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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% | 32.00 | 31.00 | 33.00 | 32.00 | 32.00 | 32.00 | 18,530 | 07:31:25 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Cmp Facilities Mgmt Service | 25.25M | -15.71M | -0.2428 | -1.32 | 20.7M |
From Dec 2022 to Dec 2024
TIDMESYS
RNS Number : 7777R
essensys PLC
31 October 2023
31 October 2023
essensys plc
("essensys" or the "Group")
Full year results
essensys plc (AIM:ESYS), the leading global provider of software and technology to the flexible workspace industry, announces its audited results for the financial year ended 31 July 2023.
On track to return to profit and cash generation
-- Reorganisation of global operations to align cost base with current revenues and near-term growth opportunities largely complete
-- Headcount reduced to 122 (previously 180) following completion of reorganisation -- GBP8m annualised operational cost reduction achieved
Focus on larger, strategic customers
-- Strong SaaS metrics performance from strategic customer(1) cohort -- Strategic customers now account for 77% of Group revenue (FY22: 72%)
-- Strategic customer Net Revenue Retention is 108% (FY22: 105%), total customer Net Revenue Retention 98% (FY22: 101%)
-- Zero strategic customer churn -- 21 new customers signed in the period, of which 15 live in FY23
Resilient financial performance
-- Group total revenues up 9% driven by new site activity, 94% of new sites with strategic customers
-- Adjusted EBITDA(2) loss improved by 10% year on year and 7% ahead of market expectations
-- Strong US performance, our primary growth market and 62% of Group revenue (up 20%; 10% at constant currency)
-- UK & Europe revenues down 11%, reflecting ongoing strategic customer portfolio rebalancing and expected churn of low value customers
-- Recurring revenues(2) 83% of total revenue (FY22: 86%)
-- ARR(2) GBP20.0m, down -9%, reflecting churn of non-strategic customers, lower occupancy-based marketplace revenues and foreign exchange movement
-- Group remains debt-free with cash balance of GBP7.9m. Additional GBP2m unsecured loan facility provided by Mark Furness, the Group CEO and largest shareholder, which is a related party transaction under the AIM Rules for Companies and is described further below.
Current trading and outlook
-- Sales pipeline remains strong with strategic customers' expansion plans and new customer opportunities underpinning future growth
-- ARR contracted but not yet live as of 31 July GBP1.1m
-- Extended sales cycles and delays to capital deployment continue to reflect macroeconomic uncertainty
-- On track to return to run-rate positive Adjusted EBITDA in FY24 and net cash generation in FY25
-- Future growth and margin expansion is expected to be supported by improving customer mix and upsell of new products and product modules
-- The Group remains confident in the longer-term structural growth opportunity
Mark Furness, Chief Executive Officer of essensys, said:
"Delivering 9% revenue growth is a resilient performance in a challenging macro context and a testament to the quality of our product and teams. We have accelerated our plans to return to profitability and cash generation by realising GBP8 million of annualised cost savings which align our cost base and investments to current revenues and the near-term market opportunity. As we enter FY24, essensys is a leaner organisation and has the right operational base to support our customers as they increasingly prioritise automation and tenant experience across their premium office footprint.
"We remain o n track to return to run-rate positive Adjusted EBITDA in FY24 and net run rate cash generation in FY25 and the Group is confident in the longer-term structural growth opportunity in the flexible workspace market."
Financial summary:
Hot Features
Premium
GBPm unless otherwise stated FY23 FY22 Change
Revenue 25.3 23.3 +9%
Recurring revenue(3) 20.9 20.1 +4%
Run Rate Annual Recurring Revenue(3) 20.0 21.9 -9%
Revenue at constant currency 24.0 23.3 +3%
Recurring revenue 19.9 20.1 -1%
Run Rate Annual Recurring Revenue 20.7 21.9 -5%
Statutory loss before tax (15.5) (11.1)
Adjusted EBITDA (6.3) (7.0)
Loss per share (pence) (24.4p) (16.8p)
Proposed final dividend per Nil Nil
share (pence)
Net Cash 7.9 24.1
For further information, please contact:
essensys plc +44 (0)20 3102 5252 Mark Furness, Chief Executive Officer Sarah Harvey, Chief Financial Officer Singer Capital Markets (Nominated Adviser and Broker) +44 (0)20 7496 3000 Peter Steel / Harry Gooden / James Fischer FTI Consulting Jamie Ricketts / Eve Kirmatzis / Talia Shirion / Victoria Caton +44 (0)20 3727 1000
Notes
1. A strategic customer is typically a global landlord or a large specialist flexible workspace operator who has the potential to deliver $1m of Annual Recurring Revenue.
2. Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, exceptional restructuring costs and other non-trading items such as impairment, share option charges and exchange differences.
3. Further definitions included in Financial Review
About essensys plc
essensys is the leading global provider of software and technology for flexible, digitally-enabled spaces, buildings and portfolios. The essensys Platform simplifies and automates the delivery and management of next generation, flexible, multi-tenant real estate.
The real estate industry is transforming - it must be flexible to changing market demands, accommodate hybrid working styles, provide move-in ready spaces and deliver frictionless experiences and on-demand services. The office sector is becoming an increasingly digital-first landscape - driven by end-user demand and delivering digitally enabled spaces is key to success. Our software and technology is designed and developed to help solve the complex operational challenges faced by landlords and flexible workspace operators as they grow and scale their operations. We help our customers to deliver a simple, secure and scalable proposition, respond to changing occupier demands in a hybrid world, provide seamless occupier experiences, and realise smart building and ESG ambitions.
Founded in 2006 and listed on the AIM market of the London Stock Exchange since 2019, essensys is active in the UK, Europe, North America and APAC.
Chairman's statement
In the 2023 financial year our primary goals of delivering our upgraded core product, essensys Platform and taking actions to accelerate our return to profitability and cash generation have been achieved.
It is a credit to all our people at essensys that we have been able to accelerate these programmes - and deliver Adjusted EBITDA ahead of market expectations - while retaining our commitment to delivering quality products for high value customers.
In a challenging macro context, particularly for landlords, achieving revenue growth of 9% in FY23 shows the resilience of our model and the underlying demand for flexible workspace solutions.
Inevitably, we have had to take difficult decisions this year to manage our cost base. I would like to thank all of essensys' people, including those who left us in the last twelve months, for their diligence, persistence and integrity.
I would also like to thank Alan Pepper for five years of valued and important leadership as CFO and COO. Alan stepped down from his Board responsibilities and left essensys during the financial year after the conclusion of the reorganisation and resultant simplification of operational structures, which removed the need for the Chief Operating Officer ("COO") role.
As we look ahead to our 2024 financial year, we are on track to return to run-rate positive Adjusted EBITDA in FY24, with net cash generation expected to follow in FY25. We remain debt-free and have a net cash position of GBP7.9m at year end.
We now have a strong platform to drive sustainable growth. essensys remains extremely well placed to take advantage of the increasing demand for flexible workspace, notwithstanding the drag on spend in the current environment. We continue to see opportunities to grow with flexible workspace operators and traditional landlords, as they build their presence in the flexible workspace industry.
Strategic and operational review
2023 has been a year of continued progress for our business. Our strategy to target only large landlords and flexible workspace providers is continuing to drive improvements in customer mix, product adoption and revenue quality. The performance of this strategic customer cohort underpins our confidence in our long-term growth plans, with this group delivering strong SaaS metrics whilst providing significant future expansion opportunities.
Our accelerated investment into new product development over the past three years is also beginning to deliver results. 75% of all customers have now migrated onto essensys Platform and we are also nearing the full launch of our smart access solution which converges hardware and software to provide a powerful answer to the challenges of delivering access control in a flexible, hybrid world.
Hybrid work is now embedded across companies of all sizes and has led to a complete rethink of how, when and why we use offices. This is driving significant change in the real-estate industry. Companies now want flexibility, agility and access to high quality amenities and services from their landlords and workspace providers. This is resulting in a period of significant change for the real-estate industry as it evolves to meet these changing demands. Office space requirements are very different in a hybrid world and landlords are increasingly adapting their offerings to meet this need by providing access to shared spaces, better amenities and additional in-building services. This change is also resulting in a flight to quality as companies reassess their office space requirements, and whilst this may involve their need for less permanent space, it is clear that businesses want to be in premium buildings that deliver high quality employee experiences. Delivering and managing these networks of multi-tenant spaces is operationally complex and that complexity increases significantly with scale, meaning large landlords and flexible workspace providers need to leverage technology, workflow automation and digital platforms to achieve their desired outcomes. Our products have been designed and developed to help our customers manage these complex operations efficiently at scale, automating and simplifying the onboarding, off-boarding and in-life management of occupiers, spaces and services. We expect this evolution of the real-estate industry to provide our business with a significant long term growth opportunity as our customers continue to expand their flexible space offerings to meet the current and future demands of their tenants.
This year, post-pandemic disruption has given way to a period of consistent macroeconomic uncertainty with many companies facing increasing capital costs, inflationary pressures and changes in customer demand. We are not immune to these challenges and in the year, we made a number of key decisions to help our business adapt and ensure we are well placed to deliver our long-term strategy. We completed a restructure of our global operations and implemented several cost-cutting measures to accelerate our path to profitability and cash generation. Whilst these decisions were difficult and resulted in us saying goodbye to a number of talented and committed colleagues, we exit the year with our business in a stronger position and remain well placed to meet the current and future needs of our customers.
Accelerated strategy to drive near-term profit and cash generation
Whilst our long-term ambition is unchanged, we have evolved our strategy to align our cost base and investments to our current revenues and near-term customer demand. This work is largely complete and has resulted in our global headcount reducing from 184 at its peak to 122. The reorganisation accelerates our pathway to profitability and is expected to deliver GBP8m annualised cost savings. We remain on track to return to run-rate positive Adjusted EBITDA in FY24 and net cash generation in FY25.
Following this reorganisation our go-to-market team is now a single function, we have centralised our global operations and simplified our management structure:
-- All sales and marketing activities centralised under the leadership of new Chief Revenue Officer, Daniel Brown;
-- Singapore and Hong Kong offices closed with our APAC business now supported by a regional sales team based in Sydney, Australia;
-- Customer operations streamlined into global functional teams, delivering an improved customer experience, better cross business alignment and lower operating costs. This change resulted in the removal of the Group COO role; and
-- Removal of the three regional CEO roles in North America, APAC and UK & Europe with James Lowery (previously CEO for UK & Europe) moving into the role of Chief Customer Officer.
Market opportunity and strategic focus
We remain confident in essensys' market opportunity, notwithstanding challenging macro conditions which has led to elongated sales cycles and capital deployment delays.
The flexible workspace industry benefits from attractive long-term structural growth drivers, defined by the shift towards hybrid working and flexible workspaces.
We have a well-established and proven plan to Land, Expand and Grow, focusing on high value, strategic customers in the flexible workspace market with the potential to deliver at least $1m ARR. These customers typically engage us for multiple sites, generate higher revenue per site and deliver stronger net margins due to the lower cost to serve that their operational maturity provides.
Land
We continue to win new strategic customers globally with each presenting significant future expansion opportunities. We signed 21 new customers in FY23. These are largely strategic customers who we expect to support the expansion of our business in FY24 and beyond. New customers this year include large US landlords and significant operators in Australia and Europe. New customers won but not yet live also include large landlords in the UK, a positive sign for that market.
Expand
Our existing customer base, particularly in the US, is indicating continued growth over the coming years as customers look to increase the amount of flexible space they operate. Our strategic customers, who are aiming to scale their flex offerings across their portfolios globally, present a large long-term growth opportunity for essensys. Leading operators and landlords such as Industrious, Hines, Carr Workplaces, JLL and Tishman Speyer will leverage essensys' software and technology to help realise their expansion aims. An example of this is demonstrated by a recent press release by essensys' customer Hines, which announced 'Hines is investing in a new digital ecosystem that makes it easier to access buildings, amenities and experiences while generating more in-depth insights about building utilization and client satisfaction' and referenced research 'showing that a good building experience can increase tenant retention by 20% and owners seeing 12% higher tenant demand for a diverse roster of amenities, this investment makes it easier and faster for people in Hines office buildings to get the most out of their experience in one place'
Grow
Our core product, essensys Platform, has been developed and built to serve as its own distribution vehicle for future value-add functionality and modules. This product-led growth (PLG) strategy is designed to reduce sales cycles for upsell, improve customer LTV (lifetime value) and drive gross margin performance. An example of the success of this is the new booking module in essensys Platform, which has resulted in increased ARR yield per site and a more powerful platform for our customer. The ability to activate additional modules and functionality at the press of a button creates upsell opportunities for the Group and supports further growth with existing and future strategic customers in a cost-effective way, which is a core element of our sustainable growth plan.
We remain engaged at senior levels with large commercial real estate organisations, both existing and prospective customers, helping them to understand how essensys products can help their transition to more flexible, digital-first real-estate offerings. Whilst most of these landlords are in the early phase of flex adoption it is these strategic customers that will continue to provide the Group with significant long-term expansion opportunities.
Strategic customers
Our customer mix continues to improve with strategic customers now representing 41% of all core platform customers and 77% of Group revenue in FY23. This customer cohort delivers strong SaaS metrics as we embed and scale with them and are very sticky with zero customer churn in the year.
Our strategic customers had 108% net revenue retention compared with 98% for the full customer base and our top tier strategics (those already representing over $1m ARR) had 118% net revenue retention. In FY23 strategic customers represented 77% of our total revenue (FY22: 72%). As a result of this focus on higher value customers, we continue to expect a higher level of churn at the smaller, non-strategic end of our customer base - particularly in the UK - which offset our overall growth during FY23. These customers have largely been single site operators that do not offer an expansion opportunity and have high service costs and we expect their numbers to continue to reduce further in the year ahead.
Momentum with strategic customers remains strong and underpins a significant pipeline of opportunities with some exciting new large landlords and flexible workspace operators at advanced stages in the sales process, particularly in the US. This has offset extensions to sales cycles and capital deployment delays due to the current macro environment.
We continue to see strong demand from strategic customers; during the year we added 65 new sites with existing and new customers and entered FY24 with a healthy contracted pipeline of 35 sites representing GBP1.1m annual recurring revenue, the majority with strategic customers . Total active sites increased by 8 on FY22 closing at 466 (FY22: 458; H123 459 ) .
Product development
essensys Platform
Our targeted investment in our products continues, primarily through the evolution of essensys Platform. The focus of our development efforts is tightly tied to the requirements of strategic customers, ensuring that our solutions solve the specific needs of large-scale landlords and flex operators. This year we have enhanced its core functionality and added new capability that is designed to embed essensys Platform further into spaces, as we seek to help landlords connect their existing tenants digitally to the amenities and communal spaces in their buildings. We see this trend continuing as enterprises of all size adopt hybrid models and landlords respond by providing access to a wide variety of digitally connected spaces across their portfolios. essensys Platform allows landlords and flex workspace providers to solve the complex challenges they face and deliver seamless, digital-first in-building and cross-portfolio experiences. Strategic customers have continued to move to essensys Platform in the 2023 financial year, which presents a long-term opportunity for margin and revenue growth through greater automation and greater access to in-building services and amenities.
essensys Cloud
Last year we announced a decoupling of our global private network (essensys Cloud) from essensys Platform, which reduces our requirement for future data centre expansion and removes the requirement for essensys Platform and essensys Cloud to be bundled together, which in turn lowers barriers to entry for our customers, for example where they can use existing telecoms solutions. We expect this to deliver improvement in gross margins over time as the lower margin network element of our product suite becomes a lower proportion of overall revenues.
As a standalone product we have also been able to develop new functionality for essensys Cloud which we will be launching in the coming months. We expect to increase the value of this product to customers in future.
Our new dynamic access control solution
We're excited by the progress we've made with our dynamic access control hardware and software. Leveraging the ubiquity of smartphone wallets to create a seamless book-pay-access experience for occupiers, the solution converges access control, space booking and an IoT (Internet of Things) sensor gateway providing a powerful answer to the problem of managing real-time access and control of space in today's dynamic and hybrid world. We reached another major milestone in the development process recently when we received the final CE and FCC certification of the hardware components and as such, we now anticipate launch of this exciting new product before the end of the year.
Operate
Operate remains an important product for several of our strategic customers. Its core functionality helps customers to manage contracts, billing and customer invoices and now benefits from a new integration to essensys Platform.
Regional performance
US
We continue to see strong performance in North America, where total revenue increased by 20% and recurring revenue by 15%. The US continues to be our primary growth market providing a significant long-term opportunity and accounted for 62% of Group revenues in the year. We have a high-quality sales pipeline with new and existing strategic customers and many of these also provide further international expansion opportunities. We added 8 new strategic customers with further expansion potential.
Key customers continue to set out their near-term expansion plans, providing visibility of expected future site growth. Evidence of the structural shift to a more flexible way of working continues to grow with an increasing number of landlords using essensys to deliver flexible real estate solutions as they continue to repurpose traditional office space assets. Those engagements involve a number of recognisable global real estate operators which each individually provide the opportunity for significant long term account growth.
Some customers continue to optimise their portfolios. We believe this optimisation is necessary and will serve to strengthen our customers businesses and our relationship with them and so will continue to provide this flexibility for our largest partners.
UK & Europe
The strong US performance offset a continued decline in the UK which was largely driven by expected churn from our smaller, legacy customers, with 12 customers positioned at the low-value end of the customer base leaving during the period. UK and Europe revenues declined by 11%, with growth in Europe offset by the UK performance. This forms part of our planned and long-term focus on strategic customers with our value proposition as we align our product development efforts to the needs of large landlords and real estate operators.
Activity levels continue to be subdued in the UK and Europe, reflecting the challenging macro backdrop. Despite this, we saw positive activity, including a return to growth in new sites from one of our largest UK customers with 8 sites signed in Q4 FY23, of which 6 have already gone live. During the year we also upsold an existing large (27 site) Operate customer in France onto the essensys Platform with an initial pilot of 1 site already live and a second due to go live during the first half of FY24. We also expanded into Europe with one of our large US customers with 2 sites live and, since the year end, we have signed further new sites with the same customer, including our first sites in Belgium and the Netherlands. We also added our first 4 sites in Ireland in FY23.
As previously announced and as expected, the UK experienced a higher level of site closures with the increased churn of our smaller non-strategic customers. We also saw continued site rationalisation with some large UK customers as they have exercised their option to close sites within their current contract. This contract mechanic allows them to close an agreed number of sites within the contract period and is primarily used if the customer is exiting that location.
APAC
We onboarded 9 new sites with new and existing strategic customers in Australia and Singapore in FY23, with additional sites due to go live over the coming quarter. Our recent reorganisation will see our APAC team primarily focused on sales and customer success with all associated operational support provided centrally from the Group. Our pipeline in the region remains strong and we have signed the first 5 sites with a multi-site operator that we believe will be a key strategic customer for APAC and serve as an eye-catching case study.
Current trading and outlook
Following our reorganisation, we have a strong operational base to capture demand for flexible workspace and drive profitable long-term growth. We continue to see evidence of structural growth drivers in our market, even in a challenging macro backdrop characterised by delays to sales cycles and capital deployment decisions. Our sales pipeline is growing, underlying customer occupancy appears to be stabilising and both our operator and landlord customers are reporting increased occupier demand for premium flexible space solutions. This is reflected in positive engagement with our large customers about the ability of our products to support their expansion plans. We entered FY24 with contracted new ARR of GBP1.1m and have continued to sign new deals through the first quarter of FY24.
essensys creates seamless in-building experiences for flexible operations by removing complexity and reducing costs through automation and simplification. With 30% of all office space expected to be flexible by 2030, compared to less than 2% today, the market opportunity remains sizeable. As we look ahead to our 2024 financial year, we are on track to return to run-rate positive Adjusted EBITDA in FY24, with net cash generation expected to follow in FY25. We remain debt-free and have a net cash position of GBP7.9m at year end.
essensys enters FY24 as a leaner, more efficient business and our momentum with strategic customers and new product developments supports our confidence of further progress in the year ahead.
Financial Review
Scope of financial results
The financial results included in this annual report cover the Group's consolidated activities for the 12 months ended 31 July 2023. The comparatives for the previous 12 months were for the Group's consolidated activities for the 12 months ended 31 July 2022.
Financial Key Performance Indicators
GBP'm unless otherwise stated 2023 2022 Change
Group Total Revenue 25.3 23.3 9%
North America 15.8 13.2 20%
UK & Europe 8.7 9.8 -11%
APAC 0.8 0.3 207%
Recurring Revenue 20.9 20.1 4%
North America 12.6 11.0 15%
UK & Europe 7.8 9.0 -13%
APAC 0.5 0.1 400%
Recurring Revenue %age of Total 83% 86% -3ppt
Run Rate Annual Recurring Revenue 20.0 21.9 -9%
Non-recurring revenue 4.4 3.2 38%
Gross Profit 14.9 14.1 6%
Gross Profit percentage 59% 61% -2ppt
Recurring Revenue margin %age 63% 64% -1ppt
Statutory loss before tax (15.5) (11.1) -40%
Adjusted EBITDA (6.3) (7.0) 10%
Adjusted EBITDA margin (25)% (30)% 5ppt
Exceptional restructuring costs (2.6) -
Net Cash 7.9 24.1
See commentary following and in the strategic and operational review above together with the financial statements below for explanation of significant movements in the above Financial Key Performance Indicators.
Revenue
Group total revenue increased by 9% to GBP25.3m in the year. As outlined in the strategic and operational review, we continued to see growth in the US, driven by new site activity and our relationships with large strategic customers, offset by a decline in the UK primarily due to the expected churn in smaller single site customers and a reduction in usage revenue. The strengthening of the US Dollar in the first half of the year was a benefit to reported revenue in the year. This trend reversed during the second half of the year as the US Dollar weakened. The movement in foreign exchange rates in the full year had a net positive impact on reported revenue of GBP1.3m (FY22: GBP0.5m). APAC continued to grow revenues in its first full year of operations through new and existing customer relationships.
Recurring revenue comprises income invoiced for services that are repeatable and are consumed and delivered monthly over the term of a customer contract, including a fixed contracted fee and a variable usage-based fee. Recurring revenue increased by 4% in the year which reflected the benefit of the stronger US dollar during the year; at constant currency recurring revenue declined by 1%. The Group continued to experience portfolio rebalancing by large customers and churn of smaller customers, which partially offset the growth from new sites in the year. The Group also saw a continuing and expected decline in its traditional occupancy-based revenue, primarily relating to voice services, given the lower usage of desktop phones and bandwidth charges as more bandwidth is included in contracted fees.
Run Rate Annual Recurring Revenue (Run Rate ARR) is an annualisation of the underlying recurring revenue for the month identified (July 2023 and 2022, as appropriate) and is used as an indication of the annual value of the recurring revenue for that month. Run Rate ARR declined by 9% to GBP20.0m (from GBP21.9m in FY22). The weakening of the US dollar between July 2022 and July 2023 had a GBP0.8m impact on ARR and this, together with a decline in usage-based revenue, more than offset the net positive impact from new customer sites and new sites with existing customers.
Non-recurring revenue comprises activation fees charged to customers in respect of installations of hardware and services at locations, together with training and customer onboarding and is a positive indicator for future recurring revenue for new sites. The 38% increase in non-recurring revenue in FY23 represented increased new site activity with new and existing customers, particularly in the US.
Gross profit
Overall gross profit increased by 6% to GBP14.9m, reflecting increased revenue. Gross margin declined to 59% (2021: 61%) and recurring revenue margins decreased to 63% (2021: 64%) reflecting the higher proportion of revenue from the US, the decline in the traditionally higher margin UK revenue, the overall decline in higher margin usage-based revenue and an increase in recurring costs due to the full year run rate of the operational running costs for APAC data centres.
Administrative expenses
Total administrative expenses increased by GBP5.3m in FY23. This increase was primarily due to a GBP2.6m one-off cost to achieve the Group reorganisation and a GBP2.8m increase in depreciation, amortisation and impairment explained below. Excluding these amounts and the non-cash charge for share options, administrative expenses were flat in the year, as the benefit of the global reorganisation in the second half of the year offset much of the impact of the higher run rate cost in the first half and the higher overall bad debt charge in the year.
Underlying staff-related costs increased by GBP0.5m with the final element of the Group reorganisation taking place at the end of the year which reduces the run rate going into the new financial year. Bad debt expense, net of the movement in the expected credit loss provision, increased by GBP0.6m, largely reflecting the impact of smaller customers going into administration or walking away from contracts following the Covid-19 pandemic which meant that, despite ongoing efforts during the year, debts were not able to be recovered. Reductions in marketing and travel costs offset these increases during the year.
The Group reorganisation, which commenced in January 2023 as part of the strategy to return the Group to profitability and cash generation, was achieved at a cost of GBP2.6m, recognised as an exceptional cost in the year. The cost of reorganisation related primarily to termination payments to impacted employees and included a reduction in the executive team with the removal of regional CEO and Group COO roles and a reduction in all functional teams through centralising and simplifying operations to create more efficient ways of working. This reorganisation removed GBP8 million of annualised run rate cost from the business.
Depreciation increased by GBP0.9m in the year, reflecting the FY22 investment in data centre equipment and lease property, and amortisation increased by GBP1.2m, reflecting the increased size of the development team in FY22 and accelerated amortisation of part of the Connect platform because the migration of customers to essensys Platform is at an advanced stage. The Group incurred impairment charges of GBP0.8m in relation to its Operate platform and of its assets in the APAC region as part of the restructuring in the year. As previously reported, the Operate platform is not currently being sold to any new customers and therefore the annual impairment review considers the future benefit of the goodwill and remaining net book value of the capitalised software development for this platform. The Connect platform has evolved into the essensys Platform and while the core functionality remains consistent across both platforms, the impairment reflects the fact that new customers and sites will not be using Connect to generate future revenues and all existing customers are expected to have migrated to the essensys Platform by the end of FY24.
Statutory loss for the year
The Group made a loss before tax for the year of GBP15.5m (FY22: loss of GBP11.1m). The year-on-year increased loss is primarily driven by the one-off cost of the group reorganisation and higher level of impairment charges due to the changes in the key platforms.
GBP'm 2023 2022
Turnover 25.3 23.3
Cost of sales (10.4) (9.2)
Gross profit 14.9 14.1
Administrative expenses (26.8) (24.7)
Bad debt expense net of provision (1.0) (0.4)
Cost of Group reorganisation (2.6) -
Operating loss (15.5) (11.0)
Net interest receivable/(payable) - (0.1)
Loss before taxation (15.5) (11.1)
======= =======
Adjusted EBITDA
Adjusted results are prepared to provide a more comparable indication of the Group's core business performance by removing the impact of certain items including exceptional items (material and non-recurring), and other, non-trading, items that are reported separately. Adjusted results exclude adjusting items as set out in the statement of consolidated loss and below, with further details given in Note 8 of the financial statements. In addition, the Group also measures and presents performance in relation to various other non-IFRS measures, such as recurring revenue, run-rate annual recurring revenue and revenue growth.
Adjusted results are not intended to replace statutory results. These have been presented to provide users with additional information and analysis of the Group's performance, consistent with how the Board monitors results.
Adjusted EBITDA (being EBITDA prior to exceptional restructuring costs and non-cash impairment and share based payment) is calculated as follows:
GBP'm 2023 2022
Operating loss (15.5) (11.0)
Add back:
Depreciation & amortisation 5.2 3.1
Impairment charge 0.8 0.1
------- -------
EBITDA (9.5) (7.8)
Add back:
Exceptional reorganisation costs 2.6 -
Share based payment expense 0.6 0.8
Adjusted EBITDA (6.3) (7.0)
======= =======
The exceptional reorganisation cost, share-based payment expense and impairment charge are excluded from Adjusted EBITDA as they are not considered relevant for assessment of underlying profitability.
Taxation
The Group incurred a tax charge in the year of GBP245,000 (FY22: tax credit GBP286,000). This was made up of foreign tax on income for the year.
Cash
Net cash at year end was GBP7.9m (FY22: GBP24.1m) and the Group remains debt-free. The most significant cash outflow during the year continued to be on the Group's personnel with the first half of FY23 seeing a normalised run rate from the investment in product and go-to-market capability during FY22. The Group also made payments for the inventory build which occurred in FY22 to provide certainty of supply and made the final payments on its data centre equipment in the APAC region. Net cash flow reduced each quarter from an outflow of GBP7.4m during the first quarter to an outflow of GBP1.5m in the final quarter. The final stage of the Group reorganisation took place after the year end and reduces run rate cost further from Q1 FY24. The Group's current cash reserves provide sufficient capital for the foreseeable future.
On 30 October 2023, the Group entered into an unsecured loan facility with Mark Furness, the Group's Chief Executive Officer and largest shareholder, which provides the Group with up to GBP2 million of additional funding in the event that it is required, available for drawdown until 31 July 2025. Interest is charged at base rate plus 500bps p.a. on any amounts drawn under the facility. There has been no drawdown on this facility and none is expected.
Entry into the facility with a director and substantial shareholder in the Company constitutes a related party transaction under the AIM Rules for Companies. The independent directors of the Company (with the exception of Mark Furness who is involved in the transaction as a related party) consider, having consulted with Singer Capital Markets Advisory LLP, the Company's nominated adviser, that entry into the facility is fair and reasonable insofar as shareholders are concerned.
Capital Expenditure
During the year the Group incurred capital expenditure of GBP0.6m which, as noted above, primarily comprised the final payments in relation to its data centre infrastructure in the APAC region which had commenced during FY22.
Capitalised Software Development Costs
The Group continues to invest in software development resulting in ongoing enhancements to its software platforms. During the year it expanded the essensys Platform which brings together the existing functionality of its Connect platform with new functionality. Customers continued to be migrated onto the essensys Platform through FY23. 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 GBP3.8m in respect of software development (FY22: GBP4.1m).
Dividend policy
It remains the Group's intention in the short to medium-term to invest in order to deliver capital growth for shareholders. The Board has not recommended a dividend in respect of the year ended 31 July 2023 and does not anticipate recommending a dividend within the next year but may do so in future years.
essensys plc
Consolidated Statement of Comprehensive Loss
for the year ended 31 July 2023
Notes 2023 2022
GBP000 GBP000
Turnover 6 25,254 23,298
Cost of sales (10,347) (9,190)
_________ _________
Gross profit 14,907 14,108
Administrative expenses (26,176) (23, 976)
Expected credit loss provision (1,037) (423)
Share based payment expense (597) (741)
Restructuring expenses 7 (2,610) -
_________ _________
Operating loss 8 (15,513) (11,032)
Interest receivable and similar income 11 216 94
Interest payable and similar charges 12 (164) (147)
_________ _________
Loss before taxation (15,461) (11,085)
Taxation 13 (245) 286
_________ _________
Loss for the year from continuing
operations (15,706) (10,799)
_________ _________
Other comprehensive loss
Items that may be reclassified to profit
or loss:
Currency translation differences (246) 583
_________ _________
Other comprehensive loss for the year (246) 583
_________ _________
Total comprehensive loss for the year (15,952) (10,216)
_________ _________
Basic and Diluted loss per share 14 (24.4p) (16.8p)
essensys plc
Consolidated Statement of Financial Position
as at 31 July 2023
Notes 2023 2022
GBP000 GBP000
ASSETS
Non-current assets
Intangible assets 15 10,059 8,922
Property, plant and equipment 16 1,577 2,819
Right of use assets 17 1,140 2,482
_________ _________
12,776 14,223
Current assets
Inventories 19 2,260 2,546
Trade and other receivables 20 4,617 6,434
Cash at bank and in hand 7,862 24,122
_________ _________
14,739 33,102
_________ _________
TOTAL ASSETS 27,515 47,325
_________ _________
EQUITY AND LIABILITIES
EQUITY
Shareholders' equity
Called up share capital 21 162 161
Share premium 22 51,660 51,660
Share based payment reserve 3,382 2,811
Merger reserve 28 28
Retained earnings (34,652) (18,700)
_________ _________
TOTAL EQUITY 20,580 35,960
LIABILITIES
Non-current liabilities
Lease liabilities 24 307 1,659
_________ _________
307 1,659
Current liabilities
Trade and other payables 23 4,762 7,422
Contract liabilities 6E 420 815
Lease liabilities 24 1,264 1,469
Current taxes 182 -
_________ _________
6,628 9,706
_________ _________
TOTAL LIABILITIES 6,935 11,365
_________ _________
TOTAL EQUITY AND LIABILITIES 27,515 47,325
_________ _________
essensys plc
Consolidated Statement of Changes in Equity
for the Year Ended 31 July 2023
Share
based
Share Share payment Merger Retained Total
capital premium Reserve Reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
1 August 2022 161 51,660 2,811 28 (18,700) 35,960
Comprehensive loss for
the year
Loss for the year - - - - (15,706) (15,706)
Currency translation differences - - (26) - (246) (272)
_______ _______ _______ _______ _______ _______
Total comprehensive loss
for the year - - (26) - (15,952) (15,978)
_______ _______ _______ _______ _______ _______
Transactions with shareholders
Share based payment charge - - 597 - - 597
Issue of new shares 1 - - - - 1
_______ _______ _______ _______ _______ _______
31 July 2023 162 51,660 3,382 28 (34,652) 20,580
_______ _______ _______ _______ _______ _______
Consolidated Statement of Changes in Equity
For the Year Ended 31 July 2022
Share
based
Share Share payment Merger Retained Total
capital premium Reserve Reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
1 August 2021 161 51,660 2,045 28 (8,484) 45,410
Comprehensive loss for
the year
Loss for the year - - - - (10,799) (10,799)
Currency translation differences - - 25 - 583 608
_______ _______ _______ _______ _______ _______
Total comprehensive loss
for the year - - 25 - (10,216) (10,191)
_______ _______ _______ _______ _______ _______
Transactions with shareholders
Share based payment charge - - 741 - - 741
_______ _______ _______ _______ _______ _______
31 July 2022 161 51,660 2,811 28 (18,700) 35,960
_______ _______ _______ _______ _______ _______
essensys plc
Consolidated Statement of Cash Flows
for the Year Ended 31 July 2023
Notes 2023 2022
GBP000 GBP000
Cash used by operations 32 A (9,745) (6,789)
Corporation tax paid (63) (11)
Foreign exchange (31) -
_________ _________
Net used by operating activities (9,839) (6,800)
_________ _________
Cash flows from investing activities
Purchases of intangible assets 15 (3,843) (4,087)
Purchases of property plant and equipment 16 (630) (1,541)
Proceeds from the disposal of fixed 120 -
assets
Interest received 216 94
_________ _________
Net cash used in investing activities (4,137) (5,534)
_________ _________
Cash flows from financing activities
Proceeds from the issuance of new
shares 20 1 -
Repayment of lease principal 24 (1,842) (893)
Interest paid on lease liabilities 24 (164) (147)
_________ _________
Net cash used in financing activities (2,005) (1,040)
_________ _________
Net decrease in cash and cash equivalents (15,981) (13,374)
Cash and cash equivalents at beginning
of year 24,122 36,903
Effects of foreign exchange rate changes (279) 593
_________ _________
Cash and cash equivalents at end
of year 7,862 24,122
_________ _________
Cash and cash equivalents comprise:
Cash at bank and in hand 7,862 24,122
_________ _________
Notes to the financial statements
General information
1
essensys plc (the "Company") is a public limited company, incorporated in the United Kingdom under the Companies Act 2006 (registration number 11780413). The Company is domiciled in the United Kingdom and its registered address is Aldgate Tower 7(th) Floor, 2 Leman Street, London, E1 8FA. The Company's ordinary shares are traded on the Alternate Investment Market (AIM) of the London Stock Exchange.
The Group's principal activities are the provision of software and technology platforms that manage critical digital infrastructure and business processes, primarily of operators of flexible workspace within the real estate industry. These activities are carried out by the Group's wholly owned subsidiaries.
The Company's principal activity is to provide funding and management services to its subsidiaries.
Authorisation of financial statements and statement
2 of compliance with IFRS
The financial statements for the year ended 31 July 2023 were authorised for issue by the Board of Directors and the Statement of Financial Position was signed on the Board's behalf by Sarah Harvey on 30 October 2023.
The Group's financial statements have been prepared in accordance with UK adopted international accounting Standards and as applied in accordance with the provisions of the Companies Act 2006.
Basis of Preparation
3
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 2023 and 31 July 2022 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 2022 have been audited and filed with the Registrar of Companies. The statutory financial statements for the year ended 31 July 2023 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 2023 and 31 July 2022 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.
These financial statements have been prepared under the historical cost basis and are presented in Sterling and all values are rounded to the nearest thousand pounds (GBP000) except when otherwise indicated.
The Group's business activities, together with factors likely to affects its future development, performance and position are set out in the Strategic report. The financial position of the Group is described in the Financial Review.
Going concern
The Group's consolidated financial statements have been prepared on a going concern basis.
As at 31 July 2023 the Group had net assets of GBP20.7m (2022: GBP36.0m), including cash of GBP7.9m (2022: GBP24.1m) as set out in the Consolidated Statement of Financial Position, with no external debt. In the year ended 31 July 2023 the Group generated a loss before tax of GBP15.5m (2022: loss of GBP11.1m). The group used net cash before financing in the year of GBP16.3m (2022: GBP12.3m) after investment in software development of GBP4.1m. Following the year end the Group entered into an agreement with Mark Furness, the Group's Chief Executive Officer and largest shareholder, to provide a loan of up to GBP2 million in the event that the Group has a requirement for additional liquidity.
During the year, Group revenue increased by 9.0% from GBP23.3m to GBP25.3m, with recurring revenue increasing by 3.8% primarily as a result of a strengthening of the US dollar, which increased the reported revenue from its US subsidiary which is an increasing proportion of the Group's business. The Group generated an operating loss of GBP15.6m (2022: GBP10.1m). The Group has long term contracts with a number of customers and suppliers across different geographical areas and industries.
The Directors have prepared a detailed budget and forecast of the Group's expected performance over a period covering at least the next twelve months from the date of the approval of these financial statements. As well as modelling the realisation of the sales pipeline, these forecasts also cover a number of scenarios and sensitivities in order for the Board to satisfy itself that the Group remains within its current available cash and committed facilities.
Whilst the Directors are confident in the Group's ability to grow revenue, the Board's sensitivity modelling shows that the Group can remain within its cash facilities, without recourse to the committed facility, for a period in excess of twelve months, in the event that revenue growth is delayed (i.e. new sales bookings are not achieved). The Directors' financial forecasts and operational planning and modelling also include the actions, under the control of the Group, that they could take to further significantly reduce the cash outflow in its sensitivity modelling. On the basis of this financial and operational modelling, the Directors believe that the Group has the capability and the operational agility to react quickly, cut further costs from the business and ensure that the cost base of the business is aligned with its revenue and funding scale.
As a result, the Directors have a reasonable expectation that the Group can continue to operate and be able to meet its commitments and discharge its liabilities in the normal course of business for a period of not less than twelve months from the date of approval of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing the Group financial statements.
Basis of consolidation
The consolidated financial statements incorporate the results of essensys plc and all of its subsidiary undertakings.
Essensys plc was incorporated on 22 January 2019, and on 18 May 2019 it acquired the issued share capital of essensys (UK) Ltd, previously essensys Limited, by way of a share for share exchange. The latter had four wholly owned subsidiaries:
-- essensys, Inc -- Hubcreate Limited -- TVOC Limited -- Spacebuddi Limited
The consideration for the acquisition was satisfied by the issue of 38,836,044 ordinary shares in essensys plc to the shareholders of essensys (UK) Limited.
The accounting treatment for the year to 31 July 2020 in relation to the addition of essensys plc as a new UK holding company of the group falls outside the scope of IFRS 3 'Business Combinations'. The share scheme arrangement constituted a combination of entities under common control due to all shareholders of essensys (UK) Ltd being issued shares in the same proportion, and the continuity of ultimate controlling parties. The reconstructed group was consolidated using merger accounting principles which treated the reconstructed group as if it had always been in existence. Any difference between the nominal value of shares issued in the share exchange and the book value of the shares obtained was recognised in a merger reserve.
The company applied the statutory relief as prescribed by Companies Act 2006 in respect of the share for share exchange as the issuing company has secured more than 90% equity in the other entity. The carrying value of the investment is carried at the nominal value of the shares issued.
Summary of significant accounting policies
4
Revenue
The Group generates revenue primarily in the UK and the United States of America (USA). Turnover represents services provided in the normal course of business; net of value added tax. Services provided to clients during the year, including any amounts which at the reporting date have not yet been billed to the clients, have been recognised as revenue.
(a) Contract
Set up and installation costs are partially invoiced once the customer contract is signed with the remaining balance invoiced when the service goes live. Fixed monthly costs are invoiced one month in advance and revenue is recognised in the month the service is provided. Deferred revenue is recognised for the Group's obligation to transfer services to customers for which they have already received consideration (or an amount of consideration is due) from the customer. Variable monthly costs (including internet usage and telephone call charges) are invoiced monthly in arrears and accrued revenue is recognised in the month that the services were consumed.
(b) Contractual obligation
The majority of customer contracts have two main services that the Group provides to the customer:
-- Set up / installation -- Ongoing monthly software, services and support
Where a contract is modified and the remaining services are distinct from the services transferred on or before the date of the contract modification, then the Group accounts for the contract modifications as if it were a termination of the existing contract and the creation of a new contract.
The amount of consideration allocated to the remaining performance obligations is the sum of the consideration promised by the customer and the consideration promised as part of the contract modification.
(c) Determining the transaction price
The transaction price is determined as the fair value of the consideration the Group expects to receive over the course of the contract. There are no incentives given to customers that would have a material effect on the financial statements.
(d) Allocate the transaction price to the performance obligations in the contract
The allocation of the transaction price to the performance obligations in the contract is non-complex for the Group. There is a fixed unit price for each product sold. Therefore, there is limited judgement involved in allocating the contract price to each unit ordered.
(e) Recognise revenue when or as the entity satisfies its performance obligations
The contracts may cover multiple sites, but the overarching terms are consistent in each contract. The set up/installation is seen as a distinct performance obligation and revenue is recognised at a point in time, when the installation is completed, and any hardware is provided to the client for their use. The customer can benefit from the set up / installation such as new internet connectivity or new hardware provided, and therefore revenue is recognised in full when these services are provided.
The second performance obligation is the provision of software, infrastructure and on-demand services over the term of the contract, and the Group recognises the revenue each month as it provides these services for the duration of the contract, i.e. over time.
(f) Costs to obtain and fulfil a contract
Set up and installation costs are partially invoiced once the customer contract is signed. The value of the invoiced amount is held as a contract liability until the performance obligation is satisfied.
The company incurs incremental costs in obtaining a contract in the form of sales commissions. The Company recognises the sales commissions as an asset in relation to costs to obtain a contract. The company believes that the costs are recoverable as the proceeds from the customer over the contract period exceed the costs to obtain the contract. The asset is amortised over the contract life on a systematic basis.
Contract assets arise from the group's revenue contracts, where work is performed in advance of invoicing customers, and contract liabilities arise where revenue is received in advance of work performed. Cumulatively, payments received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts. Commission costs capitalised on contracts represents internal sales commission costs incurred on signing of customer contracts and, in line with the requirements of IFRS15, spread over the life of the customer contract.
Finance income
Finance income comprises interest receivable on funds invested and loans to related parties. Interest income is recognised in profit or loss as it accrues using the effective interest method.
Finance costs
Finance costs comprise interest on lease liabilities. Interest on lease liabilities is charged to the consolidated statement of comprehensive income over the term of the debt using the effective interest rate method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
Intangible assets
a) Internal software development
Research expenditure is written off in the year in which it is incurred.
Expenditure on internally developed products is capitalised if it can be demonstrated that:
-- it is technically and commercially feasible to develop the asset for future economic benefit;
-- adequate resources are available to maintain and complete the development; -- there is the intention to complete and develop the asset for future economic benefit; -- the company is able to use the asset; -- use of the asset will generate future economic benefit; and -- expenditure on the development of the asset can be measured reliably.
Where the costs are capitalised, they are written off over their economic life which is considered by the directors to be 5 to 7 years.
Internally developed products in the course of construction are carried at cost, less any recognised impairment loss. Amortisation of these assets, determined on the same basis as other property assets, commences when the assets are ready for their intended use.
(b) Goodwill
Goodwill arising on the acquisition of a business represents the excess of the fair value of the consideration and the fair value of the Group's share of the identifiable assets and liabilities acquired. The identifiable assets and liabilities acquired are incorporated into the consolidated financial statements at their fair value to the Group.
Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is tested for impairment annually. Any impairment is recognised immediately in the Consolidated Statement of Comprehensive Income and is not subsequently reversed. On disposal of a business, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
(c) Other intangible assets
Other intangible assets are initially recognised at cost or, if recognised as part of a business combination, at fair value. After recognition, intangible assets are measured at cost or fair value less any accumulated amortisation and any accumulated impairment losses. Amortisation is calculated to write off the cost or fair value of intangible assets in equal annual instalments over their estimated useful lives and is included within administrative expenses.
The estimated useful lives for other intangible fixed assets range as follows:
Customer relationships - 6.3 years Website - 1 year Acquired software - 5 years
Property, plant and equipment
Property, plant and equipment is carried at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost comprises the aggregate amount paid to acquire assets and includes costs directly attributable to making the asset capable of operating as intended.
At each reporting date the Group assesses whether there is an indication of impairment. If such indication exists, the recoverable amount of the asset is determined which is the higher of its fair value less costs to sell and its value in use. An impairment loss is recognised where the carrying value exceeds the recoverable amount.
Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives or, if held under a finance lease, over the shorter of the lease term and the estimated useful life, using the straight line method. Depreciation is provided at the following annual rates:
Leasehold improvements - 20% Fixtures and fittings - 25% Computer equipment - 10% - 25%
The assets residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, if there is an indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within 'other operating income or loss' in the statement of comprehensive income.
Leasehold improvements include security equipment purchased.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial information is presented in 'sterling', which is essensys plc's functional and the Group's presentation currency.
On consolidation, the results of overseas subsidiaries are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at
Foreign currency translation (continued)
the rate ruling at the reporting date, including any goodwill in relation to that entity. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income.
(b) Transactions and balances
Foreign currency transactions are translated into essensys plc's functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within 'finance income or costs. All other foreign exchange gains and losses are presented in the statement of comprehensive income within 'other operating income or expense'.
Inventories
Inventories are valued at the lower of cost and net realisable value. Inventories consist of work in progress, which are items and third party services that have been purchased and allocated to satisfy specific customer contracts where title has not yet passed, and finished goods, which are mostly made up of items purchased in the previous financial year to secure sufficient resources, with a global shortage of silicon, to satisfy expected future customer contracts. As the items have yet to be installed at the customer location, and where title has not yet passed, they remain on the statement of financial position until title has passed.
Trade and other receivables
Trade receivables, which are generally received by the end of the month following terms, are recognised and carried at the lower of their original invoiced value less provision for expected credit losses.
Cash and cash equivalents
All cash and short-term investments with original maturities of three months or less are considered cash and cash equivalents, since they are readily convertible to cash. These short-term investments are stated at cost, which approximates fair value.
Trade and other payables
Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are recognised at original cost.
Exceptional items
Exceptional items are those that, in the Directors' view, are required to be separately disclosed by virtue of the size or incidence to enable a full understanding of the Group's financial performance.
Taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income, except that a charge attributable to an item of income or expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where essensys plc's subsidiaries operate and generate taxable income.
Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the statement of financial position date, except:
-- The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits;
-- Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and
-- Where timing differences relate to interests in subsidiaries, associates, branches and joint ventures and the Group can control their reversal and such reversal is not considered probable in the foreseeable future.
Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
Share capital
Ordinary shares are classified as equity. There is one class of ordinary share in issue, as detailed in note 21.
Reserves
The Group and Company's reserves are as follows:
-- Called up share capital reserve represents the nominal value of the shares issued;
-- The share premium account includes the premium on issue of equity shares, net of any issue costs;
-- Share based payment reserve represents the total value expensed at the balance sheet date in relation to the fair value of the share options at their grant date expensed over the vesting period under the relevant share option schemes;
-- Merger reserve arose on the business combination that was accounted for as a merger in accordance with FRS 102;
-- Retained earnings represents cumulative profits or losses, net of dividends paid and other adjustments.
Financial assets
The Group classifies all of its financial assets at amortised cost. Financial assets do not comprise prepayments, or contract assets, although contract assets are in scope of IFRS 9's impairment requirements as discussed below. Management determines the classification of its financial assets at initial recognition.
The Group's financial assets held at amortised cost comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold their assets in order to collect contractual cash flows and the contractual cash flows are solely payments of the principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net; such provisions are recorded in a separate provision account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
The expected loss rates are based on the Group's historical credit losses experienced over the last three periods prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers. The Group has identified the gross domestic product (GDP), unemployment rates and inflation rate as the key macroeconomic factors in the countries that the Group operates.
Impairment provisions for other receivables are recognised based on the general impairment model within IFRS 9. Under the General approach, at each reporting date, the Group determines whether there has been a significant increase in credit risk (SICR) since initial recognition and whether the loan is credit impaired. This determines whether the loan is in Stage 1, Stage 2 or Stage 3, which in turn determines both the amount of ECL to be recognised i.e. 12-month ECL or Lifetime ECL.
Financial liabilities
The Group classifies its financial liabilities in the category of financial liabilities at amortised cost. All financial liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provision of the instrument.
Financial liabilities measured at amortised cost include:
-- Trade payables and other short-dated monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.
-- Bank and other borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Unless otherwise indicated, the carrying values of the Group's financial liabilities measured at amortised cost represents a reasonable approximation of their fair values.
Impairment of assets
Assets that are subject to depreciation or amortisation are assessed at each reporting date to determine whether there is any indication that the assets are impaired. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGUs).
Where there is any indication that an asset may be impaired, the carrying value of the asset (or CGUs to which the asset has been allocated) is tested for impairment. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's (or 'GU's) fair value less costs to sell and value in use. Non-financial assets that have been previously impaired are reviewed at each reporting date to assess whether there is any indication that the impairment losses recognised in prior periods may no longer exist or may have decreased. Goodwill is reviewed for impairment on an annual basis, with any impairment to goodwill not reversed at a later period.
Share-based payments
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate on the number of equity investments expected to vest. The impact of the revision of the original estimates, if any, is recognised in the Statement of Comprehensive Income over the remaining vesting period, with a corresponding adjustment to the Share Based Payment Reserve.
In the event that the terms of equity-settled share-based payments are modified these are valued at the date of modification and, where this results in an increase to fair value, the charge is recognised in the statement of comprehensive income over the remaining vesting period, or recognised immediately where the vesting period has already passed.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for leases of low value assets; and leases with a duration of twelve months or less, in line with the requirements of IFRS 16.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also includes:
-- Amounts expected to be payable under any residual value guarantee;
-- The exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option;
-- Any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.
Right-of-use assets ("ROUA") are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:
-- Lease payments made at or before commencement of the lease; -- Initial direct costs incurred; and
-- The amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.
When the Group renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification:
-- If the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease in accordance with the above policy;
-- In all other cases where the renegotiated increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount;
-- If the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial or full termination of the lease with any difference recognised in profit or loss. The lease liability is then further adjusted to ensure its carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the same amount.
For contracts that both convey a right to The Group to use an identified asset and require services to be provided to The Group by the lessor, The Group has elected to account for the entire contract as a lease, i.e. it does allocate any amount of the contractual payments to, and account separately for, any services provided by the supplier as part of the contract.
Retirement benefits
The Group operates a number of defined contribution plans. A defined contribution plan is a pension plan under which the employer pays fixed contributions into a separate entity. Contributions payable to the plan are charged to the income statement in the period in which they relate. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Holiday pay accrual
All employees accrue holiday pay during the calendar year, the Board encourages all employees to use their full entitlement throughout the year. A liability is recognised to the extent of any unused holiday pay entitlement which has accrued at the statement of financial position date and carried forward to future periods. This is measured at the undiscounted salary cost of the future holiday entitlement so accrued at the balance sheet date.
Standards adopted in the year
No new standards have been adopted in the reporting period as all were adopted previously.
Standards, amendments and interpretations not yet effective
There are no standards issued not yet effective that will have a material effect on the Group's financial statements. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.
Significant accounting judgements, estimates and assumptions
5
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including the expectation of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are detailed below.
Capitalisation of development costs
Costs are capitalised in relation to the development of the underlying software utilised within the Group. The most critical judgement is establishing whether the costs capitalised meet the criteria set out within IAS 38. Further, the most critical estimate is how the intangible asset can generate future economic benefit. Projects that are maintenance in nature are expensed as incurred whereas development that generates benefits to the group are capitalised. After capitalisation management monitors whether the recognition requirements continue to be met and whether there are any indicators that the capitalised costs are required to be impaired. See note 15 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 each cash generating unit (CGU) 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 on any impairment required to either goodwill or intangible assets but are judgemental in nature. See note 15 for details of the key assumptions made.
Valuation of Share Options
During the year the Group incurred a share-based payment charge of GBP597,000 (2022: GBP741,000).
The charge related to options in the Group granted at IPO, options granted in previous financial years, new share options granted in this financial year and a modification to the terms of certain of those options granted in this financial year. New options granted during the year ended 31 July 2023 is based on valuations undertaken using a Black Scholes or Monte Carlo Simulation option pricing models, depending on the type of option. Judgements were required when assessing the valuation in relation to share price volatility, the expected life of the options issued, the proportion that would be exercised, the risk-free rate applicable and the likely achievement of performance targets where applicable. The modification to the terms of certain options granted in the year resulted in an increased fair value for which a charge was recognised immediately as the original vesting period had passed. The valuation of those options issued after IPO is spread over the vesting period and there will, therefore, be further share based payment expenses in future years in relation to those options. See note 28 for details.
Segmental Reporting
6
The Group generates revenue largely in the UK and the USA. The majority of the Group's customers provide flexible office facilities together with ancillary services (e.g. meeting rooms and virtual services) including technology connectivity.
The Group generates revenue from the following activities:
-- Establishing services at customer sites (e.g. providing and managing installations, equipment and
training on software); Recurring monthly fees for using the Group's software platforms;
-- Revenue from usage of on demand services such as internet and telephone usage and other, on demand, variable services; and
-- Other ad-hoc service.
The Group has one single business segment which is the provision of software and technology platforms that manage the critical infrastructure and business processes, primarily to the flexible workspace segment of the real estate industry. The Group has two revenue streams and three geographical segments, as detailed in the tables below.
6A Revenue analysis by geographic area
The Group operates in two main geographic areas, the United
Kingdom and the United States of America. The whole of
the turnover is attributed to the principal activity. The
Group's revenue per geographical segment is as follows:
2023 2022
GBP000 GBP000
Analysis of turnover by country of destination:
United Kingdom and Europe 8,673 9,797
North America 15,747 13,233
Asia Pacific region 834 268
_________ _________
Total Income 25,254 23,298
_________ _________
6B Revenue analysis by revenue streams
The Group has two main revenue streams, Operate, and essensys
Platform and Connect. The Group's revenue per revenue
stream is as follows:
2023 2022
GBP000 GBP000
Essensys Platform and Connect 23,543 21,479
Operate 1,711 1,819
_________ _________
Total Income 25,254 23,298
_________ _________
Connect revenue includes all revenue generated in relation to the Group's Connect product. It includes revenue recognised at a point in time as well as recognised over a period of time.
Operate revenue includes all revenue generated in relation to the Group's Operate product. The revenue is recognised over a period of time.
6C Revenue disaggregated by 'point in
time' and 'over time'
The Group revenue disaggregated between revenue recognised
'at a point in time' and 'over time' is as follows:
2023 2022
GBP000 GBP000
Revenue recognised at a point in time 4,341 3,158
Revenue recognised over time 20,913 20,140
_________ _________
Total Income 25,254 23,298
_________ _________
Segmental Reporting (continued)
6
6D Revenue from customers greater than
10%
Revenue from customers greater than 10% in each reporting
period is as follows:
2023 2022
GBP000 GBP000
Customer 1 6,865 5,422
_________ _________
Contract assets and liabilities
6E
Contract asset movements were as follows:
2023 2022
GBP000 GBP000
At 1 August 887 345
Transfers in the period from contract
assets to trade receivables (544) (85)
Excess of revenue recognised over cash
(or rights to cash) being recognised
during the period 175 558
Capital asset contract contributions
capitalised 57 37
Capital asset contract contributions
released as contract obligations are
fulfilled (58) (28)
Capitalised commission cost released
as contract obligations fulfilled (210) (111)
Commission costs capitalised on contracts 161 171
_________ _________
At 31 July 468 887
_________ _________
Contract liability movements were as follows:
2023 2022
GBP000 GBP000
At 1 August 815 323
Amounts included in contract liabilities
that were recognised as revenue during
the period (815) (323)
Cash received and receivables in advance
of performance and not recognised as
revenue during the period 420 815
_________ _________
At 31 July 420 815
_________ _________
Contract assets are included within 'trade and other receivables' and contract liabilities is shown separately on the face of the statement of financial position. Contract assets arise from the group's revenue contracts, where work is performed in advance of invoicing customers, and contract liabilities arise where revenue is received in advance of work performed. Cumulatively, payments received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts. Capital asset contract contributions represents costs incurred by the Group in the form of customer incentives spread over the life of the customer contract. Commission costs capitalised on contracts represents internal sales commission costs incurred on signing of customer contracts and, in line with the requirements of IFRS15, spread over the life of the customer contract.
7 Restructuring costs
Restructuring costs were as follows:
2023 2022
GBP000 GBP000
Restructuring costs 2,610 -
_________ _________
During the year the Group announced a global reorganisation which positions it for sustainable growth, profitability and a return to cash generation. This included the simplification of global operations and moves the Group from a regional to a functional structure. The restructuring costs in FY23 reflect the total expected cost of the reorganisation, which was completed after the year end as disclosed in note 31; there are not expected to be any significant further costs incurred. The cost relates to termination of employment, being redundancy costs and payment in lieu of notice in certain cases, and any other costs to achieve the reorganisation including the cost to exit the Singapore office and the cost of external legal advice specific to the reorganisation. In addition to the restructuring costs, the Group recognised impairment costs for tangible fixed assets and right of use assets in Hong Kong and Singapore which are described separately within the impairment charge in notes 16 and 17 below.
Operating loss
8
2023 2022
GBP000 GBP000
This is arrived at after charging/(crediting):
Amortisation of intangible assets 2,081 1,241
Depreciation of tangible fixed assets 1,405 617
Depreciation of right of use assets 1,349 1,268
Impairment of right of use assets 274 -
Impairment of goodwill 275 122
Accelerated amortisation of other intangible 350 -
assets
Impairment of tangible fixed assets 313 -
Fees payable to the Group's auditor (see
below) 315 260
(Profit)/loss on disposal of tangible
fixed assets (5) 36
Exchange differences 31 -
Research & Development expense 3,428 3,006
Staff costs (note 9) 19,858 19,384
Share based payment charges 597 741
_______ _______
Analysis of fees paid to the Group's
auditor:
Annual financial statements - parent
company 75 60
Annual financial statements - subsidiary
companies 133 94
_________ _________
Audit Fee 208 154
_________ _________
Assurance services 41 35
Other services 66 71
_________ _________
Non audit services 107 106
_________ _________
Total fee 315 260
_______ _______
Employees
9
Staff costs (including directors) consist
of:
2023 2022
GBP000 GBP000
Wages and salaries 14,898 13,898
Social security costs 1,740 1,546
Cost of defined contribution scheme 603 426
Other 2,617 3,514
_________ _________
19,858 19,384
_________ _________
Other staff costs comprise the cost of recruitment, other
employee benefits, redundancy and temporary staff.
The average number of employees (including directors)
during the year was as follows:
2023 2022
No. No.
Executive 9 9
Sales & Marketing 28 26
Finance & Administration 22 26
Support 47 38
Development 58 52
Provisioning 7 6
_________ _________
171 157
_________ _________
Key management remuneration
10
Key management personnel include all the directors of the
Company and the senior management and directors of essensys
(UK) Limited and essensys, Inc, the Group's principal trading
subsidiaries, who together have authority and responsibility
for planning, directing, and controlling the activities
of the Group.
2023 2022
GBP000 GBP000
Salaries and fees 2,949 2,658
Social security costs 268 275
Short term non-monetary benefits 56 23
Company contributions to money purchase
pension schemes 131 129
Share based payment expense 569 409
_________ _________
3,973 3,494
_________ _________
Interest receivable and similar income
11
2023 2022
GBP000 GBP000
Interest receivable from bank deposits 216 94
_________ _________
216 94
_________ _________
Interest payable and similar charges
12
2023 2022
GBP000 GBP000
Lease liabilities 164 147
_________ _________
164 147
_________ _________
Taxation on loss on ordinary activities
13
2023 2022
GBP000 GBP000
Current tax
UK corporation tax - -
Adjustment in respect of previous periods - -
Foreign tax on income for the year 245 8
_________ _________
Total current tax 245 8
_________ _________
Deferred tax
Origination and reversal of timing differences - (260)
Adjustments in respect of prior periods - (34)
_________ _________
Total deferred tax - (294)
_________ _________
Taxation on loss on ordinary activities 245 (286)
_________ _________
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:
2023 2022
GBP000 GBP000
Loss on ordinary activities before tax (15,473) (11,085)
_________ _________
Tax using the Group's domestic tax rates
(21% (2022:19%)) (3,249) (2,106)
Effects of:
Fixed asset differences 53 199
Expenses not deductible for tax purposes 175 351
Income not taxable for tax purposes - (14)
Difference in current tax and deferred
tax rates (473) (36)
Timing differences not recognised - (24)
Other permanent differences 669 -
Deferred tax not recognised 3,070 1,344
_________ _________
Total tax charge for period 245 (286)
_________ _________
Factors that may affect future tax charges
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2022 (on 10 June 2021). This included an increase to the main rate to increase the rate to 25% from 1 April 2023. The change being affective from 1 April 2023 has resulted in a blended tax rate of 21% for this financial year.
The deferred tax arises primarily from timing differences on the taxation related to capitalised development costs.
Earnings per share
14
2023 2022
Basic weighted average number of shares 64,407,222 64,385,219
_________ _________
Fully diluted weighted average number of
shares 64,407,222 64,385,219
_________ _________
2023 2022
GBP000 GBP000
Loss for the year attributable to owners
of the group (15,706) (10,799)
_________ _________
Basic and diluted loss per share (pence) (24.4p) (16.8p)
_________ _________
The loss per share has been calculated using the loss for the year and the weighted average number of ordinary shares outstanding during the period.
Share options held at the year-ended 31 July 2023 are anti-dilutive and so have not been included in the diluted earnings per share calculation.
Intangible assets
15
Assets in Customer Internal
the course software
Group of construction relationships development Software Goodwill Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 August 2022 215 335 13,116 280 1,263 15,209
Additions 407 - 3,436 - - 3,843
Transfers - - - - - -
_________ _________ _________ _________ _________ _________
At 31 July 2023 622 335 16,552 280 1,263 19,052
_________ _________ _________ _________ _________ _________
Amortisation
At 1 August 2022 - 335 5,550 280 122 6,287
Charge for year - - 2,431 - - 2,431
Impairment - - - - 275 275
_________ _________ _________ _________ _________ _________
At 31 July 2023 - 335 7,981 280 397 8,993
_________ _________ _________ _________ _________ _________
Net book value
At 31 July 2023 622 - 8,571 - 866 10,059
_________ _________ _________ _________ _________ _________
At 31 July 2022 215 - 7,566 - 1,141 8,922
_________ _________ _________ _________ _________ _________
The goodwill relates to the acquisition of Hubcreate Limited on 18 February 2016. The goodwill all relates to the Operate cash generating unit (CGU).
The Group estimates the recoverable amount of the Operate CGU using a value in use model by projecting pre-tax cash flows for the next 5 years. The key assumptions underpinning the recoverable amount of the CGU are forecast revenue and forecast EBITDA percentage. The forecast revenues in the model are based on management's past experience and future expectations of performance. The post-tax discount rate used in all periods is 14% derived from a WACC calculation and benchmarked against similar organisations within the sector. Management do not anticipate this CGU providing long term future cash flows for the group. As such the latest projection shows an average 8% decline in revenue year on year which is consistent with the decline in revenue during the financial year ended 31 July 2023. Using a discount rate of 14% (2022: 12%) resulted in an additional impairment of GBP275,000 and as such an impairment charge has been booked in this period (2022: 122,000).
Capitalised internal software development costs relates to both the essensys CGUs, the first CGU being essensys Platform and Connect and the second CGU being Operate. The amounts specific to each CGU can be separately determined.
The Group estimates the recoverable amount of the essensys Platform and Connect CGU using a value in use model by projecting pre-tax cash flows for the next 5 years including a terminal value calculation after the fifth year. The key assumptions underpinning the recoverable amount of the CGU are forecast revenue and forecast EBITDA percentage. The forecast revenues in the model are based on management's past experience and future expectations of performance. The post-tax discount rate used in all periods is 14% derived from a WACC calculation and benchmarked against similar organisations within the sector. Using a discount rate of 14% resulted in no impairment of the CGU; however, as more customers move from Connect to essensys Platform as a result of its strategic benefits to their business, management foresee that Connect will ultimately become obsolete and as such have increased the rate of amortisation by GBP350,000 of those assets directly attributed to the product. Management expects a similar amount in the financial year-ended 31 July 2024 by which point all assets directly attributed to the Connect product will be fully amortised.
The asset in course of construction capitalised this year is the cost to date for development of the software for the Group's in-development dynamic access control solution. It is expected that the asset will be complete before the end of the next financial year.
Intangible assets
15 (continued)
Assets in Customer Internal
the course software
Group Of construction relationships development Software Goodwill Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 August 2021 1,412 335 7,832 280 1,263 11,122
Additions 215 - 3,872 - - 4,087
Transfers (1,412) - 1,412 - - -
_________ _________ _________ _________ _________ _________
At 31 July 2022 215 335 13,116 280 1,263 15,209
_________ _________ _________ _________ _________ _________
Amortisation
At 1 August 2021 - 335 4,309 280 - 4,924
Charge for year - - 1,241 - - 1,241
Impairment - - - - 122 122
_________ _________ _________ _________ _________ _________
At 31 July 2022 - 335 5,550 280 122 6,287
_________ _________ _________ _________ _________ _________
Net book value
At 31 July 2022 215 - 7,566 - 1,141 8,922
_________ _________ _________ _________ _________ _________
At 31 July 2021 1,412 - 3,523 - 1,263 6,198
_________ _________ _________ _________ _________ _________
Property, plant and
16 equipment
Fixtures Computer Leasehold
and
Group fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 August
2022 242 10,605 686 11,533
Additions - 566 64 630
Disposals - (313) - (313)
Exchange adjustments (2) (264) - (266)
_________ _________ _________ _________
At 31 July
2023 240 10,594 750 11,584
_________ _________ _________ _________
Depreciation
At 1 August
2022 207 8,109 398 8,714
Charge for year 10 1,101 294 1,405
Impairment - 313 - 313
Disposals - (198) - (198)
Exchange adjustments (2) (225) - (227)
_________ _________ _________ _________
At 31 July
2023 215 9,100 692 10,007
_________ _________ _________ _________
Net book value
At 31 July
2023 25 1,494 58 1,577
_________ _________ _________ _________
At 31 July 2022 35 2,496 288 2,819
_________ _________ _________ _________
Fixtures Computer Leasehold
and
fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 August
2021 382 8,387 130 8,899
Additions 34 1,504 3 1,541
Disposals (188) - (33) (221)
Transfers (note
17) - 180 584 764
Exchange adjustments 14 534 2 550
_________ _________ _________ _________
At 31 July
2022 242 10,605 686 11,533
_________ _________ _________ _________
Depreciation
At 1 August
2021 322 7,020 86 7,428
Charge for year 29 564 24 617
Disposals (152) - (33) (185)
Transfers (note
17) - 129 318 447
Exchange adjustments 8 396 3 407
_________ _________ _________ _________
At 31 July
2022 207 8,109 398 8,714
_________ _________ _________ _________
Net book value
At 31 July
2022 35 2,496 288 2,819
_________ _________ _________ _________
At 31 July 2021 60 1,367 44 1,471
_________ _________ _________ _________
Property, plant and
16 equipment ( continued
)
Transfers represent right of use assets which reached their contract term and where legal title transferred to the Group.
As a result of the reorganisation that has centralised the Group's APAC operations in Sydney, Australia and the evolution of the 'capital light' strategy, Management have reviewed the carrying value of the computer hardware within the APAC region and have impaired those assets where the carrying value was in excess of their recoverable value resulting in an impairment of GBP313,000 and as such the impairment charge has been booked in this period.
.
Right of use assets
17
Leasehold Computer Leasehold
Group property equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 August 2022 7,049 162 - 7,211
Additions 198 - - 198
Lease remeasurement 95 - - 95
Exchange adjustments (128) - - (128)
_________ _________ _________ _________
At 31 July 2023 7,214 162 - 7,376
_________ _________ _________ _________
Depreciation
At 1 August 2022 4,567 162 - 4,729
Charge for year 1,349 - - 1,349
Impairment 274 - - 274
Exchange adjustments (116) - - (116)
_________ _________ _________ _________
At 31 July 2023 6,074 162 - 6,236
_________ _________ ______ _________
Net book value
At 31 July 2023 1,140 - - 1,140
_________ _________ _________ _________
At 31 July 2022 2,482 - - 2,482
_________ _________ _________ _________
Leasehold Computer Leasehold
Property equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 August 2021 5,482 342 584 6,408
Additions 1,062 - - 1,062
Lease remeasurement 1,136 - - 1,136
Disposal (872) - - (872)
Transfers (note 16) - (180) (584) (764)
Exchange adjustments 241 - - 241
_________ _________ _________ _________
At 31 July 2022 7,049 162 - 7,211
_________ _________ _________ _________
Depreciation
At 1 August 2021 3,693 278 277 4,248
Charge for year 1,214 13 41 1,268
Disposal (462) - - (462)
Transfers (note 16) - (129) (318) (447)
Exchange adjustments 122 - - 122
_________ _________ _________ _________
At 31 July 2022 4,567 162 - 4,729
_________ _________ ______ _________
Net book value
At 31 July 2022 2,482 - - 2,482
_________ _________ _________ _________
At 31 July 2021 1,789 64 307 2,160
_________ _________ _________ _________
Right of use assets
17 ( continued )
As a result of the reorganisation that has centralised the Group's APAC operations in Sydney, Australia and the evolution of the 'capital light' strategy, Management have reviewed the carrying value of the right of use assets within the APAC region and have impaired those assets where the carrying value was in excess of their recoverable value resulting in an impairment of GBP274,000 and as such the impairment charge has been booked in this period.
The transfers are assets that were classified as right of use assets where the lease term expired and the Group chose to purchase the assets at the end of the lease term, as they were still in active use within the Group. The assets are now listed within note 16.
Subsidiaries
18
Subsidiary undertakings, associated undertakings and other investments
The following were subsidiary undertakings of the company:
Proportion
of
Country of voting rights
incorporation and ordinary
Name or registration share capital Status Nature of business
held
essensys United Kingdom 100% Trading Provider of software
(UK) Ltd and technology
platforms to the
flexible workspace
industry
essensys, United States 100% Trading Provider of software
Inc of America and technology
platforms to the
flexible workspace
industry
essensys Canada 100% Trading Provider of software
(Canada) and technology
Inc platforms to the
flexible workspace
industry
essensys Netherlands 100% Trading Provider of software
(Europe) and technology
BV platforms to the
flexible workspace
industry
essensys United Kingdom 100% Non-trading Provider of software
(APAC Holdings) and technology
Ltd platforms to the
flexible workspace
industry
essensys Hong Kong 100% Trading Provider of software
(Hong Kong) and technology
Ltd platforms to the
flexible workspace
industry
essensys Singapore 100% Trading Provider of software
(Singapore) and technology
Pte Ltd platforms to the
flexible workspace
industry
essensys Australia 100% Trading Provider of software
(Australia) and technology
Pty Ltd platforms to the
flexible workspace
industry
Hubcreate United Kingdom 100% Non-trading Provider of workspace
Limited management software
TVOC Limited United Kingdom 100% Non-trading Virtual office
provider
Spacebuddi United Kingdom 95% Dormant -
Limited
The registered office of essensys (UK) Ltd, essensys (APAC Holdings) Ltd, Hubcreate Limited, TVOC Limited and Spacebuddi Limited are as per the Company as given on the company information page.
The office of essensys Inc is 600 5(th) Avenue, Floor 2, New York City, NY 10020, United States of America.
The registered office of essensys (Canada) Inc is 550 Burrard Street, Vancouver, British Columbia, V6C 0A3
The registered office of essensys (Europe) BV is Herikerbergweg 88, Amsterdam, 1101CM.
The registered office of essensys (Hong Kong) Ltd Room 1901, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong.
The registered office of essensys (Singapore) Pte Ltd is 9 Raffles Place, #26-01, Republic Plaza, 048619, Singapore.
The registered office of essensys (Australia) Pty Ltd is Suite 902, 146 Arthur Street, North Sydney, NSW 2060, Australia.
19 Inventories
2023 2022
GBP000 GBP000
Finished goods 2,021 2,353
Work in progress 239 193
_________ _________
2,260 2,546
_________ _________
Work in progress are items and third-party services purchased to satisfy specific customer contracts, where title has not yet passed. Finished goods are items purchased in the prior financial year to secure sufficient resources, with a global shortage of silicon, to satisfy expected future customer contracts.
20 Trade and other receivables
2023 2022
GBP000 GBP000
Trade receivables (net) 3,053 3,684
Other receivables 268 465
Prepayments 828 1,316
Contract assets (note 6E) 468 887
Current taxes receivable - 82
_________ _________
4,617 6,434
_________ _________
Analysis of trade receivables based on age of invoices
31 - Total Total
< 30 60 61 -90 > 90 Gross ECL Net
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---- -------- -------- -------- -------- -------- -------- --------
2023 2,042 242 146 1,016 3,446 (393) 3,053
2022 1,762 256 429 1,871 4,318 (634) 3,684
---- -------- -------- -------- -------- -------- -------- --------
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. The majority of trade and other receivables are non-interest bearing. Where the effect is material, trade and other receivables are discounted using discount rates which reflect the relevant costs of financing. The carrying amount of trade and other receivables approximates fair value.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses (ECL) which uses a lifetime expected loss allowance for all trade receivables. The ECL balance has been determined based on historical data available to management in addition to forward looking information utilising management knowledge.
At 31 July 2023 the lifetime expected loss provision for trade receivables and contract assets is as follows:
31 July 2023
Less than 31 to 61 to 91 or
30 60 90 more
days past days days past days past Total
due past due due due
GBP000 GBP000 GBP000 GBP000 GBP000
Expected loss
rate 0% 6.8% 10.9% 35.5%
Gross carrying
amount 2,510 242 146 1,016 3,914
ECL - 17 16 360 393
31 July 2022
Less than 31 to 61 to 91 or
30 60 90 more
days past days days past days past Total
due past due due due
GBP000 GBP000 GBP000 GBP000 GBP000
Expected loss
rate 0% 5.4% 8.6% 31.2%
Gross carrying
amount 2,650 256 429 1,871 5,206
ECL - 14 37 583 634
20 Trade and other receivables ( continued
)
Movements in the ECL are as follows:
2023 2022
GBP000 GBP000
Opening ECL at 1 August 634 580
ECL charge for the year 1,037 423
Receivables written off as uncollectable (1,278) (369)
_______ _______
At 31 July 393 634
_______ _______
Share capital
21
2023 2022
GBP000 GBP000
Allotted, called up and fully paid
64,649,260 (2022 - 64,385,219) ordinary
shares of 0.25p each (2022 - 0.25p) 162 161
_______ _______
264,041 shares were issued on 7(th) July 2023 as a result of vested share options being exercised.
Share premium
22
2023 2022
GBP000 GBP000
Share premium at start of period 51,660 51,660
Issue of new shares - -
Cost of issuing new shares recognised - -
in equity
_______ _______
51,660 51,660
_______ _______
Trade and other payables
23
2023 2022
GBP000 GBP000
Amounts falling due within one year
Trade payables 1,399 4,487
Other taxes and social security 528 244
Other creditors 511 1,050
Accruals 2,324 1,641
_________ _________
4,762 7,422
_________ _________
Lease liabilities
24
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.
2023 2022
GBP000 GBP000
Number of active leases 15 15
_________ _________
The Group sometimes negotiates break clauses in its leases. On a case-by-case basis, the Group will consider whether the absence of a break clause would expose the Group to excessive risk. Typically, factors considered in deciding to negotiate a break clause include:
-- The length of the lease term; -- The economic stability of the environment in which the property is located; and -- Whether the location represents a new area of operations for the Group.
At both 31 July 2023 and 2022 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 2022 3,128 - - - 3,128
Additions - - - - -
Interest expense 164 - - - 164
Effect of modifying
lease term 292 - - - 292
Variable lease payment
adjustment 28 - - - 28
Lease payments (2,006) - - - (2,006)
Foreign exchange
movements (35) - - - (35)
_________ _________ _________ _________ _________
At 31 July 2023 1,571 - - - 1,571
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 August 2021 1,841 29 20 45 1,935
Additions 1,061 - - - 1,061
Interest expense 145 1 - 1 147
Effect of modifying
lease term 877 - - - 877
Lease payments (944) (30) (20) (46) (1,040)
Foreign exchange
movements 148 - - - 148
_________ _________ _________ _________ _________
At 31 July 2022 3,128 - - - 3,128
_________ _________ _________ _________ _________
Lease liabilities ( continued )
24
Lease maturity
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2023 2023 2023 2023 2023
Up to 3 months 207 - - - 207
3 to 12 months 704 - - - 704
1-2 years 660 - - - 660
2-5 years - - - - -
_________ _________ _________ _________ _________
1,571 - - - 1,571
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2022 2022 2022 2022 2022
Up to 3 months - - - - -
3 to 12 months 135 - - - 135
1-2 years 389 - - - 389
2-5 years 2,604 - - - 2,604
More than 5 years _________ _________ _________ _________ _________
3,218 - - - 3,218
_________ _________ _________ _________ _________
Analysis by current and non-current
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2023 2023 2023 2023 2023
Due within a year 1,264 - - - 1,264
Due in more than
one year 307 - - - 307
_________ _________ _________ _________ _________
1,571 - - - 1,571
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2022 2022 2022 2022 2022
Due within a year 1,469 - - - 1,469
Due in more than
one year 1,659 - - - 1,659
_________ _________ _________ _________ _________
3,128 - - - 3,128
_________ _________ _________ _________ _________
Deferred taxation
25
2023 2022
GBP000 GBP000
Brought forward - 294
(Credited)/charged to the income statement - (294)
_________ _________
Carried forward - -
_________ _________
The provision for deferred taxation is
made up as follows:
2023 2022
GBP000 GBP000
Fixed asset timing - -
differences
_________ _________
-
- _________
The Group has an unrecognised deferred taxation asset of GBP9,771,000 (2022: GBP3,043,000) in respect of tax losses and deductible temporary differences. The Group has not recognised the deferred tax asset due to the lack of certainty over recovery of the asset.
2023 2022
GBP000 GBP000
Short term timing differences 487 415
Losses and other deductions 9,284 2,628
_________ _________
Unrecognised deferred taxation asset 9,771 3,043
_________ _________
Factors that may affect future tax charges
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7 September 2016). These included reductions to the main rate to reduce the rate to 19 per cent. From 1 April 2017 and to 17 per cent. From 1 April 2021. However, on 17 March 2021 the rate reduction due to come in effect on 1 April 2021 was substantively reversed so that the main rate of taxation will remain at 19 per cent, and this has been reflected in these financial statements.
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2021 (on 10 June 2021). This included an increase to the main rate to increase the rate to 25% from 1 April 2023. The UK government has proposed the abolishment of the increase to the tax rate, but at the signing date of these financial statements the reversal has not yet been substantively enacted and so the rate has not been adjusted.
Financial instruments
26
The Group is exposed through its operations to the following financial risks:
-- Credit risk -- Foreign exchange risk -- Liquidity risk
In common with all other business, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect to these risks is presented throughout these financial statements.
There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and procedures for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises are as follows:
-- Trade receivables -- Cash and cash equivalents -- Trade and other payables -- Bank overdrafts
It is Group policy that no trading in financial instruments should be undertaken.
Financial instruments ( continued )
26
Financial instruments by category
2023 2022
GBP000 GBP000
Financial assets at amortised cost
Cash and cash equivalents 7,862 24,122
Trade and other receivables 3,495 4,707
_________ _________
Total financial assets at amortised cost 11,357 28,829
_________ _________
Financial liabilities
Trade and other payables 4,233 7,178
Lease liabilities 1,571 3,128
_________ _________
Total financial liabilities 5,804 10,306
_________ _________
Financial instruments not measured at fair value
These include cash and cash equivalents, trade and other receivables, trade and other payables, and loans and borrowings. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables and trade and other payables approximates their fair value.
The Group's activities expose it to a variety of financial risks:
-- Market risk (including foreign exchange risk, price risk and interest rate risk) -- Credit risk -- Liquidity risk
The financial risks relate to the following financial instruments:
-- Cash and cash equivalents -- Trade and other receivables -- Trade and other payables -- Loans and borrowings
The accounting policies with respect to these financial instruments are described above.
Risk management is carried out by the key management personnel. Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited, the Group's principal trading subsidiary, who together have authority and responsibility for planning, directing, and controlling the activities of the Group. The key management personnel identify and evaluate financial risks and provide principals for overall risk management.
(a) Credit Risk
Credit risk is the risk of financial loss to the Group if a customer fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts.
Financial instruments ( continued )
26
Financial instruments not measured at fair value (continued)
(b) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises because the Group operates in the United Kingdom, Europe, North America and the Asia Pacific region, whose functional currency is not the same as the presentational currency of the Group. Foreign exchange risk also arises when individual companies within the group enter into transactions denominated in currencies other than their functional currency. Such transactions are kept to a minimum either through the choice of suppliers or presenting sales invoices in the functional currency.
Certain assets of the group companies are denominated in foreign currencies. Similarly, the Group has financial liabilities denominated in those same currencies. In general, the Group seeks to maintain the financial assets and financial liabilities in each of the foreign currencies at a reasonably comparable level, thus providing a natural hedge against foreign exchange risk and reducing foreign exchange exposure to a minimal level.
2023 2022
GBP000 GBP000
Financial assets 5,026 21,541
Financial liabilities 2,733 3,368
_________ _________
The table below represents financial instruments that
are denominated in currencies other than the functional
currencies of the group entities:
2023 2022
US$000 US$000
Financial assets 7,126 7,249
Financial liabilities 1,683 3,661
_________ _________
2023 2022
CA$000 CA$000
Financial assets 25 93
Financial liabilities 13 6
_________ _________
2023 2022
EUR000 EUR000
Financial assets 794 658
Financial liabilities 192 336
_________ _________
2023 2022
HK$000 HK$000
Financial assets 683 1,962
Financial liabilities 442 1,064
_________ _________
2023 2022
SG$000 SG$000
Financial assets 155 1,024
Financial liabilities 475 829
_________ _________
2023 2022
AU$000 AU$000
Financial assets 470 545
Financial liabilities 266 379
_________ _________
Financial instruments ( continued )
26
A 10 per cent weakening of the Group's reporting currency against the United States Dollar would have the following impacts on the groups reporting currency on the financial assets and liabilities listed above in United States Dollar:
2023 2022
$000 $000
Financial assets (504) (541)
Financial liabilities (119) (273)
_________ _________
(ii) Interest rate risk
The Group's interest rate exposure arises mainly from the interest-bearing borrowings as disclosed in note 24. All the Group's facilities were floating rates excluding interest from leases, which exposed the group to cash flow risk. As at 31 July 2023 there are no loans outstanding, (2022 - GBPnil) and the overdraft facility is available but not in use. Therefore, there is no material exposure to interest rate risk.
(c) Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash flows for operations. The Group manages its risk to shortage of funds by monitoring forecast and actual cash flows. The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the majority of both its borrowings and payables.
The Group has no borrowings at 31 July 2023 (2022: GBPnil).
A maturity analysis of the Group's trade and other payables is shown below:
2023 2022
GBP000 GBP000
Less than one year 4,781 7,178
_________ _________
4,781 7,178
_________ _________
Pension commitments
27
The group operates defined contribution pension schemes. The assets of the schemes are held separately from those of the group in an independently administered fund. The pension cost charge represents contributions payable by the group to the funds.
2023 2022
GBP000 GBP000
Pension charge 603 426
_______ _______
Pension liability 100 78
_______ _______
Share based payments
28
The Company operates five equity-settled share-based remuneration schemes for employees; two United Kingdom tax authority approved schemes (one EMI and one CSOP), an unapproved Performance Share Plan scheme, a share option plan for non-United Kingdom employees and an unapproved Non-Executive Director Plan. The UK plans includes employees from the Company and its main UK trading subsidiary essensys (UK) Ltd.
Weighted Weighted
average average
exercise exercise
price price
(GBP) Number (GBP) Number
2023 2023 2022 2022
Outstanding at the
beginning of the year 1.04 3,357,503 1.08 3,378,829
Granted during the
year 0.0025 2,702,178 0.25 89,219
Forfeited during the
year 0.4482 (375,157) 1.60 (110,545)
Exercised during the
year 0.0025 (264,041) - -
_________ _________
Outstanding at the
end of the year 0.6139 5,420,483 1.04 3,357,503
_________ _________
The weighted average exercise price of options outstanding at the end of the year was 0.6139p (2022: 103.93p) and their weighted average contractual life was 7.21 years (2022: 7.1 years).
During the year the equity-settled share-based schemes under which options were granted immediately prior to IPO vested at the end of their 3 year vesting period. Given the volatility in the share price during the year the Remuneration Committee agreed to extend the vesting period for the performance share element of the scheme by a further two years. This modification gave rise to an increase in the fair value of the Performance Share Plan options, for which a charge was taken immediately as the original vesting period had passed.
Of the total number of options outstanding at the end of the year and following the modification to the options granted prior to IPO, no options had vested or were exercisable.
Market Value Options were valued using the Black Scholes option pricing model. Performance Share options granted and modifications made to pre-existing Performance Share options were valued using a Monte Carlo Simulation option pricing model. Expected dividends are not incorporated into the fair value calculations. The assumptions used in the calculations are as follows:
2023 2022
Risk free investment 3.03% 1.06%
Expected life 3 3
Expected volatility 56.8% 57.8%
The volatility used for the share option grants during the current year was from a median of peers, including that actually experienced by the group during the period from the IPO that actually experienced during the period from the IPO. The expected life was based initially on the minimum vesting period with an assumption that more senior personnel would not exercise immediately. The risk-free rate was based on the yield on UK government 3-year gilts at the time of the grant.
The Group recognised a total Share based payment expense of GBP597,000 in the year (2022: GBP741,000), all of which related to options in the Company issued immediately prior to the IPO or subsequent thereto.
Related party transactions
29
The Group has taken advantage of the exemption available under IAS 24 Related Party Disclosures not to disclose transactions between Group Undertakings which are eliminated on consolidation.
Key management personnel
Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited and essensys, Inc, the Group's principal trading subsidiaries, who together have authority and responsibility for planning, directing, and controlling the activities of the Group. Details of key management compensation is shown in note 10.
Directors Loans
There were no directors' loans during the years ended 31 July 2023 and 31 July 2022.
Capital commitments and contingent liabilities
30
The Group had no capital commitments or contingent liabilities at 31 July 2023 (2022: GBPnil)
Events after the reporting date
31
Following the financial year-end, the Group completed the reorganisation described in note 7. This involved the termination of employment for a further 31 employees at a one-off cost of GBP1.0 million. This amount was included in the GBP2.6 million restructuring cost recognised in FY23. No further significant restructuring cost is expected.
Following the year end two of the Group's dormant subsidiary companies, Hubcreate Limited and TVOC Limited, were formally dissolved and removed from the Companies House Register,
As at 31 July 20223 the Group had cash reserves of GBP7.9 million. On 30 October 2023 the Group entered into an unsecured loan agreement with Mark Furness, the Group's Chief Executive Officer and largest shareholder, to provide GBP2 million of additional funding in the event that the Group requires it. This loan facility has not been drawn and is effective to 31 July 2025.
Notes supporting statement of cash flows
32
32 A Cash from operations
2023 2022
GBP000 GBP000
Cash flows from operating activities
Loss for the financial year before
taxation (15,461) (11,085)
Adjustments for non-cash/non-operating
items:
Amortisation of intangible assets 2,081 1,241
Depreciation of property, plant and
equipment 1,405 617
Depreciation of right of use assets 1,349 1,269
Impairment of goodwill 275 122
Impairment of intangible assets 350 -
Impairment of property, plant and 313 -
equipment
Impairment of right of use assets 274 -
(Profit)/loss on disposal of fixed
assets (5) 36
Share based payment expense 597 741
Losses on foreign exchange transactions 31 -
Finance income (216) (94)
Finance expense 164 147
Other 51 49
_________ _________
(8,792) (6,957)
Changes in working capital:
Decrease/(increase) in inventories 286 (2,362)
Decrease/(increase) in trade and other
debtors 1,819 (1,155)
(Decrease)/increase in trade and other
creditors (3,058) 3,685
_________ _________
Cash used by operations (9,745) (6,789)
_________ _________
32 Notes supporting statement of cash flows (continued)
32 Movement in net debt
B
Cash and
cash equivalents Leases Total
GBP000 GBP000 GBP000
As at 1 August 2021 36,903 (1,935) 34,968
Lease additions - (1,061) (1,061)
Effect of modifying lease term - (877) (877)
Cashflow (13,374) 1,040 (12,334)
Interest charges - (147) (147)
Exchange movements 593 (148) 445
_________ _________ _________
As at 31 July 2022 24,122 (3,128) 20,994
Lease additions - (292) (292)
Effect of modifying lease term - (28) (28)
Cashflow (15,981) 2,006 (13,975)
Interest charge - (164) (164)
Exchange movements (279) 35 (244)
_________ _________ _________
As at 31 July 2023 7,862 (1,571) 6,291
_________ _________ _________
Cash and
cash equivalents Leases Total
GBP000 GBP000 GBP000
Balances as at 31 July 2023
Current assets 7,862 - 7,862
Current liabilities - (1,264) (1,264)
Non-current liabilities - (307) (307)
_________ _________ _________
7,862 (1,571) 6,291
_________ _________ _________
Cash and
cash equivalents Leases Total
GBP000 GBP000 GBP000
Balances as at 31 July 2022
Current assets 24,122 - 24,122
Current liabilities - (1,469) (1,469)
Non-current liabilities - (1,659) (1,659)
_________ _________ _________
24,122 (3,128) 20,994
_________ _________ _________
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END
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October 31, 2023 03:00 ET (07:00 GMT)
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