essensys plc - Full Year Results

RNS Number : 8554B
essensys PLC
13 October 2020
 

 

13 October 2020

 

essensys plc

("essensys" or the "Group")

 

Full Year Results

Resilient performance in line with expectations

 

essensys plc (AIM:ESYS), the leading global provider of mission critical software-as-a-service (SaaS) platforms and on-demand cloud services to the flexible workspace industry, announces audited results for the year ended 31 July 2020.

 

Financial summary:

 

£m unless otherwise stated

2020

2019

Change

 

 

 

 

Revenue

22.5

20.6

+9%

Recurring revenue

19.4

16.3

+19%

Run Rate Annual Recurring Revenue

19.7

17.3

+14%

 

 

 

 

Statutory profit / (loss) before tax

0.3

(1.4)

 

 

 

 

 

Adjusted EBITDA

4.2

4.2

+0%

Adjusted EBITDA margin

19.1%

20.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit / (loss) per share (pence)

0.3p

(3.7p)

 

 

 

 

 

Proposed Final Dividend per share (pence)

Nil

Nil

 

 

 

 

 

Net Cash

8.5

2.7

 

 

Strengthened platform for long-term growth

 

· US remains major growth driver - US recurring revenue +45%

· Acceleration of flexible workspace opportunity as a result of Covid-19

o  Traditional landlords and corporate real estate operators increasingly seeking flexible workspace solutions

· Investment in long-term organic growth to capture market opportunity

o  Product and software development capability now comprises 42% of total headcount

o  Product development to meet demand for flexible security solutions

o  Continued international expansion

· Demand from existing and new customers continues to underpin future growth

o  419 Connect live sites at year end, up 17% (2019: 358)

o  35 new Connect sites during the second half demonstrates resilience of business since Covid-19

o  31 new customer wins

 

Resilient performance in line with expectations

 

· Continued revenue growth, an increase of 9%

· Recurring revenue up 19%, representing 86% of Group revenue (2019: 79%)

· US business supporting high growth levels

· Operate revenue grew 36% to £1.9m and revenue per site increased by 56% year on year

· Adjusted EBITDA maintained at FY19 levels, reflecting investment for long-term growth and a temporary reduction in activity following the outbreak of Covid-19

· Successful £7m fundraising in April 2020

o  Further strengthens our balance sheet liquidity and flexibility

o  Funding to support organic growth, investment and acquisitions as circumstances allow
 

 

 

Current trading and outlook

 

· Robust visibility - contracted commitments from customers for a further 47 Connect sites

· Increase in enquiry levels since August, adding 74 potential Connect sites to our weighted sales pipeline

· Recovery in new business activity to approximately 75% of H1 FY20 levels

· Sales pipeline from new and existing customers underpins confidence for continued progress in 2021

 

Mark Furness, CEO of essensys, said:

 

"essensys delivered a very strong performance in FY20, in line with expectations, with strong organic and recurring revenue growth.  This is particularly impressive given the disruption caused by the Covid-19 pandemic and is a testament to the commitment of our people, and our strategic progress.  To capture the long-term growth opportunity in the flexible workspace market, we have expanded the UK based development team and US sales team and launched new products in response to demand for flexible security.

 

We remain committed to our growth strategy and believe the pandemic has accelerated the shift towards flexible workspace, particularly from traditional landlords and commercial real estate operators.  This, combined with robust visibility and sales pipeline, and improving new business activity, give us confidence of further progress in the year ahead, notwithstanding uncertainty relating to Covid-19."

 

For further information, please contact:

 

essensys plc

 

+44 (0)20 3102 5252

Mark Furness, Chief Executive Officer

 

 

Alan Pepper, Chief Financial Officer

 

 

 

 

 

N+1 Singer (Nominated Adviser and Broker)

 

+44 (0)20 7496 3000

Peter Steel / Harry Gooden / George Tzimas / Kailey Aliyar

 

 

 

 

 

FTI Consulting

 

 

Jamie Ricketts / Eve Kirmatzis / Debbie Oluwaseyi Sonaike / Talia Jessener

 

+44 (0)20 3727 1000

 

About essensys plc

essensys is the leading global provider of mission-critical SaaS platforms and on-demand cloud services to the high growth flexible workspace industry.  essensys' software is specifically designed and developed to help solve the complex operational challenges faced by multi-site flexible workspace operators as they grow and scale their operations. The Group's technology allows operators to deliver a range of differentiated, flexible and customer-specific services to a broad base of tenants across multiple locations and helps operators to manage the cost, operational and technological challenges they typically encounter.

 

essensys' two SaaS platforms, Connect and Operate, address these complex operational challenges, and reduce costs by simplifying the day-to-day management of flexible workspaces and the provision of on-demand IT, technology and infrastructure services to tenants. essensys' platforms automate key tasks and processes and help flexible workspace providers deliver highly efficient, customer-centric workspace solutions and member experiences with enterprise class services.

Chairman's Statement

 

I am pleased to report good progress towards our strategic objectives and delivering a financial outcome which is in line with market expectations.  The Board is very pleased with this outcome in the context of Covid-19.

 

The momentum that we saw at the end of the last financial year continued through the first half of this year.  During that period, the Group saw increased activity globally including from the broader corporate real estate market, accelerating entry into the flexible workspace market.  The second half was, however, inevitably focussed around reacting to and mitigating the impact of the Covid-19 pandemic.

 

The impact of Covid-19 on the Group has been varied.  Inevitably we saw delays to customer site "go-lives" and some customers requested financial support both in terms of cost reductions and payment deferrals.  The Group provided support where feasible, balancing specific requests against our commitments to the entire customer base, staff and shareholders.  We also provided support in the form of additional product capability.  Business development activity was curtailed initially and expansion planning activities in Europe and APAC have been delayed.  A positive impact, however, has been landlords and commercial real estate operators thinking more strategically about how to operate in the flexible workspace market as demand for traditional long leases reduces.  This has helped us engage with them about our solutions for this segment.

 

The Group took the decision early on in the pandemic to raise additional capital to ensure that it had sufficient liquidity as the Covid-19 situation unfolded and, of more long-term importance, that it had the financial capability to accelerate its global expansion plans when the pandemic subsides.  To that end, the Group raised £7m by way of a share placing from existing shareholders in April 2020 and at year end it maintains a healthy cash balance and remains debt-free.

 

We also made a conscious decision not to curtail any product and software development activities during the year and have significantly expanded the Group's UK based development capability.  This has already resulted in a number of new product and service launches with more expected through FY21.

 

We are pleased with the overall financial performance, with continued growth in revenue and profits in line with market expectations.  Group revenue was up 9% to £22.5m, and Adjusted EBITDA (excluding share-based payment expense) was in line with expectations and last year at £4.2m; this being a year of continued investment to support growth.  The Group generated a profit before tax of £0.3m (2019: loss of £1.4m).

 

We continue to see growth in essensys' core customer segment of flexible workspace operators.  In addition, the Group has seen accelerated growth from opportunities with traditional landlords and the broader real estate sector entering the flexible workspace industry.  We have created propositions and launched new product offerings to support this and anticipate that this will be an important factor in the Group's business in FY21.

 

During the year the Group made two new independent Non-Executive Director appointments, in line with the intentions stated at the time of the IPO.  I am delighted that we have been joined by Alex Notay and Elizabeth Sandler who both bring extensive real estate experience and complement the Board's other skills well.

 

The Group remains well placed to take advantage of expected increasing demand for flexible workspace, in spite of the uncertainty relating to Covid-19.  New product launches have been well received and already had some early success.  The Group's further geographic expansion is being planned and will be rolled out when market conditions are ready.  We have a supportive investor base and a clear strategy focussed on the broadening flexible workspace market.  Notwithstanding the current uncertainty in the wider environment the Group remains optimistic for FY21 and beyond.

 

Finally, I would like to pay a particular tribute to our staff who, in the face of very challenging circumstances, have enabled us to continue to deliver on our commitments to customers worldwide and make progress on our broader objectives.  Their positive attitude, commitment and support are what drives our success.

 

Jon Lee

Non-Executive Chairman

12 October 2020

CEO Report

 

Resilient performance in line with expectations

 

In our 2020 financial year we performed in line with market expectations, and continued to grow, during the greatest global crisis in decades.  The expansion of our US business continued, with recurring revenues up 45%.  Whilst we have inevitably been impacted by Covid-19 (as set out below) we have continued to make good progress against our longer-term strategic objectives.  We have seen a recovery in new business activity, are seeing an expansion of our market opportunity and are well positioned to expand the business both within our current geographies and more globally.  This is a testament to the resilience of our business model, demand for our technology, and commitment and innovation of our staff.  Our people adapted quickly to working from home, delivering excellent support for customers and the business and they continue to deliver for our customers globally.  I am grateful for, and proud of, the commitment and dedication our staff have shown over what has been a challenging period for all.

 

Our £7m fundraising in April 2020 has further strengthened our balance sheet, given us added liquidity and flexibility in the context of Covid-19 together with the funding to take advantage of longer-term opportunities in our market when circumstances allow.

 

Growth in recurring revenues driven by customer expansion

 

In line with 2019, continued overall growth in Connect site numbers and Operate pricing drove revenue growth; with total recurring revenue for the year of £19.4m, up 19% from £16.3 in FY19.  Run rate Annual Recurring Revenue (ARR), an indication of the continued growth of the business, grew to £19.7m in July 2020 from £17.3m in July 2019, an increase of 14%.

 

The expansion in the customer base that we have seen over the last few years - and in particular in FY19 - continued in FY20 with the addition of 31 new customers to the business.  Our customer base continues to diversify both in terms of type and location with new customers in new regions and an increasing number of more traditional landlords and commercial real estate operators becoming customers.

 

Continued growth in Connect sites

 

We saw a net increase in Connect sites of 17% in the year to 419 at year end.  Our ongoing customer growth and continued existing customer expansion resulted in the addition of 84 new sites in the year.  Inevitably this was weighted to the first half of the year but, notwithstanding Covid-19, we delivered 35 new Connect sites in the second half.

 

Having continued to sign new customer sites during the Covid-19 pandemic and with a broadening customer base we now have contracted commitments from customers for a further 47 Connect sites.  This includes a number of sites utilising the Group's new landlord focussed STEP proposition and our new Smart Access solution (see below for more details).  Contracted visibility has inevitably shortened from FY19 given Covid-19 but, having seen an increase in enquiry levels since the end of the financial year we currently have potential site weighted pipeline amounting to 74 Connect sites.

 

Continued progress with Operate

 

We continue to expand our Operate business, with a broader customer base, increased capability and increased pricing.  Operate revenue grew 36% to £1.9m and revenue per site grew by 56% year on year.  The improvement in our revenue per site reflected the conclusion of our drive to proactively engage, and where necessary part ways, with legacy low value customers in the second half of the year.  This led to a reduction in Operate sites, by 14% to 435 driven primarily by the loss of one relatively low value contract.

 

Acceleration of flexible real estate market opportunity and expanded go-to-market strategy

 

essensys has built a platform to capture the flexible workspace opportunity.  Traditional landlords and major commercial real estate companies entering the flexible workspace market, whilst already active, have increased their engagement with us since the outbreak of Covid-19.  We have seen landlords shift from a passive to a proactive approach to flexible workspaces, which is driving demand for flexible workspace products.  This is a global trend, and we expect the widening of the flexible real estate market to present new growth opportunities for essensys' technology.

 

Our product development in recent years has positioned us well for this opportunity and to take further advantage of this we have further expanded our "go-to-market" capability in North America increasing sales headcount by 75% in the past yearand are in the process of expanding our UK sales capability.  In addition, we have appointed an experienced senior member of the Group's sales team to lead our expansion into continental Europe, which will be a key focus for FY21.

 

Product development

 

We have made major progress in our product and software development activities in recent months and continued to invest in this area during Covid-19.  Having established our outsourced offshore development capability prior to our IPO in May 2019, the increased scale and visibility of the Group as a consequence of our listed status has allowed us to re-balance our development activity and increase the capability in our UK HQ.  Our combined product and software development capability now numbers some 52 personnel, with 32 based in the UK.  That continued focus allowed us to undertake some focussed capability enhancements to support our customers through the initial pandemic period.

 

This year we started to see the benefits of our accelerated product and software development activities since IPO.  In February 2020, we broadened our Connect platform to include Smart Access - our touchless access control solution.  Powered by our software and underpinned by our private network and cloud infrastructure, Smart Access not only delivers traditional card or smartphone based door access control, but also creates a broader contactless member experience, such as to desks, rooms, printers and amenities, in due course allowing members to book, pay and access resources with a single tap of their smartphone.

 

In June 2020, we launched essensysSTEP. This product increases our reach into the traditional landlord and commercial real estate markets and equips landlords and asset owners with the software and technology needed to efficiently transition to a more flexible real estate model as occupier demand for that increases.  Additionally, STEP helps bridge the gap between landlords and flexible workspace operators, allowing both to work together more easily to create seamless and comprehensive space-as-a-service solutions which are compelling for companies of all sizes.

 

That software development activity continues and we anticipate launching additional modules to our software throughout FY21 whilst at the same time furthering our integration of our platforms with the aim of launching our combined 'Flex Services Platform' in 2021.

 

 

 

Covid-19 impact and response

 

As reported at the half year, management also took early and decisive steps to both protect the Group's staff and the business in March as the Covid-19 pandemic impacted.  The Group utilised the UK's Coronavirus Job Retention Scheme, placing a number of staff on furlough leave, and also employed the US Government's Payment Protection Program.  All employees agreed to reduced working hours and pay and the Group's senior management team and Board members agreed to substantial pay reductions for a period.  As would be expected, we eliminated all non-essential capital and operating expenditure and paused recruitment.  We made a conscious decision, however, to maintain our product and software development activity levels throughout the period and this led to a number of capability launches through the period, as reported above.  The vast majority of personnel had all returned to full time working, and pay, by the end of the financial year.

 

We took the decision early on in the pandemic to further strengthen our balance sheet to ensure that we had the resources to take advantage of increasingly evident expansion opportunities both in the broader commercial real estate market, and geographically.  To that end the Group raised £7m by way of a share placing on 9 April 2020 (see below for further details) and I am grateful for the support our shareholders have shown us in their participation in that fundraising.

 

Following the full impact of government imposed movement restrictions we saw some requests for support from a number of customers and assessed those on a case by case basis.  Primarily the Group gave financial support in the form of deferred payment terms and some short term cost reductions, or where a customer site had just opened or was opening during the initial pandemic period.  As would be expected, we saw a reduction in Marketplace services utilisation and revenue from the implementation of the main restrictions in March through to year end albeit we have seen an improvement post year end.

 

Inevitably we saw the delay to some new contracted site openings that had been planned for the second half of the year, some of which moved into FY21.  Pleasingly, however, we saw a relatively small number of cancellations.  Equally inevitably we saw sales cycles lengthening, albeit we continued to sign new business through the period.  By year end, however, new business activity had returned to approximately 75% of the average for the first half of the year.

 

Current trading and outlook

 

essensys remains mission critical to our customers and our business remains underpinned by a high proportion of contracted, recurring, revenue.  We provide flexible workspace providers with operational efficiencies and cost savings whilst removing complexity from their businesses.  In addition to established flexible workspace operators, these attributes are particularly attractive to new landlord and CRE entrants into the market where we can de-risk their establishment and delivery to their, increasingly corporate, customers.

 

We remain confident that the structural shift to flexible working will continue and, if anything, accelerate due to Covid-19; notwithstanding the ongoing challenges and uncertainty this presents and the additional risks to the UK economy resulting from Brexit.  This is evidenced by traditional landlords and major commercial real estate companies looking to increase their flexible workspace footprint since the outbreak of the pandemic.  We expect this trend to continue globally.  The acceleration of our product development, go-to-market strategy, and international expansion in FY20 have given us a strong platform to capture the opportunities we see in the flexible workspace market.  We expect to establish regional operations in mainland Europe and Asia-Pacific during FY21.

 

The start of FY21 has seen an improvement in new sales activity and an increase in our broader global pipeline.  Our software development plans are well advanced and we remain ambitious for the business and the future.  Our existing customers continue to grow and we are winning new customers across our existing, and new, geographies.  Our substantial cash reserves, growing sales pipeline and positive long-term market dynamic support our confidence of further progress in the year ahead.

 

 

Mark Furness

Chief Executive Officer

12 October 2020

Financial Review

 

This is the second set of full year results issued by essensys plc following its Admission to trading on AIM on 29 May 2019 (the "IPO") and represents the first full financial year of the Group being listed.

 

Scope of financial results, original incorporation & pre-IPO reorganisation

 

The financial results included in this announcement cover the Group's combined activities for the 12 months ended 31 July 2020.  The comparatives for the previous 12 months were for the Group's combined activities for the 12 months ended 31 July 2019, prepared on a merger accounting basis (including period pre and post IPO).

 

The Company was incorporated as essensys Group Limited on 22 January 2019 as a private limited company.  On 16 May 2019, the Company acquired all the issued share capital of essensys (UK) Limited (formerly essensys Limited), the Group's main trading company, by way of a share for share exchange with the shareholders of essensys (UK) Limited at that time.  On 17 May 2019 the Company changed its name to essensys Limited and immediately re-registered as a public limited company in the name of essensys plc.  This was undertaken in anticipation of the IPO.

 

Financial Key Performance Indicators

 

£'m unless otherwise stated

2020

2019

Change

 

 

 

 

Group Total Revenue

22.5

20.6

+9%

UK

12.2

12.8

-5%

USA

10.3

7.8

+32%

 

 

 

 

Recurring Revenue [1]

19.4

16.3

+19%

UK

11.3

10.7

+6%

USA

8.1

5.6

+45%

Recurring Revenue %age of Total

86%

79%

 

 

 

 

 

Run Rate Annual Recurring Revenue 4

19.7

17.3

+14%

 

 

 

 

Non-recurring revenue

3.1

4.3

-28%

 

 

 

 

Product Revenue

 

 

 

Connect

20.6

19.2

+7%

Operate

1.9

1.4

+36%

 

 

 

 

Gross Profit

14.3

12.6

+13%

Gross Profit percentage

64%

61%

 

Recurring Revenue margin %age

69%

70%

 

 

 

 

 

Statutory profit / (loss) before tax

0.3

(1.4)

 

 

 

 

 

Adjusted EBITDA 2

4.2

4.2

+0%

Adjusted EBITDA margin

19%

20%

 

 

 

 

 

Net Cash

8.5

2.7

 

 

See below and the CEO report above together with the financial statements for explanation of significant movements in the above Financial Key Performance Indicators.

 

 

1 See Revenue section below for explanation

2 See explanation below
 

Revenue

 

Group total revenue grew by 9% to £22.5m in the year driven primarily by an increase in Connect revenue within the Group's US business where total live Connect sites grew to 223 at the year-end from 164 (as at 31 July 2019).  Operate revenue grew by 36% in the full year to £1.9m (2019: £1.4m).

 

Recurring revenue comprises income invoiced for services that are repeatable and consumed and delivered monthly over the term of a customer contract.  Run Rate Annual Recurring Revenue (Run Rate ARR) is an annualisation of the recurring revenue for the month identified (July 2020 and 2019, as appropriate), is an indication of the annual value of the recurring revenue for that month and is used by management to monitor long term revenue growth of the business.

 

Recurring revenue grew by 19% in the year driven by the increase in number of Connect sites and continued pricing increases within the Operate business.  Run Rate ARR grew 14% to £19.7m (from 17.3m in 2019) again driven primarily by the net increase in Group Connect sites by 17% to 419 at year end (2019: 358).

 

Gross margins

 

Gross margins grew in the year to 64% (2019: 61%) as recurring revenue was a higher proportion of the Group's total revenue - 86% in FY20 (2019: 79%).  Recurring revenue margins were in line with 2019 as the Group saw continued margin improvements in its UK business which was offset by a higher proportion of the Group's recurring revenue being derived from its, currently, lower margin US business.

 

Administrative expenses

 

Excluding depreciation charges, administrative expenses grew by £1.8m in the year, a 22% increase year on year, in line with our strategic investment plan.  This was driven by increases in staff costs from the full year effect of increases in overall headcount 2019 (offset by no staff bonus payments for the current year); increases in provisions for estimated credit losses as a result of the Covid-19 pandemic and increases in professional fees as a consequence of being a listed business.

 

Other operating income: Covid-19 support payments

 

During the year the Group took advantage of government support schemes related to the Covid-19 pandemic both in the UK and the US.  In the UK the Group received £145,000 under the Coronavirus Job Retention Scheme.  The Group's US business received a loan under the Small Business Administration's Paycheck Protection Programme of $307,000 (£241,000) which is anticipated to be fully forgiven.  These amounts are included within Other Operating Income in the year.

 

Statutory profit / (loss) for the year

 

The Group made a profit before tax for the year of £0.3m (2019: loss of £1.4m).  The year on year change is primarily as a result of the non-recurrence of the costs incurred in 2019 in achieving the IPO and a lower overall share based payment expense, analysed as follows:

 

£'m

2020

2019

 

 

 

UK (including Group central costs in 2019)

1.7

0.6

North America (US & Canada)

2.1

0.5

Group central costs (included in UK in 2019)

(3.0)

-

Profit / (loss) before tax (pre-exceptionals)

0.8

1.1

 

 

 

Pre-IPO Share based payment expense

-

(0.9)

Post-IPO Share based payment expense

(0.5)

(0.1)

IPO Costs

-

(1.5)

 

 

 

Profit / (loss) for the year

0.3

(1.4)

 

The Pre-IPO Share based payment expense relates to share options in essensys (UK) Limited that were in existence prior to the IPO which vested and were exercised immediately prior to the IPO.

 

Adjusted EBITDA

 

Adjusted results are prepared to provide a more comparable indication of the Group's core business performance by removing the impact of certain items including exceptional items (material and non-recurring), and other, non-trading, items that are reported separately. Adjusted results exclude adjusting items as set out in the statement of consolidated loss and below, with further details given in Notes 7, 14, 15, 16 and 27 of the financial statements. In addition, the Group also measures and presents performance in relation to various other non-GAAP measures, such as recurring revenue, run-rate annual recurring revenue and revenue growth. 

 

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

 

Adjusted EBITDA (being EBITDA prior to exceptional costs) is calculated as follows:

 

£'m

2020

2019

 

 

 

Operating profit / (loss)

0.5

(1.0)

Add back:

 

 

Forex translation adjustments

0.1

-

Depreciation & Amortisation

3.1

2.7

EBITDA

3.7

1.7

Add back:

 

 

Share based payment expense

0.5

1.0

IPO related costs

-

1.5

 

 

 

Adjusted EBITDA

4.2

4.2

 

The share based payment expense is excluded from Adjusted EBITDA as it is a non-cash charge and not considered relevant for assessment of underlying profitability.

 

Taxation

 

The Group benefited from a tax credit of £158,000 in the year due to a refund of s455 tax previously paid on directors loans which were repaid at IPO.  The Group also incurred a non-cash deferred tax charge of £334,000 in the year related to timing differences on the taxation related to capitalised development costs.

 

April 2020 Share Placing

 

On 9 April 2020 the Company issued 4,635,762 new ordinary shares of 0.25 pence each at a price of 151 pence per share by way of a share placing (the "Share Placing").  Gross funds raised were approximately £7m and the Company's issued ordinary share capital increased to 52,743,329 shares.  The funds were raised to provide additional liquidity to support the business during the Covid-19 pandemic and fund the Group's geographical expansion.

 

Net proceeds of the Share Placing were £6.7m after costs of £0.3m which were all charged to the share premium account.

 

Cash

 

Net cash at year end was £8.5m (2019: £2.7m) following the receipt of the proceeds of the Share Placing.  The Group's current cash reserves provide sufficient capital for the foreseeable future and will enable it to fund current planned geographic expansion, continued product and software development, and additional working capital as the business continues to grow.
 

Capital Expenditure

 

During the year the Group continued to expand its geographical presence in North America with additional essensysCloud infrastructure whilst at the same time expanding and upgrading the capacity of its UK & European infrastructure.

 

Capitalised Software Development Costs

 

The Group continues to invest in software development resulting in ongoing enhancements to its two software platforms, Connect and Operate, and the integration of those platforms.  During 2019 the Group established an outsourced offshore development centre with an external provider in Hanoi, Vietnam to accelerate this work whilst during 2020 the Group has rebalanced that capability with greater UK based development resource.  Where such work is expected to result in future revenue, costs incurred that meet the definition of software development in accordance with IAS38, Intangible Assets, are capitalised in the statement of financial position.  During the year the Group capitalised £2.3m in respect of software development (2019: £0.8m).

 

In implementing its accelerated product development strategy the Group anticipates capitalising software costs at a similar rate to 2020 in the next few years.

 

Dividend policy

 

It remains the Group's intention in the short to medium term to invest in order to deliver capital growth for shareholders.  The Board has not recommended a dividend in respect of the year ended 31 July 2020 and does not anticipate recommending a dividend within the next year but may do so in future years.

 

Alan Pepper

Chief Financial Officer

12 October 2020

 

essensys plc

 

Consolidated Statement of Comprehensive Loss

for the year ended 31 July 2020

 

 

 

Notes

2020

2019

 

 

£000

£000

 

 

 

 

Turnover

6

22,499

20,633

Cost of sales

 

(8,117)

(7,986)

 

 

_________

_________

 

 

 

 

Gross profit

 

14,382

12,647

 

 

 

 

Administrative expenses

 

(13,778)

(11,233)

Other operating income

 

386

51

 

 

 

 

Share based payment expense

 

(514)

(979)

IPO related costs

 

-

(1,508)

 

 

_________

_________

 

 

 

 

Operating profit / (loss)

7

476

(1,022)

 

 

 

 

Interest receivable and similar income

10

2

82

Interest payable and similar charges

11

(132)

(494)

 

 

_________

_________

 

 

 

 

Profit / (loss) before taxation

 

346

(1,434)

 

 

 

 

Taxation

12

(191)

(45)

 

 

_________

_________

 

 

 

 

Profit / (loss) for the year from continuing operations

 

155

(1,479)

 

 

_________

_________

 

 

 

 

Other comprehensive (loss) / income

 

 

 

 

 

 

 

Items that may be reclassified to profit or loss:

 

 

 

 

 

 

 

Currency translation differences

 

(272)

27

 

 

_________

_________

 

 

 

 

Other comprehensive (loss) / income for the year

 

(272)

27

 

 

_________

_________

 

 

 

 

Total comprehensive loss for the year

 

(117)

(1,452)

 

 

_________

_________

 

 

 

 

Basic and Diluted profit / (loss) per share

13

0.3p

(3.7p)

 

 

 

 

 

 

 

essensys plc

Registered Number: 11780413

 

Consolidated Statement of Financial Position

as at 31 July 2020

 

 

 

Notes

2020

2019

 

 

£000

£000

ASSETS

 

 

 

 

 

 

 

Non-current assets

 

 

 

Intangible assets

14

5,013

3,732

Property, plant and equipment

15

1,695

1,376

Right of use assets

16

2,055

3,119

 

 

_________

_________

 

 

 

 

 

 

8,763

8,227

 

 

 

 

Current assets

 

 

 

Inventories

18

323

292

Trade and other receivables

19

5,186

5,727

Cash at bank and in hand

 

8,496

2,688

 

 

_________

_________

 

 

 

 

 

 

14,005

8,707

 

 

_________

_________

 

 

 

 

TOTAL ASSETS

 

22,768

16,934

 

 

_________

_________

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

Called up share capital

20

132

120

Share premium

21

19,881

13,184

Share based payment reserve

 

1,490

979

Merger reserve

 

28

28

Retained earnings

 

(5,435)

(5,318)

 

 

_________

_________

 

 

 

 

TOTAL EQUITY

 

16,096

8,993

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

Lease liabilities

23

796

1,637

Deferred tax

24

409

67

 

 

_________

_________

 

 

 

 

 

 

1,205

1,704

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

22

3,561

3,382

Contract liabilities

6E

550

1,044

Lease liabilities

23

1,346

1,811

Current taxes

 

10

-

 

 

_________

_________

 

 

 

 

 

 

5,467

6,237

 

 

_________

_________

 

 

 

 

TOTAL LIABILITIES

 

6,672

7,941

 

 

_________

_________

 

 

 

 

TOTAL EQUITY AND LIABILITIES

 

22,768

16,934

 

 

_________

_________

 

The financial statements were approved by the Board of Directors and authorised for issue on 12 October 2020.

 

 

Alan Pepper

Director

 

.
 

essensys plc

 

Consolidated Statement of Changes in Equity

for the Year Ended 31 July 2020

 

 

 

Share

Share

Share based payment

Merger

Retained

Total

 

capital

premium

Reserve

Reserve

earnings

equity

 

£000

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

1 August 2019

120

13,184

979

28

(5,318)

8,993

 

 

 

 

 

 

 

Comprehensive profit for the year

 

 

 

 

 

 

Profit for the year

-

-

-

-

155

155

Currency translation differences

-

-

(3)

-

(272)

(275)

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

Total comprehensive loss for the year

-

-

(3)

-

(117)

(120)

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

Transactions with shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

New shares issued

12

6,988

-

-

-

7,000

Cost incurred in issuing new shares

-

(291)

-

-

-

(291)

Share based payment charge

-

-

514

-

-

514

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

31 July 2020

132

19,881

1,490

28

(5,435)

16,096

 

_______

_______

_______

_______

_______

_______

 

 

Consolidated Statement of Changes in Equity

For the Year Ended 31 July 2019

 

 

 

Share

Share

Share based payment

Merger

Retained

Total

 

capital

premium

Reserve

Reserve

earnings

equity

 

£000

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

1 August 2018

97

-

-

28

2,898

3,023

 

 

 

 

 

 

 

Comprehensive loss for the year

 

 

 

 

 

 

Loss for the year

-

-

-

-

(1,479)

(1,479)

Currency translation differences

-

-

-

-

27

27

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

Total comprehensive loss for the year

-

-

-

-

(1,452)

(1,452)

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

Transactions with shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

essensys (UK) Limited Share buy back (see note 28)

-

-

-

-

(2,315)

(2,315)

essensys (UK) Limited Dividends paid (see note 28)

-

-

-

-

(4,449)

(4,449)

New shares issued

23

13,977

-

-

-

14,000

Cost incurred in issuing new shares

-

(793)

-

-

-

(793)

Share based payment charge

-

-

979

-

-

979

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

31 July 2019

120

13,184

979

28

(5,318)

8,993

 

_______

_______

_______

_______

_______

_______

 

 

 

 

 

essensys plc

 

Consolidated Statement of Cash Flows

for the Year Ended 31 July 2020

 

 

 

Notes

2020

2019

 

 

£000

£000

 

 

 

 

Cash from operations

31 A

4,026

2,026

 

 

 

 

Corporation tax received / (paid)

 

185

(131)

Foreign exchange

 

(140)

38

 

 

_________

_________

 

 

 

 

Net cash generated from operating activities

 

4,071

1,933

 

 

_________

_________

 

 

 

 

Cash flows from investing activities

 

 

 

Purchases of intangible assets

14

(2,290)

(800)

Purchases of property plant and equipment

15

(992)

(722)

Interest received

 

2

82

 

 

_________

_________

 

 

 

 

Net cash used in investing activities

 

(3,280)

(1,440)

 

 

_________

_________

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from the issuance of new shares

 

7,000

14,000

Costs of issuing new shares

 

(291)

(2,301)

Receipts from government grants

 

386

-

Dividends paid

 

-

(915)

Buy back of shares

 

-

(2,315)

Proceeds from bank loans

 

-

10,000

Repayment of bank loans

 

-

(14,644)

Repayment lease liabilities

23

(1,926)

(2,020)

Interest paid on lease liabilities

23

(132)

(198)

Bank and other interest paid

 

-

(299)

 

 

_________

_________

 

 

 

 

Net cash generated from financing activities

 

5,037

1,308

 

 

_________

_________

 

 

 

 

Net increase in cash and cash equivalents

 

5,828

1,801

Cash and cash equivalents at beginning of year

 

2,688

882

Effects of foreign exchange rate changes

 

(20)

5

 

 

_________

_________

 

 

 

 

Cash and cash equivalents at end of year

 

8,496

2,688

 

 

_________

_________

Cash and cash equivalents comprise:

 

 

 

Cash at bank and in hand

 

8,496

2,688

 

 

_________

_________

 

.

 

1

General information

 

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

 

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

 

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

 

2

Authorisation of financial statements and statement of compliance with IFRS

 

The financial statements for the year ended 31 July 2020 were authorised for issue by the Board of Directors and the Statements of Financial Position were signed on the Board's behalf by Mark Furness and Alan Pepper on 12 October 2020.

 

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the Financial Reporting Interpretations Committee (IFRIC) interpretations as endorsed by the European Union and bearing in mind those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

The financial statements of the Company have been prepared in manner consistent with those of the Group.

 

3

Basis of Preparation

 

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

 

Publication of non-statutory accounts

 

In accordance with section 435 of the Companies Act 2006, the Directors advise that the financial information set out in this announcement for the years ended 31 July 2020 and 31 July 2019 do not constitute the Group's statutory financial statements for those years but is derived from those financial statements.

 

The statutory financial statements for the year ended 31 July 2019 have been audited and filed with the Registrar of Companies. The statutory financial statements for the year ended 31 July 2020 have been audited and will be delivered to the Registrar of Companies in due course.


The Independent Auditor's Reports on the Group's financial statements for the years ended 31 July 2020 and 31 July 2019 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

Going concern

 

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

 

As at 31 July 2020 the Group had net assets of £16.1m (2019: £9m), including cash of £8.5m (2019: £2.7m) as set out in the Consolidated Statement of Financial Position, with no drawn debt and an undrawn debt facility of £1m.  In the year ended 31 July 2020 the Group generated a profit before tax of £0.3m (2019: loss of £1.4m due to IPO costs of £1.5m).  The group generated net cash before financing in the year of £0.8m (2019: £0.5m).

 

During the year the performance of the Group continued to improve with revenue increasing by 9% and recurring revenue by 19% with the Group generating an operating profit of £0.5m (2019: loss of £1m).  The Group has long term contracts with a number of customers and suppliers across different geographical areas and industries.

 

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

 

Whilst the Directors are confident in the Group's ability to grow revenue, the Board's sensitivity modelling (which considered the impact of Brexit and Covid‑19) shows that the Group can remain within its cash facilities in the event that revenue growth is delayed (i.e. new sales bookings are not achieved) for a period in excess of twelve months. The Directors' financial forecasts and operational planning and modelling also include the actions, under the control of the Group, that they could take to further significantly reduce the cash outflow expected as the Group expands geographically.  On the basis of this financial and operational modelling, the Directors believe that the Group has the capability and the operational agility to react quickly, cut further costs from the business and ensure that the cost base of the business is aligned with its revenue and funding scale.

 

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

 

Basis of consolidation

 

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

 

essensys plc was incorporated on 22 January 2019, and on 16 May 2019 it acquired the issued share capital of essensys (UK) Ltd, previously essensys Limited, by way of a share for share exchange.  The latter had four wholly owned subsidiaries:

 

· essensys, Inc

· Hubcreate Limited

· TVOC Limited

· Spacebuddi Limited

 

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

 

The accounting treatment for the year to 31 July 2019 in relation to the addition of essensys plc as a new UK holding company of the group falls outside the scope of IFRS 3 'Business Combinations'.  The share scheme arrangement constituted a combination of entities under common control due to all shareholders of essensys (UK) Ltd being issued shares in the same proportion, and the continuity of ultimate controlling parties.  The reconstructed group was consolidated using merger accounting principles which treated the reconstructed group as if it had always been in existence.  Any difference between the nominal value of shares issued in the share exchange and the book value of the shares obtained were recognised in a merger reserve.

 

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

 

4

Summary of significant accounting policies

 

Revenue

 

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

 

(a) Contract

 

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

 

(b) Contractual obligation

 

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

 

· Set up / installation

· Ongoing monthly software, services and support

 

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

 

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

 

(c) Determining the transaction price

 

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

 

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

 

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

 

Revenue (continued)

 

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

 

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

 

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

 

(f) Costs to obtain and fulfil a contract

 

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

 

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

 

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

 

Finance income

 

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

 

Finance costs

 

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

 

Intangible assets

 

(a) Internal software development

 

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

 

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

 

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

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

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

· the company is able to use the asset;

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

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

 

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

 

(b) Goodwill

 

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

 

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

 

 

 

Intangible assets (continued)

 

(c) Other intangible assets

 

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

 

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

 

 

Customer relationships

-

6.3 years

 

Website

-

1 year

 

Acquired software

-

5 years

 

Property, plant and equipment

 

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

 

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

 

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

 

 

Leasehold improvements

-

20%

 

Fixtures and fittings

-

25%

 

Computer equipment

-

10% - 25%

 

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

 

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

 

Leasehold improvements include security equipment purchased.

 

Foreign currency translation

 

(a) Functional and presentation currency

 

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

 

On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place.  All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date, including any goodwill in relation to that entity.  Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income.

 

(b) Transactions and balances

 

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

 

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

 

Inventories

 

Inventories are valued at the lower of cost and net realisable value.  Inventories consist exclusively of work in progress, which are items that have been purchased and allocated to satisfy specific customer contracts.  As the items have yet to be installed at the customer location, and where title has not yet passed, they remain on the statement of financial position until title has passed.

 

4

Summary of significant accounting policies (continued)

 

Trade and other receivables

 

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

 

Cash and cash equivalents

 

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

 

Trade and other payables

 

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

 

Exceptional items

 

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

 

Taxation

 

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

 

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

 

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

 

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

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

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

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

 

Share capital

 

Ordinary shares are classified as equity. There is one class of ordinary share in issue, as detailed in note 20.

 

Reserves

 

The Group and Company's reserves are as follows:

 

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

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

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

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

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

 

Financial assets

 

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

 

 

 

 

Financial assets (continued)

 

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

 

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

 

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

 

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

 

Financial liabilities

 

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

 

Financial liabilities measured at amortised cost include:

 

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

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

 

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

 

Impairment of assets

 

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

 

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

 

 

Business combinations

 

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired.

 

The consideration transferred for the acquisition of a subsidiary comprises the:

 

· fair values of the assets transferred

· liabilities incurred to the former owners of the acquired business

· equity interests issued by the essensys Group

· fair value of any asset or liability resulting from a contingent consideration arrangement, and

· fair value of any pre-existing equity interest in the subsidiary

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.  Acquisition related costs are expensed as incurred.

 

The excess of the consideration transferred and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill.

 

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

 

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

 

Share-based payments

 

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

 

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

 

Leases

 

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

 

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

 

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

 

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

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

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

 

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

 

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

· Initial direct costs incurred; and

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

 

 

 

Leases (continued)

 

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

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

 

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

 

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

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

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

 

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

 

Retirement benefits

 

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

 

Holiday pay accrual

 

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

 

Standards adopted in the year

 

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

 

Standards, amendments and interpretations not yet effective

 

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

 

5

Significant accounting judgements, estimates and assumptions

 

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

 

Capitalisation of development costs

 

Costs are capitalised in relation to the development of the underlying software utilised within the Group.  The most critical judgement is establishing whether the costs capitalised meet the criteria set out within IAS 38.  Further, the most critical estimate is how the intangible asset can generate future economic benefit.   Projects that are maintenance in nature are expensed as incurred whereas development that generates benefits to the group are capitalised.  After capitalisation management monitors whether the recognition requirements continue to be met and whether there are any indicators that the capitalised costs are required to be impaired. See note 14 for details of amounts capitalised.

 

Measurement and impairment of goodwill and intangible assets

 

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

 

These estimates have been used to conclude that no impairment is required to either goodwill or intangible assets but are judgemental in nature.  See note 14 for details of the key assumptions made.

 

Valuation of Share Options

 

During the year the Group incurred a share-based payment charge of £514,000 which related entirely to share options issued post IPO.  In the year ended 31 July 2019 the Group incurred a share based payment charge of £979,000, of which £897,000 was in relation to share options in existence in essensys (UK) Limited issued prior to the IPO which were exercised shortly before the IPO.  The balance of £82,000 comprised the amount chargeable to the year ended 31 July 2019 in respect of options in the Company issued on 28 May 2019, immediately prior to the IPO.

 

The charge in respect of the pre-IPO options in essensys (UK) Limited was based on valuations undertaken at the time of grants of options using a discounted cash flow valuation of that business.  That valuation took into account recent financial performance at that time together with management's estimate then of future financial performance, that company's cost of capital and expected long term growth rate.  As the pre-IPO option scheme was an 'exit only' scheme, the entire charge relating to that option scheme was expensed during the year ended 31 July 2019 as all outstanding options vested and were exercised shortly prior to the IPO.

 

The charge related to options in the Company at IPO and during the year ended 31 July 2020 are based on valuations undertaken using a Black Scholes or Monte Carlo Simulation option pricing models, depending on the type of option.  In assessing the valuation judgements were made over share price volatility, the expected life of the options issued, the proportion that would be exercised, the risk-free rate applicable and the likely achievement of performance targets where applicable.  The valuation of those options issued after IPO is spread over the vesting period and there will, therefore, be further share based payment expenses in future years in relation to those options.  See note 27 for details.

 

6

Segmental Reporting

 

 

 

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

 

The Group generates revenue from the following activities:

 

· Establishing services at customer sites (e.g. providing and managing installations, equipment and training on software);

· Recurring monthly fees for using the Group's software platforms;

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

· Other ad-hoc services.

 

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

 

 

6A

Revenue analysis by geographic area

 

 

 

 

 

 

 

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

 

 

 

 

 

 

2020

2019

 

 

£000

£000

 

Analysis of turnover by country of destination:

 

 

 

 

 

 

 

United Kingdom

12,193

12,853

 

United States of America

10,306

7,780

 

 

_________

_________

 

 

 

 

 

Total Income

22,499

20,633

 

 

_________

_________

 

 

 

 

 

 

 

 

 

 

6B

Revenue analysis by revenue streams

 

 

 

 

 

 

 

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

 

 

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Connect

20,552

19,188

 

Operate

1,947

1,445

 

 

_________

_________

 

 

 

 

 

Total Income

22,499

20,633

 

 

_________

_________

 

 

 

 

 

 

 

 

 

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

 

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

 

6C

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

 

 

 

 

 

 

 

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

 

 

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Revenue recognised at a point in time

3,138

4,291

 

Revenue recognised over time

19,361

16,342

 

 

_________

_________

 

 

 

 

 

Total Income

22,499

20,633

 

 

_________

_________

 

 

 

 

 

6D

Revenue from customers greater than 10%

 

 

 

 

 

 

 

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

 

 

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Customer 1

3,377

2,952

 

Customer 2

2,787

2,864

 

Customer 3

-

2,623

 

 

_________

_________

 

 

 

6E

Contract assets and liabilities

 

 

 

 

 

 

 

 

Contract asset movements were as follows:

 

 

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

At 1 August

475

327

 

Transfers in the period from contract assets to trade receivables

(271)

(327)

 

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

164

271

 

Capitalised commission cost released as contract obligations fulfilled

(159)

-

 

Commission costs capitalised on contracts

211

204

 

 

_________

_________

 

 

 

 

 

At 31 July

420

475

 

 

_________

_________

 

 

 

 

 

 

 

 

 

Contract liability movements were as follows:

 

 

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

At 1 August

1,044

1,156

 

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

(1,044)

(880)

 

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

550

768

 

 

_________

_________

 

 

 

 

 

At 31 July

550

1,044

 

 

_________

_________

 

 

 

 

 

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

 

 

 

7

Operating profit / (loss)

 

 

 

 

2020

2019

 

 

£000

£000

 

This is arrived at after charging/(crediting):

 

 

 

 

 

 

 

Depreciation of tangible fixed assets

587

425

 

Amortisation of intangible assets

1,009

742

 

Depreciation of right of use assets

1,424

1,586

 

Loss on disposal of right of use asset

-

61

 

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

130

494

 

Amortisation of loan arrangement fee

66

45

 

Write off loan arrangement fees

-

18

 

Exchange differences

140

(38)

 

Research & Development expense

363

88

 

Staff costs (note 8)

8,149

6,606

 

Share based payment charges

514

979

 

IPO costs

-

1,508

 

Expected credit loss provision

470

56

 

 

_______

_______

 

 

 

 

 

 

 

 

 

Analysis of fees paid to the Group's auditor:

 

 

 

 

 

 

 

Annual financial statements - parent company

19

8

 

Annual financial statements - subsidiary companies

81

66

 

 

_________

_________

 

 

 

 

 

Audit Fee

100

74

 

 

_________

_________

 

 

 

 

 

Tax services

-

-

 

Assurance services

30

24

 

Corporate finance services

-

396

 

 

_________

_________

 

 

 

 

 

Non audit services

30

420

 

 

_________

_________

 

 

 

 

 

Total fee

130

494

 

 

_______

_______

 

 

 

 

 

 

 

8

Employees

 

 

 

 

 

 

 

Staff costs (including directors) consist of:

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Wages and salaries

6,186

5,655

 

Social security costs

794

623

 

Cost of defined contribution scheme

213

145

 

Other

956

183

 

 

_________

_________

 

 

 

 

 

 

8,149

6,606

 

 

_________

_________

 

 

 

 

 

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

 

 

 

2020

2019

 

 

No.

No.

 

 

 

 

 

Executive

5

7

 

Sales & Marketing

18

9

 

Finance & Administration

12

8

 

Support

29

29

 

Development

20

15

 

Provisioning

8

6

 

 

_________

_________

 

 

 

 

 

 

92

74

 

 

_________

_________

       

 

9

Key management remuneration

 

 

 

 

 

 

 

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

 

 

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Salaries and fees

1,838

1,597

 

Social security costs

243

161

 

Short term non-monetary benefits

15

25

 

Company contributions to money purchase pension schemes

108

47

 

Share based payment expense

317

562

 

 

_________

_________

 

 

 

 

 

 

2,521

2,392

 

 

_________

_________

 

 

 

 

 

 

 

 

 

10

Interest receivable and similar income

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Interest receivable from related parties

2

82

 

 

_________

_________

 

 

 

 

 

 

2

82

 

 

_________

_________

 

 

 

11

Interest payable and similar charges

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Bank loans and overdrafts

-

299

 

Lease liabilities

132

195

 

 

_________

_________

 

 

 

 

 

 

132

494

 

 

_________

_________

 

 

 

 

12

Taxation on profit / (loss) on ordinary activities

 

 

2020

2019

 

 

£000

£000

 

Current tax

 

 

 

UK corporation tax

-

3

 

Irrecoverable tax on loans to participators

-

20

 

Recovery of irrecoverable tax on loans to participators

(159)

-

 

Adjustment in respect of previous periods

(4)

(74)

 

Foreign tax on income for the year

12

6

 

 

_________

_________

 

 

 

 

 

Total current tax

(151)

(45)

 

 

_________

_________

 

Deferred tax

 

 

 

Origination and reversal of timing differences

334

90

 

Adjustments in respect of prior periods

8

-

 

 

_________

_________

 

 

 

 

 

Total deferred tax

342

90

 

 

_________

_________

 

 

 

 

 

Taxation on profit on ordinary activities

191

45

 

 

_________

_________

 

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

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Profit / (loss) on ordinary activities before tax

346

(1,434)

 

 

_________

_________

 

 

 

 

 

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

66

(272)

 

 

 

 

 

Effects of:

 

 

 

Fixed asset differences

110

143

 

Expenses not deductible for tax purposes

102

494

 

Adjustments to tax charge in respect of previous periods

11

(127)

 

Irrecoverable tax on loans to participators

(159)

20

 

Adjustment in respect of prior periods

(4)

(74)

 

Adjustment to losses

(225)

-

 

Deduction for R&D expenditure

(123)

(22)

 

Other permanent differences

-

(2)

 

Other tax adjustments, reliefs and transfers

-

10

 

Foreign tax on income for the year

18

35

 

Current tax (other)

63

-

 

Adjust closing deferred tax to average rate

7

(1)

 

Adjust opening deferred tax to average rate

(18)

(5)

 

Timing differences not recognised

228

(57)

 

Deferred tax not recognised

115

(97)

 

 

_________

_________

 

 

 

 

 

Total tax charge for period

191

45

 

 

_________

_________

 

 

 

13

Earnings per share

 

 

 

 

2020

2019

 

 

 

 

 

Basic weighted average number of shares

49,652,821

40,381,298

 

 

_________

_________

 

 

 

 

 

Fully diluted weighted average number of shares

49,794,049

40,381,298

 

 

_________

_________

 

 

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Profit / (loss) for the year attributable to owners of the group

155

(1,479)

 

 

_________

_________

 

 

 

 

 

Basic and diluted profit / (loss) per share (pence)

0.3p

(3.7p)

 

 

_________

_________

 

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

 

 

14

Intangible assets

 

 

 

 

 

 

 

Customer

Internal software

 

 

 

 

Group

relationships

development

Software

Goodwill

Total

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

At 1 July 2019

335

4,461

280

1,263

6,339

 

Additions

-

2,290

-

-

2,290

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2020

335

6,751

280

1,263

8,629

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Amortisation

 

 

 

 

 

 

At 1 July 2019

217

2,162

228

-

2,607

 

Charge for year

76

881

52

-

1,009

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2020

293

3,043

280

-

3,616

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 July 2020

42

3,708

-

1,263

5,013

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2019

118

2,299

52

1,263

3,732

 

 

_________

_________

_________

_________

_________

 

The goodwill relates to the acquisition of Hubcreate Limited on 18 February 2016 and has not been impaired since acquisition. The goodwill all relates to the one cash generating unit (CGU).

 

The Group estimates the recoverable amount of the CGU using a value in use model by projecting pre-tax cash flows for the next 5 years together with a terminal value using the long-term growth rate. The key assumptions underpinning the recoverable amount of the CGU are forecast revenue and forecast EBITDA percentage. The forecast revenues in the model are based on management's past experience and future expectations of performance. The pre-tax discount rate used in all periods is 12% derived from a WACC calculation and benchmarked against similar organisations within the sector. The long-term growth rate used is 2% in all periods which is the underlying growth rate of the economy. Using a discount rate of 15% and a long-term growth rate of 1% as sensitised assumptions also does not result in any impairment. The total   recoverable amount in respect of goodwill as assessed by management using the above assumptions is greater than the carrying amount and therefore no impairment charge has been booked in each period.

 

 

14

Intangible assets

 

 

 

 

 

 

 

Customer

Internal software

 

 

 

 

Group

relationships

development

Software

Goodwill

Total

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

At 1 July 2018

335

3,661

280

1,263

5,539

 

Additions

-

800

-

-

800

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2019

335

4,461

280

1,263

6,339

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Amortisation

 

 

 

 

 

 

At 1 July 2018

154

1,547

164

-

1,865

 

Charge for year

63

615

64

-

742

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2019

217

2,162

228

-

2,607

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 July 2019

118

2,299

52

1,263

3,732

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2018

181

2,114

116

1,263

3,674

 

 

_________

_________

_________

_________

_________

 

 

 

15

Property, plant and equipment

 

 

 

 

 

 

 

Fixtures and

Computer

Leasehold

 

 

Group

 

fittings

equipment

improvements

Total

 

 

 

£000

£000

£000

£000

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

At 1 July 2019

 

186

4,763

133

5,082

 

Additions

 

73

917

2

992

 

Transfers

 

-

1,305

-

1,305

 

Exchange adjustments

 

(12)

(384)

(3)

(399)

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2020

 

247

6,601

132

6,980

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

At 1 July 2019

 

120

3,513

73

3,706

 

Charge for year

 

41

531

15

587

 

Transfers

 

-

1,136

-

1,136

 

Exchange adjustments

 

(7)

(127)

(10)

(144)

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2020

 

154

5,053

78

5,285

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 July 2020

 

93

1,548

54

1,695

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2019

 

66

1,250

60

1,376

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

Fixtures and

Computer

Leasehold

 

 

 

 

fittings

equipment

improvements

Total

 

 

 

£000

£000

£000

£000

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

At 1 July 2018

 

111

3,872

155

4,138

 

Additions

 

42

665

15

722

 

Exchange adjustments

 

33

226

(37)

222

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2019

 

186

4,763

133

5,082

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

At 1 July 2018

 

68

3,070

57

3,195

 

Charge for year

 

36

376

14

426

 

Exchange adjustments

 

16

67

2

85

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2019

 

120

3,513

73

3,706

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 July 2019

 

66

1,250

60

1,376

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2018

 

43

802

98

943

 

 

 

_________

_________

_________

_________

 

 

 

16

Right of use assets

 

 

 

 

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

Group

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

At 1 July 2019

4,362

142

2,815

584

7,903

 

Lease remeasurement

(37)

-

64

-

27

 

Transfers

-

-

(1,305)

-

(1,305)

 

Exchange adjustments

(121)

-

(47)

-

(168)

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2020

4,204

142

1,527

584

6,457

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

At 1 July 2019

2,260

99

2,265

160

4,784

 

Charge for year

985

35

345

59

1,424

 

Lease remeasurement

(596)

-

-

-

(596)

 

Transfers

-

-

(1,138)

-

(1,138)

 

Exchange adjustments

(40)

-

(32)

-

(72)

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2020

2,609

134

1,440

219

4,402

 

 

_________

_________

_________

______

_________

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 July 2020

1,595

8

87

365

2,055

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2019

2,102

43

550

424

3,119

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

Property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

At 1 July 2018

3,393

167

2,716

584

6,869

 

Additions

959

-

-

-

959

 

Disposals

(99)

-

-

-

(99)

 

Exchange adjustments

109

(25)

99

-

183

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2019

4,362

142

2,815

584

7,903

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

At 1 July 2018

1,290

75

1,642

102

3,190

 

Charge for year

928

35

565

58

1,586

 

Disposals

(38)

-

-

-

(38)

 

Exchange adjustments

80

(11)

58

-

127

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2019

2,260

99

2,265

160

4,784

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 July 2019

2,102

43

550

424

3,119

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2018

2,103

92

1,074

482

3,751

 

 

_________

_________

_________

_________

_________

 

 

 

17

Subsidiaries

 

 

 

 

 

Subsidiary undertakings, associated undertakings and other investments

 

The following were subsidiary undertakings of the company:

 

 

 

Proportion of

 

 

 

Country of

voting rights

 

 

 

incorporation

and ordinary

 

 

Name

or registration

share capital held

Status

Nature of business

 

 

 

 

 

essensys (UK) Ltd

United Kingdom

100%

Trading

Provider of software and technology platforms to the flexible workspace industry

essensys, Inc

United States of America

100%

Trading

Provider of software and technology platforms to the flexible workspace industry

Hubcreate Limited

United Kingdom

100%

Non-trading

Provider of workspace management software

TVOC Limited

United Kingdom

100%

Non-trading

Virtual office provider

Spacebuddi Limited

United Kingdom

95%

Dormant

-

 

The registered office of Essensys Inc is Nelson Tower, 450 7th Avenue, New York, NY 10123.  The registered offices of Hubcreate Limited, TVOC Limited and Spacebuddi Limited are as per the Company.

 

18

Inventories

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Work in progress

323

292

 

 

_________

_________

 

 

 

 

 

 

323

292

 

 

_________

_________

 

Work in progress are items and third party services purchased to satisfy specific customer contracts, where title has not yet passed.

 

19

Trade and other receivables

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Trade receivables (net)

3,116

3,019

 

Other receivables

491

910

 

Taxes and other social security

-

63

 

Corporation tax

-

40

 

Prepayments

1,159

1,220

 

Contract asset

420

475

 

 

_________

_________

 

 

 

 

 

 

5,186

5,727

 

 

_________

_________

 

Analysis of trade receivables based on age of invoices

 

 

< 30

£'000

31 - 60 £'000

61 -90 £'000

> 90

£'000

Total Gross

£'000

ECL

£'000

Total Net

£'000

2020

1,922

280

254

1,195

3,696

(535)

3,116

2019

1,722

40

419

903

3,084

(65)

3,019

 

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

 

 

 

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

 

At 31 July 2020 the lifetime expected loss provision for trade receivables and contract assets is as follows:

 

 

31 July 2020

 

 

 

 

 

 

Less than 30

31 to 60

61 to 90

91 or more

 

 

 

days past due

days past due

days past due

days past due

Total

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

Expected loss rate

0%

5.7%

10.6%

39.6%

 

 

Gross carrying amount

2,294

280

254

1,243

4,071

 

ECL

-

16

27

492

535

 

 

 

 

 

 

 

 

 

31 July 2019

 

 

 

 

 

 

Less than 30

31 to 60

61 to 90

91 or more

 

 

 

days past due

days past due

days past due

days past due

Total

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

Expected loss rate

0%

0%

0%

7.20%

 

 

Gross carrying amount

2,197

40

419

903

3,559

 

ECL

-

-

-

65

65

 

 

 

 

 

 

 

 

Movements in the ECL are as follows:

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Opening ECL at 1 August

65

9

 

 

 

 

 

Increase during the year

656

56

 

Receivables written off as uncollectable

(186)

-

 

 

_______

_______

 

 

 

 

 

ECL charge for the year

470

56

 

 

_______

_______

 

 

 

 

 

At 31 July

535

65

 

 

_______

_______

 

20

Share capital

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Allotted, called up and fully paid

 

 

 

52,743,329 (2019 - 48,107,567) ordinary shares of 0.25p each (2019 - 0.25p)

132

120

 

 

_______

_______

 

On 9 April 2020 the Company issued 4,635,762 new ordinary shares of 0.25 pence each at a price of 151 pence per share by way of a share placing.

 

On 15 May 2019 essensys (UK) Limited underwent a corporate reorganisation during which all outstanding share options were exercised, the company undertook a bonus share issue followed by a share split to result in essensys (UK) Limited having 38,836,044 shares of £0.0025p in issue.  On 16 May 2019 the Company acquired the issued share capital of essensys (UK) Ltd, by way of a share for share exchange and on 29 May 2019 the Company was admitted to trading on AIM via an initial public offering (IPO), which generated gross proceeds of £14,000,000 (net proceeds of £11,699,000) from the issue of 9,271,523 new ordinary shares at 151p per share.

 

 

 

 

21

Share premium

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Share premium at start of period

13,184

-

 

Issue of new shares

6,988

13,977

 

Cost of issuing new shares recognised in equity

(291)

(793)

 

 

_______

_______

 

 

 

 

 

 

19,881

13,184

 

 

_______

_______

 

22

Trade and other payables

 

 

 

2020

2019

 

 

£000

£000

 

Amounts falling due within one year

 

 

 

Trade payables

1,912

1,678

 

Other taxes and social security

456

319

 

Other creditors

404

117

 

Accruals

789

1,268

 

 

_________

_________

 

 

 

 

 

 

3,561

3,382

 

 

_________

_________

 

 

 

 

 

 

23

Lease liabilities

 

Nature of leasing activities

 

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

 

 

 

 

 

2020

2019

 

 

 

 

£000

£000

 

 

 

 

 

 

 

Number of active leases

 

 

15

27

 

 

 

 

_________

_________

 

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

 

· The length of the lease term;

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

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

 

At both 31 July 2020 and 2019 the carrying amounts of lease liabilities are not reduced by the amount of payments that would be avoided from exercising break clauses because on both dates it was considered reasonably certain that the Group would not exercise its right to exercise any right to break the lease.  Where extensions to leases are permitted the Group has chosen to assume that the extensions will be taken and liabilities reflect this position.

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

At 1 August 2019

2,444

86

620

298

3,448

 

Additions

586

-

-

-

586

 

Interest expense

78

6

25

23

132

 

Lease payments

(1,204)

(35)

(543)

(144)

(1,926)

 

Foreign exchange movements

(84)

-

(14)

-

(98)

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

At 31 July 2020

1,820

57

88

177

2,142

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

 

 

At 1 August 2018

 

Additions

 

Interest expense

 

Effect of modification to lease terms

 

Lease payments

 

Foreign exchange movements

 

 

 

 

 

At 31 July 2019

 

 

 

 

Lease maturity

 

 

 

 

 

 

 

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000

 

 

2020

2020

2020

2020

2020

 

 

 

 

 

 

 

 

Up to 3 months

-

-

-

-

-

 

3 to 12 months

706

-

34

-

740

 

1-2 years

126

57

54

177

414

 

2-5 years

510

-

-

-

510

 

More than 5 years

478

-

-

-

478

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

1,820

57

88

177

2,142

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000

 

 

2019

2019

2019

2019

2019

 

 

 

 

 

 

 

 

Up to 3 months

252

-

180

-

432

 

3 to 12 months

1,029

-

350

-

1,379

 

1-2 years

609

86

90

298

1,083

 

2-5 years

554

-

-

-

554

 

More than 5 years

-

-

-

-

-

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

2,444

86

620

298

3,448

 

 

_________

_________

_________

_________

_________

 

 

 

 

Analysis by current and non-current

 

 

 

 

 

 

 

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000

 

 

2020

2020

2020

2020

2020

 

 

 

 

 

 

 

 

Due within a year

1,113

31

71

131

1,346

 

Due in more than one year

707

26

17

46

796

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

1,820

57

88

177

2,142

 

 

_________

_________

_________

_________

_________

 

 

 

 

Analysis by current and non-current (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasehold

Fixtures and

Computer

Leasehold

 

 

 

property

fittings

equipment

improvements

Total

 

 

£000

£000

£000

£000

£000

 

 

2019

2019

2019

2019

2019

 

 

 

 

 

 

 

 

Due within a year

1,281

-

530

-

1,811

 

Due in more than one year

1,163

86

90

298

1,637

 

 

_________

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

2,444

86

620

298

3,448

 

 

_________

_________

_________

_________

_________

 

24

Deferred taxation

 

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Brought forward

67

(4)

 

Charged/(credited) to the income statement

342

71

 

 

_________

_________

 

 

 

 

 

Carried forward

409

67

 

 

_________

_________

 

 

 

 

 

 

The provision for deferred taxation is made up as follows:

 

 

 

 

 

 

 

 

 

 

 

 

2020

2019

 

 

 

 

£000

£000

 

 

 

 

 

 

 

Fixed asset timing differences

 

 

409

138

 

Other timing differences

 

 

-

(71)

 

 

 

 

_________

_________

 

 

 

 

 

 

 

 

 

 

409

67

 

 

 

 

_________

_________

 

Factors that may affect future tax charges

 

Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7 September 2016). These included reductions to the main rate to reduce the rate to 19 per cent. from 1 April 2017 and to 17 per cent. from 1 April 2020.  However, on 17 March 2020 the rate reduction due to come in effect on 1 April 2020 was substantively reversed so that the main rate of taxation will remain at 19 per cent, and this has been reflected in these financial statements.

 

25

Financial instruments

 

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

 

· Credit risk

· Foreign exchange risk

· Liquidity risk

 

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

 

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

 

 

 

Principal financial instruments

 

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

 

· Trade receivables

· Cash and cash equivalents

· Trade and other payables

· Bank overdrafts

· Bank loan

 

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

 

Financial instruments by category

 

 

 

2020

2019

 

 

£000

£000

 

Financial assets at amortised cost

 

 

 

 

 

 

 

Cash and cash equivalents

8,496

2,688

 

Trade and other receivables

3,771

4,488

 

 

_________

_________

 

 

 

 

 

Total financial assets at amortised cost

12,267

7,716

 

 

_________

_________

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

Trade and other payables

3,105

3,063

 

Bank Loan

-

-

 

Lease liabilities

2,142

3,448

 

 

_________

_________

 

 

 

 

 

Total financial liabilities

5,247

6,511

 

 

_________

_________

 

Financial instruments not measured at fair value

 

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

 

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

 

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

· Credit risk

· Liquidity risk

 

The financial risks relate to the following financial instruments:

 

· Cash and cash equivalents

· Trade and other receivables

· Trade and other payables

· Loans and borrowings

 

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

 

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

 

(a) Credit Risk

 

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

 

 

(b) Market risk

 

(i) Foreign exchange risk

 

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

 

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

 

 

 

 

 

2020

2019

 

 

 

 

£000

£000

 

 

 

 

 

 

 

Financial assets

 

 

9,027

5,833

 

Financial liabilities

 

 

1,640

1,836

 

 

 

 

_________

_________

 

 

 

 

 

 

 

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

 

 

 

 

2020

2019

 

 

 

 

$000

$000

 

 

 

 

 

 

 

Financial assets

 

 

4,212

2,944

 

Financial liabilities

 

 

1,916

1,422

 

 

 

 

_________

_________

 

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

 

 

 

 

 

2020

2019

 

 

 

 

$000

$000

 

 

 

 

 

 

 

Financial assets

 

 

(323)

(242)

 

Financial liabilities

 

 

(145)

(117)

 

 

 

 

_________

_________

 

(ii) Interest rate risk

 

The Group's interest rate exposure arises mainly from the interest-bearing borrowings as disclosed in note 23.  All the Group's facilities were floating rates excluding interest from leases, which exposed the group to cash flow risk.  As at 31 July 2020 there are no loans outstanding, (2019 - £nil) and the overdraft facility is available but not in use.  Therefore, there is no material exposure to interest rate risk.

 

(c) Liquidity Risk

 

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

 

A maturity analysis of the Group's borrowings is shown below:

 

 

 

 

 

2020

2019

 

 

 

 

£000

£000

 

 

 

 

 

 

 

Less than one year

 

 

-

-

 

One to two years

 

 

-

-

 

Two to five years

 

 

-

-

 

 

 

 

_________

_________

 

 

 

 

 

 

 

 

 

 

-

-

 

 

 

 

_________

_________

 

 

 

 

 

 

 

 

 

(c) Liquidity Risk (continued)

 

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

 

 

 

 

 

2020

2019

 

 

 

 

£000

£000

 

 

 

 

 

 

 

Less than one year

 

 

3,561

3,382

 

One to two years

 

 

-

-

 

Two to five years

 

 

-

-

 

 

 

 

_________

_________

 

 

 

 

 

 

 

 

 

 

3,561

3,382

 

 

 

 

_________

_________

 

 

 

 

 

 

26

Pension commitments

 

 

 

          

 

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

 

 

 

2020

2019

 

 

£000

£000

 

 

 

 

 

Pension charge

213

145

 

 

_______

_______

 

 

 

 

 

Pension liability

35

30

 

 

_______

_______

 

 

 

 

 

27

Share based payments

 

 

 

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

 

 

 

Weighted

 

Weighted

 

 

 

average

 

average

 

 

 

exercise

 

exercise

 

 

 

price

 

price

 

 

 

(pence)

Number

(pence)

Number

 

 

2020

2020

2019

2019

 

 

 

 

 

 

 

Outstanding at the beginning of the year

£0.95

2,694,954

£4.97

2,778

 

Granted during the year

£1.60

467,818

£0.95

2,695,330

 

Forfeited during the year

£1.52

(196,531)

£21.94

(131)

 

Exercised during the year

-

-

£3.61

(3,023)

 

 

 

_________

 

_________

 

 

 

 

 

 

 

Outstanding at the end of the year

£1.02

2,966,241

£0.95

2,694,954

 

 

 

_________

 

_________

 

The weighted average exercise price of options outstanding at the end of the year was 101.67p (2019: 95.25p) and their weighted average contractual life was 8.9 years (2019: 9.8 years).

 

Of the total number of options outstanding at the end of the year, no options had vested and were exercisable.

 

The options exercised during 2019 were options that existed in essensys (UK) Limited and which were exercised in advance of the IPO.

 

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

 

 

 

2020

2019

 

 

 

 

 

Risk free investment

0.23% - 0.54%

1.01%

 

Expected life

3 .5 years

4.4 years

 

Expected volatility

50%

40%

 

 

 

 

 

The volatility used for the share option grants during the current year was that actually experienced during the period from the IPO.  Given a lack of historic volatility information related to the Company's shares in 2019, the volatility used was based on that of a comparative group of companies trading on AIM.  The expected life was based initially on the minimum vesting period with an assumption that more senior personnel would not exercise immediately.  The risk-free rate was based on the yield on UK government 10-year gilts at the time of the grant.

 

The Group recognised a total Share based payment expense of £514,000 in the year, all of which related to options in the Company issued immediately prior to the IPO or subsequent thereto.  In 2019 the Group recognised a total Share based payment expense of £979,000, comprising £897,000 related to the vesting and exercise of options in essensys (UK) Limited immediately prior to the corporate reorganisation in anticipation of the Company's IPO and a further £82,000 related to options issued immediately prior to Admission. 

 

The essensys (UK) Limited option scheme was an 'exit only' scheme where options only vested in the event of a corporate transaction, in this case, the IPO.  All essensys (UK) Limited options vested at IPO resulting in the accelerated catch up charge of £897,000 recognised in the previous year and that scheme is now closed.  All options in the Company vest three years from the date of grant.  Performance shares vest only on the achievement of certain performance conditions, the details of which are set out in the Remuneration Committee Report.

 

28

Related party transactions

 

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

 

Key management personnel

 

Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited, the Group's principal trading subsidiary, who together have authority and responsibility for planning, directing, and controlling the activities of the Group.  Details of key management compensation is shown in note 9.

 

Pre-IPO share buy-back by essensys (UK) Limited

 

In the prior reporting period, on 15 February 2019 essensys (UK) Limited (then Essensys Limited) bought back 3,250 ordinary shares for a total consideration of £2,315,000 from a former director and employee of essensys (UK) Limited.  The shares repurchased were cancelled on 15 February 2019.

 

Pre-IPO Dividend to shareholders of essensys (UK) Limited

 

In the prior reporting period, on 16 May 2019 the Company's subsidiary essensys (UK) Limited declared a dividend of £180.58 per original essensys (UK) Limited share to its shareholders at the time, the majority of whom were directors of that company.  The total dividend amounted to £4,449,034 and was declared in advance of essensys (UK) Limited's acquisition by the Company by way of the share for share exchange in anticipation of the IPO.  £3,533,513 of the dividend was used to settle outstanding directors' loans as set out below.  The remainder of the dividend was paid as cash.  At the time the dividend was declared essensys (UK) Limited had sufficient distributable reserves and continues to have positive distributable reserves.

 

Directors Loans

 

The following advances and credits to the directors and key management personnel subsisting during the years ended 31 July 2020 and 31 July 2019.  All advances incurred interest at a rate of 3.25% per annum.  All amounts were repaid before 31 July 2019 therefore no balances exist on the statement of financial position at 31 July 2020 and 31 July 2019.

 

 

 

2020

2019

 

 

£000

£000

 

Mark Furness

 

 

 

 

 

 

 

Balance outstanding at start of year

-

3,103

 

Amounts advanced

-

351

 

Amounts repaid

-

(3,534)

 

Interest charged

-

80

 

 

_________

_________

 

 

 

 

 

 

-

-

 

 

_________

_________

 

 

 

All amounts outstanding were repaid during the prior year.  The maximum loan balance subsisting during the year was £nil  (2019 - £3,533,513)

 

 

 

2020

2019

 

 

£000

£000

 

Michael Guest

 

 

 

 

 

 

 

Balance outstanding at start of year

-

124

 

Amounts advanced

-

11

 

Amounts repaid

-

(137)

 

Interest charged

-

2

 

 

_________

_________

 

 

 

 

 

 

-

-

 

 

_________

_________

 

All amounts outstanding were repaid during the prior year.  The maximum loan balance subsisting during the year was £nil (2019 - £137,687)

 

 

29

Capital commitments and contingent liabilities

 

The Group had no capital commitments or contingent liabilities at 31 July 2020 (2019: £NIL)

 

30

Events after the reporting date

 

There are no events of any materiality after the reporting date to report.

 

31

Notes supporting statement of cash flows

 

31 A  Cash from operations

 

 

 

 

 

 

 

 

 

2020

2019

 

 

£000

£000

Cash flows from operating activities

 

 

 

 

 

 

 

Profit / (loss) for the financial year before taxation

 

346

(1,434)

 

 

 

 

Adjustments for non-cash/non-operating items:

 

 

 

Amortisation of intangible assets

 

1,009

742

Depreciation of property plant and equipment

 

587

425

(Profit)/ loss on disposal of right of use asset

 

-

61

Write off of loan arrangement fee

 

-

18

Amortisation of loan arrangement fee

 

66

45

Depreciation of right of use assets

 

1,424

1,586

IPO related costs

 

-

1,508

Share based payment expense

 

514

979

Gains and losses on foreign exchange transactions

 

140

(38)

Finance income

 

(2)

(82)

Finance expense

 

132

494

Receipts from government grants treated as operating income

 

(386)

-

 

 

_________

_________

 

 

 

 

 

 

3,830

4,304

Changes in working capital:

 

 

 

(Increase) /decrease in inventories

 

(31)

(292)

Decrease / (increase)  in trade and other debtors

 

541

(2,488)

Decrease / (increase) in trade and other creditors

 

(314)

502

 

 

_________

_________

 

 

 

 

Cash from operations

 

4,026

2,026

 

 

_________

_________

 

 

 

31 B

Movement in net debt

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

Leases

Borrowings

Total

 

 

 

 

£000

£000

£000

£000

 

 

 

 

 

 

 

 

 

 

 

As at 1 August 2018

877

(4,272)

(4,644)

(8,039)

 

 

 

 

 

 

 

 

 

 

 

Cashflow

1,806

1,121

4,943

7,666

 

 

 

Interest charges

-

(195)

(299)

(494)

 

 

 

Exchange movements

5

(102)

-

107

 

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

 

As at 31 July 2019

2,688

(3,448)

-

(760)

 

 

 

 

 

 

 

 

 

 

 

Lease additions

-

(586)

 

(586)

 

 

 

Cashflow

5,828

1,926

-

7,754

 

 

 

Interest charge

-

(132)

-

(132)

 

 

 

Exchange movements

(20)

98

-

78

 

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

 

As at 31 July 2020

8,496

(2,142)

-

6,354

 

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

Leases

Borrowings

Total

 

 

 

 

£000

£000

£000

£000

 

 

 

 

 

 

 

 

 

 

 

Balances as at 31 July 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

8,496

-

-

8,496

 

 

 

Current liabilities

-

(1,346)

-

(1,346)

 

 

 

Non-current liabilities

-

(796)

-

(796)

 

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

 

 

8,496

(2,142)

-

6,354

 

 

 

 

_________

_________

_________

_________

 

 

 

 

Cash and cash equivalents

 

 

Leases

Borrowings

Total

 

 

 

 

£000

£000

£000

£000

 

 

 

 

 

 

 

 

 

 

 

Balances as at 31 July 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

2,688

 

-

2,688

 

 

 

Current liabilities

-

(1,811)

-

(1,811)

 

 

 

Non-current liabilities

-

(1,637)

-

(1,637)

 

 

 

 

_________

_________

_________

_________

 

 

 

 

 

 

 

 

 

 

 

 

2,688

(3,448)

-

(760)

 

 

 

 

_________

_________

_________

_________

 

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