RNS Number : 7777R
essensys PLC
31 October 2023
 

31 October 2023

essensys plc 

("essensys" or the "Group") 

 

Full year results 

 

 

 

essensys plc (AIM:ESYS), the leading global provider of software and technology to the flexible workspace industry, announces its audited results for the financial year ended 31 July 2023. 

 

On track to return to profit and cash generation

·      Reorganisation of global operations to align cost base with current revenues and near-term growth opportunities largely complete

·      Headcount reduced to 122 (previously 180) following completion of reorganisation

·      £8m annualised operational cost reduction achieved

 

Focus on larger, strategic customers

·      Strong SaaS metrics performance from strategic customer1 cohort

·      Strategic customers now account for 77% of Group revenue (FY22: 72%)

·      Strategic customer Net Revenue Retention is 108% (FY22: 105%), total customer Net Revenue Retention 98% (FY22: 101%)

·      Zero strategic customer churn

·      21 new customers signed in the period, of which 15 live in FY23

 

Resilient financial performance

·      Group total revenues up 9% driven by new site activity, 94% of new sites with strategic customers

·      Adjusted EBITDA2 loss improved by 10% year on year and 7% ahead of market expectations

·      Strong US performance, our primary growth market and 62% of Group revenue (up 20%; 10% at constant currency)

·      UK & Europe revenues down 11%, reflecting ongoing strategic customer portfolio rebalancing and expected churn of low value customers

·      Recurring revenues2 83% of total revenue (FY22: 86%)

·      ARR2 £20.0m, down -9%, reflecting churn of non-strategic customers, lower occupancy-based marketplace revenues and foreign exchange movement

·      Group remains debt-free with cash balance of £7.9m. Additional £2m unsecured loan facility provided by Mark Furness, the Group CEO and largest shareholder, which is a related party transaction under the AIM Rules for Companies and is described further below.

 

Current trading and outlook

·      Sales pipeline remains strong with strategic customers' expansion plans and new customer opportunities underpinning future growth

·      ARR contracted but not yet live as of 31 July £1.1m

·      Extended sales cycles and delays to capital deployment continue to reflect macroeconomic uncertainty

·      On track to return to run-rate positive Adjusted EBITDA in FY24 and net cash generation in FY25

·      Future growth and margin expansion is expected to be supported by improving customer mix and upsell of new products and product modules

·      The Group remains confident in the longer-term structural growth opportunity


Mark Furness, Chief Executive Officer of essensys, said:

"Delivering 9% revenue growth is a resilient performance in a challenging macro context and a testament to the quality of our product and teams.  We have accelerated our plans to return to profitability and cash generation by realising £8 million of annualised cost savings which align our cost base and investments to current revenues and the near-term market opportunity.  As we enter FY24, essensys is a leaner organisation and has the right operational base to support our customers as they increasingly prioritise automation and tenant experience across their premium office footprint. 


"We remain on track to return to run-rate positive Adjusted EBITDA in FY24 and net run rate cash generation in FY25 and the Group is confident in the longer-term structural growth opportunity in the flexible workspace market."

 

Financial summary:

 

£m unless otherwise stated

FY23

FY22

 

Change

 

 


 

Revenue

25.3

23.3

+9%

Recurring revenue3

20.9

20.1

+4%

Run Rate Annual Recurring Revenue3

20.0

21.9

-9%

 

 


 

 

 


 

Revenue at constant currency

24.0

23.3

+3%

Recurring revenue

19.9

20.1

-1%

Run Rate Annual Recurring Revenue

20.7

21.9

-5%

 

 


 

Statutory loss before tax

(15.5)

(11.1)

 

 

 


 

Adjusted EBITDA

(6.3)

(7.0)

 

 

 

 

 

Loss per share (pence)

(24.4p)

(16.8p)

 

 

 


 

Proposed final dividend per share (pence)

Nil

Nil

 

 

 


 

Net Cash

7.9

24.1

 

 

 

 

For further information, please contact:  

 

essensys plc 


+44 (0)20 3102 5252  

Mark Furness, Chief Executive Officer 



Sarah Harvey, Chief Financial Officer  






Singer Capital Markets (Nominated Adviser and Broker) 


+44 (0)20 7496 3000 

Peter Steel / Harry Gooden / James Fischer 






FTI Consulting 



Jamie Ricketts / Eve Kirmatzis / Talia Shirion / Victoria Caton 


+44 (0)20 3727 1000 

 

Notes 

1.    A strategic customer is typically a global landlord or a large specialist flexible workspace operator who has the potential to deliver $1m of Annual Recurring Revenue.

2.   Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, exceptional restructuring costs and other non-trading items such as impairment, share option charges and exchange differences. 

3.      Further definitions included in Financial Review

 


About essensys plc 

essensys is the leading global provider of software and technology for flexible, digitally-enabled spaces, buildings and portfolios. The essensys Platform simplifies and automates the delivery and management of next generation, flexible, multi-tenant real estate. 

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The real estate industry is transforming - it must be flexible to changing market demands, accommodate hybrid working styles, provide move-in ready spaces and deliver frictionless experiences and on-demand services. The office sector is becoming an increasingly digital-first landscape - driven by end-user demand and delivering digitally enabled spaces is key to success. Our software and technology is designed and developed to help solve the complex operational challenges faced by landlords and flexible workspace operators as they grow and scale their operations. We help our customers to deliver a simple, secure and scalable proposition, respond to changing occupier demands in a hybrid world, provide seamless occupier experiences, and realise smart building and?ESG ambitions. 

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Founded in 2006 and listed on the AIM market of the London Stock Exchange since 2019, essensys is active in the UK, Europe, North America and APAC.  

 

 

Chairman's statement

 

In the 2023 financial year our primary goals of delivering our upgraded core product, essensys Platform and taking actions to accelerate our return to profitability and cash generation have been achieved. 

 

It is a credit to all our people at essensys that we have been able to accelerate these programmes - and deliver Adjusted EBITDA ahead of market expectations - while retaining our commitment to delivering quality products for high value customers. 

 

In a challenging macro context, particularly for landlords, achieving revenue growth of 9% in FY23 shows the resilience of our model and the underlying demand for flexible workspace solutions. 

 

Inevitably, we have had to take difficult decisions this year to manage our cost base.  I would like to thank all of essensys' people, including those who left us in the last twelve months, for their diligence, persistence and integrity.

 

I would also like to thank Alan Pepper for five years of valued and important leadership as CFO and COO.  Alan stepped down from his Board responsibilities and left essensys during the financial year after the conclusion of the reorganisation and resultant simplification of operational structures, which removed the need for the Chief Operating Officer ("COO") role.   

 

As we look ahead to our 2024 financial year, we are on track to return to run-rate positive Adjusted EBITDA in FY24, with net cash generation expected to follow in FY25.  We remain debt-free and have a net cash position of £7.9m at year end. 

 

We now have a strong platform to drive sustainable growth.  essensys remains extremely well placed to take advantage of the increasing demand for flexible workspace, notwithstanding the drag on spend in the current environment.  We continue to see opportunities to grow with flexible workspace operators and traditional landlords, as they build their presence in the flexible workspace industry. 

 

 

Strategic and operational review

 

2023 has been a year of continued progress for our business.  Our strategy to target only large landlords and flexible workspace providers is continuing to drive improvements in customer mix, product adoption and revenue quality.  The performance of this strategic customer cohort underpins our confidence in our long-term growth plans, with this group delivering strong SaaS metrics whilst providing significant future expansion opportunities.

 

Our accelerated investment into new product development over the past three years is also beginning to deliver results.  75% of all customers have now migrated onto essensys Platform and we are also nearing the full launch of our smart access solution which converges hardware and software to provide a powerful answer to the challenges of delivering access control in a flexible, hybrid world.

 

Hybrid work is now embedded across companies of all sizes and has led to a complete rethink of how, when and why we use offices.  This is driving significant change in the real-estate industry.  Companies now want flexibility, agility and access to high quality amenities and services from their landlords and workspace providers.  This is resulting in a period of significant change for the real-estate industry as it evolves to meet these changing demands.  Office space requirements are very different in a hybrid world and landlords are increasingly adapting their offerings to meet this need by providing access to shared spaces, better amenities and additional in-building services.  This change is also resulting in a flight to quality as companies reassess their office space requirements, and whilst this may involve their need for less permanent space, it is clear that businesses want to be in premium buildings that deliver high quality employee experiences.  Delivering and managing these networks of multi-tenant spaces is operationally complex and that complexity increases significantly with scale, meaning large landlords and flexible workspace providers need to leverage technology, workflow automation and digital platforms to achieve their desired outcomes.  Our products have been designed and developed to help our customers manage these complex operations efficiently at scale, automating and simplifying the onboarding, off-boarding and in-life management of occupiers, spaces and services.  We expect this evolution of the real-estate industry to provide our business with a significant long term growth opportunity as our customers continue to expand their flexible space offerings to meet the current and future demands of their tenants.

 

This year, post-pandemic disruption has given way to a period of consistent macroeconomic uncertainty with many companies facing increasing capital costs, inflationary pressures and changes in customer demand.  We are not immune to these challenges and in the year, we made a number of key decisions to help our business adapt and ensure we are well placed to deliver our long-term strategy.  We completed a restructure of our global operations and implemented several cost-cutting measures to accelerate our path to profitability and cash generation.  Whilst these decisions were difficult and resulted in us saying goodbye to a number of talented and committed colleagues, we exit the year with our business in a stronger position and remain well placed to meet the current and future needs of our customers.

 

Accelerated strategy to drive near-term profit and cash generation

 

Whilst our long-term ambition is unchanged, we have evolved our strategy to align our cost base and investments to our current revenues and near-term customer demand.  This work is largely complete and has resulted in our global headcount reducing from 184 at its peak to 122.  The reorganisation accelerates our pathway to profitability and is expected to deliver £8m annualised cost savings.  We remain on track to return to run-rate positive Adjusted EBITDA in FY24 and net cash generation in FY25. 

 

Following this reorganisation our go-to-market team is now a single function, we have centralised our global operations and simplified our management structure:

·      All sales and marketing activities centralised under the leadership of new Chief Revenue Officer, Daniel Brown;

·      Singapore and Hong Kong offices closed with our APAC business now supported by a regional sales team based in Sydney, Australia;

·      Customer operations streamlined into global functional teams, delivering an improved customer experience, better cross business alignment and lower operating costs. This change resulted in the removal of the Group COO role; and

·      Removal of the three regional CEO roles in North America, APAC and UK & Europe with James Lowery (previously CEO for UK & Europe) moving into the role of Chief Customer Officer. 

Market opportunity and strategic focus

 

We remain confident in essensys' market opportunity, notwithstanding challenging macro conditions which has led to elongated sales cycles and capital deployment delays.

 

The flexible workspace industry benefits from attractive long-term structural growth drivers, defined by the shift towards hybrid working and flexible workspaces. 

 

We have a well-established and proven plan to Land, Expand and Grow, focusing on high value, strategic customers in the flexible workspace market with the potential to deliver at least $1m ARR.  These customers typically engage us for multiple sites, generate higher revenue per site and deliver stronger net margins due to the lower cost to serve that their operational maturity provides. 

 

Land

 

We continue to win new strategic customers globally with each presenting significant future expansion opportunities.  We signed 21 new customers in FY23.  These are largely strategic customers who we expect to support the expansion of our business in FY24 and beyond.  New customers this year include large US landlords and significant operators in Australia and Europe. New customers won but not yet live also include large landlords in the UK, a positive sign for that market.  

 

Expand

 

Our existing customer base, particularly in the US, is indicating continued growth over the coming years as customers look to increase the amount of flexible space they operate.  Our strategic customers, who are aiming to scale their flex offerings across their portfolios globally, present a large long-term growth opportunity for essensys.  Leading operators and landlords such as Industrious, Hines, Carr Workplaces, JLL and Tishman Speyer will leverage essensys' software and technology to help realise their expansion aims.  An example of this is demonstrated by a recent press release by essensys' customer Hines, which announced 'Hines is investing in a new digital ecosystem that makes it easier to access buildings, amenities and experiences while generating more in-depth insights about building utilization and client satisfaction' and referenced research 'showing that a good building experience can increase tenant retention by 20% and owners seeing 12% higher tenant demand for a diverse roster of amenities, this investment makes it easier and faster for people in Hines office buildings to get the most out of their experience in one place'

 

Grow

 

Our core product, essensys Platform, has been developed and built to serve as its own distribution vehicle for future value-add functionality and modules.  This product-led growth (PLG) strategy is designed to reduce sales cycles for upsell, improve customer LTV (lifetime value) and drive gross margin performance.  An example of the success of this is the new booking module in essensys Platform, which has resulted in increased ARR yield per site and a more powerful platform for our customer.  The ability to activate additional modules and functionality at the press of a button creates upsell opportunities for the Group and supports further growth with existing and future strategic customers in a cost-effective way, which is a core element of our sustainable growth plan. 

 

We remain engaged at senior levels with large commercial real estate organisations, both existing and prospective customers, helping them to understand how essensys products can help their transition to more flexible, digital-first real-estate offerings. Whilst most of these landlords are in the early phase of flex adoption it is these strategic customers that will continue to provide the Group with significant long-term expansion opportunities.

 

Strategic customers

 

Our customer mix continues to improve with strategic customers now representing 41% of all core platform customers and 77% of Group revenue in FY23.  This customer cohort delivers strong SaaS metrics as we embed and scale with them and are very sticky with zero customer churn in the year.

 

Our strategic customers had 108% net revenue retention compared with 98% for the full customer base and our top tier strategics (those already representing over $1m ARR) had 118% net revenue retention.  In FY23 strategic customers represented 77% of our total revenue (FY22: 72%).  As a result of this focus on higher value customers, we continue to expect a higher level of churn at the smaller, non-strategic end of our customer base - particularly in the UK - which offset our overall growth during FY23.  These customers have largely been single site operators that do not offer an expansion opportunity and have high service costs and we expect their numbers to continue to reduce further in the year ahead.

 

Momentum with strategic customers remains strong and underpins a significant pipeline of opportunities with some exciting new large landlords and flexible workspace operators at advanced stages in the sales process, particularly in the US.  This has offset extensions to sales cycles and capital deployment delays due to the current macro environment.

 

We continue to see strong demand from strategic customers; during the year we added 65 new sites with existing and new customers and entered FY24 with a healthy contracted pipeline of 35 sites representing £1.1m annual recurring revenue, the majority with strategic customers. Total active sites increased by 8 on FY22 closing at 466 (FY22: 458; H123 459).

 

 

Product development

 

essensys Platform

Our targeted investment in our products continues, primarily through the evolution of essensys Platform.  The focus of our development efforts is tightly tied to the requirements of strategic customers, ensuring that our solutions solve the specific needs of large-scale landlords and flex operators.  This year we have enhanced its core functionality and added new capability that is designed to embed essensys Platform further into spaces, as we seek to help landlords connect their existing tenants digitally to the amenities and communal spaces in their buildings.  We see this trend continuing as enterprises of all size adopt hybrid models and landlords respond by providing access to a wide variety of digitally connected spaces across their portfolios.  essensys Platform allows landlords and flex workspace providers to solve the complex challenges they face and deliver seamless, digital-first in-building and cross-portfolio experiences.  Strategic customers have continued to move to essensys Platform in the 2023 financial year, which presents a long-term opportunity for margin and revenue growth through greater automation and greater access to in-building services and amenities. 

 

essensys Cloud

Last year we announced a decoupling of our global private network (essensys Cloud) from essensys Platform, which reduces our requirement for future data centre expansion and removes the requirement for essensys Platform and essensys Cloud to be bundled together, which in turn lowers barriers to entry for our customers, for example where they can use existing telecoms solutions.  We expect this to deliver improvement in gross margins over time as the lower margin network element of our product suite becomes a lower proportion of overall revenues.

 

As a standalone product we have also been able to develop new functionality for essensys Cloud which we will be launching in the coming months.  We expect to increase the value of this product to customers in future.

 

Our new dynamic access control solution

We're excited by the progress we've made with our dynamic access control hardware and software.  Leveraging the ubiquity of smartphone wallets to create a seamless book-pay-access experience for occupiers, the solution converges access control, space booking and an IoT (Internet of Things) sensor gateway providing a powerful answer to the problem of managing real-time access and control of space in today's dynamic and hybrid world.  We reached another major milestone in the development process recently when we received the final CE and FCC certification of the hardware components and as such, we now anticipate launch of this exciting new product before the end of the year.

 

Operate

Operate remains an important product for several of our strategic customers.  Its core functionality helps customers to manage contracts, billing and customer invoices and now benefits from a new integration to essensys Platform.

 

 

Regional performance

 

US

 

We continue to see strong performance in North America, where total revenue increased by 20% and recurring revenue by 15%.  The US continues to be our primary growth market providing a significant long-term opportunity and accounted for 62% of Group revenues in the year.  We have a high-quality sales pipeline with new and existing strategic customers and many of these also provide further international expansion opportunities.  We added 8 new strategic customers with further expansion potential.

 

Key customers continue to set out their near-term expansion plans, providing visibility of expected future site growth. Evidence of the structural shift to a more flexible way of working continues to grow with an increasing number of landlords using essensys to deliver flexible real estate solutions as they continue to repurpose traditional office space assets. Those engagements involve a number of recognisable global real estate operators which each individually provide the opportunity for significant long term account growth.

 

Some customers continue to optimise their portfolios. We believe this optimisation is necessary and will serve to strengthen our customers businesses and our relationship with them and so will continue to provide this flexibility for our largest partners.

 

UK & Europe

 

The strong US performance offset a continued decline in the UK which was largely driven by expected churn from our smaller, legacy customers, with 12 customers positioned at the low-value end of the customer base leaving during the period.  UK and Europe revenues declined by 11%, with growth in Europe offset by the UK performance.  This forms part of our planned and long-term focus on strategic customers with our value proposition as we align our product development efforts to the needs of large landlords and real estate operators.   

 

Activity levels continue to be subdued in the UK and Europe, reflecting the challenging macro backdrop.  Despite this, we saw positive activity, including a return to growth in new sites from one of our largest UK customers with 8 sites signed in Q4 FY23, of which 6 have already gone live.  During the year we also upsold an existing large (27 site) Operate customer in France onto the essensys Platform with an initial pilot of 1 site already live and a second due to go live during the first half of FY24. We also expanded into Europe with one of our large US customers with 2 sites live and, since the year end, we have signed further new sites with the same customer, including our first sites in Belgium and the Netherlands.  We also added our first 4 sites in Ireland in FY23.

 

As previously announced and as expected, the UK experienced a higher level of site closures with the increased churn of our smaller non-strategic customers. We also saw continued site rationalisation with some large UK customers as they have exercised their option to close sites within their current contract. This contract mechanic allows them to close an agreed number of sites within the contract period and is primarily used if the customer is exiting that location.

 

APAC

 

We onboarded 9 new sites with new and existing strategic customers in Australia and Singapore in FY23, with additional sites due to go live over the coming quarter. Our recent reorganisation will see our APAC team primarily focused on sales and customer success with all associated operational support provided centrally from the Group. Our pipeline in the region remains strong and we have signed the first 5 sites with a multi-site operator that we believe will be a key strategic customer for APAC and serve as an eye-catching case study.

 

 

Current trading and outlook

 

Following our reorganisation, we have a strong operational base to capture demand for flexible workspace and drive profitable long-term growth.  We continue to see evidence of structural growth drivers in our market, even in a challenging macro backdrop characterised by delays to sales cycles and capital deployment decisions.  Our sales pipeline is growing, underlying customer occupancy appears to be stabilising and both our operator and landlord customers are reporting increased occupier demand for premium flexible space solutions.  This is reflected in positive engagement with our large customers about the ability of our products to support their expansion plans.  We entered FY24 with contracted new ARR of £1.1m and have continued to sign new deals through the first quarter of FY24.

 

essensys creates seamless in-building experiences for flexible operations by removing complexity and reducing costs through automation and simplification.  With 30% of all office space expected to be flexible by 2030, compared to less than 2% today, the market opportunity remains sizeable.  As we look ahead to our 2024 financial year, we are on track to return to run-rate positive Adjusted EBITDA in FY24, with net cash generation expected to follow in FY25.  We remain debt-free and have a net cash position of £7.9m at year end. 

 

essensys enters FY24 as a leaner, more efficient business and our momentum with strategic customers and new product developments supports our confidence of further progress in the year ahead.

 

 

Financial Review

 

 

Scope of financial results

 

The financial results included in this annual report cover the Group's consolidated activities for the 12 months ended 31 July 2023.  The comparatives for the previous 12 months were for the Group's consolidated activities for the 12 months ended 31 July 2022.

 

Financial Key Performance Indicators

 

£'m unless otherwise stated

2023

2022

Change

 



 

Group Total Revenue

25.3

23.3

9%

North America

15.8

13.2

20%

UK & Europe

8.7

9.8

-11%

APAC

0.8

0.3

207%

 



 

Recurring Revenue

20.9

20.1

4%

North America

12.6

11.0

15%

UK & Europe

7.8

9.0

-13%

APAC

0.5

0.1

400%

Recurring Revenue %age of Total

83%

86%

-3ppt

 

 

 

 

Run Rate Annual Recurring Revenue

20.0

21.9

-9%

 

 


 

Non-recurring revenue

4.4

3.2

38%

 

 


 

Gross Profit

14.9

14.1

6%

Gross Profit percentage

59%

61%

-2ppt

Recurring Revenue margin %age

63%

64%

-1ppt

 



 

Statutory loss before tax

(15.5)

(11.1)

-40%

 

 


 

Adjusted EBITDA

(6.3)

(7.0)

10%

Adjusted EBITDA margin

(25)%

(30)%

5ppt

 



 

Exceptional restructuring costs

(2.6)

-

 

 

 

 

 

Net Cash

7.9

24.1

 

 

See commentary following and in the strategic and operational review above together with the financial statements below for explanation of significant movements in the above Financial Key Performance Indicators.

 

Revenue

 

Group total revenue increased by 9% to £25.3m in the year.  As outlined in the strategic and operational review, we continued to see growth in the US, driven by new site activity and our relationships with large strategic customers, offset by a decline in the UK primarily due to the expected churn in smaller single site customers and a reduction in usage revenue.  The strengthening of the US Dollar in the first half of the year was a benefit to reported revenue in the year.  This trend reversed during the second half of the year as the US Dollar weakened.  The movement in foreign exchange rates in the full year had a net positive impact on reported revenue of £1.3m (FY22: £0.5m).  APAC continued to grow revenues in its first full year of operations through new and existing customer relationships.

 

Recurring revenue comprises income invoiced for services that are repeatable and are consumed and delivered monthly over the term of a customer contract, including a fixed contracted fee and a variable usage-based fee.  Recurring revenue increased by 4% in the year which reflected the benefit of the stronger US dollar during the year; at constant currency recurring revenue declined by 1%.  The Group continued to experience portfolio rebalancing by large customers and churn of smaller customers, which partially offset the growth from new sites in the year. The Group also saw a continuing and expected decline in its traditional occupancy-based revenue, primarily relating to voice services, given the lower usage of desktop phones and bandwidth charges as more bandwidth is included in contracted fees.

 

Run Rate Annual Recurring Revenue (Run Rate ARR) is an annualisation of the underlying recurring revenue for the month identified (July 2023 and 2022, as appropriate) and is used as an indication of the annual value of the recurring revenue for that month.  Run Rate ARR declined by 9% to £20.0m (from £21.9m in FY22).  The weakening of the US dollar between July 2022 and July 2023 had a £0.8m impact on ARR and this, together with a decline in usage-based revenue, more than offset the net positive impact from new customer sites and new sites with existing customers.

 

Non-recurring revenue comprises activation fees charged to customers in respect of installations of hardware and services at locations, together with training and customer onboarding and is a positive indicator for future recurring revenue for new sites.  The 38% increase in non-recurring revenue in FY23 represented increased new site activity with new and existing customers, particularly in the US.

 


Gross profit

 

Overall gross profit increased by 6% to £14.9m, reflecting increased revenue.  Gross margin declined to 59% (2021: 61%) and recurring revenue margins decreased to 63% (2021: 64%) reflecting the higher proportion of revenue from the US, the decline in the traditionally higher margin UK revenue, the overall decline in higher margin usage-based revenue and an increase in recurring costs due to the full year run rate of the operational running costs for APAC data centres. 

 

Administrative expenses

 

Total administrative expenses increased by £5.3m in FY23. This increase was primarily due to a £2.6m one-off cost to achieve the Group reorganisation and a £2.8m increase in depreciation, amortisation and impairment explained below. Excluding these amounts and the non-cash charge for share options, administrative expenses were flat in the year, as the benefit of the global reorganisation in the second half of the year offset much of the impact of the higher run rate cost in the first half and the higher overall bad debt charge in the year. 

 

Underlying staff-related costs increased by £0.5m with the final element of the Group reorganisation taking place at the end of the year which reduces the run rate going into the new financial year.  Bad debt expense, net of the movement in the expected credit loss provision, increased by £0.6m, largely reflecting the impact of smaller customers going into administration or walking away from contracts following the Covid-19 pandemic which meant that, despite ongoing efforts during the year, debts were not able to be recovered. Reductions in marketing and travel costs offset these increases during the year.

 

The Group reorganisation, which commenced in January 2023 as part of the strategy to return the Group to profitability and cash generation, was achieved at a cost of £2.6m, recognised as an exceptional cost in the year. The cost of reorganisation related primarily to termination payments to impacted employees and included a reduction in the executive team with the removal of regional CEO and Group COO roles and a reduction in all functional teams through centralising and simplifying operations to create more efficient ways of working. This reorganisation removed £8 million of annualised run rate cost from the business.

 

Depreciation increased by £0.9m in the year, reflecting the FY22 investment in data centre equipment and lease property, and amortisation increased by £1.2m, reflecting the increased size of the development team in FY22 and accelerated amortisation of part of the Connect platform because the migration of customers to essensys Platform is at an advanced stage.  The Group incurred impairment charges of £0.8m in relation to its Operate platform and of its assets in the APAC region as part of the restructuring in the year.  As previously reported, the Operate platform is not currently being sold to any new customers and therefore the annual impairment review considers the future benefit of the goodwill and remaining net book value of the capitalised software development for this platform.  The Connect platform has evolved into the essensys Platform and while the core functionality remains consistent across both platforms, the impairment reflects the fact that new customers and sites will not be using Connect to generate future revenues and all existing customers are expected to have migrated to the essensys Platform by the end of FY24.

 

 

Statutory loss for the year

 

The Group made a loss before tax for the year of £15.5m (FY22: loss of £11.1m).  The year-on-year increased loss is primarily driven by the one-off cost of the group reorganisation and higher level of impairment charges due to the changes in the key platforms.

 

£'m

2023

2022

 



Turnover

25.3

23.3

Cost of sales

(10.4)

(9.2)

Gross profit

14.9

14.1

Administrative expenses

(26.8)

(24.7)

Bad debt expense net of provision

(1.0)

(0.4)

Cost of Group reorganisation

(2.6)

-

Operating loss

(15.5)

(11.0)

Net interest receivable/(payable)

-

(0.1)

Loss before taxation

(15.5)

(11.1)

 

Adjusted EBITDA

 

Adjusted results are prepared to provide a more comparable indication of the Group's core business performance by removing the impact of certain items including exceptional items (material and non-recurring), and other, non-trading, items that are reported separately. Adjusted results exclude adjusting items as set out in the statement of consolidated loss and below, with further details given in Note 8 of the financial statements. In addition, the Group also measures and presents performance in relation to various other non-IFRS measures, such as recurring revenue, run-rate annual recurring revenue and revenue growth. 

 

Adjusted results are not intended to replace statutory results.  These have been presented to provide users with additional information and analysis of the Group's performance, consistent with how the Board monitors results.

 

Adjusted EBITDA (being EBITDA prior to exceptional restructuring costs and non-cash impairment and share based payment) is calculated as follows:

 

£'m

2023

2022

 



Operating loss

(15.5)

(11.0)

Add back:

 


Depreciation & amortisation

5.2

3.1

Impairment charge

0.8

0.1

EBITDA

(9.5)

(7.8)

Add back:

 

 

Exceptional reorganisation costs

2.6

-

Share based payment expense

0.6

0.8

Adjusted EBITDA

(6.3)

(7.0)

 

The exceptional reorganisation cost, share-based payment expense and impairment charge are excluded from Adjusted EBITDA as they are not considered relevant for assessment of underlying profitability.

 

Taxation

 

The Group incurred a tax charge in the year of £245,000 (FY22: tax credit £286,000).  This was made up of foreign tax on income for the year.

 

Cash

 

Net cash at year end was £7.9m (FY22: £24.1m) and the Group remains debt-free.  The most significant cash outflow during the year continued to be on the Group's personnel with the first half of FY23 seeing a normalised run rate from the investment in product and go-to-market capability during FY22.  The Group also made payments for the inventory build which occurred in FY22 to provide certainty of supply and made the final payments on its data centre equipment in the APAC region.  Net cash flow reduced each quarter from an outflow of £7.4m during the first quarter to an outflow of £1.5m in the final quarter.  The final stage of the Group reorganisation took place after the year end and reduces run rate cost further from Q1 FY24.  The Group's current cash reserves provide sufficient capital for the foreseeable future.

 

On 30 October 2023, the Group entered into an unsecured loan facility with Mark Furness, the Group's Chief Executive Officer and largest shareholder, which provides the Group with up to £2 million of additional funding in the event that it is required, available for drawdown until 31 July 2025.  Interest is charged at base rate plus 500bps p.a. on any amounts drawn under the facility.  There has been no drawdown on this facility and none is expected.

 

Entry into the facility with a director and substantial shareholder in the Company constitutes a related party transaction under the AIM Rules for Companies.   The independent directors of the Company (with the exception of Mark Furness who is involved in the transaction as a related party) consider, having consulted with Singer Capital Markets Advisory LLP, the Company's nominated adviser, that entry into the facility is fair and reasonable insofar as shareholders are concerned.

 

Capital Expenditure

 

During the year the Group incurred capital expenditure of £0.6m which, as noted above, primarily comprised the final payments in relation to its data centre infrastructure in the APAC region which had commenced during FY22.

 

Capitalised Software Development Costs

 

The Group continues to invest in software development resulting in ongoing enhancements to its software platforms.  During the year it expanded the essensys Platform which brings together the existing functionality of its Connect platform with new functionality. Customers continued to be migrated onto the essensys Platform through FY23.  Where such work is expected to result in future revenue, costs incurred that meet the definition of software development in accordance with IAS38, Intangible Assets, are capitalised in the statement of financial position.  During the year the Group capitalised £3.8m in respect of software development (FY22: £4.1m).

 

Dividend policy

 

It remains the Group's intention in the short to medium-term to invest in order to deliver capital growth for shareholders.  The Board has not recommended a dividend in respect of the year ended 31 July 2023 and does not anticipate recommending a dividend within the next year but may do so in future years.


essensys plc

 

Consolidated Statement of Comprehensive Loss

for the year ended 31 July 2023

 

 

 

Notes

2023

2022

 

 

£000

£000

 

 

 

 



 


Turnover

6

25,254

23,298

Cost of sales


(10,347)

(9,190)



_________

_________



 


Gross profit


14,907

14,108



 


Administrative expenses


(26,176)

(23, 976)

Expected credit loss provision


(1,037)

(423)

Share based payment expense


(597)

(741)

Restructuring expenses

7

(2,610)

-

 


_________

_________

 


 


Operating loss

8

(15,513)

(11,032)

 


 


Interest receivable and similar income

11

216

94

Interest payable and similar charges

12

(164)

(147)



_________

_________



 


Loss before taxation


(15,461)

(11,085)





Taxation

13

(245)

286



_________

_________

 

 

 


Loss for the year from continuing operations

 

(15,706)

(10,799)



_________

_________



 


Other comprehensive loss

 

 




 


Items that may be reclassified to profit or loss:


 




 


Currency translation differences


(246)

583

 


_________

_________



 


Other comprehensive loss for the year

 

(246)

583

 


_________

_________





Total comprehensive loss for the year

 

(15,952)

(10,216)



_________

_________





Basic and Diluted loss per share

14

(24.4p)

(16.8p)





 

 

essensys plc

 

Consolidated Statement of Financial Position

as at 31 July 2023

 

 

 

Notes

2023

2022

 

 

£000

£000

 

 

 

 

ASSETS

 

 






Non-current assets


 


Intangible assets

15

10,059

8,922

Property, plant and equipment

16

1,577

2,819

Right of use assets

17

1,140

2,482



_________

_________



 




12,776

14,223





Current assets


 


Inventories

19

2,260

2,546

Trade and other receivables

20

4,617

6,434

Cash at bank and in hand


7,862

24,122



_________

_________







14,739

33,102



_________

_________





TOTAL ASSETS


27,515

47,325



_________

_________

EQUITY AND LIABILITIES


 






EQUITY


 






Shareholders' equity


 


Called up share capital

21

162

161

Share premium

22

51,660

51,660

Share based payment reserve


3,382

2,811

Merger reserve


28

28

Retained earnings


(34,652)

(18,700)



_________

_________





TOTAL EQUITY


20,580

35,960





LIABILITIES


 






Non-current liabilities


 


Lease liabilities

24

307

1,659



_________

_________







307

1,659





Current liabilities


 


Trade and other payables

23

4,762

7,422

Contract liabilities

6E

420

815

Lease liabilities

24

1,264

1,469

Current taxes


182

-



_________

_________







6,628

9,706



_________

_________





TOTAL LIABILITIES


6,935

11,365



_________

_________





TOTAL EQUITY AND LIABILITIES


27,515

47,325



_________

_________

 

 

essensys plc

 

Consolidated Statement of Changes in Equity

for the Year Ended 31 July 2023

 

 

 

Share

Share

Share based payment

Merger

Retained

Total

 

capital

premium

Reserve

Reserve

earnings

equity

 

£000

£000

£000

£000

£000

£000








1 August 2022

161

51,660

2,811

28

(18,700)

35,960

 






 

Comprehensive loss for the year






 

Loss for the year

-

-

-

-

(15,706)

(15,706)

Currency translation differences

-

-

(26)

-

(246)

(272)


_______

_______

_______

_______

_______

_______







 

Total comprehensive loss for the year

-

-

(26)

-

(15,952)

(15,978)


_______

_______

_______

_______

_______

_______







 

Transactions with shareholders






 







 

Share based payment charge

-

-

597

-

-

597

Issue of new shares

1

-

-

-

-

1


_______

_______

_______

_______

_______

_______







 

31 July 2023

162

51,660

3,382

28

(34,652)

20,580


_______

_______

_______

_______

_______

_______

 

 

Consolidated Statement of Changes in Equity

For the Year Ended 31 July 2022

 

 

 

Share

Share

Share based payment

Merger

Retained

Total

 

capital

premium

Reserve

Reserve

earnings

equity

 

£000

£000

£000

£000

£000

£000







 

1 August 2021

161

51,660

2,045

28

(8,484)

45,410

 






 

Comprehensive loss for the year






 

Loss for the year

-

-

-

-

(10,799)

(10,799)

Currency translation differences

-

-

25

-

583

608


_______

_______

_______

_______

_______

_______

 






 

Total comprehensive loss for the year

-

-

25

-

(10,216)

(10,191)


_______

_______

_______

_______

_______

_______







 

Transactions with shareholders





 

 







 

Share based payment charge

-

-

741

-

-

741


_______

_______

_______

_______

_______

_______







 

31 July 2022

161

51,660

2,811

28

(18,700)

35,960


_______

_______

_______

_______

_______

_______

 

 

essensys plc

 

Consolidated Statement of Cash Flows

for the Year Ended 31 July 2023

 

 

 

Notes

2023

2022

 

 

£000

£000

 

 

 

 

Cash used by operations

32 A

(9,745)

(6,789)

 


 


Corporation tax paid


(63)

(11)

Foreign exchange


(31)

-



_________

_________



 


Net used by operating activities


(9,839)

(6,800)

 


_________

_________

 


 


Cash flows from investing activities


 


Purchases of intangible assets

15

(3,843)

(4,087)

Purchases of property plant and equipment

16

(630)

(1,541)

Proceeds from the disposal of fixed assets


120

-

Interest received


216

94



_________

_________



 


Net cash used in investing activities


(4,137)

(5,534)

 


_________

_________



 


Cash flows from financing activities


 


Proceeds from the issuance of new shares

20

1

-

Repayment of lease principal

24

(1,842)

(893)

Interest paid on lease liabilities

24

(164)

(147)



_________

_________



 


Net cash used in financing activities


(2,005)

(1,040)



_________

_________



 


Net decrease in cash and cash equivalents


(15,981)

(13,374)

Cash and cash equivalents at beginning of year


24,122

36,903

Effects of foreign exchange rate changes


(279)

593



_________

_________



 


Cash and cash equivalents at end of year


7,862

24,122

 


_________

_________

Cash and cash equivalents comprise:


 


Cash at bank and in hand


7,862

24,122

 


_________

_________

 


Notes to the financial statements


1

General information

 

essensys plc (the "Company") is a public limited company, incorporated in the United Kingdom under the Companies Act 2006 (registration number 11780413). The Company is domiciled in the United Kingdom and its registered address is Aldgate Tower 7th Floor, 2 Leman Street, London, E1 8FA.  The Company's ordinary shares are traded on the Alternate Investment Market (AIM) of the London Stock Exchange.

 

The Group's principal activities are the provision of software and technology platforms that manage critical digital infrastructure and business processes, primarily of operators of flexible workspace within the real estate industry.  These activities are carried out by the Group's wholly owned subsidiaries.

 

The Company's principal activity is to provide funding and management services to its subsidiaries.

 

2

Authorisation of financial statements and statement of compliance with IFRS

 

The financial statements for the year ended 31 July 2023 were authorised for issue by the Board of Directors and the Statement of Financial Position was signed on the Board's behalf by Sarah Harvey on 30 October 2023.

 

The Group's financial statements have been prepared in accordance with UK adopted international accounting Standards and as applied in accordance with the provisions of the Companies Act 2006.

 

3

Basis of Preparation

 

Publication of non-statutory accounts

In accordance with section 435 of the Companies Act 2006, the Directors advise that the financial information set out in this announcement for the years ended 31 July 2023 and 31 July 2022 do not constitute the Group's statutory financial statements for those years but is derived from those financial statements. The statutory financial statements for the year ended 31 July 2022 have been audited and filed with the Registrar of Companies. The statutory financial statements for the year ended 31 July 2023 have been audited and will be delivered to the Registrar of Companies in due course.

The Independent Auditor's Reports on the Group's financial statements for the years ended 31 July 2023 and 31 July 2022 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

These financial statements have been prepared under the historical cost basis and are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated.

 

The Group's business activities, together with factors likely to affects its future development, performance and position are set out in the Strategic report.  The financial position of the Group is described in the Financial Review.

 

Going concern

 

The Group's consolidated financial statements have been prepared on a going concern basis.

 

As at 31 July 2023 the Group had net assets of £20.7m (2022: £36.0m), including cash of £7.9m (2022: £24.1m) as set out in the Consolidated Statement of Financial Position, with no external debt.  In the year ended 31 July 2023 the Group generated a loss before tax of £15.5m (2022: loss of £11.1m).  The group used net cash before financing in the year of £16.3m (2022: £12.3m) after investment in software development of £4.1m. Following the year end the Group entered into an agreement with Mark Furness, the Group's Chief Executive Officer and largest shareholder, to provide a loan of up to £2 million in the event that the Group has a requirement for additional liquidity.

 

During the year, Group revenue increased by 9.0% from £23.3m to £25.3m, with recurring revenue increasing by 3.8% primarily as a result of a strengthening of the US dollar, which increased the reported revenue from its US subsidiary which is an increasing proportion of the Group's business.  The Group generated an operating loss of £15.6m (2022: £10.1m).  The Group has long term contracts with a number of customers and suppliers across different geographical areas and industries.

 

The Directors have prepared a detailed budget and forecast of the Group's expected performance over a period covering at least the next twelve months from the date of the approval of these financial statements. As well as modelling the realisation of the sales pipeline, these forecasts also cover a number of scenarios and sensitivities in order for the Board to satisfy itself that the Group remains within its current available cash and committed facilities.

 

Whilst the Directors are confident in the Group's ability to grow revenue, the Board's sensitivity modelling shows that the Group can remain within its cash facilities, without recourse to the committed facility, for a period in excess of twelve months, in the event that revenue growth is delayed (i.e. new sales bookings are not achieved). The Directors' financial forecasts and operational planning and modelling also include the actions, under the control of the Group, that they could take to further significantly reduce the cash outflow in its sensitivity modelling.  On the basis of this financial and operational modelling, the Directors believe that the Group has the capability and the operational agility to react quickly, cut further costs from the business and ensure that the cost base of the business is aligned with its revenue and funding scale.

 

As a result, the Directors have a reasonable expectation that the Group can continue to operate and be able to meet its commitments and discharge its liabilities in the normal course of business for a period of not less than twelve months from the date of approval of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing the Group financial statements.

 

 

 

 Basis of consolidation

 

The consolidated financial statements incorporate the results of essensys plc and all of its subsidiary undertakings.

 

Essensys plc was incorporated on 22 January 2019, and on 18 May 2019 it acquired the issued share capital of essensys (UK) Ltd, previously essensys Limited, by way of a share for share exchange.  The latter had four wholly owned subsidiaries:

 

·          essensys, Inc

·          Hubcreate Limited

·          TVOC Limited

·          Spacebuddi Limited

 

The consideration for the acquisition was satisfied by the issue of 38,836,044 ordinary shares in essensys plc to the shareholders of essensys (UK) Limited.

 

The accounting treatment for the year to 31 July 2020 in relation to the addition of essensys plc as a new UK holding company of the group falls outside the scope of IFRS 3 'Business Combinations'.  The share scheme arrangement constituted a combination of entities under common control due to all shareholders of essensys (UK) Ltd being issued shares in the same proportion, and the continuity of ultimate controlling parties.  The reconstructed group was consolidated using merger accounting principles which treated the reconstructed group as if it had always been in existence.  Any difference between the nominal value of shares issued in the share exchange and the book value of the shares obtained was recognised in a merger reserve.

 

The company applied the statutory relief as prescribed by Companies Act 2006 in respect of the share for share exchange as the issuing company has secured more than 90% equity in the other entity.  The carrying value of the investment is carried at the nominal value of the shares issued.

 

4

Summary of significant accounting policies

 

Revenue

 

The Group generates revenue primarily in the UK and the United States of America (USA).  Turnover represents services provided in the normal course of business; net of value added tax. Services provided to clients during the year, including any amounts which at the reporting date have not yet been billed to the clients, have been recognised as revenue.

 

(a) Contract

 

Set up and installation costs are partially invoiced once the customer contract is signed with the remaining balance invoiced when the service goes live.  Fixed monthly costs are invoiced one month in advance and revenue is recognised in the month the service is provided. Deferred revenue is recognised for the Group's obligation to transfer services to customers for which they have already received consideration (or an amount of consideration is due) from the customer.  Variable monthly costs (including internet usage and telephone call charges) are invoiced monthly in arrears and accrued revenue is recognised in the month that the services were consumed.

 

(b) Contractual obligation

 

The majority of customer contracts have two main services that the Group provides to the customer:

 

·          Set up / installation

·          Ongoing monthly software, services and support

 

Where a contract is modified and the remaining services are distinct from the services transferred on or before the date of the contract modification, then the Group accounts for the contract modifications as if it were a termination of the existing contract and the creation of a new contract.

 

The amount of consideration allocated to the remaining performance obligations is the sum of the consideration promised by the customer and the consideration promised as part of the contract modification.

 

(c) Determining the transaction price

 

The transaction price is determined as the fair value of the consideration the Group expects to receive over the course of the contract.  There are no incentives given to customers that would have a material effect on the financial statements.

 

(d) Allocate the transaction price to the performance obligations in the contract

 

The allocation of the transaction price to the performance obligations in the contract is non-complex for the Group. There is a fixed unit price for each product sold. Therefore, there is limited judgement involved in allocating the contract price to each unit ordered.

 

 

(e) Recognise revenue when or as the entity satisfies its performance obligations

 

The contracts may cover multiple sites, but the overarching terms are consistent in each contract. The set up/installation is seen as a distinct performance obligation and revenue is recognised at a point in time, when the installation is completed, and any hardware is provided to the client for their use. The customer can benefit from the set up / installation such as new internet connectivity or new hardware provided, and therefore revenue is recognised in full when these services are provided.

 

The second performance obligation is the provision of software, infrastructure and on-demand services over the term of the contract, and the Group recognises the revenue each month as it provides these services for the duration of the contract, i.e. over time.

 

(f) Costs to obtain and fulfil a contract

 

Set up and installation costs are partially invoiced once the customer contract is signed.  The value of the invoiced amount is held as a contract liability until the performance obligation is satisfied.

 

The company incurs incremental costs in obtaining a contract in the form of sales commissions.  The Company recognises the sales commissions as an asset in relation to costs to obtain a contract.  The company believes that the costs are recoverable as the proceeds from the customer over the contract period exceed the costs to obtain the contract.  The asset is amortised over the contract life on a systematic basis.

 

Contract assets arise from the group's revenue contracts, where work is performed in advance of invoicing customers, and contract liabilities arise where revenue is received in advance of work performed.  Cumulatively, payments received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts.  Commission costs capitalised on contracts represents internal sales commission costs incurred on signing of customer contracts and, in line with the requirements of IFRS15, spread over the life of the customer contract.

 

Finance income

 

Finance income comprises interest receivable on funds invested and loans to related parties. Interest income is recognised in profit or loss as it accrues using the effective interest method.

 

Finance costs

 

Finance costs comprise interest on lease liabilities. Interest on lease liabilities is charged to the consolidated statement of comprehensive income over the term of the debt using the effective interest rate method so that the amount charged is at a constant rate on the carrying amount.  Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.

 

Intangible assets

a) Internal software development

 

Research expenditure is written off in the year in which it is incurred.

 

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

 

·          it is technically and commercially feasible to develop the asset for future economic benefit;

·          adequate resources are available to maintain and complete the development;

·          there is the intention to complete and develop the asset for future economic benefit;

·          the company is able to use the asset;

·          use of the asset will generate future economic benefit; and

·          expenditure on the development of the asset can be measured reliably.

 

Where the costs are capitalised, they are written off over their economic life which is considered by the directors to be 5 to 7 years.

 

Internally developed products in the course of construction are carried at cost, less any recognised impairment loss. Amortisation of these assets, determined on the same basis as other property assets, commences when the assets are ready for their intended use.

 

(b) Goodwill

 

Goodwill arising on the acquisition of a business represents the excess of the fair value of the consideration and the fair value of the Group's share of the identifiable assets and liabilities acquired. The identifiable assets and liabilities acquired are incorporated into the consolidated financial statements at their fair value to the Group.

 

Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses.  Goodwill is tested for impairment annually.  Any impairment is recognised immediately in the Consolidated Statement of Comprehensive Income and is not subsequently reversed.  On disposal of a business, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

 

 

(c) Other intangible assets

 

Other intangible assets are initially recognised at cost or, if recognised as part of a business combination, at fair value. After recognition, intangible assets are measured at cost or fair value less any accumulated amortisation and any accumulated impairment losses. Amortisation is calculated to write off the cost or fair value of intangible assets in equal annual instalments over their estimated useful lives and is included within administrative expenses.

 

The estimated useful lives for other intangible fixed assets range as follows:

 


Customer relationships

-

6.3 years


Website

-

1 year


Acquired software

-

5 years

 

Property, plant and equipment

 

Property, plant and equipment is carried at historical cost less accumulated depreciation and any accumulated impairment losses.  Historical cost comprises the aggregate amount paid to acquire assets and includes costs directly attributable to making the asset capable of operating as intended.

 

At each reporting date the Group assesses whether there is an indication of impairment.  If such indication exists, the recoverable amount of the asset is determined which is the higher of its fair value less costs to sell and its value in use.  An impairment loss is recognised where the carrying value exceeds the recoverable amount.

 

Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives or, if held under a finance lease, over the shorter of the lease term and the estimated useful life, using the straight line method.  Depreciation is provided at the following annual rates:

 


Leasehold improvements

-

20%


Fixtures and fittings

-

25%


Computer equipment

-

10% - 25%

 

The assets residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, if there is an indication of a significant change since the last reporting date.

 

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within 'other operating income or loss' in the statement of comprehensive income.

 

Leasehold improvements include security equipment purchased.

 

Foreign currency translation

 

(a) Functional and presentation currency

 

Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency").  The consolidated financial information is presented in 'sterling', which is essensys plc's functional and the Group's presentation currency.

 

On consolidation, the results of overseas subsidiaries are translated into sterling at rates approximating to those ruling when the transactions took place.  All assets and liabilities of overseas operations are translated at

 

Foreign currency translation (continued)

the rate ruling at the reporting date, including any goodwill in relation to that entity.  Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income.

 

(b) Transactions and balances

 

Foreign currency transactions are translated into essensys plc's functional currency using the exchange rates prevailing at the dates of the transactions.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

 

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within 'finance income or costs.  All other foreign exchange gains and losses are presented in the statement of comprehensive income within 'other operating income or expense'.

 

 

Inventories

 

Inventories are valued at the lower of cost and net realisable value.  Inventories consist of work in progress, which are items and third party services that have been purchased and allocated to satisfy specific customer contracts where title has not yet passed, and finished goods, which are mostly made up of items purchased in the previous financial year to secure sufficient resources, with a global shortage of silicon, to satisfy expected future customer contracts.  As the items have yet to be installed at the customer location, and where title has not yet passed, they remain on the statement of financial position until title has passed.

 

Trade and other receivables

 

Trade receivables, which are generally received by the end of the month following terms, are recognised and carried at the lower of their original invoiced value less provision for expected credit losses.

 

Cash and cash equivalents

 

All cash and short-term investments with original maturities of three months or less are considered cash and cash equivalents, since they are readily convertible to cash. These short-term investments are stated at cost, which approximates fair value.

 

Trade and other payables

 

Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers.  Trade and other payables are recognised at original cost.

 

Exceptional items

 

Exceptional items are those that, in the Directors' view, are required to be separately disclosed by virtue of the size or incidence to enable a full understanding of the Group's financial performance.

 

Taxation

 

The tax expense for the period comprises current and deferred tax.  Tax is recognised in the consolidated statement of comprehensive income, except that a charge attributable to an item of income or expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.

 

The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where essensys plc's subsidiaries operate and generate taxable income.

 

Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the statement of financial position date, except:

 

·          The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits;

·          Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and

·          Where timing differences relate to interests in subsidiaries, associates, branches and joint ventures and the Group can control their reversal and such reversal is not considered probable in the foreseeable future.

 

Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

 

Share capital

 

Ordinary shares are classified as equity. There is one class of ordinary share in issue, as detailed in note 21.

 

Reserves

 

The Group and Company's reserves are as follows:

 

·          Called up share capital reserve represents the nominal value of the shares issued;

·          The share premium account includes the premium on issue of equity shares, net of any issue costs;

·          Share based payment reserve represents the total value expensed at the balance sheet date in relation to the fair value of the share options at their grant date expensed over the vesting period under the relevant share option schemes;

·          Merger reserve arose on the business combination that was accounted for as a merger in accordance with FRS 102;

·          Retained earnings represents cumulative profits or losses, net of dividends paid and other adjustments.

 

 

 

 Financial assets

 

The Group classifies all of its financial assets at amortised cost.  Financial assets do not comprise prepayments, or contract assets, although contract assets are in scope of IFRS 9's impairment requirements as discussed below.  Management determines the classification of its financial assets at initial recognition.

 

The Group's financial assets held at amortised cost comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.  These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold their assets in order to collect contractual cash flows and the contractual cash flows are solely payments of the principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

 

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net; such provisions are recorded in a separate provision account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

 

The expected loss rates are based on the Group's historical credit losses experienced over the last three periods prior to the period end.  The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers.  The Group has identified the gross domestic product (GDP), unemployment rates and inflation rate as the key macroeconomic factors in the countries that the Group operates.

 

Impairment provisions for other receivables are recognised based on the general impairment model within IFRS 9.  Under the General approach, at each reporting date, the Group determines whether there has been a significant increase in credit risk (SICR) since initial recognition and whether the loan is credit impaired. This determines whether the loan is in Stage 1, Stage 2 or Stage 3, which in turn determines both the amount of ECL to be recognised i.e. 12-month ECL or Lifetime ECL.

 

Financial liabilities

 

The Group classifies its financial liabilities in the category of financial liabilities at amortised cost.  All financial liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provision of the instrument.

 

Financial liabilities measured at amortised cost include:

 

·     Trade payables and other short-dated monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.

·       Bank and other borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument.  Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

 

Unless otherwise indicated, the carrying values of the Group's financial liabilities measured at amortised cost represents a reasonable approximation of their fair values.

 

Impairment of assets

 

Assets that are subject to depreciation or amortisation are assessed at each reporting date to determine whether there is any indication that the assets are impaired. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGUs).

 

Where there is any indication that an asset may be impaired, the carrying value of the asset (or CGUs to which the asset has been allocated) is tested for impairment. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's (or 'GU's) fair value less costs to sell and value in use. Non-financial assets that have been previously impaired are reviewed at each reporting date to assess whether there is any indication that the impairment losses recognised in prior periods may no longer exist or may have decreased. Goodwill is reviewed for impairment on an annual basis, with any impairment to goodwill not reversed at a later period.

 

 

Share-based payments

 

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.

 

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of equity instruments that will eventually vest.  At each reporting date, the Group revises its estimate on the number of equity investments expected to vest.  The impact of the revision of the original estimates, if any, is recognised in the Statement of Comprehensive Income over the remaining vesting period, with a corresponding adjustment to the Share Based Payment Reserve.

 

In the event that the terms of equity-settled share-based payments are modified these are valued at the date of modification and, where this results in an increase to fair value, the charge is recognised in the statement of comprehensive income over the remaining vesting period, or recognised immediately where the vesting period has already passed.

 

Leases

 

All leases are accounted for by recognising a right-of-use asset and a lease liability except for leases of low value assets; and leases with a duration of twelve months or less, in line with the requirements of IFRS 16.

 

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

 

On initial recognition, the carrying value of the lease liability also includes:

 

·          Amounts expected to be payable under any residual value guarantee;

·          The exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option;

·          Any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.

 

Right-of-use assets ("ROUA") are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

 

·          Lease payments made at or before commencement of the lease;

·          Initial direct costs incurred; and

·          The amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset.

 

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.

When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.

 

When the Group renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification:

 

·        If the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease in accordance with the above policy;

·        In all other cases where the renegotiated increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount;

·        If the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial or full termination of the lease with any difference recognised in profit or loss. The lease liability is then further adjusted to ensure its carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the same amount.

 

For contracts that both convey a right to The Group to use an identified asset and require services to be provided to The Group by the lessor, The Group has elected to account for the entire contract as a lease, i.e. it does allocate any amount of the contractual payments to, and account separately for, any services provided by the supplier as part of the contract.

 

Retirement benefits

 

The Group operates a number of defined contribution plans.  A defined contribution plan is a pension plan under which the employer pays fixed contributions into a separate entity.  Contributions payable to the plan are charged to the income statement in the period in which they relate.  The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

 

Holiday pay accrual

 

All employees accrue holiday pay during the calendar year, the Board encourages all employees to use their full entitlement throughout the year.  A liability is recognised to the extent of any unused holiday pay entitlement which has accrued at the statement of financial position date and carried forward to future periods.  This is measured at the undiscounted salary cost of the future holiday entitlement so accrued at the balance sheet date.

 

Standards adopted in the year

 

No new standards have been adopted in the reporting period as all were adopted previously.

 

Standards, amendments and interpretations not yet effective

 

There are no standards issued not yet effective that will have a material effect on the Group's financial statements.  The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

 

5

Significant accounting judgements, estimates and assumptions

 

The Group makes certain estimates and assumptions regarding the future.  Estimates and judgements are continually evaluated based on historical experience and other factors, including the expectation of future events that are believed to be reasonable under the circumstances.  In the future, actual experience may differ from these estimates and assumptions.  The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are detailed below.

 

Capitalisation of development costs

 

Costs are capitalised in relation to the development of the underlying software utilised within the Group.  The most critical judgement is establishing whether the costs capitalised meet the criteria set out within IAS 38.  Further, the most critical estimate is how the intangible asset can generate future economic benefit.   Projects that are maintenance in nature are expensed as incurred whereas development that generates benefits to the group are capitalised.  After capitalisation management monitors whether the recognition requirements continue to be met and whether there are any indicators that the capitalised costs are required to be impaired. See note 15 for details of amounts capitalised.

 

Measurement and impairment of goodwill and intangible assets

 

As set out in note 4 above the carrying value of goodwill is reviewed for impairment at least annually and for other intangible assets when an indication of impairment is identified.  In determining whether goodwill or intangible assets are impaired, an estimation of the value in use of each cash generating unit (CGU) is required.  This calculation of value in use requires estimates to be made relating to the timing and amount of future cash flows expected and suitable discount rates based on the Group's weighted average cost of capital, in addition to the estimation involved in preparing the initial projected cash flows for the next 5 years.

 

These estimates have been used to conclude on any impairment required to either goodwill or intangible assets but are judgemental in nature.  See note 15 for details of the key assumptions made.

 

Valuation of Share Options

 

During the year the Group incurred a share-based payment charge of £597,000 (2022: £741,000).

 

The charge related to options in the Group granted at IPO, options granted in previous financial years, new share options granted in this financial year and a modification to the terms of certain of those options granted in this financial year.  New options granted during the year ended 31 July 2023 is based on valuations undertaken using a Black Scholes or Monte Carlo Simulation option pricing models, depending on the type of option.  Judgements were required when assessing the valuation in relation to share price volatility, the expected life of the options issued, the proportion that would be exercised, the risk-free rate applicable and the likely achievement of performance targets where applicable.  The modification to the terms of certain options granted in the year resulted in an increased fair value for which a charge was recognised immediately as the original vesting period had passed. The valuation of those options issued after IPO is spread over the vesting period and there will, therefore, be further share based payment expenses in future years in relation to those options.  See note 28 for details.

 

6

Segmental Reporting

 

 

 

The Group generates revenue largely in the UK and the USA. The majority of the Group's customers provide flexible office facilities together with ancillary services (e.g. meeting rooms and virtual services) including technology connectivity.

 

The Group generates revenue from the following activities:

 

·         Establishing services at customer sites (e.g. providing and managing installations, equipment and training on software); Recurring monthly fees for using the    Group's software platforms;

·          Revenue from usage of on demand services such as internet and telephone usage and other, on demand, variable services; and

·          Other ad-hoc service.

 

The Group has one single business segment which is the provision of software and technology platforms that manage the critical infrastructure and business processes, primarily to the flexible workspace segment of the real estate industry. The Group has two revenue streams and three geographical segments, as detailed in the tables below.

 

 

6A

Revenue analysis by geographic area

 

 

 

 

 

 


The Group operates in two main geographic areas, the United Kingdom and the United States of America.  The whole of the turnover is attributed to the principal activity.  The Group's revenue per geographical segment is as follows:

 

 

 

 

 

 

2023

2022

 

 

£000

£000


Analysis of turnover by country of destination:

 







United Kingdom and Europe

8,673

9,797


North America

15,747

13,233


Asia Pacific region

834

268



_________

_________



 



Total Income

25,254

23,298



_________

_________



 

 

6B

Revenue analysis by revenue streams

 

 



 

 


The Group has two main revenue streams, Operate, and essensys Platform and Connect. The Group's revenue per revenue stream is as follows: 



 

 



2023

2022



£000

£000



 

 


Essensys Platform and Connect

23,543

21,479


Operate

1,711

1,819



_________

_________






Total Income

25,254

23,298



_________

_________














 

Connect revenue includes all revenue generated in relation to the Group's Connect product.  It includes revenue recognised at a point in time as well as recognised over a period of time.

 

Operate revenue includes all revenue generated in relation to the Group's Operate product.  The revenue is recognised over a period of time.

 

6C

Revenue disaggregated by 'point in time' and 'over time'

 

 

 

 

 

 

 

The Group revenue disaggregated between revenue recognised 'at a point in time' and 'over time' is as follows:

 

 

 

 



2023

2022



£000

£000



 

 


Revenue recognised at a point in time

4,341

3,158


Revenue recognised over time

20,913

20,140



_________

_________






Total Income

25,254

23,298



_________

_________





 

 

 

6

Segmental Reporting (continued)

 

 

 

6D

Revenue from customers greater than 10%

 

 

 

 

 

 

 

Revenue from customers greater than 10% in each reporting period is as follows:

 

 

 

 



2023

2022



£000

£000



 

 


Customer 1

6,865

5,422



_________

_________

 

 

6E

Contract assets and liabilities

 

 

 

 

Contract asset movements were as follows:



2023

2022



£000

£000



 

 


At 1 August

887

345


Transfers in the period from contract assets to trade receivables

(544)

(85)


Excess of revenue recognised over cash (or rights to cash) being recognised during the period

175

558


Capital asset contract contributions capitalised

57

37


Capital asset contract contributions released as contract obligations are fulfilled

(58)

(28)


Capitalised commission cost released as contract obligations fulfilled

(210)

(111)


Commission costs capitalised on contracts

161

171



_________

_________






At 31 July

468

887



_________

_________









 

Contract liability movements were as follows:

 

 

 

 



2023

2022



£000

£000



 

 


At 1 August

815

323


Amounts included in contract liabilities that were recognised as revenue during the period

(815)

(323)


Cash received and receivables in advance of performance and not recognised as revenue during the period

420

815



_________

_________






At 31 July

420

815



_________

_________





 

Contract assets are included within 'trade and other receivables' and contract liabilities is shown separately on the face of the statement of financial position.  Contract assets arise from the group's revenue contracts, where work is performed in advance of invoicing customers, and contract liabilities arise where revenue is received in advance of work performed.  Cumulatively, payments received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts.  Capital asset contract contributions represents costs incurred by the Group in the form of customer incentives spread over the life of the customer contract.  Commission costs capitalised on contracts represents internal sales commission costs incurred on signing of customer contracts and, in line with the requirements of IFRS15, spread over the life of the customer contract.

 

7

Restructuring costs

 

 

 

 

 

 

 

Restructuring costs were as follows:

 

 

 

 



2023

2022



£000

£000



 

 


Restructuring costs

2,610

-



_________

_________

 

During the year the Group announced a global reorganisation which positions it for sustainable growth, profitability and a return to cash generation. This included the simplification of global operations and moves the Group from a regional to a functional structure. The restructuring costs in FY23 reflect the total expected cost of the reorganisation, which was completed after the year end as disclosed in note 31; there are not expected to be any significant further costs incurred. The cost relates to termination of employment, being redundancy costs and payment in lieu of notice in certain cases, and any other costs to achieve the reorganisation including the cost to exit the Singapore office and the cost of external legal advice specific to the reorganisation. In addition to the restructuring costs, the Group recognised impairment costs for tangible fixed assets and right of use assets in Hong Kong and Singapore which are described separately within the impairment charge in notes 16 and 17 below.

 

8

Operating loss

 

 

 

 

2023

2022

 

 

£000

£000


This is arrived at after charging/(crediting):

 




 



Amortisation of intangible assets

2,081

1,241


Depreciation of tangible fixed assets

1,405

617


Depreciation of right of use assets

1,349

1,268


Impairment of right of use assets

274

-


Impairment of goodwill

275

122


Accelerated amortisation of other intangible assets

350

-


Impairment of tangible fixed assets

313

-


Fees payable to the Group's auditor (see below)

315

260


(Profit)/loss on disposal of tangible fixed assets

(5)

36


Exchange differences

31

-


Research & Development expense

3,428

3,006


Staff costs (note 9)

19,858

19,384


Share based payment charges

597

741



_______

_______










Analysis of fees paid to the Group's auditor:

 




 



Annual financial statements - parent company

75

60


Annual financial statements - subsidiary companies

133

94



_________

_________



 



Audit Fee

208

154



_________

_________



 



Assurance services

41

35


Other services

66

71



_________

_________



 



Non audit services

107

106



_________

_________



 



Total fee

315

260



_______

_______



 


 

 

9

Employees

 

 

 



 

 

Staff costs (including directors) consist of:

 

 

 

 

2023

2022



£000

£000



 



Wages and salaries

14,898

13,898


Social security costs

1,740

1,546


Cost of defined contribution scheme

603

426


Other

2,617

3,514



_________

_________



 




19,858

19,384



_________

_________






Other staff costs comprise the cost of recruitment, other employee benefits, redundancy and temporary staff.


 

The average number of employees (including directors) during the year was as follows:


 

 

2023

2022

 

 

No.

No.



 



Executive

9

9


Sales & Marketing

28

26


Finance & Administration

22

26


Support

47

38


Development

58

52


Provisioning

7

6



_________

_________







171

157



_________

_________






 

10

Key management remuneration

 

 

 

 

 

 

 

Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited and essensys, Inc, the Group's principal trading subsidiaries, who together have authority and responsibility for planning, directing, and controlling the activities of the Group.

 

 

 

 

 

 

2023

2022

 

 

£000

£000



 



Salaries and fees

2,949

2,658


Social security costs

268

275


Short term non-monetary benefits

56

23


Company contributions to money purchase pension schemes

131

129


Share based payment expense

569

409

 

 

_________

_________







3,973

3,494



_________

_________





 


 

 

 

 

 

11

Interest receivable and similar income

 

 

 

 

2023

2022

 

 

£000

£000

 

 

 

 

 

Interest receivable from bank deposits

216

94

 

 

_________

_________



 




216

94



_________

_________

 

 

 

12

Interest payable and similar charges

 

 

 

 

2023

2022

 

 

£000

£000

 

 

 

 


Lease liabilities

164

147

 

 

_________

_________



 




164

147



_________

_________

 

13

Taxation on loss on ordinary activities

 

 

2023

2022

 

 

£000

£000

 

Current tax

 



UK corporation tax

-

-


Adjustment in respect of previous periods

-

-


Foreign tax on income for the year

245

8



_________

_________



 



Total current tax

245

8



_________

_________


Deferred tax

 



Origination and reversal of timing differences

-

(260)


Adjustments in respect of prior periods

-

(34)



_________

_________



 



Total deferred tax

-

(294)



_________

_________



 



Taxation on loss on ordinary activities

245

(286)



_________

_________

 

The tax assessed for the year is higher than the standard rate of corporation tax in the UK applied to profit before tax.  The differences are explained below:

 

 

 

2023

2022

 

 

£000

£000



 



Loss on ordinary activities before tax

(15,473)

(11,085)



_________

_________



 



Tax using the Group's domestic tax rates (21% (2022:19%))

(3,249)

(2,106)



 



Effects of:

 



Fixed asset differences

53

199


Expenses not deductible for tax purposes

175

351


Income not taxable for tax purposes

-

(14)


Difference in current tax and deferred tax rates

(473)

(36)


Timing differences not recognised

-

(24)


Other permanent differences

669

-


Deferred tax not recognised

3,070

1,344



_________

_________



 



Total tax charge for period

245

(286)



_________

_________

 

Factors that may affect future tax charges

 

Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2022 (on 10 June 2021).  This included an increase to the main rate to increase the rate to 25% from 1 April 2023.  The change being affective from 1 April 2023 has resulted in a blended tax rate of 21% for this financial year.

 

The deferred tax arises primarily from timing differences on the taxation related to capitalised development costs.

 

 

14

Earnings per share

 

 

 

 

2023

2022

 

 

 

 

 

Basic weighted average number of shares

64,407,222

64,385,219

 

 

_________

_________

 

 

 


 

Fully diluted weighted average number of shares

64,407,222

64,385,219

 

 

_________

_________

 

 

 


 

 

 

2023

2022

 

 

£000

£000

 

 

 



Loss for the year attributable to owners of the group

(15,706)

(10,799)



_________

_________



 



Basic and diluted loss per share (pence)

(24.4p)

(16.8p)



_________

_________

 

The loss per share has been calculated using the loss for the year and the weighted average number of ordinary shares outstanding during the period.

 

Share options held at the year-ended 31 July 2023 are anti-dilutive and so have not been included in the diluted earnings per share calculation.

 

15

Intangible assets

 

 

 

 

 

 

 

 

Assets in the course

Customer

Internal software

 

 

 

 

Group

of construction

relationships

development

Software

Goodwill

Total

 

 

£000

£000

£000

£000

£000

£000

 

Cost








At 1 August 2022

215

335

13,116

280

1,263

15,209


Additions

407

-

3,436

-

-

3,843


Transfers

-

-

-

-

-

-



_________

_________

_________

_________

_________

_________









 

At 31 July 2023

622

335

16,552

280

1,263

19,052



_________

_________

_________

_________

_________

_________

 

Amortisation








At 1 August 2022

-

335

5,550

280

122

6,287


Charge for year

-

-

2,431

-

-

2,431


Impairment

-

-

-

-

275

275



_________

_________

_________

_________

_________

_________









 

At 31 July 2023

-

335

7,981

280

397

8,993



_________

_________

_________

_________

_________

_________

 

Net book value








At 31 July 2023

622

-

8,571

-

866

10,059



_________

_________

_________

_________

_________

_________










At 31 July 2022

215

-

7,566

-

1,141

8,922



_________

_________

_________

_________

_________

_________

 

The goodwill relates to the acquisition of Hubcreate Limited on 18 February 2016. The goodwill all relates to the Operate cash generating unit (CGU).

 

The Group estimates the recoverable amount of the Operate CGU using a value in use model by projecting pre-tax cash flows for the next 5 years. The key assumptions underpinning the recoverable amount of the CGU are forecast revenue and forecast EBITDA percentage. The forecast revenues in the model are based on management's past experience and future expectations of performance. The post-tax discount rate used in all periods is 14% derived from a WACC calculation and benchmarked against similar organisations within the sector.  Management do not anticipate this CGU providing long term future cash flows for the group.  As such the latest projection shows an average 8% decline in revenue year on year which is consistent with the decline in revenue during the financial year ended 31 July 2023.  Using a discount rate of 14% (2022: 12%) resulted in an additional impairment of £275,000 and as such an impairment charge has been booked in this period (2022: 122,000).

 

Capitalised internal software development costs relates to both the essensys CGUs, the first CGU being essensys Platform and Connect and the second CGU being Operate.  The amounts specific to each CGU can be separately determined. 

 

The Group estimates the recoverable amount of the essensys Platform and Connect CGU using a value in use model by projecting pre-tax cash flows for the next 5 years including a terminal value calculation after the fifth year.  The key assumptions underpinning the recoverable amount of the CGU are forecast revenue and forecast EBITDA percentage. The forecast revenues in the model are based on management's past experience and future expectations of performance. The post-tax discount rate used in all periods is 14% derived from a WACC calculation and benchmarked against similar organisations within the sector.  Using a discount rate of 14% resulted in no impairment of the CGU; however, as more customers move from Connect to essensys Platform as a result of its strategic benefits to their business, management foresee that Connect will ultimately become obsolete and as such have increased the rate of amortisation by £350,000 of those assets directly attributed to the product.  Management expects a similar amount in the financial year-ended 31 July 2024 by which point all assets directly attributed to the Connect product will be fully amortised.

 

The asset in course of construction capitalised this year is the cost to date for development of the software for the Group's in-development dynamic access control solution.  It is expected that the asset will be complete before the end of the next financial year.

 

15

Intangible assets (continued)

 

 

 

 

 

 

 

 

Assets in the course

Customer

Internal software

 

 

 

 

Group

Of construction

relationships

development

Software

Goodwill

Total

 

 

£000

£000

£000

£000

£000

£000









 

Cost








At 1 August 2021

1,412

335

7,832

280

1,263

11,122


Additions

215

-

3,872

-

-

4,087


Transfers

(1,412)

-

1,412

-

-

-



_________

_________

_________

_________

_________

_________










At 31 July 2022

215

335

13,116

280

1,263

15,209


 

_________

_________

_________

_________

_________

_________

















 

Amortisation








At 1 August 2021

-

335

4,309

280

-

4,924


Charge for year

-

-

1,241

-

-

1,241


Impairment

-

-

-

-

122

122



_________

_________

_________

_________

_________

_________










At 31 July 2022

-

335

5,550

280

122

6,287

 

 

_________

_________

_________

_________

_________

_________










Net book value







 

At 31 July 2022

215

-

7,566

-

1,141

8,922


 

_________

_________

_________

_________

_________

_________










At 31 July 2021

1,412

-

3,523

-

1,263

6,198



_________

_________

_________

_________

_________

_________









 


16

Property, plant and equipment

 

 

 

 

 

 

 

Fixtures and

Computer

Leasehold

 

 

Group

 

fittings

equipment

improvements

Total

 

 

 

£000

£000

£000

£000








 

Cost







At 1 August 2022


242

10,605

686

11,533


Additions


-

566

64

630


Disposals


-

(313)

-

(313)


Exchange adjustments


(2)

(264)

-

(266)




_________

_________

_________

_________








 

At 31 July 2023

 

240

10,594

750

11,584




_________

_________

_________

_________








 

Depreciation







At 1 August 2022


207

8,109

398

8,714


Charge for year


10

1,101

294

1,405


Impairment


-

313

-

313


Disposals


-

(198)

-

(198)


Exchange adjustments


(2)

(225)

-

(227)




_________

_________

_________

_________








 

At 31 July 2023

 

215

9,100

692

10,007

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 July 2023

 

25

1,494

58

1,577

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 


At 31 July 2022


35

2,496

288

2,819




_________

_________

_________

_________











Fixtures and

Computer

Leasehold





fittings

equipment

improvements




£000

£000

£000

£000




 

 

 

 


Cost


 

 

 

 


At 1 August 2021


382

8,387

130

8,899


Additions


34

1,504

3

1,541


Disposals


(188)

-

(33)

(221)


Transfers (note 17)


-

180

584

764


Exchange adjustments


14

534

2

550




_________

_________

_________

_________








 

At 31 July 2022

 

242

10,605

686

11,533




_________

_________

_________

_________









Depreciation







At 1 August 2021


322

7,020

86

7,428


Charge for year


29

564

24

617


Disposals


(152)

-

(33)

(185)


Transfers (note 17)


-

129

318

447


Exchange adjustments


8

396

3

407




_________

_________

_________

_________








 

At 31 July 2022

 

207

8,109

398

8,714




_________

_________

_________

_________








 

Net book value

 

 

 

 

 

 

At 31 July 2022

 

35

2,496

288

2,819

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 


At 31 July 2021


60

1,367

44

1,471




_________

_________

_________

_________

 

 

16

Property, plant and equipment (continued)

 

 

 

 

 

Transfers represent right of use assets which reached their contract term and where legal title transferred to the Group.

 

As a result of the reorganisation that has centralised the Group's APAC operations in Sydney, Australia and the evolution of the 'capital light' strategy, Management have reviewed the carrying value of the computer hardware within the APAC region and have impaired those assets where the carrying value was in excess of their recoverable value resulting in an impairment of £313,000 and as such the impairment charge has been booked in this period.

.

 

 17

Right of use assets

 

 

 

 

 

 

Leasehold

Computer

Leasehold

 

 

Group

property

equipment

improvements

Total

 

 

£000

£000

£000

£000







 

Cost






At 1 August 2022

7,049

162

-

7,211


Additions

198

-

-

198


Lease remeasurement

95

-

-

95


Exchange adjustments

(128)

-

-

(128)



_________

_________

_________

_________







 

At 31 July 2023

7,214

162

-

7,376



_________

_________

_________

_________







 

Depreciation






At 1 August 2022

4,567

162

-

4,729


Charge for year

1,349

-

-

1,349


Impairment

274

-

-

274


Exchange adjustments

(116)

-

-

(116)



_________

_________

_________

_________








At 31 July 2023

6,074

162

-

6,236



_________

_________

______

_________

 

 

 

 

 

 

 

Net book value





 

At 31 July 2023

1,140

-

-

1,140



_________

_________

_________

_________








At 31 July 2022

2,482

-

-

2,482



_________

_________

_________

_________









Leasehold

Computer

Leasehold




Property

equipment

improvements

Total



£000

£000

£000

£000



 

 

 

 


Cost

 

 

 

 


At 1 August 2021

5,482

342

584

6,408


Additions

1,062

-

-

1,062


Lease remeasurement

1,136

-

-

1,136


Disposal

(872)

-

-

(872)


Transfers (note 16)

-

(180)

(584)

(764)


Exchange adjustments

241

-

-

241



_________

_________

_________

_________







 

At 31 July 2022

7,049

162

-

7,211



_________

_________

_________

_________








Depreciation






At 1 August 2021

3,693

278

277

4,248


Charge for year

1,214

13

41

1,268


Disposal

(462)

-

-

(462)


Transfers (note 16)

-

(129)

(318)

(447)


Exchange adjustments

122

-

-

122



_________

_________

_________

_________







 

At 31 July 2022

4,567

162

-

4,729



_________

_________

______

_________







 

Net book value

 

 

 

 

 

At 31 July 2022

2,482

-

-

2,482



_________

_________

_________

_________








At 31 July 2021

1,789

64

307

2,160



_________

_________

_________

_________

 

 

 17

Right of use assets (continued)

 

 

 

 

 

As a result of the reorganisation that has centralised the Group's APAC operations in Sydney, Australia and the evolution of the 'capital light' strategy, Management have reviewed the carrying value of the right of use assets within the APAC region and have impaired those assets where the carrying value was in excess of their recoverable value resulting in an impairment of £274,000 and as such the impairment charge has been booked in this period.

 

The transfers are assets that were classified as right of use assets where the lease term expired and the Group chose to purchase the assets at the end of the lease term, as they were still in active use within the Group.  The assets are now listed within note 16.

 

18

Subsidiaries

 

 

 

 

 

Subsidiary undertakings, associated undertakings and other investments

 

The following were subsidiary undertakings of the company:

 

 

 

Proportion of

 

 

 

Country of

voting rights

 

 

 

incorporation

and ordinary

 

 

Name

or registration

share capital held

Status

Nature of business






essensys (UK) Ltd

United Kingdom

100%

Trading

Provider of software and technology platforms to the flexible workspace industry

essensys, Inc

United States of America

100%

Trading

Provider of software and technology platforms to the flexible workspace industry

essensys (Canada) Inc

Canada

100%

Trading

Provider of software and technology platforms to the flexible workspace industry

essensys (Europe) BV

Netherlands

100%

Trading

Provider of software and technology platforms to the flexible workspace industry

essensys (APAC Holdings) Ltd

United Kingdom

100%

Non-trading

Provider of software and technology platforms to the flexible workspace industry

essensys (Hong Kong) Ltd

Hong Kong

100%

Trading

Provider of software and technology platforms to the flexible workspace industry

essensys (Singapore) Pte Ltd

Singapore

100%

Trading

Provider of software and technology platforms to the flexible workspace industry

essensys (Australia) Pty Ltd

Australia

100%

Trading

Provider of software and technology platforms to the flexible workspace industry

Hubcreate Limited

United Kingdom

100%

Non-trading

Provider of workspace management software

TVOC Limited

United Kingdom

100%

Non-trading

Virtual office provider

Spacebuddi Limited

United Kingdom

95%

Dormant

-

 

The registered office of essensys (UK) Ltd, essensys (APAC Holdings) Ltd, Hubcreate Limited, TVOC Limited and Spacebuddi Limited are as per the Company as given on the company information page.

 

The office of essensys Inc is 600 5th Avenue, Floor 2, New York City, NY 10020, United States of America. 

 

The registered office of essensys (Canada) Inc is 550 Burrard Street, Vancouver, British Columbia, V6C 0A3

 

The registered office of essensys (Europe) BV is Herikerbergweg 88, Amsterdam, 1101CM. 

 

The registered office of essensys (Hong Kong) Ltd Room 1901, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong. 

 

The registered office of essensys (Singapore) Pte Ltd is 9 Raffles Place, #26-01, Republic Plaza, 048619, Singapore. 

 

The registered office of essensys (Australia) Pty Ltd is Suite 902, 146 Arthur Street, North Sydney, NSW 2060, Australia. 

 

 

19

Inventories

 

 

 

 

2023

2022

 

 

£000

£000



 



Finished goods

2,021

2,353


Work in progress

239

193



_________

_________



 




2,260

2,546

 

 

_________

_________

 

Work in progress are items and third-party services purchased to satisfy specific customer contracts, where title has not yet passed.  Finished goods are items purchased in the prior financial year to secure sufficient resources, with a global shortage of silicon, to satisfy expected future customer contracts.

 

20

Trade and other receivables

 

 

 

 

2023

2022

 

 

£000

£000



 



Trade receivables (net)

3,053

3,684


Other receivables

268

465


Prepayments

828

1,316


Contract assets (note 6E)

468

887


Current taxes receivable

-

82



_________

_________



 




4,617

6,434

 

 

_________

_________

 

Analysis of trade receivables based on age of invoices

 

 

< 30

£'000

31 - 60

£'000

61 -90

£'000

> 90

£'000

Total Gross

£'000

ECL

£'000

Total Net

£'000

2023

2,042

242

146

1,016

3,446

(393)

3,053

2022

1,762

256

429

1,871

4,318

(634)

3,684

 

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. The majority of trade and other receivables are non-interest bearing. Where the effect is material, trade and other receivables are discounted using discount rates which reflect the relevant costs of financing. The carrying amount of trade and other receivables approximates fair value.

 

The Group applies the IFRS 9 simplified approach to measuring expected credit losses (ECL) which uses a lifetime expected loss allowance for all trade receivables. The ECL balance has been determined based on historical data available to management in addition to forward looking information utilising management knowledge.

 

At 31 July 2023 the lifetime expected loss provision for trade receivables and contract assets is as follows:

 

 

31 July 2023

 

 

 

 

 

 

Less than 30

31 to 60

61 to 90

91 or more

 

 

 

days past due

days past due

days past due

days past due

Total

 

 

£000

£000

£000

£000

£000








 

Expected loss rate

0%

6.8%

10.9%

35.5%

 


Gross carrying amount

2,510

242

146

1,016

3,914


ECL

-

17

16

360

393








 

 

31 July 2022

 

 

 

 

 

 

Less than 30

31 to 60

61 to 90

91 or more

 

 

 

days past due

days past due

days past due

days past due

Total

 

 

£000

£000

£000

£000

£000








 

Expected loss rate

0%

5.4%

8.6%

31.2%



Gross carrying amount

2,650

256

429

1,871

5,206


ECL

-

14

37

583

634








 

 

20

Trade and other receivables (continued)

 

 

 

Movements in the ECL are as follows:

 

 

 

2023

2022

 

 

£000

£000

 

 

 



Opening ECL at 1 August

634

580



 



ECL charge for the year

1,037

423


Receivables written off as uncollectable

(1,278)

(369)



_______

_______



 



At 31 July

393

634



_______

_______

 

 

21

Share capital

 

 

 

 

2023

2022

 

 

£000

£000

 

 

 



Allotted, called up and fully paid

 



64,649,260 (2022 - 64,385,219) ordinary shares of 0.25p each (2022 - 0.25p)

162

161



_______

_______

 

264,041 shares were issued on 7th July 2023 as a result of vested share options being exercised.

 

22

Share premium

 

 

 

 

2023

2022

 

 

£000

£000

 

 

 



Share premium at start of period

51,660

51,660


Issue of new shares

-

-


Cost of issuing new shares recognised in equity

-

-



_______

_______


 

 




51,660

51,660



_______

_______

                       

23

Trade and other payables

 

 

 

2023

2022

 

 

£000

£000


Amounts falling due within one year

 



Trade payables

1,399

4,487


Other taxes and social security

528

244


Other creditors

511

1,050


Accruals

2,324

1,641



_________

_________



 




4,762

7,422



_________

_________



 


 

 

24

Lease liabilities

 

Nature of leasing activities

 

The Group leases a number of assets in the jurisdictions from which it operates in with all lease payments fixed over the lease term.

 


 

 


2023

2022


 

 


£000

£000


 

 


 



Number of active leases

 


15

15


 

 


_________

_________

 

The Group sometimes negotiates break clauses in its leases. On a case-by-case basis, the Group will consider whether the absence of a break clause would expose the Group to excessive risk. Typically, factors considered in deciding to negotiate a break clause include:

 

·          The length of the lease term;

·          The economic stability of the environment in which the property is located; and

·          Whether the location represents a new area of operations for the Group.

 

At both 31 July 2023 and 2022 the carrying amounts of lease liabilities are not reduced by the amount of payments that would be avoided from exercising break clauses because on both dates it was considered reasonably certain that the Group would not exercise its right to exercise any right to break the lease.  Where extensions to leases are permitted the Group has chosen to assume that the extensions will be taken and liabilities reflect this position.

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000


 

 

 


 



At 1 August 2022

3,128

-

-

-

3,128


Additions

-

-

-

-

-


Interest expense

164

-

-

-

164


Effect of modifying lease term

292

-

-

-

292


Variable lease payment adjustment

28

-

-

-

28


Lease payments

(2,006)

-

-

-

(2,006)


Foreign exchange movements

(35)

-

-

-

(35)



_________

_________

_________

_________

_________



 

 

 

 

 


At 31 July 2023

1,571

-

-

-

1,571



_________

_________

_________

_________

_________

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000


 

 

 


 



At 1 August 2021

1,841

29

20

45

1,935


Additions

1,061

-

-

-

1,061


Interest expense

145

1

-

1

147


Effect of modifying lease term

877

-

-

-

877


Lease payments

(944)

(30)

(20)

(46)

(1,040)


Foreign exchange movements

148

-

-

-

148



_________

_________

_________

_________

_________









At 31 July 2022

3,128

-

-

-

3,128



_________

_________

_________

_________

_________

 

 

24

Lease liabilities (continued)

 

 

Lease maturity

 

 

 

 

 

 

 

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000

 

 

2023

2023

2023

2023

2023


 

 

 


 



Up to 3 months

207

-

-

-

207


3 to 12 months

704

-

-

-

704


1-2 years

660

-

-

-

660


2-5 years

-

-

-

-

-



_________

_________

_________

_________

_________



 

 

 

 

 



1,571

-

-

-

1,571



_________

_________

_________

_________

_________



 

 

 

 

 

 

 

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000

 

 

2022

2022

2022

2022

2022


 

 

 


 



Up to 3 months

-

-

-

-

-


3 to 12 months

135

-

-

-

135


1-2 years

389

-

-

-

389


2-5 years

2,604

-

-

-

2,604


More than 5 years

_________

_________

_________

_________

_________










3,218

-

-

-

3,218



_________

_________

_________

_________

_________








 

 

Analysis by current and non-current

 

 

 

 

 

 

 

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000

 

 

2023

2023

2023

2023

2023


 

 

 


 



Due within a year

1,264

-

-

-

1,264


Due in more than one year

307

-

-

-

307



_________

_________

_________

_________

_________



 

 

 

 

 



1,571

-

-

-

1,571



_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000

 

 

2022

2022

2022

2022

2022


 

 

 


 



Due within a year

1,469

-

-

-

1,469


Due in more than one year

1,659

-

-

-

1,659



_________

_________

_________

_________

_________










3,128

-

-

-

3,128



_________

_________

_________

_________

_________

 

 

25

Deferred taxation

 

 

 

 

2023

2022

 

 

£000

£000






Brought forward

-

294


(Credited)/charged to the income statement

-

(294)



_________

_________

 

 




Carried forward

-

-



_________

_________

 

 

 


 


The provision for deferred taxation is made up as follows:



 

 

 

 

 

 

 

 

 

 

2023

2022

 

 

 

 

£000

£000




 




Fixed asset timing differences

 


-

-



 


_________

_________



 


 




 


 

-



 


-

_________

 

The Group has an unrecognised deferred taxation asset of £9,771,000 (2022: £3,043,000) in respect of tax losses and deductible temporary differences.  The Group has not recognised the deferred tax asset due to the lack of certainty over recovery of the asset.

 

 

 

2023

2022

 

 

£000

£000






Short term timing differences

487

415


Losses and other deductions

9,284

2,628



_________

_________






Unrecognised deferred taxation asset

9,771

3,043



_________

_________

 

 

Factors that may affect future tax charges

 

Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7 September 2016). These included reductions to the main rate to reduce the rate to 19 per cent. From 1 April 2017 and to 17 per cent. From 1 April 2021.  However, on 17 March 2021 the rate reduction due to come in effect on 1 April 2021 was substantively reversed so that the main rate of taxation will remain at 19 per cent, and this has been reflected in these financial statements.

 

Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2021 (on 10 June 2021).  This included an increase to the main rate to increase the rate to 25% from 1 April 2023.  The UK government has proposed the abolishment of the increase to the tax rate, but at the signing date of these financial statements the reversal has not yet been substantively enacted and so the rate has not been adjusted.

 

26

Financial instruments

 

The Group is exposed through its operations to the following financial risks:

 

·          Credit risk

·          Foreign exchange risk

·          Liquidity risk

 

In common with all other business, the Group is exposed to risks that arise from its use of financial instruments.  This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them.  Further quantitative information in respect to these risks is presented throughout these financial statements.

 

There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and procedures for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

 

Principal financial instruments

 

The principal financial instruments used by the Group, from which financial instrument risk arises are as follows:

 

·          Trade receivables

·          Cash and cash equivalents

·          Trade and other payables

·          Bank overdrafts

 

It is Group policy that no trading in financial instruments should be undertaken.

 

26

Financial instruments (continued)

 

Financial instruments by category

 

 

 

2023

2022

 

 

£000

£000

 

Financial assets at amortised cost

 


 

 

 


 

Cash and cash equivalents

7,862

24,122

 

Trade and other receivables

3,495

4,707

 


_________

_________

 


 


 

Total financial assets at amortised cost

11,357

28,829

 


_________

_________

 


 


 

Financial liabilities

 


 

 

 


 

Trade and other payables

4,233

7,178

 

Lease liabilities

1,571

3,128

 


_________

_________

 


 


 

Total financial liabilities

5,804

10,306

 


_________

_________

 

Financial instruments not measured at fair value

 

These include cash and cash equivalents, trade and other receivables, trade and other payables, and loans and borrowings.  Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables and trade and other payables approximates their fair value.

 

The Group's activities expose it to a variety of financial risks:

 

·          Market risk (including foreign exchange risk, price risk and interest rate risk)

·          Credit risk

·          Liquidity risk

 

The financial risks relate to the following financial instruments:

 

·          Cash and cash equivalents

·          Trade and other receivables

·          Trade and other payables

·          Loans and borrowings

 

The accounting policies with respect to these financial instruments are described above.

 

Risk management is carried out by the key management personnel.  Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited, the Group's principal trading subsidiary, who together have authority and responsibility for planning, directing, and controlling the activities of the Group.  The key management personnel identify and evaluate financial risks and provide principals for overall risk management.

 

(a) Credit Risk

 

Credit risk is the risk of financial loss to the Group if a customer fails to meet its contractual obligations.  The Group is mainly exposed to credit risk from credit sales.  It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts.

 

26

Financial instruments (continued)

 

Financial instruments not measured at fair value (continued)

 

(b) Market risk

 

(i) Foreign exchange risk

 

Foreign exchange risk arises because the Group operates in the United Kingdom, Europe, North America and the Asia Pacific region, whose functional currency is not the same as the presentational currency of the Group.  Foreign exchange risk also arises when individual companies within the group enter into transactions denominated in currencies other than their functional currency.  Such transactions are kept to a minimum either through the choice of suppliers or presenting sales invoices in the functional currency.

 

Certain assets of the group companies are denominated in foreign currencies.  Similarly, the Group has financial liabilities denominated in those same currencies.  In general, the Group seeks to maintain the financial assets and financial liabilities in each of the foreign currencies at a reasonably comparable level, thus providing a natural hedge against foreign exchange risk and reducing foreign exchange exposure to a minimal level.

 





2023

2022





£000

£000





 



Financial assets



5,026

21,541


Financial liabilities



2,733

3,368





_________

_________





 



The table below represents financial instruments that are denominated in currencies other than the functional currencies of the group entities:





2023

2022





US$000

US$000





 



Financial assets



7,126

7,249


Financial liabilities



1,683

3,661





_________

_________





 






2023

2022





CA$000

CA$000





 



Financial assets



25

93


Financial liabilities



13

6





_________

_________





 






2023

2022





?000

?000





 



Financial assets



794

658


Financial liabilities



192

336





_________

_________





 






 






2023

2022





HK$000

HK$000





 



Financial assets



683

1,962


Financial liabilities



442

1,064





_________

_________





 






2023

2022





SG$000

SG$000





 



Financial assets



155

1,024


Financial liabilities



475

829





_________

_________





 






2023

2022





AU$000

AU$000





 



Financial assets



470

545


Financial liabilities



266

379





_________

_________

 

 

26

Financial instruments (continued)

 

A 10 per cent weakening of the Group's reporting currency against the United States Dollar would have the following impacts on the groups reporting currency on the financial assets and liabilities listed above in United States Dollar:

 





2023

2022





$000

$000





 



Financial assets



(504)

(541)


Financial liabilities



(119)

(273)





_________

_________

 

(ii) Interest rate risk

 

The Group's interest rate exposure arises mainly from the interest-bearing borrowings as disclosed in note 24.  All the Group's facilities were floating rates excluding interest from leases, which exposed the group to cash flow risk.  As at 31 July 2023 there are no loans outstanding, (2022 - £nil) and the overdraft facility is available but not in use.  Therefore, there is no material exposure to interest rate risk.

 

(c) Liquidity Risk

 

Prudent liquidity risk management implies maintaining sufficient cash flows for operations.  The Group manages its risk to shortage of funds by monitoring forecast and actual cash flows.  The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool.  This tool considers the majority of both its borrowings and payables.

 

The Group has no borrowings at 31 July 2023 (2022: £nil).

 

A maturity analysis of the Group's trade and other payables is shown below:

 





2023

2022





£000

£000





 



Less than one year



4,781

7,178





_________

_________





 






4,781

7,178





_________

_________





 


 

27

Pension commitments

 

 

 

The group operates defined contribution pension schemes. The assets of the schemes are held separately from those of the group in an independently administered fund. The pension cost charge represents contributions payable by the group to the funds.

 

 

 

2023

2022

 

 

£000

£000

 

 

 



Pension charge

603

426



_______

_______



 



Pension liability

100

78



_______

_______

 

 

28

Share based payments

 

 

 

The Company operates five equity-settled share-based remuneration schemes for employees; two United Kingdom tax authority approved schemes (one EMI and one CSOP), an unapproved Performance Share Plan scheme, a share option plan for non-United Kingdom employees and an unapproved Non-Executive Director Plan.  The UK plans includes employees from the Company and its main UK trading subsidiary essensys (UK) Ltd.

 

 

 

Weighted

 

Weighted

 

 

 

average

 

average

 

 

 

exercise

 

exercise

 

 

 

price

 

price

 

 

 

(£)

Number

(£)

Number

 

 

2023

2023

2022

2022



 

 




Outstanding at the beginning of the year

1.04

3,357,503

1.08

3,378,829


Granted during the year

0.0025

2,702,178

0.25

89,219


Forfeited during the year

0.4482

(375,157)

1.60

(110,545)


Exercised during the year

0.0025

(264,041)

-

-



 

_________


_________



 

 




Outstanding at the end of the year

0.6139

5,420,483

1.04

3,357,503




_________


_________

 

The weighted average exercise price of options outstanding at the end of the year was 0.6139p (2022: 103.93p) and their weighted average contractual life was 7.21 years (2022: 7.1 years).

 

During the year the equity-settled share-based schemes under which options were granted immediately prior to IPO vested at the end of their 3 year vesting period. Given the volatility in the share price during the year the Remuneration Committee agreed to extend the vesting period for the performance share element of the scheme by a further two years. This modification gave rise to an increase in the fair value of the Performance Share Plan options, for which a charge was taken immediately as the original vesting period had passed.

 

Of the total number of options outstanding at the end of the year and following the modification to the options granted prior to IPO, no options had vested or were exercisable.

 

Market Value Options were valued using the Black Scholes option pricing model.  Performance Share options granted and modifications made to pre-existing Performance Share options were valued using a Monte Carlo Simulation option pricing model.  Expected dividends are not incorporated into the fair value calculations.  The assumptions used in the calculations are as follows:

 

 

 

2023

2022

 

 

 

 

 

Risk free investment

3.03%

1.06%

 

Expected life

3

3

 

Expected volatility

56.8%

57.8%

 

The volatility used for the share option grants during the current year was from a median of peers, including that actually experienced by the group during the period from the IPO that actually experienced during the period from the IPO.  The expected life was based initially on the minimum vesting period with an assumption that more senior personnel would not exercise immediately.  The risk-free rate was based on the yield on UK government 3-year gilts at the time of the grant.

 

The Group recognised a total Share based payment expense of £597,000 in the year (2022: £741,000), all of which related to options in the Company issued immediately prior to the IPO or subsequent thereto. 

 

29

Related party transactions

 

The Group has taken advantage of the exemption available under IAS 24 Related Party Disclosures not to disclose transactions between Group Undertakings which are eliminated on consolidation.

 

Key management personnel

 

Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited and essensys, Inc, the Group's principal trading subsidiaries, who together have authority and responsibility for planning, directing, and controlling the activities of the Group.  Details of key management compensation is shown in note 10.

 

Directors Loans

 

There were no directors' loans during the years ended 31 July 2023 and 31 July 2022.

 

30

Capital commitments and contingent liabilities

 

The Group had no capital commitments or contingent liabilities at 31 July 2023 (2022: £nil)

 

31

Events after the reporting date

 

Following the financial year-end, the Group completed the reorganisation described in note 7. This involved the termination of employment for a further 31 employees at a one-off cost of £1.0 million. This amount was included in the £2.6 million restructuring cost recognised in FY23. No further significant restructuring cost is expected.

 

Following the year end two of the Group's dormant subsidiary companies, Hubcreate Limited and TVOC Limited, were formally dissolved and removed from the Companies House Register,

 

As at 31 July 20223 the Group had cash reserves of £7.9 million. On 30 October 2023 the Group entered into an unsecured loan agreement with Mark Furness, the Group's Chief Executive Officer and largest shareholder, to provide £2 million of additional funding in the event that the Group requires it. This loan facility has not been drawn and is effective to 31 July 2025.

 

32

Notes supporting statement of cash flows

 

32 A    Cash from operations

 

 

 

 

 

 

 

 

 

2023

2022

 

 

£000

£000

Cash flows from operating activities


 




 


Loss for the financial year before taxation


(15,461)

(11,085)

 


 


Adjustments for non-cash/non-operating items:


 


Amortisation of intangible assets


2,081

1,241

Depreciation of property, plant and equipment


1,405

617

Depreciation of right of use assets


1,349

1,269

Impairment of goodwill


275

122

Impairment of intangible assets


350

-

Impairment of property, plant and equipment


313

-

Impairment of right of use assets


274

-

(Profit)/loss on disposal of fixed assets


(5)

36

Share based payment expense


597

741

Losses on foreign exchange transactions


31

-

Finance income


(216)

(94)

Finance expense


164

147

Other


51

49



_________

_________



 




(8,792)

(6,957)

Changes in working capital:


 


Decrease/(increase) in inventories


286

(2,362)

Decrease/(increase) in trade and other debtors


1,819

(1,155)

(Decrease)/increase in trade and other creditors


(3,058)

3,685

 


_________

_________

 


 


Cash used by operations

 

(9,745)

(6,789)

 

 

_________

_________

 

 

32

Notes supporting statement of cash flows (continued)

 

 

 

 

 

 

 

 

 

32 B

Movement in net debt

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

Leases

Total

 

 

 

 

 

£000

£000

£000

 








 




As at 1 August 2021

36,903

(1,935)

34,968

 








 




Lease additions

-

(1,061)

(1,061)

 




Effect of modifying lease term

-

(877)

(877)

 




Cashflow

(13,374)

1,040

(12,334)

 




Interest charges

-

(147)

(147)

 




Exchange movements

593

(148)

445

 

 

 

 

 

_________

_________

_________

 








 

 

 

 

As at 31 July 2022

24,122

(3,128)

20,994

 

 

 

 

 

 

 

 

 

 

 

 

Lease additions

-

(292)

(292)

 

 

 

 

Effect of modifying lease term

-

(28)

(28)

 

 

 

 

Cashflow

(15,981)

2,006

(13,975)

 

 

 

 

Interest charge

-

(164)

(164)

 

 

 

 

Exchange movements

(279)

35

(244)

 

 

 

 

 

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

 

 

As at 31 July 2023

7,862

(1,571)

6,291

 

 

 

 

 

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

Leases

Total

 

 

 

 

 

£000

£000

£000

 

 

 

 

 

 

 

 

 

 

 

 

Balances as at 31 July 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

7,862

-

7,862

 

 

 

 

Current liabilities

-

(1,264)

(1,264)

 

 

 

 

Non-current liabilities

-

(307)

(307)

 

 

 

 

 

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

 

 

 

7,862

(1,571)

6,291

 

 

 

 

 

_________

_________

_________

 

 




Cash and cash equivalents

 

 

Leases

Total

 

 




£000

£000

£000

 

 







 

 



Balances as at 31 July 2022




 

 







 

 



Current assets

24,122

-

24,122

 

 



Current liabilities

-

(1,469)

(1,469)

 

 



Non-current liabilities

-

(1,659)

(1,659)

 

 




_________

_________

_________

 

 







 

 




24,122

(3,128)

20,994

 

 




_________

_________

_________

 










 

 

 

 

 

 

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