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.
END
FR KELFLKQFBBBK
(END) Dow Jones Newswires
June 26, 2019 02:00 ET (06:00 GMT)
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