TIDMCLCO
RNS Number : 1974T
Cloudcoco Group PLC
16 March 2023
The information contained within this announcement is deemed by
CloudCoCo to constitute inside information pursuant to Article 7 of
EU Regulation 596/2014 as it forms part of UK domestic law by
virtue of the European Union (Withdrawal) Act 2018 as amended.
16 March 2023
CloudCoCo Group plc
("CloudCoCo", the "Company" or the "Group")
Final Results
A transformational year and primed to scale
CloudCoCo (AIM: CLCO), a leading UK provider of Managed IT
services and communications solutions to private and public sector
organisations, is pleased announce its full year results for the
year ended 30 September 2022 ("FY 2022").
Financial highlights:
-- Revenue increased by 198% to GBP24.2 million (2021: GBP8.1
million), of which 67% was generated from recurring contracts
(2021: 62%)
-- Gross profit increased by 147% to GBP7.9 million (2021:
GBP3.2 million), a margin of 33% (2021: 40%)
-- Trading Group EBITDA(1) increased by 129% to GBP1.6 million
(2021: GBP0.7 million)
-- Adjusted Trading Group EBITDA(2) of GBP1.1 million (2021:GBP0.7
million) after the impact of GBP0.5 million of data centre
contracts in the acquired Connect business as IFRS 16 right
of use assets
-- Pre-tax loss of GBP2.6 million (2021: loss of GBP2.0 million)
after combined amortisation and depreciation costs of GBP2.0
million (2021: 1.1 million)
-- Cash at bank of GBP1.5 million at 30 September 2022 (2021:
GBP1.2 million)
-- Net assets of GBP3.0 million at 30 September 2022 (2021:
GBP5.2 million)
Operational highlights:
-- Record submitted sales performance for the Group, delivering
a Total Contract Value(3) of GBP15.7 million (2021: GBP5.2
million)
-- 39 new customers added in the year (2021: 34)
-- New multi-year customer wins including Wall Street Docs,
Healthcare Quality Improvement Partnership, St. John Ambulance
and Abbott Laboratories
-- Successful integration of the four acquired businesses
-- Key senior appointments across the Group including Head
of People and, post-period, Group Commercial Director and
Vendor Alliance Manager.
-- MoreComputers rebranded to MoreCoCo and consumer and B2B
ecommerce website launched
-- CloudCoCo Sales Academy launched to cultivate homegrown
talent and support revenue growth
-- Launch of Project IGNITE, a programme to accelerate pipeline
build and organic growth
(1) profit or loss before net finance costs, tax, depreciation,
amortisation, plc costs, exceptional costs and share-based
payments
(2) Trading Group EBITDA(1) adjusted following deduction of the
IFRS 16 data centre depreciation charge
(3) TCV measures the total revenue that we expect to generate
from new customer contracts signed in the year over their
contractual term.
Mark Halpin, CEO of CloudCoCo, commented:
"Our central focus during the year centred around the swift and
effective integration of the four acquisitions made in the second
half of 2021, while also making sure the group was advancing as a
single, unified unit.
Through this process, we have taken important steps to
rationalise our cost base and uncovered the significant potential
we saw in these acquisitions. I am delighted to see the results of
the hard work of all our teams in achieving this transformation and
would like to thank all our colleagues for their vital support
during the period.
Now a stronger and leaner outfit, we remain excited by the
trajectory ahead for the business. Our market opportunity remains
vast, underpinned by the significant capabilities and synergies
unlocked through acquisition and integration and our investments
into our sales functions. On this basis, we remain focused on
driving our organic growth alongside identifying and executing on
strategic M&A opportunities to accelerate our growth and
deliver shareholder value."
The Company's Annual Report will be available on the Company's
website by 17 March 2023 and will be posted to shareholders along
with notice of the Annual General Meeting to be held on 6 April
2023.
Contacts:
CloudCoCo Group plc Via Alma PR
Mark Halpin (CEO)
Darron Giddens (CFO)
Allenby Capital Limited - (Nominated Tel: +44 (0)20 3328
Adviser & Broker) 5656
Jeremy Porter / Daniel Dearden-Williams
- Corporate Finance
Tony Quirke / Amrit Nahal - Equity
Sales
Alma PR - (Financial PR) Tel: +44 (0)20 3405
David Ison 0205
Kieran Breheny cloudcoco@almapr.co.uk
Pippa Crabtree
About CloudCoCo
Supported by a team of industry experts and harnessing a diverse
ecosystem of partnerships with blue-chip technology vendors,
CloudCoCo makes it easy for private and public sector organisations
to work smarter, faster and more securely by providing a single
point of purchase for their Connectivity, Multi-Cloud,
Collaboration, Cyber Security, IT Hardware, Licencing, Support and
Professional Services.
CloudCoCo has headquarters in Leeds and regional offices in
Warrington, Sheffield and Bournemouth.
www.cloudcoco.co.uk
Chairman's statement
I am pleased to report our annual results for the year ended 30
September 2022.
We approached the year with a focus on three key areas:
-- to accelerate sales;
-- to maintain excellent support levels; and
-- to drive efficiencies and strengthen financial position.
An additional priority was the accelerated 'Get Well' programme
for the Group's newly acquired businesses, with a particular
emphasis on managing costs, driving efficiencies and realising the
synergy benefits across these businesses. We undertook this
strategy with a view to supporting long-term, sustainable and
profitable growth across the business.
I am therefore delighted to report an increase in Trading Group
EBITDA(1) to GBP1.6 million (2021: GBP0.7 million).
People
Through the major steps taken to grow the business in the last
two years, CloudCoCo now comprises over 125 talented people. I am
delighted that all parts of the business worked collaboratively
through the necessary initiatives to operate as a single, cohesive
business and I would like to thank all colleagues for their
efforts.
One of the significant milestones during the year was the
acquisition of CloudCoCo Connect Limited ("the Connect business"),
acquired as IDE Group Connect Limited in October 2021 and the
subsequent and successful execution of the internal project known
as "Project 150", a strategy designed to generate GBP150k per month
of additional benefit from sales and cost savings for the enlarged
business. This was a collaborative effort from everyone involved
where all ideas were welcome and I'm delighted with the
outcome.
In view of the significantly expanded team and proposition as a
result of our acquisitions, the Group also made key appointments to
oversee the continued expansion of the business.
Post-period end, in October 2022, we promoted internally to
create a new role of Group Commercial Director (a non-board
position) to consolidate our vendor and partnership relationships
and ensure we obtain best price and consistent delivery of service
from our third-party suppliers. This has progressed well with the
additional hire of a Vendor Alliance Manager to concentrate on
solidifying our strategic relationships with key providers within
our ecosystem.
We also appointed a Head of People (a non-board position) to
ensure the right people systems and practices are in place to
support growth and to promote our collaborative, inclusive and
high-performance culture.
With a view to cultivating homegrown talent and to contribute to
the acceleration of our organic revenue growth, in July 2022 we
launched our CloudCoCo sales academy. Initially comprising five
entry-level sales staff, the academy has proven a great success and
I look forward to seeing the expansion of this project to
incorporate new colleagues in FY 2023.
Ambitions for the financial year
Through organic growth and acquisition, CloudCoCo has fortified
its position within the Managed Services and Value Added Reseller
space.
With the necessary corrective actions taken to ensure positive
Trading Group EBITDA(1) across the business during FY 2022, the
Group is now positioned as a larger and significantly more
efficient platform from which it can scale and capture the
considerable market opportunity available to it.
While our teams are focused on driving new business development
in the new year, we will continue to appraise further acquisition
opportunities, only progressing those that have exceptional
potential and are a good strategic fit.
Simon Duckworth
Chairman
15 March 2023
(1) earnings before net finance costs, tax, depreciation,
amortisation, plc costs, exceptional costs and share-based
payments
Chief Executive's Review
Introduction
I am pleased to have overseen another year of significant
strategic and commercial progress for CloudCoCo.
The acquisition of four businesses over the last 18 months has
brought about a step-change in the Group's capabilities. The
addition of data centre locations, private managed core dark fibre
network services and e-commerce capabilities, for example, have
opened up a wealth of new revenue opportunities.
While we recognised the massive potential across each of these
businesses, we knew it would take a tremendous amount of hard work
and dedication through intensive integration and optimisation
phases before we began to see the commercial benefits filter
through. Those initial phases are now complete and, with all parts
of the Group now operating profitably at the Trading Group
EBITDA(1) level, I am proud of what our teams have been able to
achieve in such a short space of time.
With the steps taken to stabilise the acquired businesses, in
the second half of the year, we launched a comprehensive programme
to grow our sales pipeline. Referred to internally as Project
IGNITE, this was a multi-channel marketing project focused on lead
generation, comprising the implementation of additional sales
systems and the introduction of new talent in our new business,
mobile, alliances, sales academy, retention, and ecommerce
teams.
The new systems implemented in the second half have enabled us
to identify sales opportunities more intelligently and efficiently.
This, combined with the positive impact of our recently established
sales academy, saw our pipeline gain some further momentum
post-period.
As we move through the new financial year, CloudCoCo now
operates as a single, cohesive unit. We have built a platform ripe
for scaling and, with our colleagues, old and new, all pulling in
the same direction.
Our strategy
Having spent the last few years building a strong, scalable
platform, we can now plot a path towards our long-term goal of
becoming one of the larger UK Managed Services businesses with
revenues of over GBP100m. This will be achieved through a
combination of carefully selected acquisitions in our chosen
markets, a single-minded focus on attracting and delighting new
customers, and increased spend from existing customers.
Our proposition will be built around four principal areas:
Connectivity, Multi-Cloud, Collaboration and Cyber Security.
Connectivity : following the acquisitions, we have an
extraordinary set of network assets at our disposal that are not
being used to their fullest potential. It is our intention to
rebrand these and leverage them to create new revenue streams and
win contracts with much larger, multisite organisations where speed
and secure access to data centres around the UK are essential.
Multi-Cloud : we are committed to building CloudCoCo into a
northern, multi-cloud powerhouse; a truly agnostic partner able to
offer customers the solution that best suits their business needs.
This will be a key area of investment.
Collaboration : telephony is in CloudCoCo's DNA. We have most of
the building blocks to accelerate growth in this area and are
actively exploring strategic partnerships that will take us to the
next level.
Cyber Security : CloudCoCo has built a reputation for its cyber
security offering, centred around our relationships with industry
giants such as Fortinet. It is our intention to continue in a
similar vein, bolstering our capabilities and accreditations
through new and extended partnerships.
Integration of our acquisitions
This year saw the full impact of the value-added reseller
("VAR") acquisitions of Systems Assurance and More Computers,
having been acquired on 6 September 2021. The acquisitions
signalled the start of the Company's "Get Bigger" phase to provide
scale to the business. This followed the successful completion of
the "Get Well" and "Get Fit" phases leading up to that point. More
Computers introduced a proven and scalable hardware engine into
CloudCoCo's business which helped increase operational efficiency
and drive margins which assisted the Group in driving VAR revenues
by 190% during the year.
As reported at the interim results, we were delighted to see the
IDE Connect business acquired in October 2021 reach monthly EBITDA
breakeven (before exceptional costs) in March 2022, ahead of our
initial timeline, as a result of the corrective actions taken in
the first half of the financial year ("H1"). The first phase of the
"Get Well" actions are largely complete, with some supplier
rationalisation and contract negotiations still to complete.
This was achieved through the execution of "Project 150",
referring to the c. GBP150k of additional benefit from sales
initiatives and monthly savings we sought to achieve to deliver a
swift turnaround of the Connect business from delivering GBP800k of
losses per annum. This was achieved through the implementation of
careful cost-savings and an improvement of the business's sales
function, which is now able to provide a wider portfolio and
greater support to customers.
As part of the Connect acquisition, we inherited 83,000 IPv4
addresses which are in short-supply globally and present the Group
with an opportunity to add value. We are currently carrying out a
comprehensive audit to inform a decision to either dispose of
excess addresses or manage the assets on behalf of clients. Sales
of IP addresses generated GBP0.1 million of revenue in the
year.
The acquisition of Connect added a core fibre network and 32
data centre locations to the Group. The relatively low acquisition
price paid for Connect in part reflected the fact that an element
of this core fibre network was discontinued prior to acquisition
but remained in long-term contract with the underlying dark-fibre
supplier. This onerous contract liability has been recorded in the
acquired Balance Sheet of Connect (see note 15).
Now that the rationalisation of many elements of the core
network and data-centre estate obtained through the Connect
acquisition has been achieved, we intend to bring those assets to
the fore of our offering. The high speed and secure connectivity
they provide to data centres in the UK is impressive and enables us
to pursue larger, multi-site customers with conviction.
To modernise our web-offering and improve the customer buying
experience, we successfully completed the rebrand of our VAR
business More Computers, which we acquired in September 2021. Now
rebranded as MoreCoCo, the business comprises a consumer-facing
website, with a comprehensive range of consumer and personal
electronics, as well as a dedicated alternative website for
businesses, both launched in the second half of the year. We are
already seeing how incorporating the automated ecommerce engine is
benefitting the existing CloudCoCo customer base with an improved
choice of goods and streamlined buying experience.
I am pleased to report all acquisitions are now operating
profitably and on track to fulfil their potential. With the
integration process of the four acquisitions made since September
2021 now complete, we move forward with a proven blueprint for
expanding the Group through adding complementary businesses.
Progress against FY 2022 objectives
Accelerate sales
The business achieved revenues of GBP24.2 million in the 12
months to 30 September 2022 compared with GBP8.1 million in the
prior year.
2022 2021
GBP'000 GBP'000
-------------------- --------- ---------
Managed IT Services 17,056 5,648
Value added resale 7,137 2,459
-------------------- --------- ---------
Total Revenue 24,193 8,107
==================== ========= =========
The results were impacted positively by the acquisitions made in
late 2021 as follows:
2022 2021
GBP'000 GBP'000
---------------------------------------------- --------- ---------
CloudCoCo Limited 6,928 8,107
Systems Assurance Limited 3,695 -
More Computers Limited 1,963 -
CloudCoCo Connect Limited (formerly IDE Group 11,607 -
Connect Limited) and its subsidiary
---------------------------------------------- --------- ---------
Total Revenue 24,193 8,107
============================================== ========= =========
Total Contract Value, the measure used to reflect the total
revenue that we can expect to generate from new customer contracts
signed in the year over their contractual term, increased to
GBP15.7 million (2021: GBP5.2 million).
Managed IT services represented 70% of revenues (2021: 70%) of
which 95% related to recurring contracted services, a key focus for
the Group. We continue to see demand for the Group's services,
including customers investing in solutions to protect their
sensitive data and improve their cyber security provisions.
Whilst the most recent industry trend is to help business
customers to make the most of their existing digital investments by
"doing more with less", we were also able to increase value added
resale revenues during the year by 184% from GBP2.5m in FY 2021 to
GBP7.1m in FY 2022 as a result of the larger customer base and
broader service offering as a result of the acquisitions made in
late 2021, which accounted for the majority of the increase in the
year.
A continued focus for the Group during the year was to secure
new and larger, multi-year contracts. The increased capabilities
and scale derived from our newly acquired businesses put us in a
strong position to achieve this ambition, and our multi-year
agreements with Wall Street Docs, Healthcare Quality Improvement
Partnership, St John Ambulance and The ID Register are evidence of
delivery. We added 39 new logo customers in the year (2021: 35) and
remain focussed on increasing our reach into new sectors through
organic growth. Indeed, we have already seen the number of new logo
customers won in the first half of FY 2023 surpass those won in the
first half of FY 2022 by 33% .
In addition to increasing new sales opportunities, we were able
to extend the number of the existing recurring customers into new
term-based contracts during the year. A large percentage of the
existing customer base have recurring contracts that will
auto-renew, but often we will sit with the customer, redesign their
solution, and agree a new roadmap to optimise their managed
services solution in a new multi-year term agreement. We signed key
renewals during the year with leading UK property consultants
Allsop and the American multi-national medical business Abbott
Laboratories.
The four acquisitions made in late 2021 and the combined focus
on developing our sales engine whilst continuing to look for
opportunities to improve our cost-base efficiencies, helped us to
deliver Trading Group EBITDA(1) growth during the year of 129% to
GBP1.6 million (2021: GBP0.7 million). There remain further
opportunities for us to consolidate our buying power as we look to
rationalise the number of key partners we use for the GBP16.2
million of third-party cost of sales.
With our expanded capabilities derived through acquisition, we
have actively pursued cross-selling across different parts of the
Group and are beginning to see early signs of success.
Maintain excellent support levels
Despite the introduction of 79 new colleagues and inheriting a
dramatically larger service offering, we remain as committed as
ever to delivering best-in-class customer service. Culture is vital
to the success of any business and it has been heartening to see
our new joiners buy into our service-orientated approach so
quickly.
Response times to support requests continued to improve in the
period, with customer satisfaction levels remaining high. More than
90% of support events during the year were rated "good" or better,
and we are exploring ways to use artificial intelligence to
increase the speed and quality of delivery for repetitive service
requests. Additionally, time to close tickets and call answer times
all improved in the year.
Drive efficiencies and strengthen financial position
During the year we established a formal commercial procurement
team to build on the excellent work carried out so far to ensure
the Group continues to rationalise its suppliers and contracts and
find cost savings where possible.
We have made significant progress in this respect, but there is
further work required. We aim to have completed a full line-by-line
analysis by the end of H1 FY 2023 which will form the basis for any
further action.
To further strengthen our position, as previously announced we
are currently working towards addressing the onerous contracts we
acquired from the IDE acquisition (see note 11) by swapping
disconnected circuits out for new connections into our core fibre
network. Good progress has been made to date and we are optimistic
about achieving a satisfactory outcome. Data centre locations that
have excess capacity are also being marketed to increase
utilisation.
We have also reviewed and consolidated colleague roles where
possible, identified synergies, and maintained our disciplined
approach to reducing cost of sales and overheads without
compromising quality of service.
We continue to prioritise improving our financial strength and
liquidity and are exploring ways to bolster our position. This
includes improving speed of invoicing by offering discounts to
customers with multi-year contracts for paying in advance and
enhancing our due diligence in the credit control process.
The market
As organisations both large and small experience an impact on
their bottom line due to the inflationary environment, many
businesses across our four areas of focus are now looking for
good-value, customer-oriented partners to help them manage their IT
solutions and spend.
This is prompting an evolution in the market, with many of these
organisations now looking to move away from the larger and
typically less agile Managed Services Providers. We are seeing
particular traction in Microsoft related skills such as SharePoint
and Azure Migrations, as well as the refresh of IT hardware.
Additionally, an increase in remote working has seen demand for
laptops, monitors and remote telephony solutions grow as companies
ensure that remote staff are provided with modern, company-owned
hardware that can be securely managed and protected centrally. As
an agile, customer-driven Managed Services Provider and VAR,
CloudCoCo is well-positioned to capitalise on these trends.
Current trading and outlook
In FY 2023, with all four acquisitions(2) now integrated and
increasingly solid foundations on which to build, we will again
look to drive organic growth. At the same time, we will look to
scale through selective acquisitions where they are a good
strategic fit, particularly those that can enhance the network and
cloud technology infrastructure acquired through the Connect
business, which we see as forming an important part of our
future.
The Group, as expected, has experienced some impact from
increased costs relating to power and energy, particularly in
relation to its data centre sites, which have resulted in price
increases to our customers. We continue to monitor the situation
carefully and are working closely with customers to ensure that
they understand their energy consumption and are making
recommendations to improve efficiency where possible.
Our sales pipeline is increasing at a healthy rate, particularly
with larger and multi-year deals. There has been an uptick in this
since the end of FY 2022, together with the signing of multiple
longer-term new logo contracts which is testament to the strategy
and investments made.
Despite the economic challenges, we are confident in our ability
to deliver improved revenues and profitability in FY23.
Mark Halpin
Chief Executive Officer 15 March 2023
(1) profit or loss before net finance costs, tax, depreciation,
amortisation, plc costs, exceptional items and share-based
payments. (2) acquisitions of Systems Assurance Limited and More
Computers Limited in September 2021 and IDE Group Connect Limited
and Nimoveri Limited in October 2021.
Financial review
Acquisition of IDE Group Connect Limited and Nimoveri
Limited
On 19 October 2021, the Company acquired IDE Group Connect
Limited ("Connect") and Nimoveri Limited ("Nimoveri") (together,
the "Acquisitions") from IDE Group Holdings PLC ("IDE") for a
deferred consideration of GBP250,000.
The Acquisitions provided the Group with circa 660 additional
clients and a significant opportunity to upsell and cross sell
services across the Group. The Acquisitions were acquired from IDE
for a consideration of GBP250,000, funded via a loan note from IDE
for GBP250,000 to be repaid over five years with an annual interest
rate of Bank of England base rate +3% with no payments due in the
first six months. The net liabilities acquired under the
transaction included a cash balance of GBP497,000.
IDE agreed to provide the Group with a working capital facility
of up to GBP500,000 on request for the first twelve months of
acquisition, should it have been required to help fund the initial
restructure of the Connect business. No amounts were drawn under
this facility.
Revenue and gross margin
Group revenue for the year to 30 September 2022 grew by 198% to
GBP24.2 million (FY21 GBP8.1million) assisted by the acquisitions
at the end of 2021, which perfectly complimented the existing
service portfolio as well as adding new revenue streams which
enhanced our proposition during the year.
These revenues produced a total gross profit of GBP7.9 million
(FY21: GBP3.2 million) representing a gross margin of 32.8% (FY21:
39.6%) reflecting the fact that a large percentage of our revenues
are derived from third-party vendors to allow the Group to remain
asset-light.
The analysis of revenue from each of our operating segments is
shown in note 3 to the accounts.
Managed IT Services
Managed IT Services, which comprises recurring services and
ongoing IT support often utilising the data centre locations, core
network or technical skills at our disposal, continues to dominate
the profile of our revenues, representing 70% (2021: 70%) of group
revenues during the year, adding significant value to our customers
providing specialist IT skills on-demand, so that they can focus on
their core business activities. This grew to GBP17.1 million in FY
2022, from GBP5.6 million in FY 2021, underpinning the need for
best of breed IT Managed services from UK business customers.
In line with our objective to grow the recurring contracted
revenue base, it was pleasing to note that 95% (2021: 90%) of all
Managed IT Services revenues were provided under recurring
contacts. On average, new customer contracts sold are for an
initial period of just under 2 years, although recurring contracts
allows customers to auto-renew on similar terms at each
anniversary.
The key to providing a one-stop solution for our customers is
being able to deliver technical skills, project management and the
hardware they require to undertake numerous IT projects that
transform the way that they do business. During FY 2022, we saw
professional services revenues which utilise our technical skills
increase by 49% over FY 2021 to GBP0.9 million, as customers took
the opportunity, post-COVID-19, to invest in core technologies to
allow them to optimise efficiencies in new hybrid working era.
Value added resale
VAR is the resale of one-time solutions (hardware and software)
from our leading technology partners, including revenues from the
More Computers e-commerce platform.
Revenues from VAR were GBP4.6 million higher in FY22 than the
prior year at GBP7.1 million (FY21: GBP2.5 million), due to the
acquisitions of Systems Assurance and More Computers in September
2021, who specialise in sourcing a diverse range of hardware from
major vendors at cost-effective price.
VAR generated a gross profit of GBP1.4 million (FY21: GBP0.6
million) and gross margin of 20% (FY21: 25%), although the majority
of VAR orders were delivered direct to site by our chosen hardware
partners using our unique ERP links and therefore carrying a much
lower overall cost to fulfil orders.
Operating costs and performance
Excluding plc costs of GBP0.8 million (FY21: GBP0.5 million),
our trading overheads(2) increased to GBP6.4 million (FY21: 2.5
million) following the acquisitions completed in late 2021. Driving
efficiencies in our overheads was a key priority during the year as
the Connect business we acquired from IDE Group in October 2021 had
been trading at an annual reported loss of GBP0.8 million per
annum, prior to joining our Group.
As an employee led business, 93% of our operational trading
overheads relate to staff costs. Ensuring that we have the right
mix of talent and skills available to support our customers is key,
without leaving talent on the bench. We continue to look for ways
to maximise value from our overheads through strategic partnerships
and automation.
Whilst revenue, gross profit and cash balances remain the
primary measures, one of our main financial key performance
indicators is our Trading Group EBITDA(1) - our operational trading
performance before plc costs, depreciation and amortisation, share
based payments and exceptional items. This is a key industry
measure, reflecting the underlying trading profits before the costs
of assets and liabilities. Our Trading Group EBITDA(1) increased by
GBP0.9 million to GBP1.6 million in the year (2021: GBP0.7 million,
2020: GBP0.3 million).
The acquisition of Connect added 32 data centre locations to the
Group. A number of these data centre contracts meet the IFRS 16
definition of right of use assets (see note 10). Thus, rather than
recognising an operating expense in respect of the cost of these
data centres, they are instead recognised as assets, with an
associated lease liability, impacting profit or loss as
depreciation and interest expenses and are therefore not recognised
in Trading Group EBITDA. To provide transparency in respect of
these costs, we have introduced a second non-statutory measure,
being Adjusted Trading Group EBITDA. This gives the Trading Group
EBITDA(1) after deduction of the IFRS 16 data centre depreciation
charge, and best equates to the cash profitability of the Group
before plc costs, exceptional items and net finance expenses.
Adjusted Trading Group EBITDA for the year was GBP1.1 million
(2021: GBP0.7 million) as follows:
2022 2021
GBP'000 GBP'000
----------------------------------------- --------- ---------
Trading Group EBITDA(1) 1,594 745
Deprecation of IFRS 16 data centre right (530) -
of use assets
----------------------------------------- --------- ---------
Adjusted Trading Group EBITDA 1,064 745
----------------------------------------- --------- ---------
Plc costs
Plc costs in the year increased by GBP0.3 million to GBP0.8
million (FY21: GBP0.5 million). These are non-trading costs,
relating to the Board of Directors of the parent company, the costs
of being listed on the AIM Market of the London Stock Exchange and
its associated professional advisors. Whilst this year includes a
full-year of cost for the Executive Directors, we have also seen
increases in costs relating to insurances, audit and advisory
fees.
The whole industry has seen an upward trend in insurance
premiums and policy costs over the past few years due to a greater
number of claims against directors together with the expansion of
regulations governing corporate behaviour. The backdrop of general
rising insurance costs in the country has also been impacted by the
uncertainty and volatility of the insurance market following
COVID-19 and an increase in cyber-security incidents across the
globe, further driving up costs. The Company takes proactive steps
to minimise its exposure to risk, such as implementing strong
governance practices and having robust risk management processes in
place. Insurance costs increased by GBP70,000 during the year.
In addition, the costs relating to audit increased during the
year following the enhanced scope as a result of the sizeable
acquisitions made and the fact that the trade of the business is
spread over a number of separate entities. The cost of financial
audits in the United Kingdom has increased in recent years due to a
number of factors, including the increasing complexity of financial
reporting and regulatory requirements, which has increased the
overall scope and workload for auditors. Audit costs increased by
GBP40,000 during the year.
Exceptional Items
During the year we incurred certain non-recurring costs which
were not directly related to the generation of revenue and trading
profits. Given their size and nature, they have been classified as
exceptional items within the Consolidated Income Statement. These
items totalled GBP0.6 million (2021: GBP0.5 million), of which
GBP0.5 million (2021: GBP0.3 million) relates the acquisitions made
in 2021 and their associated restructure costs as we right-sized
the business during the year. Further details of the exceptional
items are shown in note 4.
Net finance expenses, depreciation, amortisation and financial
results for the full year
During the year the Group incurred net finance costs of GBP0.7
million (FY21: GBP0.5 million). GBP0.6 million (2021: GBP0.5
million) of this was accrued interest on loan notes payable at the
end of the loan notes' term in October 2024. The remaining GBP0.1
million (2021: nil) in this financial year relates to interest
resulting from lease liabilities.
The Group incurred other costs including total amortisation and
depreciation charges of GBP2.0 million (FY21: GBP1.1 million) and
share-based payments charge of GBP119,000 (FY21: GBP217,000).
Depreciation includes GBP0.5 million relating to IFRS16 data centre
right of use assets and GBP0.2 million relating to tangible assets.
After accounting for a deferred tax credit of GBP0.3 million (FY21:
GBP0.1 million charge) arising as part of business, the reported
loss for the year after tax was GBP2.3 million compared to a loss
after tax for the year to 30 September 2021 of GBP2.1 million.
Statement of Financial Position and cash
The Group had positive net assets at 30 September 2022 totalling
GBP3.0 million (FY21: GBP5.2 million) and the cash position
improved by GBP0.3 million to GBP1.5 million (FY21: GBP1.2
million). The four now cash generative businesses acquired in 2021,
provide the business with a solid platform for growth.
The Group had a net cash inflow during the year of GBP0.3
million (FY21: GBP0.6 million), the main components being:
-- Cash inflow generated from operating activities excluding the
costs of acquisition of GBP1.0 million (FY21: cash outflow of
GBP0.3 million);
-- Net cash inflow of GBP0.5 million (net of cash acquired) to acquire the Connect business;
-- Payments of deferred consideration for the acquisition of
Systems Assurance Limited of GBP155,000 and for the Connect
business of GBP25,000 during the period; and
-- Payments of lease liabilities of GBP0.8 million (FY21: GBP0.1 million)
Current assets increased by GBP2.8 million to GBP7.0 million as
a result of the acquisitions, although 76% of these relate to Trade
and other receivables. We continue to operate an asset-light
business and hold very little stock and work in progress relative
to our revenues, preferring to ship-to-order direct from our vendor
partners. GBP0.8 million of the increase during the year relates to
prepayments as vendor contracts require us to pay for data centre
rentals and leased line in advance. This practice is also mirrored
in our end-user customer contracts, reflected in the increase in
contract liabilities below.
Contract liabilities increased by GBP1.2 million to GBP2.5
million (FY21: GBP1.3 million) reflecting the acquisition of
multi-year recurring customers contracts with the Connect business,
coupled with the continued success that the Group had during the
year, signing customers onto new longer term recurring revenue
contracts, billed in advance.
In so far as possible, management look to balance movements in
trade receivables and trade payables throughout the year to
maintain a consistent bank balance.
Overall Net debt increased by GBP1.0 million to GBP4.1 million
during the year. Net debt comprises cash balances of GBP1.5 million
less the loan notes and rolled up interest of GBP4.4 million,
together with GBP0.2 million deferred consideration owed for the
acquisition of Connect and shown at fair value (see note 15). A
further GBP0.9 million is owed in lease liabilities and COVID-19
bounce back loans. The Trading Group EBITDA (1) of the business
exceeded the loan note interest in the year by GBP1.1 million
(FY21: GBP0.3 million).
Tangible assets at year-end remained stable as GBP0.2 million
(FY21: GBP0.2 million) and the costs of additional capex in the
year of GBP115k (FY21: GBP31k), the majority of which were acquired
to generate Managed IT services revenues to customers.
The acquisition of the Connect business delivered with it a core
fibre network and 32 data centre locations. The majority of data
centres are leased from third-party suppliers on renewable contract
terms of up to 5 years in duration. Many of these data centre
leases can be auto-renewed, resized or terminated in the months
leading up to the end of the term, creating a new or modified
leases in excess of twelve months, which then fall under IFRS16 as
a right of use asset with associated lease. During the year, the
Group entered into new or modified IFRS16 right of use leases of
GBP1.1 million (see note 10). These leases, which had less than 12
months remaining on the date of acquisition, were treated as
short-term leases up until the point at which they were renewed or
modified. The acquisition also contained onerous contracts of
GBP1.2 million over various terms up until November 2032 (see note
11).
(1) profit or loss before net finance costs, tax, depreciation,
amortisation, plc costs, exceptional items and share-based payments
.
(2) trading overheads are the group's administrative costs
excluding depreciation and amortisation, plc costs, exceptional
items and share-based payments
Consolidated income statement
for the year ended 30 September 2022
Note 2022 2021
GBP'000 GBP'000
------------------------------------------- ---- -------- --------
Continuing operations
Revenue 3 24,193 8,107
Cost of sales (16,246) (4,891)
------------------------------------------- ---- -------- --------
Gross profit 7,947 3,216
Other income - 67
Administrative expenses (9,784) (4,794)
Trading Group EBITDA (1) 1,594 745
Amortisation of intangible assets (1,286) (1,009)
Plc costs(2) (770) (492)
Depreciation of IFRS16 data centre right
of use assets 10 (530) -
Depreciation of tangible assets and other
right of use assets 10 (164) (97)
Exceptional items 4 (562) (441)
Share-based payments (119) (217)
------------------------------------------- ---- -------- --------
Operating loss 5 (1,837) (1,511)
Interest receivable 6 1 1
Interest payable 6 (772) (535)
=========================================== ==== ======== ========
Loss before taxation (2,608) (2,045)
Taxation 7 321 (83)
=========================================== ==== ======== ========
Loss and total comprehensive loss for the
year attributable to owners of the parent (2,287) (2,128)
=========================================== ==== ======== ========
Loss per share
Basic and fully diluted 8 (0.32)p (0.42)p
=========================================== ==== ======== ========
(1) profit or loss before net finance costs, tax, depreciation,
amortisation, plc costs, exceptional items and share-based payments
.
(2) Plc costs are non-trading costs relating to the Board of
Directors of the Parent Company, the costs of being listed on the
AIM
Market of the London Stock Exchange and its associated
professional advisors.
Consolidated statement of financial position
as at 30 September 2022
30 September 30 September
2022 2021
================================= ===
GBP'000 GBP'000
================================= === ============= =============
Non-current assets
Intangible assets 9 12,580 10,393
Property, plant and equipment 10 128 52
Right of Use assets 10 814 97
================================= === ============= =============
Total non-current assets 13,522 10,542
================================= === ============= =============
Current assets
Inventories 165 86
Trade and other receivables 4,766 2,721
Contract assets 558 232
Cash and cash equivalents 1,516 1,183
================================= === ============= =============
Total current assets 7,005 4,222
================================= === ============= =============
Total assets 20,527 14,764
================================= === ============= =============
Current liabilities
Trade and other payables (6,890) (2,872)
Contract liabilities (1,891) (177)
Provision for onerous contracts 11 (148) -
Borrowings (69) (172)
Lease liability 12 (733) (86)
Total current liabilities (9,731) (3,307)
================================= === ============= =============
Non-current liabilities
Contract liabilities (601) (1,092)
Provision for onerous contracts 11 (927) -
Borrowings (4,723) (3,991)
Lease liability 12 (112) (11)
Deferred tax liability (1,426) (1,188)
================================= === ============= =============
Total non-current liabilities (7,789) (6,282)
================================= === ============= =============
Total liabilities (17,520) (9,589)
================================= === ============= =============
Net assets 3,007 5,175
================================= === ============= =============
Equity
Share capital 7,062 7,062
Share premium account 17,630 17,630
Capital redemption reserve 6,489 6,489
Merger reserve 1,997 1,997
Other reserve 458 339
Retained earnings (30,629) (28,342)
================================= === ============= =============
Total equity 3,007 5,175
================================= === ============= =============
Consolidated statement of changes in equity
for the year ended 30 September 2022
Capital
Share Share redemption Merger Other Retained
capital premium reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- ----------- -------- -------- --------- ----------
At 1 October 2020 4,952 17,630 6,489 1,997 122 (26,214) 4,976
------------------------------- -------- -------- ----------- -------- -------- --------- ----------
Loss and total comprehensive
loss for the period - - - - - (2,128) (2,128)
=============================== ======== ======== =========== ======== ======== ========= ==========
Transactions with owners in their capacity
of owners
Issue of 210,990,000 shares
at 1p per share via a Placing 2,110 - - - - - 2,110
Share-based payments - - - - 217 - 217
=============================== ======== ======== =========== ======== ======== ========= ==========
Total transactions with owners 2,110 - - - 217 - 2,327
=============================== ======== ======== =========== ======== ======== ========= ==========
Total movements 2,110 - - - 217 (2,128) 199
=============================== ======== ======== =========== ======== ======== ========= ==========
Equity at 30 September 2021 7,062 17,630 6,489 1,997 339 (28,342) 5,175
=============================== ======== ======== =========== ======== ======== ========= ==========
Capital
Share Share redemption Merger Other Retained
capital premium reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- ----------- -------- -------- --------- ----------
At 1 October 2021 7,062 17,630 6,489 1,997 339 (28,342) 5,175
------------------------------- -------- -------- ----------- -------- -------- --------- ----------
Loss and total comprehensive
loss for the period - - - - - (2,287) (2,287)
=============================== ======== ======== =========== ======== ======== ========= ==========
Transactions with owners in their capacity
of owners
Share-based payments - - - - 119 - 119
=============================== ======== ======== =========== ======== ======== ========= ==========
Total transactions with owners - - - - 119 - 119
=============================== ======== ======== =========== ======== ======== ========= ==========
Total movements - - - - 119 (2,287) (2,168)
=============================== ======== ======== =========== ======== ======== ========= ==========
Equity at 30 September 2022 7,062 17,630 6,489 1,997 458 (30,629) 3,007
=============================== ======== ======== =========== ======== ======== ========= ==========
Consolidated statement of cash flows
for the year ended 30 September 2022
2022 2021
GBP'000 GBP'000
=========================================================== ======== ========
Cash flows from operating activities
Loss before taxation (2,608) (2,045)
Adjustments for:
Depreciation - IFRS data centre right of use assets 530 -
Depreciation - owned assets 50 29
Depreciation - right of use assets 114 68
Amortisation 1,286 1,009
Share-based payments 119 217
Net finance expense 771 534
Costs relating to acquisitions(1) 58 202
Movements in provisions (153) -
Costs relating to Placing of 210,990,000 shares - 171
Increase in trade and other receivables (1,064) (408)
Increase in inventories (79) (24)
Increase / (decrease) in trade payables, accruals
and contract liabilities 2,014 (57)
Net cash inflow / (outflow) from operating activities
before acquisition costs 1,038 (304)
Costs relating to acquisitions(1) (58) (202)
=========================================================== ======== ========
Net cash inflow / (outflow) from operating activities 980 (506)
=========================================================== ======== ========
Cash flows from investing activities
Purchase of property, plant and equipment (note
10) (115) (31)
Acquisitions net of cash acquired(1) (note 15) 497 (563)
Payment of deferred consideration relating to acquisitions
(note 15) (180) -
Interest received - 1
=========================================================== ======== ========
Net cash inflow / (outflow) from investing activities 202 (593)
=========================================================== ======== ========
Cash flows from financing activities
Proceeds from Placing of 210,990,000 shares - 2,110
Less transaction fees relating to the Placing - (171)
Repayment of loan funds from MXCG - (100)
Repayment of COVD-19 bounce-back loan (18) -
Payment of lease liabilities (813) (120)
Interest paid (18) (25)
=========================================================== ======== ========
Net cash (outflow) / inflow from financing activities (849) 1,694
=========================================================== ======== ========
Net increase in cash 333 595
Cash at bank and in hand at beginning of period 1,183 588
=========================================================== ======== ========
Cash at bank and in hand at end of period 1,516 1,183
=========================================================== ======== ========
Comprising:
Cash at bank and in hand 1,516 1,183
----------------------------------------------------------- -------- --------
(1) FY22 relates to the acquisition of CloudCoCo Connect Limited
(formerly IDE Group Connect Limited) and Nimoveri Limited.
FY21 relates to the acquisition of Systems Assurance Limited and
More Computers Limited.
Notes to the consolidated financial statements
1. General information
CloudCoCo Group plc is a public limited company incorporated in
England and Wales under the Companies Act 2006. The principal
activity of the Group is the provision of IT Services to small and
medium-sized enterprises in the UK. The Board of Directors approved
this announcement on 15 March 2023.
Whilst the financial information included in this announcement
has been prepared international accounting standards in accordance
with UK-adopted International Accounting Standards and applicable
law, this announcement does not itself contain sufficient
information to comply with all the disclosure requirements of IFRS
and does not constitute statutory accounts of the Company for the
years ended 30 September 2022 and 2021. The financial statements
are presented in pounds sterling because that is the currency of
the primary economic environment in which each of the Group's
subsidiaries operates.
The financial information for the period ended 30 September 2021
is derived from the statutory accounts for that year which have
been delivered to the Registrar of Companies. The statutory
accounts for the year ended 30 September 2022 will be delivered to
the Registrar of Companies as soon as practicable following
approval. The auditors have reported on those accounts; their
reports were unqualified and did not contain a statement under
s498(2) or s498(3) of the Companies Act 2006. The financial
statements are presented in pounds sterling (rounded to the nearest
thousand (GBP'000)) because that is the currency of the primary
economic environment in which each of the Group's subsidiaries
operates.
1.1 Basis of preparation
The consolidated financial statements have been prepared in
accordance with UK-adopted international accounting standards. The
measurement bases and principal accounting policies of the Group
are set out below. These policies have been consistently applied to
all years presented unless otherwise stated.
Going concern
The Group had positive net assets at 30 September 2022 totalling
GBP3.0 million compared to GBP5.2 million at the end of FY21. The
acquisition of CloudCoCo Connect Limited (formerly IDE Group
Connect Limited) ("Connect") contributed cash to the Group and the
net cash inflow from operating activities exceeded lease
payments.
The Group's progress towards its key objectives of increasing
sales, reducing customer churn, reducing costs, and returning to
net cash generation is described in the Strategic Report. Despite
continued uncertainty and disruption as a result of the cost of
living crisis and the initial losses incurred when acquiring the
originally distressed Connect business, the Group reported a 129%
percent improvement in underlying profitability as measured by
Trading Group EBITDA1 (2022: GBP1.6 million; 2021: GBP0.7 million).
Cash inflow from operating activities before acquisition costs was
GBP1.0 million (FY21: GBP0.3 million cash outflow) and cash
balances increased by GBP0.3m overall.
The risks associated with the Group's activities are reviewed by
the Directors on a regular basis. The key operational risk the
Group faces is the general economic outlook including the energy
costs crisis and uncertainty caused by the cost of living crisis.
Although COVID-19 did not have a material impact on the Group's
ability to operate in FY22, it did result in some delays in sales
cycles for certain services and delays in project delivery as
customers continued to assess the impact of COVID-19 on their own
businesses. In addition, there is financial, operational and
executional risk associated with the business combinations
completed in late 2021.
The Directors have reviewed the forecast sales growth, budgets
and cash projections for the period to September 2024, including
sensitivity analysis on the key assumptions such as the potential
impact of reduced sales or slower cash receipts, for the next
twelve months and the Directors have reasonable expectations that
the Group and the Company have adequate resources to continue
operations for the period of at least one year from the date of
approval of these financial statements. The Directors have not
identified any material uncertainties that may cast doubt over the
ability of the Group and Company to continue as a going concern and
the Directors continue to adopt the going concern basis in
preparing these financial statements.
1.2 New standards and interpretations of existing standards that
have been adopted by the Group for the first time
New standards or amendments to existing standards and
interpretations that became effective for the annual period
commencing on 1 October 2021 were interest rate reforms -
amendments to IFRS 9.
None of the new standards or interpretations of existing
standards above had a material impact on the Group during the year
ended 30 September 2022.
1.3 New standards and interpretations of existing standards that
are not yet effective and have not been adopted early by the
Group
The new standards or amendments that may be applicable to the
2023 financial statements are as follows:
-- Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37
-- Reference to the Conceptual Framework - Amendments to IFRS 3
-- Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16
-- Annual improvements to IFRS Standards 2018-2020.
None of these are expected to have a material impact on the
Group.
2. Principal accounting policies
a) Basis of consolidation
The Group financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) prepared to 30 September each year. Control is
achieved where the Company is exposed to, or has the rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
The Group obtains and exercises control through voting rights.
Unrealised gains on transactions between the Group and its
subsidiaries are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the
asset transferred. Amounts reported in the financial statements of
subsidiaries have been adjusted where necessary to ensure
consistency with the accounting policies adopted by the Group.
Acquisitions of subsidiaries are dealt with using the
acquisition method. The acquisition method involves the recognition
at fair value of all identifiable assets and liabilities, including
contingent liabilities of the subsidiary, at the acquisition date,
regardless of whether or not they were recorded in the financial
statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the subsidiary are
included in the Consolidated Statement of Financial Position at
their fair values, which are also used as the cost bases for
subsequent measurement in accordance with the Group accounting
policies.
Goodwill is stated after separating out identifiable intangible
assets. Goodwill represents the excess of acquisition costs over
the fair value of the Group's share of the identifiable net assets
of the acquired subsidiary at the date of acquisition.
b) Goodwill
Goodwill representing the excess of the cost of acquisition over
the fair value of the Group's share of the identifiable net assets
acquired is capitalised and reviewed annually for impairment.
Goodwill is carried at cost less accumulated impairment losses.
c) Revenue and revenue recognition
Revenue arises from the sale of goods and the rendering of
services as they are performed and the performance obligations
fulfilled. It is measured by reference to the fair value of
consideration received or receivable, excluding valued added tax,
rebates, trade discounts and other sales-related taxes.
The Group enters into sales transactions involving a range of
the Group's products and services; for example, for the delivery of
hardware, software, support services, managed services, data centre
locations, network connectivity and professional services. At the
inception of each contract the Group assesses the goods or services
that have been promised to the customer. Goods or services can be
classified as either i) distinct or ii) substantially the same,
having the same pattern of transfer to the customer as part of a
series. Using this analysis, the Company identifies the separately
identifiable performance obligations over the term of the contract.
A contract liability is recognised when billing occurs ahead of
revenue recognition. A contract asset is recognised when the
revenue recognition criteria were met but in accordance with the
underlying contract the sales invoice had not been issued.
Goods and services are classified as distinct if the customer
can benefit from the goods or services on their own or in
conjunction with other readily available resources. A series of
goods or services, such as Recurring Services, would be an example
of a performance obligation that is transferred to the customer
evenly over time. The Group applies the revenue recognition
criteria set out below to each separately identifiable performance
obligation of the sale transaction. The consideration received from
multiple-component transactions is allocated to each separately
identifiable performance obligation in proportion to its relative
fair value.
Sale of goods (hardware and software)
Sale of goods is recognised at the point in time when the
customer obtains control of the goods. Revenue from the sale of
software with no significant service obligation is recognised on
delivery at a point in time as this is when the customer takes
possession and is able to use the software.
Rendering of services
The Group generates revenues from managed services, data centre
services, support services, maintenance, resale of
telecommunications and professional services ("Managed IT
Services"). Consideration received for these services is initially
deferred (when invoiced in advance), included in accruals and
contract liabilities and recognised as revenue in the period when
the service is performed and the performance obligation
fulfilled.
Revenue from the delivery of professional services is recognised
over the period of the project and measured on a time-based method
using hourly rates.
Contracts for managed IT services are usually 12 months in
duration and are automatically renewed unless termination rights
are exercised. Revenue is recognised equally over the term of the
contract as this fairly reflects the delivery of services to the
customer.
Sales commission and third-party costs (where relevant) relating
to these services are shown within Contract Assets and are
recognised equally over the duration of the contractual term, in
line with when the customer benefits from the services. Internal
technical resources utilised in setting up recurring Managed IT
Services over twelve months in duration are capitalised at the
start of the contract within Contract Assets and spread equally
over the duration of the contractual term.
d) Right of use assets
A right-of-use asset is recognised at the commencement date of a
lease. The right-of-use asset is measured at cost, which comprises
the initial amount of the lease liability, adjusted for, as
applicable, any lease payments made at or before the commencement
date net of any lease incentives received and any initial direct
costs incurred
Right-of-use assets are depreciated on a straight-line basis
over the unexpired period of the lease or the estimated useful life
of the asset, whichever is the shorter. Where the Group expects to
obtain ownership of the leased asset at the end of the lease term,
the depreciation is over its estimated useful life. Right-of use
assets are subject to impairment or adjusted for any remeasurement
of lease liabilities.
The Group has elected not to recognise a right-of-use asset and
corresponding lease liability for short-term leases with terms of
12 months or less and leases of low-value assets. Lease payments on
these assets are expensed to profit or loss as incurred.
e) Leases
A lease liability is recognised at the commencement date of a
lease. The lease liability is initially recognised at the present
value of the lease payments to be made over the term of the lease,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Lease payments comprise of fixed payments less any
lease incentives receivable, variable lease payments that depend on
an index or a rate, amounts expected to be paid under residual
value guarantees, exercise price of a purchase option when the
exercise of the option is reasonably certain to occur, and any
anticipated termination penalties. Any variable lease payments that
do not depend on an index or a rate are expensed in the period in
which they are incurred.
Lease liabilities are measured at amortised cost using the
effective interest method. The carrying amounts are remeasured if
there is a change in the following: future lease payments arising
from a change in an index or a rate used; residual guarantee; lease
term; certainty of a purchase option and termination penalties.
When a lease liability is remeasured, an adjustment is made to the
corresponding right-of-use asset, or to profit or loss if the
carrying amount of the right-of-use asset is fully written
down.
f) Onerous contracts
Provisions are recognised when the consolidated entity has a
present (legal or constructive) obligation as a result of a past
event, it is probable the consolidated entity will be required to
settle the obligation, and a reliable estimate can be made of the
amount of the obligation. The amount recognised as a provision is
the best estimate of the consideration required to settle the
present obligation at the reporting date, taking into account the
risks and uncertainties surrounding the obligation. If the time
value of money is material, provisions are discounted using a
current pre-tax rate specific to the liability. The increase in the
provision resulting from the passage of time is recognised as a
finance cost.
The recognition of the onerous contract liability is based on a
reliable estimate of the expected costs and benefits of the
contract. This estimate takes into account all relevant
information, including the terms and conditions of the contract,
market conditions, and the Company's own experience.
g) Exceptional items and Plc costs
Non-recurring items which are material either because of their
size or their nature, are highlighted separately on the face of the
Consolidated Income Statement. The separate reporting of these
items helps provide a better picture of the Group's underlying
performance. Items which may be included within this category
include, but are not limited to, acquisition costs, spend on the
integration of significant acquisitions and other major
restructuring or rationalisation programmes, significant goodwill
or other asset impairments and other particularly significant or
unusual items.
Exceptional items are excluded from the headline profit measures
used by the Group and are highlighted separately in the
Consolidated Income Statement as management believe that they need
to be considered separately to gain an understanding of the
underlying profitability of the trading businesses.
Note 4 contains more detail on exceptional items.
Plc costs are non-trading costs, relating to the Board of
Directors of the Parent Company, the costs of being listed on the
AIM Market of the London Stock Exchange and its associated
professional advisors.
h) Critical accounting judgements and key sources of estimation
uncertainty
Critical judgements in applying the Group's accounting
policies
The allocation of fair values to the tangible assets and the
identification and valuation of intangible assets requires
judgement in the selection of appropriate valuation techniques and
inputs and affect the goodwill and the assignment of that to each
cash generating unit, recognised in respect of the acquisitions
(note 15).
Judgement was also applied in determining whether contracts for
dark fibre connections included the lease of identifiable assets
for which a right of use asset and lease liability should be
recognised. The directors concluded that except for last mile
connections (if any) between the supplier's core network and the
Company's customer, the Company did not have control over the use
of specific fibres or utilise a significant proportion of the
supplier's core network.
Judgement has been applied in the analysis of agreements
relating to the lease of data centre assets including the impact of
termination and extension options on the lease term. Management
have exercised judgement in assessing the recoverability of right
of use assets, or provision for onerous operating leases, for each
of the lease arrangements relating to data centre assets.
Judgement has also been applied in the measurement of the
economic benefit to be received when testing for impairment of ROU
assets or onerous contracts and the selection of an appropriate
discount rate with which to measure the provision described in note
11.
Intangible assets are non-physical assets which have been
obtained as part of an acquisition and which have an identifiable
future economic benefit to the Group at the point of acquisition.
Customer bases are valued at acquisition by measuring the estimated
future discounted cash flows over a ten-year period from the date
of acquisition, depending on class and date of acquisition and
assuming a diminution for retention rate specific to each customer
base, calculated using the average actual retention rate over the
prior three or five-year period. All future cash flows are
discounted using a discount rate, based on the internal rate of
return for each asset, calculated over its useful economic
life.
3. Segment reporting
The Chief Operating Decision Maker ("CODM") has been identified
as the executive directors of the Company and its subsidiaries, who
review the Group's internal reporting in order to assess
performance and to allocate resources.
The CODM assess profit performance principally through adjusted
profit measures consistent with those disclosed in the Annual
Report and Accounts. A reconciliation between the non-statutory
measure of Trading Group EBITDA(1) and the statutory operating loss
is shown in the Income Statement. A reconciliation of Adjusted
Trading Group EBITDA is shown in the Financial Review. The Board
believes that the Group comprises a single reporting segment, being
the provision of IT managed services to customers. Whilst the CODM
reviews the revenue streams and related gross profits of two
categories separately (Managed IT Services and Value added resale),
the operating costs and operating asset base used to derive these
revenue streams are the same for both categories and are presented
as such in the Group's internal reporting.
The segmental analysis below is shown at a revenue level in line
with the CODM's internal assessment based on the following
reportable operating categories:
Managed IT Services
* This category comprises the provision of recurring IT
services which either have an ongoing billing and
support element or utilise the technical expertise of
our people.
Value added resale
* This category comprises the resale of one-time
solutions (hardware and software) from our leading
technology partners, including revenues from the More
Computers e-commerce platform.
=================== =================================================================
All revenues are derived from customers within the UK and no
customer accounts for more than 10% of external revenues in both
financial years. Inter-category transactions are accounted for
using an arm's length commercial basis.
3.1 Analysis of continuing results
All revenues from continuing operations are derived from
customers within the UK. In order to simplify our reporting of
revenue, we condense our reporting segments into two categories -
Managed IT Services and Value Added Resale. This analysis is
consistent with that used internally by the CODM and, in the
opinion of the Board, reflects the nature of the revenue. Trading
EBITDA(1) is reported as a single segment.
3.1.1 Revenue
2022 2021
GBP'000 GBP'000
-------------------- --------- ---------
Managed IT Services 17,056 5,648
Value added resale 7,137 2,459
-------------------- --------- ---------
Total Revenue 24,193 8,107
==================== ========= =========
3.1.2 Revenue
2022 2021
GBP'000 GBP'000
------------------------------ --------- ---------
Recognised over time 16,187 5,066
Recognised at a point in time 8,006 3,041
------------------------------ --------- ---------
Total Revenue 24,193 8,107
============================== ========= =========
4. Exceptional Items
Items which are material and non-routine in nature are presented
as exceptional items in the Consolidated Income Statement.
2022 2021
GBP'000 GBP'000
======================================================= ======== ========
Costs relating to the acquisition of CloudCoCo
Connect Limited (formerly IDE Group Connect Limited) (58) -
Dilapidations costs (46) -
Run-off costs relating to discontinued data centre
services (138) -
Costs relating to the acquisition of Systems Assurance
Limited and More Computers Limited - (202)
Costs relating to the Placing - (171)
Integration and restructure costs (320) (68)
Exceptional items (562) (441)
======================================================= ======== ========
Integration and restructure costs relate to notice period,
redundancy, holiday pay and severance payments made to staff whose
roles were duplicate or whose employment was terminated during the
year as part of integrating the acquisitions made in late 2021.
Run-off costs relating to discontinued data centre services
contain unrecoverable operating expenses incurred during the year
for data centre racks that were empty on acquisition.
5. Operating loss
2022 2021
GBP'000 GBP'000
========================================== ========= =========
Operating loss is stated after charging:
Depreciation of owned assets 50 29
Depreciation of right of use assets 644 68
Short life lease expense: IFRS16 data
centre short-life leases 1 ,538 34
Amortisation of intangibles 1,286 1,009
Auditor's remuneration:
- Audit of parent company 53 27
- Audit of subsidiary companies 106 53
------------------------------------------ --------- ---------
Government grants were received in the year of GBPnil (2021:
GBP67,000) as part of the Coronavirus Job Retention Scheme
("furlough") and recorded as Other Income in the income
statement.
6. Finance income and finance costs
Finance cost includes all interest-related income and expenses.
The following amounts have been included in the Consolidated Income
Statement line for the reporting periods presented:
2022 2021
GBP'000 GBP'000
==================================================== ======== ========
Interest income resulting from short-term bank
deposits 1 1
==================================================== ======== ========
Finance income 1 1
==================================================== ======== ========
Interest expense resulting from:
Lease liabilities 75 12
Interest on borrowings 17 12
Loan note interest 651 505
Interest on Government related COVID19 VAT deferral
scheme - 6
Unwinding of the discount on provisions 29 -
Finance costs 772 535
==================================================== ======== ========
Loan note interest includes GBP526,000 (2021: GBP420,000) which
is accrued and is only payable when the loan notes are repaid in
October 2024 or earlier if the Group chooses.
7. Income tax
2022 2021
GBP'000 GBP'000
=================================================== ======== ========
Current tax
UK corporation tax for the period at 19% (2021: - -
19%)
=================================================== ======== ========
Deferred tax
Deferred tax credit/ (charge) on intangible assets 321 (83)
=================================================== ======== ========
Total tax credit / (charge) for the year 321 (83)
=================================================== ======== ========
The relationship between expected tax (credit) / expense based
on the standard rate of tax in the UK of 19% (2021: 19%).
The tax expense actually recognised in the Consolidated Income
Statement can be reconciled as follows:
2022 2021
GBP'000 GBP'000
================================================ ======== ========
Loss for the year before tax: (2,608) (2,045)
================================================ ======== ========
Tax rate 19% 19%
================================================ ======== ========
Expected tax credit (496) (389)
Adjusted for:
Non-deductible expenses 57 59
Change in tax rates - 334
Differences in tax rates (1) (60)
Movement in unprovided deferred tax relating to
losses 150 135
Short-term timing differences (31) 4
================================================ ======== ========
Total tax (credit) / charge for the year (321) 83
================================================ ======== ========
The Group has unrecognised deferred tax assets in respect of tax
losses carried forward totalling GBP2,824,000 (2021: GBP2,196,000).
There are no restrictions in the use of tax losses. Deferred tax
assets remain unrecognised until it becomes probable that the
underlying deductible temporary differences will be able to be
utilised against future taxable income. During FY21, the
substantively enacted tax rate increased from 19% to 25% with
effect from 1 April 2023, and is applied in the measurement of
deferred tax as reflected in the table above.
8. Loss per share 2022 2021
GBP'000 GBP'000
============================================== =========== ===========
Loss attributable to ordinary shareholders (2,287) (2,128)
Weighted average number of Ordinary Shares in
issue, basic and diluted 706,215,686 510,759,930
Basic and diluted loss per share (0.32)p (0.42)p
---------------------------------------------- ----------- -----------
The weighted average number of ordinary shares for the purpose
of calculating the basic and diluted measures is the same.
9. Intangible assets
Intangible assets are non-physical assets which have been
obtained as part of an acquisition or research and development
activities, such as innovations, introduction and improvement of
products and procedures to improve existing or new products. All
intangible assets have an identifiable future economic benefit to
the Group at the point the costs are incurred. The amortisation
expense is recorded in administrative expenses in the Consolidated
Income Statement
IT, billing
and
website Customer
Goodwill systems Brand lists Total
Intangible assets GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
====================== ======== =========== ======== ======== ========
Cost
At 1 October 2020 9,835 182 1,657 9,280 20,954
Business combinations 253 179 470 141 1,043
======================= ======== =========== ======== ======== ========
At 30 September 2021 10,088 361 2,127 9,421 21,997
======================= ======== =========== ======== ======== ========
Business combinations
(note 15) 1,193 - 256 2,024 3,473
======================= ======== =========== ======== ======== ========
At 30 September 2022 11,281 361 2,383 11,445 25,470
======================= ======== =========== ======== ======== ========
Accumulated amortisation
At 1 October 2020 -(158) (978) (3,594) (4,730)
Charge for the year - (26) (54) (929) (1,009)
========================== ===== ======= ======= =======
At 1 October 2021 -(184) (1,032) (4,523) (5,739)
Charge for the year - (18) (123) (1,145) (1,286)
========================== ===== ======= ======= =======
At 30 September 2022 -(202) (1,155) (5,668) (7,025)
========================== ===== ======= ======= =======
Impairment
At 1 October 2020 (4,447) -(225) (1,193) (5,865)
Charge in the year - - - - -
===================== ======= ===== ======= =======
At 1 October 2021 (4,447) -(225) (1,193) (5,865)
Charge in the year - - - - -
===================== ======= ===== ======= =======
At 30 September 2022 (4,447) -(225) (1,193) (5,865)
====================== ======= ===== ======= =======
Carrying amount
At 30 September 2022 6,834 159 1,003 4,584 12,580
================================ ===== ========= ========= ========= =========
At 30 September 2021 5,641 177 870 3,705 10,393
================================ ===== ========= ========= ========= =========
Average remaining amortisation 8.8 years 8.2 years 4.0 years 4.5 years
period
================================ ===== ========= ========= ========= =========
For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are independent cash inflows
(cash generating units). Goodwill is allocated to those assets that
are expected to benefit from synergies of the related business
combination and represent the lowest level within the Group at
which management monitors the related cash inflows. The directors
concluded that at 30 September 2022, there were four CGUs being
CloudCoCo Limited, CloudCoCo Connect Limited (formerly IDE Group
Connect Limited), Systems Assurance Limited and More Computers
Limited.
Each year, management prepares the resulting cash flow
projections using a value in use approach to compare the
recoverable amount of the CGU to the carrying value of goodwill and
allocated assets and liabilities. Any material variance in this
calculation results in an impairment charge to the Consolidated
Income Statement.
The calculations used to compute cash flows for the CGU level
are based on the Group's Board approved budget for the next twelve
months, and business plan, growth rates for the next five years,
weighted average cost of capital ("WACC") and other known
variables. The calculations are sensitive to movements in both WACC
and the revenue growth projections. The impairment calculations
were performed using post-tax cash flows at post-tax WACC of 13.25%
(FY21: 11.25%) for each CGU. The pre-tax discount rate (weighted
average cost of capital) was calculated at 18% per annum (FY21:15%)
and the revenue growth rate is 5% per annum (FY21: 5%) for each CGU
for 5 years and a terminal growth rate of 2% (FY21: 2%).
Fixtures,
10. Property, plant and equipment fittings
and
Right of leasehold
Use Assets IT equipment improvements Total
GBP'000 GBP'000 GBP'000 GBP'000
=================================== =========== ============ ============= ==========
Cost of assets
At 1 October 2020 336 243 41 620
Additions - 24 7 31
Disposals (58) - - (58)
Business combinations - - 1 1
=================================== =========== ============ ============= ==========
At 30 September 2021 278 267 49 594
Additions 680 115 - 795
Modifications 378 - - 378
Disposals - (190) (20) (210)
Business combinations (note
15) 303 9 2 314
=================================== =========== ============ ============= ==========
At 30 September 2022 1,639 201 31 1,871
=================================== =========== ============ ============= ==========
Depreciation
At 1 October 2020 164 194 41 399
Charge for the year 68 27 2 97
Disposals (51) - - (51)
=================================== =========== ============ ============= ========
At 30 September 2021 181 221 43 445
Charge for the year 644 42 8 694
Disposals - (190) (20) (210)
=================================== =========== ============ ============= ========
At 30 September 2022 825 73 31 929
=================================== =========== ============ ============= ========
Net book value
At 30 September 2022 814 128 - 942
=================================== =========== ============ ============= ========
At 30 September 2021 97 46 6 149
=================================== =========== ============ ============= ========
The net book value of right of use assets at 30 September 2022
comprised:
Land & Data Centre
buildings Assets Motor Vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------- ----------- -------------- --------
At 30 September 2022 55 756 3 814
At 30 September 2021 85 - 12 97
===================== ========== =========== ============== ========
The depreciation charge in respect of right of use assets
comprises GBP530k in respect of data centre assets and GBP114k in
respect of property and other assets. Data centre assets are
described in more detail in Note 12.
11. Provision for onerous contracts
2022 2021
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Provisions for onerous contracts - short-term element 148 -
Provisions for onerous contracts - long-term element 927 -
------------------------------------------------------ -------- --------
Provisions for onerous contracts 1,075 -
------------------------------------------------------ -------- --------
As part of the acquisition of CloudCoCo Connect Limited
(formerly IDE Group Connect Limited) the Group become party to a
number of onerous contracts for redundant dark-fibre circuits that
remain under term contracts which expire over numerous accounting
periods up until November 2032. The total amount payable over the
term in relation to onerous contracts is GBP1.3 million and was
reflected in the lower acquisition price paid for the business in
October 2021.
2022 2021
GBP'000 GBP'000
------------------------------------ -------- --------
Opening balance - -
Business combinations (see note 15) 1,199 -
Payments (153) -
Unwinding of discount 29 -
------------------------------------ -------- --------
Closing balance 1,075 -
------------------------------------ -------- --------
An onerous contract is one where the cost of fulfilling the
contract exceeds the economic benefits that will be received. In
other words, it is a contract that is expected to result in a loss.
Under IFRS, we are required to recognise the expected losses from
an onerous contract as a liability in the financial statements.
The recognition of the onerous liability is based on a reliable
estimate of the expected costs and benefits of the contract. The
liability has been recognised in the opening balance sheet for
Connect and has been measured at the present value of the expected
future cash outflows, using a discount rate equivalent to the
current risk-free rate of government bonds over the term of the
onerous contracts. The provision for these contracts at 30
September 2022 were GBP1.1 million (2021: nil).
12. Lease Liabilities
The acquisition of the Connect business delivered with it 32
data centre locations. The majority of data centres are leased from
third-party suppliers on renewable contract terms of up to 5 years
in duration. Many of these data centre leases can be auto-renewed,
resized or terminated in the months leading up to the end of the
term, creating a new or modified leases in excess of twelve months,
which then fall under IFRS16 as a right of use asset with
associated lease.
During the year, the Group entered into new or modified IFRS16
right of use leases of GBP1.1 million. Those leases, which had less
than 12 months remaining on the date of acquisition, were treated
as short-term leases up until the point at which they were renewed
or modified.
2022 2021
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Opening balance 97 183
Additions 711 -
Modifications 378 -
Leases acquired on the acquisition of CloudCoCo
Connect Limited (formerly IDE Group Connect Limited) 397 -
Leases acquired on the acquisition of Systems Assurance
Limited - 34
Related interest expense 75 8
Repayment of lease liabilities (813) (128)
======================================================== ======== ========
Closing balance 845 97
======================================================== ======== ========
2022 2021
GBP'000 GBP'000
------------ -------- --------
Current 733 86
Non-current 112 11
============ ======== ========
845 97
============ ======== ========
The total cash outflows from leases (including lower value and
short-life leases) in the financial year was GBP2,351,000 (2021:
GBP154,000) of which GBP1,538,000 relates to short-life leases
(2021: GBP34,000).
13. Financial instrument
As part of a loan note consolidation on 21 October 2019, the
Company agreed to modify a loan note originally provided to
Business Growth Fund ("BGF") on 26 May 2016. The original loan note
contained a provision for share options which were immediately
exercised. The directors considered this to be in consideration for
the extinguishment of Loan Notes with a principal amount of GBP1.5m
and accrued interest of GBP0.1m. In accordance with IAS 32, the
carrying value of the Loan Notes that were extinguished, GBP1.3m,
was derecognised and recorded in equity.
On the same date, the remaining loan notes with a principal
amount of GBP3.5m were acquired by a MXC Guernsey Limited, a
subsidiary of MXC Capital (UK) Limited. The terms of the loan notes
were revised by increasing the coupon to 12% per annum compound,
rolled up and payable at maturity, and extending the term to
October 2024. When measured using the loan notes' original
effective interest rate, the present value of the cash flows of the
revised instrument were not significantly different to that of the
instrument prior to the modification. As a result, the Loan Notes
were not treated as a new instrument and continue to be measured at
amortised cost.
14. Net debt - net debt comprises: Cash Other
2022 movements movements 2021
GBP'000 GBP'000 GBP'000 GBP'000
=================================== ======== ========== ========== ========
Loan notes (see note 13) 4,558 - 650 3,908
COVID-19 Bounce-back loans 82 (18) - 100
Deferred consideration 152 (180) 177 155
Lease liabilities 845 (814) 1,562 97
Cash and cash equivalents (1,516) (333) - (1,183)
Total 4,121 (1,345) 2,389 3,077
=================================== ======== ========== ========== ========
15. Acquisition of CloudCoCo Connect Limited (formerly IDE Group
Connect Limited)
On 19 October 2021, the Company acquired IDE Group Connect
Limited and its subsidiary Nimoveri Limited (together, the
"Acquisitions") from IDE Group Holdings PLC ("IDE") for a deferred
consideration of GBP250,000, funded via a loan note from IDE for
GBP250,000 to be repaid over five years with an annual interest
rate of Bank of England base rate +3% with no payments due in the
first six months. The fair value of the deferred consideration,
GBP143,000, was measured using a rate of 12% reflecting the
Company's cost of borrowing based on its loan notes.
The acquisition of Connect and Nimoveri was a related party
transaction pursuant to rule 13 of the AIM Rules for Companies, due
to MXC Guernsey Limited owning 10.6%. of the Company's issued share
capital and 34.8% of IDE's issued share capital. The Directors of
the Company (save for Jill Collighan who was not deemed independent
for this purpose) having consulted with the Company's Nominated
Adviser, agreed that the terms of the transaction were fair and
reasonable insofar as the Company's shareholders were concerned.
The Group assessed the fair value of the acquisition of CloudCoCo
Connect Limited as follows:
Book Cost Fair Value Fair Value
Adjustment
GBP'000 GBP'000 GBP'000
-------------------------------------- ---------- -------------- -----------
Non-current assets
Intangible assets - brand - 256 256
Intangible assets - customer
lists 15 2,009 2,024
Property, plant and equipment 11 - 11
Right of use assets - 303 303
Total non-current assets 26 2,568 2,594
-------------------------------------- ---------- -------------- -----------
Current assets
Trade and other receivables 1,382 (74) 1,308
Cash at bank 497 - 497
-------------------------------------- ---------- -------------- -----------
Total current assets 1,879 (74) 1,805
-------------------------------------- ---------- -------------- -----------
Total assets 1,905 2,494 4,399
-------------------------------------- ---------- -------------- -----------
Current liabilities
Lease liability (92) (258) (350)
Trade and other payables (1,838) 207 (1,631)
Other taxes and social security
costs (192) - (192)
Contract liabilities (1,063) - (1,063)
Provisions for onerous contracts - (160) (160)
Accruals (382) - (382)
-------------------------------------- ---------- -------------- -----------
(3,567) (211) (3,778)
Non-current liabilities
Contract liabilities (15) - (15)
Lease liability (2) (45) (47)
Provisions for onerous contracts - (1,039) (1,039)
Deferred tax liability - (570) (570)
-------------------------------------- ---------- -------------- -----------
Total liabilities (3,584) (1,865) (5,449)
-------------------------------------- ---------- -------------- -----------
Net Liabilities (1,679) 629 (1,050)
Consideration in cash -
Fair value of deferred consideration
loan 143
-------------------------------------- ---------- -------------- -----------
Fair value of cost of acquisition 143
-------------------------------------- ---------- -------------- -----------
Goodwill 1,193
====================================== ========== ============== ===========
The goodwill arising on this acquisition was attributable to the
management team, technical skills and product knowledge and
know-how, which will benefit the Group. Direct acquisition costs
amounting to GBP58,000 were written off to the income statement
within exceptional items and included in cash flows from operating
activities.
The acquisition of Connect added a core fibre network and 32
data centre locations to the Group. The acquisition contained a
number of onerous contracts for redundant dark-fibre circuits that
remain under term contracts which expire over numerous accounting
periods up until November 2032. The total amount payable over the
term in relation to onerous contracts is GBP1.3 million and was
reflected in the lower acquisition price paid for the business in
October 2021. This was recorded at fair value in the acquired
balance sheet as a provision of GBP1.2 million.
The majority of data centres are leased from third-party
suppliers on renewable contract terms of up to 5 years in duration.
Many of these data centre leases can be modified in the months
leading up to renewal, creating a new or modified leases in excess
of twelve months, which then fall under IFRS16 as a right of use
asset with associated lease. These new or modified leases are
recorded at fair value in the acquired balance sheet at GBP0.3
million as right of use assets.
Gross trade receivables acquired were GBP1,653,000 before a loss
allowance of GBP271,000. Further analysis showed an additional loss
allowance of GBP74,000 was required and was recognised on
acquisition, giving a net trade receivables balance of
GBP1,308,000.
The Group acquired over 300 business customers as part of the
business combination with Connect. Intangible assets in respect of
customer lists reflect the contractual recurring nature of the
entity's revenue base. The fair value of the customer lists was
estimated by discounting the future cashflows that will be
generated from the acquired customer base, including an estimate of
customer attrition over time. During the year, the Connect
acquisition contributed GBP11.6 million of revenues. Due to the use
of shared overheads it is not possible to accurately calculate the
impact that the acquisition had on operating profits during the
year.
16. Post Balance Sheet events
There are no post balance sheet events to report.
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