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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Essensys Plc | LSE:ESYS | London | Ordinary Share | GB00BJL1ZF49 | ORD 0.25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 18.25 | 18.00 | 18.50 | 18.25 | 18.25 | 18.25 | 13,977 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Cmp Facilities Mgmt Service | 25.25M | -15.71M | -0.2429 | -0.75 | 11.8M |
From Apr 2022 to Apr 2024
TIDMESYS
RNS Number : 1816D
essensys PLC
18 October 2022
18 October 2022
essensys plc
("essensys" or the "Group")
FULL YEAR RESULTS
Performance in line with expectations
Momentum for long-term growth plan
Strong pipeline for FY23 and FY24
essensys plc (AIM:ESYS), the leading global provider of flexible workspace technology, announces its unaudited results for the twelve months ended 31 July 2022 ("FY22"). All information relates to this period, unless otherwise specified.
Good strategic progress
-- Improving quality of earnings
o Strategy optimised for capital efficient growth and cash conservation
o Focus on high value customers that deliver significant long-term expansion opportunities
o Improving customer mix reflects increased quantity of strategic accounts and continued reduction of low-value, single site customers
o Key renewals of multi-year contracts for top customers with additional multi-year renewals in final stages for other customers
-- Further international expansion
o APAC and Europe operations fully established with new customer sites now 'live'
o Adapting our investment approach to drive sustainable, profitable growth
o High quality sales pipeline across all regions
-- Investment in people and product
o Global leadership team in place to drive growth plan
o New 'capital light' model developed for entry into new geographies
o Investment in our platform and product roadmap as part of long-term growth and margin strategy
Financial performance in line with market expectations
-- Annual recurring revenues up 11%, reflecting improvement in quality of earnings -- Group revenue - up 6% - and adjusted EBITDA in line with market expectations -- Strong growth in the US, our largest market opportunity, up 17%
-- UK revenues down 8%, reflecting churn of low value customers and previously reported one-off customer insolvency
-- Recurring revenues account for 86% of total (FY21: 87%)
Current trading and outlook
-- Largest customers re-accelerating expansion plans after a period of portfolio rebalancing, underpinning future revenue growth
-- Strong demand reflected in healthy pipeline of new business, helping to offset delays to sales cycles and capital deployment
-- Contracted new business from sites not yet live expected to deliver GBP2.3m ARR, as at 17 October 2022
-- Strong balance sheet, net cash of GBP24m and continue to be debt-free, supports long-term growth plan
-- Revised investment approach to result in achieving profitability at a lower revenue level within current cash resources
Financial summary:
Hot Features
Premium
GBPm unless otherwise stated 2022 2021 Change
Revenue 23.3 22.0 +6%
Recurring revenue([1]) 20.1 19.1 +5%
Run Rate Annual Recurring Revenue([1]) 21.9 19.8 +11%
Revenue at constant currency 22.8 22.0 +4%
Recurring revenue([1]) 19.7 19.1 +3%
Run Rate Annual Recurring Revenue([1]) 20.5 19.8 +4%
Statutory loss before tax (11.1) (2.9)
Adjusted EBITDA ([1]) (7.0) 1.3
Loss per share (pence) (16.8p) (6.2p)
Proposed Final Dividend per Nil Nil
share (pence)
Net Cash 24.1 36.9
Mark Furness, CEO of essensys, said:
" FY22 was a year of progress and resilience in challenging market conditions. Revenues increased by 6%, in line with expectations, with our US business continuing to perform strongly. Momentum with strategic customers remains and underpins a significant pipeline of opportunities. The quality of our customer base has helped us to manage near-term headwinds such as delays to sales cycles and capital deployment, some portfolio rebalancing among our larger flexible workspace operators and the expected churn at the tail-end of our customer base.
essensys has a clear strategy, proven model and strong platform to drive sustainable, profitable growth. The flexible workspace market has attractive, long-term dynamics. Hybrid working is here to stay and plays to our strengths. Whilst our long-term ambition is unchanged, we have moderated our growth targets and adapted our strategy and investment approach to focus on our return to profitability. Our momentum, allied to contracted new business and a healthy long-term pipeline, supports our confidence of further progress in FY23 and beyond ."
The information contained within this announcement is deemed to constitute inside information for the purposes of the UK Market Abuse Regulation.
For further information, please contact:
+44 (0)20 3102
essensys plc 5252
Mark Furness, Chief Executive Officer
Alan Pepper, Chief Operating Officer
Sarah Harvey, Chief Financial Officer
Singer Capital Markets (Nominated Adviser +44 (0)20 7496
and Broker) 3000
Peter Steel / Harry Gooden / George Tzimas
FTI Consulting
Jamie Ricketts / Eve Kirmatzis / Talia Shirion +44 (0)20 3727
/ Victoria Caton 1000
About essensys plc
essensys is the leading global provider of software and technology for flexible, digitally-enabled buildings, spaces and portfolios. As the intelligent digital backbone, essensys provides a powerful platform that simplifies the delivery and management of next generation, flexible commercial real estate.
The real estate industry is transforming - it must be flexible to changing market demands, to accommodate hybrid working styles, agile, move-in ready spaces and the delivery of on-demand digital services. The office sector is becoming an increasingly digital-first landscape - driven by end-user demand, delivering digitally enabled spaces is key to success. The essensys Platform has been designed and developed to help solve the complex operational challenges faced by landlords and flexible workspace operators as they grow and scale their operations. It helps our customers to deliver a simple, secure and scalable proposition, responding to changing occupier demands, providing seamless occupier experiences, and realising smart building and ESG ambitions.
Founded in 2006 and listed on the AIM market of the London Stock Exchange since 2019, essensys is active in the UK, Europe, North America and APAC.
Chairman's statement
Our 2022 financial year was, once again, set against a rapidly changing and unpredictable backdrop. I would like to start by recognising the efforts of our people. Our people are at the heart of our vision and our success is a testament to their hard work and resourcefulness.
essensys grew revenues by 6% in FY22, underlining the resilience of our business model. Covid-19 and lockdowns curbed the high revenue growth we are accustomed to, slowing sales cycles and our expansion plans; however, whilst revenue growth was lower than our original plans, we maintained planned EBITDA as our teams responded with energy and focus to this challenge. We end the year with good momentum with existing and new customers.
essensys has an excellent platform for growth. During the year the team has made good progress with its long-term growth plan. Notably, we have seen the launch of essensys in APAC and Europe, the development and launch of the essensys Platform to deliver significant new capabilities to our customers and continued investment in the product roadmap for future growth. essensys is built on strong foundations and a focus on strategic customers who will look to essensys to deliver flexible workspaces in the long term and who have the scale to deliver growth for our business. We have a strong balance sheet with GBP24m net cash at year end.
essensys has added to its executive leadership team during the year with the appointment of Sarah Harvey as Chief Financial Officer. Sarah's appointment and Alan Pepper's move into the new stand-alone Chief Operating Officer role are necessary to support essensys' ambitions to scale up in the coming years. Sarah brings a wealth of relevant expertise and is well qualified to oversee the continued financial management of the Group.
essensys remains extremely well placed to take advantage of the increasing demand for flexible workspace. We continue to see opportunities to grow with flexible workspace operators and traditional landlords, as they build their presence in the flexible workspace industry. Notwithstanding the current uncertainty in the wider macroeconomic environment the Group remains confident of further progress in the year ahead and beyond.
Jon Lee
Non-Executive Chairman
17 October 2022
Strategic and operational review
A clear strategy to capture the flexible workspace opportunity
essensys has a clear strategy to capture the growth in the flexible workspace industry. The long-term market opportunity remains very exciting and now includes hybrid working, which is increasingly a feature of everyday working life.
Our model is to act as the intelligent digital backbone for commercial real estate. Since 2006 our software has automated and simplified technology operations for real estate and flexible workspaces. This, in turn, removes complexity and reduces cost. The essensys Platform allows landlords and flex workspace providers to solve the complex challenges they face and deliver seamless, digital-first in-building and cross-portfolio experiences.
Following our fundraising in FY21, our planned investment in international expansion, people and product gives us the platform to drive long-term, profitable growth. The expansion of our go-to-market activities was delayed in the first half of our financial year, with Covid-19 restrictions slowing sales cycles, the expansion of our sales teams and the wider return to the office. However, against a challenging backdrop, we made good progress with this strategy in FY22. It is a testament to the resilience of our business model, the quality of our customer base and our people that revenues increased by 6%, in line with market expectations. Momentum with existing strategic customers remains strong and underpins a significant pipeline of opportunities. This helped us manage extensions to sales cycles and capital deployment, some portfolio rebalancing among landlords and the expected churn at the tail-end of our customer base.
Exciting market opportunity
The flexible workspace industry benefits from attractive long-term structural growth drivers.
We continue to see a clear shift towards hybrid working and flexible workspaces. Among the largest corporates, two thirds say making hybrid work is in their top three strategic priorities(1) . Hybrid working is here to stay for commercial real estate and global working practices. In JLL's recent global survey of the commercial real estate industry, three in four landlords and operators plan to make all office spaces open and collaborative, with no dedicated desk spaces(2) . 73% see remote and hybrid working as critical to attracting and retaining talent(3) .
Nevertheless, most organisations still expect the office to remain at the heart of the work ecosystem and for this to include more 'flex'. This includes more traditional sectors, such as law and finance. Occupier demand will, in turn, drive greater demand for a range of flexible services and amenities. The most sought-after attribute in today's office environment is flexible open space(4) . While there are many reasons for this shift, an important factor for organisations is reducing cost.
The acceptance of hybrid working and the shift to flexible workspaces is, in turn, driving demand for technology on a practical, day-to-day level. Most real-estate organisations still depend on legacy technology which could undermine their ability to compete and win. Eight in ten respondents in a recent global commercial real estate survey do not have a fully modernised core system that could easily incorporate emerging technologies(5) .
Three in four landlords and operators say investing in quality office space is a higher priority than expanding total footprint(6) . Whilst we saw some evidence of this during the latter part of FY22 we are also seeing landlords establish new flex operations and existing operators resuming their expansion plans. A significant opportunity for essensys exists within our current strategic customers who are aiming to scale their flex offerings across their portfolio globally, such as Industrious, Hines, Carr Workplaces, JLL and Tishman Speyer, so this trend is a positive development.
The opportunities presented by our market are expected to benefit essensys in the medium to longer term, as a leading global provider of flexible workspace software and technology. We expect future underlying occupier demand to be enhanced by two more recently established areas. First, what we call 'enterprise flex space': dedicated move-in ready team space for a period of up to three years with limited or no customisation. Second, what we call 'agile flex space', consisting of plug and play spaces or networks of options for individuals and small teams.
Progressing our long-term growth plan
We have a well-established plan to Land, Expand and Grow to capture the market opportunity in the flexible workspace market and have evolved that plan this year to focus on sustainable growth, targeting those customers that are key to our long-term ambition whilst expanding and growing with our existing strategic customer base. This focus led to an increase in churn in the smaller, non-strategic customer base in FY22 in addition to the previously reported UK customer who went into administration during the year. Our target new customers are those that, in time, can deliver at least 20 sites, or $1m of ARR. This focus on high-value strategic customers has also resulted in improved unit pricing with monthly contracted recurring revenue on average 10% higher per site than those sites which churned in FY22.
Our Operate business represented 8% of our revenue in the year (FY21: 9%). Operate will continue to reduce as a proportion of total Group revenue over time as strategic customers move to the essensys Platform and the remaining long-tail of small customers migrate to non-essensys solutions.
We have continued our investment in people, product and international expansion, which is the basis for our growth plan.
Land - Expand - Grow
Our simple, proven strategy allows us to direct resources to the areas of our go-to-market efforts that provide the most compelling returns at that time. In periods of rapid market expansion, this allowed us to increase our investment considerably in the 'Land' phase; the acquisition of new customers, thus improving our customer mix and expanding our geographic footprint. This improvement and our adaptable model means that once we have acquired these customers we are able to refocus resources towards the large expansion opportunity that this provides - the 'Expand' phase. The result of this is increased sales efficiency (improved LTV to CAC ratio) and a less aggressive capital investment program aimed at new customer acquisition.
Land
We added 18 new customers in FY22, in addition to the 24 added in FY21. The majority of these new customers are landlords and real-estate companies, including large landlords in Sweden and the USA with whom we expect to expand our business in FY23 and beyond.
New customers won this year include a top 10 European real estate investment manager with significant scale in Europe, a significant Irish property company as well as an established North American multi-site flex workspace operator. Our well developed sales pipeline includes a well-known South East Asian conglomerate, a number of multi-site flex workspace operators and further significant real estate owners and operators in all our geographies.
We now have a full global leadership team in place to drive our growth plan. Our leadership team includes regional CEOs in all three geographical regions, a Group Chief People Officer and our new CFO, Sarah Harvey, who was appointed in May 2022. As part of this transition to support our scaling up, Alan Pepper moved from his role as CFO and COO to a fully dedicated COO role.
Expand
We continue to see strong demand from our key strategic customers; during the year we added 65 new sites with existing and new customers and currently have a healthy contracted pipeline of 52 sites representing GBP2.3m annual recurring revenue, the majority with our top 20 strategic customers.
Our existing customer base, particularly in the US, is indicating significant growth plans over the next few years. We are increasingly engaged at senior levels with large property organisations in assisting them with their technology requirements. These types of strategic customers continue to provide the Group with significant long term expansion opportunities. We are engaged with a number of very large potential new customers and whilst these have longer sales cycles the likely scale of business is significant. Strategic customers who engage us for multiple sites generate higher revenue per site and deliver stronger net margins due to the lower cost to serve that their operational maturity provides.
As we continue to focus on high-value strategic customers, churn of small low value legacy customers continued, primarily in the UK, which reduced our overall site count during the year. These customers have largely been single site operators that do not offer an expansion opportunity and have high service costs. Expansion with our existing UK customers included a renewal and new territory expansion into Ireland with a real estate owner dedicated to life sciences, with further expansion anticipated in FY23 and a renewal with a top five customer which gave us exclusivity for their entire portfolio.
The recent renewal of multi-year contracts with our top three customers demonstrates our longevity with our strategically important customers and underpins our future pipeline, both in the short-term and the long-term. These renewals and consolidations are expected to continue in FY23. Those renewals included customers rebalancing their portfolios following the Covid-19 pandemic to focus on quality locations as they look to their own future growth plans. We anticipate renewing multi-year contracts with a number of other strategic customers in FY23. Typically when we sign a new customer we are engaged to provide services to a small number of pilot locations, followed by the longer-term opportunity to roll out across a large portfolio.
As part of our international expansion plan, our APAC and European operations were fully established during FY22. APAC is fully operational with new customers and sites live, in delivery and under negotiation. Now that we have the international platform in place, we are adopting a 'capital light' model to reduce the investment required to support further expansion into new geographic territories from our increasingly global customers.
Grow
Our targeted investment in product includes, notably, the evolution of the essensys Platform and our smart access capability and associated products.
Our intention is for the essensys Platform to act as the intelligent digital backbone for commercial real estate. Moving our customers onto the essensys Platform presents a long-term opportunity for margin and revenue growth through greater automation and greater access to in-building services and amenities. We have migrated the first wave of our customers onto the new platform and continue to invest in product and software development to enhance its value to users. We have also expanded our global private network to provide additional capacity to support significant site and ARR growth.
The essensys Platform has been developed and built to serve as its own distribution vehicle for future value-add functionality and modules. This product-led growth (PLG) strategy is designed to reduce sales cycles for upsell, improve customer LTV (lifetime value) and drive gross margin performance.
Regional performance
Continued growth in North America
The US market continues to be a strong driver of Group growth. The US market represents a GBP1.7bn total addressable market, of which we believe approximately GBP377m is currently serviceable by essensys. In addition, the US acts as a gateway to global expansion, as US headquartered customers look to expand their flexible offering across their respective global portfolio.
Site numbers in the US grew by 5% and we saw a 23% increase in North America recurring revenue. We are starting to see growth in the US market accelerating with a number of customers setting out ambitious expansion plans for the rest of this calendar year and beyond. Evidence of the structural shift to a more flexible way of working continues to grow with an increasing number of landlords engaging with us on technology solutions to support their repurposing of traditional office environments. Those engagements involve a number of globally recognisable real estate operators which each individually provide the opportunity for significant long-term account growth.
Prospects include a California mixed use landlord with 22 locations, a West Coast landlord with 37 buildings and an APAC business and a pan US REIT with 29 identified flex locations. Expansion with our existing top 10 customers in North America continues to underpin our growth ambitions in the next year.
UK and Europe
The UK and European market represents a GBP936m total addressable market, of which we believe approximately GBP250m is currently serviceable by essensys.
The appointment of James Lowery as CEO of UK & Europe completed our senior regional leadership appointments and will allow the implementation of tailored growth strategies around the Group's international operations. James brings significant industry experience from his time at British Land where he led their flexible workspace operation and this knowledge will be instrumental in opening up opportunities for discussions with similar organisations across Europe.
Our total number of sites in the region was 17% lower, following the expected churn of lower value, non-strategic customers, some portfolio rebalancing by our larger customers and the previously reported unexpected insolvency of a long-standing flexible workspace operator customer. Going into FY23 we expect less volatility and reduced churn as the improvement in our customer mix continues.
In line with our experience in the US we are seeing signs of activity levels building in both the UK and mainland Europe. During the year we signed a strategic customer in Sweden resulting in two initial pilot locations; we now have a further four sites in active engagement. We also contracted with a large European real estate investment manager towards the end of the year which brings us significant future expansion opportunity. Further engagement with a number of large European property companies and managers continues and, whilst these have longer sales cycles, the opportunities with some of these customers is significantly greater than we might have originally anticipated. Our prospects include a 36 site Operate-only French customer moving onto the essensys Platform; a UK operator with more than 50 buildings; a Swedish private landlord with 35 CBD locations; and a German REIT with more than 500 buildings.
APAC
Asia represents a GBP663m total addressable market, of which we believe approximately GBP225m is currently serviceable by essensys. As part of our plan to expand in the APAC region, we have to date engaged with over 50% of our target customers and we are making good progress establishing our business in the region. We now have personnel in Hong Kong, Singapore and Australia, with go to market capability now fully established in all three locations. Business development activity and pipeline is increasing in all markets.
Australia, in particular, is expected to be a major opportunity for the Group. Existing customer pull from the US led to the establishment of our first new location in Sydney during the period and has resulted in a further sites live in Australia and additional pipeline there. We are also well engaged with a number of Australia's largest property companies and flexible workspace operators.
Prospects in the region include a Singapore regional landlord with a flex brand; a Singapore regional flex space operator with more than 40 locations; a large Australian landlord with an established flex strategy; and a Singapore based global landlord with an invested-in flex brand and a large number of existing flex locations.
Current trading and outlook
Momentum with strategic customers remains strong and underpins a significant pipeline of opportunities. This is helping us manage near-term headwinds such as delays in sales cycles and capital deployment, some portfolio rebalancing among landlords and churn at the tail-end of our customer base. We continue to take steps to extend our cash runway, including optimising our strategy and developing a capital light model for new territory entry, as we have done in Sweden.
essensys has a healthy pipeline of new business, with contracted new business expected to deliver GBP2.3m Annual Recurring Revenue (as at 17 October 2022) and we have a strong balance sheet that supports a clear strategy, proven model and strong platform to drive sustainable, profitable growth. The Group remains debt-free, with a cash balance of GBP24m at the end of FY22.
The flexible workspace market has attractive, long-term dynamics; hybrid working is here to stay and plays to our strengths. Our long-term growth plan has not changed. Our momentum, allied to contracted new business and a healthy long-term pipeline, supports our confidence of further progress in FY23 and beyond.
As we enter the next phase of our growth, and given continued economic uncertainty, we are adopting a more selective approach to investment both from a capital and new customer acquisition perspective. This approach will reduce cash burn to ensure we achieve profitability within our current cash resources. Whilst we continue to expect healthy revenue growth from our existing customers and new customer pipeline, total revenue for the new financial year is expected to be at a lower level than previously anticipated.
Mark Furness
Chief Executive Officer
17 October 2022
Notes
1. JLL, The Future of Work Survey 2022
2. JLL, The Future of Work Survey 2022
3. JLL, The Future of Work Survey 2022
4. EMEA Office Occupier Sentiment Survey, 2022
5. Deloitte, 2022 Commercial Real Estate Outlook
6. JLL, The Future of Work Survey 2022
7. EMEA Office Occupier Sentiment Survey, 2022
Chief Financial Officer's Report
Scope of financial results
The unaudited financial results included in this announcement cover the Group's consolidated activities for the 12 months ended 31 July 2022. The comparatives for the previous 12 months were for the Group's consolidated activities for the 12 months ended 31 July 2021.
Financial Key Performance Indicators
GBP'm unless otherwise stated 2022 2021 Change
Group Total Revenue 23.3 22.0 6%
North America 13.2 11.3 17%
UK & Europe 9.8 10.6 -8%
APAC 0.3 -
Recurring Revenue 20.1 19.1 5 %
North America 11.0 8.9 23 %
UK & Europe 9.0 10.2 -12 %
APAC 0.1 -
Recurring Revenue %age of Total 86% 87%
Run Rate Annual Recurring Revenue 21.9 19.8 11%
Non-recurring revenue 3.2 2.9 10 %
Gross Profit 14.1 14.2 -1 %
Gross Profit percentage 61% 65%
Recurring Revenue margin %age 64% 69%
Statutory loss before tax (11.1) (2.9)
Adjusted EBITDA (7.0) 1.3
Adjusted EBITDA margin (30)% 6.0%
Net Cash 24.1 36.9
See commentary following and in the strategic and operational review above together with the unaudited financial statements below for explanation of significant movements in the above Financial Key Performance Indicators.
Revenue
Group total revenue increased by 6% to GBP23.3m in the year. As outlined in the strategic and operational review, we saw growth in the US offset by a decline in the UK. In the US, Connect sites grew to 300 at the year-end (FY21: 286). The strengthening of the US Dollar compared to the Pound Sterling had a benefit to reported revenue in the year of GBP0.5m.
Recurring revenue comprises income invoiced for services that are repeatable and consumed and delivered monthly over the term of a customer contract. Run Rate Annual Recurring Revenue (Run Rate ARR) is an annualisation of the recurring revenue for the month identified (July 2022 and 2021, as appropriate), and is used an indication of the annual value of the recurring revenue for that month. Run Rate ARR is also used by management to monitor long-term revenue growth of the business.
Non-recurring revenue comprises activation fees charged to customers in respect of installations of hardware and services at locations, together with training and customer onboarding.
Recurring revenue increased 5% in the year driven by the reasons set out above. Run Rate ARR grew 11% to GBP21.9m (from GBP19.8m in 2021) driven primarily by our momentum with strategic customers looking to expand their flex capabilities. The net change in Group Connect/Platform sites was -3% to 458 at year end (2021: 474) as a result of large customer recontracts and churn in lower value single-site customers.
Gross margins
Overall gross margins decreased to 61% (2021: 65%) and recurring revenue margins decreased to 64% (2021: 69%) reflecting an increase in costs as the Group invested towards expanding its international operations and invests for future growth, particularly in the APAC region.
Administrative expenses
Excluding depreciation and amortisation charges, administrative expenses increased by GBP8m in the year, as we continued our strategic investment plan. This was driven primarily by increases in staff-related costs both from the full-year effect of increases in overall headcount implemented in FY21 but also by the impact of a 40% increase in average numbers of staff in FY22, a significant proportion of which was in development personnel. In addition, the Group spent an additional GBP 0.5 m on third party marketing activities in FY22.
Statutory loss for the year
The Group made a loss before tax for the year of GBP11.1m (2021: loss of GBP 2.9 m). The year-on-year change is primarily as a result of the investment in the Group to deliver the growth plans.
GBP'm 2022 2021
Turnover 23.3 22.0
Cost of sales (9.2) (7.8)
Gross profit 14.1 14.2
Administrative expenses (24.3) (16.5)
Share based payment expense (0.8) (0.6)
Operating loss (11.0) (2.8)
Net interest payable (0.1) (0.1)
Loss before taxation (11.1) (2.9)
======= =======
Adjusted EBITDA
Adjusted results are prepared to provide a more comparable indication of the Group's core business performance by removing the impact of certain items including exceptional items (material and non-recurring), and other, non-trading, items that are reported separately. Adjusted results exclude adjusting items as set out in the statement of consolidated loss and below, with further details given in Note 7 of the financial statements. In addition, the Group also measures and presents performance in relation to various other non-IFRS measures, such as recurring revenue, run-rate annual recurring revenue and revenue growth.
Adjusted results are not intended to replace statutory results. These have been presented to provide users with additional information and analysis of the Group's performance, consistent with how the Board monitors results.
Adjusted EBITDA (being EBITDA prior to exceptional costs, forex translation costs, impairment charges and share based payment expense) is calculated as follows:
GBP'm 2022 2021
Operating loss (11.0) (2.8)
Add back:
Depreciation & Amortisation 3.1 3.6
EBITDA (7.9) 0.8
Less: Forex translation adjustments - (0.1)
Add back: Share based payment
expense 0.8 0.6
Add back: Impairment charge 0.1 -
------- ------
Adjusted EBITDA (7.0) 1.3
======= ======
The share-based payment expense, impairment charge and forex translation adjustments are excluded from Adjusted EBITDA as they are not considered relevant for assessment of underlying profitability.
Taxation
The Group incurred a tax credit in the year of GBP286,000 (2021: tax charge GBP411,000). This was made up of non-cash deferred tax movements arising from timing differences on the taxation related to capitalised development costs.
Cash
Net cash at year end was GBP24.1m (2021: GBP36.9m) and the Group remains debt-free. The most significant cash outflow during the year was on the Group's personnel as part of the investment in product and go-to-market capability. The Group also made additional inventory purchases during the second half of the year in order to provide certainty of supply into FY23. The Group's current cash reserves provide sufficient capital for the foreseeable future and will enable it to fund the Group's geographic expansion, continued product and software development and additional working capital as the business continues to grow.
Capital Expenditure
During the year the Group continued to execute the planned expansion and upgrading of its digital infrastructure in the UK and Europe, North America and APAC in order to provide additional capacity, resilience and improved service to customers.
Capitalised Software Development Costs
The Group continues to invest in software development resulting in ongoing enhancements to its software platforms. During the year it expanded its new Platform which will, in time, replace its existing platforms, Connect and Operate. The Group continues to increase its onshore software development capacity following a strategic decision in FY20 to bring the majority of the Group's development work back to the UK. Where such work is expected to result in future revenue, costs incurred that meet the definition of software development in accordance with IAS38, Intangible Assets, are capitalised in the statement of financial position. During the year the Group capitalised GBP 4.1 m in respect of software development (2021: GBP2.5m).
In implementing its accelerated product development strategy, the Group anticipates capitalising software costs at a similar rate to FY22 in the next few years.
Dividend policy
It remains the Group's intention in the short to medium-term to invest in order to deliver capital growth for shareholders. The Board has not recommended a dividend in respect of the year ended 31 July 2022 and does not anticipate recommending a dividend within the next year but may do so in future years.
Sarah Harvey
Chief Financial Officer
17 October 2022
Unaudited Consolidated Statement of Comprehensive Loss
for the year ended 31 July
Notes 2022 2021
GBP000 GBP000
Turnover 6 23,298 21,982
Cost of sales (9,190) (7,750)
_________ _________
Gross profit 14,108 14,232
Administrative expenses (24,399) (16,515)
Other operating income - 42
Share based payment expense (741) (560)
_________ _________
Operating loss 7 (11,032) (2,801)
Interest receivable and similar income 10 94 -
Interest payable and similar charges 11 (147) (127)
_________ _________
Loss before taxation (11,085) (2,928)
Taxation 12 286 (411)
_________ _________
Loss for the year from continuing
operations (10,799) (3,339)
_________ _________
Other comprehensive loss
Items that may be reclassified to profit
or loss:
Currency translation differences 583 (200)
_________ _________
Other comprehensive loss for the year 583 (200)
_________ _________
Total comprehensive loss for the year (10,216) (3,539)
_________ _________
Basic and diluted loss per share 13 (16.8p) (6.2p)
Unaudited Consolidated Statement of Financial Position
as at 31 July
Notes 2022 2021
GBP000 GBP000
ASSETS
Non-current assets
Intangible assets 14 8,922 6,198
Property, plant and equipment 15 2,819 1,471
Right of use assets 16 2,482 2,160
_________ _________
14,223 9,829
Current assets
Inventories 18 2,546 184
Trade and other receivables 19 6,434 5,279
Cash at bank and in hand 24,122 36,903
_________ _________
33,102 42,366
_________ _________
TOTAL ASSETS 47,325 52,195
_________ _________
EQUITY AND LIABILITIES
EQUITY
Shareholders' equity
Called up share capital 20 161 161
Share premium 21 51,660 51,660
Share based payment reserve 2,811 2,045
Merger reserve 28 28
Retained earnings (19,185) (8,969)
_________ _________
TOTAL EQUITY 35,475 44,925
LIABILITIES
Non-current liabilities
Lease liabilities 23 1,659 992
Deferred tax 24 485 779
_________ _________
2,144 1,771
Current liabilities
Trade and other payables 22 7,422 4,229
Contract liabilities 6E 815 323
Lease liabilities 23 1,469 943
Current taxes - 4
_________ _________
9,706 5,499
_________ _________
TOTAL LIABILITIES 11,850 7,270
_________ _________
TOTAL EQUITY AND LIABILITIES 47,325 52,195
_________ _________
Unaudited Consolidated Statement of Changes in Equity
for the Year Ended 31 July 2022
Share
based
Share Share payment Merger Retained Total
capital premium Reserve Reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
1 August 2021 161 51,660 2,045 28 (8,969) 44,925
Comprehensive loss for
the year
Loss for the year - - - - (10,799) (10,799)
Currency translation differences - - 25 - 583 608
_______ _______ _______ _______ _______ _______
Total comprehensive loss
for the year - - 25 - (10,216) (10,191)
_______ _______ _______ _______ _______ _______
Transactions with shareholders
Share based payment charge - - 741 - - 741
_______ _______ _______ _______ _______ _______
31 July 2022 161 51,660 2,811 28 (19,185) 35,475
_______ _______ _______ _______ _______ _______
Consolidated Statement of Changes in Equity
For the Year Ended 31 July 2021
Share
based
Share Share payment Merger Retained Total
capital premium Reserve Reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
1 August 2020 132 19,881 1,490 28 (5,435) 16,096
Comprehensive loss for
the year
Loss for the year - - - - (3,339) (3,339)
Currency translation differences - - (5) - (195) (200)
_______ _______ _______ _______ _______ _______
Total comprehensive loss
for the year - - (5) - (3,534) (3,539)
_______ _______ _______ _______ _______ _______
Transactions with shareholders
New shares issued 29 33,150 - - - 33,179
Cost incurred in issuing
new shares - (1,371) - - - (1,371)
Share based payment charge - - 560 - - 560
_______ _______ _______ _______ _______ _______
31 July 2021 161 51,660 2,045 28 (8,969) 44,925
_______ _______ _______ _______ _______ _______
Unaudited Consolidated Statement of Cash Flows
for the Year Ended 31 July
Notes 2022 2021
GBP000 GBP000
Cash (used by)/generated from operations 31 A (6,789) 1,808
Corporation tax paid (11) (36)
Foreign exchange - 122
_________ _________
Net cash generated (used by)/from
operating activities (6,800) 1,894
_________ _________
Cash flows from investing activities
Purchases of intangible assets 14 (4,087) (2,493)
Purchases of property plant and equipment 15 (1,541) (786)
Interest received 94 -
_________ _________
Net cash used in investing activities (5,534) (3,279)
_________ _________
Cash flows from financing activities
Proceeds from the issuance of new
shares - 33,179
Costs of issuing new shares - (1,371)
Repayment of lease principal 23 (893) (1,863)
Interest paid on lease liabilities 23 (147) (127)
_________ _________
Net cash (used in)/generated from
financing activities (1,040) 29,818
_________ _________
Net increase in cash and cash equivalents (13,374) 28,433
Cash and cash equivalents at beginning
of year 36,903 8,496
Effects of foreign exchange rate changes 593 (26)
_________ _________
Cash and cash equivalents at end
of year 24,122 36,903
_________ _________
Cash and cash equivalents comprise:
Cash at bank and in hand 24,122 36,903
_________ _________
General information
1
essensys plc (the "Company") is a public limited company, incorporated in the United Kingdom under the Companies Act 2006 (registration number 11780413). The Company is domiciled in the United Kingdom and its registered address is Aldgate Tower 7(th) Floor, 2 Leman Street, London, E1 8FA. The Company's ordinary shares are traded on the Alternate Investment Market (AIM) of the London Stock Exchange.
The Group's principal activities are the provision of software and technology platforms that manage critical digital infrastructure and business processes, primarily of operators of flexible workspace within the real estate industry. These activities are carried out by the Group's wholly owned subsidiaries.
The Company's principal activity is to provide funding and management services to its subsidiaries.
Issue of unaudited financial statements
2
These unaudited financial statements have been approved for issue by the Board. The audit of these financial statements is not yet fully complete and, therefore they do not constitute the Group's full financial statements for FY22 which are in the process of being audited and will be approved by the Board and filed with the Registrar of Companies in the United Kingdom in the coming days. Accordingly, the financial information for FY22 is unaudited and does not constitute statutory accounts within the meaning of Section 434 of the United Kingdom Companies Act 2006.
Basis of Preparation
3
These financial statements have been prepared under the historical cost basis and are presented in Sterling and all values are rounded to the nearest thousand pounds (GBP000) except when otherwise indicated.
The Group's business activities, together with factors likely to affects its future development, performance and position are set out in the Strategic report above. The financial position of the Group is described in the Financial Review above.
Going concern
The Group's consolidated financial statements have been prepared on a going concern basis.
As at 31 July 2022 the Group had net assets of GBP35.5m (2021: GBP44.9m), including cash of GBP24.1m (2021: GBP36.9m) as set out in the Consolidated Statement of Financial Position, with no external debt. In the year ended 31 July 2022 the Group generated a loss before tax of GBP11.1m (2021: loss of GBP2.9m). The group used net cash before financing in the year of GBP12.3m (2021: 1.4m) after investment in software development of GBP4.1m.
During the year, Group revenue increased by 6.0% with recurring revenue increasing by 5.4% primarily as a result of a strengthening of the US dollar, which increased the reported revenue from its US subsidiary which is an increasing proportion of the Group's business. The Group generated an operating loss of GBP11.0m (2021: GBP2.8m) as it continued to expand its operations internationally. The Group has long term contracts with a number of customers and suppliers across different geographical areas and industries.
The Directors have prepared a detailed budget and forecast of the Group's expected performance over a period covering at least the next twelve months from the date of the approval of these financial statements. As well as modelling the realisation of the sales pipeline, these forecasts also cover a number of scenarios and sensitivities in order for the Board to satisfy itself that the Group remains within its current cash facilities.
Whilst the Directors are confident in the Group's ability to grow revenue, the Board's sensitivity modelling shows that the Group can remain within its cash facilities in the event that revenue growth is delayed (i.e. new sales bookings are not achieved) for a period in excess of twelve months. The Directors' financial forecasts and operational planning and modelling also include the actions, under the control of the Group, that they could take to further significantly reduce the cash outflow expected as the Group expands geographically. On the basis of this financial and operational modelling, the Directors believe that the Group has the capability and the operational agility to react quickly, cut further costs from the business and ensure that the cost base of the business is aligned with its revenue and funding scale.
As a consequence, the Directors have a reasonable expectation that the Group can continue to operate and be able to meet its commitments and discharge its liabilities in the normal course of business for a period of not less than twelve months from the date of approval of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing the Group financial statements.
Basis of consolidation
The consolidated financial statements incorporate the results of essensys plc and all of its subsidiary undertakings.
Essensys plc was incorporated on 22 January 2019, and on 18 May 2019 it acquired the issued share capital of essensys (UK) Ltd, previously essensys Limited, by way of a share for share exchange. The latter had four wholly owned subsidiaries:
-- essensys, Inc -- Hubcreate Limited -- TVOC Limited -- Spacebuddi Limited
The consideration for the acquisition was satisfied by the issue of 38,836,044 ordinary shares in essensys plc to the shareholders of essensys (UK) Limited.
The accounting treatment for the year to 31 July 2020 in relation to the addition of essensys plc as a new UK holding company of the group falls outside the scope of IFRS 3 'Business Combinations'. The share scheme arrangement constituted a combination of entities under common control due to all shareholders of essensys (UK) Ltd being issued shares in the same proportion, and the continuity of ultimate controlling parties. The reconstructed group was consolidated using merger accounting principles which treated the reconstructed group as if it had always been in existence. Any difference between the nominal value of shares issued in the share exchange and the book value of the shares obtained was recognised in a merger reserve.
The company applied the statutory relief as prescribed by Companies Act 2006 in respect of the share for share exchange as the issuing company has secured more than 90% equity in the other entity. The carrying value of the investment is carried at the nominal value of the shares issued.
Summary of significant accounting policies
4
Revenue
The Group generates revenue primarily in the UK and the United States of America (USA). Turnover represents services provided in the normal course of business; net of value added tax. Services provided to clients during the year, including any amounts which at the reporting date have not yet been billed to the clients, have been recognised as revenue.
(6) Contract
Set up and installation costs are partially invoiced once the customer contract is signed with the remaining balance invoiced when the service goes live. Fixed monthly costs are invoiced one month in advance and revenue is recognised in the month the service is provided. Deferred revenue is recognised for the Group's
obligation to transfer services to customers for which they have already received consideration (or an amount of consideration is due) from the customer. Variable monthly costs (including internet usage and telephone call charges) are invoiced monthly in arrears and accrued revenue is recognised in the month that the services were consumed.
(b) Contractual obligation
The majority of customer contracts have two main services that the Group provides to the customer:
-- Set up / installation -- Ongoing monthly software, services and support
Where a contract is modified and the remaining services are distinct from the services transferred on or before the date of the contract modification, then the Group accounts for the contract modifications as if it were a termination of the existing contract and the creation of a new contract.
The amount of consideration allocated to the remaining performance obligations is the sum of the consideration promised by the customer and the consideration promised as part of the contract modification.
(c) Determining the transaction price
The transaction price is determined as the fair value of the consideration the Group expects to receive over the course of the contract. There are no incentives given to customers that would have a material effect on the financial statements.
(d) Allocate the transaction price to the performance obligations in the contract
The allocation of the transaction price to the performance obligations in the contract is non-complex for the Group. There is a fixed unit price for each product sold. Therefore, there is limited judgement involved in allocating the contract price to each unit ordered.
(e) Recognise revenue when or as the entity satisfies its performance obligations
The contracts may cover multiple sites, but the overarching terms are consistent in each contract. The set up/installation is seen as a distinct performance obligation and revenue is recognised at a point in time, when the installation is completed, and any hardware is provided to the client for their use. The customer can benefit from the set up / installation such as new internet connectivity or new hardware provided, and therefore revenue is recognised in full when these services are provided.
The second performance obligation is the provision of software, infrastructure and on-demand services over the term of the contract, and the Group recognises the revenue each month as it provides these services for the duration of the contract, i.e. over time.
(f) Costs to obtain and fulfil a contract
Set up and installation costs are partially invoiced once the customer contract is signed. The value of the invoiced amount is held as a contract liability until the performance obligation is satisfied.
The company incurs incremental costs in obtaining a contract in the form of sales commissions. The Company recognises the sales commissions as an asset in relation to costs to obtain a contract. The company believes that the costs are recoverable as the proceeds from the customer over the contract period exceed the costs to obtain the contract. The asset is amortised over the contract life on a systematic basis.
Contract assets arise from the group's revenue contracts, where work is performed in advance of invoicing customers, and contract liabilities arise where revenue is received in advance of work performed. Cumulatively, payments received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts. Commission costs capitalised on contracts represents internal sales commission costs incurred on signing of customer contracts and, in line with the requirements of IFRS15, spread over the life of the customer contract.
Finance income
Finance income comprises interest receivable on funds invested and loans to related parties. Interest income is recognised in profit or loss as it accrues using the effective interest method.
Finance costs
Finance costs comprise interest on lease liabilities. Interest on lease liabilities is charged to the consolidated statement of comprehensive income over the term of the debt using the effective interest rate method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
Intangible assets
a) Internal software development
Research expenditure is written off in the year in which it is incurred.
Expenditure on internally developed products is capitalised if it can be demonstrated that:
-- it is technically and commercially feasible to develop the asset for future economic benefit;
-- adequate resources are available to maintain and complete the development; -- there is the intention to complete and develop the asset for future economic benefit; -- the company is able to use the asset; -- use of the asset will generate future economic benefit; and -- expenditure on the development of the asset can be measured reliably.
Where the costs are capitalised, they are written off over their economic life which is considered by the directors to be 5 to 7 years.
Internally developed products in the course of construction are carried at cost, less any recognised impairment loss. Amortisation of these assets, determined on the same basis as other property assets, commences when the assets are ready for their intended use.
(b) Goodwill
Goodwill arising on the acquisition of a business represents the excess of the fair value of the consideration and the fair value of the Group's share of the identifiable assets and liabilities acquired. The identifiable assets and liabilities acquired are incorporated into the consolidated financial statements at their fair value to the Group.
Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is tested for impairment annually. Any impairment is recognised immediately in the Consolidated Statement of Comprehensive Income and is not subsequently reversed. On disposal of a business, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
(c) Other intangible assets
Other intangible assets are initially recognised at cost or, if recognised as part of a business combination, at fair value. After recognition, intangible assets are measured at cost or fair value less any accumulated amortisation and any accumulated impairment losses. Amortisation is calculated to write off the cost or fair value of intangible assets in equal annual instalments over their estimated useful lives and is included within administrative expenses.
The estimated useful lives for other intangible fixed assets range as follows:
Customer relationships - 6.3 years Website - 1 year Acquired software - 5 years
Property, plant and equipment
Property, plant and equipment is carried at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost comprises the aggregate amount paid to acquire assets and includes costs directly attributable to making the asset capable of operating as intended.
At each reporting date the Group assesses whether there is an indication of impairment. If such indication exists, the recoverable amount of the asset is determined which is the higher of its fair value less costs to sell and its value in use. An impairment loss is recognised where the carrying value exceeds the recoverable amount.
Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives or, if held under a finance lease, over the shorter of the lease term and the estimated useful life, using the straight line method. Depreciation is provided at the following annual rates:
Leasehold improvements - 20% Fixtures and fittings - 25% Computer equipment - 10% - 25%
The assets residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, if there is an indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within 'other operating income or loss' in the statement of comprehensive income.
Leasehold improvements include security equipment purchased.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial information is presented in 'sterling', which is essensys plc's functional and the Group's presentation currency.
On consolidation, the results of overseas subsidiaries are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date, including any goodwill in relation to that entity. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income.
(b) Transactions and balances
Foreign currency transactions are translated into essensys plc's functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within 'finance income or costs. All other foreign exchange gains and losses are presented in the statement of comprehensive income within 'other operating income or expense'.
Inventories
Inventories are valued at the lower of cost and net realisable value. Inventories consist of work in progress, which are items and third party services that have been purchased and allocated to satisfy specific customer contracts where title has not yet passed, and finished goods, which are items purchased to secure sufficient resources, with a global shortage of silicon, to satisfy expected future customer contracts. As the items have yet to be installed at the customer location, and where title has not yet passed, they remain on the statement of financial position until title has passed.
Trade and other receivables
Trade receivables, which are generally received by the end of the month following terms, are recognised and carried at the lower of their original invoiced value less provision for expected credit losses.
Cash and cash equivalents
All cash and short-term investments with original maturities of three months or less are considered cash and cash equivalents, since they are readily convertible to cash. These short-term investments are stated at cost, which approximates fair value.
Trade and other payables
Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are recognised at original cost.
Exceptional items
Exceptional items are those that, in the Directors' view, are required to be separately disclosed by virtue of the size or incidence to enable a full understanding of the Group's financial performance.
Taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income, except that a charge attributable to an item of income or expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where essensys plc's subsidiaries operate and generate taxable income.
Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the statement of financial position date, except:
-- The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits;
-- Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and
-- Where timing differences relate to interests in subsidiaries, associates, branches and joint ventures and the Group can control their reversal and such reversal is not considered probable in the foreseeable future.
Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
Share capital
Ordinary shares are classified as equity. There is one class of ordinary share in issue, as detailed in note 20.
Reserves
The Group and Company's reserves are as follows:
-- Called up share capital reserve represents the nominal value of the shares issued;
-- The share premium account includes the premium on issue of equity shares, net of any issue costs;
-- Share based payment reserve represents the total value expensed at the balance sheet date in relation to the fair value of the share options at their grant date expensed over the vesting period under the relevant share option schemes;
-- Merger reserve arose on the business combination that was accounted for as a merger in accordance with FRS 102;
-- Retained earnings represents cumulative profits or losses, net of dividends paid and other adjustments.
Financial assets
The Group classifies all of its financial assets at amortised cost. Financial assets do not comprise prepayments, or contract assets, although contract assets are in scope of IFRS 9's impairment requirements as discussed below. Management determines the classification of its financial assets at initial recognition.
The Group's financial assets held at amortised cost comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold their assets in order to collect contractual cash flows and the contractual cash flows are solely payments of the principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net; such provisions are recorded in a separate provision account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
The expected loss rates are based on the Group's historical credit losses experienced over the last three periods prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers. The Group has identified the gross domestic product (GDP), unemployment rates and inflation rate as the key macroeconomic factors in the countries that the Group operates.
Impairment provisions for other receivables are recognised based on the general impairment model within IFRS 9. Under the General approach, at each reporting date, the Group determines whether there has been a significant increase in credit risk (SICR) since initial recognition and whether the loan is credit impaired. This determines whether the loan is in Stage 1, Stage 2 or Stage 3, which in turn determines both the amount of ECL to be recognised i.e. 12-month ECL or Lifetime ECL.
Financial liabilities
The Group classifies its financial liabilities in the category of financial liabilities at amortised cost. All financial liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provision of the instrument.
Financial liabilities measured at amortised cost include:
-- Trade payables and other short-dated monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.
-- Bank and other borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Unless otherwise indicated, the carrying values of the Group's financial liabilities measured at amortised cost represents a reasonable approximation of their fair values.
Impairment of assets
Assets that are subject to depreciation or amortisation are assessed at each reporting date to determine whether there is any indication that the assets are impaired. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGUs).
Where there is any indication that an asset may be impaired, the carrying value of the asset (or CGUs to which the asset has been allocated) is tested for impairment. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's (or 'GU's) fair value less costs to sell and value in use. Non-financial assets that have been previously impaired are reviewed at each reporting date to assess whether there is any indication that the impairment losses recognised in prior periods may no longer exist or may have decreased. Goodwill is reviewed for impairment on an annual basis, with any impairment to goodwill not reversed at a later period.
Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired.
The consideration transferred for the acquisition of a subsidiary comprises the:
-- fair values of the assets transferred -- liabilities incurred to the former owners of the acquired business -- equity interests issued by the essensys Group
-- fair value of any asset or liability resulting from a contingent consideration arrangement, and
-- fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. Acquisition related costs are expensed as incurred.
The excess of the consideration transferred and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
Share-based payments
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate on the number of equity investments expected to vest. The impact of the revision of the original estimates, if any, is recognised in the Statement of Comprehensive Income over the remaining vesting period, with a corresponding adjustment to the Share Based Payment Reserve.
In the event that the terms of equity-settled share-based payments are modified these are valued at the date of modification and, where this results in an increase to fair value, the charge is recognised in the statement of comprehensive income over the remaining vesting period, or recognised immediately where the vesting period has already passed.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for leases of low value assets; and leases with a duration of twelve months or less, in line with the requirements of IFRS 16.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also includes:
-- Amounts expected to be payable under any residual value guarantee;
-- The exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option;
-- Any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.
Right-of-use assets ("ROUA") are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:
-- Lease payments made at or before commencement of the lease; -- Initial direct costs incurred; and
-- The amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.
When the Group renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification:
-- If the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease in accordance with the above policy;
-- In all other cases where the renegotiated increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount;
-- If the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial or full termination of the lease with any difference recognised in profit or loss. The lease liability is then further adjusted to ensure its carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the same amount.
For contracts that both convey a right to The Group to use an identified asset and require services to be provided to The Group by the lessor, The Group has elected to account for the entire contract as a lease, i.e. it does allocate any amount of the contractual payments to, and account separately for, any services provided by the supplier as part of the contract.
Retirement benefits
The Group operates a number of defined contribution plans. A defined contribution plan is a pension plan under which the employer pays fixed contributions into a separate entity. Contributions payable to the plan are charged to the income statement in the period in which they relate. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Holiday pay accrual
All employees accrue holiday pay during the calendar year, the Board encourages all employees to use their full entitlement throughout the year. A liability is recognised to the extent of any unused holiday pay entitlement which has accrued at the statement of financial position date and carried forward to future periods. This is measured at the undiscounted salary cost of the future holiday entitlement so accrued at the balance sheet date.
Standards adopted in the year
No new standards have been adopted in the reporting period as all were adopted previously.
Standards, amendments and interpretations not yet effective
There are no standards issued not yet effective that will have a material effect on the Group's financial statements. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.
Significant accounting judgements, estimates and assumptions
5
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including the expectation of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are detailed below.
Capitalisation of development costs
Costs are capitalised in relation to the development of the underlying software utilised within the Group. The most critical judgement is establishing whether the costs capitalised meet the criteria set out within IAS 38. Further, the most critical estimate is how the intangible asset can generate future economic benefit. Projects that are maintenance in nature are expensed as incurred whereas development that generates benefits to the group are capitalised. After capitalisation management monitors whether the recognition requirements continue to be met and whether there are any indicators that the capitalised costs are required to be impaired. See note 14 for details of amounts capitalised.
Measurement and impairment of goodwill and intangible assets
As set out in note 4 above the carrying value of goodwill is reviewed for impairment at least annually and for other intangible assets when an indication of impairment is identified. In determining whether goodwill or intangible assets are impaired, an estimation of the value in use of the Group is required. This calculation of value in use requires estimates to be made relating to the timing and amount of future cash flows expected and suitable discount rates based on the Group's weighted average cost of capital, in addition to the estimation involved in preparing the initial projected cash flows for the next 5 years.
These estimates have been used to conclude that no impairment is required to either goodwill or intangible assets but are judgemental in nature. See note 14 for details of the key assumptions made.
Valuation of Share Options
During the year the Group incurred a share-based payment charge of GBP741,000 (2021: GBP560,000).
The charge related to options in the Group granted at IPO, a modification to the terms of certain of those options granted at IPO and new options granted during the year ended 31 July 2022 is based on valuations undertaken using a Black Scholes or Monte Carlo Simulation option pricing models, depending on the type of option. Judgements were required when assessing the valuation in relation to share price volatility, the expected life of the options issued, the proportion that would be exercised, the risk-free rate applicable and the likely achievement of performance targets where applicable. The modification to the terms of certain options granted at IPO resulted in an increased fair value for which a charge was recognised immediately as the original vesting period had passed. The valuation of those options issued after IPO is spread over the vesting period and there will, therefore, be further share based payment expenses in future years in relation to those options. See note 27 for details.
Segmental Reporting
6
The Group generates revenue largely in the UK and the USA. The majority of the Group's customers provide flexible office facilities together with ancillary services (e.g. meeting rooms and virtual services) including technology connectivity.
The Group generates revenue from the following activities:
-- Establishing services at customer sites (e.g. providing and managing installations, equipment and training on software); Recurring monthly fees for using the Group's software platforms;
-- Revenue from usage of on demand services such as internet and telephone usage and other, on demand, variable services; and
-- Other ad-hoc service.
Segmental Reporting (continued)
6
The Group has one single business segment which is the provision of software and technology platforms that manage the critical infrastructure and business processes, primarily to the flexible workspace segment of the real estate industry. The Group has two revenue segments and three geographical segments, as detailed in the tables below.
6A Revenue analysis by geographic area
The Group operates in two main geographic areas, the United
Kingdom and the United States of America. The whole of
the turnover is attributed to the principal activity. The
Group's revenue per geographical segment is as follows:
2022 2021
GBP000 GBP000
Analysis of turnover by country of destination:
United Kingdom and Europe 9,797 10,610
North America 13,233 11,334
Asia Pacific region 268 -
Rest of World - 38
_________ _________
Total Income 23,298 21,982
_________ _________
6B Revenue analysis by revenue streams
The Group has two main revenue streams, Operate and Connect.
The Group's revenue per revenue stream is as follows:
2022 2021
GBP000 GBP000
Connect 21,479 19,934
Operate 1,819 2,048
_________ _________
Total Income 23,298 21,982
_________ _________
Connect revenue includes all revenue generated in relation to the Group's Connect product. It includes revenue recognised at a point in time as well as recognised over a period of time.
Operate revenue includes all revenue generated in relation to the Group's Operate product. The revenue is recognised over a period of time.
6C Revenue disaggregated by 'point in
time' and 'over time'
The Group revenue disaggregated between revenue recognised
'at a point in time' and 'over time' is as follows:
2022 2021
GBP000 GBP000
Revenue recognised at a point in time 3,158 2,868
Revenue recognised over time 20,140 19,114
_________ _________
Total Income 23,298 21,982
_________ _________
6D Revenue from customers greater than
10%
Revenue from customers greater than 10% in each reporting
period is as follows:
2022 2021
GBP000 GBP000
Customer 1 5,422 4,319
Customer 2 - 2,302
_________ _________
Contract assets and liabilities
6E
Contract asset movements were as follows:
2022 2021
GBP000 GBP000
At 1 August 345 420
Transfers in the period from contract
assets to trade receivables (85) (159)
Excess of revenue recognised over cash
(or rights to cash) being recognised
during the period 558 75
Capital asset contract contributions
capitalised 37 32
Capital asset contract contributions
released as contract obligations are
fulfilled (28) (19)
Capitalised commission cost released
as contract obligations fulfilled (111) (297)
Commission costs capitalised on contracts 171 293
_________ _________
At 31 July 887 345
_________ _________
Contract liability movements were as follows:
2022 2021
GBP000 GBP000
At 1 August 323 550
Amounts included in contract liabilities
that were recognised as revenue during
the period (323) (550)
Cash received and receivables in advance
of performance and not recognised as
revenue during the period 815 323
_________ _________
At 31 July 815 323
_________ _________
Contract assets are included within 'trade and other receivables' and contract liabilities is shown separately on the face of the statement of financial position. Contract assets arise from the group's revenue contracts, where work is performed in advance of invoicing customers, and contract liabilities arise where revenue is received in advance of work performed. Cumulatively, payments received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts. Capital asset contract contributions represents costs incurred by the Group in the form of customer incentives spread over the life of the customer contract. Commission costs capitalised on contracts represents internal sales commission costs incurred on signing of customer contracts and, in line with the requirements of IFRS15, spread over the life of the customer contract.
Operating loss
7
2022 2021
GBP000 GBP000
This is arrived at after charging/(crediting):
Amortisation of intangible assets 1,241 1,308
Depreciation of tangible fixed assets 617 969
Depreciation of right of use assets 1,268 1,205
Impairment of goodwill 122 -
Fees payable to the Group's auditor (see
below) 260 197
Loss on disposal of tangible fixed assets 36 -
Amortisation of loan arrangement fee - 202
Exchange differences - (122)
Research & Development expense 3,006 1,345
Staff costs (note 8) 19,384 11,643
Share based payment charges 741 560
Increase to expected credit loss provision 54 45
_______ _______
Analysis of fees paid to the Group's
auditor:
Annual financial statements - parent
company 60 36
Annual financial statements - subsidiary
companies 94 82
_________ _________
Audit Fee 154 118
_________ _________
Assurance services 35 35
Other services 71 44
_________ _________
Non audit services 106 79
_________ _________
Total fee 260 197
_______ _______
Employees
8
Staff costs (including directors) consist
of:
2022 2021
GBP000 GBP000
Wages and salaries 13,898 8,663
Social security costs 1,546 1,003
Cost of defined contribution scheme 426 284
Other 3,514 1,693
_________ _________
19,384 11,643
_________ _________
Other staff costs comprise the cost of recruitment, other
employee benefits, redundancy and temporary staff.
The average number of employees (including directors)
during the year was as follows:
2022 2021
No. No.
Executive 9 6
Sales & Marketing 26 20
Finance & Administration 26 14
Support 38 32
Development 52 33
Provisioning 6 7
_________ _________
157 112
_________ _________
Key management remuneration
9
Key management personnel include all the directors of the
Company and the senior management and directors of essensys
(UK) Limited and essensys, Inc, the Group's principal trading
subsidiaries, who together have authority and responsibility
for planning, directing, and controlling the activities
of the Group.
2022 2021
GBP000 GBP000
Salaries and fees 2,658 1,687
Social security costs 275 187
Short term non-monetary benefits 23 17
Company contributions to money purchase
pension schemes 129 110
Share based payment expense 409 408
_________ _________
3,494 2,409
_________ _________
Interest receivable and similar income
10
2022 2021
GBP000 GBP000
Interest receivable from bank deposits 94 -
_________ _________
94 -
_________ _________
Interest payable and similar charges
11
2022 2021
GBP000 GBP000
Lease liabilities 147 127
_________ _________
147 127
_________ _________
Taxation on loss on ordinary activities
12
2022 2021
GBP000 GBP000
Current tax
UK corporation tax - -
Recovery of irrecoverable tax on loans - -
to participators
Adjustment in respect of previous periods - -
Foreign tax on income for the year 8 41
_________ _________
Total current tax 8 41
_________ _________
Deferred tax
Origination and reversal of timing differences (260) 241
Adjustments in respect of prior periods (34) 129
_________ _________
Total deferred tax (294) 370
_________ _________
Taxation on profit on ordinary activities (286) 411
_________ _________
The tax assessed for the year is higher than the standard rate of corporation tax in the UK applied to profit before tax. The differences are explained below:
2022 2021
GBP000 GBP000
Loss on ordinary activities before tax (11,085) (2,928)
_________ _________
Tax using the Group's domestic tax rates
(19%) (2,106) (556)
Effects of:
Fixed asset differences 199 239
Expenses not deductible for tax purposes 351 19
Income not taxable for tax purposes (14) -
Adjust closing deferred tax to average
rate (36) 19
Timing differences not recognised (24) (85)
Deferred tax not recognised 1,344 775
_________ _________
Total tax charge for period (286) 411
_________ _________
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2022 (on 10 June 2021). This included an increase to the main rate to increase the rate to 25% from 1 April 2023.
The deferred tax arises primarily from timing differences on the taxation related to capitalised development costs.
Earnings per share
13
2022 2021
Basic weighted average number of shares 64,385,219 53,713,487
_________ _________
Fully diluted weighted average number of
shares 64,385,219 53,713,487
_________ _________
2022 2021
GBP000 GBP000
Loss for the year attributable to owners
of the group (10,799) (3,339)
_________ _________
Basic and diluted loss per share (pence) (16.8p) (6.2p)
_________ _________
The loss per share has been calculated using the loss for the year and the weighted average number of ordinary shares outstanding during the period.
Share options held at the year-ended 31 July 2022 are anti-dilutive and so have not been included in the diluted earnings per share calculation.
Intangible assets
14
Assets in Customer Internal
the course software
Group Of construction relationships development Software Goodwill Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 August 2021 1,412 335 7,832 280 1,263 11,122
Additions 215 - 3,872 - - 4,087
Transfers (1,412) - 1,412 - - -
_________ _________ _________ _________ _________ _________
At 31 July 2022 215 335 13,116 280 1,263 15,209
_________ _________ _________ _________ _________ _________
Amortisation
At 1 August 2021 - 335 4,309 280 - 4,924
Charge for year - - 1,241 - - 1,241
Impairment - - - - 122 122
_________ _________ _________ _________ _________ _________
At 31 July 2022 - 335 5,550 280 122 6,287
_________ _________ _________ _________ _________ _________
Net book value
At 31 July 2022 215 - 7,566 - 1,141 8,922
_________ _________ _________ _________ _________ _________
At 31 July 2021 1,412 - 3,523 - 1,263 6,198
_________ _________ _________ _________ _________ _________
The goodwill relates to the acquisition of Hubcreate Limited on 18 February 2016. The goodwill all relates to one cash generating unit (CGU).
The Group estimates the recoverable amount of the CGU using a value in use model by projecting pre-tax cash flows for the next 5 years. The key assumptions underpinning the recoverable amount of the CGU are forecast revenue and forecast EBITDA percentage. The forecast revenues in the model are based on management's past experience and future expectations of performance. The post-tax discount rate used in all periods is 12% derived from a WACC calculation and benchmarked against similar organisations within the sector. Management do not anticipate this CGU providing long term future cash flows for the group. As such the latest projection shows a 11% decline in revenue year on year which is consistent with the decline in revenue during FY22. Using a discount rate of 12% resulted in an impairment of GBP122,000 and as such an the impairment charge has been booked in this period.
Intangible assets
14
Assets in Customer Internal
the course software
Group Of construction relationships development Software Goodwill Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost - 335 6,751 280 1,263 8,629
At 1 August 2020 1,412 - 1,081 - - 2,493
Additions _________ _________ _________ _________ _________ _________
1,412 335 7,832 280 1,263 11,122
At 31 July 2021 _________ _________ _________ _________ _________ _________
Amortisation - 293 3,043 280 - 3,616
At 1 August 2020 - 42 1,266 - - 1,308
Charge for year _________ _________ _________ _________ _________ _________
- 335 4,309 280 - 4,924
At 31 July 2021 _________ _________ _________ _________ _________ _________
Net book value 1,412 - 3,523 - 1,263 6,198
At 31 July 2021 _________ _________ _________ _________ _________ _________
- 42 3,708 - 1,263 5,013
At 31 July 2020 _________ _________ _________ _________ _________ _________
Property, plant and
15 equipment
Fixtures Computer Leasehold
and
Group fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 August
2021 382 8,387 130 8,899
Additions 34 1,504 3 1,541
Disposals (188) - (33) (221)
Transfers (note
16) - 180 584 764
Exchange adjustments 14 534 2 550
_________ _________ _________ _________
At 31 July
2022 242 10,605 686 11,533
_________ _________ _________ _________
Depreciation
At 1 August
2021 322 7,020 86 7,428
Charge for year 29 564 24 617
Disposals (152) - (33) (185)
Transfers (note
16) - 129 318 447
Exchange adjustments 8 396 3 407
_________ _________ _________ _________
At 31 July
2022 207 8,109 398 8,714
_________ _________ _________ _________
Net book value
At 31 July
2022 34 2,492 288 2,819
_________ _________ _________ _________
At 31 July 2021 60 1,367 44 1,471
_________ _________ _________ _________
Fixtures Computer Leasehold
and
fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 August
2020 247 6,601 132 6,980
Additions 3 783 - 786
Transfers (note
16) 142 1,185 - 1,327
Exchange adjustments (10) (182) (2) (194)
_________ _________ _________ _________
At 31 July
2021 382 8,387 130 8,899
_________ _________ _________ _________
Depreciation
At 1 August
2020 154 5,053 78 5,285
Charge for year 33 926 10 969
Transfers (note
16) 142 1,185 - 1,327
Exchange adjustments (7) (144) (2) (153)
_________ _________ _________ _________
At 31 July
2021 322 7,020 86 7,428
_________ _________ _________ _________
Net book value
At 31 July
2021 60 1,367 44 1,471
_________ _________ _________ _________
At 31 July 2020 94 1,547 54 1,695
_________ _________ _________ _________
Transfers represent right of use assets which reached their contract term and where legal title transferred to the Group.
Right of use
16 assets
Leasehold Fixtures Computer Leasehold
and
Group property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 August 2021 5,482 - 342 584 6,408
Additions 1,062 - - - 1,062
Lease remeasurement 1,136 - - - 1,136
Disposal (872) - - - (872)
Transfers (note
15) - - (180) (584) (764)
Exchange adjustments 241 - - - 241
_________ _________ _________ _________ _________
At 31 July 2022 7,049 - 162 - 7,211
_________ _________ _________ _________ _________
Depreciation
At 1 August 2021 3,693 - 278 277 4,248
Charge for year 1,214 - 13 41 1,268
Disposal (462) - - - (462)
Transfers (note
15) - - (129) (318) (447)
Exchange adjustments 122 - - - 122
_________ _________ _________ _________ _________
At 31 July 2022 4,567 - 162 - 4,729
_________ _________ _________ ______ _________
Net book value
At 31 July 2022 2,482 - - - 2,482
_________ _________ _________ _________ _________
At 31 July 2021 1,789 - 64 307 2,160
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
Property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 August 2020 4,204 142 1,527 584 6,457
Lease remeasurement 1,237 - - - 1,237
Transfers (note
15) - (142) (1,185) - (1,327)
Exchange adjustments 41 - - - 41
_________ _________ _________ _________ _________
At 31 July 2021 5,482 - 342 584 6,408
_________ _________ _________ _________ _________
Depreciation
At 1 August 2020 2,609 134 1,440 219 4,402
Charge for year 1,116 8 23 58 1,205
Transfers (note
15) - (142) (1,185) - (1,327)
Exchange adjustments (32) - - - (32)
_________ _________ _________ _________ _________
At 31 July 2021 3,693 - 278 277 4,248
_________ _________ _________ ______ _________
Net book value
At 31 July 2021 1,789 - 64 307 2,160
_________ _________ _________ _________ _________
At 31 July 2020 1,595 8 87 365 2,055
_________ _________ _________ _________ _________
Subsidiaries
17
Subsidiary undertakings, associated undertakings and other investments
The following were subsidiary undertakings of the company:
Proportion
of
Country of voting rights
incorporation and ordinary
Name or registration share capital Status Nature of business
held
essensys United Kingdom 100% Trading Provider of software
(UK) Ltd and technology
platforms to the
flexible workspace
industry
essensys, United States 100% Trading Provider of software
Inc of America and technology
platforms to the
flexible workspace
industry
essensys Canada 100% Trading Provider of software
(Canada) and technology
Inc platforms to the
flexible workspace
industry
essensys Netherlands 100% Trading Provider of software
(Europe) and technology
BV platforms to the
flexible workspace
industry
essensys United Kingdom 100% Non-trading Provider of software
(APAC Holdings) and technology
Ltd platforms to the
flexible workspace
industry
essensys Hong Kong 100% Trading Provider of software
(Hong Kong) and technology
Ltd platforms to the
flexible workspace
industry
essensys Singapore 100% Trading Provider of software
(Singapore) and technology
Pte Ltd platforms to the
flexible workspace
industry
essensys Australia 100% Trading Provider of software
(Australia) and technology
Pty Ltd platforms to the
flexible workspace
industry
Hubcreate United Kingdom 100% Non-trading Provider of workspace
Limited management software
TVOC Limited United Kingdom 100% Non-trading Virtual office
provider
Spacebuddi United Kingdom 95% Dormant -
Limited
The registered office of essensys (UK) Ltd, essensys (APAC Holdings) Ltd, Hubcreate Limited, TVOC Limited and Spacebuddi Limited are as per the Company as given on the company information page.
The office of essensys Inc is 600 5th Avenue, Floor 2, New York City, NY 10020, United States of America.
The registered office of essensys (Canada) Inc is 550 Burrard Street, Vancouver, British Columbia, V6C 0A3
The registered office of essensys (Europe) BV is Herikerbergweg 88, Amsterdam, 1101CM.
The registered office of essensys (Hong Kong) Ltd Room 1901, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong.
The registered office of essensys (Singapore) Pte Ltd is 9 Raffles Place, #26-01, Republic Plaza, 048619, Singapore.
The registered office of essensys (Australia) Pty Ltd is Suite 902, 146 Arthur Street, North Sydney, NSW 2060, Australia.
18 Inventories
2022 2021
GBP000 GBP000
Finished goods 2,353 -
Work in progress 193 184
_________ _________
2,546 184
_________ _________
Work in progress are items and third-party services purchased to satisfy specific customer contracts, where title has not yet passed. Finished goods are items purchased to secure sufficient resources, with a global shortage of silicon, to satisfy expected future customer contracts.
19 Trade and other receivables
2022 2021
GBP000 GBP000
Trade receivables (net) 3,684 3,462
Other receivables 465 409
Prepayments 1,316 1,063
Contract asset 887 345
Current taxes receivable 82 -
_________ _________
6,434 5,279
_________ _________
Analysis of trade receivables based on age of invoices
31 - Total Total
< 30 60 61 -90 > 90 Gross ECL Net
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---- -------- -------- -------- -------- -------- -------- --------
2022 1,762 256 429 1,871 4,318 (634) 3,684
2021 2,103 334 217 1,388 4,042 (580) 3,462
---- -------- -------- -------- -------- -------- -------- --------
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. The majority of trade and other receivables are non-interest bearing. Where the effect is material, trade and other receivables are discounted using discount rates which reflect the relevant costs of financing. The carrying amount of trade and other receivables approximates fair value.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses (ECL) which uses a lifetime expected loss allowance for all trade receivables. The ECL balance has been determined based on historical data available to management in addition to forward looking information utilising management knowledge.
At 31 July 2022 the lifetime expected loss provision for trade receivables and contract assets is as follows:
31 July 2022
Less than 31 to 61 to 91 or
30 60 90 more
days past days days past days past Total
due past due due due
GBP000 GBP000 GBP000 GBP000 GBP000
Expected loss
rate 0% 5.4% 8.6% 31.2%
Gross carrying
amount 2,650 256 429 1,871 5,206
ECL - 14 37 583 634
31 July 2021
Less than 31 to 61 to 91 or
30 60 90 more
days past days days past days past Total
due past due due due
GBP000 GBP000 GBP000 GBP000 GBP000
Expected loss
rate 0% 5.4% 10.6% 38.8%
Gross carrying
amount 2,448 334 217 1,388 4,387
ECL - 18 23 539 580
19 Trade and other receivables ( continued
)
Movements in the ECL are as follows:
2022 2021
GBP000 GBP000
Opening ECL at 1 August 580 535
Increase during the year 423 220
Receivables written off as uncollectable (369) (175)
_______ _______
ECL charge for the year 54 45
_______ _______
At 31 July 634 580
_______ _______
Share capital
20
2022 2021
GBP000 GBP000
Allotted, called up and fully paid
64,385,219 (2021 - 64,385,219) ordinary
shares of 0.25p each (2021 - 0.25p) 161 161
_______ _______
On 26 July 2021 the Company issued 11,641,890 new ordinary shares of 0.25 pence each at a price of 285 pence per share by way of a share placing.
Share premium
21
2022 2021
GBP000 GBP000
Share premium at start of period 51,660 19,881
Issue of new shares - 33,150
Cost of issuing new shares recognised
in equity - (1,371)
_______ _______
51,660 51,660
_______ _______
Trade and other payables
22
2022 2021
GBP000 GBP000
Amounts falling due within one year
Trade payables 4,487 2,376
Other taxes and social security 244 282
Other creditors 1,050 439
Accruals 1,641 1,132
_________ _________
7,422 4,229
_________ _________
Lease liabilities
23
Nature of leasing activities
The Group leases a number of assets in the jurisdictions from which it operates in with all lease payments fixed over the lease term.
2022 2021
GBP000 GBP000
Number of active leases 15 15
_________ _________
The Group sometimes negotiates break clauses in its leases. On a case-by-case basis, the Group will consider whether the absence of a break clause would expose the Group to excessive risk. Typically, factors considered in deciding to negotiate a break clause include:
-- The length of the lease term; -- The economic stability of the environment in which the property is located; and -- Whether the location represents a new area of operations for the Group.
At both 31 July 2022 and 2021 the carrying amounts of lease liabilities are not reduced by the amount of payments that would be avoided from exercising break clauses because on both dates it was considered reasonably certain that the Group would not exercise its right to exercise any right to break the lease. Where extensions to leases are permitted the Group has chosen to assume that the extensions will be taken and liabilities reflect this position.
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 August 2021 1,841 29 20 45 1,935
Additions 1,061 - - - 1,061
Interest expense 145 1 - 1 147
Effect of modifying
lease term 877 - - - 877
Lease payments (944) (30) (20) (46) (1,040)
Foreign exchange
movements 148 - - - 148
_________ _________ _________ _________ _________
At 31 July 2022 3,128 - - - 3,128
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 August 2020 1,820 57 88 177 2,142
Additions 1,514 - - - 1,514
Interest expense 108 4 4 11 127
Effect of modifying
lease term 79 - - - 79
Lease payments (1,616) (32) (72) (143) (1,863)
Foreign exchange
movements (64) - - - (64)
_________ _________ _________ _________ _________
At 31 July 2021 1,841 29 20 45 1,935
_________ _________ _________ _________ _________
Lease liabilities ( continued )
23
Lease maturity
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2022 2022 2022 2022 2022
Up to 3 months - - - - -
3 to 12 months 135 - - - 135
1-2 years 389 - - - 389
2-5 years 2,604 - - - 2,604
_________ _________ _________ _________ _________
3,218 - - - 3,218
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2021 2021 2021 2021 2021
Up to 3 months 4 - - 45 49
3 to 12 months 126 29 20 - 175
1-2 years 252 - - - 252
2-5 years 1,459 - - - 1,459
More than 5 years _________ _________ _________ _________ _________
1,841 29 20 45 1,935
_________ _________ _________ _________ _________
Analysis by current and non-current
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2022 2022 2022 2022 2022
Due within a year 1,469 - - - 1,469
Due in more than
one year 1,659 - - - 1,659
_________ _________ _________ _________ _________
3,128 - - - 3,128
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2021 2021 2021 2021 2021
Due within a year 849 29 20 45 943
Due in more than
one year 992 - - - 992
_________ _________ _________ _________ _________
1,841 29 20 45 1,935
_________ _________ _________ _________ _________
Deferred taxation
24
2022 2021
GBP000 GBP000
Brought forward 779 409
(Credited)/charged to the income statement (294) 370
_________ _________
Carried forward 485 779
_________ _________
The provision for deferred taxation is
made up as follows:
2022 2021
GBP000 GBP000
Fixed asset timing
differences 485 779
_________ _________
485 779
_________ _________
Factors that may affect future tax charges
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7 September 2016). These included reductions to the main rate to reduce the rate to 19 per cent. from 1 April 2017 and to 17 per cent. from 1 April 2021. However, on 17 March 2021 the rate reduction due to come in effect on 1 April 2021 was substantively reversed so that the main rate of taxation will remain at 19 per cent, and this has been reflected in these financial statements.
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2021 (on 10 June 2021). This included an increase to the main rate to increase the rate to 25% from 1 April 2023. The UK government has proposed the abolishment of the increase to the tax rate, but at the signing date of these financial statements the reversal has not yet been substantively enacted and so the rate has not been adjusted.
Financial instruments
25
The Group is exposed through its operations to the following financial risks:
-- Credit risk -- Foreign exchange risk -- Liquidity risk
In common with all other business, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect to these risks is presented throughout these financial statements.
There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and procedures for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises are as follows:
-- Trade receivables -- Cash and cash equivalents -- Trade and other payables -- Bank overdrafts
It is Group policy that no trading in financial instruments should be undertaken.
Financial instruments ( continued )
25
Financial instruments by category
2022 2021
GBP000 GBP000
Financial assets at amortised cost
Cash and cash equivalents 24,122 36,903
Trade and other receivables 4,707 3,946
_________ _________
Total financial assets at amortised cost 28,829 40,849
_________ _________
Financial liabilities
Trade and other payables 7,178 3,947
Lease liabilities 3,128 1,935
_________ _________
Total financial liabilities 10,306 5,882
_________ _________
Financial instruments not measured at fair value
These include cash and cash equivalents, trade and other receivables, trade and other payables, and loans and borrowings. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables and trade and other payables approximates their fair value.
The Group's activities expose it to a variety of financial risks:
-- Market risk (including foreign exchange risk, price risk and interest rate risk) -- Credit risk -- Liquidity risk
The financial risks relate to the following financial instruments:
-- Cash and cash equivalents -- Trade and other receivables -- Trade and other payables -- Loans and borrowings
The accounting policies with respect to these financial instruments are described above.
Risk management is carried out by the key management personnel. Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited, the Group's principal trading subsidiary, who together have authority and responsibility for planning, directing, and controlling the activities of the Group. The key management personnel identify and evaluate financial risks and provide principals for overall risk management.
(a) Credit Risk
Credit risk is the risk of financial loss to the Group if a customer fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts.
Financial instruments ( continued )
25
Financial instruments not measured at fair value (continued)
(b) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises because the Group operates in the United Kingdom, Europe, North America and the Asia Pacific region, whose functional currency is not the same as the presentational currency of the Group. Foreign exchange risk also arises when individual companies within the group enter into transactions denominated in currencies other than their functional currency. Such transactions are kept to a minimum either through the choice of suppliers or presenting sales invoices in the functional currency.
Certain assets of the group companies are denominated in foreign currencies. Similarly, the Group has financial liabilities denominated in those same currencies. In general, the Group seeks to maintain the financial assets and financial liabilities in each of the foreign currencies at a reasonably comparable level, thus providing a natural hedge against foreign exchange risk and reducing foreign exchange exposure to a minimal level.
2022 2021
GBP000 GBP000
Financial assets 21,541 35,683
Financial liabilities 3,368 2,443
_________ _________
The table below represents financial instruments that
are denominated in currencies other than the functional
currencies of the group entities:
2022 2021
US$000 US$000
Financial assets 7,249 6,891
Financial liabilities 3,661 2,118
_________ _________
2022 2021
CA$000 CA$000
Financial assets 93 317
Financial liabilities 6 6
_________ _________
2022 2021
EUR000 EUR000
Financial assets 658 191
Financial liabilities 336 109
_________ _________
2022 2021
HK$000 HK$000
Financial assets 1,962 -
Financial liabilities 1,064 -
_________ _________
2022 2021
SG$000 SG$000
Financial assets 1,024 -
Financial liabilities 829 -
_________ _________
2022 2021
AU$000 AU$000
Financial assets 545 -
Financial liabilities 379 -
_________ _________
Financial instruments ( continued )
25
A 10 per cent weakening of the Group's reporting currency against the United States Dollar would have the following impacts on the groups reporting currency on the financial assets and liabilities listed above in United States Dollar:
2022 2021
$000 $000
Financial assets (541) (450)
Financial liabilities (273) (138)
_________ _________
(ii) Interest rate risk
The Group's interest rate exposure arises mainly from the interest-bearing borrowings as disclosed in note 23. All the Group's facilities were floating rates excluding interest from leases, which exposed the group to cash flow risk. As at 31 July 2022 there are no loans outstanding, (2021 - GBPnil) and the overdraft facility is available but not in use. Therefore, there is no material exposure to interest rate risk.
(c) Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash flows for operations. The Group manages its risk to shortage of funds by monitoring forecast and actual cash flows. The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the majority of both its borrowings and payables.
The Group has no borrowings at 31 July 2022 (2021: GBPnil).
A maturity analysis of the Group's trade and other payables is shown below:
2022 2021
GBP000 GBP000
Less than one year 7,178 3,947
_________ _________
7,178 3,947
_________ _________
Pension commitments
26
The group operates defined contribution pension schemes. The assets of the schemes are held separately from those of the group in an independently administered fund. The pension cost charge represents contributions payable by the group to the funds.
2022 2021
GBP000 GBP000
Pension charge 426 284
_______ _______
Pension liability 78 38
_______ _______
Share based payments
27
The Company operates five equity-settled share-based remuneration schemes for employees; two United Kingdom tax authority approved schemes (one EMI and one CSOP), an unapproved Performance Share Plan scheme, a share option plan for non-United Kingdom employees and an unapproved Non-Executive Director Plan. The UK plans includes employees from the Company and its main UK trading subsidiary essensys (UK) Ltd.
Weighted Weighted
average average
exercise exercise
price price
(GBP) Number (GBP) Number
2022 2022 2021 2021
Outstanding at the
beginning of the year 1.08 3,378,829 1.02 2,966,241
Granted during the
year 0.25 89,219 1.56 576,479
Forfeited during the
year 1.60 (110,545) 1.52 (163,891)
Exercised during the - - - -
year
_________ _________
Outstanding at the
end of the year 1.04 3,357,503 1.08 3,378,829
_________ _________
The weighted average exercise price of options outstanding at the end of the year was 103.93p (2021: 108.48p) and their weighted average contractual life was 7.1 years (2021: 8 years).
During the year the equity-settled share-based schemes under which options were granted immediately prior to IPO vested at the end of their 3 year vesting period. Given the volatility in the share price during the year the Remuneration Committee agreed to extend the vesting period for the performance share element of the scheme by a further two years. This modification gave rise to an increase in the fair value of the Performance Share Plan options, for which a charge was taken immediately as the original vesting period had passed.
Of the total number of options outstanding at the end of the year and following the modification to the options granted prior to IPO, no options had vested or were exercisable.
Market Value Options were valued using the Black Scholes option pricing model. Performance Share options granted and modifications made to pre-existing Performance Share options were valued using a Monte Carlo Simulation option pricing model. Expected dividends are not incorporated into the fair value calculations. The assumptions used in the calculations are as follows:
2022 2021
Risk free investment 1.06% 0.22% -
0.73%
Expected life 3 2.6
Expected volatility 57.8% 42.8%
The volatility used for the share option grants during the current year was from a median of peers, including that actually experienced by the group during the period from the IPO that actually experienced during the period from the IPO. The expected life was based initially on the minimum vesting period with an assumption that more senior personnel would not exercise immediately. The risk-free rate was based on the yield on UK government 10-year gilts at the time of the grant.
The Group recognised a total Share based payment expense of GBP741,000 in the year (2021: GBP560,000), all of which related to options in the Company issued immediately prior to the IPO or subsequent thereto.
Related party transactions
28
The Group has taken advantage of the exemption available under IAS 24 Related Party Disclosures not to disclose transactions between Group Undertakings which are eliminated on consolidation.
Key management personnel
Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited and essensys, Inc, the Group's principal trading subsidiaries, who together have authority and responsibility for planning, directing, and controlling the activities of the Group. Details of key management compensation is shown in note 9.
Directors Loans
There were no directors loans during the years ended 31 July 2022 and 31 July 2021.
Capital commitments and contingent liabilities
29
The Group had no capital commitments or contingent liabilities at 31 July 2022 (2021: GBPNIL)
Events after the reporting date
30
There are no events of any materiality after the reporting date to report.
Notes supporting statement of cash flows
31
31 A Cash from operations
2022 2021
GBP000 GBP000
Cash flows from operating activities
Loss for the financial year before
taxation (11,085) (2,928)
Adjustments for non-cash/non-operating
items:
Amortisation of intangible assets 1,268 1,308
Depreciation of property plant and
equipment 617 969
Amortisation of loan arrangement fee - 203
Depreciation of right of use assets 1,269 1,205
Impairment of goodwill 122 -
Loss on disposal of fixed assets 36 -
Share based payment expense 741 560
Losses on foreign exchange transactions - (122)
Finance income (94) -
Finance expense 147 127
Other 50 -
_________ _________
(6,957) 1,322
Changes in working capital:
(Increase)/decrease in inventories (2,362) 139
Increase in trade and other debtors (1,155) (93)
Decrease in trade and other creditors 3,685 440
_________ _________
Cash (used by)/from operations (6,789) 1,808
_________ _________
31 Movement in net debt
B
Cash and
cash equivalents Leases Total
GBP000 GBP000 GBP000
As at 1 August 2020 8,496 (2,142) 6,354
Lease additions - (1,514) (1,514)
Effect of modifying lease term - (79) (79)
Cashflow 28,433 1,863 30,296
Interest charges - (127) (127)
Exchange movements (26) 64 38
_________ _________ _________
As at 31 July 2021 36,903 (1,935) 34,968
Lease additions - (1,061) (1,061)
Effect of modifying lease term - (877) (877)
Cashflow (13,374) 1,040 (12,334)
Interest charge - (147) (147)
Exchange movements 593 (148) 445
_________ _________ _________
As at 31 July 2022 24,122 (3,128) 20,944
_________ _________ _________
Cash and
cash equivalents Leases Total
GBP000 GBP000 GBP000
Balances as at 31 July 2022
Current assets 24,122 - -
Current liabilities - (1,469) (1,469)
Non-current liabilities - (1,659) (1,659)
_________ _________ _________
24,122 (3,128) 20,944
_________ _________ _________
Cash and
cash equivalents Leases Total
GBP000 GBP000 GBP000
Balances as at 31 July 2021
Current assets 36,903 - 36,903
Current liabilities - (943) (943)
Non-current liabilities - (992) (992)
_________ _________ _________
36,903 (1,935) 34,968
_________ _________ _________
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