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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Ide Group Holdings Plc | LSE:IDE | London | Ordinary Share | GB00BN4M3M55 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 72.50 | 70.00 | 75.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMIDE
RNS Number : 7393D
IDE Group Holdings PLC
28 June 2019
IDE Group Holdings Plc
("IDE", the "Group" or the "Company")
Unaudited Results for the Year Ended 31 December 2018
IDE, the mid-market network, cloud and IT Managed Services provider, announces its unaudited preliminary results for the year ended 31 December 2018.
Summary
-- Revenue of GBP41.1 million from continuing operations* (2017: GBP53.7 million)
-- Adjusted EBITDA** loss of GBP3.9 million from continuing operations* (2017: profit of GBP4.1 million), following review of, inter alia, onerous contracts, capitalised staff costs and classification of exceptional items
-- New leadership team appointed with significant industry experience; Andy Parker as Executive Chairman, Ian Smith as Executive Director and Max Royde as Non-Executive Director
-- Total funds of GBP7.55 million raised by way of equity and convertible loan notes in order to provide working capital and re-capitalise Company's balance sheet
-- Strategic and operational review undertaken resulting in a total of GBP7.2 million of annualised staff cost reductions, along with other operational cost savings
-- Settlement reached in relation to an outsourced service contract which resulting in a total saving of c.GBP3 million over the next three years
-- Disposal of 365 ITMS Limited together with PACT business unit in October 2018 for total cash consideration of GBP3 million, proceeds used to reduce net debt
Post period-end
-- Issue of GBP10 million secured loan notes, the proceeds of which were used to repay the Company's debt facilities with National Westminster Bank plc and to provide additional working capital(1)
-- Loan notes subscribed for by existing shareholders, Company now has no external debt other than with key shareholders
-- Strong pipeline of opportunities with both existing and new customers and partners -- Group trading profitably at an Adjusted EBITDA** level for year to date
* Total revenue from continuing and discontinued operations of GBP51.5 million (2017: GBP65.0 million) and total Adjusted EBITDA** loss of GBP3.3 million (2017: profit of GBP5.4 million) including 9 months' contribution from 365 ITMS Limited and the PACT business unit until date of disposal. 2017 comparative includes 9 months' contribution from 365 ITMS Limited from date of acquisition and 6 months of the PACT business unit from date of establishment
** Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, impairment charges, exceptional items, loss on disposal of fixed assets and share-based payments
The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
IDE Group Holdings Plc Tel: +44 (0)344 Andy Parker, Executive Chairman 874 1000 finnCap Limited Tel: +44 (0)20 7220 Nominated Adviser and Broker 0500 Corporate finance: Jonny Franklin-Adams/ Scott Mathieson/ Hannah Boros ECM: Tim Redfern/ Richard Chambers
Chairman's Statement
The year being reported was a difficult one for IDE. The business has faced significant challenges created by the previous leadership team which have necessitated substantial effort and work in order to right-size the cost base and re-capitalise the balance sheet, the detail of which I will take you through below.
At the beginning of the year, in order to improve cash generation and reduce net debt, the then Board announced a cost reduction programme, targeting a reduction of at least GBP2.0 million from personnel costs and at least GBP1.5 million from third party costs on an annualised basis, the benefit of which they expected to come through before the end of March 2018. Furthermore, at the time of reporting the final results for the year ended 31 December 2017 in May 2018 (the "Final Results"), it was noted by the then Chairman that profitability in 2018 was expected to be significantly lower than in 2017 but was expected to improve steadily throughout 2018 following implementation of a strategic and operational review. However, progress with both the cost reductions and the strategic and operational review was at best limited in the hands of the previous leadership team which resulted in the Company facing severe financial pressures.
As a result of these financial pressures, shortly after the publication of the Final Results, the Company raised GBP2.0 million by way the issue of loan notes in May 2018. This raise was supported by William ("Bill") Dobbie, MXC Capital Limited ("MXC") and Kestrel Partners LLP, the latter two being the largest shareholders of the Company. At the same time Ian Smith, Chief Executive Officer and substantial shareholder of MXC, joined the Board to lead the strategic and operational review and Julian Phipps stepped down from the Board, with the other former executive director, Andy Ross, having resigned in March 2018.
Strategic and Operational Review
As part of the strategic and operational review the little integration that had been initiated by the previous management was reversed and the Group was split back into the three component parts which comprised the original acquisitions made by the Group, namely, IDE Group Manage Limited (formerly Selection Services), IDE Group Connect Limited (formerly C4L) and 365 ITMS Limited. There was a considerable lack of clarity around the trading performance of the Group and in doing this the activities which generate cash and those which are loss-making were able to be identified.
Generally, when completing a "Buy and Build", which was IDE's stated strategy, synergies are part and parcel of the business case. One would reasonably expect that as a result of putting together the three companies that comprised the Group, there would be a smaller number of staff than would have existed across the three companies at the time of acquisition. However, this was far from the case: at the time of the acquisitions there were a combined 440 members of staff across all three companies and as at 31 December 2017 the Group had 550 members of staff, an increase of over 100 heads for which there was little or no incremental revenue gain. Splitting the Group back into the component parts allowed us to identify where all the additional headcount was added.
As part of the review it was discovered that previous management had entered into many onerous contracts which created little or no value to the Group, including a single outsourced service contract that was costing the Group more than GBP1.0 million a year and which has only generated net cost savings of GBP50,000. This contract, alongside others, was signed without due process or compliance with the Group's authority limits. I am pleased to say that in December 2018 we reached a settlement in relation to this contract which will result in a saving of c.GBP3.0 million over the next three years.
Further investigation into the state of the Company's finances led to a further fundraising of GBP5.55 million by way of the issue of new equity and zero coupon, unsecured, convertible loan notes ("CLNs") which completed in August 2018. At the same time the GBP2.0 million loan notes which were issued in May 2018 were repaid; GBP0.75 million by way of the issue of equity with the remaining GBP1.25 million reissued as CLNs. The additional funding allowed the Group to continue restructuring with the aim of right-sizing the business to enable the Group to trade profitably.
Having explored various options with respect to the disposal of one or more of the component parts of the business, in October 2018 the Company announced the completion of the strategic and operational review and the disposal of 365 ITMS Limited (the "Sale"), further detail of which can be found below.
It was at this point that I became interim Executive Chairman in order to assist with the Group's restructure. Our focus as a Board was now on right-sizing the Group to enable it to trade profitably. To that end, a total of GBP7.2 million of annualised staff cost reductions were implemented throughout 2018, along with other operational cost savings including, inter alia, a reduction in software licencing costs and property costs and, most significantly, the settlement of the outsourced service contract as detailed above.
Following the Sale, the Group's remaining two trading businesses are IDE Group Manage Limited ("Manage") and IDE Group Connect Limited ("Connect"). Manage provides traditional people-based managed services, including service desk and remote technical support, project management and delivery, onsite and field-based engineering and device lifecycle services, the latter from our IL3 certified Lifecycle facility in Dartford. There is considerable capacity within this facility, and we see this as an opportunity for growth. Connect provides network services and data centre hosting services. A significant number of customers take services from both businesses and therefore we believe there remains the opportunity to upsell to our current customer base as well as growing by bringing new customers on board.
Sale of 365 ITMS Limited
On 15 October 2018 the Company announced the sale of 365 ITMS Limited ("365 ITMS") to PTCA Newco Limited ("PTCA"), a newly incorporated company owned by certain members of the management team within 365 ITMS, on a cash free, debt free basis with a normalised level of working capital. 365 ITMS was acquired by the Group in April 2017 and provides a range of complementary data centre, network, security and cloud services. The consideration for the Sale was GBP2.8 million, payable in cash. In addition, as part of the Sale, certain assets including contracts and staff relating to PACT, the Group's business unit focused on cyber security which was established in 2017, were transferred to 365 ITMS for cash consideration of GBP0.2 million which was paid by 365 ITMS to the Group upon completion of the Sale. The proceeds of the Sale were used to reduce the Company's net debt.
Board Changes
There were wholesale changes to the Board during the year, starting with Jonathan Watts stepping down from his position as Chairman in January 2018 at which time Bill Dobbie stepped up as interim Chairman. Jonathan's departure was followed by Andy Ross' resignation as Chief Executive Officer in March 2018 at which time Julian Phipps, the Chief Financial Officer, also took on the role of Chief Operating Officer. Following a review of the Group's financial position, at the end of May 2018, when the Company announced the issue of GBP2.0 million of unsecured loan notes, Ian Smith was appointed as Executive Director to lead the Group's strategic and operational review, simultaneously with Julian Phipps stepping down from his position on the Board. MXC Capital Markets LLP, a subsidiary of MXC, was also appointed as financial adviser.
In August 2018, I joined the Board as a Non-Executive Director. Also in August 2018, at the time of the GBP5.55 million fundraising, Katherine Ward stepped down from her position of Non-Executive Director. In October 2018, Bill Dobbie stepped down from the Board at which point I became Non-Executive Chairman and Max Royde, co-founder of Kestrel Partners LLP, was appointed as a Non-Executive Director. Kestrel Partners LLP are a significant shareholder of the Company. Finally, in October 2018 when the Company announced the sale of 365 ITMS and the completion of the strategic and operational review, I became interim Executive Chairman in order to lead the restructuring of the Group.
The Board has been supported through these tumultuous times by an interim Chief Financial Officer and the management team within the business. We recognise that the current structure of the Board is not ideal from a corporate governance perspective but believe that we have the skills and experience to best lead the Group at this current time. That said, we are looking to add an independent Non-Executive Director to the Board and intend to further enhance the Board with appropriate executive appointments to lead the Group through its next stage of development.
Trademark Dispute
In July 2017, the UK Intellectual Property Enterprise Court ruled that the CORETX brand (the Group's former trading brand) infringed a pre-existing trade mark. The previous leadership appealed against the decision, which the Court of Appeal did not permit. Consequently, the Group had to re-brand to IDE Group incurring significant cost in doing so. In February 2018, a claim for significant damages was received from Coreix Limited, the party who brought the brand infringement claim. Despite the previous leadership asserting that Coreix Limited's claim should not exceed GBP10,000, on 29 May 2018 the Group reached a full and final settlement with Coreix Limited, under which the Group had to pay damages of GBP250,000 over the course of 10 months, plus costs of GBP3,000 relating to a court hearing. As the previous leadership had believed that the claim would be under the excess amount for insurance purposes, the insurance company was not informed within the appropriate time limit and hence the Group was unable to claim under its policy, meaning that the settlement agreement resulted in a significant cash outflow for the Group.
Bank Refinancing
Throughout the difficulties that faced IDE during 2018, the Group's bankers, National Westminster Bank plc ("Natwest"), remained supportive of the Company. The proceeds of the 365 ITMS Sale were used to reduce IDE's level of debt, however, at the end of the year the Group's remaining revolving credit facility of GBP4.75 million was fully drawn and it had c.GBP0.6 million headroom on its GBP3.5 million overdraft facility (the "Facilities"). In order to provide additional, secure and longer-term funding to replace the Facilities, on 10 January 2019 the Company announced that it proposed to raise GBP10.0 million by way of an issue of secured loan notes ("Loan Notes") in two tranches. Under the first tranche, GBP5.3 million of Loan Notes were subscribed for by two existing shareholders of the Company, MXC and Blake Holdings Limited, a company controlled by Richard Griffiths, a significant shareholder in the Company. The second tranche of GBP4.7 million was made available to all other shareholders by way of an open offer and was fully underwritten by MXC; in the end GBP1.0 million was taken up by other shareholders with the remaining GBP3.7 million subscribed for by MXC. The proceeds of the issue of the Loan Notes were used to fully repay the Facilities and provide additional working capital for the Group. With the issue of the Loan Notes, the Group now has no external debt other than with key shareholders and has longer-term funding, thereby affording security for all the Group's stakeholders.
Outlook
As a result of the actions taken during 2018, we ended the year in a much stronger position than we started it with a strong leadership team, an appropriate cost base and clear focus on operational execution and customer service to drive increased profitability and cash generation. The refinancing, which was completed post year end, has provided long term funding and means that the Company has no other external debt, as the Loan Notes are held solely by shareholders, and predominantly by the largest shareholders.
I would like to thank the management and staff for their continued support and resolve to deliver value to our customers during what has been a challenging year. Despite the incredible pressure they have found themselves under, they have behaved impeccably and, in many cases, have gone above and beyond to support the Group and service customers in the most difficult of circumstances.
With the upheaval of last year behind us, we are now focused on driving the core activities necessary to support our customers and rebuild value for shareholders. Towards the end of the year, several of the Group's material customers renewed their contracts with IDE, some on a multi-year basis, and at the time of writing, the pipeline of opportunities across the business both with existing and new customers and partners is the strongest it has been since my involvement. I am also pleased to report that the Group has been trading profitably at an Adjusted EBITDA level in the year to date. We are confident our strategy is on track and look forward to reporting continued progress throughout the current year.
Financial Review
New IFRS Implementation
These are the first full year results which are presented by IDE following the adoption of IFRS 9 and 15. The adoption of both IFRS 15 and IFRS 9 has not resulted in restatements but has resulted in additional disclosure.
IFRS 15 standard sets out revenue recognition requirements, and establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash ows arising from the Group's contracts with customers. The standard requires entities to apportion revenue earned from contracts to performance obligations on a relative stand-alone basis, based on a five-step model. Having undertaken a review of all the services and products the Group provides, and the main types of commercial arrangements used with each service and product, the Group has concluded that the implementation of the new standard has not resulted in a change in the revenue recognition accounting policies of the Group. Therefore, following implementation of IFRS 15, there was no impact of transition on retained earnings at 1 January 2018, on the Group's statement of financial position as at 31 December 2018, on its consolidated income statement, its consolidated statement of other comprehensive income, or on the cash flows for the period to 31 December 2018.
IFRS 9 introduces principle-based requirements for the classification of financial assets, using the following measurement categories: (i) Amortised cost; (ii) Fair value through Other Comprehensive Income with cumulative gains and losses reclassified to profit or loss upon derecognition; and (iii) Fair value through profit or loss. IFRS 9 also introduces a new impairment model, the expected credit loss model. The Group now reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that consider current and forecast credit conditions as opposed to relying on past historical default. The Group undertook an assessment of how the adoption of IFRS 9 would impact the Group's financial instruments. The key area that was identified across the business was the bad debt provisioning because of the implementation of the expected credit loss model and it was concluded that no restatement was required.
Results for the Year - Continuing Operations
The Group reported total revenues from continuing operations of GBP41.1 million in the year to December 2018, down from GBP53.7 million in the year to 31 December 2017 and gross profit of GBP6.6 million (2017 restated: GBP15.9 million). The results for the year ended 31 December 2017 have been restated to reflect the change in allocation of certain salary costs which are directly attributable to the provision of services from administrative expenses to cost of sales. Gross margin decreased from 30% in 2017 (restated) to 16% in the year under review. A contributing factor to this decrease in margin was an increase in provisions for onerous contracts amounting to GBP1.9 million, further detail of which can be found below.
In our managed services division, a large proportion of managed services revenue recorded in 2017 arose from one-off projects, which came to an end either in 2017 or early 2018 resulting in a decrease in overall revenue in that division; GBP16.5 million from continuing operations in the year to 31 December 2018 vs GBP23.0 million in 2017. Cost of sales in 2018 were 5% higher as a % of revenue than in 2017 due to the inclusion of the total cost of an onerous outsourced supply contract, whereas in the year to 31 December 2017 the majority of this cost was classed as exceptional. In the interim results to 30 June 2018 (the "Interim Results"), a provision of GBP2.2 million was recognised in relation to this contract, however, the contract was settled in December 2018 therefore the provision has been reversed and there are no longer any costs associated with this contract going forward.
In our cloud and hosting division, revenue slightly decreased to GBP10.2 million compared to GBP10.7 million due to certain contracts coming to an end during the year. Cost of sales of GBP10.1 million were significantly higher compared to last year (2017 restated: GBP7.0 million) due in part to an increase of GBP1.3 million in the provision relating to a colocation contract following a review of the utilisation of this contract. The resulting gross profit for this division was GBP0.2 million (2017: GBP4.2 million).
Networks revenue was GBP7.3 million for the year (2017: GBP8.7 million) with the decrease compared to last year due to certain customer contracts finishing during the year, with gross profit of GBP0.7 million (2017 restated: GBP2.2 million). The decrease in gross profit can be attributed to, inter alia, a GBP0.6 million increase in the provision relating to a fibre supply contract and the fact that when customer contracts come to an end, the associated costs often do not cease coterminously.
Projects revenue was down GBP4.2 million to GBP7.0 million (2017: GBP11.2 million), although gross margin remained relatively stable at 33% (2017: 35%).
Administrative expenses excluding impairment were GBP19.5 million (2017: GBP22.3 million) and include GBP2.4 million of exceptional costs (2017: GBP1.2 million) primarily in relation to the reduction in headcount which took place during the year. Over GBP1.3 million of previously capitalised staff costs were reclassified to administrative expenses and the associated depreciation reversed. In addition, administrative expenses included a charge of GBP3.3 million for the amortisation of intangible assets (2017: GBP3.1 million), depreciation of tangible fixed assets of GBP2.8 million (2017: GBP3.0 million) and a loss on disposal of fixed assets of GBP0.7 million (2017: GBP0.1 million).
The Group uses Adjusted EBITDA which is a non-GAAP measure of performance as it believes this more accurately reflects the underlying performance of the business. This is one of the key operational performance measures monitored by the Board. Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, impairment charges, exceptional items, loss on disposal of fixed assets and share-based payments. The Adjusted EBITDA loss for the year was GBP3.9 million (2017: profit GBP4.1 million). A major contributor to this loss was the increase in provisions for onerous supply contracts and property amounting to GBP3.5 million. Furthermore, though costs were significantly reduced during 2018, the savings were staggered throughout the year hence for part of the year the Group's cost base was disproportionate to its revenue. The trading performance of the Group improved in the second half of the year once the cost savings started to come through.
At the time of the Interim Results, impairment charges totalling GBP27.5 million were recognised in relation to goodwill and intangible assets resulting from the acquisitions of IDE Group Manage (formerly Selection Services) and 365 ITMS to reflect what the Directors believed at the time to be the then current fair values of these businesses. However, given the restructuring which took place in the second half of the year and the improving performance of IDE Group Manage, the Board has reassessed the value of IDE Group Manage and reversed GBP17.5 million of impairment in relation to customer contracts which was recognised at the time of the Interim Results. Furthermore, 365 ITMS was sold in October 2018 hence the GBP4.0 million impairment charge relating to goodwill arising from the acquisition of 365 ITMS, which had been recognised at the time of the Interim Results, has been included in discontinued operations.
At the time of the Interim Results, no impairment charge was recognised in relation to the goodwill arising from the acquisition of IDE Group Connect (formerly C4L), however, a review at the end of the year resulted in an impairment charge of GBP6.9 million. The resulting net impairment charges for the year ended 31 December 2018 were GBP14.9 million (2017: GBP9.3 million). These significant charges have been a major contributor towards the operating loss in relation to continuing operations of GBP28.1 million (2017: GBP12.7 million).
After incurring net finance costs of GBP0.4 million (2017: GBP0.3 million), the loss before tax on continuing operations was GBP28.2 million (2017: loss of GBP13.0 million).
The utilisation of tax losses and a deferred tax credit arising on the amortisation of intangible assets has resulted in a tax credit for the year of GBP0.6 million (2017: GBP1.6 million).
The Group therefore reported a loss after tax from continuing operations of GBP27.6 million (2017: loss of GBP11.4 million), which equates to a basic loss per share from continuing operations of 11.22p (2017: 5.76p). The Group's adjusted loss per share from continuing operations, based on the underlying performance of the business, equated to 2.42p per share (2017: 0.19p per share).
Discontinued Operations
During the year the Group undertook a strategic and operational review which culminated in the sale of 365 ITMS in October 2018. 365 ITMS was sold to PTCA, a newly incorporated company owned by certain members of the management team within 365 ITMS, on a cash free, debt free basis with a normalised level of working capital. 365 ITMS was acquired by the Group in April 2017 and provides a range of complementary data centre, network, security and cloud services. The consideration for the Sale was GBP2.8 million, payable in cash. In addition, as part of the Sale, certain assets including contracts and staff relating to PACT, the Group's business unit focused on cyber security which was established in 2017, were transferred to 365 ITMS for a cash consideration of GBP0.2 million which was paid to the Group by 365 ITMS upon completion of the Sale. The net proceeds of the Sale were used to reduce the Company's net debt.
Discontinued Operations
From 1 January 2018 to the date of sale, 365 ITMS and PACT generated revenues of GBP10.4 million (2017: GBP11.2 million) and Adjusted EBITDA of GBP0.6 million (2017: GBP1.0 million). The figures for 2017 included 9 months' contribution from 365 ITMS from the date of acquisition and 6 months' contribution from PACT which was established in June 2017. After all costs, including a GBP4.0 million impairment charge relating to the original acquisition of 365 ITMS and the GBP0.9 million profit on disposal arising from the sale, the loss after tax from discontinued operations for the year ended 31 December 2018 amounted to GBP2.9 million (2017: profit of GBP0.2 million).
Statement of Financial Position
The Group had property, plant and equipment at 31 December 2018 of GBP9.8 million (2017: GBP13.0 million). Intangible assets of GBP30.0 million at the year-end (2017: GBP55.4 million) related predominantly to customer contracts. As detailed above, impairment charges of GBP14.9 million were recognised in the year, principally in relation to the goodwill arising on the acquisitions of Selection Services and C4L.
Trade and other receivables of GBP8.9 million (2017: GBP15.2 million) include trade receivables of GBP6.4 million (2017: GBP8.6 million), a decrease of 25% reflecting the drop in turnover, and includes an expected credit loss provision of GBP0.7 million (2017: GBP0.4 million).
Trade and other payables, excluding deferred income, amounted to GBP7.7 million (2017: GBP15.4 million), including trade creditors of GBP4.9 million (2017: GBP8.8 million) and accruals of GBP1.8 million (2017: GBP5.0 million). Deferred income, arising from customers invoiced in advance of services delivered, amounted to GBP3.0 million (2017: GBP6.7 million). A review of the utilisation of the Group's onerous contracts, primarily relating to property and supplier contracts, resulted in a net increase in provisions of GBP1.5 million to GBP3.2 million (2017: GBP1.7 million).
Funding and Debt
In May 2018, IDE issued GBP2.0 million of unsecured loan notes with an annual coupon of 10% to support the Group during the strategic and operational review. In August, the Company announced a further fundraising of GBP5.5 million to be effected by the issue of both equity and convertible loan notes. The convertible loan notes are unsecured, have a term of 5 years, carry no interest and are convertible into ordinary shares in the capital of IDE ("Ordinary Shares") at a price of 2.5 pence per Ordinary Share ("CLNs"). To that end, GBP1.8 million was raised by the issue of CLNs and GBP3.7 million was raised by the issue of new Ordinary Shares at price of 2.5 pence per share. At the same time, the GBP2.0 million of loan notes which were issued in May 2018 were repaid; GBP1.25 million by way of the issue of new Ordinary Shares at a price of 2.5 pence per share and GBP0.75 million by way of the issue of CLNs. At 31 December 2018, the Group had GBP2.55 million CLNs in issue (2017: GBPnil), with a fair value of GBP2.7 million, split into an equity component (GBP1.0 million) and a debt component (GBP1.7 million) as detailed in note 23.
As at 31 December 2018 the Group had a net overdraft position of GBP2.9 million (2017: GBP1.5 million), finance lease liabilities of GBP0.7 million (2017: GBP0.8 million) and GBP4.8 million (2017: GBP7.5 million) was due under the RCF facility. The net proceeds of the 365 ITMS Sale were used to reduce the RCF from GBP7.5 million to GBP4.75 million in October 2018.
Post year end, on 10 January 2019 the Company announced that it proposed to raise GBP10.0 million by way of an issue of secured loan notes ("Loan Notes") in two tranches; one in January 2019 and the second in March 2019. The Loan Notes have a term of 6 years and an annual coupon of 12% which is compounded and payable at the end of the term. The proceeds of the issue of the Loan Notes were used to fully repay Natwest and provide additional working capital for the Group. With the issue of the Loan Notes, the Group now has no external debt other than with its major shareholders and has longer-term funding, thereby affording security for all the Group's stakeholders.
Dividend
The Directors do not propose a dividend in respect of the current financial year (2017: GBPnil).
Update and Outlook for 2019
Following the major cost reduction programme undertaken in 2018, the Group ended the year in a much stronger position than it started it with a strong leadership team, an appropriate cost base and clear focus on operational execution and customer service to drive increased profitability and cash generation. The refinancing, which was completed post year end, has provided long term funding and means that the Company has no external debt, as the Loan Notes are held solely by shareholders, and predominantly by the largest shareholders.
Since the year end there has been a marked improvement in the pipeline of opportunities across the business both with existing and new customers and the Group has been trading profitably at an Adjusted EBITDA level in the year to date. The Board remains confident of the Group's future prospects.
Going Concern
The Directors have prepared detailed cash flow projections; these projections, reasonably taking into account possible changes in trading performance and the timing of key strategic events, show the Group should be able to operate within the level and conditions of available funding. Furthermore, taking into account the level of support demonstrated by shareholders in the refinancing at the beginning of this current year and given the fact that two of the largest shareholders have representatives on the Board, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements
Consolidated Income Statement
for the year ended 31 December 2018
Hot Features
Premium
Year ended Restated
31 December - Year ended
2018 31 December
2017
GBP000 GBP000
Continuing operations
Revenue 41,137 53,745
Cost of sales (34,521) (37,812)
__________ __________
Gross profit 6,616 15,933
Administrative expenses excluding
impairment (19,524) (19,328)
Impairment charge on goodwill
and intangibles (14,923) (9,339)
__________ __________
Total administrative expenses (34,447) (28,667)
Adjusted EBITDA* (3,892) 4,137
Exceptional items (2,368) (1,212)
Depreciation (2,848) (3,003)
Amortisation (3,290) (3,090)
Impairment charge on goodwill
and intangibles (14,923) (9,339)
Loss on disposal of fixed assets (712) (112)
Charges for share-based payments 202 (115)
------------------------------------------ -------------------------------------- --------------
Operating loss (27,831) (12,734)
Finance costs (389) (291)
__________ __________
Loss on ordinary activities
before taxation (28,220) (13,025)
Income tax 602 1,599
__________ __________
Loss for the year from continuing
operations (27,618) (11,426)
Discontinued Operations
(Loss) /profit after tax for
the year from discontinued operations (2,876) 185
__________ __________
Loss for the year attributable
to owners of the parent company (30,494) (11,241)
From continuing operations
Basic loss per share (11.22)p (5.76p)
_________ _________
Diluted loss per share (11.22)p (5.76p)
_________ _________
From discontinued operations
Basic (loss)/ profit per share (1.17)p 0.09p
_________ _________
Diluted (loss)/ profit per share (1.17)p 0.09p
_________ _________
* Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, impairment charge, exceptional items, loss on disposal of fixed assets and share-based payments
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2018
Year ended Year ended
31 December 31 December
2018 2017
GBP000 GBP000
Loss for the year attributable
to the owners of the parent company (30,494) (11,241)
Items that are or may be reclassified
subsequently to the income statement
Foreign exchange translation
differences (23) 3
______ ______
Total other comprehensive (loss)/
income (23) 3
_________ _________
Total comprehensive loss for
the year attributable to the
owners of the parent company (30,517) (11,238)
Statements of Financial Position
As at 31 December 2018
Group Company
2018 2017 2018 2017
GBP000 GBP000 GBP000 GBP000
Non-current assets
Property, plant and equipment 9,803 13,044 - -
Intangible assets 30,000 55,350 - -
Investments - - 7,877 7,877
Financial assets - 89 - -
39,803 68,483 7,877 7,877
Current assets
Trade and other receivables 8,893 15,177 46 57,653
Inventory - 366 - -
Cash and cash equivalents - 1,106 5,488 378
8,893 16,649 5,534 58,031
Total assets 48,696 85,132 13,411 65,908
Current liabilities
Trade and other payables 7,669 15,429 1,651 1,256
Deferred income 2,962 6,405 - -
Borrowings 3,119 2,895 - -
Provisions 1,514 1,157 50 252
15,264 25,886 1,701 1,508
Non-current liabilities
Deferred income 13 341 - -
Borrowings 5,175 7,920 4,681 7,402
Convertible loan notes 1,654 - 1,654 -
Provisions 1,705 577 - -
Deferred tax liabilities 4,342 5,115 - -
12,889 13,953 6,335 7,402
Total liabilities 28,153 39,839 8,036 8,910
Net assets 20,543 45,293 5,375 56,998
Equity attributable to
equity holders of the parent
Share capital 10,020 5,018 10,020 5,018
Share premium 35,439 35,439 35,439 35,439
Equity reserve 967 - 967 -
Retained earnings (25,733) 4,963 (41,051) 16,541
Foreign currency translation
reserve (150) (127) - -
Total equity 20,543 45,293 5,375 56,998
Statements of Changes in Equity
for the year ended 31 December 2018
Group Share Share Equity Retained Foreign currency Total
Capital Premium reserve Earnings translation equity
(a) (b) (c) (d) reserve (e)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January
2017 4,773 32,684 - 16,089 (130) 53,416
Total comprehensive
loss for the year
Loss for the financial
year - - - (11,241) - (11,241)
Movement in foreign
currency translation - - - - 3 3
Transactions with
owners recorded
directly in equity
Share issues 245 2,755 - - - 3,000
Share based payments - - - 115 - 115
Balance at 31 December
2017 5,018 35,439 - 4,963 (127) 45,293
Total comprehensive
loss for the year
Loss for the financial
year - - - (30,494) - (30,494)
Movement in foreign
currency translation - - - - (23) (23)
Transactions with
owners recorded
directly in equity
Share issues 5,002 - - - - 5,002
Share based payments - - - (202) - (202)
Convertible loan notes - - 967 - - 967
Balance at 31 December
2018 10,020 35,439 967 (25,733) (150) (20,543)
(a) Share capital represents the nominal value of equity shares
(b) Share premium represents the excess over nominal value of the fair value of consideration received for equity shares; net of expenses of the share issue;
(c) The equity reserve consists of the equity component of convertible loan notes that were issued as part of the fundraising in August 2018 less the equity component of instruments converted or settled.
The fair value of the equity component of convertible loan notes issued is the residual value after deduction of the fair value of the debt component of the instrument from the face value of the loan note.
(d) Retained earnings represents retained profits and accumulated losses
(e) On consolidation, the balance sheets of the Group's foreign subsidiaries are translated into sterling at the rates of exchange ruling at the balance sheet date. Exchange gains or losses arising from the consolidation of these foreign subsidiaries are recognised in the foreign currency translation reserve.
Statements of Cash Flows
for the year ended 31 December 2018
Group
2018 2017
GBP000 GBP000
Cash flows from operating
activities
Loss for the year (27,618) (11,241)
Adjustments for:
Depreciation 2,848 3,158
Amortisation 3,290 3,602
Impairment charge 14,923 9,339
Net finance expenses 389 341
Taxation (602) (1,600)
Share based payments (202) 115
Loss on disposal of fixed
assets 712 112
Other - 13
(6,260) 3,839
Decrease/ (increase) in trade
and other receivables 2,330 (1,936)
(Decrease)/ increase in trade
and other payables and deferred
income (7,576) 496
Increase/ (decrease) in provisions 1,794 (1,185)
Net cash (used in)/ from continuing
activities (9,712) 1,214
Net cash from discontinued
operations 2,391 -
Net cash (used in)/ from operating
activities (7,321) 1,214
Cash flows from investing
activities
Proceeds from sale of subsidiary,
net of cash sold
Acquisition of subsidiary, 2,587 -
net of cash acquired - (597)
Acquisition of property, plant
and equipment (533) (2,396)
Acquisition of other intangible
assets - (754)
Realisation/ (acquisition)
of non-current financial assets 89 (4)
Proceeds from sale of fixed
assets - 4
Net cash generated/ (used
in) investing activities 2,143 (3,747)
Cash flows from financing
activities
Interest paid (318) (322)
Share issue, net of expenses 3,752 -
New loans and borrowings,
net of expenses 3,800 1,300
Repayment of loans and borrowings (2,750) (800)
Repayment of discontinued
operations overdraft (611)
New finance leases 233 488
Repayment of finance leases (335) (763)
Net cash generated / (used
in) from financing activities 3,771 (97)
Net decrease in cash and cash
equivalents (1,407) (2,630)
Cash and cash equivalents
at 1 January (1,498) 1,132
Cash and cash equivalents
at 31 December (2,905) (1,498)
Cash and cash equivalents
comprise
Cash at bank - 1,106
Overdrafts (2,905) (2,604)
(2,905) (1,498)
Notes to the Consolidated Financial Statements
1 Accounting policies
IDE Group Holdings plc ("IDE Group") is a company incorporated in Scotland, domiciled in the United Kingdom and limited by shares which are publicly traded on AIM, the market of that name operated by the London Stock Exchange. The registered office is 24 Dublin Street, Edinburgh EH1 3PP and the principal place of business is in the United Kingdom.
The principal activity of the Group is the provision of network, cloud and IT managed services.
1.1 Basis of preparation
The consolidated financial statements of IDE Group have been prepared on the going concern basis and in accordance with EU adopted International Financial Reporting Standards (IFRS), IFRS Interpretations Committee (IFRS IC) and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies.
The financial information set out in this preliminary announcement does not constitute the company's statutory financial statements for the years ended 31 December 2019 or 2018.
The financial statements have been prepared on a going concern basis. The Directors have prepared cash flow forecasts for the Group which show that the Group expects to meet its liabilities from existing cash resources as they fall due for a period in excess of 12 months from date of approval of these financial statements.
Post the year end, the Group fully repaid its banking facilities with National Westminster Bank plc which consisted of a GBP4.75 million Revolving Credit Facility (the total facility was GBP7.5 million; GBP2.75 million was repaid in October 2018 with the proceeds of the disposal of 365 ITMS Limited) and a GBP3.5 million overdraft facility. The facilities were repaid with the proceeds of the issue of 6-year secured loan notes post year to certain of the Company's shareholders.
Based on the above and taking into account the support of certain of the Company's significant shareholders, of which two are represented on the Board, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
1.2 Basis of consolidation
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the total of the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets are acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of the acquiree's identifiable net assets.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with policies adopted by the Group.
1.19 Revenue
Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group's activities. Revenue is shown net of Valued Added Tax, returns, rebates and discounts and after the elimination sales within the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group's activities as described below.
Recurring revenue
The largest portion of the Group's revenues relates to a number of network, cloud and IT managed services, which the Group offers to its customers. All of the revenue in this category is contracted and includes a full range of support, maintenance, subscription and service agreements. Revenue for these types of services is recognised as the services are provided on the basis that the customer simultaneously receives and consumes the benefits provided by the Group's performance of the services over the contract term. In terms of performance obligations, the customer can benefit from each service on its own and the Group's promise to transfer the service to the customer is separately identifiable from other promises in the contract. The transaction price for each service is allocated to each performance obligation. The costs incurred for these revenue streams typically match the revenue pattern. Deferred income is recognised when billing occurs ahead of revenue recognition. Accrued revenue is recognised when the revenue recognition criteria were met but in accordance with the underlying contract, the sales invoice has not been issued yet.
Project revenue
These project services include mainly installation and consultancy services. Revenue from these services is recognised in accordance with the underlying contracts. Performance obligations are met once the hours or days have been worked. Revenue is therefore recognised over time based on the hours or days worked at the agreed price per hour or day. The costs incurred for this revenue stream generally match the revenue pattern, as a significant portion of consultancy costs relate to staff costs, which are recognised as incurred. Consultancy services are generally provided on a time and material basis.
1.3 Application of new IFRSs and interpretations
International Financial Reporting Standard (IFRS) 15 "Revenue from contracts with customers"
The Group implemented IFRS 15 Revenue from Contracts with Customers, as of 1 January 2018 and has also considered the impact on the comparative results for the year ended 31 December 2017. The new standard sets out revenue recognition requirements, and establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash ows arising from the Group's contracts with customers. The standard requires entities to apportion revenue earned from contracts to performance obligations on a relative stand-alone basis, based on a five-step model. Having undertaken a review of all the services and products the Group provides, and the main types of commercial arrangements used with each service and product, the Group has concluded that the implementation of the new standard has not resulted in a change in the revenue recognition accounting policies of the Group. Therefore, following implementation of IFRS 15, there was no material impact of transition on retained earnings at 1 January 2018 or 1 January 2017, on the Group's consolidated statement of financial position as at 31 December 2018 or 31 December 2017, on its consolidated income statement and consolidated statement of other comprehensive income, or on the cash flows for the year to 31 December 2018 or 31 December 2017. The new standard also introduces expanded disclosure requirements.
The Company has limited or no revenue.
International Financial Reporting Standard (IFRS) 16 "Leases"
IFRS 16 Leases, is effective for periods beginning on or after 1 January 2019. IFRS 16 removes the operating and finance lease classification for lessees in IAS 17 Leases and replaces them with the concept of right-of-use assets and associated financial liabilities. This change results in the recognition of a liability on the balance sheet for all leases which convey a right to use the asset for the period of the contract. The lease liability reflects the present value of the future rental payments, discounted using either the effective interest rate or the incremental borrowing rate of the entity. The operating lease charges currently reflected within operating expenses (and EBITDA) will be eliminated and instead depreciation and finance charges will be recognised in respect of the lease assets and liabilities.
As an indication of the effect of IFRS 16 for the current reporting period, based on the operating leases in place and qualifying for recognition under IFRS 16 it has been estimated that this would have resulted in the recognition of additional lease assets within property, plant and equipment of approximately GBP2.0 million and additional lease liabilities of approximately GBP2.0 million in total for the Group. An estimation of the expected depreciation charge against the right of use asset in 2018 has been calculated to be GBP0.8 million, with an interest charge of GBP0.4 million, which compares to an operating lease charge within operating expenses of GBP1.4 million, resulting in an increase in Adjusted EBITDA of GBP1.4 million.
The Group plans to adopt the modified retrospective approach.
The Company has no operating leases.
International Financial Reporting Standard (IFRS) 9 "Financial Instruments"
The Group implemented IFRS 9 Financial Instruments, as of 1 January 2018 and has also considered the impact on the comparative results. The new standard includes revised guidance on the classification and measurement of financial instruments.
IFRS 9 introduces principle-based requirements for the classification of financial assets, using the following measurement categories: (i) Amortised cost; (ii) Fair value through Other Comprehensive Income with cumulative gains and losses reclassified to profit or loss upon derecognition; and (iii) Fair value through profit or loss. IFRS 9 also introduces a new impairment model, the expected credit loss model.
The Group now reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions as opposed to relying on past historical default rates. In adopting IFRS 9 the Group has applied the simplified approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customers with different credit risk profiles and current and forecast trading conditions. Having assessed the requirements according to the new standard, the Group has concluded that no significant additional impairment to the carrying values of the assets was required at 1 January 2018, at 31 December 2018 or at 31 December 2017.
2 Exceptional costs
In accordance with the Group's policy in respect of exceptional items, the following charges were incurred for the year in relation to continuing operations:
2018 2017
GBP000 GBP000
Restructuring and reorganisation
costs 2,368 1,034
Acquisition costs - 178
2,368 1,212
Restructuring and reorganisation costs in the year ended 31 December 2018 relate to costs incurred on the restructure of the Group, predominantly redundancy costs. Restructuring costs in the year ended 31 December 2017 relate to costs incurred on the integration of the businesses acquired during the year and the previous year. These costs include employment related costs of staff made redundant as a consequence of integration, rebranding costs, other non-recurring costs associated with the integration during the year and costs following the disposal of the Group's legacy business.
Acquisition costs in the year ended 31 December 2017 predominantly related to costs incurred on the acquisition of 365 ITMS during the year and include legal, financial due diligence and corporate advisory fees.
3 Discontinued operations
On 12 October 2018, the Company sold the entire issued share capital of 365 ITMS Limited ("365 ITMS") and its subsidiaries to PTCA Newco Limited ("PTCA"), a newly incorporated company owned by certain members of the management team within 365 ITMS, on a cash free, debt free basis with a normalised level of working capital (the "Sale"). The consideration for the Sale was GBP2.8 million, payable in cash. The proceeds of the Sale were used to reduce the Group's net debt.
Prior to the Sale certain assets relating to PACT, the Group's business unit focused on cyber security, including contracts and staff, were transferred to 365 ITMS for GBP0.2 million. The results for 2018 below are from 1 January to the date of the Sale. The figures for 2017 included 9 months' contribution from 365 ITMS from the date of acquisition and 6 months' contribution from PACT which was established in June 2017.
The results of the discontinued operations were as follows:
2018 2017
GBP000 GBP000
Revenue 10,428 11,206
Expenses (14,400) (11,022)
(Loss)/ profit before tax (3,972) 184
Attributable tax credit 171 1
Profit on disposal of discontinued
operations 924 -
Net (loss)/ profit attributable
to discontinued operations (2,877) 185
During the year to 31 December 2018, 365 ITMS and the PACT business contributed GBP2.4 million to the Group's net operating cash flows.
The net assets and liabilities at disposal and the profit on disposal were as follows:
2018
Total
GBP000
Goodwill 2,148
Intangible assets 754
Property, plant and equipment 257
Trade and other receivables 2,578
Trade and other payables (4,988)
Deferred tax liability 57
---------
Net assets 806
---------
Cash consideration 3,000
Working capital adjustment (1,270)
Net assets disposed of (806)
---------
Profit on disposal 924
=========
The working capital adjustment relates to the repayment of the portion of the Group's overdraft which sat within 365 ITMS amounting to GBP856k, plus additional amounts to allow for a normalised level of working capital within 365 ITMS at the point of disposal.
4 Intangible assets
Group
Customer
contracts
and related Technology
Goodwill Trademarks relationships development Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost:
At 1 January 2017 32,256 1,707 29,076 341 63,380
Business combinations 6,125 - 1,111 - 7,236
Additions - - - 754 754
At 31 December 2017 38,381 1,707 30,187 1,095 71,370
Disposal of subsidiary (6,125) - (1,111) (160) (7,396)
At 31 December 2018 32,256 1,707 29,076 935 63,974
_______ _______ _______ _______ _______
Impairment and amortisation:
At 1 January 2017 - 299 2,716 64 3,079
Charge for the year 341 3,125 136 3,602
Impairment charge 9,339 - - - 9,339
At 31 December 2017 9,339 640 5,841 200 16,020
Amortisation for the
year - continuing operations 341 2,865 84 3,290
Impairment charge - continuing
operations 16,986 - 14,914 542 32,442
Reversal of impairment
charge - - (17,519) - (17,519)
Impairment charge - discontinued
operations 3,977 3,977
Amortisation for the
year - discontinued operations 259 259
Disposal of subsidiary (3,977) - (518) (4,494)
At 31 December 2018 26,325 981 5,842 826 33,974
_______ _______ _______ _______ _______
Net carrying amount:
31 December 2018 5,931 726 23,234 109 30,000
___ __ _ __ ___ __ ____
31 December 2017 29,042 1,067 24,346 895 55,350
_______ ___ __ _______ ______ ___ ___
The amortisation charge of GBP3.3 million relates to continuing operations and is included in the loss for the year from continued operations in the Income Statement within administrative expenses. Prior to disposal, an impairment charge of GBP4.0 million was recognised in relation to the goodwill recognised on the acquisition of 365 ITMS.
Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Goodwill is supported by calculating the discounted cash flows arising from the businesses acquired which represent the cash generating unit ("CGU") to which goodwill is allocated. The Group's CGUs are considered to be the two trading subsidiaries, IDE Group Manage (formerly Selection Services) and IDE Group Connect (formerly C4L).
Other intangible assets are reviewed for impairment indicators in line with the Group's accounting policy.
At the time of the interim results for the six months to 30 June 2018 ( "Interim Results"), impairment charges totalling GBP25.0 million were recognised in relation to goodwill and intangible assets resulting from the acquisition of Selection Services (now IDE Group Manage) to reflect what the Directors believed at the time to be the then current value of the business. However, given the restructuring which took place in the second half of the year and the improving performance of IDE Group Manage, the Board has reassessed the value of IDE Group Manage and reversed GBP17.5 million of impairment in relation to customer contracts within IDE Group Manage which was recognised at the time of the Interim Results.
The impairment charges in 2018 include a GBP10.1 million impairment to the goodwill arising on acquisition of Selection Services and GBP6.9 million impairment to the goodwill arising on the acquisition of C4L.
The recoverable amount of all cash generating units has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets until 31 December 2019 and extrapolated for a further four years by growth rates applicable to the CGU. The financial budgets were approved by the Board of Directors post publication of the Interim Results to 30 June 2018. The recoverable amount in relation to IDE Group Manage was calculated to be GBP17.8 million and the recoverable amount in relation to IDE Group Connect was calculated to be GBP19.4 million.
The calculations used to compute cash flows at CGU level are based on the Group's budget, growth rates, WACC and other known variables. The calculations are sensitive to movements in both WACC, the effective unsecured borrowing rate of the Group and the customer retention ratio. The current effective unsecured borrowing rate is calculated at 15% per annum. Sensitivities have been run on cash flow forecasts for all CGUs. The Board is satisfied that the key assumptions of revenue, gross margin and EBITDA growth rates are achievable and that reasonably possible changes to those key assumptions would not lead to the carrying amount of the relevant CGU exceeding the recoverable amount. Sensitivity analyses have been performed and the table below summarises the effects of changing certain key assumptions and the resultant excess (or shortfall) of discounted cash flows against the aggregate of goodwill and intangible assets:
Sensitivity analysis
IDE Group Manage IDE Group
GBP000s Connect
GBP000s
Base case fair value of intangible
assets 17,810 19,386
----------------- ---------------------
Excess of fair value over carrying
value:
----------------- ---------------------
Base case 2,810 4,386
----------------- ---------------------
Discount rate increased to 16% 1,276 2,901
----------------- ---------------------
Gross margin growth rate reduced
by 3% per annum (1,206) 2,076
----------------- ---------------------
Base case calculations demonstrate an adequate level of headroom whilst highlighting that the impairment review is sensitive to the discount rate and growth rate. Given the Group's current pipeline and ability to undertake large projects which could result higher gross margin, as well as the fact that further direct cost savings are in the process of being identified, the Board is satisfied with the rates of growth in the base case and believe there could be significant upside.
The remaining unamortised life of the intangible assets at 31 December 2018 is as follows:
-- Trademarks - 3 years -- Customer contracts and related relationships - 3 to 11 years -- Technology - 2 years
Company
The Company has no intangible assets at 1 January 2017, 31 December 2017 and at 31 December 2018.
5 Borrowings
Group Company
2018 2017 2018 2017
GBP000 GBP000 GBP000 GBP000
Non-current
Bank loan 4,750 7,500 4,750 7,500
Unamortised loan arrangement
fee (69) (98) (69) (98)
Finance leases 494 518 - -
5,175 7,920 4,681 7,402
Group Company
2018 2017 2018 2017
GBP000 GBP000 GBP000 GBP000
Current
Bank loan - - - -
Bank overdraft 2,905 2,604 - -
Finance Leases 214 291 - -
3,119 2,895 - -
The carrying amounts and fair value of the non-current borrowings are as follows:
Group Carrying Fair Carrying Fair
value Value Value Value
2018 2018 2017 2017
GBP000 GBP000 GBP000 GBP000
Non-current
Bank loan 4,750 4,750 7,500 7,098
Finance leases 494 494 518 485
5,244 5,244 8,018 7,583
Company Carrying Fair Carrying Fair
value Value Value Value
2018 2018 2017 2017
GBP000 GBP000 GBP000 GBP000
Non-current
Bank loan 4,750 4,750 7,500 7,098
Bank facilities
As at the beginning of the year the Group's facilities with National Westminster Bank plc ("Natwest") comprised a five-year GBP7.5 million Revolving Credit Facility ("RCF") available to the Group until 22 January 2021 and a GBP3.5 million overdraft facility, renewable annually (the "Facilities"). In October GBP2.75 million was repaid and the RCF was reduced to GBP4.75 million. Interest was payable on the utilised RCF at 2% above LIBOR. Interest was payable on the unutilised RCF at 0.8%. As at 31 December 2018, GBP4.75 million of the RCF was drawn (31 December 2017: GBP7.5 million).
Post year end, in January 2019, GBP4.125 million was repaid to Natwest and the RCF was reduced to GBP625,000. In March 2019 the remaining RCF was repaid alongside the overdraft and the Facilities were cancelled.
Post year end, in January 2019 the Company issued GBP5.3 million of secured loan notes with a six year term and a 12% coupon ("Secured LNs"). The proceeds of the Secured LNs were used to part repay the Facilities. In March 2019 a further GBP4.7 million of Secured LNs were issued to repay the remaining Facilities and provide additional working capital. The Secured LNs carry an arrangement fee of 2.5 per cent., payable at the end of the term, and an exit fee of 2.5 per cent., also payable at the end of the term.
Reconciliation of borrowings:
Group Non-current Current Total
Borrowings Borrowings Borrowings
GBP000 GBP000 GBP000
Balance at 1 January 2018 7,920 2,895 10,815
Issue of loan notes 2,000 - 2,000
Repayment of loan notes (2,000) - (2,000)
Repayment of loan (2,750) - (2,750)
New finance leases 190 43 233
Reclassification of finance
lease payment (214) 214 -
Repayment of finance leases - (334) (334)
Overdraft - 301 301
Amortisation of loan fee 29 - 29
Balance at 31 December 2018 5,175 3,119 8,294
Company Non-current Total
Borrowings Borrowings
GBP000 GBP000
Balance at 1 January 2018 7,402 7,402
Issue of loan notes 2,000 2,000
Repayment of loan notes (2,000) (2,000)
Repayment of bank loan (2,750) (2,750)
Amortisation of loan fee 29 29
Balance at 31 December 2018 4,681 4,681
6 Convertible loan notes
Group and Company
GBP000
Balance at 1 January
2018 -
Additions 1,583
Interest unwound 71
Balance at 31 December
2018 1,654
On 21 August 2018, as part of a wider fundraising, the Company issued GBP2.55 million of unsecured loan notes, which have a term of 5 years and a zero per cent. Coupon ("CLNs"). The CLNs can be converted into new ordinary shares in the capital of IDE at a price of 2.5 pence per share. Conversion is at the option of the holder at any time during the 5 year term. At the end of the term, if the holder has not chosen to convert the CLNs, the CLNs will be settled with a cash repayment. The CLNs have a fair value of GBP2.7 million, split into an equity component (GBP1.0 million) and a debt component (GBP1.7 million).
7 Post balance sheet events
Issue of Loan Notes & Bank Repayment
In January 2019 the Company announced an issue of GBP10 million secured loan notes (the "Loan Notes"), the proceeds of which were used to repay IDE's GBP8.25 million debt facilities with National Westminster Bank plc ("Natwest") consisting of a revolving credit facility ("RCF") of GBP4.75 million and an overdraft of GBP3.5 million (together, the "Facilities") and to provide additional working capital for the Company. The Facilities were repaid in two tranches; GBP4.125 million in January 2019 and the remainder in March 2019.
The Loan Notes have a term of six years (the "Term") and an annual coupon of 12%, which is rolled up, compounded annually and payable at the end of the Term. The Loan Notes carry an arrangement fee of 2.5 per cent., payable at the end of Term, and an exit fee of 2.5 per cent., also payable at the end of the Term. The Loan Notes have first charge over the Company's assets. The Loan Notes can be redeemed at any time at the Company's option, however, should the Company opt to redeem the Loan Notes prior to the end of the Term, all interest due until the end of the Term will become payable, together with the arrangement and exit fees, upon such early redemption.
Part Surrender of Property Lease
Due to the reduction in staff over the year to 31 December 2018, a significant proportion of the Company's offices at Interchange, Croydon, were empty. Therefore, on 18 April 2019, IDE Group Manage Limited entered into an agreement for surrender and a deed of variation in relation to part of the property it leases at Interchange which has resulted in a reduction in the annual rent and service charge payable.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR MMGZVGNZGLZZ
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