27 November 2023
SysGroup plc
("SysGroup" or the "Company" or the "Group")
Half year results for the six months ended 30 September 2023
SysGroup plc (AIM:SYS), the end-to-end data solution provider, is pleased to announce its unaudited half year results for the six months ended 30 September 2023 ("H1 FY24" or the "Period").
Financial highlights
· Revenue decrease of 3% to £10.96m (H1 FY23: £11.32m)
· Managed IT Services revenue growth of 8% representing 84% of total revenue (H1 FY23: 75%)
· Adjusted EBITDA1 of £1.57m (H1 FY23: £1.68m)
· Adjusted profit before tax2 of £0.99m (H1 FY23: £1.10m)
· Statutory loss before tax of £1.09m (H1 FY23: loss before tax of £0.19m)
· Adjusted basic EPS3 of 1.7p (H1 FY23: 2.0p)
· Basic EPS of (1.5)p (H1 FY23: (0.2)p)
· Adjusted cashflow from operations of £1.24m (H1 FY23: £2.01m)
· Net debt4 of £3.43m at 30 September 2023 (30 September 2022: £1.92m)
Operational highlights
· A new strategy to provide end-to-end solutions focused on Artificial Intelligence ("AI") and Machine Learning ("ML") with an associated investment in a team of ML engineers from AWS, JP Morgan, Validus and McLaren
· Refreshed the SysCloud infrastructure with the latest hardware and upgraded our internal security architecture with industry leading cloud-based security platform
· Strengthened the senior management team with individuals with invaluable experience and expertise from industry leading companies
· Heejae Chae appointed as Executive Chair and Paul Edwards as new Non-Executive Director
Heejae Chae, Executive Chair, commented:
"Our strategy aims to position SysGroup as the go-to end-to-end data solution provider for small and medium sized businesses ("SMB") embarking on their AI/ML journey. AI's prominence is undeniable with daily media coverage and increasing demand for AI strategies at the board level of every company. We recognise a significant market gap: while many SMBs are eager to adopt AI/ML, they often lack a clear strategy or implementation path. There is a great demand for a partner to support their development of an AI/ML strategy and transition from the current platform.
We have made significant investments in both technology and people. We have recruited a team of ML engineers from industry leaders such as AWS, JP Morgan, Validus and McLaren. We have significantly strengthened the senior management team to help take us on this journey, bringing together the right skillsets and mindsets. Throughout the organisation, we are reinforcing a culture of customer focus and outstanding service underpinned by innovation, entrepreneurialism and high performance. Whilst we are at the early stage of our journey, I am excited at the potential of what we are building at SysGroup combined with the considerable unexploited market opportunity that lays ahead of us.
Finally, the core business, which has more than 80% recurring revenues provides a very solid base from which we can expand, giving us very good revenue certainty and visibility, albeit that in the short term we may see our overall bottom line performance impacted marginally, reflecting the investment we are making in the Company to drive revenue growth in future financial years."
Notes
1. Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation of intangible assets, exceptional items and share based payments.
2. Adjusted profit before tax is profit before tax after adding back amortisation of intangible assets, exceptional items and share based payments.
3. Adjusted basic EPS is profit after tax after adding back amortisation of intangible assets, exceptional items, share based payments and associated tax, divided by the number of shares in issue.
4. Net debt represents cash balances less bank loans and lease liabilities, and excludes contingent consideration.
For further information please contact:
SysGroup Plc Heejae Chae, Executive Chair Martin Audcent, Chief Financial Officer |
Tel: 0151 559 1777
|
Zeus Capital (Nominated Adviser and Broker) Jordan Warburton Nick Cowles Nick Searle |
Tel: 0161 831 1512 |
About us
SysGroup plc is a managed service provider of end-to-end data solutions enabling us to take our customers on their AI data journey. The Group offers an integrated set of modern technologies that collectively meets our customers end-to-end data needs including connectivity, cloud hosting, delivery, analytics and governance of customer data, as well as a security layer for users and applications.
The Group has offices in Bristol, Edinburgh, Liverpool, London, Manchester and Newport.
For more information, visit http://www.sysgroup.com
Overview & Strategy
During the Period, SysGroup maintained a stable revenue of £10.96m. This consistency reflects growth in Truststream, our CyberSecurity acquisition in April 2022, counterbalancing a decrease in traditional SysGroup revenues. Notably, managed IT services now constitutes 84% of our revenues, an increase from 75% last year, bolstering our financial stability and visibility. In the Period we delivered Adjusted EBITDA of £1.57m, maintaining a margin comparable to last year.
The Group's gross cash balance was £1.99m at the end of the Period (H1 FY23: £4.22m) following payments to satisfy the Truststream year one earn-out and settle the contractual terms of the previous CEO's departure including the acquisition of 2,076,394 ordinary shares of 1 pence each ("Ordinary Shares"), now held in Treasury. Excluding these one-off payments, the cash conversion was 79%. The net debt4 at the end of the Period was £3.43m (H1 FY23: £1.92m), which excludes contingent consideration payable within one year of £1.84m (H1 FY23: £2.93m).
Since my appointment as Executive Chair in June, I have engaged with various stakeholders including customers, employees, partners and competitors. These interactions have provided valuable insights into both industry trends and company-specific challenges. SysGroup is well positioned to participate in the burgeoning field of AI/ML, a technology set to redefine our era. AI's prominence is undeniable, with daily media coverage and increasing demand for AI strategies at the board level of every company. The reality is that AI is here to stay and will be a powerful tool for those that embrace it.
Factors driving the AI/ML adoption include:
? The growing availability of data, crucial for training AI/ML algorithms. As the amount of data that companies collect continues to grow, so does the potential for AI and ML to deliver value;
? Decreasing costs of computing power, making AI/ML algorithms more accessible across various company sizes and budgets; and
? The increasing sophistication and user-friendliness of AI/ML tools and technologies
Our strategy is to position SysGroup as the go-to end-to-end data solution provider for SMBs embarking on their AI/ML journey. It is clear from our conversations with our customers we recognise a significant market gap: while many SMBs are eager to adopt AI/ML, they often lack a clear strategy or implementation path. There is a great demand for a partner to support their development of an AI/ML strategy and transition from their current platforms. Many providers claim to be AI/ML experts but lack the capability to provide an end-to-end solution. Traditionally, most IT providers specialise in specific technology stacks. AI/ML strategy requires a holistic approach where the outcome is delivered from both software and hardware solutions. Over 80% of all AI projects fail because they have not taken a holistic approach, for example, by not defining the correct business case or not employing appropriate data architecture framed by the right technology infrastructure. Whilst gaps still exist in our offerings, we believe that we have the framework to build our strategy, underpinned by the relationship with our customers.
Our Technology Services strategy is to build a modern unified data solution platform that is simple for SysGroup to sell and support and is simple for our customers to consume and benefit from. This will comprise of an integrated set of technologies that collectively meets our customers end-to-end data needs. It will allow for connectivity, storage, preparation, delivery, analytics and governance of customer data, as well as a security layer for users and applications.
Operations
We have made substantial investments both in our IT infrastructure and people during the Period. These include upgrading SysCloud infrastructure with the latest hardware and enhancing our internal security architecture with a leading cloud-based security platform. We have completed the refurbishment of our offices to provide a positive and productive working environment as we moved to more flexible working.
We have recruited a team of ML engineers with turnkey experience to deliver AI solutions from design to delivery at an annual cost of £0.5m. They bring considerable combined experience in a nascent field of technology having worked at industry leaders such as AWS, JP Morgan, McLaren and Validus. To support the end-to-end strategy, we have segmented our technology into five key areas: (i) data analytics and ML; (ii) data storage and management; (iii) data connectivity; (iv) data engineering; and (v) cybersecurity. We will invest to enhance the existing competencies organically as well as through acquisitions to fill the gaps in our technology offerings.
Board and Management Changes
We have taken steps to ensure robust corporate governance, reviewing the Board and committees' Terms of Reference and establishing a new Nomination Committee to ensure that the composition and succession of the Board is reviewed and reflects a balance of skills, knowledge and experience which is appropriate for the Company. Wendy Baker has been appointed as Company Secretary and General Counsel, providing oversight and guidance on governance. Wendy was previously at Scapa Group plc, Promethean World plc and Volex Group plc.
Paul Edwards joined as a Non-Executive Director on 26 September 2023 to balance the independence in the Board. Paul brings extensive PLC experience as the CFO of Tatton Asset Management plc and previously Scapa Group plc and NCC Group plc.
We have also upgraded the senior management team with the appointments of people with relevant experience from leading companies in the sector:
· Heinrich Koorts joined us as Chief Revenue Officer from Softcat plc where he spent the past ten years in London and Bristol;
· Paul Sullivan has been appointed as Chief Technology Officer. Paul was the founder of Truststream which SysGroup acquired in April 2022;
· Ross Humphrey has recently joined as the Chief AI Officer to lead our AI/ML initiative. Ross has over a decade of experience in machine learning as one of the UK's early adopters during his tenure at JP Morgan and Validus; and
· Charles Vivian has joined as Director of Business Development to support our M&A strategy as acquisitions will be part of our growth plan. Charles was previously at MXC Capital, Marwyn Capital and Freshfields Bruckhaus Deringer.
These individuals bring invaluable experience and expertise, positioning SysGroup for future success.
Results and Trading
The Group has delivered revenue of £10.96m (H1 FY23: £11.32m) and Adjusted EBITDA of £1.57m (H1 FY23: £1.68m) in H1 FY24. Managed IT services revenue increased to £9.22m (H1 FY23: £8.54m), a growth of 8% on the comparative period, whilst Value Added Resale ("VAR") revenue was £1.74m (H1 FY23: £2.78m), a decrease of 37%. The driver of the Managed IT services growth has been in IT security where this year we have seen more customers take up contracted managed service support in addition to the provision of security licences. In cases where managed services and licences are sold together the revenue is recognised as Managed IT services uniformly across the contract term. This also explains the reason for the reduction in VAR revenue since fewer "licence only" contracts are being sold. The revenue mix in H1 FY24 is 84% Managed IT services and 16% VAR sales (H1 FY23: 75%:25%) and this is expected to remain similar in H2 FY24.
Gross profit was £5.47m with a gross margin of 49.9% (H1 FY23: £5.61m and 49.6% respectively). Whilst the revenue mix has moved to higher margin Managed IT Services, the IT security sales which led the contracted income growth are lower margin than core managed services business. The gross margin has also been impacted by supplier cost increases which have been prevalent in the UK economy over the last twelve months.
Adjusted operating expenses of £3.90m were broadly flat with the same period last year (H1 FY23: £3.94m). We expect overheads to increase in H2 FY24 from our investments in the Senior Leadership Team and AI/Machine Learning team.
The consolidated income statement includes £1.05m of exceptional costs which are for the settlement of the former CEO's contractual terms, payments of supplier charges which are disputed and remain subject to ongoing action, and restructuring activity with the Senior Leadership Team.
Finance costs of £0.29m have increased compared to the same period last year (H1 FY23: £0.24m). Finance costs include £0.21m of bank loan interest, which has increased due to the increase in the Bank of England's base rate, and £0.06m of non-cash finance charges relating to the unwinding of discount on contingent consideration and amortisation of the loan arrangement fee.
The Group delivered an adjusted profit before tax of £0.99m (H1 FY23: £1.10m) and a statutory loss before tax of £1.09m (H1 FY23: loss before tax £0.19m). The statutory loss before tax results from having £1.05m of exceptional costs (H1 FY23: £0.34m) in the Period and from an increase in share based payments.
The taxation credit of £0.34m (H1 FY23: credit of £0.08m) represents the movement on deferred tax in the Period with no corporation tax charge arising on the Group's trading position in H1 FY24. The corporation tax rate increased on 1 April 2023 from 19% to 25%.
Adjusted basic earnings per share for H1 FY24 was 1.7p (H1 FY23: 2.0p) and basic loss per share was (1.5p) (H1 FY23: loss per share (0.2p)).
Cashflow & Net Debt
The Group had a gross cash balance of £1.99m at 30 September 2023 (H1 FY23: £4.22m) and net debt of £3.43m (H1 FY23: £1.92m). Cash balances were utilised in H1 FY24 for the Truststream year one earn-out (£0.88m), the acquisition of 2,076,394 Ordinary Shares into Treasury (£0.76m), and to settle the former CEO's contractual terms (£0.66m). Cashflow from operations was £0.23m (H1 FY23: £1.67m) and included £1.00m of exceptional cash costs. Cash conversion of 79% was broadly in line with the target range and compares to 120% in H1 FY23 which as explained at the time was due to a number of VAR deals where customer payments had been received in advance. Capex expenditure in H1 includes the refurbishment of the Bristol office which was completed in July and development costs for the implementation of a new financial accounts system.
The Truststream year 1 earn-out was finalised in H1 FY24 and in accordance with the share purchase agreement 75% of the year 1 consideration was paid to the vendors. Accordingly, £0.89m was paid in cash consideration and £0.29m is deferred for payment to H1 FY25. The contingent consideration liability held in the Consolidated Statement of Financial Position is £1.84m which compares to £2.94m as at 31 March 2023 and 30 September 2022. The liability is held at the maximum consideration payment value under the terms of the earn-out agreement and this will be re-assessed for fair value at the 31 March 2024 year end.
Share Options
In April 2023, under the 2020 LTIP Scheme and in respect of performance for the FY23 financial year, a grant of 362,709 performance shares was made to Adam Binks, Chief Executive Officer, and 204,024 performance shares to Martin Audcent, Chief Financial Officer. In May 2023, in respect of Mr Binks' departure, the Board agreed that the unvested options held by Mr Binks would vest with immediate effect with restrictions waived. Mr Binks exercised his share options, totalling 2,076,394 Ordinary Shares and the Company acquired them at a price of £0.375 per Ordinary Share. The Company holds these Ordinary Shares in Treasury to satisfy the exercise of future share options under SysGroup's share incentive schemes.
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHS ENDED 30 SEPTEMBER 2023
| | Unaudited six months to | Unaudited six months to | Audited |
| | 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
| Notes | £'000 | £'000 | £'000 |
Revenue | 2 | 10,963 | 11,321 | 21,648 |
Cost of sales | | (5,497) | (5,708) | (10,552) |
Gross profit | 2 | 5,466 | 5,613 | 11,096 |
Operating expenses before depreciation, amortisation, exceptional items and share based payments | | (3,897) | (3,935) | (7,768) |
Adjusted EBITDA | | 1,569 | 1,678 | 3,328 |
Depreciation | | (297) | (330) | (625) |
Amortisation of intangible assets | | (866) | (866) | (1,739) |
Exceptional items | 4 | (1,052) | (337) | (408) |
Share based payments | | (156) | (96) | (178) |
Administrative expenses | | (6,268) | (5,564) | (10,718) |
Operating (loss)/profit | | (802) | 49 | 378 |
Finance costs | 5 | (287) | (243) | (483) |
Loss before taxation |
| (1,089) | (194) | (105) |
Taxation | | 343 | 77 | 98 |
Total comprehensive loss attributable |
| (746) | (117) | (7) |
Basic loss per share (pence) | 3 | (1.5)p | (0.2)p | 0.0p |
Diluted loss per share (pence) | 3 | (1.5)p | (0.2)p | 0.0p |
All the results arise from continuing operations.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2023
| | Unaudited | Unaudited | Audited |
| | 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
| Notes | £'000 | £'000 | £'000 |
Assets |
| | | |
Non-current assets |
| | | |
Goodwill | 7 | 21,666 | 21,894 | 21,666 |
Intangible assets | 7 | 5,536 | 7,005 | 6,295 |
Plant, property and equipment | | 2,013 | 2,139 | 1,966 |
| | 29,215 | 31,038 | 29,927 |
Current assets |
| | | |
Trade and other receivables | 8 | 5,609 | 4,090 | 5,007 |
Cash and cash equivalents | | 1,986 | 4,216 | 4,186 |
| | 7,595 | 8,306 | 9,193 |
Total Assets |
| 36,810 | 39,344 | 39,120 |
| | | | |
Equity and Liabilities | | | | |
Equity attributable to the equity shareholders of the parent | | |||
Called up share capital | 12 | 515 | 494 | 494 |
Share premium | | 9,080 | 9,080 | 9,080 |
Treasury reserve | | (984) | (201) | (201) |
Other reserve | | 3,293 | 3,123 | 3,205 |
Retained earnings | | 8,173 | 8,741 | 8,851 |
| | 20,077 | 21,237 | 21,429 |
Non-current liabilities |
| | | |
Lease liabilities |
| 520 | 685 | 621 |
Contract liabilities |
| 174 | 486 | 383 |
Contingent consideration | 11 | - | 1,060 | 1,875 |
Provisions | | 148 | 175 | 191 |
Deferred taxation |
| 1,106 | 1,642 | 1,434 |
Bank loan | 10 | 4,720 | 5,187 | 4,705 |
|
| 6,668 | 9,235 | 9,209 |
Current liabilities |
| | | |
Trade and other payables | 9 | 4,576 | 3,844 | 3,861 |
Lease liabilities |
| 176 | 268 | 182 |
Contract liabilities |
| 3,475 | 2,885 | 3,633 |
Contingent consideration | 11 | 1,838 | 1,875 | 806 |
|
| 10,065 | 8,872 | 8,482 |
Total Equity and Liabilities |
| 36,810 | 39,344 | 39,120 |
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY
SIX MONTHS ENDED 30 SEPTEMBER 2023
| Attributable to equity holders of the parent |
| |||||||
| Share capital | Share premium reserve | Treasury reserve | Other reserve | Translation reserve | Retained earnings | Total |
| |
| |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | | |
At 1 April 2022 | 494 | 9,080 | (201) | 3,027 | 4 | 8,854 | 21,258 | | |
Loss and total comprehensive expense for the period | - | - | - | - | - | (117) | (117) | | |
Reclass of translation reserve | - | - | - | - | (4) | 4 | - | | |
Share options charge | - | - | - | 96 | - | - | 96 | | |
At 30 September 2022 (unaudited) | 494 | 9,080 | (201) | 3,123 | - | 8,741 | 21,237 | | |
Profit and total comprehensive income for the period | - | - | - | - | - | 110 | 110 | | |
Share options charge | - | - | - | 82 | - | - | 82 | | |
At 31 March 2023 | 494 | 9,080 | (201) | 3,205 | - | 8,851 | 21,429 | | |
Loss and total comprehensive expense for the period | - | - | - | - | - | (746) | (746) | | |
Purchase of own shares into Treasury | - | - | (783) | - | - | - | (783) | | |
Issue of share capital | 21 | - | - | - | - | - | 21 | | |
Share options charge | - | - | - | 156 | - | - | 156 | | |
Reserves transfer on forfeiture of share options | - | - | - | (68) | - | 68 | - | | |
At 30 September 2023 (unaudited) | 515 | 9,080 | (984) | 3,293 | - | 8,173 | 20,077 | |
The following describes the nature and purpose of each reserve within equity:
Reserve | Description and purpose |
Share Premium Reserve | Amount subscribed for share capital in excess of nominal values. |
Treasury reserve | Company owned shares held for the purpose of settling the exercise of employee share options. |
Other Reserve | Amount reserved for share-based payments to be released over the life of the instruments and the equity element of convertible loans |
Translation Reserve | Amount represents differences in relations to the consolidation of subsidiary companies accounting for currencies other than the Group's functional currency. |
Retained earnings | All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. |
CONSOLIDATED CONDENSED STATEMENT OF CASHFLOWS
SIX MONTHS ENDED 30 SEPTEMBER 2023
| | Unaudited 30-Sep-23 | Unaudited 30-Sep-22 | Audited |
| | £'000 | £'000 | £'000 |
Cashflows used in operating activities | | | | |
Loss after tax | | (746) | (117) | (7) |
Adjustments for: | | | | |
Depreciation and amortisation | | 1,163 | 1,196 | 2,364 |
Finance costs | | 287 | 243 | 483 |
Share based payments | | 156 | 96 | 178 |
Taxation credit | | (343) | (77) | (98) |
Operating cashflows before movement in working capital | 517 | 1,341 | 2,920 | |
(Increase)/decrease in trade and other receivables | | (713) | 68 | (737) |
Increase in trade and other payables | | 430 | 260 | 837 |
Cashflow from operations |
| 234 | 1,669 | 3,020 |
Taxation paid | | (64) | (128) | (303) |
Net cash from operating activities | | 170 | 1,541 | 2,717 |
Cashflows from investing activities | | | | |
Payments to acquire property, plant & equipment | (180) | (105) | (252) | |
Payments to acquire intangible assets | | (139) | - | (163) |
Acquisition of subsidiary companies net of cash acquired | | - | (5,390) | (5,389) |
Net cash used in investing activities |
| (319) | (5,495) | (5,804) |
Cashflows from financing activities | | | | |
Payment of contingent consideration on acquisitions | | (886) | - | - |
RCF drawdown | - | 4,500 | 4,500 | |
Payment of bank loan arrangement fee | - | (127) | (127) | |
Repayment of bank loan | - | (82) | (582) | |
Repurchase of shares into treasury | | (783) | - | - |
Proceeds for issue of share capital | | 21 | - | - |
Capital/principal paid on lease liabilities | (171) | (102) | (303) | |
Interest paid on loan facility | | (217) | (138) | (316) |
Interest paid on lease liabilities | | (15) | (14) | (32) |
Net cash used in financing activities |
| (2,051) | 4,037 | 3,140 |
Net (decrease)/increase in cash and cash equivalents | (2,200) | 83 | 53 | |
Cash and cash equivalents at the beginning of the period /year | 4,186 | 4,133 | 4,133 | |
Cash and cash equivalents at the end of the period/year | 1,986 | 4,216 | 4,186 |
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED 30 SEPTEMBER 2023
1. ACCOUNTING POLICIES
The accounting policies used in the preparation of the unaudited consolidated condensed financial information for the six months ended 30 September 2023 are prepared in accordance with UK adopted International Financial Reporting Standards ("IFRS") and are consistent with those that will be adopted in the annual statutory financial statements for the year ended 31 March 2024.
While the financial information included has been prepared in accordance with the recognition and measurement criteria, in accordance with UK adopted International Financial Reporting Standards, these consolidated condensed financial statements do not contain sufficient information to comply with IFRSs.
The financial information for the six-month period ended 30 September 2023 and 30 September 2022 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited but has been reviewed by our auditors in accordance with the International Standard on Review Engagement 2410 issued by the Auditing Practices Board. The comparative financial information for the year ended 31 March 2023 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2023 have been filed with the Registrar of Companies. The Independent Auditor's Report on that Annual Report and Financial Statements for 2023 was 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.
This Interim Report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The Interim Report should not be relied on by any other party or for any other purpose.
This unaudited interim financial information has been prepared in accordance with the requirement of the AIM Rules for Companies and in accordance with this basis of preparation.
Exceptional items
The Group presents as exceptional items on the face of the Statement of Comprehensive Income those material items of income and expense which the Directors consider, because of their size or nature and expected non-recurrence, merit separate presentation to facilitate financial comparison with prior periods and to assess trends in financial performance. Exceptional items are included in Administration expenses in the Consolidated Statement of Comprehensive Income but excluded from Adjusted EBITDA (Note 6) as management believe they should be considered separately to gain an understanding of the underlying profitability of the trading businesses.
Going concern
The Directors have prepared the financial statements on a going concern basis which assumes that the Group and the Company will continue to meet liabilities as they fall due.
The Group has an operating model with a high level of resilience with 84% of revenue deriving from contracted managed IT services which are business critical supplies to customers. The Group has a gross cash balance of £1.99m and a net debt position of £3.43m (excluding contingent consideration of £1.84m) at 30 September 2023. The Group has undrawn RCF facilities available of £3.2m which can be used for working capital and acquisitions, and an unutilised overdraft facility of £0.5m. The Group is forecasting to generate healthy operational cashflows and achieve the bank loan covenants for the full period of the forecast to March 2025.
The Directors have reviewed the Group's financial forecasts and taken into account the current UK economic outlook. The projected trading forecasts and resultant cashflows, together with the confirmed loan and overdraft facilities, taking account of reasonably possible changes in trading performance, show that the Group can continue to operate within the current facilities available to it.
The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and they continue to adopt the going concern basis of accounting in preparing the financial statements.
2. SEGMENTAL REPORTING
The chief operating decision maker for the Group is the Board of Directors and the Group reports in two segments:
· Managed IT Services - this segment provides all forms of managed services to customers and includes professional services.
· Value Added Resale (VAR) - this segment is for sales of IT hardware and licences procured from supplier partners.
The monthly management accounts reported to the Board of Directors are reviewed at a consolidated level and the Board review the results of the operating segments at a revenue and gross profit level since the Group's management and operational structure operate as unified Group functions. In this respect, assets and liabilities are also not reviewed on a segmental basis. All assets are located in the UK. All segments are continuing operations and there are no transactions between segments, and all revenue is earned from external customers. The business segments' gross profit is reconciled to profit before taxation as per the consolidated income statement. The Group's overheads are managed centrally by the Board and consequently there is no reconciliation to profit before tax at a segmental level.
| | Unaudited six months to | Unaudited six months to | Audited year to |
| | 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
|
| £'000 | £'000 | £'000 |
Revenue |
|
|
|
|
Managed IT Services |
| 9,223 | 8,543 | 17,441 |
Value Added Resale |
| 1,740 | 2,778 | 4,207 |
|
| 10,963 | 11,321 | 21,648 |
Gross Profit |
|
|
|
|
Managed IT Services |
| 5,167 | 5,157 | 10,349 |
Value Added Resale |
| 299 | 456 | 747 |
|
| 5,466 | 5,613 | 11,096 |
3. EARNINGS PER SHARE
| Unaudited six months to | Unaudited six months to | Audited year to | ||||
| 30-Sep-23 | 30-Sep-22 | 31-Mar-23 | ||||
Loss for the financial period attributable to shareholders | (£746,336) | (£117,000) | (£7,000) | ||||
Adjusted profit for the financial period | £809,553 | £974,000 | £1,917,000 | ||||
Weighted number of equity shares in issue* | 48,912,025 | 48,859,690 | 48,859,690 | ||||
Weighted number of equity shares for diluted calculation* | 50,935,963 | 52,189,652 | 52,274,633 | ||||
Adjusted basic earnings per share (pence) | 1.7p | 2.0p | 3.9p | ||||
Basic loss per share (pence) | (1.5p) | (0.2p) | 0.0p | ||||
Diluted loss per share (pence) | (1.5p) | (0.2p) | 0.0p | ||||
\* The weighted number of equity shares in issue and for diluted calculation excludes the Treasury shares held by the Company
| | | |
| |||
| Unaudited six months to | Unaudited six months to | Audited year to | ||||
| 30-Sep-23 | 30-Sep-22 | 31-Mar-23 | ||||
| £'000 | £'000 | £'000 | ||||
Loss after tax used for basic earnings per share | (746) | (117) | (7) | ||||
Amortisation of intangible assets | 866 | 866 | 1,739 | ||||
Exceptional items | 1,052 | 337 | 408 | ||||
Share based payments | 156 | 96 | 178 | ||||
Tax adjustments | (519) | (208) | (401) | ||||
Adjusted profit used for Adjusted earnings per share | 809 | 974 | 1,917 | ||||
The tax adjustments relate to current and deferred tax on the amortisation of intangible assets, exceptional items and share based payments.
4. EXCEPTIONAL ITEMS
| Unaudited six months to | Unaudited six months to | Audited year to |
| 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
| £'000 | £'000 | £'000 |
Integration and restructuring costs | 832 | 113 | 189 |
Supplier charges in dispute | 220 | - | - |
Acquisition costs | - | 224 | 219 |
| 1,052 | 337 | 408 |
The integration and restructuring costs relate to the settlement of the former CEO's contractual terms and costs associated with the restructuring of the Senior Leadership Team. The supplier charges in dispute are subject to ongoing action for which the company is pursuing recovery. In the prior periods, the acquisition and integration costs relate to two acquisitions in April 2022, Truststream Security Solutions Limited and Independent Network Services Limited (trading as "Orchard IT").
5. FINANCE COSTS
| Unaudited six months to | Unaudited six months to | Audited year to |
| 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
| £'000 | £'000 | £'000 |
Interest payable on lease liabilities | 15 | 26 | 32 |
Interest payable on bank loan | 212 | 120 | 307 |
Arrangement fee amortisation on bank loan | 17 | 18 | 29 |
Unwinding of discount on contingent consideration | 43 | 79 | 105 |
Other interest | - | - | 10 |
| 287 | 243 | 483 |
6. ALTERNATIVE PERFORMANCE MEASURES
Reconciliation of operating profit to adjusted EBITDA | Unaudited six months to | Unaudited six months to | Audited year to |
| 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
| £'000 | £'000 | £'000 |
Operating (loss)/profit | (802) | 49 | 378 |
Depreciation | 297 | 330 | 625 |
Amortisation of intangible assets | 866 | 866 | 1,739 |
EBITDA | 361 | 1,245 | 2,742 |
Exceptional items | 1,052 | 337 | 408 |
Share based payments | 156 | 96 | 178 |
Adjusted EBITDA | 1,569 | 1,678 | 3,328 |
Reconciliation of loss before tax to adjusted profit before tax | Unaudited six months to | Unaudited six months to | Audited year to |
| 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
| £'000 | £'000 | £'000 |
Loss before tax | (1,089) | (194) | (105) |
Amortisation of intangible assets | 866 | 866 | 1,739 |
Exceptional items | 1,052 | 337 | 408 |
Share based payments | 156 | 96 | 178 |
Adjusted profit before tax | 985 | 1,105 | 2,220 |
Cash conversion | Unaudited six months to | Unaudited six months to | Audited year to |
| 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
| £'000 | £'000 | £'000 |
Cashflow from operations | 234 | 1,669 | 3,020 |
Adjustments: | | | |
Acquisitions, integration and restructuring cashflows | 1,005 | 337 | 408 |
Adjusted cashflow from operations | 1,239 | 2,006 | 3,428 |
Adjusted EBITDA | 1,569 | 1,678 | 3,328 |
Cash conversion | 79% | 120% | 103% |
Net debt | Unaudited | Unaudited | Audited |
| 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
| £'000 | £'000 | £'000 |
Cash balances | 1,986 | 4,216 | 4,186 |
Bank loans - non-current | (4,720) | (5,187) | (4,705) |
Net debt before lease liabilities | (2,734) | (971) | (519) |
Lease liabilities - property | (696) | (953) | (803) |
Net debt | (3,430) | (1,924) | (1,322) |
Contingent consideration | (1,838) | (2,935) | (2,681) |
Net debt including contingent consideration | (5,268) | (4,859) | (4,003) |
7. INTANGIBLE ASSETS
| Systems development | Software licences | Customer relationships | Goodwill | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
Cost | | | | | |
At 1 April 2022 | 1,073 | 205 | 9,156 | 15,554 | 25,988 |
Additions | 163 | - | 3,553 | 6,112 | 9,828 |
Disposals | (225) | (205) | - | - | (430) |
At 31 March 2023 (audited) | 1,011 | - | 12,709 | 21,666 | 35,386 |
At 1 April 2023 | 1,011 | - | 12,709 | 21,666 | 35,386 |
Additions | 107 | - | - | - | 107 |
At 30 September 2023 (unaudited) | 1,118 | - | 12,709 | 21,666 | 35,493 |
Accumulated amortisation | | | |
| |
At 1 April 2022 | 404 | 205 | 5,507 | - | 6,116 |
Charge for the year | 177 | - | 1,562 | - | 1,739 |
Disposals | (225) | (205) | - | - | (430) |
At 31 March 2023 (audited) | 356 | - | 7,069 | - | 7,425 |
At 1 April 2023 | 356 | - | 7,069 | - | 7,425 |
Charge for the year | 110 | - | 756 | - | 866 |
At 30 September 2023 (unaudited) | 466 | - | 7,825 | - | 8,291 |
Net book value | | | | |
|
At 31 March 2023 (audited) | 655 | - | 5,640 | 21,666 | 27,961 |
At 30 September 2023 (unaudited) | 652 | - | 4,884 | 21,666 | 27,202 |
8. TRADE AND OTHER RECEIVABLES
| | Unaudited | Unaudited | Audited |
| | 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
|
| £'000 | £'000 | £'000 |
Trade receivables |
| 2,067 | 1,723 | 1,706 |
Other receivables |
| 3,542 | 2,367 | 3,301 |
|
| 5,609 | 4,090 | 5,007 |
9. TRADE AND OTHER PAYABLES
| | Unaudited | Unaudited | Audited |
| | 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
|
| £'000 | £'000 | £'000 |
Trade payables |
| 2,304 | 1,399 | 1,813 |
Corporation tax |
| 360 | 427 | 438 |
Other taxes and social security |
| 615 | 836 | 622 |
Accruals |
| 1,297 | 1,182 | 988 |
|
| 4,576 | 3,844 | 3,861 |
10. BANK LOAN
| Unaudited | Unaudited | Audited |
| 30-Sep-23 | 30-Sep-22 | 31-Mar-23 |
| £'000 | £'000 | £'000 |
Bank loan net of arrangement fee | 4,720 | 5,187 | 4,705 |
| 4,720 | 5,187 | 4,705 |
The Group has an £8.0m revolving credit facility with Santander of which £4.83m is drawn down at 30 September 2023. The banking facility has a term of five years to April 2027, an interest rate of Base Rate +3.25% margin on drawn funds and covenants that are tested quarterly relating to total net debt to adjusted EBITDA leverage and minimum liquidity.
11. CONTINGENT CONSIDERATION
The Group acquired Truststream Security Solutions Limited in April 2022 and the agreement included a two year earn-out mechanism with contingent consideration payable up to £3.08m following the first and second anniversaries of the transaction. The earn-out is subject to the achievement of certain maintainable EBITDA performance targets in the first and second 12-month periods following the completion of the acquisition
The Year 1 earn-out period was completed in April 2023 and a payment of £1.18m was due to the Sellers based on the Maintainable EBITDA achieved. In accordance with the SPA, 75% of this amount, £0.89m, was paid in August 2023 and £0.29m is deferred to be paid with the Year 2 payment in H1 FY25.
The contingent consideration liability of £1.84m has been assessed at its discounted fair value at 30 September 2023, and includes the £0.29m payment deferred from Year 1. The liability assumes that Truststream achieves its full Maintainable EBITDA target in Year 2.
|
| Unaudited | Audited |
Contingent consideration |
| 30-Sep-23 | 31-Mar-23 |
|
|
|
|
Amounts due within one year |
| £'000 | £'000 |
Contingent consideration | | 1,869 | 806 |
Discounted value | | (31) | - |
|
| 1,838 | 806 |
Amounts due after one year | | | |
Contingent consideration | | - | 1,949 |
Discounted value | | - | (74) |
|
| - | 1,875 |
Discounted contingent consideration |
| 1,838 | 2,681 |
12. SHARE CAPITAL
Equity share capital | Number | £'000 |
Allotted, called up and fully paid | | |
At 1 April 2022 | 49,419,690 | 494 |
At 31 March 2023 | 49,419,690 | 494 |
Issue of share capital - exercise of share options | 2,076,394 | 21 |
At 30 September 2023 | 51,496,084 | 515 |
In May 2023, the Company issued 2,076,394 shares to the CEO, Adam Binks, on the exercise of share options under the 2020 LTIP Scheme. These shares were subsequently repurchased by the Company into Treasury reserves.
13. AVAILABILITY OF INTERIM REPORT
Copies of this report are available on the Company's website at http://www.sysgroup.com
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.