TIDMCOR
RNS Number : 7357B
CORETX Holdings PLC
06 April 2017
CORETX Holdings Plc
("CORETX", the "Group" or the "Company")
Audited Results for the Year ended 31 December 2016
CORETX Holdings plc (AIM: COR), the mid-market network, cloud
and IT managed services provider, is pleased to announce its
audited results for the year ended 31 December 2016.
Highlights
-- GBP30.0 million fundraising (before expenses of GBP0.7
million) and acquisition of Selection Services Investments Limited,
a provider of Managed IT Solutions and Cloud and network services
in January 2016
-- Acquisition of C4L Group Holdings Limited, a network services
and data centre hosting business in February 2016
-- Successful rebranding of the Company as CORETX Holdings plc in April 2016
-- Experienced management team recruited and Board strengthened
-- Revenues of GBP43.4 million (2015: nil)
-- Adjusted EBITDA* of GBP4.9 million (2015: Adjusted EBITDA* loss of GBP0.5 million)
-- New bank facilities agreed with Royal Bank of Scotland to support growth and acquisitions
* Adjusted EBITDA is defined as earnings before interest, tax,
depreciation, amortisation, exceptional items, (loss)/gain on
disposal of fixed assets and share-based payments
Post period-end highlights
-- Investment of GBP0.5 million in a new facility in Dartford to
deliver Lifecycle managed services
-- Significant new customer contracts with a value of GBP5.9
million signed for Lifecycle services to configure, deploy and
support over 80,000 new end user devices through their full
life
-- Acquisition of 365 ITMS Limited on 5 April 2017 which
provides IT support and services to the UK mid-market, bringing
significant expertise in voice, unified communications and
cloud
Jonathan Watts, Non-Executive Chairman of CORETX, commented:
"I'm pleased to present CORETX's first full year results as a
Cloud and Managed IT Services business, a period which has involved
a significant level of activity for the Group. With two
acquisitions, the focus has been on integration whilst maintaining
an unwavering focus on customers and our ability to best support
their needs. With a new leadership team and a clearly defined
strategy we believe we are well positioned to drive both further
organic and acquisitive growth, the latter evidenced by the post
period end acquisition of 365 ITMS Limited announced this morning.
We look forward to the future with confidence."
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
CORETX Holdings Plc Tel: +44 (0)844
Andy Ross, CEO 874 1000
Julian Phipps, CFO
N+1 Singer Tel: +44 (0)207
Nominated Adviser 496 3000
and Broker
James Maxwell
Liz Yong
Tel: +44 (0)20
MXC Capital Markets 7397 8900
LLP
Financial Adviser
Marc Young
Charles Vivian
Tel: +44 (0)7780
Alma PR Limited 901 979
Josh Royston
Robyn McConnachie
CHAIRMAN'S STATEMENT
I'm pleased to present CORETX's first full year results as a
Cloud and Managed IT Services business, a period which has involved
a significant level of activity for the Group.
The year began with the acquisitions of Selection Services
Investments Limited ("Selection") and C4L Group Holdings Limited
("C4L"), enabled through an oversubscribed placing with
institutional shareholders.
In the months since, the Chief Executive Officer, Andy Ross, has
successfully integrated the businesses onto a single platform under
the new CORETX brand. The work has been guided by an unwavering
focus on customers and improving CORETX's ability to support their
needs with the best advice and solutions.
This has been accomplished through the recruitment of a new
leadership team, restructuring the sales teams and a significant
investment to unify the Group's back-office operations, with new
systems enhancing customer service and enabling the business to
scale rapidly. Looking to the future, the first intake into a new
apprenticeship scheme has also been welcomed.
The Group's service portfolio has both been extended in
capability and scope. The CORETX network now provides faster
connectivity, improved security and enhanced public cloud
connections with new partnerships further extending and improving
the service proposition. All this augurs well as mid-market
organisations begin to embrace the opportunities cloud based
solutions offer.
Notwithstanding all this activity the Group has continued to
increase revenue and gross margin. The level of recurring revenue,
a key performance indicator, has improved by 1% in the second half
over the first half, whilst the Group was cash generative in the
second half following the acquisitions in the first half.
Importantly, all key metrics showed an improved performance in the
second half of the year over the first, reflecting underlying
improvement in operations.
With a clearly defined strategy, customer driven focus and
enhanced operational capability, CORETX is well positioned to
become a leading provider of Cloud and Managed IT Services to the
UK mid-market.
The Group has started the 2017 year in line with expectations
and there is a healthy pipeline of opportunities within the
existing customer base, as well as with potential new
customers.
In conclusion, 2016 has been a year of good progress and the
Board is optimistic that further success lies ahead during 2017 and
beyond through both organic and inorganic activities.
Jonathan Watts
Non-Executive Chairman
CHIEF EXECUTIVE OFFICER'S REVIEW
2016 has been a year of significant progress for CORETX.
The acquisitions of Selection and C4L in early 2016 gave us the
initial building blocks for the new CORETX business, providing a
good platform from which to move forwards with our objective of
becoming a leading Cloud and Managed Services provider to the UK
mid-market, where demand for Cloud based solutions and managed
services remains high.
Much of the focus in 2016 was on integrating both businesses we
acquired into a single operating structure, with common processes
and platforms. The investment and effort of doing this work
straight away will help us integrate future acquisitions in a more
cost effective and timely manner, and will protect margins going
forwards by helping to reduce both operating costs and overheads.
As part of the integration programme we rebranded the whole
business as CORETX in April 2016.
We have also made significant changes to the senior management
team, attracting experienced talent from within the industry who
have knowledge of building and growing successful IT services
companies, as well as promoting a number of managers from within
the business who had the potential to contribute to the success of
the business. This now gives us the management capability needed to
scale the business going forwards.
Throughout the changes implemented over 2016, the needs of our
customers have been at the forefront of our decisions. We aim to
engage closely, to understand their business objectives and to
provide them with the solutions they need.
We have improved our customer engagement model, ensuring we put
the customer at the centre of everything we do, strengthening the
platforms we use to manage communication with customers and manage
day to day service, and improving our project management
capabilities. Feedback from customers has been very positive, and
is reflected in the extra revenue we have secured with existing
customers through the second half of 2016.
We have invested in our portfolio of products and services by
developing new offerings in Networks, Voice, Unified
Communications, Mobility, Lifecycle, and Public and Private Cloud
and partnering with a number of companies that have complementary
products and services, all of which allow us to deliver better
value-add to our customers. This has enabled us to grow our
recurring Managed Services revenue, and increase the amount of
professional services revenue from having a higher number of
consultancy led engagements.
A new Talent and Training function has been established, and we
launched the CORETX Learning Cloud in May 2016. This is a new
online learning platform that has enabled us to deliver over 2,500
training courses to CORETX employees in 2016. We have also invested
in a number of other talent and training initiatives, including
TalentQ and Institute of Leadership and Management (ILM) training
for middle management. On-going training forms a key part of our
strategy to become a trusted advisor and long term business partner
to our customers.
Our new Apprentice Programme was launched towards the end of
2016, and we now have ten Apprentices working within the business.
We will continue to develop and expand our Apprentice Programme in
2017 and offer more opportunities for talented young people coming
out of full-time education to start their careers with CORETX.
Our governance processes have been strengthened during the year.
We have achieved ISO9001, ISO20001 and ISO27001 certification
across the whole CORETX business, as well as PCI-DSS compliance for
our Bournemouth data centre.
Our growth and improved trading performance in the second half
of 2016 demonstrates the impact all these changes have made,
including adding 30 new name customers over the year, and I am
confident that we are now well placed to drive further organic
growth in 2017 and beyond. In addition, we will continue to
actively seek out acquisition opportunities that have the right
strategic fit, accelerate our growth trajectory and strengthen our
market position.
Andy Ross
Chief Executive Officer
FINANCIAL REVIEW
Corporate activity
2016 was a transformative year for the Group. In line with its
stated buy and build strategy, the Group had been seeking to
identify and invest in a profitable business with experienced
senior management, good growth opportunities, positive cash flows
and good revenue visibility. In January 2016, the Company raised
GBP30 million, before expenses of GBP0.7 million, by way of a
placing of new ordinary shares supported by institutional
investors. The proceeds of the placing were used in part to fund
the acquisition of Selection Services Investments Limited
("Selection"), a company providing managed IT solutions and Cloud
and network services, for a consideration of GBP34.8 million,
settled in cash and new ordinary shares.
In January 2016, the Group secured new bank facilities with The
Royal Bank of Scotland plc ("RBS"). The facilities comprise a five
year GBP7.0 million Revolving Credit Facility ("RCF") and a GBP2.0
million overdraft facility. The RCF also contains an accordion
feature that allows the total facility to be increased by up to a
further GBP10.0 million.
In February 2016, the Group acquired C4L Group Holdings Limited
("C4L"), a network services and data centre hosting business, for
GBP20.2 million, settled in shares and cash.
In September 2016, the Group announced the disposal of its
subsidiary CORETX Media Limited, which had been acquired as part of
C4L, for GBP1.
Results for the year
The results for the year to 31 December 2016 include
contributions of eleven and a half months from Selection and of ten
and a half months from C4L. The Group reported total revenues of
GBP43.4 million and gross profit of GBP17.8 million for the period.
In the year to 31 December 2015, the Group was defined as an
investing company under the AIM Rules for Companies and reported
nil revenue and nil gross profit.
Administrative expenses of GBP21.6 million (2015: GBP1.3
million) include GBP2.95 million of exceptional costs in relation
to the acquisitions of Selection and C4L, a charge of GBP3.1
million for the amortisation of intangible assets and depreciation
of tangible fixed assets of GBP2.5 million.
The Group reported an adjusted EBITDA, defined as earnings
before interest, tax, depreciation, amortisation, exceptional
items, gains/losses on disposal of fixed assets and share based
payments of GBP4.9 million (2015: adjusted EBITDA loss of GBP0.5
million).
The Group reported a loss before tax of GBP4.1 million (2015:
loss of GBP0.6 million) after incurring net financial costs of
GBP0.3 million (2015: net financial income of GBP0.7 million).
A reduction of the corporation tax rate from 20% to 19% in 2015
in addition to the utilisation of tax losses has resulted in a tax
credit for the year of GBP0.7 million (2015: tax cost of GBP0.4
million).
The Group therefore reported a loss attributable to shareholders
of GBP3.4 million (2015: profit of GBP0.8 million), which equates
to a basic loss per share of 1.88p (2015: basic earnings per share
of 1.05p).
Balance sheet
The Group has tangible assets of GBP13.7m (2015: GBPnil) of
which GBP11.2m relates to network infrastructure acquired during
2016. Intangible assets were GBP60.3 million at 31 December 2016
(2015: GBPnil), of which goodwill arising from the acquisitions of
Selection and C4L constitutes GBP32.3 million and customer
contracts and related relationships constitutes GBP26.4
million.
As at 31 December 2016 the Group had cash of GBP1.1 million
(2015: GBP22.8 million), finance lease liabilities of GBP1.1
million (2015: GBPnil) and had borrowed GBP5.5 million under the
RCF described above.
Dividend
The Directors do not propose a dividend in respect of the
current financial year (2015: GBPnil).
Name Change
The Company's name changed from Castle Street Investments plc to
CORETX Holdings plc on 11 April 2016.
Update and outlook for 2017
On 5 April 2017, the Group completed the acquisition of 365 ITMS
Limited for a consideration of GBP4.6 million comprising cash of
GBP1.6 million and equity in the Company equivalent to GBP3.0
million and assumed 365 ITMS Limited's cash balances of GBP0.6
million and debt balance with RBS of GBP1.4 million. 365 ITMS
Limited provides IT support and services to the UK mid-market and
has offices in Riseley and Poole. 365 ITMS Limited brings
significant expertise in voice, unified communications and cloud,
adding to the portfolio of services provided by the Group.
The Group has started 2017 in line with expectations and there
is a healthy pipeline of opportunities within the existing customer
base and with new prospective customers. The Group also expects to
benefit from the opportunities arising from the acquisition of 365
ITMS Limited, which will broaden both the Group's customer base and
portfolio of services.
Going concern
The Directors have prepared detailed cash flow projections
including sensitivity analysis on key assumptions. The Group's
forecasts and projections, taking account of reasonably possible
changes in trading performance and the timing of key strategic
events, show the Group will be able to operate within the level and
conditions of available funding. Based on the level of support
demonstrated by the equity placing and securing of new bank
facilities during the year, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future.
Accordingly, the Group continues to adopt the going concern
basis in preparing its consolidated financial statements.
Julian Phipps
Chief Financial Officer
Consolidated Income Statement
for the year ended 31 December 2016
Year ended Year ended
31 December 31 December
2016 2015
GBP000 GBP000
Continuing operations
Revenue 43,422 -
Cost of sales (25,580) -
__________ _________
Gross profit 17,842 -
Administrative expenses (21,638) (1,273)
Adjusted EBITDA* 4,902 (513)
Exceptional items (2,950) (760)
Depreciation (2,461) -
Amortisation (3,079) -
Loss on disposal of fixed (117) -
assets
Charges for share-based (91) -
payments
--------------------------------- ------------- -------------
Operating loss (3,796) (1,273)
Finance income 7 659
Finance costs (308) -
__________ __________
Loss on ordinary activities
before taxation (4,097) (614)
Income tax 658 (363)
__________ __________
Loss for the year from
continuing operations
attributable to owners
of the parent company (3,439) (977)
Result/profit for the
year from discontinued
operations attributable
to the owners of the
parent company - 1,727
_
_________ ________
(Loss)/profit for the
year attributable to
the owners of the parent
company (3,439) 750
======== =======
Earnings/(loss) per share
Basic loss per share
from continuing operations (1.88p) (1.38p)
Basic profit per share
from discontinued operations n/a 2.43p
_________ _________
Total basic (loss)/earnings
per share (1.88p) 1.05p
_________ _________
Diluted loss per share
from continuing operations (1.88p) (1.38p)
Diluted profit per share
from discontinued operations n/a 2.43p
_________ _________
Total diluted (loss)/earnings
per share (1.88p) 1.05p
_________ _________
* Adjusted EBITDA is defined as earnings before interest, tax,
depreciation, amortisation, exceptional items, (loss)/gain on
disposal of fixed assets and share-based payments
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
Year ended Year ended
31 December 31 December
2016 2015
GBP000 GBP000
(Loss)/profit for the
year attributable to
the owners of the parent
company (3,439) 750
Items that are or may
be reclassified subsequently
to the income statement
Foreign exchange translation 38 -
differences - equity
accounted investments
______ _____
Total other comprehensive 38 -
income
_________ _______
Total comprehensive income
for the year attributable
to the owners of the
parent company (3,401) 750
_________ _______
Statement of Financial Position
As at 31 December 2016
2016 2015
GBP000 GBP000
Non-current assets
Property, plant and
equipment 13,677 -
Intangible assets 60,301 -
Investments - -
Financial assets 85 74
74,063 74
Current assets
Trade and other receivables 8,918 80
Cash and cash equivalents 1,132 22,769
10,050 22,849
Total assets 84,113 22,923
Current liabilities
Trade and other payables 9,036 1,146
Deferred income 5,663 -
Borrowings 764 -
Provisions 2,323 438
Tax payable 9 290
17,795 1,874
Non-current liabilities
Borrowings 5,733 -
Provisions 666 -
Deferred tax liabilities 6,503 -
12,902 -
Total liabilities 30,697 1,874
Net assets 53,416 21,049
Equity attributable
to equity holders
of the parent
Share capital 4,773 1,780
Share premium 32,684 -
Retained earnings 16,089 19,437
Foreign currency
translation reserve (130) (168)
Total equity 53,416 21,049
Statements of Changes in Equity
for the year ended 31 December 2016
Share Share Capital Retained Foreign Merger Total
capital premium redemption earnings currency reserve equity
reserve translation
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January
2015 1,780 18,025 347 1,576 (168) (1,261) 20,299
Total comprehensive
income for the
year
Total comprehensive
income - - - 750 - - 750
Transactions with
owners recorded
directly in equity
Cancellation of
share premium reserve - (18,025) - 18,025 - - -
Cancellation of
capital redemption
reserve - - (347) 347 - - -
Release of merger
reserve - - - (1,261) - 1,261 -
Balance at 31 December
2015 1,780 - - 19,437 (168) - 21,049
Total comprehensive
loss for the year
Loss for the financial
year - - - (3,439) - - (3,439)
Movement in foreign
currency translation - - - - 38 - 38
Transactions with
owners recorded
directly in equity
Share issues 2,993 32,684 - - - - 35,677
Share based payments - - - 91 - - 91
Balance at 31 December
2016 4,773 32,684 - 16,089 (130) - 53,416
Statement of Cash Flows
for the year ended 31 December 2016
2016 2015
GBP000 GBP000
Cash flows from operating
activities
(Loss)/profit for the
year (3,439) 750
Adjustments for:
Depreciation 2,461 -
Amortisation 3,079 -
Net financial expenses/(income) 301 (659)
Taxation (658) 363
Share based payments 91 -
Loss/(gain) on disposal
of fixed assets 117 (22)
Other reserve movements 38 -
1,990 432
(Increase)/decrease in
trade and other receivables (3,559) 187
Increase/(decrease)
in trade and other
payables 787 (694)
Decrease in provisions (1,496) (2,569)
(2,278) (2,644)
Tax (paid)/received (151) 960
Net cash from operating
activities (2,429) (1,684)
Cash flows from investing
activities
Acquisition of Selection,
net of cash acquired (34,233) -
Acquisition of C4L,
net of cash acquired (14,291) -
Acquisition of property,
plant and equipment (2,601) -
Acquisition of other
intangible assets (5) -
Proceeds from sale
of discontinued operations
2014 - 12,366
Acquisition of financial
assets (12) (74)
Proceeds from sale
of fixed assets - 22
Net cash (used in)/generated
from investing activities (51,142) 12,314
Cash flows from financing
activities
Interest received 7 -
Interest paid (297) -
Share issue, net of
expenses 29,308 -
New loans and borrowings,
net of expenses 5,392 -
Repayment of loans
and borrowings (1,494) -
New finance leases 300 -
Repayment of finance
leases (1,282) -
Net cash generated
from financing activities 31,934 -
Net (decrease)/increase
in cash and cash
equivalents (21,637) 10,630
Cash and cash equivalents
at 1 January 22,769 12,139
Cash and cash equivalents
at 31 December 1,132 22,769
PUBLICATION OF NON-STATUTORY ACCOUNTS
This summary does not constitute statutory accounts within the
meaning of the Companies Act 2006. It is an extract from the full
accounts for the year ended 31 December 2016 on which the auditor
has expressed an unqualified opinion and does not include any
statement under section 498 of the Companies Act 2006. The full
accounts contain a detailed statement of the accounting policies
which have been used to prepare this summary and remained unchanged
from the prior year. The accounts will be posted to shareholders on
or before 28 April 2017 and subsequently filed at Companies
House.
A full set of the audited statutory accounts will be available
at www.coretx.com/investors/financial-information
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Accounting policies
CORETX Holdings plc ("CORETX") is a company incorporated in
Scotland, domiciled in the United Kingdom and limited by shares
which are publicly traded on AIM, the market of that name operated
by the London Stock Exchange. The registered office is 24 Dublin
Street, Edinburgh EH1 3PP and the principal place of business is in
the United Kingdom.
The principal activity of the Group is the provision of network,
cloud and IT managed services.
On 11 April 2016, the Company changed its name from Castle
Street Investments plc to CORETX Holdings plc.
1.1 Basis of preparation
The consolidated financial statements of CORETX have been
prepared on the going concern basis and in accordance with EU
adopted International Financial Reporting Standards (IFRS), IFRS
Interpretations Committee (IFRS IC) and the Companies Act 2006
applicable to companies reporting under IFRS. The consolidated
financial statements have been prepared under the historical cost
convention.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed in the notes to the consolidated
financial statements.
The financial statements have been prepared on a going concern
basis. The Directors have prepared cash flow forecasts for the
Group following its acquisition of the entire issued share capital
of Selection Services Investments Limited ("Selection") and C4L
Group Holdings Limited ("C4L") in the year. These forecasts show
that the Group expects to meet its liabilities from cash resources
as they fall due for a period in excess of 12 months from date of
approval of these financial statements.
On 25 January 2016, the Group secured new bank facilities with
The Royal Bank of Scotland plc. The facilities comprise a five year
GBP7.0 million Revolving Credit Facility available to the Group
until 22 January 2021 and a GBP2.0 million overdraft facility,
renewable annually. In addition, the Revolving Credit Facility also
contains an accordion feature that allows the total facility to be
increased by up to a further GBP10.0 million to support organic and
growth initiatives.
Based on the above, the Directors have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the foreseeable future.
1.2 Basis of Consolidation
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control
ceases.
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the total of the fair values of the assets
transferred, the liabilities incurred to the former owners of the
acquiree and the equity interests issued by the Group. The
consideration transferred includes the fair value of any asset or
liability resulting from a contingent consideration arrangement.
Identifiable assets are acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date. The Group
recognises any non-controlling interest in the acquiree on an
acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest's proportionate share of the recognised
amounts of the acquiree's identifiable net assets.
Acquisition costs are expensed as incurred.
Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Accounting
policies of subsidiaries have been changed where necessary to
ensure consistency with policies adopted by the Group.
2 Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting to the Chief Operating Decision Maker ("CODM").
The CODM has been identified as the Chief Executive Officer and the
Chief Financial Officer. The Chief Executive and the Chief
Financial Officer are jointly responsible for resource allocation
and assessing the performance of the operating segments. The
operating segments are defined by distinctly separate product
offerings or markets. The CODM assesses the performance of the
operating segments based on a measure of revenue and gross
profit.
The following table presents revenue and gross profit in respect
of the Group's operating segments for the year ended 31 December
2016. Administrative expenses are not allocated against operating
segments in the Group's internal reporting.
Continuing operations Managed Services Cloud Hosting Networks Projects Central Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------------- ----------------- -------------- --------- --------- --------- ---------
Revenue 14,816 11,158 9,282 8,166 - 43,422
Cost of Sales (8,435) (5,496) (6,541) (5,108) - (25,580)
--------------------------------------- ----------------- -------------- --------- --------- --------- ---------
Gross profit/(loss) 6,381 5,662 2,741 3,058 - 17,842
Administrative expenses - - - - (21,638) (21,638)
Operating profit/(loss) 6,381 5,662 2,741 3,058 (21,638) (3,796)
--------------------------------------- ----------------- -------------- --------- --------- --------- ---------
Analysed as:
Adjusted EBITDA 6,381 5,662 2,741 3,058 (12,940) 4,902
Exceptional costs - - - - (2,950) (2,950)
Depreciation - - - - (2,461) (2,461)
Amortisation of intangible assets - - - - (3,079) (3,079)
Loss on disposal of fixed assets - - - - (117) (117)
Share based payments - - - - (91) (91)
--------------------------------------- ----------------- -------------- --------- --------- --------- ---------
Net financial costs - - - - (301) (301)
--------------------------------------- ----------------- -------------- --------- --------- --------- ---------
Profit/(loss) before taxation 6,381 5,662 2,741 3,058 (21,939) (4,097)
Tax on profit/(loss) on ordinary
activities - - - - 658 658
--------------------------------------- ----------------- -------------- --------- --------- --------- ---------
Profit/(loss) for the year after
taxation 6,381 5,662 2,741 3,058 (21,281) (3,439)
--------------------------------------- ----------------- -------------- --------- --------- --------- ---------
The Statement of Financial Position is not allocated between
Managed Services, Cloud Hosting, Networks, Projects and Central in
the Group's internal reporting.
During the year ended 31 December 2015, the Group operated as an
Investing Company. As a result, the Group had no operating segments
and consequently, no segmental analysis has been prepared for the
2015 financial year.
The Group had one customer who accounted for more than 10
percent of the Group's revenue during the year (2015: nil).
In respect of turnover by geographical location for the year
ended 31 December 2016, turnover of GBP41.5 million (2015: GBPnil)
was generated in the United Kingdom, GBP1.7 million (2015: GBPnil)
was generated in Europe and GBP0.2 million (2015: GBPnil) was
generated outside of Europe.
3 Exceptional costs
In accordance with the Group's policy in respect of exceptional
costs, the following charges were incurred for the year:
2016 2015
GBP000 GBP000
Continuing
Restructuring and reorganisation 2,056 -
costs
Acquisition costs 894 760
Discontinued
Restructuring and reorganisation
costs
- 458
2,950 1,218
Restructuring and reorganisation costs on continuing operations
relate to costs incurred on the integration of the Selection and
C4L businesses which were acquired during the year. These costs
include employment related costs of staff made redundant as a
consequence of integration, rebranding costs, other non-recurring
costs associated with the integration during the year and costs
following the disposal of the Group's legacy business.
Acquisition costs relate to costs incurred on the acquisitions
of Selection and C4L during the year and include legal, financial
due diligence and corporate advisory fees. Acquisition costs of
GBP0.8 million were accrued at 31 December 2015 in respect of the
Selection acquisition.
4 Business combinations
Selection
On 21 January 2016, the Company acquired the entire issued share
capital of Selection Services Investments Limited and its
subsidiary entities ("Selection"), a United Kingdom focused
provider of IT solutions and Cloud Services with over 500 active
customers. The enterprise value of Selection was GBP34.8 million,
paid as GBP34.4 million in cash with the balance satisfied by the
issue of 1,353,810 new ordinary shares.
From the date of acquisition to 31 December 2016, Selection
recorded revenue of GBP32.0 million and a profit before tax of
GBP0.3 million. Assuming the combination had taken place at the
beginning of the year, the interim reported revenue from Selection
would have been GBP33.4 million and the loss before taxation would
have been GBP0.4 million.
Acquisition costs for Selection were GBP0.9 million, GBP0.8
million of which had been accrued at 31 December 2015.
C4L
On 16 February 2016, the Group acquired the entire issued share
capital of C4L Group Holdings Limited and its subsidiary entities
("C4L"), a successful and growing network services and data centre
hosting business with over 550 active customers, for a total
consideration of GBP20.2 million, paid as GBP14.2 million in cash
with the balance satisfied by the issue of 18,346,918 new ordinary
shares. C4L brings a high quality core network infrastructure with
substantial capacity for growth and a broad data centre
infrastructure.
From the date of acquisition to 31 December 2016, C4L recorded
revenue of GBP11.3 million and a loss before tax of GBP0.4 million.
Assuming the combination had taken place at the beginning of the
year, the interim reported revenue from C4L would have been GBP13.1
million and the loss before taxation would have been GBP0.6
million.
Acquisition costs for C4L of GBP0.8 million were incurred in the
year.
The total goodwill and intangible assets arising from the
acquisitions is the difference between the fair value of the
consideration less the provisional value of the assets
acquired.
Selection C4L Total
GBP000 GBP000 GBP000
-------------------------- ---------- --------- ---------
Fair value of purchase
consideration 34,771 20,211 54,982
Less fair value of
assets acquired:
Property plant and
equipment (1,544) (12,110) (13,654)
Intangible assets - (336) (336)
Other non-current
assets (632) - (632)
Trade receivables (2,271) (1,077) (3,348)
Other debtors (709) (913) (1,622)
Cash (132) 43 (89)
Trade payables 3,052 1,878 4,930
Other liabilities 5,375 7,604 12,979
Provisions 900 3,080 3,980
---------------------------- ---------- --------- ---------
Goodwill and intangibles 38,810 18,380 57,190
---------------------------- ---------- --------- ---------
The consideration was satisfied as follows:
Selection C4L Total
GBP000 GBP000 GBP000
-------------------- ---------- ------- -------
Cash on completion 34,365 14,248 48,613
Equity 406 5,963 6,369
--------------------- ---------- ------- -------
34,771 20,211 54,982
-------------------- ---------- ------- -------
On acquisition of each business, the Directors assessed the
business acquired to identify any intangible assets. Customer
contracts and relationships and trademarks met the criteria for
recognition as intangible assets as they are separable from each
other and have a measurable fair value, being the amount for which
an asset would be exchanged between knowledgeable and willing
parties in an arm's length transaction.
For customer contracts, the fair value of intangible assets was
calculated by using the discounted cash flows arising from the
existing customer contracts base for both businesses. Customer
retention was assumed to be 75% for Selection and 27% for C4L,
based on past experience. For trademarks, the fair value of
intangible assets was calculated by using the discounted cash flow
arising from revenues that would be generated if the trademarks
were to be licensed to a third party, which was assumed to be 1% of
total revenue.
Long term growth rates were applied with a post-tax discount
rate of 10.0%. The reasonable economic life of technology, customer
relationships and trademarks was assumed to be as follows:
-- Customer relationships 5 to 13 years
-- Trademarks 5 years
Customer relationships are assumed on average to last from 5
years to 9 years in duration, except for our largest customer,
where it has been assumed a longer relationship period will
exist.
The identifiable intangible assets and related deferred tax
liability are as follows:
Selection C4L Total
GBP000 GBP000 GBP000
------------------------------- --- ---------- ------- --------
Intangible asset - customer
contracts and relationships 27,347 1,729 29,076
Intangible asset - trademarks - 1,707 1,707
------------------------------------ ---------- ------- --------
Separately identifiable
intangible assets 27,347 3,436 30,783
Deferred tax liability
thereon (5,195) (654) (5,849)
Goodwill 16,658 15,598 32,256
38,810 18,380 57,190
--- ---------- ------- --------
The goodwill arising from acquisitions is attributable to
synergies and cross selling opportunities from continuing
operations and the knowledge and the ability of the workforce.
5 Discontinued operations
On 8 September 2016, the Group agreed to sell its subsidiary
undertaking, CORETX Media Limited ("CML") to Mathew Hawkins, Chief
Technology Officer, who resigned with immediate effect as a
Director of the Company, in order to focus full time on building a
business within CML.
CML was acquired by the Group for no additional consideration as
part of its acquisition of C4L Group Holdings Limited ("C4L") in
February 2016 and was established by Mathew Hawkins to deliver
network and other related services to media businesses. In the
light of the nature of CML's business operations and commercial
activity to date, which was considered not to be core to the
Group's operations, its disposal was effected for GBP1, in
conjunction with which, the Group will provide CML with fibre,
network connectivity and other related services.
The results of CORETX Media Limited are not material to the
Group and have not been disclosed under discontinued operations
during the year. The discontinued costs in the prior year relate to
costs incurred in ceasing the Group's legacy business.
6 Finance income and costs
Finance income 2016 2015
GBP000 GBP000
Other finance income 7 659
Finance costs 2016 2015
GBP000 GBP000
Interest payable on
bank loans and overdrafts 176 -
Interest expense on
finance lease obligations 113 -
Amortisation of loan
arrangement fees 19 -
308 -
7 Taxation
(a) Tax on loss/(profit) on ordinary
activities 2016 2015
GBP000 GBP000
Current tax expense
Current year - 363
Adjustments for prior years (59) -
Current tax (credit)/expense (59) 363
Deferred tax credit (599) -
Total tax (credit)/expense (658) 363
Legislation was introduced in the Finance (No. 2) Act 2015 to
reduce the UK main corporation tax rate to 19% from 1 April 2017.
The Finance Act 2016 reduced the UK main corporation tax rate to
17% from 1 April 2020. This will reduce the Group's future current
tax charge accordingly. Deferred tax has been re-measured on the
basis of these new rates and reflected in the financial
statements.
Reconciliation of the total income
tax (credit)/charge 2016 2015
GBP000 GBP000
(Loss)/profit for the year (3,439) 750
Total tax (credit)/expense (658) 363
(Loss)/profit before taxation (4,097) 1,113
Tax using the United Kingdom corporation
tax rate of 20% (2015: 20.25%) (819) 225
Non-deductible expenses 170 252
Adjustments for prior years (59) -
Difference between book value and
tax base of disposed assets - (4)
Income not taxable - (110)
Other items 50 -
Total tax (credit)/expense (658) 363
(b) Deferred tax liability
2016 2015
GBP000 GBP000
At 1 January - -
Business combinations 7,266 -
Acquired with subsidiaries (164) -
Credit to income statement (599) -
At 31 December 6,503 -
Deferred tax liabilities arose in respect of the amortisation of
intangible assets recognised on acquisitions made and the
difference between capital allowances and depreciation, details as
follows:
2016 2015
GBP000 GBP000
Depreciation in advance
of capital allowances 1,244 -
On acquisitions 5,275 -
Other temporary differences (16) -
At 31 December 6,503 -
8 Earnings per share
Basic earnings per share has been calculated using the loss
after tax for the year of GBP3,439,000 (2015: profit of GBP750,000)
and a weighted average number of ordinary shares of 183,108,493
(2015: 71,201,993). The dilutive effect of share options and
warrants at 31 December 2016 increased the weighted average number
of ordinary shares to 194,909,006 (2015: 71,201,993).
In addition, the Board uses an adjusted earnings per share
figure which has been calculated to reflect the underlying
performance of the business. The basis for adjusted earnings per
share is a non-statutory measure, which we believe is useful to
investors and is commonly used in monitoring similar businesses.
The measure is derived as follows:
2016 2015
GBP000 GBP000
(Loss)/profit from operations for
the year (3,439) 750
Tax (credit)/charge (658) 363
Amortisation of acquired intangible
assets 3,079 -
Share based payments 91 -
Release of exceptional cost provisions - (1,535)
Exceptional costs 2,950 1,218
Adjusted earnings before tax 2,023 796
Notional tax charge at standard
rate (384) (159)
Adjusted earnings 1,639 637
2016 2015
Number Number
Weighted average number of shares
in issue 183,108,493 71,201,993
Weighted diluted effect of options
and warrants in issue 11,800,513 -
____ ___
Diluted weighted average number
of shares in issue 194,909,006 71,201,993
Statutory basic earnings per share
(pence) (1.88) 1.05
Statutory diluted earnings per share
(pence) (1.88) 1.05
Adjusted basic earnings per share
(pence) 0.90 0.89
Adjusted diluted earnings per share
(pence) 0.84 0.89
9 Trade and other receivables
Current 2016 2015
GBP000 GBP000
Trade receivables 6,999 -
Less provision for
impairment of trade
receivables (415) -
Trade receivables -
net 6,584 -
Amounts due from subsidiary - -
undertakings
Prepayments and other
debtors 2,334 80
8,918 80
As at 31 December 2016, trade receivables of GBP0.4 million
(2015: GBPnil) were impaired and fully provided. The Directors
monitor the quality of the receivables not impaired and believe
them to be recoverable. The non-impaired receivables are fully
performing and relate to independent customers with no history of
default. The individually impaired receivables relate to
receivables over 365 days, customers in financial difficulty,
customer acceptance issues and cancelled contracts.
As at 31 December 2016, trade receivables of GBP0.7 million
(2015: GBPnil) were past due but not impaired. In the table below,
these comprise the receivables over 30 days, which relate to a
number of independent customers for whom there is no recent history
of default. The ageing analysis of net trade receivables is as
follows:
Days outstanding 2016 2015
GBP000 GBP000
31 - 60 days 267 -
61 - 90 days 250 -
91 - 180 days 90 -
181 - 365 days 47 -
654 -
The provision is calculated by management on a specific basis
based on their best estimate of recoverability taking into account
the age and specific circumstances relating to the debtor. The
maximum exposure to credit risk at the reporting date is the fair
value of each class of receivable mentioned above. The Group does
not hold any collateral as security. The carrying amounts of the
Group's trade and other receivables are denominated in Pounds
Sterling.
Movements on the Group provision for impairment of trade
receivables are as follows:
2016 2015
GBP000 GBP000
At 1 January - -
Acquired with subsidiaries 368 -
Increase in impairment
provision 151 -
Utilisation of impairment
provision (104) -
At 31 December 415 -
The creation and release of a provision for impaired receivables
has been included in "administrative expenses" in the Income
Statement. Amounts charged to the allowance are generally
written-off, when there is no expectation of recovering additional
cash.
The other asset classes within trade and other receivables do
not contain impaired assets.
Amounts due from subsidiary undertakings are unsecured, interest
free and are repayable on demand.
10 Cash and cash equivalents
2016 2015
GBP000 GBP000
Cash and cash equivalents 1,132 22,769
The table below shows the balance with the major counterparty in
respect of cash and cash equivalents.
2016 2015
Credit rating GBP000 GBP000
A 1,132 22,769
11 Trade and other payables
2016 2015
GBP000 GBP000
Current
Trade payables 5,715 40
Amounts due to subsidiary - -
undertakings 144 -
Other payables
Taxation and social
security 1,254 -
Accruals 1,923 1,106
9,036 1,146
Amounts due to subsidiary undertakings are unsecured, interest
free and are repayable on demand.
12 Borrowings
2016 2015
GBP000 GBP000
Non-current
Bank loan 5,500 -
Unamortised loan arrangement
fee (89) -
Finance leases 322 -
5,733 -
Group
2016 2015
GBP000 GBP000
Current
Finance leases 764 -
On 25 January 2016, the Group secured new bank facilities with
The Royal Bank of Scotland plc. The facilities comprise a five year
GBP7.0 million Revolving Credit Facility available to the Group
until 22 January 2021 and a GBP2.0 million overdraft facility,
renewable annually. In addition, the Revolving Credit Facility also
contains an accordion feature that allows the total facility to be
increased by up to a further GBP10.0 million to support organic and
growth initiatives. Interest is payable on the utilised Revolving
Credit Facility at 2% above LIBOR. Interest is payable on the
unutilised Revolving Credit Facility at 0.8%. At 31 December 2016,
GBP5.5 million of the Revolving Credit Facility has been
utilised.
The carrying amounts and fair value of the non-current
borrowings are as follows:
Carrying Fair Carrying Fair
value Value Value Value
2016 2016 2015 2015
GBP000 GBP000 GBP000 GBP000
Non-current
Bank loan 5,500 4,995 - -
Finance leases 322 294 - -
5,822 5,289 - -
The present value of finance lease liabilities is as
follows:
Minimum
lease
payments Interest Principal
2016 2016 2016
GBP000 GBP000 GBP000
Less than one year 847 83 764
Between one and five
years 368 46 322
1,215 129 1,086
13 Called up share capital
Share capital Number
At 1 January 2015, 31 December
2015 and 1 January 2016 71,201,993
Shares issued on Placing,
21 January 2016 100,000,000
Shares issued on the acquisition
of Selection 1,353,810
Shares issued on the acquisition
of C4L 18,346,918
In issue at 31 December
2016 - fully paid 190,902,721
2016 2015
GBP GBP
Allotted, called up and fully
paid
Ordinary shares of 2.5p 4,772,568 1,780,050
Shares classified in shareholders'
funds 4,772,568 1,780,050
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company.
The Company had 71,201,993 ordinary shares issued and fully paid
up as at 1 January 2016.
On 21 January 2016 in order to fund future acquisitions,
100,000,000 new ordinary shares were issued, raising GBP30.0
million before expenses of GBP0.7 million. On 21 January 2016, the
Company announced the acquisition of the entire issued share
capital of Selection Services Investments Limited ("Selection") for
a total consideration of GBP34.8 million, paid as GBP34.4 million
in cash with the balance satisfied by the issue of 1,353,810 new
ordinary shares. On 15 February 2016, the Company acquired C4L
Group Holdings Limited ("C4L") for a total consideration of GBP20.2
million, paid as GBP14.2 million in cash with the balance satisfied
by the issue of 18,346,918 new ordinary shares.
The Company has 190,902,721 ordinary shares issued and fully
paid up as at the closing balance sheet date of
31 December 2016.
Dividends
The Directors do not propose a dividend for the year ended 31
December 2016 (2015: GBPnil).
The dividend of GBP2,136,000 paid to shareholders in July 2014
in respect of the year ended 31 December 2013 was potentially
unlawful because no financial statements demonstrating that the
company had distributable profits were lodged with Companies House.
At the date of approval of the financial statements for the year
ended 31 December 2015, a contingent asset relating to the recovery
from shareholders of this dividend exists. The Directors had no
intention of seeking to recover the amounts involved. A deed of
resolution to a general meeting, absolving the Directors of any
fault and the shareholders from any claims for recovery of the
dividend was passed on 20 January 2016.
14 Related parties
The Group has taken advantage of the exemption allowing it not
to disclose transactions with entities wholly-owned by the
Group.
Key management is considered to comprise only the Directors.
Directors' emoluments, including share based payments are disclosed
in note 9. Social security costs in respect of Directors'
emoluments were GBP99,024 (2015: GBP59,112), of which GBP22,356
(2015: GBPnil) relates to social security costs on the Employee
Share Scheme.
Andy Ross, Chief Executive Officer is a partner of MXC Capital
Limited, the largest shareholder in the Company. MXC Capital
Limited owns 22.52% of the issued share capital of the Company at
31 December 2016.
During the year, the Group and Company paid MXC Capital Limited
for consultancy services, corporate finance advice and other
services amounting to GBP1,071,243 (2015: GBP22,674) excluding VAT.
Invoices totalling GBP3,000 were outstanding at 31 December 2016
(2015: GBP6,527). In addition, the Group paid MXC Advisory Limited,
a subsidiary of MXC Capital Limited, fees of GBP161,743 excluding
VAT (2015: GBPnil) in respect of the services of Andy Ross as Chief
Executive Officer of the Group for the year ended 31 December 2016.
Invoices totalling GBP17,400 were outstanding at 31 December 2016
(2015: GBPnil).
At 31 December 2016, in addition to owing shares
in the Company, MXC Capital Limited held warrants
over 9,545,130 shares in the Company (2015: none).
In the year ended 31 December 2016, the Group
and Company paid rent of GBP1,500 (2015: GBP1,500)
to Biebod Properties Limited, a company controlled
by Bill Dobbie, a Director of the Company. There
are no payables outstanding at 31 December 2016
(2015: GBPnil).
15 Post balance sheet events
On 5 April 2017, the Group completed the acquisition of 365 ITMS
Limited for a consideration of GBP4.6 million comprising cash of
GBP1.6 million and equity in the Company equivalent to GBP3.0
million and assumed 365 ITMS Limited's cash balances of GBP0.6
million and debt balance with RBS of GBP1.4 million. 365 ITMS
Limited provides IT support and services to the UK mid-market and
has offices in Riseley and Poole. 365 ITMS Limited brings
significant expertise in voice, unified communications and cloud,
adding to the portfolio of services provided by the Group.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKPDDBBKBKQK
(END) Dow Jones Newswires
April 06, 2017 02:02 ET (06:02 GMT)
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