---------------------------------  -----  ---------  ------------  ---------- 
 Total liabilities                          (8,678)       (8,403)     (7,399) 
---------------------------------  -----  ---------  ------------  ---------- 
 
 Net assets                                   5,694         2,919     (1,111) 
---------------------------------  -----  ---------  ------------  ---------- 
 
 Equity 
 Share capital                                4,952         2,271       2,271 
 Share premium account                       16,355        11,337      11,337 
 Capital redemption reserve                   6,489         6,489       6,489 
 Merger reserve                               1,997         1,997       1,997 
 Other reserve                                2,008         1,730       1,720 
 Retained earnings                         (26,107)      (20,905)    (24,925) 
---------------------------------  -----  ---------  ------------  ---------- 
 
 Total equity                                 5,694         2,919     (1,111) 
---------------------------------  -----  ---------  ------------  ---------- 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six-month period ended 31 March 2020

 
                                                   Capital                                         Total 
                            Share      Share    redemption     Merger      Other    Retained     GBP'000 
                          capital    premium       reserve    reserve    reserve    earnings 
                          GBP'000    GBP'000       GBP'000    GBP'000    GBP'000     GBP'000 
----------------------  ---------  ---------  ------------  ---------  ---------  ----------  ---------- 
 
 At 1 October 
  2018                      2,271     11,337         6,489      1,997      1,649    (19,775)       3,968 
----------------------  ---------  ---------  ------------  ---------  ---------  ----------  ---------- 
 Loss and total 
  comprehensive 
  loss for the period           -          -             -          -          -     (1,130)     (1,130) 
----------------------  ---------  ---------  ------------  ---------  ---------  ----------  ---------- 
 
  Transactions 
  with owners 
 Share-based payments           -          -             -          -         81           -          81 
 
  Total transactions 
  with owners                   -          -             -          -         81           -          81 
----------------------  ---------  ---------  ------------  ---------  ---------  ----------  ---------- 
 
  Total movements               -          -             -          -         81     (1,130)     (1,048) 
----------------------  ---------  ---------  ------------  ---------  ---------  ----------  ---------- 
 
 Equity at 31 March 
  2019                      2,271     11,337         6,489      1,997      1,730    (20,905)       2,919 
----------------------  ---------  ---------  ------------  ---------  ---------  ----------  ---------- 
 
 
 
                                                Capital 
                         Share      Share    redemption     Merger      Other    Retained 
                       capital    premium       reserve    reserve    reserve    earnings      Total 
                       GBP'000    GBP'000       GBP'000    GBP'000    GBP'000     GBP'000    GBP'000 
-------------------  ---------  ---------  ------------  ---------  ---------  ----------  --------- 
 At 1 April 2019         2,271     11,337         6,489      1,997      1,730    (20,905)      2,919 
 Loss and total 
  comprehensive 
  loss for the 
  period                     -          -             -          -          -     (4,020)    (4,020) 
-------------------  ---------  ---------  ------------  ---------  ---------  ----------  --------- 
 Transactions with 
  owners 
 Share-based 
  payments                   -          -             -          -       (10)           -       (10) 
 Total transactions 
  with owners                -          -             -          -       (10)           -       (10) 
-------------------  ---------  ---------  ------------  ---------  ---------  ----------  --------- 
 Total movements             -          -             -          -       (10)     (4,020)    (4,030) 
-------------------  ---------  ---------  ------------  ---------  ---------  ----------  --------- 
 Equity at 30 
  September 
  2019                   2,271     11,337         6,489      1,997      1,720    (24,925)    (1,111) 
-------------------  ---------  ---------  ------------  ---------  ---------  ----------  --------- 
 
                                                Capital 
                         Share      Share    redemption     Merger      Other    Retained 
                       capital    premium       reserve    reserve    Reserve    earnings        Total 
                       GBP'000    GBP'000       GBP'000    GBP'000    GBP'000     GBP'000      GBP'000 
 ------------------  ---------  ---------  ------------  ---------  ---------  ----------  ----------- 
  At 1 October 2019      2,271     11,337         6,489      1,997      1,720    (24,925)      (1,111) 
  Loss and total 
   comprehensive 
   loss for the 
   period                    -          -             -          -          -     (1,424)      (1,424) 
 ------------------  ---------  ---------  ------------  ---------  ---------  ----------  ----------- 
  Transactions with 
   owners 
  Issue of 
   50,000,000 
   shares to BGF 
   at 0.35p per 
   share 
   and exceptional 
   gain on 
   write-off 
   of BGF Loan 
   Notes 
   at fair value.          500          -             -          -        556           -        1,056 
  Issue of 
   218,160,586 
   shares to 
   CloudCoCo 
   vendors at 3.3p 
   per share             2,181      5,018             -          -          -           -        7,199 
  Cancellation of 
   11,353,255 share 
   warrants held 
   by MXC Guernsey 
   on acquisition 
   of CloudCoCo Ltd          -          -             -          -      (242)         242            - 
  Share-based 
   income                    -          -             -          -       (26)           -         (26) 
  Total 
   transactions 
   with owners           2,681      5,018             -          -      (268)         242        8,229 
 ------------------  ---------  ---------  ------------  ---------  ---------  ----------  ----------- 
  Total movements        2,681      5,018             -          -      (268)     (1,182)        6,805 
 ------------------  ---------  ---------  ------------  ---------  ---------  ----------  ----------- 
 
  Equity at 31 
   March 
   2020                  4,952     16,355         6,489      1,997      2,008    (26,107)        5,694 
 ------------------  ---------  ---------  ------------  ---------  ---------  ----------  ----------- 
 
 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six-month period ended 31 March 2020

 
                                          6 months           6 months   6 months         Year to 
                                             to 31    to 30 September      to 31    30 September 
                                             March               2019      March            2019 
                                              2020                          2019 
                                           GBP'000            GBP'000    GBP'000         GBP'000 
---------------------------------------  ---------  -----------------  ---------  -------------- 
 Cash flows from operating activities 
 Loss before taxation                      (1,574)            (4,374)    (1,214)         (5,588) 
 Adjustments for: 
 Depreciation                                   28                 42         58             100 
 Amortisation                                  799                453        454             907 
 Share-based (income)/payments                (26)               (10)         81              71 
 Net finance expense                           226                298        301             599 
 Costs relating to acquisition                 346                  -          -               - 
  of CloudCoCo Limited 
 Settlement of Warranty Claim                    -                600          -             600 
 Impairment of goodwill                          -              3,021          -           3,021 
 (Increase)/decrease in trade 
  and other receivables                      (567)                354        457             811 
 (Increase)/decrease in inventories           (20)                 54       (60)             (6) 
 Increase/(decrease) in trade 
  payables, accruals and deferred 
  income                                       756              (711)      (334)         (1,045) 
---------------------------------------  ---------  -----------------  ---------  -------------- 
 Net cash used in operating activities        (32)              (273)      (257)           (530) 
---------------------------------------  ---------  -----------------  ---------  -------------- 
 Cash flows from investing activities 
 Purchase of property, plant 
  and equipment                               (15)                (1)       (15)            (16) 
 Costs relating to acquisition               (346)                  -          -               - 
  of CloudCoCo Limited 
 Acquisition of CloudCoCo Limited,             157                  -          -               - 
  net of cash acquired 
 Purchase of Intangible assets                   -               (40)          -            (40) 
 Interest received                               1                  1          2               3 
---------------------------------------  ---------  -----------------  ---------  -------------- 
 Net cash used in investing activities       (203)               (40)       (13)            (53) 
---------------------------------------  ---------  -----------------  ---------  -------------- 
 Cash flows from financing activities 
 Issue of shares under BGF share               175                  -          -               - 
  option scheme 
 Receipt of loan funds from MXC                100                  -          -               - 
  Capital 
 Payment of finance lease liabilities         (49)               (18)       (12)            (30) 
 Interest paid                                (28)              (199)      (204)           (403) 
 Net cash used in financing activities         198              (217)      (216)           (433) 
---------------------------------------  ---------  -----------------  ---------  -------------- 
 Cash flows from discontinued 
  operations 
 Settlement of dispute regarding 
  Pinnacle CDT Limited                           -                  -      (100)           (100) 
---------------------------------------  ---------  -----------------  ---------  -------------- 
 Net cash used in discontinued 
  operations                                     -                  -      (100)           (100) 
---------------------------------------  ---------  -----------------  ---------  -------------- 
 Net decrease in cash                         (37)              (530)      (586)         (1,116) 
 Cash at bank and in hand at 
  beginning of period                          311                841      1,427           1,427 
---------------------------------------  ---------  -----------------  ---------  -------------- 
 Cash at bank and in hand at 
  end of period                                274                311        841             311 
---------------------------------------  ---------  -----------------  ---------  -------------- 
 Comprising: 
 Cash at bank and in hand                      274                311        841             311 
---------------------------------------  ---------  -----------------  ---------  -------------- 
 

NOTES TO THE FINANCIAL INFORMATION

for the six-month period ended 31 March 2020

   1.      General Information 

CloudCoCo Group plc is a company incorporated in the United Kingdom under the Companies Act 2006. The principal activity of the group is the provision of IT as a Service ("ITaaS") to small and medium sized businesses in the United Kingdom. The interim financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which each of the Group's subsidiaries operates.

The address of its registered office is 5 Fleet Place, London, EC4M 7RD and its principal places of business are Leeds and Warrington. The company is quoted on AIM, the market of that name operated by the London Stock Exchange, under ticker symbol CLCO.L

These interim financial statements contain inside information.

   2.      Basis of preparation 

The annual financial statements of the Group are prepared in accordance with applicable International Financial Reporting Standards (IFRSs) as adopted by the EU and in accordance with the Companies Act 2006. The interim financial information in this report has been prepared using accounting standards consistent with IFRS as adopted by the European Union. IFRS is subject to amendment and interpretation by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee and there is an ongoing process of review and endorsement by the European Commission. The financial information has been prepared on the basis of IFRS that the Directors expect to be adopted by the European Union and applicable at 30 September 2020.

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ("the Act"). The statutory accounts for the year ended 30 September 2019 have been filed with the Registrar of Companies. The report of the auditors on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act. The financial information for the six months ended 31 March 2020 and 31 March 2019 is unaudited.

The accounting standards applied by the Group in these interim financial statements are the same as those applied by the Group in the consolidated financial statements for the year ended 30 September 2019 with the exception of IFRS 16 Leases (effective for accounting periods commencing on or after 1 January 2019).

Using the modified retrospective method, we assessed the impact of IFRS 16 and confirm that no material changes were required to the Group's financial results.

Under IFRS 16 there is a standard accounting model for lessees. As lessees we are obliged to recognise assets and liabilities for all leases over twelve months unless the underlying asset has a low value. Under IFRS 16 we recognise an asset reflecting our right to use the underlying leased object, in addition to the lease liability, reflecting our obligation to make the lease payments. The main impact of IFRS 16 is around property leases, of which the Group currently has two.

Business planning has been made more challenging by the current Covid-19 situation but by growing recurring revenue and margin together with taking steps to reduce overheads, we believe we are well-positioned to withstand the current situation. After reviewing budgets, forecasts and cash projections for the next twelve months and beyond, the Directors have a reasonable expectation that the Group has adequate resources to continue operations for the foreseeable future and for this reason they have adopted a going concern basis in preparing the interim financial statements.

The interim financial statements were approved by the Board of Directors on 29 June 2020.

   3.      Segment Reporting 

The Chief Operating Decision Maker ("CODM") has been identified as the executive directors of the Company and its subsidiaries, who review the Group's internal reporting in order to assess performance and to allocate resources.

The CODM assesses profit performance principally through adjusted profit measures consistent with those disclosed in the Annual Report and Accounts. The Board believes that the Group comprises a single reporting segment, being the provision of IT managed services to customers. Whilst the CODM reviews the revenue streams and related gross profits of three categories separately (Recurring Services, Product and Professional Services), the operating costs and operating asset base used to derive these revenue streams are the same for all three categories and are presented as such in the Group's internal reporting. Accordingly, the segmental analysis below is therefore shown at a revenue and gross profit level in line with the CODM's internal assessment based on the following reportable operating segments:

-- Recurring Services This segment comprises the provision of continuing IT services which have

an ongoing billing and support element.

-- Product This segment comprises the resale of solutions (hardware and software)

from leading technology vendors.

-- Professional Services This segment comprises the provision of highly skilled resource to consult,

design, install, configure and integrate IT technologies.

All revenues are derived from customers within the UK. Inter-segment transactions are accounted for using an arm's length commercial basis.

 
 3.1 Analysis of           6 months       6 months   6 months       Y ear to 
  revenue                        to             to         to 
                           31 March   30 September   31 March   30 September 
                               2020           2019       2019           2019 
                            GBP'000        GBP'000    GBP'000        GBP'000 
-----------------------   ---------  -------------  ---------  ------------- 
 By operating segment 
 Recurring services           2,785          2,131      3,022          5,153 
 Product                      1,208            612        793          1,405 
 Professional services          437            333        366            699 
------------------------  ---------  -------------  ---------  ------------- 
 Total revenue                4,430          3,076      4,181          7,257 
------------------------  ---------  -------------  ---------  ------------- 
 
 3.2 Analysis of           6 months       6 months   6 months       Y ear to 
  gross profit                   to             to         to 
                           31 March   30 September   31 March   30 September 
                               2020           2020       2020           2019 
                            GBP'000        GBP'000    GBP'000        GBP'000 
-----------------------   ---------  -------------  ---------  ------------- 
 By operating segment 
 Recurring services           1,343          1,229      1,667          2,896 
 Product                        259            111        167            278 
 Professional services          315            246        307            553 
                          --------- 
 Total gross profit           1,917          1,586      2,141          3,727 
------------------------  ---------  -------------  ---------  ------------- 
 
 
   4.      Separately identifiable costs 

During the period, the Group incurred the following separately identifiable costs which are material by their size or incidence:

 
 
                                 6 months        6 months    6 months         Year to 
                                       to              to          to    30 September 
                                 31 March    30 September    31 March            2019 
                                     2020            2019        2019         GBP'000 
                                  GBP'000         GBP'000     GBP'000 
-----------------------------  ----------  --------------  ----------  -------------- 
 
 Costs in relation to M&A 
  activities                        (346)               -           -               - 
 Impairment of goodwill 
  and intangible assets                 -         (3,021)           -         (3,021) 
 Foreign exchange rate 
  variances                             -             (8)           -             (8) 
 Integration and restructure 
  costs                              (35)            (83)       (143)           (226) 
-----------------------------  ----------  --------------  ----------  -------------- 
 Separately identifiable 
  costs                             (381)         (3,112)       (143)         (3,255) 
-----------------------------  ----------  --------------  ----------  -------------- 
 
   5.      Taxation 
 
                                6 months to       6 months   6 months       Y ear to 
                                                        to         to 
                                   31 March   30 September   31 March   30 September 
                                       2020           2019       2019           2019 
                                    GBP'000        GBP'000    GBP'000        GBP'000 
-----------------------------  ------------  -------------  ---------  ------------- 
 
 Current tax 
 UK corporation tax                       -              -          -              - 
  for the period on 
  continuing operations 
 
 Deferred tax credit 
 Deferred tax credit 
  on intangible assets 
  from continuing operations            150            354         84            438 
 
 Total taxation credit 
  for the period                        150            354         84            438 
-----------------------------  ------------  -------------  ---------  ------------- 
 
   6.       Loss per share 
 
                                6 months       6 months      6 months       Y ear to 
                                      to             to            to 
   6. Loss per share 
                                31 March   30 September      31 March   30 September 
                                    2020           2019          2019           2019 
                                 p/share        p/share       p/share        p/share 
--------------------------  ------------  -------------  ------------  ------------- 
 Basic and fully diluted 
  - continuing operations         (0.31)         (1.77)        (0.50)         (2.27) 
--------------------------  ------------  -------------  ------------  ------------- 
                                  GBP000         GBP000        GBP000         GBP000 
--------------------------  ------------  -------------  ------------  ------------- 
 Loss on continuing 
  operations                     (1,424)        (4,020)       (1,130)        (5,150) 
--------------------------  ------------  -------------  ------------  ------------- 
 Weighted average number 
  of shares in issue: 
 Basic and fully diluted     461,720,917    227,065,100   227,065,100    227,065,100 
--------------------------  ------------  -------------  ------------  ------------- 
 

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 share incentives would have the effect of reducing the loss per ordinary share and therefore would be anti-dilutive under the terms of IAS 33.

 
 7. Intangible assets                       IT, billing 
                                                    and 
                                                website             Customer 
                               Goodwill         systems     Brand      lists     Total 
                                GBP'000         GBP'000   GBP'000    GBP'000   GBP'000 
-----------------------  --------------  --------------  --------  ---------  -------- 
 Cost 
 At 1 October 2018                4,447             142     1,157      7,580    13,326 
 Additions                            -              21         -          -        21 
 At 31 March 2019                 4,447             163     1,157      7,580    13,347 
 
 Additions                            -              19         -          -        19 
-----------------------  --------------  --------------  --------  ---------  -------- 
 At 30 September 2019             4,447             182     1,157      7,580    13,366 
 
 Additions                        3,845               -       700      3,400     7,945 
 At 31 March 2020                 8,292             182     1,857     10,980    21,311 
-----------------------  --------------  --------------  --------  ---------  -------- 
 
 
 Amortisation 
 At 1 October 2018              (2,844)            (27)     (265)    (1,908)   (5,044) 
 Charge for the period                -            (15)      (57)      (382)     (454) 
 At 31 March 2019               (2,844)            (42)     (322)    (2,290)   (5,498) 
 
 Impairment charge              (1,603)               -     (225)    (1,193)   (3,021) 
 Charge for the period                -             (5)      (58)      (390)     (453) 
 At 30 September 2019           (4,447)            (47)     (605)    (3,873)   (8,972) 
 
 Charge for the period            (249)             (9)      (81)      (460)     (799) 
 At 31 March 2020               (4,696)            (56)     (686)    (4,333)   (9,771) 
-----------------------  --------------  --------------  --------  ---------  -------- 
 
 Net Book Value 
 At 31 March 2019                 1,603             121       835      5,290     7,849 
 At 30 September 2019                 -             135       552      3,707     4,394 
 At 31 March 2020                 3,596             126     1,171      6,647    11,540 
-----------------------  --------------  --------------  --------  ---------  -------- 
 

7.1 Acquisition of CloudCoCo Limited

On 21 October 2019, the Group acquired the entire issued share capital of CloudCoCo Limited for a total consideration of GBP7.2 million at fair value in accordance with IFRS 3. The consideration was satisfied in full by the issue of 218,160,586 new Ordinary Shares at 3.3p per share (being the mid-market price on the date of the acquisition). The Group has assessed the provisional fair value of the acquisition of CloudCoCo Limited as follows:

 
                                                        Provisional 
                                              Book       Fair Value         Provisional 
                                              Cost       Adjustment          Fair Value 
                                           GBP'000          GBP'000             GBP'000 
---------------------------------------  ---------  ---------------  ------------------ 
 Non-current assets 
 Intangible assets                               -            4,100             4,100 
 Property, plant and equipment                   3                -                 3 
 Total non-current assets                        3            4,100             4,100 
---------------------------------------  ---------  ---------------      ------------ 
 Current assets 
 Trade and other receivables                   383                -               383 
 Cash at bank                                  157                -               157 
---------------------------------------  ---------  ---------------      ------------ 
 Total current assets                          540                -               540 
---------------------------------------  ---------  ---------------      ------------ 
 Total assets                                  543            4,100             4,643 
---------------------------------------  ---------  ---------------      ------------ 
 
 Current liabilities 
 Short-term borrowings                        (63)                -              (63) 
 Trade and other payables                    (159)                -             (158) 
 Other taxes and social security costs        (24)                -              (24) 
 Deferred Income and accruals                (205)                -             (205) 
---------------------------------------  ---------  ---------------      ------------ 
 Total current liabilities                   (451)                -             (451) 
---------------------------------------  ---------  ---------------      ------------ 
 Total non-current liabilities 
 Long term borrowings                        (141)                -             (141) 
 Deferred Tax Liability                          -            (697)             (961) 
---------------------------------------  ---------  ---------------      ------------ 
 Total liabilities                           (592)            (697)           (1,553) 
---------------------------------------  ---------  ---------------      ------------ 
 Net (Liabilities) / Assets                   (49)            3,403             3,354 
 Consideration in cash                                                              - 
 Consideration in shares                                                        7,199 
---------------------------------------  ---------  ---------------      ------------ 
 Fair value of cost of acquisition                                              7,199 
---------------------------------------  ---------  ---------------      ------------ 
 Goodwill                                                                       3,845 
---------------------------------------  ---------  ---------------      ------------ 
 
 
   8.      Borrowings 
 
                                                  At   At 31 March              At 
                                            31 March          2019    30 September 
                                                2020       GBP'000            2019 
                                             GBP'000                       GBP'000 
 
   Short-term borrowings 
 Finance lease liability - short term 
  element                                         95            32              32 
 Total short-term borrowings                      95            32              32 
----------------------------------------  ----------  ------------  -------------- 
 
  Long-term borrowings 
 Finance lease liability - long term 
  element                                        137            34              16 
 BGF loan notes repayable to BGF                   -         5,000           5,000 
 MXCG loan notes repayable 2024                3,500             -               - 
 Interest accrued on MXCG loan notes             188             -               - 
  at 12% per annum 
 MXCG 24 month Working capital facility          100             -               - 
  at 12% per annum 
----------------------------------------  ----------  ------------  -------------- 
 Warrant adjustment relating to BGF 
  loan notes                                       -         (829)           (730) 
----------------------------------------  ----------  ------------  -------------- 
 Total long-term borrowings                    3,925         4,205           4,286 
----------------------------------------  ----------  ------------  -------------- 
 

On 21 October 2019, pursuant to the debt refinancing agreement entered into as part of the acquisition of CloudCoCo Limited, GBP1.5 million of the BGF loan notes were cancelled, thereby reducing the liability to the Group. The remaining GBP3.5 million of loan notes were purchased by MXC Guernsey Limited (MXCG) and were amended to a term of five years, with a coupon of 12% per annum, which is to be rolled up, compounded annually and payable at the end of the term.

In addition, MXCG agreed to provide an additional unsecured working capital facility to the Group of up to GBP0.5 million, with a term of 24 months and interest charged at a rate of 12% per annum on amounts drawn down, payable monthly.

   9.      Deferred tax 
 
                                              At          At   At 30 September 
                                        31 March    31 March              2019 
                                            2020        2019 
                                         GBP'000     GBP'000           GBP'000 
-----------------------------------   ----------  ----------  ---------------- 
 Provision brought forward                   810       1,248             1,248 
 Additions relating to acquisition           697           -                 - 
  of subsidiary 
 Credits to income statement - 
  on intangibles                           (150)        (84)             (438) 
 Provision carried forward                 1,357       1,164               810 
------------------------------------  ----------  ----------  ---------------- 
 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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