SysGroup PLC Final Results for the year ended 31 March 2024

RNS Number : 4792Y

SysGroup PLC

31 July 2024

 

 

31 July 2024

 

SysGroup plc

("SysGroup" or the "Group" or the "Company")
Final results for the year ended 31 March 2024

 

Well positioned for the future with a strong balance sheet to accelerate growth and innovation

 

SysGroup plc (AIM:SYS), the technology partner for delivery and management of cloud, data and security services to power Artificial Intelligence ("AI") and Machine Learning ("ML") transformation, today announces its annual audited financial results for the year ended 31 March 2024 ("FY24" or "Period").

 

Financial Highlights

·      Revenue grew 5% to £22.7m (FY23: £21.6m) driven by growth in H2 in cybersecurity

·      Recurring revenue as a % of total revenue increased to 76% (FY23: 75%)

·      Gross margin declined to 46% (FY23: 50%) due to unmitigated supplier cost increases combined with a change in product mix

·      Adjusted EBITDA¹ £2.0m (FY23: £3.1m²) driven by substantial investment in people and systems to support our new growth strategy coupled with gross margin decrease

·      Statutory loss before tax of £(6.6)m (FY23: £(0.3)m ²) driven in part by £1.8m exceptional costs (FY23: £0.4m) including upgrade of the leadership team, and £3.7m impairment of historic acquisitions (FY23: £nil), as part of the implementation of the new strategy

·      Net debt³ of £3.4m (FY23: £1.3m); increase due to payment of Truststream acquisition earn-out and settlement with former CEO

 

Strategic & Organisational Highlights

·      Heejae Chae acquired 14% share interest and was appointed Executive Chairman

·      Repositioned as technology partner for Small Medium Businesses ("SMBs") in their AI and digital transformation

·      Replaced 11 senior leaders (including CEO and CFO) with 6 new talents

·      Recruited an AI team of software engineers with extensive experience in ML and data architecture and a team of cloud experts

·      Rebuilding of go-to-market organisation

·      Refreshed the Board with seasoned professionals with extensive and relevant experience

·      Achieved AWS Select Tier Service Partner status (Level 2)

·      Announced a strategic partnership with Softcat to become their designated outsource partner for AI/ML offerings

 

Post Balance Sheet Highlights

·      Raised £11.2m in oversubscribed equity placing to fund an internal transformation project, strengthen the balance sheet to provide for ongoing working capital requirements and liquidity for acquisitions

·      Closed the second largest contract in SysGroup's history totalling £2.2m over three years

·      Progressed to AWS Advanced Tier Service Partners stratus (Level 3) qualifying for fundings and joint sales and marketing

·      Authorised as one of only two UK Zscaler Managed Security Service Partners

 

1)    Adjusted EBITDA is earnings before interest, taxes, depreciation, impairments and amortization of intangible assets, exceptional items, and share based payments

2)    Includes prior year adjustment.  See accounting policies note within financial statements

3)    Net debt represents cash balances less bank loans and leases liabilities

 

Heejae Chae, Executive Chairman, SysGroup Group, said:

"Over the past year, the Group has completely transformed its strategy, execution and leadership. Since acquiring a 14% share and becoming the Executive Chairman, we have repositioned the Company as the preferred technology partner for Small Medium Businesses in their AI and digital transformation efforts. AI will have a significant impact on businesses and represents a key opportunity for transformation. Our goal is to guide SMBs through the complex AI value chain and support their transformation journey from start to finish.

We raised £11.2 million through an oversubscribed equity raise to accelerate our growth and innovation. We have invested in additional R&D resources, including offshore capabilities in India and Eastern Europe. In order to showcase the impact of AI transformation, we are implementing 31 use cases internally to transform SysGroup to demonstrate the benefits of AI. This will allow us to serve as a live case study of best practices for our customers and achieve significant productivity gain. Additionally, we are actively seeking complementary acquisitions to expand our technical capabilities and customer base.

I am very excited about the Company's potential and future prospects.  AI will be the transformational technology of our generation and will continue to gather momentum as the technology improves and benefits are crystallised.  As with any innovation, its adoption will not be a straight line and will follow a J-curve.  Our mission is to inform and support British SMBs which accounts for 99.2% of total business population in this journey.

 

For further information, please contact:

 

 

SysGroup plc	www.sysgroup.com
Heejae Chae, Executive Chairman Owen Phillips, Chief Financial Officer	[phone]
Zeus (Nominated Adviser and Broker)	[phone]
Jordan Warburton Nick Cowles Alex Campbell-Harris Nick Searle

 

 

About SysGroup

SysGroup plc is a managed service provider of end-to-end data solutions enabling us to take our customers on their AI data journey. The Group offers an integrated set of modern technologies that collectively meets our customers end-to-end data needs including connectivity, cloud hosting, delivery, analytics and governance of customer data, as well as a security layer for users and applications.

 

The Group has offices in Bristol, Edinburgh, London, Manchester and Newport.

 

For more information, visit http://www.sysgroup.com

 

Executive Chairman's statement

Overview

Over the past year, the Group has completely transformed its strategy, execution and leadership. Since acquiring a 14% share and becoming the Executive Chairman twelve months ago, we have repositioned the Company as a preferred technology partner for Small Medium Businesses (SMBs) in their AI and digital transformation efforts. AI will have a significant impact on businesses and represents a key opportunity for transformation. Our goal is to guide SMBs through the complex AI value chain and support their transformation journey from start to finish.

Trading for the year has been strong with Group revenues increasing 5% to £22.7m driven by a significant 14% increase in the second half of the year compared to the same period in FY23.  We have continued to maintain the momentum into the new financial year across all our technology offerings and, as previously announced, at the end of April, we closed the second largest contract in SysGroup's history, totalling £2.2m of revenue over three years.  Our AI/ML proposition continues to gain traction amongst both new and existing customers with a growing pipeline of opportunities. 

Our progress has also been recognised by our partners, as evidenced by our achieving AWS Select Partner Level 3 Status, approval for the Zscaler Global MSSP Program and our partnership with Softcat plc (one of UK's largest Valued Added Resellers) to be their ML partner of choice.

We have also received considerable support from existing and new investors and in June 2024 we closed an oversubscribed placing, subscription and retail offer that raised just over £11.2m; clear validation of our strategic direction and affirmation that others share our vision for the business and the next stage of its growth.  The funds raised will be used for a variety of purposes: (i) approximately £2m of the proceeds will be used to fund our internal transformation programme, referred to in more detail below; (ii) a further £2m will be used to meet the contingent earn-out payment in relation to the acquisition of Truststream back in 2022; and (iii) the remainder has left us with a strong balance sheet and given us liquidity for the M&A opportunities we are pursuing. 

We have made substantial investment in both in our IT infrastructure and people during the year and will continue to make these investments.  These include upgrading our SysCloud infrastructure with the latest hardware and enhancing our internal security architecture with a leading cloud-based security platform.  Approximately £2m of the proceeds from the recent fundraising are intended to be used to fund an internal transformation project to provide the Group with systems using AI driven technologies.  This will enable the company to be a true AI adopter and innovator, acting as a live case study of best practice to our customers.  We have completed the refurbishment of our offices to provide a positive and productive working environment whilst we continue to operate flexible working practices. Finally, we announced the closure of our Liverpool office and relocation of the registered office to Manchester with effect from 1 March 2024.

To support our end-to-end data platform strategy, we have segmented our technology into five key areas: (i) data analytics and ML (ii) data storage and management (iii) data connectivity (iv) data engineering and (v) cybersecurity.   We will invest to enhance the existing competencies organically as well as through acquisitions to fill the gaps in our technology offerings and have, for example, recruited a team of AI/ML engineers from industry leaders such as AWS, JP Morgan, Validus and McLaren.

We have significantly strengthened the senior management team, bringing together the right skillsets and mindsets. Throughout the organisation we are reinforcing a culture of customer focus and outstanding service underpinned by innovation, entrepreneurialism and high performance.

Finally, the core business, which has more than 80% recurring revenues, provides a very solid base from which we can expand, giving us very good revenue certainty and visibility whilst the investment we are making in the company will drive growth in future years. 

Strategy

Our technology strategy is to build a modern, unified data solution platform that is as simple for SysGroup to sell and support as it is for our customers to consume and benefit from.  This will comprise of an integrated set of technologies that collectively meets our customers end-to-end data needs.  It will allow for connectivity, storage, preparation, delivery, analytics and governance of customer data, as well as a security layer for users and applications.

Since my appointment I have engaged with various stakeholders including customers, employees, partners and competitors.  These interactions have provided valuable insights into both industry trends and company-specific challenges.  SysGroup is well positioned to participate in the burgeoning field of AI/ML, a technology set to redefine our era.  AI's prominence is undeniable, with daily media coverage and increasing demand for AI strategies at the board level of every company and organisation.  AI is here to stay and will be a powerful tool for those that embrace it. 

Factors driving the AI/ML adoption include:

•     The growing availability of data, crucial for training AI/ML algorithms; as the amount of data that companies collect continues to grow, so does the potential for AI/ML to deliver value.

•     The decreasing costs of computing power, making AI/ML models more accessible across varying company sizes and budgets.

•     The increasing sophistication and user-friendliness of AI/ML tools and technologies.

Our overall strategy is to position SysGroup as the go-to, end-to-end data solution provider for SMBs embarking on their AI/ML journey.  It is clear from our conversations with our customers that there is a significant gap in the market: while many SMBs are eager to adopt AI/ML, they often lack a clear strategy or implementation path.  There is a great demand for a partner to support the development of an AI/ML strategy and transition from current platforms and solutions.  According to a recent IONOS/YouGov study of 4,807 SMB owners across the UK, US, France, Germany and Spain: (i) UK business leaders have the lowest number of people already using AI frequently for work (9% compared to 15% average) (ii) only 7% of UK SMBs consider their level of AI knowledge to be very good compared to 32% in the US (iii) 48% of UK SMBs state their knowledge of the technology to be fairly poor or very poor and (iv) 56% of respondents have never used AI tools before in work, the highest percentage of the countries surveyed.  This failure to adopt is not due to a lack of desire to engage with technology and we see this as a huge opportunity for our business and its future growth.

Many providers claim to be AI/ML experts but lack the capability to provide an end-to-end solution.  Traditionally, most IT providers specialise in specific technology stacks: AI/ML strategy requires a holistic approach where the outcome is delivered from both software and hardware solutions.  We know that a significant proportion of all AI projects fail because they have not taken this holistic approach, for example, by not defining the correct business case or not employing appropriate data architecture framed by the right technology infrastructure.  Whilst gaps still exist in our offerings, we believe that we have the framework to deliver our strategy, underpinned by the relationship with our customers.

Finally, in order to build the size and scale of business we are looking to create, we will continue to explore acquisitions with the focus on (i) expanding capabilities in certain areas of technology expertise as well as (ii) acquiring companies or businesses that have interesting and relevant customer bases.  Ideally opportunities will satisfy both criteria. 

Board and Management Changes

During the financial year, we have refreshed the Board with people with significant and relevant industry experience to match the expectation and ambition of the Group. Paul Edwards joined as a Non-Executive Director in September 2023 and brings extensive plc experience as the CFO of Tatton Asset Management plc and previously Scapa Group plc and NCC Group plc.

Mark Reilly joined as a Non-Executive Director in December 2023 and is currently Managing Partner, Technology at IP Group plc.  Mark was previously a Non-Executive Director at Actual Experience plc and Mirriad Advertising plc. 

Owen Phillips joined as Chief Financial Officer in March 2024 from Matillion Limited, a leading provider of cloud data integration tools.  Owen held various financial management positions in the data/tech sector as well as working in professional practice at Grant Thornton UK LLP.

Davin Cushman joined as Non-Executive Director in June 2024 and has over 25 years of experience within the technology industry.  He served as CEO at Ignite Technologies, an enterprise software company and founded Brightrose Ventures to advise, acquire and operate software companies.

Wendy Baker was also appointed as Company Secretary and General Counsel, providing oversight and guidance on governance.  Wendy was previously at Scapa Group plc, Promethean World plc and Volex Group plc.

We have also enhanced the senior management team with the appointments of people with relevant experience from leading companies in the sector:

Paul Sullivan was appointed as Chief Technology Officer; Paul was the founder of Truststream which SysGroup acquired in April 2022.

Heinrich Koorts joined as Chief Revenue Officer from Softcat plc where he spent the past ten years in London and Bristol.

Ross Humphrey joined as the Chief AI Officer to lead our AI/ML initiative; Ross has over a decade of experience in Machine Learning as one of the UK's early adopters during his tenure at JP Morgan and Validus.

Charles Vivian joined as Director of Business Development to support our M&A strategy; Charles was previously at MXC Capital, Marwyn Capital and Freshfields Bruckhaus Deringer.

Rebecca Boyle joined as Chief People and Culture Officer; Rebecca has over 20 years HR experience gathered from large plcs such as Boots, Galliford Try and Punch Taverns and more recently was at Cawood Limited, a private equity backed buy-and-build. 

All these individuals bring invaluable experience and expertise, positioning SysGroup extremely well for future success.

Finally, we have taken steps to ensure robust corporate governance, reviewing the board and committees' Terms of Reference and establishing a new Nomination Committee to ensure that the composition and succession of the board is reviewed and reflects a balance of skills, knowledge and experience which is appropriate for the company.

Summary and Outlook

I'm enormously excited about the Company's potential and future prospects.  What gives me the greatest sense of optimism is the people within our organisation and I wish to extend my thanks to each and every one for their effort and commitment.  Our greatest asset is those people and we are building an extraordinary team.  It is my mission to ensure SysGroup becomes a place where everyone feels excited and proud to work and I am committed to creating an environment that inspires people to give their best and strive for excellence around our core values of Learning, Integrity, Kindness and Entrepreneurship.

Over the next twelve months we will lead by example, revolutionising our Company through data and AI.  We have already identified 31 transformative use cases that will significantly enhance our business operations. This is not just about adopting new tools; it's about reimagining our entire way of doing business.  We will simultaneously be carrying this approach into our customer engagements as we seek to take them on the same journey to transform their own organisations and ways of doing business.

We are on the brink  of very exciting times for both the market in which we operate and our organisation and I look forward to taking all our stakeholders on this journey.

 

Heejae Chae

Executive Chairman

30 July 2024

Chief Financial Officer's report

Group statement of comprehensive income

The Group delivered revenue of £22.71m (FY23: £21.65m), an increase of 5% on the prior year, Adjusted EBITDA of £2.01m (FY23: £3.13m) and a statutory loss before tax of £6.57m (FY23: loss before tax of £0.3m)

Organic growth drove an increase in revenue of 5% year on year, driven by a 14% increase in the second half of the year (compared to the same period FY23), which offset a (3)% decline in the first half.

Managed IT services revenue was £18.59m (FY23: £17.44m), an increase of 7% on the prior year, and VAR revenue was £4.12m (FY23: £4.21m), a decrease of 2%. The overall revenue mix stands at 82% managed IT services (including professional services) and 18% VAR (FY23: 81%:19%).

 

Revenue by operating segment		2024	2023
		£'000	£'000	%
Managed IT Services		18,592	17,441	7%
Value Added Resale		4,122	4,207	-2%
Total		22,714	21,648	5%

 

Gross profit was £10.40m with a gross margin of 46% (FY23: £10.9m and 50% respectively). Gross margin has fallen in part due to certain supplier price rises as well as a change in product mix, driven in particular by an increase in cyber security revenue following the continued growth of our Truststream's IT security services business, acquired in 2022, which typically carries a lower margin than the remaining core managed services offerings.

Gross profit by operating segment		2024	2023* restated
		£'000	£'000	%
Managed IT Services		9,733	10,155	-4%
Value Added Resale		663	747	-11%
Total		10,396	10,902	-5%

 

Gross profit % by operating segment		2024	2023* restated
		£'000	£'000	%
Managed IT Services		52%	58%	-6pp
Value Added Resale		16%	18%	-2pp
Total		46%	50%	-4pp

 

See accounting policies note 1 for details.

Operating expenses (before depreciation, amortisation, impairments, exceptional items and share based payments) of £8.39m were £0.62m higher than last year (FY23: £7.77m) as the Group underwent substantial investment in people and systems to support our growth strategy. During the year we also closed our office in Liverpool, moving the registered address to our Manchester office.

Adjusted EBITDA was £2.01m for the twelve months to 31 March 2024 (FY23: £3.13m) which is an Adjusted EBITDA margin of 8.8% (FY23: 14.5%). The lower margin percentage reflects the reduced gross margin combined with the additional operating expenses detailed above.

The consolidated income statement includes £1.83m (FY23: £0.41m) of exceptional costs which include £0.74m costs associated with the CEO exit settlement, £0.57m relating to costs associated with the restructuring of the Senior Leadership Team (FY23: £0.19m) and £0.43m relating to supplier payments in dispute.

Amortisation of intangible assets was £1.70m (FY23: £1.74m) in the year, of which £1.47m (FY23: £1.56m) relates to the amortisation of acquired intangible assets from acquisitions and £0.22m (FY23: £0.18m) relates to the amortisation of software development and licence costs.

Impairment of intangible assets was £3.72m (FY23: £nil) in the year. The Managed IT Services CGU goodwill is comprised of acquisitions dating from 2016 to 2022. Based upon a prudent assessment of the future performance of these acquisitions (being the 'Managed IT Services CGU'), management's view is that the CGU is impaired by £3.72m.

Finance costs increased in the year to £0.57m (FY23: £0.48m) relating to the loan balance at 31 March 2024 of £4.7m (31 March 2023: £4.7m), mainly from the increase in bank base rates during the period. Finance costs also include £0.11m (FY23: £0.13m) of non-cash finance charges for the unwinding of discount on contingent consideration and the amortisation of the loan arrangement fee.

The share-based payments charge of £0.19m for the year (FY23: £0.18m) relates to charges for the share options under the Executive Director LTIP and Employee Management Incentive schemes.

The reconciliation of operating profit to Adjusted EBITDA is shown in the table below. The Directors consider that Adjusted EBITDA is the most appropriate measure to assess the business performance since this reflects the underlying trading performance of the Group. Adjusted EBITDA is not a statutory measure and is calculated differently by each Company.

Reconciliation of operating profit to adjusted EBITDA	2024	2023* restated
	£'000	£'000
Operating (loss)/profit	(5,996)	184
Depreciation	570	625
Amortisation of intangible assets	1,696	1,739
Impairment of intangible assets	3,718	-
EBITDA	(13)	2,548
Exceptional items	1,826	408
Share based payments	194	178
Adjusted EBITDA	2,008	3,134

 

* See accounting policies (note 1) for further details of the restatement

Taxation

The Group has a tax credit of £0.67m this year (FY23: £0.10m) which principally arises from the deferred tax credit movement in the period. The corporation tax current credit of £0.08m (FY23: £(0.37)m charge) is as a result of R&D tax credits claimed this year in relation to the prior year. The deferred tax movement is a £0.59m credit (FY23: £0.47m credit) due to the increase in amortisation of acquired intangibles recognised in the Consolidated Statement of Comprehensive Income.

Cashflow and net debt

The Group's financial position is a net debt position at 31 March 2024 of £3.40m (31 March 2023: £1.32m). This excludes contingent consideration at 31 March 2024 of £1.75m (31 March 2023: £2.68m). The gross cash balance at 31 March 2024 was £1.94m (FY23: £4.19m). Cash balances have been utilised in satisfaction of: (i) £0.93m in the Truststream Year 1 earn-out (contingent consideration) and (ii) £1.50m in settlement of the former CEO's contractual departure terms including the Company's purchase of 2,076,394 ordinary SysGroup shares (now held in treasury) following the exercise of share options and immediate sale of those shares.

Net debt	2024	2023
	£'000	£'000
Cash balances	1,943	4,186
Bank loans - current	-	-
Bank loans - non-current	(4,738)	(4,705)
Net (debt) before lease liabilities	(2,795)	(519)
Lease liabilities - property	(604)	(803)
Net (debt)	(3,399)	(1,322)
Contingent consideration	(1,751)	(2,681)
Net (debt) including contingent consideration	(5,150)	(4,003)

 

Adjusted cash generated from operations was £2.22m (FY23: £3.43m) and cash conversion was strong at 111% (FY23: 109%) which compares favourably to the target cash conversion range of 80-90%. We consider net (debt)/cash to be a KPI of the business since the level of cash availability and financial indebtedness of the Group is relevant for Board strategic decisions and a key financial measure for the Group's shareholder base and potential investors.

Cash conversion	2024	2023* restated
	£'000	£'000
Cashflow from operations	1,104	3,020
Adjustments:
Acquisition, integration and restructuring cashflows	1,117	408
Adjusted cash generated from operations	2,221	3,428
Adjusted EBITDA1	2,008	3,134
Cash conversion	111%	109%

 

 ¹ Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation of intangible assets, exceptional items, and share based payments

*See accounting policies (note 1) for further details of the restatement

The Consolidated Statement of Cashflows reflects a further £0.89m payment of contingent consideration relating to the acquisition of Truststream. The Company also made a further purchase of £0.76m shares into treasury, relating to the exit settlement terms of the previous CEO. The cash outflow for property, plant and equipment of £0.45m (FY23: £0.25m) includes expenditure on various office fit-outs and the payments to acquire intangible assets of £0.11m (FY23: £0.16m) includes the capitalisation of various software development costs.

£8.0m revolving credit facility

The Company continues to hold a £8.0m RCF provided by Santander in April 2022, to provide financial flexibility for acquisitions and working capital requirements. The Group drew down £4.5m of RCF funds to finance the acquisition of Truststream in FY23. There have been no further drawdowns other than interest charges.

The banking facility has a five-year term which expires in April 2027 and carries an interest rate of base rate +3.25% on drawn funds and 1.3% on undrawn funds. The bank covenants in the RCF are tested quarterly and calculated on total net debt to Adjusted EBITDA leverage and minimum liquidity. All bank covenants were met during the year.

Consolidated statement of financial position

At the year end, the Group's total net assets are £14.78m (FY23: £21.24m).

Non-current assets of £24.50m (FY23: £29.98m) include Intangible Assets of £22.66m (FY23: 27.96m) and Property, Plant and Equipment ('PPE') of £1.85m (FY23: £1.97m). There were £0.45m of PPE additions relating to office expenditure. As noted above, an impairment of goodwill in the Managed IT Services CGU of £3.72m has been recorded in the year. The remaining movement year on year relates to ordinary amortisation and depreciation.

Working capital was managed well throughout the year with debtor days at the target level of 25 days at year end and suppliers routinely paid in our monthly payment runs to agreed terms. The gross trade debtor balance of £1.58m compares to £1.71m in the previous year despite the increase in trading revenue. The prepayment balance of £1.85m (FY23: £3.10m restated) and the contract liabilities balance (i.e. 'deferred income') of £2.78m (FY23: £4.02m) have both decreased. This is due to the working capital model of the Truststream business where customers are typically invoiced annually in advance and costs from suppliers are typically received annually in advance. Accordingly, the respective income and costs are deferred on the balance sheet and recognised over the period of the contracts.

Share option grants

During the year, the Remuneration Committee granted 362,709 performance shares to Adam Binks (former Chief Executive Officer) and 204,024 performance shares to Martin Audcent (former Chief Financial Officer), in relation the Group's performance in FY23 under the terms of the 2020 SysGroup Long Term Incentive Plan. During the year to 31 March 2023, the Remuneration Committee granted 284,010 performance shares to Adam Binks and 170,406 performance shares to Martin Audcent in relation the Group's performance in FY22 under the terms of the same plan.

KPIs

The Board of Directors review the performance of the Group using the financial measures outlined below and an explanation of the financial results is provided in the Financial Review above.

	2024	2023* restated	Change %
Revenue	£22.71m	£21.65m	5%
Recurring revenue as a % of total revenue	76%	75%	2%
Gross profit	£10.40m	£10.90m	(6)%
Gross margin %	46%	50%	(9)%
Adjusted EBITDA1	£2.01m	£3.13m	(36)%
Statutory (loss) before tax	£(6.57)m	£(0.30)m	854%
Net (debt)2	£(3.40)m	£(1.32)m	157%

 

* See accounting policies (note 1) for further details of the restatement

¹ Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation of intangible assets, impairment, exceptional items, and share based payments

² Net (debt) represents cash balances less bank loans and lease liabilities

 

 

Owen Phillips

Chief Financial Officer

30 July 2024

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2024

 

 

		2024	2023* Restated
		Group	Group
	Notes	£'000	£'000
Revenue	4	22,714	21,648
Cost of sales		(12,318)	(10,746)
Gross profit		10,396	10,902
Operating expenses before depreciation, amortisation, exceptional items and share based payments		(8,388)	(7,768)
Adjusted EBITDA**		2,008	3,134
Depreciation	14	(570)	(625)
Amortisation of intangibles	13	(1,696)	(1,739)
Impairment of intangibles	13	(3,718)	-
Exceptional items	8	(1,826)	(408)
Share based payments	9	(194)	(178)
Administrative expenses		(16,392)	(10,718)
Operating (loss) / profit		(5,996)	184
Finance costs	6	(574)	(483)
(Loss) before taxation		(6,570)	(299)
Taxation	12	670	98
Total comprehensive (loss) attributable to the equity holders of the company		(5,900)	(201)
Adjusted earnings per share (EPS)***	11	2.1p	3.5p
Basic earnings per share (EPS)	11	(12.1)p	0.0p
Diluted earnings per share (EPS)	11	(12.1)p	0.0p

 

* See accounting policies (note 1) for further details of the restatement

** Adjusted EBITDA, which is defined as profit before net finance costs, tax, depreciation, amortisation, impairments, shared based payment charge and adjusting items is a non-GAAP metric used by management and is not an IFRS disclosure

*** Adjusted Basic EPS is profit after tax after adding back amortisation of intangible assets, impairments, exceptional items, share based payments and associated tax, divided by the weighted average number of shares in issue.

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2024

		2024	2023* Restated
		Group	Group
	Notes	£'000	£'000
Assets
Non-current assets
Goodwill	13	17,948	21,666
Intangible assets	13	4,708	6,295
Property, plant and equipment	14	1,846	1,966
		24,502	29,927
Current assets
Trade and other receivables	16	4,003	4,813
Cash and cash equivalents		1,943	4,186
		5,946	8,999
Total Assets		30,448	38,926
Equity and Liabilities
Equity attributable to the equity shareholders of the parent
Called up share capital	21	515	494
Share premium reserve		9,080	9,080
Treasury reserve		(984)	(201)
Other reserve		3,300	3,205
Retained earnings		2,856	8,657
		14,767	21,235
Non-current liabilities
Lease liabilities	19	400	621
Contract liabilities	20	143	383
Contingent consideration	17	-	1,875
Provisions	18	148	191
Deferred taxation	12	849	1,434
Bank loan	19	4,738	4,705
		6,278	9,209
Current liabilities
Trade and other payables	17	4,813	3,861
Lease liabilities	19	204	182
Contract liabilities	20	2,635	3,633
Contingent consideration	17	1,751	806
		9,403	8,482
Total Equity and Liabilities		30,448	38,926

 

* See accounting policies (note 1) for further details of the restatement

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2024

 

 

	Attributable to equity holders of the parent
	Share capital	Share premium account	Treasury reserve	Other reserve	Translation reserve	Retained earnings* Restated	Total* Restated
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
As at 1 April 2022	494	9,080	(201)	3,027	4	8,854	21,258
Comprehensive income
Loss for the period	-	-	-	-	(4)	(197)	(201)
Total Comprehensive income	-	-	-	-	(4)	(197)	(201)
Distributions to owners
Share options charge	-	-	-	178	-	-	178
Total Distributions to owners	-	-	-	178	-	-	178
At 31 March 2023	494	9,080	(201)	3,205	-	8,657	21,235
As at 1 April 2023	494	9,080	(201)	3,205	-	8,657	21,235
Comprehensive income
Loss for the period	-	-	-	-	-	(5,900)	(5,900)
Total Comprehensive income	-	-	-	-	-	(5,900)	(5,900)
Distributions to owners
Issue of share capital	21	-	-	-	-	-	21
Purchase of own shares into Treasury	-	-	(783)	-	-	-	(783)
Share options charge	-	-	-	194	-	-	194
Reserves transfer on forfeiture of share options	-	-	-	(99)	-	99	-
Total Distributions to owners	21	-	(783)	95	-	99	(568)
At 31 March 2024	515	9,080	(984)	3,300	-	2,856	14,767

 

* See accounting policies (note 1) for further details of the restatement

 

CONSOLIDATED STATEMENT OF CASHFLOWS

FOR THE YEAR ENDED 31 MARCH 2024

 

		2024	2023* Restated
		Group	Group
	Notes	£'000	£'000
Cashflows used in operating activities
(Loss) after tax		(5,900)	(201)
Adjustments for:
Depreciation and amortisation	13,14	2,266	2,364
Impairment of intangibles	13	3,718	-
Finance costs	6	574	483
Share based payments		194	178
Taxation (credit)/charge	12	(670)	(98)
Operating cashflows before movement in working capital		182	2,726
Increase/decrease in trade and other receivables		819	(543)
Increase in trade and other payables		103	837
Cashflow from operations		1,104	3,020
Taxation paid		(439)	(303)
Net cash from operating activities		665	2,717
Cashflows from investing activities
Payments to acquire property, plant and equipment	14	(450)	(252)
Payments to acquire intangible assets	13	(109)	(163)
Acquisition of subsidiary net of cash acquired	10	-	(5,389)
Net cash used in investing activities		(559)	(5,804)
Cashflows from financing activities
Payment of contingent consideration on acquisitions		(885)	-
Bank loans drawdown		-	4,500
Payment of bank loan arrangement fee		-	(127)
Repayment of bank loans		-	(582)
Repurchase of shares into treasury		(762)	-
Capital/principal paid on lease liabilities		(199)	(303)
Interest paid on loan facility		(475)	(316)
Interest paid on lease liabilities		(28)	(32)
Net cash (used in) / from financing activities		(2,349)	3,140
Net (decrease) / increase in cash and cash equivalents		(2,243)	53
Cash and cash equivalents at the beginning of the year		4,186	4,133
Cash and cash equivalents at the end of the year		1,943	4,186

 

* See accounting policies (note 1) for further details of the restatement

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2024

 

1.     Accounting policies

SysGroup Plc (the 'Company') is a Company incorporated and domiciled in the United Kingdom. The Company changed its registered office during the year to 55 Spring Gardens, Manchester M2 2BY. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as the 'Group').

Statement of compliance

This consolidated financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The comparative figures for the financial year ended 31 March 2023 are an extract of the Company's statutory accounts for the year ended 31 March 2023, prepared in accordance with International Financial Reporting Standards (IFRS), approved by the Board of Directors on 23 June 2023 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

The statutory accounts for the year ended 31 March 2024 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Auditors have reported on those accounts; their report was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

These Group financial statements have been prepared in accordance with UK adopted international accounting standards ('endorsed IFRS') and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under endorsed IFRS. The Company financial statements have been prepared in accordance with Financial Reporting Standard 101 (FRS 101) 'Reduced Disclosure Framework' issued by the Financial Reporting Council (FRC). While the financial information included in this annual financial results announcement has been prepared in accordance with the recognition and measurement principles of international accounting standards in conformity with the requirements of Companies Act 2006, this announcement does not contain sufficient information to comply with IFRS and FRS 101.

Basis of preparation - Group

The principal accounting policies adopted in the preparation of the Financial Statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The consolidated financial statements have been prepared under the historical cost basis, except for the revaluation of certain financial liabilities and share based payments which have been valued in accordance with IFRS9 and IFRS2 respectively.

The preparation of financial statements in compliance with IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 2. The financial statements are presented in pounds sterling, rounded to the nearest thousand, unless otherwise stated.

Basis of preparation - Company

The Company financial statements are prepared under the historical cost convention, except for certain financial instruments that are measured at fair value. The company's financial statements are presented in pounds sterling (£), which is also the functional currency of the company.

The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates and assumptions. It also requires management to exercise its judgment in applying the company's accounting policies. Significant judgments and estimates are disclosed in the relevant notes to the financial statements.

The company has elected to take advantage of certain disclosure exemptions available under FRS 101, including:

·      A cash flow statement and related notes under IAS 7 'Statement of Cash Flows'

·      Certain disclosures required by IFRS 7 'Financial Instruments: Disclosures'

·      Disclosures in respect of the fair value of financial instruments under IFRS 13 'Fair Value Measurement'

Restatement of Cost of sales

We have identified an error relating to Managed IT services direct expenses not being recognised for the year ended 31 March 2023 within the subsidiary: SysGroup Trading Limited. Expenses were recognised as prepayments rather than in the statement of comprehensive income. The total impact of this error is to increase cost of sales by £193,678 and to decrease prepayments (shown within Trade and other receivables) by the same amount. There is no impact on comparative earnings per share as a result of this correction.

 

	2023		Restatement	2023* Restated
	£'000		£'000	£'000
Consolidated Statement of Comprehensive Income
Cost of Sales	(10,552)		(194)	(10,746)
Total comprehensive (loss) attributable to the equity holders of the company	(7)		(194)	(201)
Consolidated Statement of Financial Position and Statement of Changes in Equity
Trade and other receivables	5,007		(194)	4,813
Retained earnings	8,851		(194)	8,657
Shareholder funds	21,429		(194)	21,235
Consolidated Statement of Cashflows
(Loss) after tax	(7)		(194)	(201)
Increase in trade and other receivables	(737)		(194)	(543)

Going concern

The Directors have prepared the financial statements for the Group and the Company on a going concern basis which assumes that the Group and the Company will continue to meet liabilities as they fall due.

The Directors have reviewed the Base business forecast and a Sensitised version for the period to 31 July 2025 .

The Group raised £10.6m net funds from a placing in June 2024.  In the Base forecast there is considered ample headroom in the bank covenants, due to both the proceeds of this placing and as the business continues to operate with a high level of cash conversion and a reducing level of net debt.  In the Sensitised forecast, which includes assumptions for a significant decline in revenue and profits, the Group maintains positive gross cash balances, reduces net debt and stays within the bank covenants. The Group has a business model with a high degree of financial resilience since circa 80% of revenue is derived from contracted managed IT services which is a continuous and business critical service supply to customers. This provides a high level of operating cash generation.

At 31 March 2024, the Group had a gross cash balance of £1.9m and a net debt position excluding contingent consideration of £3.4m, excluding contingent consideration of £1.8m. The Group has a £0.5m unused overdraft facility and £3.3m of undrawn headroom in its RCF Loan facility (at the year-end date and the date of issue of these financial statements) which is available for working capital and acquisitions.

The forecasts, the resultant cashflows, together with the RCF loan facilities, taking account of reasonably possible changes in trading performance, show that the Group can continue to operate within the current facilities available to it.

The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

New standards and interpretations

A number of new standards and amendments to standards and interpretations have been issued during the year ended 31 March 2024. The Group has adopted all of the new and revised standards and interpretations issued that are relevant to its operations.  Other new amended standards and interpretations issued that apply to the financial statements do not impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

New standards not yet effective

There are a number of standards and amendments to standards, and interpretations which have been issued and in some cases not yet adopted by the UK Endorsement Board that are effective in future accounting periods that the Group has decided not to adopt early. SysGroup plc is currently assessing the impact of these new standard and amendments. The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material outcome on the Group.

IFRS16 - Leases

The group has no activities acting as a lessor. The group recognises right of use assets in relation to the lease of office space and equipment.

 

Lease liabilities	Land & Buildings	Plant & Machinery	Total
	£'000	£'000	£'000
At 1 April 2023	803	-	803
Additions	-	-	-
Disposal	-	-	-
Interest expense	28	-	28
Lease payments	(227)	-	(227)
At 31 March 2024	604	-	604
Repayment of lease liabilities are analysed as follows:			2024
			£'000
Due within 1 year			204
Instalments due after 1 year but no more than 5 years			400
Instalments due after 5 years			-

 

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. The interest rate used was 4%. 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.

 

Right of use assets	Land & Buildings	Plant & Machinery	Total
	£'000	£'000	£'000
At 1 April 2023	996	-	996
Additions	-	-	-
Disposals	-	-	-
Depreciation	(245)	-	(245)
At 31 March 2024	751	-	751

 

Right of use assets 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 the commencement of the lease;

·      initial direct costs incurred; and

·      the amount of any provision recognized where the group is contractually required to dismantle, remove or restore the leased asset (typically leasehold dilapidations - see note 18 to the Financial Statements).

The property lease rentals are fixed payments over the rental terms.

Basis of consolidation

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee; exposure to variable returns from the investee; and the ability of the investor to use its power to affect those variable returns. Control is re-assessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial statements present the results of the Company and its subsidiaries ('the Group') as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquirer's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

Business combinations

All business combinations are accounted for by applying the purchase method. On acquisition, all the subsidiaries' assets and liabilities that exist at the date of acquisition are recorded at their fair values reflecting the conditions at that date. The results of subsidiaries acquired in the period are included in the income statement from the date on which control is obtained.

Goodwill

Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is not amortised but is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. In determining the fair value of consideration, the fair value of equity issued is the market value of equity at the date of completion, and the fair value of contingent consideration is based on the expected future cashflows based on whether the Directors believe performance conditions will be met and thus the extent to which the further consideration will be payable. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

Impairment of non-financial assets

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash-generating unit (i.e. the lowest Group of assets in which the asset belongs for which there are separable identifiable cash flows that are largely independent of the cash flows from the other assets or Groups of assets). Goodwill is allocated on initial recognition to each of the Group's cash-generating units that are expected to benefit from the synergies of the combination giving rise to the goodwill.

The estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

Foreign currencies

Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the consolidated statement of comprehensive income. The results of foreign subsidiaries that have a functional currency different from the Group's presentation currency are translated at the average rates of exchange for the year. Assets and liabilities of foreign subsidiaries that have a functional currency different from the Group's presentation currency, are translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising from the translation of the results of foreign subsidiaries and their opening net assets are recognised as a separate component of equity.

Revenue

Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into the Group and revenue represents the fair value of amounts received or receivable for goods and services provided net of trade discounts and VAT.

The Group has three principal categories of performance obligation: managed services, professional services and value-added resale. All customer sales are signed as contracts or orders which separately specify the services and products to be delivered and these are mapped to one of the three revenue recognition categories. The contracts or orders specify, by service and product, the sales price and the contracted term of the services. As such, the separate performance obligations and allocation of transaction price can be identified clearly from the customer sales contracts.

The revenue recognition policies can be summarised as follows:

 

Revenue category	Performance delivery		Revenue recognition
Managed services	Contracted managed services are delivered from an agreed commencement date and for a contracted term of one to  three years. Managed services comprises multiple streams of service including cloud hosting and support and operating licences. Due to the nature of this revenue the streams are considered inter-dependant. The services are delivered uniformly over the duration of the contract and invoiced annually, quarterly or monthly in advance of the service delivery period.		Revenue is recognised evenly over the duration of the contract period based on the sales price as specified in the customer sales contract. This is on the basis that the customer receives and consumes the services evenly over the term of the contract. Amounts invoiced in advance of service delivery periods are accounted for as contract liabilities and recognised as revenue in the Consolidated Statement of Comprehensive Income to match the period in which the services are delivered.
Professional services	Professional services are delivered by a team of technical consultants based on a scope of work agreed and signed with a customer. The scope of work includes a specification of the work to be delivered, an estimation of the number of consultancy days required, and a sales value based on a day rate. Professional services are invoiced either in advance of work performed, in arrears after the service is delivered or as part of a larger project contract milestone.		Revenue is recognised based on chargeable days delivered using the sales day rate specified in the customer contract. Revenue recognition is therefore matched to the timing of when the customer receives the benefit of the consultancy services which is in line with the day the work is performed. Professional services are either invoiced in arrears for the actual days delivered or invoiced in advance. When invoiced in advance, the sales value is treated as contract liabilities and recognised as revenue in the Consolidated Statement of Comprehensive Income in the period in which the consultancy days are delivered.
Value added resale	Value added resale ('VAR') comprises sales of IT hardware and licences where the Group satisfies its performance obligation by procuring the products from suppliers for delivery to the customer. There are no further or ongoing obligations to the Group after delivery. The sales price for each product is separately specified in the customer sales contract. VAR sales are either invoiced in full in advance of delivery or invoiced according to an agreed contract milestone if part of a larger contract.		Revenue is recognised on delivery of the products from the supplier. Invoices are typically raised in advance of delivery and treated as contract liabilities until delivery has been fulfilled. At this point the revenue and associated purchase cost is recognised in the Consolidated Statement of Comprehensive Income.

For managed services and professional services revenue, these are recognised over time as the entity's performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

Note that some contracts with customers combine a mix of managed services, professional services and value-added resale. When this is the case, performance obligations are identified and recognised in line with the policies described above.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of Directors.

Alternative profit measures

In reporting its results, the Directors have presented various alternative profit measures (APMs) of financial performance, position or cashflows, which are not defined or specified under the requirements of IFRS. On the basis that these measures are not defined by IFRS, they may not be directly comparable with other companies. The key APMs that the group uses include recurring revenue as a percentage of revenue, Adjusted EBITDA, Adjusted EPS and Net cash.

The Group makes certain adjustments to the statutory profit in order to derive many of these APMs. These include exceptional items and share based payments. The group presents as exceptional items on the face of the Statement of Comprehensive Income those material items of income and expense which the Directors consider, because of their size or nature and expected non-recurrence, merit separate presentation to facilitate financial comparison with prior periods and to assess trends in financial performance. Exceptional items are included in Administration expenses in the Consolidated Statement of Comprehensive Income but excluded from Adjusted EBITDA as management believe they should be considered separately to gain an understanding of the underlying profitability of the trading businesses on a consistent basis from year to year.

Financial instruments

Financial instruments are classified and accounted for, according to the substance of the contractual arrangement, as either financial assets, financial liabilities or equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.

Financial assets

The Group's financial assets comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. Trade receivables are stated at their nominal value and an expected lifetime credit loss will be recognised using the simplified approach and shown in administrative expenses in the Consolidated Statement of Comprehensive Income. Impairment reviews for other receivables, including those due from related parties, use the general approach whereby twelve month expected credit losses are provided for and lifetime credit losses are only recognised where there has been a significant increase in credit risk, by monitoring the credit worthiness of the other party. Cash and cash equivalents include cash in hand.

Contract assets

Costs incurred to fulfil a contract are recognised as an asset if and only if all of the following criteria are met:

·       the costs relate directly to a contract (or a specific anticipated contract);

·       the costs generate or enhance resources of the entity that will be used in satisfying performance obligations in the future; and

·       the costs are expected to be recovered.

These include costs such as direct labour, direct materials, and the allocation of overheads that relate directly to the contract.

The asset recognised in respect of the costs to obtain or fulfil a contract is amortised on a systematic basis that is consistent with the pattern of transfer of the goods or services to which the asset relates.

Share capital

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Group's ordinary shares are classified as equity instruments and are recorded at the proceeds received, net of direct issue costs. Proceeds of any share issue in excess of the nominal value of the share capital is recognised within the share premium account.

Financial liabilities

The Group classifies its financial liabilities into one of two categories, depending on the purpose for which it was acquired. The Group's accounting policy for each category is as follows:

Fair value through profit or loss

This category comprises only contingent consideration. They are carried in the statement of financial position at fair values with changes in fair value recognised in the consolidated income statement.

Other financial liabilities

Other financial liabilities include trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.

Fair value measurement hierarchy

IFRS 9 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value to reflect the significance of the inputs used in making the fair value measurement. The fair value hierarchy has the following levels:

(a)   Quoted prices in active markets for identical assets or liabilities (Level 1);

(b)   Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and

(c)   Inputs from the asset or liability that are not based on observable market data (Level 3).

The level in the fair value hierarchy within which the financial asset or financial liability is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the three levels.

Share based payments

The fair value of employee options, along with any share warrants granted, is charged to the consolidated statement of comprehensive income with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black Scholes pricing model, considering the terms and conditions upon which the options were granted. The fair value of warrants is also reviewed to the extent that exercise of the warrants is considered likely.

Property plant and equipment

Items of property, plant and equipment are stated at cost less depreciation. Depreciation is provided at annual rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows:

Office equipment - 20% - 33% straight line

Motor vehicles - 25% straight line

Freehold property - 2% straight line

Right of use assets - over the period of the lease

Investment in subsidiaries

Fixed asset investments in the parent company are shown at cost less any provision for impairment as necessary.

Research and development

Research expenditure is written off to the consolidated statement of comprehensive income in the year in which the expenditure occurs. Development expenditure is treated in the same way unless the Directors are satisfied as to the technical, commercial and financial viability of individual projects, there is an intention to complete and sell the product and the costs can be easily measurable. In this situation, the expenditure is capitalised, and the amortised expense is included in administrative expenses in the Consolidated Statement of Comprehensive Income over the years during which the Group is to benefit.

Intangible assets

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see section related to critical estimates and judgements below).

The significant intangibles recognised by the Group, their estimated useful economic lives and the methods used to determine the cost of intangibles acquired in business combinations are as follows:

 

Intangible asset	Estimated UEL
Customer relationships	5-10 years
Software licenses	3-5 years
System development	5 years

Deferred taxation

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

·      the initial recognition of goodwill;

·      the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

·      investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is highly probable that relief against taxable profit will be available.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either the same taxable Group Company; or different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Deferred tax liabilities are recognised on intangible assets and other temporary differences recognised in business combinations.

2   Significant accounting estimates and judgements

The preparation of this financial information requires management to make estimates and judgements that affect the amounts reported for assets and liabilities at the period end date and the amounts reported for revenues and expenses during each period. The nature of the estimation or judgement means that actual outcomes could differ from the estimates and judgements taken in the preparation of the financial statements.

Significant accounting estimates

Impairment of goodwill and other intangibles

The Group tests goodwill for impairment annually and in line with the stated accounting policy. This involves judgement regarding the future development of the business and the estimation of the level of future profitability and cash flows to support the carrying value of goodwill.

An impairment review has been performed at the reporting date taking into account sensitivities around future business performance, covering a range of outcomes and risks over levels of revenue, cost and cash generation.  Following this review an impairment of the IT Managed Services CGU of £3.7m has been recorded (see note 13 for details).

Valuation of intangible assets acquired in business combinations

Determining the fair value of customer relationships acquired in business combinations requires estimation of the value of the cash flows related to those relationships and a suitable discount rate in order to calculate the present value.

Impairment of investments (Company)

The Company holds investments in subsidiaries. In line with the Company accounting policies investments are assessed for impairment when there is an impairment trigger.

An impairment review has been performed at the reporting date considering sensitivities around future business performance, covering a range of outcomes and risks over levels of revenue, cost and cash generation.  Following this review an impairment of the investment in SysGroup Trading Limited of £7.6m has been recorded (see note 15 for details).

Significant accounting judgements

Revenue

Management makes judgements in determining the appropriate application of revenue recognition policies to the sale of services and products. An explanation of the Group's revenue recognition policy is included in note 1.

Assessment of CGU's and carrying value of intangible assets

A CGU is the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets and the Board of Directors use their judgement to identify the CGUs of the Group. When SysGroup acquire a company, the newly acquired business is usually allocated its own CGU for the first year and until such time as either the business and assets have been hived up into the main SysGroup trading company or when the systems, finances and management of the business have been successfully integrated, whichever is earlier. For the current year, there are two CGUs, being the legacy SysGroup managed services acquisitions which operate as one CGU, and then Truststream.

Useful economic lives of intangible assets

Intangible assets are amortised over their useful economic lives. Useful lives are based on management's estimates of the period over which the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in changes in the carrying values and hence amounts charged to the income statement in particular periods which could be significant. The Group have capitalised system development expenditure in the current year and the intangible asset is being amortised over a five-year useful life which the Directors consider appropriate.

IFRS16 - Leases

Management makes judgements in their assessment of lease contract agreements to ensure the appropriate lease accounting recognition under IFRS16 - Leases. The main elements of judgement are:

·              Determining the inherent rate of interest which applies to each lease or family of leases with similar characteristics;

·              Establishing whether or not it is reasonably certain that an extension option will be exercised; and

·              Considering whether or not it is reasonably certain that a termination option will not be exercised.

Exceptional costs

The classification of costs as being exceptional, and their quantum is viewed as a key management judgement. For details of exceptional costs in the year see note 8.

3      Financial instruments - risk management

The Group's financial instruments comprise cash and liquid resources and various items such as trade receivables and trade payables that arise directly from its operations. There have been no substantive changes in the Group's objectives, policies and processes for managing those risks or the methods used to measure them from previous periods. The Group's objective is to ensure adequate funding for continued growth and expansion.

All the Group's financial instruments are carried at amortised cost with the exception of contingent consideration.  There is no material difference between the carrying and fair value of its financial instruments, in the current or prior year, due to the instruments bearing interest at fixed rates or being of short-term nature.

The Group faces a financial risk that such financial assets are not recovered but a provision is made where recoverability is in doubt.

A summary of financial instruments held by category is shown below:

 

	Group		Company
	2024	2023	2024	2023
Financial Assets	£'000	£'000	£'000	£'000
Assets held at amortised cost
Cash and cash equivalents	1,943	4,186	119	401
Amounts due from subsidiaries	-	-	-	323
Trade receivables	1,577	1,706	-	-
Total financial assets	3,520	5,892	119	724
	Group		Company
	2024	2023	2024	2023
Financial Liabilities	£'000	£'000	£'000	£'000
Amortised cost
Trade and other payables	4,472	2,801	805	632
Amounts due to subsidiaries	-	-	5,830	3,099
Loans and other borrowings	5,341	5,508	4,830	4,851
	9,813	8,309	11,465	8,582
At fair value
Contingent consideration	1,751	2,681	1,751	2,681
Total financial liabilities	11,564	10,990	13,216	11,263

 

Contingent consideration				£'000
At 1 April 2023				2,681
Payment of year 1 earn-out consideration				(885)
Fair value adjustment of liability				(117)
Unwinding of discount				72
At 31 March 2024				1,751

 

Fair value of financial instruments

The Group has adopted the following fair value hierarchy in relation to its financial instruments that are carried in the balance sheet at the fair values at the year-end:

·      Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)

·              Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2)

·              Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3)

The following table sets out the fair value of all financial assets and liabilities that are measured at fair value:

	2024			2023
Group and Company	Level 1	Level 2	Level 3	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000	£'000	£'000
Liabilities measured at fair value
Contingent consideration	-	-	1,751	-	-	2,681
Total	-	-	1,751	-	-	2,681

 

Contingent consideration is included in Level 3 of the fair value hierarchy. The provision for contingent consideration is in respect of the Truststream acquisition, further details of which can be found in Note 10. The fair value is determined considering the expected payments, discounted to present value using a risk adjusted discount rate.

The significant unobservable inputs were the financial performance forecasts for the Year 1 and Year 2 twelve-month periods post-acquisition and the risk adjusted discount rate of 4.0%.

The estimated fair value would increase or decrease if the EBITDA was higher or lower or the risk adjusted discount rate was higher or lower. A reasonably possible change to one of these significant unobservable inputs, holding the other inputs constant, would have the following effects:

 

Group and Company					Increase	Decrease
Effect of change in assumption on income statement					£'000	£'000
EBITDA movement by £100,000					66	300
Risk-adjusted discount rate change by 1.0%					-	-

 

Note that as the Truststream year 2 financial position is final, there is now no judgement in the estimated payment.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group prepare cashflow forecasts during the month and working capital forecasts on a monthly basis. These allow the Directors to make an assessment of the cash position and the future requirements of the Group to manage liquidity risk. Cash resources are managed in accordance with planned expenditure forecasts and the Directors have regard to the maintenance of sufficient cash resources to fund the Group's operating requirements and capital expenditure.

The following table sets out the contractual maturities (representing undiscounted contractual cashflows) of financial liabilities:

Group	Up to 3 months		Between 3 & 12 months		Between 1&2 years	Between 2&5 years	Over 5 years
At 31 March 2024	£'000		£'000		£'000	£'000	£'000
Trade and other payables	4,472		-		-	-	-
Loans and borrowings	51		153		400	4,783	-
Contingent consideration			1,751		-	-	-
Total	4,523		1,904		400	4,738	-
At 31 March 2023
Trade and other payables	2,801		-		-	-	-
Loans and borrowings	46		137		621	4,705	-
Contingent consideration	806		-		1,875	-	-
Total	3,653		137		2,496	4,705	-
Company		Up to 3 months		Between 3 & 12 months	Between 1&2 years	Between 2&5 years	Over 5 years
At 31 March 2024		£'000		£'000	£'000	£'000	£'000
Trade and other payables		805		-	-	-	-
Amounts due to subsidiaries		5,830		-	-	-	-
Loans and borrowings		11		31	50	4,738	-
Contingent consideration		-		1,751	-	-	-
Total		6,646		1,782	50	4,738	-
At 31 March 2023
Trade and other payables		632		-	-	-	-
Amounts due to subsidiaries		3,099		-	-	-	-
Loans and borrowings		15		43	88	4,705	-
Contingent consideration		806		-	1,875	-	-
Total		4,552		43	1,963	4,705	-

 

The Amounts due to subsidiaries shown in 'up to 3 months' category in the table above are payable on demand (Note 17 to the Financial Statements).

Interest rate risk

The Group and Company finance their operations through a combination of retained profits and bank borrowings. The Group's RCF Bank loan with Santander has an interest charge of 3.25% above bank base rate and accordingly the interest charge the Group incurs fluctuates according to any movement in the bank base rates.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers. The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group receives payments either from automated banking receipts or from customers paying on direct debit or 30-day credit terms. The Group has a dedicated credit control function to manage customer payments and uses an external credit rating agency to assess customers and prospects for creditworthiness. Doubtful debts are provided for in accordance with IFRS9. For cash and cash equivalents, the Group only uses recognised banks with high credit ratings of a negative or above on the Standard & Poor's rating system.

Foreign exchange risk

A small number of suppliers invoice in USD. Foreign exchange exposure is closely managed, including holding limited funds in USD. Alternate suppliers invoicing in GBP are also sought where suitable.

Capital disclosures

The Group monitors capital which comprises all components of equity (i.e. share capital, share premium and retained earnings).

The Group's objective when maintaining capital are to safeguard the entity's ability to continue as a going concern, so that it can provide returns for shareholders in future periods and benefits for other stakeholders, and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and adjusts it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

4      Segmental analysis

The chief operating decision maker for the Group is the Board of Directors. The Group reports in two segments:

·      Managed IT Services - this segment provides all forms of managed services to customers and includes professional services.

·      Value Added Resale (VAR) - this segment provides all forms of VAR sales where the business sells products and licences from supplier partners.

The monthly management accounts reported to the Board of Directors are reviewed at a consolidated level with the operating segments representative of the business model for growth of recurring contract income in Managed IT Services and VAR sales as a complementary business activity. The Board review the results of the operating segments at a revenue and gross profit level since the Group's management and operational structure supports both operational segments as Group functions. In this respect, assets and liabilities are also not reviewed on a segmental basis. All assets are located in the UK. All segments are continuing operations and there are no transactions between segments.

	2024	2024	2023	2023
Revenue by operating segment	£'000	%	£'000	%
Managed IT Services	18,592	82%	17,441	81%
Value Added Resale	4,122	18%	4,207	19%
Total	22,714	100%	21,648	100%
No individual customer accounts for more than 7% of the Group's revenue.
The revenue by geographic location for where services are delivered to customers is shown below.
	2024	2024	2023	2023
	£'000	%	£'000	%
UK	22,573	99%	21,608	100%
Rest of World	141	1%	40	-
	22,714	100%	21,648	100%
			2024	2023* Restated
			£'000	£'000
Revenue
Managed IT Services			18,592	17,441
Value Added Resale			4,122	4,207
Total			22,714	21,648
Gross Profit
Managed IT Services			9,733	10,155
Value Added Resale			663	747
Total			10,396	10,902

 

* See accounting policies (note 1.) for further details of the restatement

Assets and liabilities related to contracts with customers

The Group has recognised the following assets and liabilities related to contracts with customers:

2024 2023   £'000 £'000 Contract liabilities relating to deposits from customers 2,778 4,016 Release of contract liability recognised in revenue which was included in the contract liability balance at the beginning of the year 1,509 1,163   There were no sales between the two business segments, and all revenue is earned from external customers. The business segments' gross profit is reconciled to profit before taxation as per the consolidated income statement. The Group's overheads are managed centrally by the Board and consequently there is no reconciliation to profit before tax at a segmental level . The Group's assets are also managed centrally by the Board and consequently there is no reconciliation between the Group's assets per the Statement of Financial Position and the segment assets. 5    Operating profit 2024 2023       £'000 £'000 Operating profit is after charging the following:     Audit - Group 116 94 Audit - Company 5 4 Assurance related - interim review 12 12 Auditor's remuneration 133 110 Depreciation of tangible fixed assets 570 625 Amortisation of intangible assets 1,696 1,739 Impairment of intangible assets 3,718 - Staff costs (note 7) 5,763 5,566 Share based payments (note 7, 9) 194 178 Short term lease costs 20 40 Exceptional items (note 8) 1,826 408 6    Finance expense 2024 2023   £'000 £'000 Interest payable on bank loan 440 307 Unwind of discounting on contingent consideration 72 105 Interest payable on lease liabilities 28 32 Arrangement fee amortisation on bank loan 34 29 Other interest - 10   574 483   7    Staff numbers and costs The average monthly number of full-time persons employed by the Group, including Executive Directors during the year was:   2024 2023 Technical Support 70 70 Sales and Marketing 23 18 Administration 18 20 Total 111 108       The aggregate payroll costs including Executive Directors and excluding Non-Executive Directors were as follows: 2024 2023   £'000 £'000 Wages and salaries 5,034 4,793 Social security costs 520 547 Benefits in kind 41 55 Pension benefits 168 171 Share based payment expense 194 178 Total 5,957 5,744   Total staff costs for the Company are £5,957,000 (FY23: £5,744,000) and average staff numbers for the Company are 111 (FY23: 108). 2024 2023 Directors £'000 £'000 Fees and salaries 970 662 Social security costs 101 69 Benefits in kind 29 3 Pension benefits contributions 17 18 Share based payment expense 162 132 Total 1,279 884   Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, they are the Directors of the Company. The emoluments, including any contractual settlement fees, of the highest paid Director are £504,038 (FY23: £329,000). Total payments for loss of office amounted to £449,200 (FY23: £nil). The Group does not operate a defined benefits pension scheme and Executive Directors who are entitled to receive pension contributions may nominate a defined contribution scheme into which the Company makes pension contributions.  The fees relating to Non-Executive Directors are in some cases payable to third parties in connection with the provision of their services. The balance outstanding at 31 March 2024 was nil (FY23: £Nil). 8    Exceptional items 2024 2023   £'000 £'000 CEO exit and settlement 744 - Integration and restructuring costs 571 189 Supplier charges in dispute 434 - M&A projects 194 - Acquisition costs - 219 Fair value adjustment of contingent consideration liability (117) Total 1,826 408 CEO exit and settlement relates to the settlement of the former CEO's contractual terms.  This is considered material and non-recurring and has therefore been classified as exceptional. The integration and restructuring costs relate to costs associated with the restructuring of the Senior Leadership Team.  This includes exit and hiring expenses related to senior team members as well as wider restructuring expenses within supporting teams. This is considered non-recurring and has therefore been classified as exceptional. The supplier charges in dispute are subject to ongoing action for which the company is pursuing recovery.   This is considered non-recurring and has therefore been classified as exceptional. The M&A projects expenditure relate to costs associated with the evaluation of potential acquisition targets.  This is considered material and has therefore been classified as exceptional. The adjustment to the contingent consideration liability relates to the purchase of Truststream Security Solutions Limited in the prior year.  This is considered non-recurring and has therefore been classified as exceptional. In 2023, the acquisition and integration costs relate to the two acquisitions in April 2022, Truststream Security Solutions Limited and Independent Network Services Limited (trading as 'Orchard IT'). This is considered material and has therefore been classified as exceptional. All of the items above, based upon the judgement of the management team, meet the definition of an exceptional item as defined within the Group's accounting policies (note 2 - Alternative Performance Measures). 9    Share based payments The Company has granted share options to the Executive Directors under LTIP Schemes and Group employees under an EMI Scheme. The Directors have the discretion to grant options to subscribe for ordinary shares up to a maximum of 10 per cent of the Company's issued share capital. For new share options issued in the year, the volatility was estimated using the previous twelve months of the Group's share price. EMI Scheme Share options can be granted to employees of the Group at the discretion of and with approval from the Remuneration Committee. For EMI share options to vest the employee must be employed by the Group at the vesting date. The weighted average exercise price of options in issue is 42.0p per share. No. of Ordinary Shares Grant date Exercise period Exercise price At 31 March 2023 Granted Waived At 31 March 2024 17/03/2014 17/03/17 to 16/03/24 60.0p - - - - 21/02/2016 21/02/19 to 20/02/26 55.2p 11,875 - (6,875) 5,000 02/03/2018 02/03/21 to 01/03/28 35.5p 30,000 - (30,000) - 26/11/2018 26/11/21 to 25/11/28 42.5p 215,000 - (65,000) 150,000 16/04/2020 16/04/23 to 15/04/30 27.0p 150,000 - (150,000) - 06/04/2021 06/04/24 to 05/04/31 41.0p 206,000 - (75,000) 131,000 01/07/2021 01/07/24 to 30/06/31 1.0p 100,000 - (100,000) - 14/02/2022 14/02/25 to 13/04/32 26.0p 30,000 - (30,000) - 19/04/2023 19/04/26 to 18/04/36 28.5p - 30,000 (30,000) - Total     742,875 30,000 (486,875) 286,000   The inputs to the share valuation model utilised at the grant of the option is shown in the table below. Management has determined volatility using their knowledge of the business. The options have been valued using the Black Scholes method and using the following assumptions:   Number of instruments granted 11,875 30,000 215,000 150,000 206,000 100,000 30,000 30,000 Grant date 21-Feb16 02-Mar18 26-Nov18 16-Apr20 06-Apr21 01-Jul21 14-Feb22 19-Apr23 Expiry date 20-Feb26 01-Mar28 25-Nov28 15-Apr30 05-Apr31 30-Jun31 13-Feb32 18-Apr33 Contract term (years) 10 10 10 10 10 10 10 10 Exercise price 55.2p 35.5p 42.5p 27.0p 41.0p 1.0p 26.0p 28.5p Share price at granting 70.8p 35.5p 42.5p 27.0p 41.0p 42.0p 26.0p 31.0p Annual risk-free rate (%) 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 4.0% 4.0% Annual expected dividend yield (%) 0% 0% 0% 0% 0% 0% 0% 0% Volatility (%) 27% 27% 27% 27% 27% 27% 41% 41% Fair value per grant instrument 30.2p 41.5p 17.9p 14.8p 26.0p 14.3p 15.0p 17.0p   Executive LTIP options The Remuneration Committee is responsible for establishing the Executive LTIP Schemes and also sets the targets by which the performance of the Executive Directors is measured. The award of share options to the Executive Directors is governed by the LTIP Scheme Rules. Further information on the Schemes is presented in the Directors' Remuneration report. The weighted average exercise price of options in issue is 1.0p per share.     No. of Ordinary Shares Grant date Exercise period Exercise price At 31 March 2023 Granted Exercised At 31 March 2024 28/06/2018 28/06/21 to 27/06/28 1.0p 750,000 - (750,000) - 16/07/2018 16/07/21 to 15/07/28 1.0p 450,000 - - 450,000 15/07/2019 15/07/22 to 14/07/29 1.0p 400,000 - (250,000) 150,000 08/07/2020 08/07/22 to 07/07/30 1.0p 400,000 - (250,000) 150,000 21/06/2021 21/06/23 to 20/06/31 1.0p 287,480 - (179,675) 107,805 21/06/2022 21/06/24 to 20/06/32 1.0p 454,416 - (284,010) 170,406 17/04/2023 17/04/25 to 16/04/33 1.0p - 566,733 (362,709) 204,024 Total     2,741,896 566,733 (2,076,394) 1,232,235   The inputs to the share valuation model utilised at the grant of the option is shown in the table below. Management has determined volatility using their knowledge of the business. The options have been valued using the Black Scholes method and using the following assumptions:   Number of instruments granted 750,000 450,000 400,000 400,000 287,480 454,416 566,733 Grant date 28-Jun-18 16-Jul-18 15-Jul-19 08-Jul-20 21-Jun-21 21-Jun-22 17-Apr-23 Expiry date 27-Jun-28 15-Jul-28 14-Jul-29 07-Jul-30 20-Jun-31 20-Jun-32 16-Apr-33 Contract term (years) 10 10 10 10 10 10 10 Exercise price 1.0p 1.0p 1.0p 1.0p 1.0p 1.0p 1.0p Share price at granting 41.5p 46.5p 42.0p 33.0p 42.0p 27.0p 27.5p Annual risk-free rate (%) 0.5% 0.5% 0.5% 0.5% 0.5% 4.0% 4.0% Annual expected dividend yield (%) 0% 0% 0% 0% 0.0% 0.0% 0.0% Volatility (%) 27% 27% 27% 27% 27% 41% 41% Fair value per grant instrument 40.9p 43.7p 41.4p 32.0p 41.0p 26.0p 26.0p   On 26 May 2023, it was announced that Adam Binks would be stepping down as Chief Executive Officer and the Board on 26 June 2023.The Board agreed that the 826,394 unvested options granted to Adam Binks under the Company's 2020 LTIP Scheme would vest with immediate effect with all restrictions on all his options waived. Adam Binks agreed to immediately exercise all his options granted under the 2018 and 2020 LTIP schemes, totalling 2,076,394 ordinary shares of 1p each ('Ordinary Shares') and further agreed to sell, and the Company agreed to buy, a total of 2,076,394 Ordinary Shares at a price of £0.375 per Ordinary Share. The Company will hold these Ordinary Shares in treasury to satisfy the exercise of future share options under SysGroup's share incentive schemes. The share-based payment charge in the statement of comprehensive income in the year was £194,000 (2023: £178,000). 10   Acquisitions The Group has not made any acquisitions in the year to 31 March 2024.  In April 2022 of the prior year, SysGroup plc acquired 100% of the issued share capital in Truststream Security Solutions Limited ('Truststream') and Independent Network Solutions Limited ('INSL', holding company of Orchard Computers Limited). Truststream Security Solutions Limited Established in 2011 and based in Edinburgh, Truststream is one of the UK's fastest growing providers of professional and managed cyber security services. Truststream covers all aspects of cyber security from analysis and threat detection, through protection architecture and implementation, to incident response and ongoing 24/7 support and training. The Acquisition further enhances SysGroup's service offering and is complementary to the Group's core expertise and key areas of focus. In addition, the Acquisition enables the Group to further strengthen its UK presence by opening up Scotland as an attractive hub for the Group. SysGroup acquired Truststream on 4 April 2022 for £4.8m initial cash consideration on a cash-free debt-free basis with an earn-out payable following the first and second anniversaries of the transaction of up to £3.1m. A payment of £0.5m was paid in respect of the cash and debt balances. The earn-out is subject to the achievement of certain maintainable EBITDA performance targets in the first and second 12-month periods following the completion of the acquisition. £0.9m has been paid to date in relation to the first earn out period and a further £1.8m is held as Contingent consideration at 31 March 2024.  Final earn out           is expected to be settled and paid within 12 months of the balance sheet date. The Truststream acquisition was mainly funded from a new £8.0m revolving credit facility ('RCF') which was signed with Santander on 4 April 2022. SysGroup utilised £4.5m of funds from the RCF to finance the acquisition. Further information on the RCF facility can be found in note 19 to the Consolidated Financial Statements. Recognised amounts of net assets acquired, and liabilities assumed Book Value FV Adj Fair Value   £'000 £'000 £'000   Cash and cash equivalents 550 - 550   Trade and other receivables 1,783 - 1,783   Property, plant and equipment 1 - 1   Intangible assets - 2,525 2,525   Trade and other payables (1,776) (24) (1,800)   Corporation tax (117) - (117)   Deferred tax - (631) (631)   Identifiable net assets     2,311   Goodwill     5,602   Total net assets 7,913   Satisfied by:   Cash consideration - paid on acquisition 5,337   Contingent consideration 3,075   Discounting of contingent consideration (499)   Total consideration 7,913     Independent Network Solutions Limited ('INSL') INSL is the holding company of Orchard Computers Limited ('Orchard') which is a business based in Bristol. Orchard has been in operation for over 30 years and has built a loyal customer base largely in the South West of England and across a broad range of sectors, covering both the private and public sectors. Its managed IT service offering mirrors that of SysGroup, providing high quality consulting services and building tailor made, vendor agnostic solutions, designed specifically to meet individual customer needs, followed by ongoing support. SysGroup acquired INSL on 26 April 2022 for £1.0m cash consideration on a cash-free debt-free basis. There is no contingent or deferred consideration for this acquisition. The cash consideration was funded from the Group's existing cash balances.   Recognised amounts of net assets acquired and liabilities assumed Book Value FV Adj Fair Value   £'000 £'000 £'000   Cash and cash equivalents 398 - 398   Trade and other receivables 311 (15) 296   Property, plant and equipment 32 (32) -   Intangible assets - 1,028 1,028   Trade and other payables (385) (435) (820)   Bank loan (82) - (82)   Corporation tax (63) (5) (68)   Deferred tax (5) (257) (264)   Identifiable net assets     490   Goodwill     510   Total net assets 1,000   Satisfied by: Cash consideration - paid on acquisition 1,000   Total consideration 1,000     The Directors have considered the intangible assets acquired with the two acquisitions and have recognized intangible assets for customer relationships which have been calculated using a discounted cashflow method, based on the estimated level of profit to be generated from the customer bases acquired. A post tax discount rate of 9.40% was used in the valuations and the customer relationships are being amortised over an estimated useful life of 7 years for Truststream and 10 years for Orchard. The goodwill arising on both acquisitions are attributable to the technical skills of the workforce and cross-selling opportunities achievable from combining the acquired customer bases and trade with the existing Group. The goodwill and intangible assets of Truststream have been allocated to a new CGU named 'Truststream' and the goodwill and intangible assets of Orchard have been allocated to the CGU 'IT Managed Services'. See Note 13 for further details. The Company incurred £218,000 of professional fees and other acquisition costs in relation to the two acquisitions in the year to 31 March 2023. These costs are included as Exceptional costs in the Group's consolidated statement of comprehensive income. Truststream contributed to Group revenue £6.3m (2023: £4.9m) and £0.4m (2023: £0.3m) profit before tax for the year to 31 March 2024. Orchard was acquired on 26 April 2022 under a lock box mechanism which fixed the financial returns to the Group from 1 April 2022. Orchard trading was fully hived into SysGroup Trading Limited for the year to 31 March 2024.  Orchard contributed £1.8m to Group revenue and £0.1m profit before tax for the year to 31 March 2023. 11   Earnings per share 2024 2023* Restated (Loss) for the financial year attributable to shareholders (£5,900,000) (£201,000) Adjusted profit for the financial year £1,010,000 £1,723,000 Weighted number of issued equity shares 48,923,389 48,859,690 Weighted number of equity shares for diluted EPS calculation 50,710,251 52,274,633 Adjusted basic earnings per share (pence) 2.1p 3.5p Basic earnings per share (pence) (12.1)p  0.0p Diluted earnings per share (pence) (12.1)p  0.0p   2024 2023* Restated £'000 £'000 (Loss) after tax used for basic earnings per share (5,900) (201) Amortisation of intangible assets 1,696 1,739 Impairment of intangible assets 3,718 - Exceptional items 1,826 408 Share based payments 194 178 Tax adjustments (524) (401) Adjusted profit used for Adjusted Earnings per Share 1,010 1,723 *See accounting policies (note 1) for further details of the restatement 12   Taxation 2024 2023 Current tax £'000 £'000 Current tax - current year - 374 Adjustments in respect of prior years (84) - Total current tax charge (84) 374 Deferred tax     Deferred tax - timing differences (609) (472) Adjustments in respect of prior years 23 - Total deferred tax (586) (472) Total tax (credit) (670) (98)   The effective tax rate for the year to 31 March 2024 is higher (2023: higher) than the standard rate of corporation tax in the UK. The differences are explained below:   2024 2023* Restated £'000 £'000 (Loss) on ordinary activities before tax (6,570)              (299) (Loss)/profit on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 25% (2023:19%) (1,642) (57) Effects of: Expenses not deductible 274 92 Income not taxable 899 - Short term timing differences 374 136 R&D tax credits - (29) Re-measurement of deferred tax due to changes in UK rate - (66) Deferred tax on share based 31 32 Deferred tax on acquired intangibles (368) (206) Adjustments in respect of prior years (61) - Other permanent differences (177) - Total tax credit (670)                 (98)  * See accounting policies (note 1) for further details of the restatement   The Group recognised deferred tax assets and liabilities as follows:    2024 2023   £'000 £'000 Deferred tax on customer relationships (1,042) (1,421) Deferred tax asset on share-based payments 100 166 Fixed asset timing differences (196) (225) Short term timing differences 21 - Losses 268 (46) Deferred tax liability (849) (1,434)       Recognition of deferred tax assets is restricted to those instances where it is highly probable that relief against taxable profit will be available. There are no unrecognised deferred tax assets. Deferred tax balances are recognised at 25% (2023: 25%):     Losses Fixed asset timing differences Short term timing differences Share based payments Customer relationships Total   £'000 £'000     £'000 £'000 Balance at 1 April 2023 46 (225) - 166 (1,421) (1,434) DT on share-based payments (31) (31) DT on amortisation of intangibles 35 368 403 Fixed asset and other timing differences 222 (7) 22 (35) 11 213 Balance at 31 March 2024 268 (197) 22 100 (1,042) (849)   13   Intangible assets   Systems Development Software licences Customer relationships Positive goodwill Total Group cost £'000 £'000 £'000 £'000 £'000 At 1 April 2022 1,073 205 9,156 15,554 25,988 Additions 163 - 3,553 6,112 9,828 Disposals (225) (205) -  -  (430) At 31 March 2023 1,011 - 12,709 21,666 35,386 At 1 April 2023 1,011 - 12,709 21,666 35,386 Additions 109 - - - 109 Disposals - - - - - Impairment - - - (3,718) (3,718) At 31 March 2024 1,120 - 12,709 17,948 31,777 Accumulated amortisation At 1 April 2022 404 205 5,507 - 6,116 Charge for the year 177 - 1,562 - 1,739 Disposals (225) (205) -  -  (430) At 31 March 2023 356 - 7,069 - 7,425 At 1 April 2023 356 - 7,069 - 7,425 Charge for the year 224 - 1,472 - 1,696 Disposals - - - - - At 31 March 2024 580 - 8,541 - 9,121   Net book value   At 31 March 2023 655 - 5,640 21,666 27,961 At 31 March 2024 540 - 4,168 17,948 22,656   Systems Development Total Company cost £'000 £'000 At 1 April 2022       - - Additions 28 28 At 31 March 2023       28 28 Additions       37 37 At 31 March 2024       65 65             Accumulated amortisation         At 1 April 2022       - - Charge for the year 2 2 At 31 March 2023       2 2 Charge for the year       16 16 At 31 March 2023       18 18   Net book value         At 31 March 2023       26 26 At 31 March 2024       47 47   All amortisation and impairment charges are included in the depreciation, amortisation and impairment of non-financial assets classification, which is disclosed as administrative expenses in the statement of comprehensive income. Customer relationships have a remaining amortisation period of between 2 and 5 years. Cash-generating units ('CGUs') Goodwill and intangible assets are allocated to CGUs in order to be assessed for potential impairment. The Group has a core CGU of 'Managed IT Services' and as the Group acquires new businesses they form their own CGU until they have been integrated into the Group's core operational structure. The Group has a Senior Leadership Team that manages the SysGroup business within a single operational and delivery structure. Whilst the Truststream business has been integrated within the SysGroup leadership structure and onto the Group system platforms, the business continues to operate its own cash transactions and balances and therefore remains a distinct cash generating unit of the Group. As such, the Directors consider Truststream to be a separate CGU. The allocation of goodwill and carrying amounts of assets for each CGU is as follows:   Allocation of goodwill Carrying value of assets 2024 2023 2024 2023   £'000 £'000 £'000 £'000 Managed IT Services 16,064 16,064 17,213 19,366 Truststream Security Solutions 5,602 5,602 6,583 6,698 Total 21,666 21,666 23,796 26,064   Impairment review When assessing impairment, the recoverable amount of each CGU is based on value-in-use calculations (VIU). VIU calculations are an area of material management estimate as set out in note 2. These calculations require the use of estimates, specifically: post-tax cash flow projections; long-term growth rates; and a post-tax discount rate. Cash flow projections are based on the Group's detailed annual operating plan for the forthcoming financial year which has been approved by the Board. The VIU calculation is determined based on a discounted cash flow basis prepared for each individual cash generating unit. Cash flows beyond the forthcoming financial year use estimated growth rates which are stated below. The assumptions for growth rates and margins are based on management's experience of growth and knowledge of the industry sector, markets and our own internal opportunities for growth. The projections beyond five years use an estimated long-term growth rate of 2.0% (FY22: 2.5%) for net post tax cash flows. This represents management's best estimate of a long-term annual growth rate aligned to an assessment of long-term GDP growth rates. A higher sector-specific growth rate would be a valid alternative estimate. A different set of assumptions may be more appropriate in future years dependent on changes in the macroeconomic environment. The discount rates used are based on management's calculation of the WACC using the capital asset pricing model to calculate the cost of equity. The same rate is used for each CGU in the VIU calculation, and the rates reflect management's assessment on the level of relative risk in each respective CGU. Discount rates can change relatively quickly for reasons both inside and outside management control. Those outside management direct control or influence include changes in the Group's Beta, changes in risk free rates of return and changes in Equity Risk Premia. Matters inside management control are the delivery of performance in line with plans or budgets and the production of high or low risk plans. At the year-end reporting date, goodwill was reviewed for impairment in accordance with IAS 36 'Impairment of Assets' and an impairment of the Managed IT Services CGU of £3.7m has been recorded. No impairment of the Truststream CGU arose because of this review. Legacy Managed IT Services CGU The Managed IT Services CGU goodwill is comprised of acquisitions dating from 2016 to 2022, as listed below: System Professional - 2016 Rockford IT - 2017 Certus IT - 2019 Hub Network - 2020 Orchard IT - 2022 Based upon a prudent assessment of the future performance of these acquisitions (being the "Managed IT Services CGU"), management's view is that the CGU is impaired by £3.7m. The VIU model is sensitive to changes in key assumptions, including revenue growth. If year 1 revenue growth were to reduce to 0%, then the impairment would increase by a further £4.9m, assuming no changes in other assumptions. Management is comfortable with the revenue growth rate used in the VIU model. Truststream CGU The Truststream CGU has over 18% headroom of VIU compared to the carrying value of assets. For the headroom to reduce to nil, the post-tax discount rate would have to increase to over 11.8% on Truststream or future CGU profits would have to be significantly below current forecast levels. The VIU model for the Truststream GGU is particularly sensitive to changes in two key assumptions, being year 1 revenue and gross margin %. Year 1 revenue growth would have to drop by 4.7% from the base for there to be an impairment of goodwill. As an example, If the revenue growth rate were to drop by 10% then there would be an impairment of £2.7m (assuming all other assumptions remain in line). Further, gross margin % would have to drop 1.0% from the base for there to be an impairment of goodwill. Management is comfortable with the revenue growth rate and gross margin % used in the VIU model. The assumptions used for the impairment review are detailed below:   Legacy Managed IT Services Truststream 2024 Discount rate post-tax 10.3% 10.3% Revenue growth rate year 2 to year 5 3.5% 6.0% Terminal growth rate 2.0% 2.0% 2023       Discount rate post-tax 10.7% 10.7% Revenue growth rate year 2 2.5% 10.0% Revenue growth rate year 3 to year 5 2.5% 2.5% Terminal growth rate 2.0% 2.5%   14   Property, plant and equipment   Office Equipment Right of Use Lease Freehold Property Total Cost £'000 £'000 £'000 £'000 At 1 April 2022 2,744 2,181 382 5,307 Additions 249 935 - 1,184 Disposals (1,793) (1,851) - (3,644) At 31 March 2023 1,200 1,265 382 2,847 At 1 April 2023 1,200 1,265 382 2,847 Additions 450 - - 450 Disposals - - - - At 31 March 2024 1,650 1,265 382 3,297 Accumulated depreciation At 1 April 2022 2,014 1,790 25 3,829 Charge for the year 358 259 8 625 Disposals (1,793) (1,780) - (3,573) At 31 March 2023 579 269 33 881 At 1 April 2023 579 269 33 881 Charge for the year 317 245 8 570 Disposals - - - - At 31 March 2024 896 514 41 1,451 Net book value At 31 March 2023 621 996 349 1,966 At 31 March 2024 754 751 341 1,846   Office Equipment Right of Use Lease     Total   Company cost £'000 £'000 £'000   At 1 April 2022 320 346 666   Additions 150 47 197   Disposals (298) - (298)   At 31 March 2023 172 393 565   At 1 April 2023 172 393 565   Additions 163 - 163   Disposals - - -   At 31 March 2024 335 393 728     Accumulated depreciation   At 1 April 2022 278 134 412   Charge for the year 56 70 126   Disposals (298) - (298)   At 31 March 2023 36 204 240   At 1 April 2023 36 204 240   Charge for the year 82 76 158   Disposals - - -   At 31 March 2024 118 280 398   Net book value At 31 March 2023 136 189 325   At 31 March 2024 217 113 331                   15   Investments 2024 2023 Company £'000 £'000 At start of year 34,034 24,895 Acquisitions - 8,913 Investment in subsidiaries - 226 Impairment (7,635) - At 31 March 26,399 34,034   The recoverable amounts have been determined from discounted cash flow calculations based on cash flow projections from the forecasts covering the period to 31 March 2026. The principal assumptions can be found in note 13. In line with the rationale and conclusions drawn in note 13 regarding the Legacy Managed IT Services CGU, an impairment of the SysGroup Trading Limited investment of £7.6m is required and has been recorded in the period. Following this impairment, the investment balance in SysGroup Trading Limited is £18.5m. The remaining balance of £7.9m relates to Truststream Security Solutions Limited. The Company's subsidiary undertakings all of which are wholly owned and included in the consolidated accounts are: Undertakings Registration Principal activity SysGroup Trading Limited England & Wales Managed IT Services Truststream Security Solutions Limited Scotland Managed IT Services Certus IT Limited England & Wales Non-trading Hub Network Services Limited England & Wales Non-trading Netplan LLC* USA Non-trading Orchard Computers Limited England & Wales Dormant Independent Network Solutions Limited England & Wales Non-trading Netplan Internet Solutions Limited England & Wales Dormant Rockford IT Limited England & Wales Dormant System Professional Limited England & Wales Dormant SysGroup (DIS) Limited England & Wales Dormant   * Netplan LLC is a wholly owned subsidiary of Netplan Internet Solutions Limited   The registered office of all subsidiaries is the same as the registered office of the parent Company with the exception of:   Netplan LLC                                                         Truststream Security Solutions Limited whose registered office is:                                                whose registered office is: c/o USA Corporate Services Inc                       8th Floor, Sugar Bond House 19 West 34th Street, Suite 1018,                      Anderson Place, Leith, Edinburgh New York, 10001                                                 Scotland EH6 5NP   16   Trade and other receivables   Group Company Group Company 2024 2024 2023* Restated 2023 Amounts due within one year £'000 £'000 £'000 £'000 Trade debtors 1,577 - 1,706 - Amounts due from subsidiaries - - - 323 Other debtors 26 - - 81 Corporation tax asset 84 - - - Prepayments and accrued income 2,316 105 3,107 221 Total 4,003 105 4,813 625 Amounts due from subsidiaries are due on demand and incur no interest. The carrying value of trade and other receivables approximates to their fair value.   Group Company Group Company 2024 2024 2023 2023 Debtor impairment £'000 £'000 £'000 £'000 Trade debtors 1,692 - 1,979 - Impairment provision (115) - (273) - Total 1,577 - 1,706 -   The Group have applied the simplified approach to calculate its impairment of trade receivables. In completing this review, the Group have segregated its receivables into categories based on the number of days past due for each invoice and used this to estimate the expected lifetime credit loss, with the historic credit losses being adjusted for expected forward cashflows given the current economic environment.   Group Company Current Over 1 month past due Total Current Over 1 month past due Total   £'000 £'000 £'000 £'000 Trade debtors 610 1,082 1,692 - - - Expected credit loss - (115) (115) - - - Net carrying amount 610 967 1,577 - - - * See accounting policies (note 1) for further details of the restatement 17   Trade and other payables   Group Company Group Company 2024 2024 2023 2023 Amounts due within one year £'000 £'000 £'000 £'000 Trade payables 3,132 293 1,813 110 Amounts due to subsidiaries - 5,830 - 3,099 Accruals 1,340 512 988 522 Total financial liabilities, excluding loans and borrowings measured at amortised cost 4,472 6,635 2,801 3,731 Corporation tax - - 438 - Other taxes and social security costs 341 82 622 132  Total 4,813 6,717 3,861 3,863   Amounts due to subsidiaries are due on demand and incur no interest charge.    Contingent consideration  Group Company Group Company 2024 2024 2023 2023 Amounts due within one year £'000 £'000 £'000 £'000 Contingent consideration 1,751 1,751 806 806 Amounts due after one year         Contingent consideration - - 1,949 1,949 Discounted value - - (74) (74) Discounted contingent consideration - - 1,875 1,875 The contingent consideration is stated at its discounted fair value and is expected to be paid following the completion of the Year 2 earn-out period.                                                                                To the extent trade payables and other payables are not carried at fair value in the consolidated balance sheet, book value approximates to fair value at 31 March 2024 and 31 March 2023. The maturity of the financial liabilities, excluding loans and borrowings, classified as financial liabilities and measured at amortised cost is shown in note 3. 18   Provisions Group Company Group Company 2024 2024 2023 2023 £'000 £'000 £'000 £'000 Dilapidations provision 148 68 191 68 Total 148 68 191 68 The provision is for the estimated aggregate cost of returning the Group's offices to their original condition on the expiry and exit of the property leases. Currently the leases extend to between 2026 and 2028.   19   Loans and borrowings   Group Company Group Company 2024 2024 2023 2023 Non- current £'000 £'000 £'000 £'000 Lease liabilities 400 49 621 88 Bank loan 4,738 4,738 4,705 4,705  Total 5,138 4,787 5,326 4,793 Group Company Group Company 2024 2024 2023 2023 Current £'000 £'000 £'000 £'000 Lease liabilities 204 43 182 58 Bank loan - - - - Total 204 43 182 58 The company has an RCF banking facility with a term of five years to April 2027, an interest rate of Base Rate +3.25% margin on drawn funds and covenants that will be tested quarterly relating to total net debt to Adjusted EBITDA leverage and minimum liquidity. The Group drew down £4.5m of RCF funds for the Truststream acquisition in April 2022. 20   Contract liabilities Group Company Group Company 2024 2024 2023 2023 Contract liabilities £'000 £'000 £'000 £'000 Current - contract liabilities 2,635 - 3,633 - Non-current - contract liabilities 143 - 383 -  Total 2,778 - 4,016 -   21   Share capital  Group and Company Number £'000 Allotted, called up and fully paid ordinary shares of £0.01 each At 1 April 2022 49,419,690 494 At 31 March 2023 49,419,690 494 Issue of share capital 2,076,394 21 At 31 March 2024 51,496,084 515   22   Reconciliation of net cashflow movements in net debt   1 April 2023 Non cashflow movements Cashflow Right of use Movement Maturity reclass 31 March 2024   £'000 £'000 £'000 £'000 £'000 £'000 Cash and cash equivalents 4,186 - (2,243) - - 1,943 Debt due in less than one year: Bank loans - - - - - - Contingent consideration (806) (79) 885 - (1,751) (1,751) Lease liabilities (182) - 199 - (221) (204) Debt due in more than one year Bank loans (4,705) (33) - - - (4,738) Contingent consideration (1,875) 124 - - 1,751 - Lease liabilities (621) - - - 221 (400) Net cash/(debt) (4,003) (65) (1,082) - - (5,150) The maturity reclass movements show the change in classification of the debt item maturity periods due to contractual changes or new contracts incepted in the year. 23   Related party transactions Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of the transactions between the Group and other related parties are disclosed below:   Arete Capital Partners, a Company of which Mike Fletcher (Non-Executive Director) is a partner, invoiced SysGroup plc £420 (2023: £26,479) for a shared cost of corporate services received by SysGroup plc and Arete Capital Partners. At 31 March 2024, the balance outstanding was £nil (31 March 2023: £nil). 24    Ultimate controlling party The Directors consider the Group and Company have no controlling shareholder and no ultimate controlling party. 25    Contingent asset As disclosed in Note 8 the group has incurred £0.43m in relation to charges in dispute with a third party supplier, which the group is actively seeking recovery of. The group consider the probability of recovery of the charges as possible. As the recovery is not virtually certain, an asset has not been recorded on the balance sheet. 26    Post balance sheet events The Group raised £10.6m net funds from a placing in June 2024. Gross proceeds were £11.2m, including a £0.3m retail offering and a £10.9m placing.

 

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