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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 | 0.00 | 07:30:13 |
| 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 2019 to Apr 2024
TIDMESYS
RNS Number : 6264Q
essensys PLC
22 October 2019
22 October 2019
essensys plc
("essensys" or the "Group")
Full Year Results
Strong performance in maiden results
essensys plc (AIM:ESYS), the leading global provider of mission critical software-as-a-service (SaaS) platforms and on-demand cloud services to the flexible workspace industry, announces audited results for the year ended 31 July 2019.
Financial summary:
Hot Features
Premium
GBPm unless otherwise stated 2019 2018 Change
Revenue 20.6 16.4 +26%
Recurring revenue(1) 16.3 12.9 +26%
Run Rate Annual Recurring Revenue(1) 17.3 13.6 +27%
Statutory (loss) / profit before
tax (1.4) 0.4
Adjusted EBITDA 4.2 3.2 +31%
Adjusted EBITDA margin 20.4% 19.5%
Profit / (loss) before tax (pre-exceptionals)(2) 1.1 0.4 +175%
(Loss) / profit per share (pence) (3.7p) 1.0p
Proposed Final Dividend per share Nil N/A
(pence)
Net Cash / (Debt) 2.7 (3.8)
Delivering our Strategy
-- Successful IPO on AIM in May 2019
o GBP28m total funds raised from oversubscribed IPO
o GBP14m gross proceeds retained by essensys
-- Accelerated investment in long-term organic growth and international expansion
o US: West Coast office operational; sales team expanded; essensysCloud extended
o Vietnam: offshore development capability expanded to drive product development
o Europe: Connect entry into the European mainland
-- De-risking and underpinning future growth
o Existing customers continue to grow
o Strong momentum of new customer wins
o 358 Connect live sites at year end, up 38%
High growth and recurring revenue
-- Revenue and underlying profits ahead of expectations for FY19
o Revenue increased by 26%
o Adjusted EBITDA margin of 20%
o Group Annual Recurring Revenue ("ARR") gross margin of 70%
-- High recurring revenues - ARR 79% of overall Group revenues -- US business supporting high growth levels - recurring revenues up 71% -- Strong balance sheet to support organic growth, investments and acquisitions
Current trading and outlook:
-- Excellent pipeline visibility - 64 Connect sites contracted for delivery post year end -- Strong sales pipeline from new and existing customers underpins confidence for 2020
Mark Furness, CEO of essensys, said:
"I am delighted to announce strong maiden results for essensys. We have a simple vision - to power the world's largest community of tech-driven flexible workspaces. We are at the beginning of the adoption curve for flexible workspaces, with market penetration expected to reach 30% in 2030, compared to current levels of c.3%.
Our performance reflects strong demand for essensys' technology offering to the flexible workspace industry. We have deployed our IPO proceeds in line with our plans to support long-term organic growth and capture our market opportunity. As a result, we have significantly evolved our presence in the US, grown our product development capabilities and extended our European presence for Connect.
Growth in our existing customer base underpins future resilience and growth. This, aligned to a strengthening market backdrop and an encouraging pipeline from new customer wins, supports the Board's confidence in further progress in the 2020 financial year."
(1) See Financial Review below for description and breakdown
(2) PBT adding back IPO related costs and share based payment expenses
For further information, please contact:
+44 (0)20 3102
essensys plc 5252
Mark Furness, Chief Executive Officer
Alan Pepper, Chief Financial Officer
+44 (0)20 7496
N+1 Singer (Nominated Adviser and Broker) 3000
Richard Lindley / Harry Gooden / George
Tzimas / Harry Mills
FTI Consulting
Jamie Ricketts / Ellie Sweeney / Shamma +44 (0)20 3727
Kelly / Talia Jessener 1000
About essensys plc
essensys is the leading global provider of mission-critical SaaS platforms and on-demand cloud services to the high growth flexible workspace industry. essensys' software is specifically designed and developed to help solve the complex operational challenges faced by multi-site flexible workspace operators as they grow and scale their operations. The Group's technology allows operators to deliver a range of differentiated, flexible and customer-specific services to a broad base of tenants across multiple locations and helps operators to manage the cost, operational and technological challenges they typically encounter.
essensys' two SaaS platforms, Connect and Operate, address these complex operational challenges, and reduce costs by simplifying the day-to-day management of flexible workspaces and the provision of on-demand IT, technology and infrastructure services to tenants. essensys' platforms automate key tasks and processes and help flexible workspace providers deliver highly efficient, customer-centric workspace solutions and member experiences with enterprise class services.
Chairman's Statement
I am delighted to present essensys' maiden results as a public company following its successful IPO in May of this year.
Our IPO has already delivered a number of strategic benefits to the Group, supporting our investment in product development and geographic expansion to drive long-term, sustainable growth. We are debt-free following the IPO, and as a listed business we offer a level of transparency which we know is important to our increasingly international customer base.
During the year, the management team has proactively implemented its plans to accelerate the Group's growth. Specifically, this has included:
-- opening a new West Coast US office to accelerate our growth in North America; -- expansion of the essensysCloud network; -- expansion of our offshore development centre in Vietnam; -- recruitment of product and marketing senior leaders; and -- further geographical expansion.
The Group is also making substantial progress in further development of its software product roadmap which includes the expansion of its Marketplace services over the next few months.
It was a strong maiden financial performance, with growth in revenue and profits. Revenue was up 26% to GBP20.6m, and Adjusted EBITDA (excluding IPO related costs and share based payment expense) was up 31% to GBP4.2m. As a consequence of the costs we incurred in achieving the IPO and the share based payment expense incurred as a result of the vesting of employee share options prior to the IPO, the Group made a loss before tax for the year of GBP1.4m (2018: profit of GBP0.4m).
essensys' growth is driven by winning new customers, expanding our product reach within existing customers, and by existing customers expanding their estates. We have performed well in all these areas.
Existing customers further accelerated the Group's international expansion. The Group's North American business has now expanded into Canada and has recently won a number of new customers there. Discussions are also underway regarding expansion opportunities within Europe following the Group's initial Connect customer site win in Germany during the year. Management expects to investigate the potential for expansion into the Asia Pacific region during FY20.
As mentioned in the IPO Admission Document, the Group intends to recruit a third independent Non-Executive Director. That process is underway, and an appointment is anticipated to be announced within the next two months.
I would particularly like to thank our staff for their hard work during the year. It is the commitment, tenacity and creativity of our people that drives our innovation and growth.
The combination of an exceptional team, a supportive investor base and a clear strategy positions essensys strongly to take advantage of expansion opportunities in the fast-growing flexible workspace operator market.
Jon Lee
Non-Executive Chairman
21 October 2019
CEO Report
2019 was a pivotal year for essensys with our IPO being the culmination of 13 years development of the business, its products and its international customer base. Our listing on AIM in May of this year provided the Group with the resources to accelerate our product development and our 'go-to-market' strategy; the financial solidity and transparency which our increasingly international customer base values; and gives us the opportunity and platform to further expand geographically.
Strong revenue growth
This overall growth in Connect site numbers and Operate pricing drove revenue growth with total recurring revenue for the year of GBP16.3m, up 26% from GBP12.9 in FY18. Run rate Annual Recurring Revenue (ARR), a key metric for the continued growth of the business, grew to GBP17.3m at July 2019 from GBP13.6m at July 2018, an increase of 27%.
Customer expansion
The expansion that we saw in FY18 continued in FY19 with the addition of 39 new customers to the business, our best year ever for the expansion of the customer base. An increasing number of customers now take both Connect and Operate, proving the worth of both products to new entrants into the market and supporting our strategy of increased integration between them. I am particularly pleased about the breadth and quality of our new customers which range across global real estate owners and commercial real estate companies entering the market; existing, established operators moving to become essensys customers for the first time; and new, well-funded market entrants.
Accelerated growth in Connect sites
This new customer growth combined with our existing customer expansion resulted in the number of Connect sites growing by 98 to 358, an increase of 38%. Although growth in North America was very strong, UK growth also continued and new sites live in FY19 were split 57:41 between North America and UK. By site numbers the Connect business has nearly doubled in size over the last two years.
That growth continues and we now have contracted commitments from customers for a further 64 Connect sites, the majority of which will be delivered in the first half of FY20.
Good progress with Operate
I am pleased to report that the number of countries where Operate is now being used has grown to 18 including a number of customers in both Continental Europe and Canada, both key growth areas for the Group as a whole.
Our strategic decision to retire the acquired CentreCharge product, migrate customers to Operate and increase pricing in order to better serve our target audience resulted in the loss, as expected, of a number of lower value customers during the year. This led to total Operate site numbers reducing slightly, by 4% to 508, however the benefit of this strategy has delivered a 40% increase in monthly recurring revenue, which is now at GBP125k per month with average revenue per site increasing by 43%.
Operational review
We have made good progress implementing our strategic plans.
Immediately prior to the IPO we significantly enhanced our leadership team with two new senior recruits. James Shannon joined us as Chief Product Officer. With extensive experience in enterprise SaaS, mobile and hardware, James brings a unique skill-set to the business and will be instrumental in driving our product roadmap in the years ahead. Meyer Prinsloo also joined the business as Chief Marketing Officer to help accelerate growth, increase our brand awareness and drive demand. Before essensys, Meyer led the marketing function at industry focussed enterprise SaaS business Fourth Ltd and was also previously at global advisory company Gartner.
From a geographical reach perspective we started the process of establishing our West Coast USA operation prior to the IPO which is now fully operational and provides an improved customer experience to our US customers and allows us greater access to the fast growth West Coast flexible workspace market. In addition, we have extended the essensysCloud private network with a further data centre location in Dallas, Texas which provides greater, and more cost effective, geographical coverage within the US market.
Following the IPO, we expanded the capacity of the Group's external offshore development centre in Vietnam and now have an additional 59 external software developers supporting our UK based R&D team. Those personnel are now predominantly focussed on accelerating the integration of our two software platforms and the introduction of new Marketplace services and we are pleased with the return that this increased level of investment has delivered to date.
Investment case
We believe essensys is well placed for future growth because of the following key strengths:
-- essensys is the established market leader in software and technology services to the flexible workspace sector;
-- We have a high-quality customer base delivering high quality recurring revenues, underpinned by long-term contracts;
-- We run an efficient, disciplined business focussed on delivering efficient profitable long-term growth;
-- We are at the early stages of flexible workspace adoption in the commercial real estate sector; and
-- We are deeply embedded within our customers and the industry.
Current trading and outlook
FY19 ended well, slightly ahead of expectations; FY20 has started well; and we remain ambitious for the future.
We continue to see ambitious and successful flexible workspace operators using essensys as a key enabler of their growth. New customer wins and site growth have continued since the year end and we are seeing increased engagement with traditional landlords and major commercial real estate companies entering the flexible workspace market. We are seeing this in both our main territories and in other geographies.
Geographically, our US business continues to make excellent progress and our recent establishment on the West Coast is already supporting our growth ambitions. Recent customer wins in Canada will allow us to expand our geographical reach with relatively little capital investment or risk. Whilst we anticipate that North America will remain a key engine of growth for the Group, we are seeing increasing demand from Continental Europe (which we can service from the UK) following our launch of Connect in Germany, and growth in Operate customers there, and expect to deliver further expansion there during FY20. In the latter half of FY20 we expect to investigate opportunities for expansion in Asia-Pacific.
In the UK, whilst growth in FY19 was pleasing, and continues, the possible impact of political and economic uncertainty s inevitably difficult to assess for the UK economy. What is clear is that the structural 'shift' to flexible working will continue. The Group's supply chain is international, with no material exposure to European suppliers. Our US business is operationally self-sufficient and underpins the Group's growth ambitions. Our European business, whilst growing, is modest and, we are in the early stages of establishing an EU based operation to support that growth and market entry there with existing customers.
By design, our largest customers are well funded, established multi-site operators and we also have a spread of customers, whilst our Connect business globally is underpinned by three year contracts. Furthermore, our software and services are mission critical and provide operational efficiencies and savings to our customers that are, in turn, crucial to the delivery of service to their own occupiers.
The growth in our existing customer base underpins the resilience and expansion of the Group both in our existing territories and internationally. At the same time, we continue to win new customers - both new entrants to the market and established operators who share our vision of technology supporting the flexible workspace environment. This, aligned with the continued strength of the flexible workspace market and an encouraging pipeline, supports our confidence for further progress in our 2020 financial year.
Mark Furness
Chief Executive Officer
21 October 2019
Financial Review
This is the first annual report and accounts issued by essensys plc following a corporate reorganisation implemented shortly prior to the Admission to trading on AIM on 29 May 2019 (the "IPO").
IPO Outcome
The fundraising undertaken by essensys plc (the "Company") as part of the IPO was more successful than anticipated, raising GBP14m for the Company (prior to expenses of GBP2.3m). This allowed the Group to repay in full all its bank debt and leaves us with a healthy cash position.
Incorporation, Group reorganisation & scope of financial results
The Company was incorporated as Essensys Group Limited on 22 January 2019 as a private limited company. On 16 May 2019, the Company acquired all the issued share capital of essensys (UK) Limited (formerly Essensys Limited), the Group's main trading company, by way of a share for share exchange with the shareholders of essensys (UK) Limited at that time. On 17 May 2019 the Company changed its name to essensys Limited and immediately re-registered as a public limited company in the name of essensys plc. This was undertaken in anticipation of the IPO.
The financial results included in this annual report cover the Group's combined activities for the 12 months ended 31 July 2019 and have been prepared on a merger accounting basis with the comparatives for the previous 12 months being those of essensys (UK) Limited and its subsidiaries (prepared in accordance with applicable International Financial Reporting Standards).
Financial Key Performance Indicators
GBP'm unless otherwise stated 2019 2018 Change
Group Total Revenue 20.6 16.4 +26%
UK 12.8 11.9 +8%
USA 7.8 4.5 +73%
Recurring Revenue(3) 16.3 12.9 +26%
UK 10.7 9.6 +11%
USA 5.6 3.3 +70%
Recurring Revenue %age of Total 79% 78%
Run Rate Annual Recurring Revenue(4) 17.3 13.6 +27%
Non-recurring revenue 4.3 3.5 +19%
Product Revenue
Connect 19.2 15.5 +24%
Operate 1.4 0.9 +56%
Gross Profit 12.6 10.0 +26%
Gross Profit percentage 61% 61%
Recurring Revenue margin %age 70% 68%
Statutory (loss)/ profit before
tax (1.4) 0.4
Adjusted EBITDA(4) 4.2 3.2 +31%
Adjusted EBITDA margin 20% 20%
Profit/(loss) before tax (pre-exceptionals) 1.1 0.4 +175%
Net Cash / (Debt) 2.7 (3.8)
3 See Revenue section below for explanation
4 See Adjusted EBITDA explanation below
Revenue
Group total revenue grew by 26% to GBP20.6m in the year driven primarily by an increase in Connect revenue within the Group's US business where total live Connect sites grew to 164 at the year end from 107 (as at 31 July 2018). Notwithstanding the slight reduction in overall Operate site numbers, monthly Operate revenue grew by 40% from July 2018 to July 2019 and by 47% in the full year.
Recurring revenue comprises income invoiced for services that are repeatable and consumed and delivered on a monthly basis 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 2019) and is an indication of the annual value of the recurring revenue for that month and is used by management to monitor long term revenue growth of the business.
Recurring revenue grew by 26% driven by the increase in number of Connect sites and pricing increases in the Operate business. Run Rate ARR grew 27% to GBP17.3m again driven primarily by the overall increase in Connect sites by 38% to 358 at year end (2018: 260).
Gross margins
Gross margins in the year were in line with FY18 with an increase in the recurring revenue margins to 70% being offset by reductions in non-recurring revenue. During the year UK recurring revenue margins increased to 77% as the benefit of cost reductions was experienced in the second half of the year. In the US, recurring revenue margins improved by three percentage points to 57% as that business' scale increased.
Administrative expenses
Excluding depreciation charges administrative expenses grew by GBP1.6m in the year, a 23% increase year on year, in line with our strategic investment plan. This was primarily driven by increases in staff costs resulting from increases in overall headcount, the strengthening of the senior management team that took place during 2018 and 2019 and increased employee bonus levels as the business has grown. In addition, the Group increased marketing expenditure significantly in 2019 over relatively modest expenditure in 2018.
Statutory (loss)/ profit for the year
As a consequence of the costs we incurred in achieving the IPO and the share based payment expense incurred as a result of the vesting of employee share options prior to the IPO, the Group made a loss before tax for the year of GBP1.4m (2018: profit of GBP0.4m), analysed as follows:
GBP'm 2019 2018
UK (including Group central costs) 0.6 0.9
US 0.5 (0.5)
Profit / (loss) before tax (pre-exceptionals) 1.1 0.4
Pre-IPO Share based payment expense (0.9) -
Post-IPO Share based payment (0.1) -
expense
IPO Costs (1.5) -
(Loss) / profit for the year (1.4) 0.4
====== ======
The Group's UK operation currently bears all the central management and governance costs of the business and as such the underlying performance of the UK business itself is understated. As noted above, the Group strengthened its senior management team during 2018 and 2019 which has resulted in additional, central payroll costs in the UK.
Following the IPO and year end, these central costs are now borne by the Company and in future will be identified separately.
The Group's US operation moved to break even during 2018 and was profitable during 2019.
The Pre-IPO Share based payment expense relates to share options in essensys (UK) Limited that were in existence prior to the IPO which vested and were exercised immediately prior to the IPO.
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 Notes 7, 14, 15, 16 and 28 of the financial statements. In addition, the Group also measures and presents performance in relation to various other non-GAAP 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) is calculated as follows:
GBP'm 2019 2018
Operating (Loss) / profit (1.0) 0.8
Add back:
Depreciation & Amortisation 2.7 2.4
EBITDA 1.7 3.2
Add back:
Share Option Charge 1.0 -
IPO related costs 1.5 -
Adjusted EBITDA 4.2 3.2
====== =====
Taxation
The Group incurred a small accounting tax expense in the year due to deferred tax charges arising in the UK. There was no current year corporation tax charge due to accumulated start-up losses in the US business combined with the overall current year loss made in the UK.
Cash
Net cash at year end was GBP2.7m (2018: net debt of GBP3.8m) following the receipt of the proceeds of the IPO and the repayment of bank debt. The Group's current cash reserves provide sufficient capital to fund current planned product and software development, any expected short-term geographic expansion and working capital as the business continues to grow.
Capital Expenditure
Software development costs aside, the Group's ongoing capital expenditure requirements are expected to be modest and focussed on extending the geographic reach of Connect with the expansion of the essensysCloud private network. During the year the Group invested GBP460,000 specifically in expanding and upgrading that network (2018: GBPnil). Other than capitalised software development costs (see below) and Right of Use Asset ("ROUA") additions, the Group incurred other capital expenditure of GBP262,000 related primarily to the establishment of its West Coast US operation and the implementation of new internal systems (2018: GBP176,000).
Capitalised Software Development Costs
The Group continues to invest in software development resulting in ongoing improvements in its two software platforms, Connect and Operate. During the year the Group established an outsourced offshore development centre with an external provider in Hanoi, Vietnam to accelerate this work. 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 GBP0.8m in respect of software development (2018: GBP0.6m).
In implementing its product development strategy following the IPO the Group anticipates capitalising software costs at a higher rate over the next few years during a period of accelerated product investment.
IFRS 16 Adoption & Right of Use Assets
In anticipation of the IPO, the Group adopted IFRS 16 for the production of the Historical Financial Information contained within the Group's Admission Document. This has altered the treatment of the following elements of the Group's operations, the future value of which are capitalised as Right of Use Assets and the annual costs of which are now treated as depreciation and interest:
-- Costs associated with the use of the Group's third party provided data centre locations which support the essensysCloud private network which were previously shown in cost of sales under UK GAAP; and
-- Costs associated with the leases of the Group's offices in London and New York which were previously included within administrative expenses under UK GAAP.
Dividend policy
The Group's intention in the short to medium term is to invest in development of the business order to deliver capital growth for shareholders. The Board has not recommended a dividend in respect of the year ended 31 July 2019.
Alan Pepper
Chief Financial Officer
21 October 2019
essensys plc
Consolidated Statement of Comprehensive Income
for the year ended 31 July 2019
Notes 2019 2018
GBP000 GBP000
Turnover 6 20,633 16,444
Cost of sales (7,986) (6,414)
_________ _________
Gross profit 12,647 10,030
Administrative expenses (11,233) (9,328)
Other operating income 51 79
Share based payment expense (979) -
IPO related costs (1,508) -
_________ _________
Operating (loss) / profit 7 (1,022) 781
Interest receivable and similar income 10 82 94
Interest payable and similar charges 11 (494) (459)
_________ _________
(Loss) / profit before taxation (1,434) 416
Taxation 12 (45) (24)
_________ _________
(Loss) / profit for the year from continuing
operations (1,479) 392
_________ _________
Other comprehensive income/(loss)
Items that may be reclassified to profit
or loss:
Currency translation differences 27 (8)
_________ _________
Other comprehensive income / (loss) for
the year 27 (8)
_________ _________
Total comprehensive (loss) / income for
the year (1,452) 384
_________ _________
Basic and Diluted (Loss) / profit per share 13 (3.7p) 1.0p
essensys plc
Consolidated Statement of Financial Position
as at 31 July 2019
Notes 2019 2018
GBP000 GBP000
ASSETS
Non-current assets
Intangible assets 14 3,732 3,674
Property, plant and equipment 15 1,376 943
Right of use assets 16 3,119 3,751
_________ _________
8,227 8,368
Current assets
Inventories 18 292 -
Trade and other receivables 19 5,727 6,775
Cash at bank and in hand 2,688 882
_________ _________
8,707 7,657
_________ _________
TOTAL ASSETS 16,934 16,025
_________ _________
EQUITY AND LIABILITIES
EQUITY
Shareholders' equity
Called up share capital 20 120 97
Share premium 21 13,184 -
Share based payment reserve 979 -
Merger reserve 28 28
Retained earnings (5,318) 2,898
_________ _________
TOTAL EQUITY 8,993 3,023
LIABILITIES
Non-current liabilities
Borrowings 23 - 3,857
Lease liabilities 24 1,637 2,633
Deferred Tax 25 67 -
_________ _________
1,704 6,490
Current liabilities
Borrowings 23 - 787
Trade and other payables 22 3,382 2,768
Contract liabilities 6E 1,044 1,156
Lease liabilities 24 1,811 1,639
Current taxes - 162
_________ _________
6,237 6,512
_________ _________
TOTAL LIABILITIES 8,196 13,002
_________ _________
TOTAL EQUITY AND LIABILITIES 16,934 16,025
_________ _________
The financial statements were approved by the Board of Directors and authorised for issue on 21 October 2019.
Alan Pepper
Director
essensys plc
Consolidated Statement of Changes in Equity
for the Year Ended 31 July 2019
Share
based
Share Share payment Merger Retained Total
capital premium Reserve Reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
1 August 2018 97 - - 28 2,898 3,023
Comprehensive loss for
the year
Loss for the year - - - - (1,479) (1,479)
Currency translation differences - - - - 27 27
_______ _______ _______ _______ _______ _______
Total comprehensive loss
for the year - - - - (1,452) (1,452)
_______ _______ _______ _______ _______ _______
Transactions with shareholders
essensys (UK) Limited
Share buy back (see note
29) - - - - (2,315) (2,315)
essensys (UK) Limited
Dividends paid (see note
29) - - - - (4,449) (4,449)
New shares issued 23 13,977 - - - 14,000
Cost incurred in issuing
new shares - (793) - - - (793)
Share based payment charge - - 979 - - 979
_______ _______ _______ _______ _______ _______
31 July 2019 120 13,184 979 28 (5,318) 8,993
_______ _______ _______ _______ _______ _______
Consolidated Statement of Changes in Equity
For the Year Ended 31 July 2018
Share
based
Share Share payment Merger Retained Total
capital premium Reserve Reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
1 August 2017 97 - - 28 2,514 2,639
Comprehensive income for
the year
Profit for the year - - - - 392 392
Currency translation differences - - - - (8) (8)
_______ _______ _______ _______ _______ _______
Total comprehensive income
for the year - - - - 384 384
_______ _______ _______ _______ _______ _______
31 July 2018 97 - - 28 2,898 3,023
_______ _______ _______ _______ _______ _______
essensys plc
Consolidated Statement of Cash Flows
for the Year Ended 31 July 2019
Notes 2019 2018
GBP000 GBP000
Cash from operations 32 A 2,026 2,598
Corporation tax paid (131) (120)
Foreign exchange 38 8
_________ _________
Net cash generated from operating
activities 1,933 2,486
_________ _________
Cash flows from investing activities
Purchases of intangible assets 14 (800) (554)
Purchases of property plant and equipment 15 (722) (176)
Payment of deferred consideration - (242)
Interest received 82 94
_________ _________
Net cash used in investing activities (1,440) (878)
_________ _________
Cash flows from financing activities
Proceeds from the issuance of new 14,000 -
shares
Costs of issuing new shares (2,301) -
Dividends paid (915) -
Buy back of shares (2,315) -
Proceeds from bank loans 10,000 378
Repayment of bank loans (14,644) (355)
Repayment lease liabilities 24 (2,020) (1,664)
Interest paid on lease liabilities 24 (198) (183)
Bank and other interest paid (299) (192)
_________ _________
Net cash generated from / (used in)
financing activities 1,308 (2,016)
_________ _________
Net increase / (decrease) in cash
and cash equivalents 1,801 (408)
Cash and cash equivalents at beginning
of year 882 1,293
Effects of foreign exchange rate changes 5 (3)
_________ _________
Cash and cash equivalents at end of
year 2,688 882
_________ _________
Cash and cash equivalents comprise:
Cash at bank and in hand 2,688 882
_________ _________
essensys plc
Notes to the financial statements
for the year ended 31 July 2019
1 General information
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 the critical infrastructure and business processes, primarily of operators in the flexible workspace industry. These activities are carried out by the Group's wholly owned subsidiaries.
The Company's principal activity is to provide management services to its subsidiaries.
2 Authorisation of financial statements and statement
of compliance with IFRS
The financial statements for the year ended 31 July 2019 were authorised for issue by the Board of Directors and the Statements of Financial Position were signed on the Board's behalf by Mark Furness and Alan Pepper on 21 October 2019.
The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the Financial Reporting Interpretations Committee (IFRIC) interpretations as endorsed by the European Union and bearing in mind those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements of the Company have been prepared in manner consistent with those of the Group.
3 Basis of Preparation
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.
Publication of non-statutory accounts
In accordance with section 435 of the Companies Act 2006, the Directors advise that the financial information set out in this announcement for the years ended 31 July 2019 and 31 July 2018 do not constitute the Group's statutory financial statements for those years but is derived from those financial statements.
The statutory financial statements for the year ended 31 July 2018 have been audited and filed with the Registrar of Companies. The statutory financial statements for the year ended 31 July 2019 have been audited and will be delivered to the Registrar of Companies in due course.
The Independent Auditor's Reports on the Group's financial statements for the years ended 31 July 2019 and 31 July 2018 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
Going concern
The Group carefully manages financial resources, closely monitoring the working capital cycle. The Group has long term contracts with a number of customers and suppliers across different geographical areas and industries. Consequently, the Directors believe that the Group is well placed to manage its business risks successfully.
The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. As part of their enquiries in this regard the Directors reviewed budgets, projected cash flows and other relevant information for the 12 months from the date of approval of the financial statements. The financial statements are prepared on a going concern basis which the Directors believe to be appropriate for the above reasons.
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 16 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 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 are recognised in a merger reserve.
The company has 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.
4 Summary of significant accounting policies
Revenue
The Group generates revenue 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.
(a) Invoicing
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) Contracts and 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.
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 bank loans, lease obligations and other interest payable. Interest on bank loans and other interest 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 of 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.
(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 losses' 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 operations 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 exclusively of work in progress, which are items that have been purchased and allocated to satisfy specific 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 cost of the shares issued 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. 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 CGU'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 essensys plc 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.
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 reasonable 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
(a) IFRS 9 Financial Instruments (IFRS9)
IFRS 9 has replaced IAS 39 Financial Instruments and Measurement (IAS 39), and contains the requirement for:
-- the classification and measurement of financial assets and financial liabilities -- impairment methodology, and -- general hedge accounting
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables and contract assets. To measure expected credit losses on a collective basis trade receivables and contract assets are grouped based on similar credit risk and aging. The contract assets have similar risk characteristics to the trade receivables for similar types of contracts.
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.
Given the nature of the Group's financial assets and liabilities and the limited bad debt history, the adoption of IFRS 9 has had no material impact on the financial statements.
(b) IFRS 15 Revenue from Contracts with Customers (IFRS 15)
IFRS 15 is a prescriptive standard which requires a business to identify the performance obligations which are contracted with its customer base. The Directors have reviewed the requirements of IFRS 15 and updated the accounting policies as appropriate. The changes have been both narrative and required adjustment to prior periods. The financial statements have been presented as such that the comparatives already include the adjustments required under IFRS 15.
(c) IFRS 16 Leases (IFRS 16)
The Group chose to adopt IFRS 16 in advance of its mandatory introduction date for accounting periods commencing on or after 1 January 2019. The standard has been applied fully retrospectively and so comparatives are accounted for under IFRS16.
IFRS 16 supersedes International Accounting Standard (IAS) 17 Leases and introduces new single lessee accounting model which eliminates the current distinction between operating and finance leases for lessees. The primary impact on the Group's financial statements are due to the required changes of the Group's operating leases. The new standard requires that the obligations to pay future lease rentals over the expected lease term be recognised as a lease liability (current and non-current) discounted at the incremental borrowing rate with a corresponding RoUA also being recognised in the Statement of Financial Position. The impact has been a material change in the gross assets and liabilities, as a result of recognising the leases as RoUA and liabilities, for the change in accounting policy, however there has not been a material impact in the value of the Group's net assets. Additionally, whilst the depreciation on the RoUA and the interest on the finance liability would be different to the present operating charges, there is not a material impact on the financial statements.
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. The Group does not expect any of the following standards issued by the IASB, but not yet effective, to have a material impact on the Group:
-- IFRS 9 (2014) Financial Instruments (Amendment - Prepayment Features with Negative Compensation and Modification of Financial Liabilities);
-- IFRIC 23 Uncertainty over Income Tax Treatments;
-- IAS 28 Investments in Associates and Joint Ventures (Amendment - Long-term Interests in Associates and Joint Ventures);
-- Annual Improvements to IFRSs 2015 - 2017 Cycle; and -- IAS 19 Employee Benefits (Amendment - Plan Amendment, Curtailment or Settlement). 5 Significant accounting judgements, estimates and assumptions
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.
Accounting for IPO
During the year the Group incurred a total GBP2.3m of costs associated with its listing on the Alternative Investment Market of the London Stock Exchange (the "IPO"). Of this, GBP0.8m has been deducted against the share premium that resulted from the funds raised at IPO with the balance of GBP1.5m being expensed in the year. In assessing the appropriate treatment of the overall expenditure, the Group has reviewed the IPO related expenditure in detail and only deducted from the share premium account those costs that can, in management's judgement, be directly or reasonably proportionately attributed to the share proceeds raised for the Group at IPO.
Valuation of Share Options
During the year the Group incurred a share-based payment charge of GBP979,000, of which GBP897,000 was in relation to share options in existence in essensys (UK) Limited (formerly Essensys Limited) issued prior to the IPO which were exercised shortly before the IPO. The balance of GBP82,000 comprised the amount chargeable to the year ended 31 July 2019 in respect of options in the Company issued on 28 May 2019, immediately prior to the IPO.
The charge in respect of the pre-IPO options in essensys (UK) Limited was based on valuations undertaken at the time of grants of options using a discounted cash flow valuation of that business. That valuation took into account recent financial performance at that time together with management's estimate then of future financial performance, that company's cost of capital and expected long term growth rate. As the pre-IPO option scheme was a 'exit only' scheme, the entire charge relating to that option scheme was expensed during the year ended 31 July 2019 as all outstanding options vested and were exercised shortly prior to the IPO.
The charge related to options in the Company at IPO was based on valuations undertaken using a Black Scholes or Monte Carlo Simulation option pricing models, depending on the type of option. In assessing that valuation judgements were made as to likely 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 valuation of those options issued at 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 issued as part of the IPO process.
6 Segmental Reporting
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 services.
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 industry. The Group has two revenue segments and two 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:
2019 2018
GBP000 GBP000
Analysis of turnover by country of destination:
United Kingdom 12,853 11,926
United States of America 7,780 4,518
_________ _________
Total Income 20,633 16,444
_________ _________
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:
2019 2018
GBP000 GBP000
Connect 19,188 15,467
Operate 1,445 977
_________ _________
Total Income 20,633 16,444
_________ _________
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:
2019 2018
GBP000 GBP000
Revenue recognised at a point in time 4,291 3,556
Revenue recognised over time 16,342 12,888
_________ _________
Total Income 20,633 16,444
_________ _________
6D Revenue from customers greater than 10%
Revenue from customers greater than 10% in each reporting
period is as follows:
2019 2018
GBP000 GBP000
Customer 1 2,952 3,095
Customer 2 2,864 2,746
Customer 3 2,623 1,668
_________ _________
6E Contract assets and liabilities
Contract asset movements were as follows:
2019 2018
GBP000 GBP000
At 1 August 327 478
Transfers in the period from contract
assets to trade receivables (327) (478)
Excess of revenue recognised over cash
(or rights to cash) being recognised
during the period 271 327
Commission costs capitalised on contracts 204 -
_________ _________
At 31 July 475 327
_________ _________
Contract liability movements were as follows:
2019 2018
GBP000 GBP000
At 1 August 1,156 2,008
Amounts included in contract liabilities
that was recognised as revenue during
the period (880) (1,319)
Cash received and receivable in advance
of performance and not recognised as
revenue during the period 768 467
_________ _________
At 31 July 1,044 1,156
_________ _________
Contract assets are included within 'trade and other receivables' and contract liabilities is shown respectively 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 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. Prior to the current year the Group expensed these costs in the year of the relevant contract started.
7 Operating (loss)/profit
2019 2018
GBP000 GBP000
This is arrived at after charging/(crediting):
Depreciation of tangible fixed assets 425 363
Amortisation of intangible assets 742 642
Amortisation of right of use assets 1,586 1,436
Loss on disposal of right of use asset 61 -
Fees payable to the Group's auditor (see
below) 494 80
Amortisation of loan arrangement fee 45 -
Write off loan arrangement fees 18 -
Exchange differences (38) (8)
Research & Development expense 88 192
Staff costs (note 8) 6,606 4,933
Share based payment charges 979 -
IPO costs 1,508 -
Expected credit loss provision 56 (43)
_______ _______
Analysis of fees paid to the Group's
auditor:
Annual financial statements 74 66
_________ _________
Audit Fee 74 66
_________ _________
Tax services - 14
Assurance services 24 -
Corporate finance services 396 -
_________ _________
Non audit services 420 14
_________ _________
Total fee 494 80
_______ _______
8 Employees
Staff costs (including directors) consist
of:
2019 2018
GBP000 GBP000
Wages and salaries 5,655 4,216
Social security costs 623 532
Cost of defined contribution scheme 145 119
Other 183 66
_________ _________
6,606 4,933
_________ _________
The average number of employees (including directors)
during the year was as follows:
2019 2018
No. No.
Executive 7 7
Sales & Marketing 9 8
Finance & Administration 8 7
Support 29 30
Development 15 15
Provisioning 6 6
_________ _________
74 73
_________ _________
9 Key management remuneration
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.
2019 2018
GBP000 GBP000
Salaries and fees 1,597 1,061
Social security costs 161 105
Short term non-monetary benefits 25 48
Company contributions to money purchase
pension schemes 47 18
Share based payment expense 562 -
_________ _________
2,392 1,232
_________ _________
10 Interest receivable and similar income
2019 2018
GBP000 GBP000
Interest receivable from related parties 82 94
_________ _________
82 94
_________ _________
11 Interest payable and similar charges
2019 2018
GBP000 GBP000
Bank loans and overdrafts 299 160
Finance leases and hire purchase contracts 195 267
Other interest - 32
_________ _________
494 459
_________ _________
12 Taxation on (loss) / profit on ordinary activities
2019 2018
GBP000 GBP000
Current tax
UK corporation tax 3 50
Irrecoverabe tax on loans to participators 20 -
Adjustment in respect of previous periods (74) 8
Foreign tax on income for the year 6 3
_________ _________
Total current tax (45) 61
_________ _________
Deferred tax
Origination and reversal of timing differences 90 (33)
Adjustments in respect of prior periods - (4)
_________ _________
Total deferred tax 90 (37)
_________ _________
Taxation on profit on ordinary activities 45 24
_________ _________
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:
2019 2018
GBP000 GBP000
(Loss) / profit on ordinary activities before
tax (1,434) 416
_________ _________
Tax using the Group's domestic tax rates
(19%) (272) 83
Effects of:
Fixed asset differences 143 13
Expenses not deductible for tax purposes 494 159
Adjustments to tax charge in respect of previous
periods (127) (110)
Irrecoverable tax on loans to participators 20 -
Adjustment in respect of prior periods (74) -
Income not taxable for tax purposes - -
Deduction for R&D expenditure (22) (130)
Other permanent differences (2) -
Other tax adjustments, reliefs and transfers 10 -
Foreign tax on income for the year 35 3
Adjust closing deferred tax to average rate (1) 6
Adjust opening deferred tax to average rate (5) -
Timing differences not recognised (57) -
Deferred tax not recognised (97) (65)
_________ _________
Total tax charge for period 45 24
_________ _________
13 Earnings per share
2019 2018
Basic and diluted weighted average number
of shares 40,381,298 38,836,044
_________ _________
2019 2018
GBP000 GBP000
(Loss)/profit for the year attributable to
owners of the Group (1,479) 392
_________ _________
Basic and diluted (loss) / profit per share
(pence) (3.7p) 1.0p
_________ _________
The loss per share has been calculated using the (loss)/profit for the year and the weighted average number of ordinary shares outstanding during the period. Options outstanding at 31 July 2018 have not been included in the calculation of EPS because their exercise was contingent on the satisfaction of certain criteria that had not been met by 31 July 2018.
14 Intangible assets
Customer Internal
software
Group relationships development Software Goodwill Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 July 2018 335 3,661 280 1,263 5,539
Additions - 800 - - 800
_________ _________ _________ _________ _________
At 31 July 2019 335 4,461 280 1,263 6,339
_________ _________ _________ _________ _________
Amortisation
At 1 July 2018 154 1,547 164 - 1,865
Charge for year 63 615 64 - 742
_________ _________ _________ _________ _________
At 31 July 2019 217 2,162 228 - 2,607
_________ _________ _________ _________ _________
Net book value
At 31 July 2019 118 2,299 52 1,263 3,732
_________ _________ _________ _________ _________
At 31 July 2018 181 2,114 116 1,263 3,674
_________ _________ _________ _________ _________
The goodwill relates to the acquisition of Hubcreate Limited on 18 February 2016 and has not been impaired since acquisition. The goodwill all relates to the 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 together with a terminal value using the long-term growth rate. 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 pre-tax discount rate used in all periods is 12% derived from a WACC calculation and benchmarked against similar organisations within the sector. The long-term growth rate used is 2% in all periods which is the underlying growth rate of the economy. Using a discount rate of 15% and a long-term growth rate of 1% as sensitised assumptions also does not result in any impairment. The total recoverable amount in respect of goodwill as assessed by management using the above assumptions is greater than the carrying amount and therefore no impairment charge has been booked in each period.
14 Intangible assets
Customer Internal
software
Group relationships development Software Goodwill Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 July 2017 335 3,107 280 1,263 4,985
Additions - 554 - - 554
_________ _________ _________ _________ _________
At 31 July 2018 335 3,661 280 1,263 5,539
_________ _________ _________ _________ _________
Amortisation
At 1 July 2017 91 1,033 99 - 1,223
Charge for year 63 514 65 - 642
_________ _________ _________ _________ _________
At 31 July 2018 154 1,547 164 - 1,865
_________ _________ _________ _________ _________
Net book value
At 31 July 2018 181 2,114 116 1,263 3,674
_________ _________ _________ _________ _________
At 31 July 2017 244 2,074 181 1,263 3,762
_________ _________ _________ _________ _________
15 Property, plant and equipment
Fixtures Computer Leasehold
and
Group fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 July 2018 111 3,872 155 4,138
Additions 42 665 15 722
Exchange adjustments 33 226 (37) 222
_________ _________ _________ _________
At 31 July 2019 186 4,763 133 5,082
_________ _________ _________ _________
Depreciation
At 1 July 2018 68 3,070 57 3,195
Charge for year 36 376 14 426
Exchange adjustments 16 67 2 85
_________ _________ _________ _________
At 31 July 2019 120 3,513 73 3,706
_________ _________ _________ _________
Net book value
At 31 July 2019 66 1,250 60 1,376
_________ _________ _________ _________
At 31 July 2018 43 802 98 943
_________ _________ _________ _________
Fixtures Computer Leasehold
and
fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 July 2017 96 3,742 121 3,959
Additions 15 127 34 176
Exchange adjustments - 3 - 3
_________ _________ _________ _________
At 31 July 2018 111 3,872 155 4,138
_________ _________ _________ _________
Depreciation
At 1 July 2017 41 2,768 17 2,826
Charge for year 26 296 40 362
Exchange adjustments 1 6 - 7
_________ _________ _________ _________
At 31 July 2018 68 3,.070 57 3,195
_________ _________ _________ _________
Net book value
At 31 July 2018 43 802 98 943
_________ _________ _________ _________
At 31 July 2017 135 1,877 581 2,593
_________ _________ _________ _________
16 Right of use
assets
Leasehold Fixtures Computer Leasehold
and
Group property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 July 2018 3,393 167 2,716 584 6,860
Additions 959 - - - 959
Disposals (99) - - - (99)
Exchange adjustments 109 (25) 99 - 183
_________ _________ _________ _________ _________
At 31 July 2019 4,362 142 2,815 584 7,903
_________ _________ _________ _________ _________
Depreciation
At 1 July 2018 1,290 75 1,642 102 3,109
Charge for year 928 35 565 58 1,586
Disposals (38) - - - (38)
Exchange adjustments 80 (11) 58 - 127
_________ _________ _________ _________ _________
At 31 July 2019 2,260 99 2,265 160 4,784
_________ _________ _________ _________ _________
Net book value
At 31 July 2019 2,102 43 550 424 3,119
_________ _________ _________ _________ _________
At 31 July 2018 2,103 92 1,074 482 3,751
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 July 2017 4,014 167 2,714 584 7,479
Additions 661 - - - 661
Disposals (1,287) - - - (1,287)
Exchange adjustments 5 - 2 - 7
_________ _________ _________ _________ _________
At 31 July 2018 3,393 167 2,716 584 6,860
_________ _________ _________ _________ _________
Depreciation
At 1 July 2017 1,820 33 1,053 44 2,950
Charge for year 758 42 578 58 1,436
Disposals (1,287) - - - (1,287)
Exchange adjustments (1) - 11 - 10
_________ _________ _________ _________ _________
At 31 July 2018 1,290 75 1,642 102 3,109
_________ _________ _________ _________ _________
Net book value
At 31 July 2018 2,103 92 1,074 482 3,751
_________ _________ _________ _________ _________
At 31 July 2017 2,194 134 1,661 540 4,529
_________ _________ _________ _________ _________
17 Subsidiaries
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
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 Inc is Nelson Tower, 450 7(th) Avenue, New York, NY 10123. The registered offices of Hubcreate Limited, TVOC Limited and Spacebuddi Limited are as per the Company as given on the company information page.
18 Inventories
2019 2018
GBP000 GBP000
Work in progress 292 -
_________ _________
292 -
_________ _________
Work in progress are items and third party services purchased to satisfy specific customer contracts, where title has yet passed. Balances in previous years were not considered significant and are included within Prepayments at note 19 below.
19 Trade and other receivables
2019 2018
GBP000 GBP000
Trade receivables (net) 3,019 1,768
Other receivables 910 4,213
Taxes and other social security 63 -
Corporation tax 40 -
Prepayments 1,220 463
Contract asset 475 327
Deferred taxation (note 25) - 4
_________ _________
5,727 6,775
_________ _________
Included in other receivables in 2018 were Directors loan accounts within essensys (UK) Limited totalling GBP3,226,547. On 5 June 2019 all outstanding Directors loan accounts were repaid in full.
Analysis of trade receivables based on age of invoices
Total
< 30 31 - 60 61 -90 > 90 Total Gross ECL Net
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----- -------- -------- -------- -------- ----------- -------- --------
2018 1,238 225 106 208 1,777 (9) 1,768
2019 1,722 40 419 903 3,084 (65) 3,019
----- -------- -------- -------- -------- ----------- -------- --------
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. Based on the analyses performed there is no material impact on the transition to ECL.
At 31 July 2019 the lifetime expected loss provision for trade receivables and contract assets is as follows:
Less than
30 31 to 60 61 to 90 91 or more
days past days past days past days past Total
due due due due
GBP000 GBP000 GBP000 GBP000 GBP000
Expected loss
rate 0% 0% 0% 7.20%
Gross carrying
amount 2,197 40 419 903 3,559
ECL - - - 65 65
Movements in the ECL are as follows:
2019 2018
GBP000 GBP000
Opening ECL at 1 August 9 52
Increase during the year 56 -
Receivables written off as uncollectable - -
Unused amount reversed - (43)
_______ _______
ECL charge for the year 56 (43)
_______ _______
At 31 July 65 9
_______ _______
20 Share capital
2019 2018
GBP000 GBP000
Allotted, called up and fully paid
48,107,567 (2018 - 38,836,044) ordinary
shares of 0.0025p each (2018 - 0.01p) 120 97
_______ _______
The comparative share capital shown above is that of essensys (UK) Limited, previously Essensys Limited, immediately prior to its acquisition by the Company. On 15 May 2019 essensys (UK) Limited underwent a corporate reorganisation during which all outstanding share options were exercised, the company undertook a bonus share issue followed by a share split to result in essensys (UK) Limited having 38,836,044 shares of GBP0.0025p in issue. On 16 May 2019 the Company acquired the issued share capital of essensys (UK) Ltd, by way of a share for share exchange and on 29 May 2019 the Company was admitted to trading on AIM via an initial public offering (IPO), which generated gross proceeds of GBP14,000,000 (net proceeds of GBP11,699,000) from the issue of 9,271,523 new ordinary shares at 151p per share.
21 Share premium
2019 2018
GBP000 GBP000
Share premium at start of period - -
Issue of new shares 13,977 -
Cost of issuing new shares recognised (793) -
in equity
_______ _______
13,184 -
_______ _______
22 Trade and other payables
2019 2018
GBP000 GBP000
Amounts falling due within one year
Trade payables 1,678 1,689
Other taxes and social security 319 499
Other creditors 117 25
Accruals 1,268 555
_________ _________
3,382 2,768
_________ _________
23 Borrowings
2019 2018
GBP000 GBP000
Non-current
RCF - 2,600
Acquisition Loan - -
EIF Loan - 1,257
_________ _________
- 3,857
_________ _________
Current
RCF - -
Acquisition Loan - 514
EIF Loan - 273
_________ _________
- 787
_________ _________
_________ _________
Total borrowings - 4,644
_________ _________
Following the Group's admission to trading on AIM, the Group repaid all borrowings.
24 Lease liabilities
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.
2019 2018
GBP000 GBP000
Number of active leases 27 23
_________ _________
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 2019 and 2018 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 2018 2,491 112 1,263 406 4,272
Additions 959 - - - 959
Interest expense 75 9 76 35 195
Effect of modification
to lease terms (60) - - - (60)
Lease payments (1,098) (35) (744) (143) (2,020)
Foreign exchange
movements 77 - 25 - 102
_________ _________ _________ _________ _________
At 31 July 2019 2,444 86 620 298 3,448
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 August 2017 2,689 136 1,861 505 5,191
Additions 661 - - - 661
Interest expense 84 11 128 44 267
Effect of modification - - - - -
to lease terms
Lease payments (943) (35) (726) (143) (1,847)
Foreign exchange - - - -
movements
_________ _________ _________ _________ _________
At 31 July 2018 2,491 112 1,263 406 4,272
_________ _________ _________ _________ _________
Lease maturity
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2019 2019 2019 2019 2019
Up to 3 months 252 - 180 - 432
3 to 12 months 1,029 - 350 - 1,379
1-2 years 609 86 90 298 1,083
2-5 years 554 - - - 554
More than 5 years - - - - -
_________ _________ _________ _________ _________
2,444 86 620 298 3,448
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2018 2018 2018 2018 2018
Up to 3 months - - - - -
3 to 12 months 788 83 649 119 1,639
1-2 years 1,703 29 614 287 2,633
2-5 years - - - - -
More than 5 years - - - - -
_________ _________ _________ _________ _________
2,491 112 1,263 406 4,272
_________ _________ _________ _________ _________
Analysis by current and non-current
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2019 2019 2019 2019 2019
Due within a year 1,281 - 530 - 1,811
Due in more than
one year 1,163 86 90 298 1,637
_________ _________ _________ _________ _________
2,444 86 620 298 3,448
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2018 2018 2018 2018 2018
Due within a year 938 7 605 89 1,639
Due in more than
one year 1,553 105 658 317 2,633
_________ _________ _________ _________ _________
2,491 112 1,263 406 4,272
_________ _________ _________ _________ _________
25 Deferred taxation
2019 2018
GBP000 GBP000
Brought forward (4) 33
Charged/(credited) to the income statement 71 (33)
Deferred tax transfer - -
Arising on business combinations in prior - -
years
_________ _________
Carried forward 67 -
_________ _________
The provision for deferred taxation is
made up as follows:
2019 2018
GBP000 GBP000
Fixed asset timing
differences 138 (79)
Other timing differences (71) 79
_________ _________
67 -
_________ _________
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 2020, and this has been reflected in this historical financial information.
26 Financial instruments
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 -- Bank loan
It is Group policy that no trading in financial instruments should be undertaken.
Financial instruments by category
2019 2018
GBP000 GBP000
Financial assets at amortised cost
Cash and cash equivalents 2,688 882
Trade and other receivables 4,488 6,312
_________ _________
Total financial assets at amortised cost 7,716 7,194
_________ _________
Financial liabilities
Trade and other payables 3,063 2,266
Bank Loan - 4,644
Lease liabilities 3,448 4,272
_________ _________
Total financial liabilities 6,511 11,182
_________ _________
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 directors. The directors 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.
(b) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises because the Group operates in the United Kingdom and the United States of America, 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.
2019 2018
GBP000 GBP000
Financial assets 5,833 6,468
Financial liabilities 1,836 6,546
_________ _________
The table below represents financial instruments that
are denominated in currencies other than the functional
currencies of the group entities:
2019 2018
$000 $000
Financial assets 2,944 1,491
Financial liabilities 1,422 1,111
_________ _________
(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 2109 there are no loans outstanding, (2018 - GBP4,644,000) and the overdraft facility is available but not in use. Therefore, there is no material exposure to interest rate risk
2019 2019 2018 2018
GBP000 % GBP000 %
Interest Interest
margin margin
Floating rate borrowings
Bank loan - RCF - - 2,600 3.10
Bank loan - acquisition
loan - - 514 3.10
Bank loan - EIF loan - - 1,530 3.85
_________ _________
- 4,644
_________ _________
All interest margins were above the Bank of England base rate of LIBOR.
(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 financial assets.
2019 2018
GBP000 GBP000
Less than one year - 787
One to two years - 3,857
Two to five years
_________ _________
- 4,644
_________ _________
A maturity analysis of the Group's trade and other payables is shown below:
2019 2018
GBP000 GBP000
Less than one year 3,382 2,768
One to two years - -
Two to five years - -
_________ _________
3,382 4,644
_________ _________
27 Pension commitments
The Group operates defined contributions 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.
2019 2018
GBP000 GBP000
Pension charge 145 119
_______ _______
Pension liability 30 15
_______ _______
28 Share based payments
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.
Weighted Weighted
average average
exercise exercise
price price
(pence) Number (pence) Number
2019 2019 2018 2018
Outstanding at the beginning
of the year GBP4.97 2,778 GBP0.01 2,536
Granted during the year GBP0.95 2,695,330 GBP4.97 1,341
Forfeited during the year GBP21.94 (131) GBP0.01 (1,099)-
Exercised during the year GBP3.61 (3,023) -
Expired during the year - -
_________ _________
Outstanding at the end
of the year GBP0.95 2,694,954 GBP4.97 2,778
_________ _________
All options outstanding at the start of the year were exercised in advance of the IPO. The weighted average exercise price of options outstanding at the end of the year ranged was 95.25p and their weighted average contractual life was 9.8 years.
Of the total number of options outstanding at the end of the year, no options had vested and were exercisable.
Market Value Options were valued using the Black Scholes option pricing model. 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:
2019
Risk free investment 1.01%
Expected life 4.4 years
Expected volatility 40%
Given a lack of historic volatility information related to the Company's shares, the volatility used was based on that of a comparative group of companies trading on AIM. 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 GBP979,000 in the year, comprising GBP897,000 related to the vesting and exercise of options in essensys (UK) Limited immediately prior to the corporate reorganisation in anticipation of the Company's IPO and a further GBP82,000 related to options issued immediately prior to Admission.
The essensys (UK) Limited option scheme was an 'exit only' scheme where options only vested in the event of a corporate transaction, in this case, the IPO. All essensys (UK) Limited options vested at IPO resulting in the accelerated catch up charge of GBP897,00 and that scheme is now closed. All options in the Company vest three years from the date of grant. Performance shares vest only on the achievement of certain performance conditions.
29 Related party transactions
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 directors across the essensys plc group who together have authority and responsibility for planning, directing and controlling the activities of essensys plc group. Details of key management compensation is shown in note 9.
Pre-IPO share buy-back by essensys (UK) Limited
On 15 February 2019 essensys (UK) Limited (then Essensys Limited) bought back 3,250 ordinary shares for a total consideration of GBP2,315,000 from a former director and employee of essensys (UK) Limited. The shares repurchased were cancelled on 15 February 2019.
Pre-IPO Dividend to shareholders of essensys (UK) Limited
On 16 May 2019 the Company's subsidiary essensys (UK) Limited declared a dividend of GBP180.58 per original essensys (UK) Limited share to its shareholders at the time, the majority of whom were directors of that company. The total dividend amounted to GBP4,449,034 and was declared in advance of essensys (UK) Limited's acquisition by the Company by way of the share for share exchange in anticipation of the IPO. GBP3,533,513 of the dividend was used to settle outstanding directors' loans as set out below. The remainder of the dividend was paid as cash. At the time the dividend was declared essensys (UK) Limited had sufficient distributable reserves and continues to have positive distributable reserves.
Directors Loans
The following advances and credits to the directors and key management personnel subsisting during the years ended 31 July 2019 and 31 July 2018. All advances incurred interest at a rate of 3.25% per annum. Directors loans are included within Other receivables in Note 19.
2019 2018
GBP000 GBP000
Mark Furness
Balance outstanding at start of year 3,103 2,756
Amounts advanced 351 284
Amounts repaid (3,534) (26)
Interest charged 80 89
_________ _________
- 3,103
_________ _________
All amounts outstanding were repaid during the year. The maximum loan balance subsisting during the year was GBP3,533,513 (2018 - GBP3,129,325).
2019 2018
GBP000 GBP000
Michael Guest
Balance outstanding at start of year 124 102
Amounts advanced 11 19
Amounts repaid (137) -
Interest charged 2 3
_________ _________
- 124
_________ _________
All amounts outstanding were repaid during the year. The maximum loan balance subsisting during the year was GBP137,687 (2018 - GBP124,300).
2019 2018
GBP000 GBP000
Barry Clark
Balance outstanding at start of year - 30
Amounts advanced - -
Amounts repaid - (31)
Interest charged - 1
_________ _________
- -
_________ _________
All amounts outstanding were repaid during 2018. The maximum loan balance subsisting during the year was GBPnil (2018 - GBP30,658).
30 Capital commitments and contingent liabilities
The Group had no capital commitments or contingent liabilities at 31 July 2019 (2018: USD $204,500)
31 Events after the reporting date
There are no events of any materiality after the reporting date to report.
32 Notes supporting statement of cash flows
32 A Cash from operations
2019 2018
GBP000 GBP000
Cash flows from operating activities
(Loss) / profit for the financial
year before taxation (1,434) 416
Adjustments for non-cash/non-operating
items:
Amortisation of intangible assets 742 642
Depreciation of property plant and
equipment 425 363
Loss on disposal of right of use asset 61 -
Write off of loan arrangement fee 18 -
Amortisation of loan arrangement fee 45 -
Amortisation of right of use assets 1,586 1,436
IPO related costs 1,508 -
Share based payment expense 979 -
Gains and losses on foreign exchange
transactions (38) (8)
Finance income (82) (94)
Finance expense 494 459
_________ _________
4,304 3,214
Changes in working capital:
(Increase) /decrease in inventories (292) -
(Increase) / decrease in trade and
other debtors (2,488) (131)
Increase / (decrease) in trade and
other creditors 502 (485)
_________ _________
Cash from operations 2,026 2,598
_________ _________
32 Movement in net debt
B
Cash and
cash equivalents Borrowings Total
GBP000 GBP000 GBP000
As at 1 August 2017 1,293 (4,613) (3,320)
Cashflow (411) 129 (282)
Interest charges - (160) 160)
Exchange movements (5) - (5)
As at 31 July 2018 877 (4,644) (3,767)
Cashflow 1,806 4,943 6,749
Interest charge - (299) (299)
Exchange movements 5 - 5
_________ _________ _________
As at 31 July 2019 2,688 - 2,688
_________ _________ _________
Cash and
cash equivalents Borrowings Total
GBP000 GBP000 GBP000
Balances as at 31 July 2019
Current assets 2,688 - 2,688
Current liabilities - - -
Non-current liabilities - - -
_________ _________ _________
2,688 - 2,688
_________ _________ _________
Cash and
cash equivalents Borrowings Total
GBP000 GBP000 GBP000
Balances as at 31 July 2018
Current assets 882 - 882
Current liabilities - (787) (787)
Non-current liabilities - (3,857) (3,857)
_________ _________ _________
882 (4,644) 3,762
_________ _________ _________
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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October 22, 2019 02:00 ET (06:00 GMT)
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