1.3    Investments

 

Investments in subsidiaries are held at cost less accumulated impairment losses. A formal assessment of the recoverability of the investment values is undertaken on an annual basis by the Directors. Where indicators of impairment are identified, fixed asset investments are impaired accordingly.

 

1.4    Intangible assets

 

Goodwill

 

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of any non- controlling interest over the fair value of the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the income statement as a bargain purchase.

 

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

 

For the purposes of impairment testing, goodwill acquired in a business combination is allocated to a cash generating unit.

 

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. Any impairment is recognised immediately as an expense and is not subsequently reversed.

 

Other intangible assets arising from business combinations

 

Intangible assets that meet the criteria to be separately recognised as part of a business combination are carried at cost (which is equal to their fair value at the date of acquisition) less accumulated amortisation and impairment losses. An intangible asset acquired as part of a business combination is recognised outside of goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Intangible assets acquired in this manner include trademarks and customer contracts. They are amortised over their estimated useful lives on a straight-line basis as follows:

 

·      Customer contracts and related relationships                         13 years

·      Trademarks                                                                             5 years

 

Impairment and amortisation charges are included within the administrative expenses line in the income statement.

 

Technology development

 

Expenditure on internally developed technology is capitalised if it can be demonstrated that:

 

- it is technically feasible to develop the technology for it to be used or sold

- adequate resources are available to complete the development

- there is an intention to complete and for the Group to use or sell the technology

- use or sale of the asset will generate future economic benefits, and

- expenditure on the project can be measured reliably.

 

Capitalised development costs are amortised over the periods the Group expects to benefit from using or selling the assets developed. The amortisation expense is included within the administrative expenses line in the income statement. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the consolidated income statement as incurred.

 

Software and licensing

 

Separately acquired software and licenses are shown at historical cost less accumulated amortisation and impairment losses.

They are amortised over their estimated useful lives on a straight-line basis as follows:

 

·      Software and licensing                                                            8 years

 

1.5    Property, plant and equipment

 

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. The cost includes the original price of the asset and the cost attributable to bringing the asset to its current working condition for its intended use.

 

Depreciation, down to residual value, is calculated on a straight-line basis over the estimated useful life of the asset, which is reviewed on an annual basis, as follows:

 

·      Leasehold property                                                                 Over remaining lease term

·      Network infrastructure                                                             3 - 10 years

·      Equipment, fixtures and fittings                                                3 - 5 years

 

An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is de-recognised.

 

Right-of-use assets

 

A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.

 

Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities.

 

1.6    Impairment of assets

 

Goodwill is not subject to amortisation and is reviewed for impairment annually or more frequently if events or changes in circumstances indicate the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of the cash generating units expected to benefit from the business combination's synergies. Impairment is determined by assessing the recoverable amount of each cash generating unit to which the goodwill relates. When the recoverable amount of the cash generating unit is less than the carrying amount, including goodwill, an impairment loss is recognised.

 

Other intangible assets and property, plant and equipment are subject to amortisation and depreciation and are reviewed for impairment whenever events or changes in circumstances indicate the carrying values may not be recoverable. If any such indication exists and where the carrying value exceeds the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount.

 

The recoverable amount of intangible assets and property, plant and equipment is the greater of the fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined by the cash generating unit to which the asset belongs. Fair value less costs to sell is, where known, based on actual sales price net of costs incurred in completing the disposal. Non-financial assets, other than goodwill, that were impaired in previous periods are reviewed annually to assess whether the impairment is still relevant.

 

1.7    Share capital

 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from proceeds.

 

1.8    Leases

 

A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred.

 

Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down.

 

1.9    Provisions

 

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a risk-free rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

 

1.10  Current and deferred income tax

 

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.

 

Deferred income tax is provided for on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, with the following exceptions:

 

·      where the temporary difference arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination that at the time of the transaction neither affects accounting nor taxable profit or loss;

 

·      in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and

 

·      deferred income tax assets are recognised only to the extent that it is probable that taxable profits will be available against which deductible temporary differences carried forward tax credits or tax losses can be utilised.

 

1.11    Trade and other receivables

 

Trade receivables, which principally represent amounts due from customers, are recognised at amortised cost as they meet the IFRS 9 classification test of being held to collect, and the cash flow characteristics represent solely payments of principal and interest.

 

The Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customers with different credit risk profiles and current and forecast trading conditions.

 

Trade receivables are written-off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the company. The Group's trade and other receivables are non-interest bearing.

 

1.12    Cash and cash equivalents

 

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

 

For the purposes of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above.

 

1.13     Foreign currencies

 

The presentational currency of the Group is Pound Sterling (£) and the Group conducts the majority of its business in Sterling. Transactions in foreign currencies are initially recorded in the presentational currency by applying the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the presentational currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement.

 

1.14     Accrual for employee benefits, including holiday pay

 

Provision is made for employee benefits, including holiday pay, to the extent of the liability as if all employees of the Group had left the business at its reporting date.

 

1.15     Financial assets and liabilities

 

The Group's financial assets and liabilities mainly comprise cash, borrowings, trade and other receivables and trade and other payables. These are accounted for in accordance with the relevant accounting policy note.

 

Trade and other payables are not interest bearing and are stated at their amortised cost.

 

1.16    Convertible loan notes

 

The component parts of convertible loans issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. At the date of issue, the fair value of the liability portion of convertible loan notes is determined using a market interest rate for a comparable loan note with no conversion option. This amount is recorded as a liability on an amortised cost basis using the effective interest method until the loan notes are redeemed or converted either during or at the end of the term of the convertible loan notes. The remainder of the carrying amount of the loan notes is allocated to the conversion option and shown within equity and is not subsequently remeasured. When the conversion option remains unexercised at the maturity date of the convertible note, the balance recognised in equity will be transferred to retained earnings. No gain or loss is recognised in the income statement upon conversion or expiration of the conversion options.

 

1.17    Interest-bearing loans and borrowings

 

All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised in the finance cost line in the income statement.

 

1.18    Finance costs

 

Loans are carried at fair value on initial recognition, net of unamortised issue costs of debt. These costs are amortised over the loan term.

 

All other borrowing costs are recognised in the income statement on an accruals basis, using the effective rate method.

 

1.19    Revenue

 

Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group's activities. Revenue is shown net of Valued Added Tax, returns, rebates and discounts and after the elimination of sales within the Group.

 

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits

will flow to the entity and when specific criteria have been met for each of the Group's activities as described below.

 

Recurring revenue

The largest portion of the Group's revenues relates to a number of network, cloud and IT managed services, which the Group offers to its customers. All of the revenue in this category is contracted and includes a full range of support, maintenance, subscription and service agreements. Revenue for these types of services is recognised as the services are provided on the basis that the customer simultaneously receives and consumes the benefits provided by the Group's performance of the services over the contract term. In terms of performance obligations, the customer can benefit from each service on its own and the Group's promise to transfer the service to the customer is separately identifiable from other promises in the contract. The transaction price for each service is allocated to each performance obligation. The costs incurred for these revenue streams typically match the revenue pattern. A contract liability is recognised when billing occurs ahead of revenue recognition. A contract asset is recognised when the revenue recognition criteria were met but in accordance with the underlying contract, the sales invoice has not been issued yet.

 

Project revenue

These project services include mainly installation and consultancy services. Performance obligations are met once the hours or days have been worked. Revenue is therefore recognised over time based on the hours or days worked at the agreed price per hour or day. The costs incurred for this revenue stream generally match the revenue pattern, as a significant portion of consultancy costs relate to staff costs, which are recognised as incurred. Consultancy services are generally provided on a time and material basis.

 

1.20    Government Grants

 

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

 

1.21    Non-underlying items

 

It is the policy of the Group to identify certain costs, which are material either because of their size or nature, separately on the face of the Income Statement in order that the underlying profitability of the business can be clearly understood. These costs are identified as non-underlying items, and comprise;

 

a)     Professional fees incurred in sourcing and completing acquisitions and disposals including legal expenses

b)     Professional fees incurred in restructuring and refinancing acquisitions

c)     Integration costs which are incurred by the Group when integrating one trading business into another, including rebranding of acquired businesses

d)     Redundancy costs, including employment related costs of staff made redundant up to the date of their leaving as a consequence of integration

e)     Property costs such as lease termination penalties and vacant property provisions and third-party advisor fees

 

1.22    Discontinued operations

 

Cash flows and operations that relate to a major component of the business that has been disposed of or is classified as held for sale or distribution are shown separately from continuing operations.

 

1.23    Segmental reporting

 

The Chief Operating Decision Maker has been identified as the Executive Board. The Chief Operating Decision Maker reviews the Group's internal reporting in order to assess performance and allocate resources. For management reporting purposes and operationally, the continuing operations of the Group consist of Tialis IT Essential Manage Limited for this year and the prior year.

 

1.24      Standards and interpretations not yet applied by the Group

 

For the purposes of the preparation of these consolidated financial statements, the Group has applied all standards and interpretations that are effective for accounting periods beginning on or after 1 January 2022. There was no significant impact of new standards and interpretations adopted in the year, which include:

 

·           Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and -FRS 16) - effective 1 Jan 2022

No new standards, amendments or interpretations to existing standards that have been published and that are mandatory for the Group's accounting periods beginning on or after 1 January 2022, or later periods, have been adopted early. The new standards and interpretations are not expected to have any significant impact on the financial statements when applied.

 

1.25   Critical accounting estimates and judgements

 

Estimates

 

The Group makes estimates and assumptions concerning the future, which by definition will seldom result in actual results that match the accounting estimate. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below:

 

 Recoverability of deferred tax asset -This includes estimates of the level of future profitability, and a judgement as to the likelihood of the group undergoing a restructure of its finances which would result in significant finance cost savings.

 

A change in the estimate of future profits would result in an equivalent change to the deferred tax asset recognised of 25% of the change in profits. There are no reasonably plausible scenarios which would result in the future profitability not being sufficient to enable full recovery of the tax losses in the assessment period.

 

Impairment of intercompany balances - The directors use estimates in assessing the level of impairment of intercompany balances at each period end, including the likely methods of recovery of the balances and future profitability of the underlying trade which would enable repayments to be made.

 

Judgements

 

In the process of applying the Group's accounting policies, management makes various judgements which can significantly affect the amounts recognised in the financial statements. Critical judgements are considered to be:

 

Classification of non-underlying items - the Directors have exercised judgement when classifying certain costs arising during integration and strategic reorganisation projects. The Directors believe that these costs are all related to the types of costs described in 1.21 above and are appropriately classified.

 

Recoverability of deferred tax asset - the Directors have exercised judgement on the recoverability of tax losses attributable to future trading profits generated by the Group, and in doing so this has given rise to a deferred tax asset, details of which are shown in note 12 to the financial statements. The judgement involves assessing the extent to which trading losses can be offset against future profits.

 

Impairment of software licences - As set out in note 15, the directors performed an impairment review in respect of software licences in 2021, which had a carrying amount at the previous balance sheet date of £1.8m. The impairment review was triggered both because the licences were not yet in use, and because of an indicator of impairment due to planned expansion which didn't materialise, and the sale of the Connect business, which meant the licences had no addressable market. Following the review the licences were fully impaired. The directors' judgement is that it is very unlikely that the benefit of trying to earn revenues for the licences would exceed the cost of funding the activities that would be required.

 

 

2       Segment reporting

 

With the sale of the Connect and Nimoveri Businesses in 2021 the Group has only one operating segment, the Manage Business.

 

3       Revenue

 

Disaggregation of revenue from contracts with customers is as follows:

 

Year ended 31 December 2022					Managed	Projects	Total
					services
Geographical regions					£000	£000	£000
United Kingdom					10,770	3,632	14,402
Europe					61	-	61
Total					10,831	3,632	14,463
Timing of revenue recognition
Goods transferred at a point in time					84	-	84
Services transferred over time					10,747	3,632	14,379
Total					10,831	3,632	14,463

 

The revenue from the largest customer was £11.7m (2021: £6.8 million) or 84% of total revenue (2021: 63%). No other customers account for more than 10% of revenue.

 

 

Year ended 31 December 2021					Managed	Projects	Total
					Services
Geographical regions					£000	£000	£000
United Kingdom					10,704	3,716	14,420
Europe					13	23	36
Total					10,717	3,739	14,456
Timing of revenue recognition
Goods transferred at a point in time					48	-	48
Services transferred over time					10,669	3,739	14,408
Total					10,717	3,739	14,456

 

Contract balances

				2022	2021
				£000	£000
Receivables included within trade and other receivables				2,499	2,677
Contract assets				664	837
				3,163	3,514
Contract liabilities				(51)	(49)
Total				3,112	3,465

 

Contract assets predominantly relate to fulfilled obligations in respect of projects and managed services which are billed monthly and in arrears. At the point where completed work is invoiced, the contract asset is derecognised, and a corresponding receivable recognised. Contract liabilities relate to consideration received from customers in advance of work being completed.

 

 

The Group's standard payment terms are 30 days from the date of invoice. Refunds are only due in the exceptional circumstances where the Group does not meet the performance obligations set out in a contract. The majority of revenue for services is invoiced monthly, sometimes quarterly, in advance, and goods are invoiced on delivery.

 

Unsatisfied performance obligations

 

All contracts for the provision of services are for periods of one year or less or are billed based on resources utilised. As permitted under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

 

 

4           Other operating income

 

Other operating income comprises government grants receivable.

 

5           Expenses by nature

 

 

	2022		2021
	£000		£000
Direct staff costs	6,048		4,902
Third party cost of sales	3,360		3,283
Employee costs within administrative expenses	2,027		2,133
Amortisation of intangible assets	1,169		1,169
Depreciation	208		321
Impairment charge on intangible assets	-		1,833
Share-based payments	-		16
Non-underlying items	421		433
Impairment credit on trade receivables	-		(139)
Gain on the conversion of secured loan notes	(892)		-
Other administrative costs	1,078		1,079
Total cost of sales and administrative expenses	13,419		15,030