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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Sysgroup Plc | LSE:SYS | London | Ordinary Share | GB00BYT18182 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 30.50 | 30.00 | 31.00 | 30.50 | 30.50 | 30.50 | 1,843 | 07:43:20 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Computer Related Svcs, Nec | 21.65M | -7k | -0.0001 | -3,050.00 | 14.93M |
TIDMSYS
RNS Number : 4117D
SysGroup PLC
26 June 2019
26 June 2019
SysGroup plc
("SysGroup" or the "Company" or the "Group")
Final Results for the year ended 31 March 2019
SysGroup PLC (AIM:SYS), the multi award-winning managed IT services and cloud hosting provider is pleased to announce its final results for the year ended 31 March 2019.
HIGHLIGHTS
Financial
-- Revenue increased by 22% to GBP12.77m (2018: GBP10.45m)
o GBP9.47m of revenue is recurring in nature (2018: GBP7.13m)
-- Adjusted EBITDA(1) increased by 41% to GBP1.41m (2018: GBP1.0m) -- Adjusted PBT(2) growth of 39% to GBP0.75m (2018: GBP0.54m) -- Cash generated from operations(3) increased 50% to GBP1.21m (2018: GBP0.80m) -- Net cash/(debt)(4) of GBP0.47m (2018: GBP(0.92m)) 2019 2018 Change (%) ------------------------------ Revenue GBP12.77m GBP10.45m +22% ----------- ----------- ------- Recurring revenue % of total revenue 74% 68% +6% ----------- ----------- ------- Gross Margin GBP7.78m GBP5.99m +30% ----------- ----------- ------- Gross Margin % 61% 57% +4% ----------- ----------- ------- Adjusted EBITDA(1) GBP1.41m GBP1.00m +41% ----------- ----------- ------- Adjusted PBT(2) GBP0.75m GBP0.54m +39% ----------- ----------- ------- Adjusted Basic EPS(5) 3.1p 2.3p +35% ----------- ----------- ------- Statutory loss before tax GBP(0.83)m GBP(0.01)m - ----------- ----------- ------- Basic EPS (2.8)p 1.0p - ----------- ----------- ------- Net cash/(debt)(4) GBP0.47m GBP(0.92)m - ----------- ----------- -------
Operational
-- Acquisition of Certus IT Limited in February 2019 for initial consideration of GBP8.0m -- Successful placing of new ordinary shares raising GBP10.0m (gross) in February 2019 -- New 5-year bank facilities consisting of:
o GBP1.75m term loan
o GBP3.25m acquisition revolving credit facility
-- Implementation of Employee EMI Share Option Scheme -- Completion of office refurbishment programme
Post period-end developments
-- Acquisition of Hub Network Services Limited for GBP1.45m in cash -- Won Autotask International Partner of the Year 2019 Award
-- Certus IT acquired on a cash free debt free basis resulting in a post completion adjustment to the initial consideration of GBP0.25m cash returned to the Group
(1) Adjusted EBITDA, is earnings before interest, taxation, depreciation, amortisation of intangible assets, exceptional items, fair value adjustments and share based payments.
(2) Adjusted profit before tax ("Adjusted PBT") is profit before tax after adding back amortisation of intangible assets, exceptional items, fair value adjustments and share based payments.
(3) Cash generated from operations represents Operational cashflows adjusted to exclude cashflows for exceptional items
(4) Net cash/(debt) represents cash balances less bank loans, finance lease liabilities and contingent consideration.
(5) Adjusted Basic EPS is profit after tax after adding back amortisation of intangible assets, exceptional items, fair value adjustments, share based payments and associated tax.
Adam Binks, Chief Executive Officer commented:
"I am delighted to announce another solid year for the Group, in which we delivered double digit growth in revenue and adjusted profit as well as achieving a number of strategic milestones. Our scale, customer base and geographical coverage have grown considerably and, importantly, so too has the quality of our revenue streams. We are beginning to see the benefits of our investment in sales and marketing and are well positioned to meet the complex requirements of our customers and prospects. The post period acquisition of Hub Network Services announced earlier this week also further underpins our capabilities in being able to source and deliver complementary acquisitions which is pivotal to the successful delivery of our stated strategy."
"The momentum achieved in the year has carried over into the start of the new financial year, and with the growth expected to continue, I remain optimistic for the future."
For further information please contact: Tel: 0151 559 1777 SysGroup plc Adam Binks, CEO Martin Audcent, CFO Shore Capital (Nomad and Broker) Tel: 020 7408 4090 Edward Mansfield / Daniel Bush / Anita Ghanekar Alma PR (Financial PR) Tel: 020 3405 0205 Josh Royston / Hilary Buchanan / Helena Bogle
About SysGroup
SysGroup is a leading provider of Managed IT Services, Cloud Hosting, and expert IT Consultancy. The Group delivers solutions that enable clients to understand and benefit from industry leading technologies and advanced hosting capabilities. SysGroup focuses on a customer's strategic and operational requirements - enabling clients to free up resources, grow their core business and avoid the distractions and complexity of delivering IT services.
The Group has offices in Liverpool, Coventry, London, Telford and Newport.
For more information, visit http://www.sysgroupplc.com
STRATEGIC REPORT
Chairman's statement
We are pleased to present the Group's final results for the year ended 31 March 2019, delivering double digit growth in revenue and Adjusted EBITDA and demonstrating the continued execution of the Group's buy-and-build strategy. The Group achieved a number of milestones during the year, progressing its journey of becoming the leading provider of managed IT services.
The Group successfully raised GBP10.0m (gross) by way of an equity placing ("Placing") in February 2019 to fund further opportunities for growth. On behalf of the Company and the rest of the Board, I would like to thank both our new and existing shareholders for their continued support and commitment to our vision. The support by investors has been mirrored by the commitment of Santander to the Group through the provision of GBP5.0m in new bank facilities. This commitment places the Group in a strong position to continue to execute its growth strategy.
The Placing enabled the acquisition of Certus IT Limited ("Certus") by the Group in February. The deal was transformational adding new customers, expertise, further scale and enhanced geographical reach to the Group. We expect Certus to be trading under the SysGroup brand later this financial year, and the majority of the operations integration will take place in H2 FY20. We will continue to assess complementary acquisition opportunities in line with our growth strategy.
The restructuring of the Board was completed during the year with the appointment of Martin Audcent as Chief Financial Officer in July 2018, putting in place the last of the building blocks in establishing the right mix of experience on the Board. These results mark the first full year with Adam Binks as Chief Executive Officer and the contribution his leadership and vision has delivered to the Group is palpable. I believe we have the right team in place to see the Company through to its next stages of growth.
The market environment remains buoyant and the opportunities for the Group as a trusted IT partner are long term. Furthermore, we continue to invest in the business and our people and I would like to thank all of our dedicated employees for their contribution to the Group. I look forward to the new year with confidence.
Michael Edelson
Chairman
26 June 2019
Chief Executive Officer's report
Introduction
The 2019 financial year saw an acceleration of the Group's growth strategy, delivering against our expectations and building upon the newly-formed business foundations established in the prior year.
The Company delivered revenue growth of 22% to GBP12.77m and adjusted EBITDA growth of 41% to GBP1.41m which supported a 50% increase in cash generation to GBP1.20m. Recurring revenues now represent approximately 74% of the Group's total revenue (FY18: 68%), demonstrating our continued shift and strategic focus on higher quality earnings over lower margin VAR. The addition of new managed service customers to this base has contributed to a steadily growing monthly run-rate of recurring revenues, which, combined with the addition of Certus during the year, has launched the business into the next stage of its growth roadmap.
We have spent considerable time during the year enhancing and streamlining the business platform, and ensuring we remain close to our customer base. During the year we undertook a re-branding exercise, bringing all of the previously acquired businesses under the SysGroup brand with a single go-to-market offering. We have continued to invest in our people and systems to support the Group's growth strategy.
Market
We are still in the infancy in the journey to cloud adoption and fully outsourced IT, and customers and prospects are looking to trusted IT partners to help them navigate the complexities of the outsourced IT landscape. Security, compliance and IT governance remain the key drivers for businesses seeking expert advice in helping them to ultimately outsource to ensure they remain protected and compliant.
The market for managed IT service providers remains highly fragmented and characterised by a plethora of small, often localised players. Many of these players reach a natural ceiling, above which they do not have either the inclination or expertise to grow. This provides significant opportunity for further consolidation and we expect to continue to play a role in that in line with our buy-and-build strategy.
Strategy
The Group's clear strategy remains consistent: to expand its position as a trusted provider of Managed IT Services to clients in the UK. The Board believes that a business focused on the provision of Managed IT Services offers the highest growth opportunity and the potential for increased margins and longer-term contracts, thereby providing greater revenue visibility. In pursuit of this strategy, the Group has positioned itself as an extension of a customer's existing IT department, with an emphasis on consultative-led sales to guide customers through the complexities and developments in the market. The process is supplemented by customer service and support. The Group invests in R&D to ensure its clients take advantage of the latest and best solutions available to them, with a vendor/cloud agnostic approach.
The Company's route to execute this strategy is through a combination of organic and acquisitive growth whilst ensuring we create cross-selling opportunities across our acquired customer bases.
Acquisitions
The acquisition of Certus IT in February was in line with our stated strategy of augmenting our growth with carefully selected acquisitions. Certus is a well-established and growing managed services provider which has a complementary service offering, geographical reach and customer base to SysGroup. Certus has bolstered the Group's existing managed service offerings, by expanding the enlarged Group's current IaaS customer base, significantly adding to its managed connectivity portfolio and further strengthening the existing relationship with Dell EMC by upgrading the Group to gold partner status.
Further, the Group announced the acquisition of Hub Network Services Limited ("HNS") earlier this week for a cash consideration of GBP1.45m on a cash free debt free basis. HNS is a well-established B2B managed services provider with a primary focus on delivering fast, low latency network connectivity and co-location solutions. The integration of HNS into the Group's existing operations has already commenced and we expect to be leveraging the operational benefits of HNS from H2 FY20.
The Board continues to assess strategic acquisition opportunities that fit within its strict criteria and importantly, further the Group's customer acquisition priorities.
New Banking Facilities
In February, the Company re-financed its existing term loan facility as a GBP1.75m term loan over five years and arranged a new GBP3.25m acquisition revolving credit facility with Santander to provide additional financial flexibility for the Group. The continued support from Santander further underpins the external confidence that has been placed in the Board to deliver on the Group's growth strategy as well as providing the Group with the capital to deliver subsequent acquisitions.
The banking facilities have a five-year term with covenants that will be tested quarterly on a 12-month rolling basis relating to interest cover, net debt to Adjusted EBITDA leverage and debt service cover.
Sales and Marketing
The investments that we have made in sales and marketing have already made a change to the business and we will continue to see the benefits as we grow. The appointments that we have made to date, and continue to make, include several highly skilled senior individuals reflecting our consultancy first approach. Our clients come to us with complex IT needs and it is therefore important that our salespeople fully understand the options available to them and are able to provide clients with a bespoke, end to end solution that best suits these needs.
The brand consolidation work concluded in the financial year has aided our sales effort and played a key role in growing our pipeline of opportunities. Recognition of SysGroup is undoubtedly growing in the marketplace and, with it, our reputation as a trusted provider. The unified brand will also accelerate our ability to integrate acquired businesses with ease.
Financial review
Group revenue for the year grew by 22% to GBP12.77m for the year to 31 March 2019 (2018: GBP10.45m) with growth from existing customers and from the post-acquisition trading of Certus IT, acquired in February 2019. The revenue growth resulted from an increase in higher quality Managed IT Services sales which is principally contracted income on three-year contracts. Value Added Resale revenue of GBP3.3m was consistent with the prior year revenue of GBP3.3m. Value Added Resale is a complementary sell to the customer base and is subject to the timing and size of customer's IT asset refresh cycles.
2019 2019 2018 2018 Revenue by operating segment GBP'000 % GBP'000 % ============================== ======== ===== ======== ===== Managed IT Services 9,448 74% 7,130 68% Value Added Reseller 3,325 26% 3,321 32% ============================== ======== ===== ======== ===== 12,773 100% 10,451 100% ============================== ======== ===== ======== =====
The Group adopted "IFRS15 Revenue from Contracts with Customers" and "IFRS9 Financial Instruments" in this years' financial statements and the changes required have had no material impact to the Group's financial statements. Further information on the adoption of IFRS15, IFRS9 and the Group's revenue recognition policy is included in note 1 to the Accounts.
Gross profit for the year was GBP7.78m (2018: GBP5.99m) representing a gross margin of 61% (2018: 57%). The increase in gross margin percentage is attributable to the change in sales mix with the business focussed more on Managed IT Services growth this year. In 2019, 74% of revenue (2018: 68%) came from Managed IT Services which has a gross margin of 74% (2018: 75%). Value Added Resale was 26% of revenue (2018: 32%) with gross margin percentage increasing to 25% in 2019 (2018: 20%) which reflects improvements made in our supplier procurement processes.
Operating expenses before depreciation, amortisation, exceptional items, fair value adjustment and share based payments increased from GBP5.0m in 2018 to GBP6.4m in 2019 reflecting an increase in overhead costs from newly acquired businesses and an increase in operational investment to enhance our Group Sales and Marketing teams.
Adjusted EBITDA was GBP1.41m for the year to 31 March 2019, an increase of GBP0.41m (+41%) compared to GBP1.0m in 2018. Adjusted EBITDA is not a defined term and is calculated differently by each company, the Directors consider that Adjusted EBITDA figure is the most appropriate measure to assess the business performance since this reflects the underlying trading performance of the Group. The reconciliation of Operating (loss)/profit to Adjusted EBITDA is shown below:
Reconciliation of operating 2019 2018 (loss)/profit to Adjusted GBP'000 GBP'000 EBITDA ============================= ========= ========= Operating (loss)/profit (659) 77 Depreciation 494 372 Amortisation of intangible assets 723 500 =============================== ========= ========= EBITDA 558 949 =============================== ========= ========= Exceptional items 736 581 Fair value adjustment - (540) Share based payments 119 10 =============================== ========= ========= Adjusted EBITDA 1,413 1,000 =============================== ========= =========
The Group has incurred exceptional costs during the year of GBP0.74m (2018: GBP0.58m) comprising GBP0.55m for acquisitions, GBP0.49m relating to the acquisition of Certus IT Limited and GBP0.07m attributable to a terminated acquisition process. Exceptional costs also include GBP0.18m of costs associated with integrating acquired businesses and restructuring the Group's internal operations. Amortisation of intangible assets was GBP0.72m (2018: GBP0.50m), of which GBP0.66m (2018: GBP0.45m) relates to the amortisation of acquired intangible assets.
The share-based payments charge has increased to GBP0.12m in 2019. The higher charge results from the grant of share options under new EMI Schemes registered this year, to the Executive Directors and, in November 2018, to all SysGroup employees who, at the time of grant, had been employed by the Group for more than one year.
The loss before tax for the year was GBP0.83m (2018: GBP0.007m) and the loss position results from the impact of acquisition related exceptional costs and amortisation of acquired intangible assets. The prior year loss before tax includes a one-off GBP0.54m credit in respect of a contingent consideration adjustment.
Cashflow and net debt
The cash inflow from operations for the year was GBP0.60m (2018: GBP0.21m). This includes interest and tax payments and the GBP0.61m exceptional cash costs from acquisitions, integration and restructuring (2018: GBP0.59m). The underlying operational cash conversion, i.e. excluding the costs of acquisitions, integration and restructuring, was within expectations at 86% of Adjusted EBITDA compared to 80% in 2018. The increase resulted from improvements made to the Group's working capital management this year with changes made to the timing of raising contract invoices and a strengthening of our credit control processes.
Cash conversion 2019 2018 GBP'000 GBP'000 ================================ ========= ========= Operational cashflows 601 207 Adjustments: Exceptional cost cashflows 611 592 Cash generated from operations 1,212 799 ================================== ========= ========= Adjusted EBITDA 1,413 1,000 ================================== ========= ========= Cash conversion 86% 80% ================================== ========= =========
The cash balance increased by GBP2.06m to GBP3.38m (2018: GBP1.32m), with GBP0.60m of the increase coming from operational cashflows and net GBP1.46m from financing and investing activities. The investment cashflows include GBP7.96m cash paid on completion to acquire Certus IT Limited and a GBP0.95m cash balance was acquired with the company. The acquisition was funded by a GBP10.0m equity share placing of 26,315,792 1p ordinary shares with net proceeds, after related professional fees, of GBP9.34m.
Net cash/(debt) comprises cash balances less bank loans, finance lease liabilities and contingent consideration. At 31 March 2019, the Group had a net cash balance of GBP0.47m (2018: net debt balance of GBP0.92m), a cash positive movement of GBP1.39m.
Reconciliation of Net cash/(debt) 2019 2018 GBP'000 GBP'000 ========================================== === ========= ========= Cash balances 3,376 1,315 Bank loans - current (224) (216) Bank loans - non-current (1,397) (1,742) Finance leases (285) (275) Contingent consideration (1,000) - Net cash/(debt) 470 (918) ================================================ ========= =========
Consolidated Statement of Financial Position
The principal movements on the consolidated statement of financial position arise from the equity fund raise and the acquisition of Certus IT Limited in February 2019. Non-current assets of GBP23.1m (2018: GBP13.6m) have increased from the GBP5.78m goodwill and GBP3.78m acquired intangible assets relating to Certus. Net working capital including cash balances is GBP0.57m (2018: GBP0.25m) and the impact of Certus working capital balances is detailed in note 8. Non-current liabilities includes GBP1.00m (2018: GBPNil) of fair value contingent consideration relating to the Certus acquisition, this is payable three months after the earn out period has expired in February 2020.
Following the GBP10.0m equity raise in February 2019, the equity attributable to the shareholders of the company has increased by GBP9.34m, representing the proceeds of the equity raise less the related costs. The share capital of GBP0.49m (2018: GBP0.23m) has increased by GBP0.26m and the excess of the net proceeds above the par value of the shares, GBP9.08m, has been allocated to the share premium account (2018: GBPNil).
Summary & Outlook
The momentum achieved in the year has carried over into the start of the new financial year, and we expect that pace of growth to continue. We have the right tools and strategic partnerships in place to meet clients increasingly complex requirements and the relevant expertise to guide our clients from consultation, through to delivery and on-going support. Our scale, customer base and geographical coverage have grown considerably and, importantly, so too has the quality of our revenue streams. With a highly fragmented market and the continuing opportunity to acquire good businesses to complement increasing organic growth, we remain optimistic for the future.
Adam Binks
Chief Executive Officer
26 June 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 MARCH 2019
Notes 2019 2018 Group Group GBP'000 GBP'000 ----------------------------------- ------ --------- --------- Revenue 3 12,773 10,451 Cost of sales (4,994) (4,456) Gross profit 7,779 5,995 =================================== ====== ========= ========= Operating expenses before depreciation, amortisation, exceptional items, fair value adjustment and share based payments (6,366) (4,995) =================================== ====== ========= ========= Adjusted EBITDA 1,413 1,000 =================================== ====== ========= ========= Depreciation 4 (494) (372) Amortisation of intangibles 11 (723) (500) Exceptional items 7 (736) (581) Fair value adjustment - 540 Share based payments (119) (10) =================================== ====== ========= ========= Administrative expenses (8,438) (5,918) Operational (loss)/profit (659) 77 =================================== ====== ========= ========= Finance costs 5 (167) (84) =================================== ====== ========= ========= Loss before taxation (826) (7) =================================== ====== ========= ========= Taxation 10 104 245 =================================== ====== ========= ========= Total comprehensive (loss)/profit attributable to the equity holders of the company (722) 238 Basic earnings per share (EPS) 9 (2.8p) 1.0p Diluted earnings per share (EPS) 9 (2.8p) 1.0p =================================== ====== ========= =========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2019
2019 2018 Group Group Notes GBP'000 GBP'000 =============================== ====== ======== ======== Assets Non-current assets Goodwill 11 15,508 9,727 Intangible assets 11 6,173 3,094 Property, plant and equipment 1,420 809 =============================== ====== ======== ======== 23,101 13,630 =============================== ====== ======== ======== Current assets Trade and other receivables 13 2,856 1,624 Cash and cash equivalents 3,376 1,315 =============================== ====== ======== ======== 6,232 2,939 =============================== ====== ======== ======== Total Assets 29,333 16,569 =============================== ====== ======== ======== Equity attributable to the equity shareholders of the parent Called up share capital 17 494 231 Share premium reserve 9,080 - Other reserve 2,129 2,010 Translation reserve 4 4 Retained earnings 8,370 9,092 =============================== ====== ======== ======== 20,077 11,337 =============================== ====== ======== ======== Non-current liabilities Obligations under finance leases 16 81 128 Contingent consideration due on acquisitions 14 1,000 - Bank loan 15 1,397 1,742 Deferred taxation 1,120 674 3,598 2,544 =============================== ====== ======== ======== Current liabilities Trade and other payables 14 3,992 1,900 Contract liabilities 1,238 425 Bank loan 15 224 216 Obligations under finance leases 16 204 147 =============================== ====== ======== ======== 5,658 2,688 =============================== ====== ======== ======== Total Equity and Liabilities 29,333 16,569 =============================== ====== ======== ========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH 2019
Attributable to equity holders of the parent ======================== ================================================================== Share Share premium Other Translation Retained capital account reserve reserve Profit Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ======================== ========= ========= ========= ============ ========= ======== At 31 March 2017 231 - 2,000 4 8,854 11,089 ======================== ========= ========= ========= ============ ========= ======== Comprehensive income Profit for the period - - - - 238 238 Total Comprehensive income - - - - 238 238 ======================== ========= ========= ========= ============ ========= ======== Distributions to owners Share options granted - - 10 - - 10 Total distributions to owners - - 10 - - 10 ======================== ========= ========= ========= ============ ========= ======== At 31 March 2018 231 - 2,010 4 9,092 11,337 ======================== ========= ========= ========= ============ ========= ======== Comprehensive income Loss for the period - - - - (722) (722) Total Comprehensive income - - - - (722) (722) ======================== ========= ========= ========= ============ ========= ======== Distributions to owners Share options granted - - 119 - - 119 Issue of share capital - fees - (657) - - - (657) Issue of share capital - placing 263 9,737 - - - 10,000 ======================== ========= ========= ========= ============ ========= ======== Total distributions to owners 263 9,080 119 - - 9,462 ======================== ========= ========= ========= ============ ========= ======== At 31 March 2019 494 9,080 2,129 4 8,370 20,077 ======================== ========= ========= ========= ============ ========= ========
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 MARCH 2019
2019 2018 Group Group GBP'000 GBP'000 =================================================== === ========= ========= Cash flows used in operating activities Profit after tax (722) 238 Adjustments for: Depreciation and amortisation 4 1,226 872 Fair value adjustment on contingent consideration - (540) Finance costs 5 167 84 Share based payments 119 10 Taxation 10 (104) (245) =================================================== === ========= ========= Operating cash flows before movement in working capital 686 419 =================================================== === ========= ========= (Increase)/decrease in trade and other receivables (188) 190 Increase/(decrease) in trade and other payables 275 (416) Operating cashflows before interest and tax 773 193 =================================================== === ========= ========= Interest paid (123) (66) Taxation (paid)/refunded (49) 80 Operational cashflows 601 207 =================================================== === ========= ========= Cash flows from investing activities Payments to acquire property, plant & equipment (296) (212) Deferred consideration - (150) Acquisition of subsidiary companies 8 (7,956) (3,850) Cash acquired with acquisitions 8 949 327 =================================================== === ========= ========= Net cash used in investing activities (7,303) (3,885) =================================================== === ========= ========= Cash flows from financing activities Net proceeds from issue of ordinary share capital 17 9,343 - (Repayment)/utilisation of loan facility including fees (383) 1,940 Capital repayment of finance leases (197) (228) =================================================== === ========= ========= Net cash from financing activities 8,763 1,712 =================================================== === ========= ========= Net increase / (decrease) in cash and cash equivalents from continuing operations 2,061 (1,966) =================================================== === ========= ========= Cash flows from discontinued operations =================================================== === ========= ========= Net cash used for operating activities - (192) Net increase in cash and cash equivalents from discontinued operations - (192) =================================================== === ========= ========= Cash and cash equivalents at the beginning of the year 1,315 3,473 =================================================== === ========= ========= Cash and cash equivalents at the end of the year 3,376 1,315 =================================================== === ========= =========
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
FOR THE YEARED 31 MARCH 2019
1. Accounting policies
SysGroup Plc (the 'Company') is a company incorporated and domiciled in the United Kingdom. The company's registered office is at Walker House, Exchange Flags, Liverpool, L2 3YL. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as the 'Group').
Statement of compliance
The Group and Company financial information have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) as endorsed by the European Union ("endorsed IFRS") and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under endorsed IFRS.
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 2018 are an extract of the Company's statutory accounts for the year ended 31 March 2018, prepared in accordance with International Financial Reporting Standards (IFRS), approved by the Board of Directors on 27 June 2018 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 2019 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.
Basis of preparation
The consolidated financial information is derived from the Group's consolidated Financial Statements for the year ended 31 March 2019, which have been prepared in accordance with International Financial Reporting Standards (IFRS), as endorsed by the European Union (EU) and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
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 which have been valued in accordance with IFRS9.
The preparation of financial statements in compliance with adopted 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.
Going concern
The Directors have prepared the financial statements 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 forecasts prepared for the period ending 31 March 2021 and considered the projected trading forecasts and resultant cashflows together with the confirmed loan facilities and other sources of finance. The Group's forecasts and projections, 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 2019. The Group has adopted all of the new and revised standards and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB, as they have been adopted by the European Union, that are relevant to its operations and effective for accounting years beginning on 1 January 2018.
IFRS15 Revenue from Contracts with Customers
The Group conducted a full review of IFRS15 to assess the impact of the new standard on the Group's financial reporting processes. The Group applied the retrospective method to adopt IFRS15 and applied the practical expedient to not restate contracts starting and completing in the same financial year. A report of the findings was presented to the Audit Committee with two specific areas of financial reporting identified requiring a change in accounting treatment:
1. Costs to obtain contracts
In the financial year to 31 March 2019, sales commission was paid in respect of managed service contracts with the commission payable for the benefit of the full contract period. Under IFRS15, the sales commission cost is therefore recoverable over the full term of the managed service contract and is therefore capitalised as a "Prepayment" with the cost charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the term of the related managed service contract. In the prior financial year to 31 March 2018, sales commission was not capitalised. The sales commission scheme in operation at that time paid commission on a basis where the cost was appropriately matched and recovered against the profits of the related managed service contracts in the Consolidated Statement of Comprehensive Income as such no adjustment is required to the previously recognised figures.
2. Revenue and related costs recognition on set-up of lease lines
In some customer contracts, the Group sets up and installs new lease line connections prior to managed services being delivered to the customer. The set up and installation is usually delivered by a third party supplier. Under IFRS15, we consider the set up and installation to be an activity that relates directly to the subsequent provision of the managed services and as such we have deferred the one-off revenue and costs over the period of the related managed service contract in the financial statements to 31 March 2019. Deferred revenue is included in contract liabilities. Previously this revenue was recognised on delivery and not deferred over the life of the contract. The accounting adjustment is not material to the Group Statement of Comprehensive Income in the current or prior year due to the quantum of such revenue.
Following the adoption of IFRS15, the Group's revenue recognition policy has been outlined in greater detail and is presented in the Revenue Recognition accounting policy note.
IFRS9 Financial Instruments
The Group has adopted IFRS 9 for the first time in the current financial year. IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses lifetime expected loss allowances for all trade receivables.
The Group have reviewed their financial instruments and believe that all assets held at amortised cost have a low credit risk at the year end. The Group have also identified no assets which include a significant financing component. Historically the Group's debtor impairment has been immaterial, and this is not expected to change in the near future, as such the Group have assessed the recoverability of financial instruments on a case by case basis which the Directors do not believe will give a material difference to the impairment of such assets.
New standards not yet effective
New standards, amendments to standards and interpretations have been issued but are not effective (and in some cases had not yet been adopted by the EU) for the financial year beginning 1 January 2019. These have not been early adopted and the Directors are considering the potential impact of IFRS 16 Leases.
IFRS16 Leases
IFRS16 replaces IAS17 Leases and substantively changes the accounting for operating leases. Where a contract meets IFRS16's definition of a lease, lease agreements will give rise to the recognition of a non-current asset representing the right to use the leased item, and a loan obligation for future lease payables. Lease costs will be recognised in the form of depreciation of the right to use asset and interest on the lease liability, which may impact the phasing of operating profit and profit before tax, compared to existing cost profiles and presentation in the income statement, and will also impact the classification of associated cash flows. The detailed assessment of the impact on the Group is ongoing, with the current focus being on assessing the completeness of lease contracts. The Group currently anticipate adopting the modified retrospective approach in adopting IFRS16 but this is still being considered by the Directors. It is thought that the practical expedients on short term and low value leases will also be utilised. The adoption is expected to have an impact on the presentation of the Group's assets and liabilities, relating to property leases and our initial assessment is that the standard will increase lease assets by GBP0.4m, increase lease liabilities by GBP0.5m and increase adjusted EBITDA by GBP0.2m but will have an immaterial overall effect on profit before tax.
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.
Consolidated statement of cash flows
The Group have reclassified cash flows relating to exceptional costs from investing activities to operating cashflows within the company and consolidated cash flow statements. This has had no overall effect on the prior year cash movement but has resulted in GBP592,000 of cash outflows being reclassified from investing activities to operating cashflows in the prior year.
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's income streams were reviewed in readiness for the adoption of IFRS15 and three categories of performance obligation have been identified: 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 IT Revenue is recognised services are delivered evenly over the duration from an agreed commencement of the contract period date and for a contracted based on the sales price time period, typically as specified in the customer three years with a twelve-month sales contract. This automatic extension. is on the basis that Managed services is comprised the customer receives of different streams and consumes the services including hosting and evenly over the term support but due to the of the contract. Amounts nature of this revenue invoiced in advance of the streams are considered service delivery periods inter-dependant. The are accounted for as services are delivered contract liabilities uniformly over the duration and recognised as revenue of the contract and invoiced in the Consolidated Statement either quarterly or monthly of Comprehensive Income in advance of the service to match the period in delivery period. which the services are delivered. ================= ==================================== =================================== Professional Professional services Revenue is recognised services are delivered by a team based on chargeable days of technical consultants delivered using the sales based on a scope of work day rate specified in agreed and signed with the customer contract. a customer. The scope Revenue recognition is of work includes a specification therefore matched to of the work to be delivered, the timing of when the an estimation of the customer receives the number of consultancy benefit of the consultancy days required, and a services which is in sales value based on line with the day the a day rate. Professional work is performed. The services are invoiced relevant details of customer either in advance of engagements and the time work performed, in arrears delivered by consultants after the service is is recorded on the Group's delivered or as part financial systems. Professional of a larger project contract services are either invoiced milestone. 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 Value added resale ("VAR") Revenue is recognised resale comprises sales of IT on delivery of the products hardware, licences and from the supplier. Invoices warranties ("products") are typically raised where the Group satisfies in advance of delivery its performance obligation and treated as contract by procuring the products liabilities until delivery from suppliers for delivery has been fulfilled. At to the customer. There this point the revenue are no further or ongoing and associated purchase obligations to the Group cost is recognised in after delivery. The sales the Consolidated Statement price for each product of Comprehensive Income. 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. ================= ==================================== ===================================
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.
Exceptional costs
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.
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 Valuation method
Customer relationships 5-7 years Estimated discounted cash flow
Software and web design costs 3-5 years Cost less amortisation 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 on an annual basis in line with the accounting policy noted above. 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. No impairment has been identified. More details including carrying values are included in note 11.
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. More details including carrying values are included in note 11.
Valuation of contingent consideration
The Group has contingent consideration payable which is based on the future performance of acquired companies. When valuing the contingent consideration still payable on acquisitions, the Group considers various factors including the performance of the acquired entity since acquisition together with an estimate of the expected future trading performance for the period to the expiry of the earn-out period. Contingent consideration is recognised at, and carried thereafter at, fair value. All changes in fair value (other than measurement period adjustments) are reflected in the income statement.
Significant accounting judgements
Revenue
Management make 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 shown 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 judgement to identify the CGUs of the Group. The Board have reviewed the Group's CGU's this year and exercised their judgement to amend the CGUs following the integration of previously acquired businesses and changes to the Group's management and reporting structure in the current financial year. The Board have concluded that the Group has a single CGU of "Managed IT Services". See note 11.
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.
3 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 is 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 within the UK other than a low value of property, plant & equipment in the USA.
All segments are continuing operations and there are no transactions between segments.
2019 2019 2018 2018 Revenue by operating segment GBP'000 % GBP'000 % ================================================================ ============ ======== ======== ======== Managed IT Services 9,448 74% 7,130 68% Value Added Resale 3,325 26% 3,321 32% 12,773 100% 10,451 100% ================================================================ ============ ======== ======== ======== No individual customer accounts for more than 5% of the Group's revenue. The revenue by geographic location for where services are delivered to customers is shown below. 2019 2019 2018 2018 GBP'000 % GBP'000 % ================================================================ ============ ======== ======== ======== UK 12,526 98% 10,213 98% Rest of World 247 2% 238 2% ================================================================ ============ ======== ======== ======== 12,773 100% 10,451 100% ================================================================ ============ ======== ======== ======== 2019 2018 GBP'000 GBP'000 ================================================================ ======== ================== ======== Revenue Managed IT Services 9,448 7,130 Value Added Resale (VAR) 3,325 3,321 ================================================================ ======== ================== ======== 12,773 10,451 ================================================================ ======== ================== ======== Gross Profit Managed IT Services 6,959 5,329 Value Added Resale (VAR) 821 666 ================================================================ ======== ================== ======== 7,780 5,995 ================================================================ ======== ================== ======== 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. Assets and liabilities related to contracts with customers The Group has recognised the following liabilities related to contracts with customers. There are no assets arising from contracts with customers 2019 2018 GBP'000 GBP'000 ============================================== ======== ======== Current contract liabilities relating to deposits from customers 1,238 425 ============================================== ======== ======== The following table shows how much of the revenue recognised in the current year relates to contract liabilities: ================================================================== 2019 2018 GBP'000 GBP'000 ============================================== ======== ======== Release of contract liability recognised in revenue which was included in the contract liability balance at the beginning of the year 425 465 ============================================== ======== ======== ------------------------------------------------------------------------------------------------------------ 4 Operating (loss)/profit 2019 2018 GBP'000 GBP'000 ================= =========================== ======== ======== Operating (loss)/profit is after charging the following: Auditor's remuneration: Group: Audit 60 49 Other advisory - 5 Company: Audit 4 4 Depreciation of tangible fixed assets: Owned 345 201 Held under finance leases 158 171 Amortisation of intangible assets 723 500 Staff costs (note 6) 4,710 3,972 Share based payments 119 10 Rentals payable under operating leases 168 156 Exceptional items (note 7) 736 581 =============================================== ======== ======== 5 Finance expense 2019 2018 GBP'000 GBP'000 ==================================== ======== ======== Interest payable on finance leases 13 17 Interest payable on bank loan 108 49 Arrangement fee amortisation on bank loan 46 18 167 84 ==================================== ======== ======== 6 Staff numbers and costs The average monthly number of full-time persons employed by the Group, including executive Directors during the year was: ==================================================================
2019 2018 ========================================= =========== ========== Research and Development 3 4 Technical Support 52 48 Sales and Marketing 17 11 Executive and Administration 15 11 ========================================= =========== ========== 87 74 ========================================= =========== ========== The aggregate payroll costs including Executive Directors and excluding Non-Executive Directors were as follows: ================================================================== 2019 2018 GBP'000 GBP'000 ========================================= =========== ========== Wages and salaries 4,154 3,548 Social security costs 441 365 Benefits in kind 26 22 Pension benefits 89 37 Share based payment expense 119 10 ========================================= =========== ========== 4,829 3,982 ========================================= =========== ========== 7 Exceptional costs 2019 2018 GBP'000 GBP'000 ============================================== ============ ============ Acquisitions 554 186 Integration and restructuring 182 395 ============================================== ============ ============ Total 736 581 ============================================== ============ ============ The Directors believe these costs are exceptional as their size and one-off nature are significant enough to the Group's profit and loss to warrant separate consideration. The acquisitions cost of GBP554,000 represents GBP66,000 professional fees incurred on a terminated acquisition process and GBP498,000 professional fees and other costs relating to the Certus IT acquisition. In the prior year, the GBP186,000 costs relate to the acquisition of Rockford IT Limited. Integration and restructuring costs represent the costs incurred for integrating newly acquired companies and for restructuring the internal business to manage the requirements of a larger group. 8 Acquisitions
In February 2019, the company acquired 100% of the share capital of Certus IT Limited ("Certus"), a Managed IT Services company registered in England & Wales with a head office in Newport, South Wales. Certus provides Managed IT services, cloud hosting, value added resale, and IT consultancy.
Certus was acquired for an initial GBP7,956,000 cash consideration paid on completion, subject to final adjustment on the completion accounts, with a maximum GBP1,000,000 additional consideration payable in cash in twelve months' time depending on Certus' profit performance in the twelve-month period following completion and subject to 70% of the gross margin being achieved from recurring income. In respect of the contingent consideration, the company will pay GBP2.50 consideration for every GBP1.00 of EBITDA achieved by Certus over and above a floor of GBP1.2m and up to a maximum of GBP1.6m EBITDA.
The company incurred GBP498,000 of professional fees and other acquisition costs in relation to this acquisition. These costs are included as Exceptional costs in the Group's consolidated statement of comprehensive income for the year ended 31 March 2019.
The Directors have considered the intangible assets acquired with Certus and have accordingly recognized an intangible asset for customer relationships which has been calculated using a discounted cashflow method, based on the estimated level of profit to be generated from the customers acquired. A post tax discount rate of 10.45% was used in the valuation and the customer relationships are being amortised over an estimated useful life of 7 years. The goodwill arising on this acquisition is 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 asset has been allocated to a new CGU, Certus IT, given the company has its own management and operational structure, cash generation and financial reporting processes in place.
Since the acquisition date to 31 March 2019, Certus IT Limited contributed GBP1.0m to Group revenue and GBP0.09m to Group EBITDA. Had the acquisition taken place on 1 April 2018, the contribution to Group revenue would have been GBP7.8m to Group revenue and GBP1.1m to Group EBITDA.
Recognised amounts of net assets acquired Book Values Adj. Fair and liabilities assumed GBP'000 GBP'000 Value GBP'000 =========================================== ============ ========== ========= Cash and cash equivalents 949 - 949 Trade and other receivables 1,179 (135) 1,044 Property, plant and equipment 869 (32) 837 Stock and work in progress 32 (32) - Intangible assets - 3,777 3,777 Trade and other payables (2,570) (2) (2,572) Corporation tax (162) - (162) Deferred tax liability (56) (642) (698) =========================================== ============ ========== ========= Identifiable net assets 241 2,934 3,175 =========================================== ============ ========== ========= Goodwill 5,781 =========================================== ============ ========== ========= Total 8,956 =========================================== ============ ========== ========= Satisfied by: Cash consideration - paid on acquisition 7,956 Contingent consideration 1,000 Total consideration 8,956 =========================================== ============ ========== ========= 9 Earnings per share 2019 2018 =================================================== ============= ============== (Loss)/profit for the financial year attributable (GBP722,000) GBP238,000 to shareholders Weighted number of issued equity shares 25,843,624 23,103,898 Weighted number of equity shares for diluted EPS calculation 26,999,313 23,298,898 Adjusted basic earnings per share (pence) 3.1p 2.3p Basic earnings per share (pence) (2.8p) 1.0p Diluted earnings per share (pence) (2.8p) 1.0p =================================================== ============= ============== Profit used in the Earnings per 2019 2018 Share calculation GBP'000 GBP'000 =================================== ========= ========= (Loss)/profit after tax used for basic earnings per share (722) 238 Amortisation of intangible assets 723 500 Exceptional items 736 581 Fair value adjustment - (540) Share based payments 119 10 ===================================== ========= ========= Tax adjustments (47) (250) ===================================== ========= ========= Adjusted profit used for Adjusted Earnings per Share 809 539 ===================================== ========= ========= For diluted earnings per share, the weighted number of ordinary shares in issue during the year is adjusted to include the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential shares into ordinary shares. 10 Taxation 2019 2018 Current tax GBP'000 GBP'000 ==================================================== =============== ======================= Current tax - current year 105 32 Adjustments in respect of prior years 55 (126) Tax refund (12) (80) ==================================================== Total current tax debit/(credit) 148 (174) ==================================================== =============== ======================= Deferred tax Deferred tax - timing differences (252) (71)
==================================================== Total deferred tax (252) (71) ==================================================== =============== ======================= Total tax credit (104) (245) ==================================================== =============== ======================= The effective tax rate for the year to 31 March 2019 is higher (2018: lower) than the standard rate of corporation tax in the UK. The differences are explained below: ===================================================================== ======================= 2019 2018 GBP'000 GBP'000 ==================================================== =============== ======================= Loss on ordinary activities before tax (826) (7) ==================================================== =============== ======================= Loss on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 19% (2018:19%) (157) (1) Effects of: Expenses not deductible 10 33 Income not taxable (24) (106) Prior year adjustment 55 (126) Re-measurement of deferred tax due to changes in UK rate - 5 Deferred tax not recognised - (130) Tax refund 12 80 ==================================================== Total tax credit (104) (245) ==================================================== =============== =======================
Factors affecting future tax charges:
The UK corporation tax rate will change from 19% to 17% on 1 April 2020.
11 Intangible assets Group Website Software Customer Cost & licences relationships Goodwill Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ===================== ======== ============ =============== ========= ======== Cost At 1 April 2017 197 72 2,383 7,620 10,272 Additions 26 6 - - 32 Acquisitions - 95 1,850 2,107 4,052 At 31 March 2018 223 173 4,233 9,727 14,356 ===================== ======== ============ =============== ========= ======== At 1 April 2018 223 173 4,233 9,727 14,356 Additions - 10 - - 10 Acquisitions - 16 3,777 5,781 9,574 ===================== ======== ============ =============== ========= ======== At 31 March 2019 223 199 8,010 15,508 23,940 ===================== ======== ============ =============== ========= ======== Amortisation At 1 April 2017 191 30 814 - 1,035 Charge for the year 7 47 446 - 500 ===================== ======== ============ =============== ========= ======== At 31 March 2018 198 77 1,260 - 1,535 ===================== ======== ============ =============== ========= ======== At 1 April 2018 198 77 1,260 - 1,535 Charge for the year 8 59 656 - 723 ===================== ======== ============ =============== ========= ======== At 31 March 2019 206 136 1,916 - 2,258 ===================== ======== ============ =============== ========= ======== Net book value At 31 March 2018 25 96 2,973 9,727 12,821 ===================== ======== ============ =============== ========= ======== At 31 March 2019 17 62 6,094 15,508 21,682 ===================== ======== ============ =============== ========= ========
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 7 years.
Cash-generating units
Goodwill and intangible assets are allocated to CGUs in order to be assessed for potential impairment. During the year, the Directors reconsidered the CGUs within the Group following the unification of all Group management and operations under a single brand, SysGroup, in April 2018. The Group has a Senior Management Team that manages the SysGroup business within a single operational and delivery structure having fully integrated previously acquired Rockford IT, System Professional and Netplan businesses. The Board of Directors review the Group's performance at a consolidated level reflecting how the business is managed and controlled. In view of these developments in the year, the Directors concluded that the CGUs that represented the acquired businesses at the "statutory entity" level is no longer appropriate and that the Group has a single CGU of "Managed IT Services". As the Group acquires new businesses, they will form their own CGU until they have been integrated into the Group's core operational structure. Accordingly, Certus IT Limited, acquired in February 2019 is recognised as a separate CGU, "Certus IT", in this year's impairment review.
The allocation of goodwill and carrying amounts of assets for each CGU is as follows:
Allocation of goodwill Carrying value of assets 2019 2018 2019 2018 GBP'000 GBP'000 GBP'000 GBP'000 ===================== ============= ========== ======== ======== Managed IT Services 9,727 9,727 11,894 13,166 Certus IT 5,781 - 8,698 - 15,508 9,727 20,592 13,166 ===================== ============= ========== ======== ========
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: pre-tax cash flow projections; long-term growth rates; and a pre-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 and is allocated to individual cash generating units. 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 and margin enhancement. The projections beyond five years use an estimated long-term growth rate of 2.5% (2018: 2.9%) for revenue. 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. Specific rates are 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". No impairment charges arose as a result of this review.
The assumptions used for the impairment reviews are as follows:
2019 Managed IT Services* Certus IT Discount rate 10.45% 10.45% Revenue growth rate year 2 to year 5 5.0% 5.0% Terminal growth rate 2.5% 2.5% =============================== ===================== ========= 2018 Managed IT Services* Certus IT Discount rate 10.13% - Revenue growth rate year 2 5.0%-7.5% - to year 5 Terminal growth rate 2.9% - ============================= ====================== =======
*In 2018, the CGU's were Rockford IT, System Professional and Netplan.
12 Investments Company 2019 2018 GBP'000 GBP'000 ========================================================= =================== ========= Investment in Subsidiaries At 1 April 2018 14,279 10,429 Additions (note 8) 8,956 3,850 ========================================================= =================== ========= At 31 March 2019 23,235 14,279 ========================================================= =================== ========= The Company's subsidiary undertakings all of which are wholly owned and included in the consolidated accounts are: Undertakings Registration Principal activity ======================================== =============== ============================== System Professional Ltd England Managed Services Netplan Internet Solutions Limited England Managed Services Netplan LLC* USA Managed Services SysGroup (DIS) Ltd England Managed Services SysGroup (NH) Ltd England Managed Services Node Group Ltd England Managed Services Project Clover Ltd England Managed Services SysGroup (EH) Ltd England Managed Services Rockford IT Ltd England Managed Services Certus IT Ltd England Managed Services ======================================== =============== ==============================
*Netplan LLC is a wholly owned subsidiary of Netplan Internet Solutions Limited
The recoverable amounts have been determined from discounted cash flow calculations based on cash flow projections from the approved annual operating plan covering a one-year period to 31 March 2020. The principal assumptions can be found in note 11.
SysGroup (NH) Limited (Company Number 03963376), SysGroup (EH) Limited (Company Number 05814619), SysGroup (DIS) Limited (Company number 05743110), Project Clover Ltd (Company number 08995906) are taking advantage of the exemption from audit under section 479a of the Companies Act 2006 following the guarantee provided by SysGroup plc under section 479C of the Companies Act 2006. The registered office of all subsidiaries is the same as the registered office of the parent company with the exception of Netplan LLC whose registered office is c/o USA Corporate Services Inc, 19 West 34(Th) Street, Suite 1018, New York, 10001.
13 Trade and other receivables Group Company Group Company 2019 2019 2018 2018 Amounts due within one year GBP'000 GBP'000 GBP'000 GBP'000 =============================== ======== ======== ======== ======== Trade debtors 1,744 - 1,101 - Other debtors 130 - 35 Amounts due from subsidiaries - 241 - - Prepayments 1,112 91 523 100 =============================== ======== ======== ======== ======== 2,856 462 1,624 135 =============================== ======== ======== ======== ========
The carrying value of trade and other receivables approximates to their fair value.
14 Trade and other payables Group Company Group Company 2019 2019 2018 2018 Amounts due within one year GBP'000 GBP'000 GBP'000 GBP'000 ================================= ======== ======== ======== ======== Trade payables 1,885 252 893 102 Amounts due to subsidiaries - 2,868 - 2,584 Accruals 979 287 484 160 ================================= ======== ======== ======== ======== Total financial liabilities, excluding loans and borrowings measured at amortised cost 2,864 3,407 1,377 2,846 Corporation tax 311 - 85 - Other taxes and social security costs 817 114 438 30 Total creditors 3,992 3,521 1,900 2,876 ================================= ======== ======== ======== ======== Group Company Group Company 2019 2019 2018 2018 Contingent consideration due GBP'000 GBP'000 GBP'000 GBP'000 on acquisitions ================================= ======== ======== ======== ======== Certus IT 1,000 1,000 - - ================================= ======== ======== ======== ========
The fair value of contingent consideration is in relation to the acquisition of Certus IT Limited (note 8) and is recognised at the full value of the consideration. The consideration is expected to be paid in the financial year to 31 March 2021. An adjustment for discounting has not been applied given the immateriality.
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 2019 and 31 March 2018.
15 Loans and borrowings Group Company Group Company 2019 2019 2018 2018 Non- Current GBP'000 GBP'000 GBP'000 GBP'000 ======================================= ========= ========= ========= ======== Obligations under finance leases 81 - 128 - Bank loan 1,397 1,397 1,742 1,742 Total 1,478 1,397 1,870 1,742 ======================================= ========= ========= ========= ======== Group Company Group Company 2019 2019 2018 2018 Current GBP'000 GBP'000 GBP'000 GBP'000 ======================================= ========= ========= ========= ======== Obligations under finance leases 204 - 147 - Bank loan 224 224 216 216 Total 428 224 363 216 ======================================= ========= ========= ========= ======== The company re-financed its bank loan facilities with Santander in February 2019. The existing term loan of GBP1.75m was re-financed as a new Senior Term Loan facility of GBP1.75 million with a five-year term to February 2024 and with quarterly bank loan repayments of GBP62,500 for eight Quarters followed by GBP104,166 for the following twelve Quarters. The bank loan is fully secured by a debenture over SysGroup PLC and its subsidiaries and interest is charged at LIBOR + 3.0% per annum. At 31 March 2019, the Senior Term loan was drawn down by GBP1.75m. As part of the same re-financing process, the company signed a new Acquisition Revolving Credit Facility with Santander of GBP3.25 million on a five-year term to February 2024. The company has not drawn down any funds under this RCF facility at 31 March 2019. On utilisation of the RCF, quarterly loan repayments will become payable at 3.75% of the aggregate principal balance following the expiry of a two-year availability period. The RCF is fully secured by a debenture over SysGroup PLC and its subsidiaries and interest is charged at LIBOR + 3.5% per annum The Senior Term Loan and RCF loan facilities have financial covenants that are tested quarterly on a twelve-month rolling basis relating to interest cover, net debt to Adjusted EBITDA leverage and debt service cover. 16 Leases
Group obligations under finances leases
Minimum Lease Payments Interest Present Value Future lease payments are 2019 2019 2019 due as follows: GBP'000 GBP'000 GBP'000 =================================================== ============== ========= ============== Not later than one year 217 13 204 Later than one year and not later than 5 years 85 4 81 Later than 5 years - - - =================================================== ============== ========= ============== Total 302 17 285 =================================================== ============== ========= ============== Minimum Lease Present Payments Interest Value Future lease payments are 2018 2018 2018 due as follows: GBP'000 GBP'000 GBP'000 =================================================== ============== ========= ============== Not later than one year 158 11 147 Later than one year and not later than 5 years 134 6 128 Later than 5 years - - - =================================================== ============== ========= ============== Total 292 17 275 =================================================== ============== ========= ============== The company has no finance leases. Group operating leases The total future value of minimum lease payments is due as follows: ============================================================================================== ======== Leasehold Leasehold Property Other Property Other 2019 2019 2018 2018 GBP'000 GBP'000 GBP'000 GBP'000 =================================================== ============== ========= ============== ======== Within one year 160 - 193 - Within two to five years 108 - 268 - After five years - - - - =================================================== ============== ========= ============== ======== Total 268 - 461 - =================================================== ============== ========= ============== ======== 17 Share capital Group Group 2019 2019 Equity share capital Number GBP'000 ================================= =========== ======== Allotted, called up and fully paid At 1 April 2017 23,103,898 231 ================================= =========== ======== At 31 March 2018 23,103,898 231 ================================= =========== ======== Issue of share capital - equity placing 26,315,792 263 Issue of share capital - share premium - 9,080 At 31 March 2019 49,419,690 9,574 ================================= =========== ========
In February 2019, the company raised GBP10.0m gross proceeds from an equity share placing to fund the acquisition of Certus IT Limited. The company issued 26,315,792 1p ordinary shares at 38.0p. The net proceeds of the equity raise, including the professional fees incurred, was GBP9.34m.
18 Post balance sheet events
On 24 June 2019 the Group announced the acquisition of Hub Network Services Limited ("HNS"), a company registered in England & Wales, for a cash consideration of GBP1.45m on a cash free debt free basis. The gross assets of the company were GBP0.8m at the company's last year end reporting date, 31 October 2018. HNS is a well-established B2B managed services provider with a primary focus on delivering fast, low latency network connectivity and co-location solutions.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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June 26, 2019 02:00 ET (06:00 GMT)
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