Final Results

RNS Number : 4647C

SysGroup PLC

21 June 2021

 

21 June 2021

SysGroup plc

("SysGroup" or the "Group")

Final Results for the year ended 31 March 2021

SysGroup plc (AIM:SYS), the multi award-winning managed IT services and cloud hosting provider, is pleased to announce its audited final results for the year ended 31 March 2021.

HIGHLIGHTS

Financial

	2021	2020	Change %
Revenue	£18.13m	£19.49m	-7%
Recurring revenue as a % of total revenue	79%	77%	+2%
Gross profit	£10.50m	£11.20m	-6%
Adjusted EBITDA 1	£2.91m	£2.81m	+4%
Adjusted EBITDA 1 margin %	16%	14%	+2%
Adjusted PBT 2	£2.09m	£1.76m	+18%
Adjusted Basic EPS 3	3.5p	3.4p	+3%
Profit/(loss) before tax	£0.21m	£(0.23)m	-
Basic EPS	0.5p	(0.2)p	-
Operational cashflows	£2.70m	£1.93m	+40%
Net cash/(debt) 4	£1.88m	£(0.07)m	-

Operational

· Demonstrated resilience and relevance throughout the pandemic

· Renewed 36 month contract with the Group's largest managed hosting customer

· Acquired businesses fully integrated and operating on a single platform

· Corporate structure simplified with Certus and HNS both hived up into a single trading entity

· Customer satisfaction consistently remained above 97%, despite lockdown challenges

Post period-end developments

· New Manchester office opened to expand sales & marketing presence and leverage northern tech hub

· Complete refurbishment of the Newport office to bring in-line with SysGroup culture and values

· EMI share options issued to all team members to align interests and to share future upside

1.  Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation of intangible assets, exceptional items, and share based payments.

2.  Adjusted profit before tax ("Adjusted PBT") is profit before tax after adding back amortisation of intangible assets, exceptional items, and share based payments.

3.  Adjusted Basic EPS is profit after tax after adding back amortisation of intangible assets, exceptional items, share based payments and associated tax, divided by the weighted average number of shares in issue.

4.  Net cash/(debt) represents cash balances less bank loans, lease liabilities and contingent consideration.

Adam Binks, Chief Executive Officer, commented:

"I am pleased to report that the business has performed well over the last year given the significant challenges posed by a full 12 month period of lockdown restrictions. Improved Adjusted EBITDA and increased net cash, despite ongoing investment for the future, reflect our high levels of recurring revenues, strong operational controls and cash flow generative model. Further I must once again pay testament to our fantastic team who have worked tirelessly throughout this exceptionally challenging time to ensure that SysGroup continues to thrive, and both the Board and I are extremely grateful for their efforts."

"As lockdown restrictions ease and greater economic certainty returns, I have no doubt that investment into IT will be a major priority for many business leaders, as the pandemic has made our industry more relevant than ever. With a clear market focus and with the operational developments made over the past year, SysGroup is well placed to take advantage of this anticipated growth. The strength of our balance sheet coupled with our supportive investor base will also enable us to continue to be a consolidator in a fragmented, growing market, and I look forward to the future with confidence."

For further information please contact: SysGroup plc Adam Binks, Chief Executive Officer Martin Audcent, Chief Financial Officer	Tel: [phone]
Shore Capital  (Nomad and Broker) Corporate Finance: Edward Mansfield / Daniel Bush Corporate Broking: Fiona Conroy	Tel: [phone]
Alma PR (Financial PR) Josh Royston / Helena Bogle	Tel: [phone]

About SysGroup

SysGroup is a leading provider of managed IT services, cloud hosting and expert IT consultancy. The Group delivers solutions that enable clients to understand and benefit from industry leading technologies and advanced hosting capabilities. SysGroup focuses on a customer's strategic and operational requirements - enabling clients to free up resources, grow their core business and avoid the distractions and complexity of delivering IT services.

The Group has offices in Liverpool, London, Manchester, Newport and Telford.

For more information, visit http://www.sysgroup.com

STRATEGIC REPORT

Chairman's Statement

SysGroup delivered a highly commendable performance in FY21, delivering an improved Adjusted EBITDA, achieved in the face of the difficulties presented by the lockdown restrictions in place throughout the financial year. This performance was underpinned by our high levels of recurring revenues - a key focus over recent years - and, had this not been the case, the year would have been much harder for both the business and shareholders. SysGroup's performance this year is also testament to the Group's response to the operational challenges presented by the pandemic, swiftly moving employees to remote working whilst maintaining strong uninterrupted service levels for customers and keeping tight management control over costs.

I would like to place on record the Board's appreciation of the ongoing commitment and cooperation of our team in rising to the challenge. They have tackled all of the challenges presented by the pandemic with diligence, care and empathy. Not only have they applied themselves to helping our clients and ensuring that their business needs are met, but they have also been there to support each other and rallied together as all great teams do in times of adversity. The management team deserve credit for putting in place tiers of support mechanisms and accordingly we will emerge from the pandemic a stronger unit.

In order to retain our talented team and attract more quality individuals to support our ambitious growth aspirations, we have made additional grants, post the year end, under the Group's 2018 EMI share option scheme, as well as the implementation of a new executive LTIP scheme which was put in place in July 2020. The Board also took the decision, in December 2020, to buy back 560,000 Ordinary Shares and hold them in Treasury to satisfy the future exercise of options under the Group's incentive schemes.

It was very pleasing to note the recognition the Company has received during the year with SysGroup being included in the London Stock Exchange's Top 1000 most influential companies in Britain and our Chief Executive, Adam Binks, was listed in the North West Power 100 for the second time which reflects the continued efforts of the entire SysGroup team.

No further acquisitions were made during the year but we remain very much committed to our stated strategy of being a consolidator in a hugely fragmented market. We are in a strong position to make accretive acquisitions with committed debt facilities, a strong cash position and a supportive institutional shareholder base. Whilst we have continued to seek out complementary acquisitions during lockdown, we have maintained our discipline and only focus on quality assets that meet our strict acquisition criteria. As we begin to come out of the pandemic and are once again able to meet with potential vendors face to face, we are confident that the pipeline of opportunity will pick up, with anticipated changes to Capital Gains Tax fuelling this further.

Michael Edelson

Chairman
18 June 2021

Chief Executive Officer's report

Introduction

I'm pleased to report on what has proved to be a very robust performance from the Group against a backdrop of lockdown restrictions for the full twelve months under review. This resilience highlights the importance of our continued focus over recent years on securing high levels of recurring revenues, long-term contracts and a balance sheet set up to support corporate activity.

I am extremely proud of how our entire team has adapted since the pandemic began and I would like to take the opportunity to extend my sincere gratitude to the entire SysGroup team for their outstanding efforts during what has been a significant period of disruption and uncertainty in general. SysGroup has played an integral role for many of our customers and helped them to adapt to the forever changing environment through the use of technology and again, I am delighted that we have been able to play a part and help during this time.

Adjusted EBITDA shows an improvement of 4% on last year's results, reflecting synergies through the integration of prior year acquisitions and an extremely well managed overhead base. This is particularly impressive in light of the ongoing investment into the business to ensure we are ideally placed to benefit from opportunities, as and when normal business practices resume. Total revenues decreased slightly year on year, by 7%, due to the impact of the pandemic as customers deferred spending decisions coupled with the fact that our sales teams have been unable to have in-person interactions with our customers and prospects, owing to the restrictions and impacting the sales pipeline.  As noted in our half year results, we also took the strategic decision to exit some lower margin customer contracts that came with the acquisitions we made in 2019, which had a small impact on revenue but minimal impact on the Group's profitability. As a result, Adjusted EBITDA margin rose to 16% (FY20: 14%). The Group has generated a strong operating cashflow this year and the growth in our net cash to £1.88m has ensured an extremely robust financial position going into FY22.

Despite the impact that the pandemic has had on this year's top line, there is no doubt that it has also refocused the minds of business leaders on the efficacy, resilience and suitability of their existing IT systems and the associated support that is required to ensure their platforms remain current, compliant and secure. There is much debate as to whether organisations will return to full office working, remain entirely flexible or adopt a hybrid solution. What is clear though is that the technology they deploy to support them is more critical than ever and we believe that the trend of outsourcing to experts such as SysGroup will increase. Once we have greater economic certainty and confidence returns, we are likely to see an increase in spend and commitment to long term managed IT services contracts, which we are ideally placed to fulfil.

As well as supporting our existing client base and ensuring they receive the best levels of service, we have also focused heavily on operational improvements and making sure that SysGroup is positioned to capitalise when market conditions improve. The remote working model that we employed throughout the last twelve months was highly successful, with our teams able to support clients through the trickiest of conditions, reflected in customer satisfaction levels throughout the full year of over 97%. At the same time, I am delighted that we were able to welcome team members back to the office from 24 May, with appropriate Covid safety measures, albeit at a reduced capacity and in-line with government guidance. The cultural importance of having our teams working together, drawing energy and inspiration from each other and relishing a normalised working environment cannot be understated.

Integration

During the course of the year, and post completion of the earn-out period, we completed the full integration of the Certus business which we acquired in February 2019. There is now one senior leadership team in place responsible for delivering our strategy and teams at all levels have been amalgamated to create greater pockets of expertise. As stated in our half year results and in line with our single go-to-market offering, known as "one SysGroup," all of our business operations have also now been rebranded to SysGroup and all legacy brands have been discontinued. The integration exercise was completed with a tidy up of our corporate structure at the end of year with both the Certus and HNS businesses being hived up into our main trading entity.

We have made substantial progress on Project Fusion and during the second half of the year, we went live with a new business system that unified our CRM platform, marketing, service desk and billing operations. This improvement to our core platform gives us much greater oversight at a Group level on all sales and marketing activities, customer support requests and billing processes.  The benefits of this are already being experienced, but more importantly it will enable us to scale over the coming years more quickly and efficiently and make integration of future acquisitions simpler.

Project Fusion, which is our internal programme for amalgamating and developing business systems and processes to support future growth, will continue in FY22 as our focus moves to the people management and financial accounting systems and we will also continue to build out the full benefits of the reporting functionality giving even greater access to business intelligence.

Offices

Back in April, we announced our "2021 return to the office" programme to our teams. Whilst our people have successfully worked from home since 13 March 2020, as a business we continue to recognise the importance of providing an environment where our teams can come together and collaborate.

Further changes have been made across our UK footprint with the closure of our office in Bristol, with local clients now being serviced from our Newport facility supported by our wider teams across the country. Following the year-end, we have opened a new office in Manchester which will become our main sales & marketing hub in the North. The opening of a new location in Manchester was a strategic decision supported by the fact that Manchester is known to be the second largest technology hub outside of London and will give the Group even greater access to world class talent whilst also providing an environment which is focused solely on delivering sales growth, supported by strategic marketing campaigns.

People

Our people remain our greatest asset and great attention has been paid to making sure that we can attract and retain best in class talent. A significant part of this has been relaunching our core values, namely: Be Bold, Delight your customer, Work Smart, Own it and Love what you do . They resonate with our market position and reflect the ambitions of our talented workforce. Our benefits scheme has been rolled out throughout the Group, ensuring that there is a commonality of reward for all SysGroup team members, no matter their route into the organisation. A number of new hires were also made during the year which will help us to support our growth ambitions and which also help to drive our culture by bringing in fresh impetus and demonstrating our commitment to investing in the future.

As a result of the operational improvements made during FY21, we have started the new financial year with a more simplified leadership & operational structure with clear lines of responsibility, a more interactive workforce working towards defined common goals, greater visibility and presence throughout the UK market and the capacity and desire to grow market share.

Summary and Outlook

Whilst we remain mindful of the fact the pandemic is by no means over and despite the extension to the easing of restrictions, it is pleasing to see the positive effects of the vaccination programme, which in turn will help us to conduct business on a face to face basis once again.

Despite the challenges, FY21 overall has been another successful year for the Group, demonstrated by the increase in Adjusted EBITDA and the strength of our year-end balance sheet. The £1.95m growth in Net Cash is also testament to the performance of the business throughout the course of the year.

I said this time last year that the world has gone through material change and that technology has been an enabler for many to simply survive. Twelve months later and I now believe that almost all businesses will have no option other than to embrace technology in order to thrive. SysGroup is well established and ready to take advantage of those opportunities that will once again come to the fore when key decision makers have the confidence to once again commit to termed contracts and enhanced spending.

Our business is highly cash generative and we remain committed to our stated acquisition strategy and continuing to be a consolidator in a highly fragmented market whose relevance over the last 15 months has really come to the fore. As the year progresses and we move beyond the fears of further lockdowns, I am certain confidence will return to pre-pandemic levels and the investments made by businesses into their technology platforms will exceed all previous levels.

Adam Binks
Chief Executive Officer
18 June 2021

Chief Financial Officer's Report

Group Statement of Comprehensive Income

In a challenging year with government lockdown restrictions in operation across the entire period, the Group successfully delivered revenue of £18.13m (FY20: £19.49m), a decrease of 7% on the prior period, and an improved Adjusted EBITDA of £2.91m (FY20: £2.81m), an increase of 4% against the FY20 performance. 

Managed IT services revenue reduced to £14.34m (FY20: £15.09m). This reflects the effect of the pandemic as customers deferred new capital spend and the fact that our sales and technical consulting teams were unable to attend customer sites due to the restrictions. The impact of the pandemic also led to a small number of customers choosing to downsize their service requirements or cancel contracts to reduce costs. In keeping with our business model of focussing on the UK mid-market, we also exited some lower margin customer contracts that were inherited with the Certus and HNS acquisitions. Whilst this has had a small impact on revenue the impact to the Group's profitability is minimal. Similarly, value added resale ("VAR") revenue in FY21 was £3.79m (FY20: £4.40m) as sales were affected by customers exercising caution by withholding capex expenditure in response to the impact of COVID-19 on their businesses and markets. As greater economic certainty returns, we believe that those deferred commitments to both managed IT services and VAR will resume.

The revenue mix of 79% managed IT services and 21% VAR was slightly ahead of the Group's target business model of 75% managed IT services and 25% VAR. The FY20 revenue mix was 77%:23%.

Revenue by Operating Segment	2021	2021	2020	2020
	£'000	%	£'000	%
Managed IT Services	14,344	79%	15,092	77%
Value Added Resale	3,787	21%	4,400	23%
Total	18,131	100%	19,492	100%

Gross profit for the year was £10.50m with a gross margin of 57.9% (FY20: £11.20m and 57.5%) respectively. The gross margin percentage was similar to last year with net neutral impacts from the change in revenue mix, an improvement in VAR sales margin and a small reduction in the managed IT Services sales margin.

Adjusted operating expenses of £7.59m were £0.80m below last year (FY20: £8.39m) with an overhead/revenue ratio of 42% (FY20: 43%). The lower overhead costs reflect the benefit of £0.40m acquisition synergies, £0.26m of travel and general overhead savings and an increase in Project Fusion R&D capitalisation of £0.14m relating to the investment in a unified platform of systems across the Group. The acquisition synergies are permanent savings. As lockdown restrictions begin to ease and our sales teams are able to mobilise and generate additional revenue we can expect travel costs and general overheads to increase, and our investment in the development of Project Fusion to drive further growth will continue into FY22. The Group made no use of the government furlough scheme so the income statement does not include any one-off credits from government support.

Adjusted EBITDA was £2.91m for the twelve months to 31 March 2021, an increase of £0.10m (+4%) from £2.81m in FY20. The Adjusted EBITDA margin was 16.1% in FY21 compared to 14.4% in FY20 which continues our progressive profit improvement from the Group's scale-up strategy and synergising activity.

The reconciliation of operating profit to Adjusted EBITDA is shown in the table below. The Directors consider that Adjusted EBITDA is the most appropriate measure to assess the business performance since this reflects the underlying trading performance of the Group. Adjusted EBITDA is not a statutory measure and is calculated differently by each Company.

Reconciliation of operating profit to Adjusted EBITDA	2021	2020
	£'000	£'000
Operating profit/(loss)	313	(28)
Depreciation	722	847
Amortisation of intangible assets	1,294	1,321
EBITDA	2,329	2,140
Exceptional items	82	475
Share based payments	504	199
Adjusted EBITDA	2,915	2,814

The Group incurred exceptional costs during the year of £0.08m (FY20: £0.48m) comprising employee exit costs from integration activities and for the closure of the Bristol office. Amortisation of intangible assets was £1.29m (FY20: £1.32m), of which £1.22m (FY20: £1.27m) relates to the amortisation of acquired intangible assets from acquisitions. Project Fusion capitalised software development costs commenced amortisation in November 2020 when the first modules of the new system went live.

Finance costs of £0.11m are reduced from the FY20 charge of £0.21m as the term loan continues to amortise through quarterly loan repayments and as lease contracts reach their expiry.  The share-based payments charge of £0.50m for the year (FY20: £0.20m) includes a £0.18m charge for the 2018 & 2019 Executive Director LTIPs which vested in July 2020.

The Adjusted profit before tax for the year was £2.09m (FY20: £1.76m) and statutory profit before tax for the year was £0.21m (FY20: loss before tax £(0.23)m). Adjusted basic earnings per share for FY21 was 3.5p (FY20: 3.4p) and basic earnings per share for FY21 was 0.5p (FY20: (0.2)p loss per share).

Adjusted profit before tax	2021	2020
	£'000	£'000
Profit/(loss) before taxation	205	(234)
Amortisation of intangibles	1,294	1,321
Exceptional items	82	475
Share based payments	504	199
Total	2,085	1,761

Taxation

The Group reports a tax credit in the FY21 Consolidated Income Statement of £0.04m which compares to a £0.11m credit in FY20. The corporation tax charge has increased this year to £0.27m (FY20: £0.02m) as trading profits have risen but this is more than offset by deferred tax credit movements, notably on the amortisation of intangible assets and share based payments. The Group uses the HMRC Research & Development tax credit scheme when project expenditure fulfils the HMRC scheme criteria. The Group's tax in the Income Statement is expected to become a net charge in the future as the business continues to grow and the remaining tax losses are fully utilised.

Cashflow & net cash

The Group had a strong net cash position of £1.88m as at 31 March 2021 (FY20: net debt £0.07m) which includes IFRS16 property lease liabilities. Cash conversion was 95% (FY20: 86%) and the Group's gross cash balance as at 31 March 2021 was £3.47m (FY20: £3.03m). The Directors were pleased with this cash and debt management performance given the challenges that COVID-19 presented to the business community at the commencement of, and throughout, the Group's financial year.

As reported in last year's Annual Report, we entered Q1 with requests from a number of customers for financial support which we were able to provide with extended settlement terms and in some cases a deferral of fees into future periods. These arrangements were adhered to with full co-operation from the customers involved and all have since come to an end with reversion to standard payment terms. Since SysGroup's customer base has a wide diversification of industry sectors there was only a low level of exposure to the sectors most exposed to the pandemic restrictions imposed by the Government in hospitality, leisure, travel and tourism. Cash collection has remained strong throughout the period which is a credit to our customers in a difficult period, and a reflection of the business criticality of the IT services we provide. No changes were made to our supplier payment processes during the year and suppliers were paid as normal in accordance with our usual monthly payment runs.

Operational cashflows were £2.70m (FY20: £1.93m) which reflected strong cash conversion at 95% (FY20: 86%), good trade debtor control and lower interest and tax payments. The Group has made no use of the government furlough scheme or any of the government backed COVID-19 assistance schemes and the deferral of the £0.28m Q1 VAT payment reported in our Interim Results was repaid in full in December 2020.

Cash conversion	2021	2020
	£'000	£'000
Operational cashflows	2,700	1,930
Acquisition, integration and restructuring cashflows	82	492
Cash generated from operations	2,782	2,422
Adjusted EBITDA	2,915	2,814
Cash conversion	95%	86%

The Group's investing activities included the payment of the final earn-out consideration relating to the acquisition of Certus. The full earn-out profit target was achieved and £0.975m cash consideration was paid to the vendors of Certus. In Financing activities, in addition to the quarterly bank loan and lease payments, the Company repurchased 560,000 ordinary shares of £0.01 each in the capital of the Company ("Ordinary Shares") for consideration of £0.20m.

The Group's net cash position of £1.88m is shown below and this includes IFRS16 Lease liabilities. Net cash/(debt) is considered to be a KPI of the business since the level of financial indebtedness of the Group is relevant for Board strategic decisions and a key financial measure for the Group's shareholder base and potential investors.

Net cash	2021	2020
	£'000	£'000
Cash balances	3,473	3,036
Bank loans - current	(416)	(251)
Bank loans - non-current	(757)	(1,146)
Lease liabilities - equipment	(86)	(186)
Lease liabilities - property	(334)	(522)
Contingent consideration	-	(1,000)
Net cash/(debt)	1,880	(69)

Consolidated Statement of Financial Position

The Group's net assets of £20.6m at 31 March 2021 represented an increase of £0.5m to the prior year (FY20: £20.1m).

Non-current assets have reduced by £1.44m which mainly arises from the £1.22m amortisation of acquired intangible assets. During the year, the Group invested £0.18m (FY20: £0.35m) in property, plant and equipment and £0.39m (FY20: £0.18m) in Project Fusion software development costs. Working capital was managed well throughout the year with the gross trade debtor balance of £1.18m comparing to £1.64m in the previous year and trade payables of £0.81m comparing to £1.85m in the prior year.

The contingent consideration liability of £1.0m which was held at the prior year end for the Certus acquisition earn-out was paid in H1 FY21 following the successful achievement of the earn-out. SysGroup paid £0.975m contingent consideration to the vendors of Certus in full settlement.

The bank loan at 31 March 2021 was £1.17m (FY20: £1.40m); there have been no further drawdowns of the facilities during the year and the bank loan covenants have been met throughout the year.

A new Treasury reserve has been established within equity. This is to recognise the company purchase of 560,000 ordinary shares of £0.01 each on 1 December 2020 at a price of 35.745 pence per ordinary share. The shares will be held in treasury to fulfil the future anticipated exercise of options under the Employee Share Option plans.

Project Fusion

Project Fusion was launched in FY20 as a project to deliver a unified platform of systems across the Group to enable more efficient working practices and higher quality operating and reporting information. The project has multiple workstreams for systems covering Customer Relationship Management ("CRM"), Service Desk, Financial Accounts, Marketing and Risk Management.

During FY21, substantial progress has been made as our internal project teams and implementation partners have worked well together to design and implement the core system. The new system which brings together CRM, Billing, Service Desk & Marketing onto a single platform, went live in H2 FY21. Project Fusion will continue in FY22 as focus moves to the People Management and Financial Accounts systems, in addition to building out the full benefits of the reporting functionality which will provide far greater visibility of business intelligence and enable us to scale more effectively and efficiently. During the year, £0.39m (FY20: £0.18m) of software development costs were capitalised as an intangible asset comprising employee and third-party supplier costs.

Share Option Grants

In July 2020 we announced the implementation of the new 2020 SysGroup Long Term Incentive Plan ("2020 LTIP"), together with an initial grant of 400,000 performance shares (the "Award") under the 2020 LTIP. The Remuneration Committee granted 250,000 performance shares to Adam Binks, Chief Executive Officer, and 150,000 performance shares to Martin Audcent, Chief Financial Officer (together the "Executive Directors"). The 2020 LTIP replaced in its entirety the incentive plan set up in June 2018 ("2018 LTIP") and the 1.6 million performance shares granted to the Executive Directors under the 2018 LTIP vested with immediate effect.

In addition to the grant of the 400,000 performance shares to the Executive Directors, 450,000 share options were granted in April 2020 to senior management under the existing 2018 SysGroup EMI Scheme.

Martin Audcent

Chief Financial Officer

18 June 2021

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2021

		2021	2020
		Group	Group
	Notes	£'000	£'000
Revenue	3	18,131	19,492
Cost of sales		(7,630)	(8,291)
Gross profit		10,501	11,201
Operating expenses before depreciation, amortisation, exceptional items and share based payments		(7,586)	(8,387)
Adjusted EBITDA		2,915	2,814
Depreciation		(722)	(847)
Amortisation of intangibles	8	(1,294)	(1,321)
Exceptional items	4	(82)	(475)
Share based payments		(504)	(199)
Administrative expenses		(10,188)	(11,229)
Operating profit/(loss)		313	(28)
Finance costs		(108)	(206)
Profit/(loss) before taxation		205	(234)
Taxation	7	35	112
Total comprehensive profit/(loss) attributable to the equity holders of the company		240	(122)
Basic earnings per share (EPS)	6	0.5p	(0.2p)
Diluted earnings per share (EPS)	6	0.5p	(0.2p)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2021

		2021	2020
		Group	Group
	Notes	£'000	£'000
Assets
Non-current assets
Goodwill	8	15,554	15,554
Intangible assets	8	5,290	6,188
Property, plant and equipment		1,281	1,824
		22,125	23,566
Current assets
Trade and other receivables	9	1,728	2,726
Cash and cash equivalents		3,473	3,036
		5,201	5,762
Total Assets		27,326	29,328
Equity and Liabilities
Equity attributable to the equity shareholders of the parent
Called up share capital	12	494	494
Share premium reserve		9,080	9,080
Treasury reserve		(201)	-
Other reserve		2,832	2,328
Translation reserve		4	4
Retained earnings		8,403	8,163
		20,612	20,069
Non-current liabilities
Lease liabilities	11	190	441
Bank loan	11	757	1,146
Deferred taxation	7	889	1,200
		1,836	2,787
Current liabilities
Trade and other payables	10	2,683	3,488
Contract liabilities		1,549	1,465
Lease liabilities	11	230	268
Contingent consideration	10	-	1,000
Bank loan	11	416	251
		4,878	6,472
Total Equity and Liabilities		27,326	29,328

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2021

	Attributable to equity holders of the parent
	Share capital	Share premium reserve	Treasury reserve	Other reserve	Translation reserve	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
As at 1 April 2019	494	9,080	-	2,129	4	8,285	19,992
Comprehensive income
Loss for the period	-	-	-	-	-	(122)	(122)
Total Comprehensive income	-	-	-	-	-	(122)	(122)
Distributions to owners
Share options charge	-	-	-	199	-	-	199
Total Distributions to owners	-	-	-	199	-	-	199
At 31 March 2020	494	9,080	-	2,328	4	8,163	20,069
As at 1 April 2020	494	9,080	-	2,328	4	8,163	20,069
Comprehensive income
Profit for the period	-	-	-	-	-	240	240
Total Comprehensive income	-	-	-	-	-	240	240
Distributions to owners
Share buy back	-	-	(201)	-	-	-	(201)
Share options charge	-	-	-	504	-	-	504
Total Distributions to owners	-	-	(201)	504	-	-	303
At 31 March 2021	494	9,080	(201)	2,832	4	8,403	20,612

CONSOLIDATED STATEMENT OF CASHFLOWS

FOR THE YEAR ENDED 31 MARCH 2021

		2021	2020
		Group	Group
	Notes	£'000	£'000
Cashflows used in operating activities
Profit/(loss) after tax		240	(122)
Adjustments for:
Depreciation and amortisation		2,016	2,168
Finance costs		108	206
Share based payments		504	199
Taxation credit	7	(35)	(112)
Operating cashflows before movement in working capital		2,833	2,339
Decrease in trade and other receivables		987	501
Decrease in trade and other payables		(889)	(533)
Operating cashflows before interest and tax		2,931	2,307
Interest paid and amortisation of arrangement fee on loan facility		(105)	(161)
Interest paid on lease liabilities		(28)	(44)
Taxation paid		(98)	(172)
Operational cashflows		2,700	1,930
Cashflows from investing activities
Payments to acquire property, plant & equipment		(179)	(353)
Payments to acquire intangible assets	8	(396)	(190)
Acquisition of subsidiary companies	5	(975)	(1,911)
Amounts received in respect of previous acquisitions		-	252
Cash acquired with acquisitions		-	609
Net cash used in investing activities		(1,550)	(1,593)
Cashflows from financing activities
Payments for share buy-back	12	(201)	-
Repayment of loan facility including fees		(224)	(224)
Capital/principal paid on lease liabilities		(288)	(453)
Net cash from financing activities		(713)	(677)
Net increase / (decrease) in cash and cash equivalents		437	(340)
Cash and cash equivalents at the beginning of the year		3,036	3,376
Cash and cash equivalents at the end of the year		3,473	3,036

NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION

FOR THE YEAR ENDED 31 MARCH 2021

1.  Accounting policies

SysGroup plc (the 'Company') is a Company incorporated and domiciled in the United Kingdom. The Company's registered office is at Walker House, Exchange Flags, Liverpool, L2 3YL. This consolidated financial information comprise the Company and its subsidiaries (together referred to as the 'Group').

Statement of compliance

The Group financial information has been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) as endorsed by the European Union ("endorsed IFRS") and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under endorsed IFRS.

This consolidated financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The comparative figures for the financial year ended 31 March 2020 are an extract of the Company's statutory accounts for the year ended 31 March 2020, prepared in accordance with International Financial Reporting Standards (IFRS), approved by the Board of Directors on 30 June 2020 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

The statutory accounts for the year ended 31 March 2021 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Auditors have reported on those accounts; their report was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

Basis of preparation

The principal accounting policies adopted in the preparation of the Financial Statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The consolidated financial statements have been prepared under the historical cost basis, except for the revaluation of certain financial liabilities which have been valued in accordance with IFRS9.

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 2. The financial statements are presented in pounds sterling, rounded to the nearest thousand, unless otherwise stated.

Going concern

The Directors have prepared the financial statements on a going concern basis which assumes that the Group and the Company will continue to meet liabilities as they fall due.

The Board recognises that the COVID-19 pandemic has had an unprecedented affect on the UK economy and despite the recent upturn in growth from the gradual lifting of lockdown restrictions there remains considerable uncertainty in economic outlook.

Over the past twelve months the Group has demonstrated that its operating model is broadly resilient to the economic impacts of the pandemic. The Group's products and services are typically considered to be critical IT infrastructure supplies to customers with circa 75% of revenue deriving from contracted managed IT services which is a continuous service supply and subject to twelve month to three year contracts. The Group has a cash balance of £3.47m and a net cash position of £1.88m at 31 March 2021. The gross cash has increased by £0.4m since 1 April 2020 and the net cash has increased by £1.95m in the same period. Net cash includes a £1.2m Senior Term loan with Santander which is subject to quarterly loan covenant tests and calculated on a 12-month rolling basis for interest cover, net debt to Adjusted EBITDA leverage and debt service cover. All the bank covenants were met in the financial year and are forecast to be achieved in the foreseeable future.

The Directors have reviewed the financial forecasts and a Reverse Stress Test model. The Reverse Stress Test model has allowed the Board to assess a significant downside scenario set to the point where the bank loan covenants would breach. The projected trading forecasts and resultant cashflows, together with the confirmed loan facilities and other sources of finance, taking account of reasonably possible changes in trading performance, show that the Group can continue to operate within the current facilities available to it.

The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

New standards and interpretations

A number of new standards and amendments to standards and interpretations have been issued during the year ended 31 March 2021. The Group has adopted all of the new and revised standards and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations.  Other new amended standards and interpretations issued by the IASB that apply to the financial statements do not impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

New standards not yet effective

There are a number of standards and amendments to standards, and interpretations which have been issued by the IASB and in some cases not yet adopted by the UK Endorsement Board that are effective in future accounting periods that the Group has decided not to adopt early. SysGroup plc is currently assessing the impact of these new standard and amendments. The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material outcome on the Group.

Basis of consolidation

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee; exposure to variable returns from the investee; and the ability of the investor to use its power to affect those variable returns. Control is re-assessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquirer's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of Directors.

Alternative profit measures

In reporting its results, the Directors have presented various alternative profit measures (APMs) of financial performance, position or cashflows, which are not defined or specified under the requirements of IFRS. On the basis that these measures are not defined by IFRS, they may not be directly comparable with other companies. The key APMs that the group uses include recurring revenue as a percentage of revenue, Adjusted EBITDA, Adjusted PBT, Adjusted EPS and Net cash.

The Group makes certain adjustments to the statutory profit in order to derive many of these APMs. These include exceptional items and share based payments. The group presents as exceptional items on the face of the Statement of Comprehensive Income those material items of income and expense which the Directors consider, because of their size or nature and expected non-recurrence, merit separate presentation to facilitate financial comparison with prior periods and to assess trends in financial performance. Exceptional items are included in Administration expenses in the Consolidated Statement of Comprehensive Income but excluded from Adjusted EBITDA as management believe they should be considered separately to gain an understanding of the underlying profitability of the trading businesses on a consistent basis from year to year.

2.  Significant accounting estimates and judgements

The preparation of this financial information requires management to make estimates and judgements that affect the amounts reported for assets and liabilities at the period end date and the amounts reported for revenues and expenses during each period. The nature of the estimation or judgement means that actual outcomes could differ from the estimates and judgements taken in the preparation of the financial statements.

Significant accounting estimates

Impairment of goodwill and other intangibles

The Group tests goodwill for impairment annually and in line with the stated accounting policy. This involves judgement regarding the future development of the business and the estimation of the level of future profitability and cash flows to support the carrying value of goodwill. An impairment review has been performed at the reporting date taking into account sensitivities around future business performance, covering a range of outcomes and risks over levels of revenue, cost and cash generation.  No impairment has been identified. Further details are included in note 8.

Valuation of intangible assets acquired in business combinations

Determining the fair value of customer relationships acquired in business combinations requires estimation of the value of the cash flows related to those relationships and a suitable discount rate in order to calculate the present value.

Significant accounting judgements

Going concern

The Board recognises that the Group is trading in an uncertain economy following the onset of the COVID-19 pandemic and there's considerable uncertainty in the timing and rate of economic recovery. Management have to exercise judgement in the preparation of financial forecasts particularly on the level of future sales, customer contract uplifts and cancellations, and working capital assumptions. The Directors have reviewed the Group's financial forecasts and a Reverse Stress Test model in order to assess the Group's business viability and to form a judgement on going concern. Having reviewed the forecasts the Board were satisfied that the Group remains a going concern.

Revenue

Management make judgements in determining the appropriate application of revenue recognition policies to the sale of services and products.

Assessment of CGU's and carrying value of intangible assets

A CGU is the smallest identifiable Group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or Groups of assets and the Board of Directors use judgement to identify the CGUs of the Group. The Board have reviewed the Group's CGU's this year and exercised their judgement to amend the CGUs following the integration of previously acquired businesses and changes to the Group's management and reporting structure in the current financial year. The Board have concluded that the Group has a single CGU of "Managed IT Services".

Useful economic lives of intangible assets

Intangible assets are amortised over their useful economic lives. Useful lives are based on management's estimates of the period over which the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in changes in the carrying values and hence amounts charged to the income statement in particular periods which could be significant. The Group have capitalised system development expenditure in the current and previous financial year in relation to Project Fusion, a project to integrate all of the legacy business systems into one new CRM, Marketing, Projects, Billing & Service Desk system. Phase I of Project Fusion went live during the current period and the System Development intangible asset is being amortised over a five year useful life which the Directors consider appropriate for the Group's core business system.

IFR16 - Leases

Management make judgements in their assessment of lease contract agreements to ensure the appropriate lease accounting recognition under IFRS16 - Leases. The main elements of judgement are:

· Determining the inherent rate of interest which applies to each lease or family of leases with similar characteristics;

· Establishing whether or not it is reasonably certain that an extension option will be exercised; and

· Considering whether or not it is reasonably certain that a termination option will not be exercised.

3.  Segmental analysis

The chief operating decision maker for the Group is the Board of Directors . The Group reports in two segments:

· Managed IT Services - this segment provides all forms of managed services to customers and includes professional services.

· Value Added Resale (VAR) - this segment provides all forms of VAR sales where the business sells products and licences from supplier partners.

The monthly management accounts reported to the Board of Directors are reviewed at a consolidated level with the operating segments representative of the business model for growth of recurring contract income in Managed IT Services and VAR sales as a complementary business activity. The Board review the results of the operating segments at a revenue and gross profit level since the Group's management and operational structure supports both operational segments as Group functions. In this respect, assets and liabilities are also not reviewed on a segmental basis. All assets are located in the UK.

All segments are continuing operations and there are no transactions between segments.

	2021	2021	2020	2020
Revenue by operating segment	£'000	%	£'000	%
Managed IT Services	14,344	79%	15,092	77%
Value Added Resale	3,787	21%	4,400	23%
Total	18,131	100%	19,492	100%
No individual customer account for more than 6% of the Group's revenue.
The revenue by geographic location for where services are delivered to customers is shown below.
	2021	2021	2020	2020
	£'000	%	£'000	%
UK	18,091	100%	19,310	99%
Rest of World	40	0%	182	1%
	18,131	100%	19,492	100%
			2021	2020
			£'000	£'000
Revenue
Managed IT Services			14,344	15,092
Value Added Resale			3,787	4,400
Total			18,131	19,492
Gross profit
Managed IT Services			9,594	10,281
Value Added Resale			907	920
Total			10,501	11,201
There were no sales between the two business segments, and all revenue is earned from external customers. The business segments' gross profit is reconciled to profit before taxation as per the consolidated income statement. The Group's overheads are managed centrally by the Board and consequently there is no reconciliation to profit before tax at a segmental level.

4.  Exceptional items

	2021	2020
	£'000	£'000
Acquisitions	-	85
Integration and restructuring	82	390
Total	82	475

The Group has incurred exceptional costs during the year of £82,000 (FY20: £475,000) which are in relation to the exit of the Bristol office and employee costs incurred from the integration of the senior management team. 

5.  Acquisitions

In February 2019, the Company acquired 100% of the share capital of Certus IT Limited ("Certus"), and the parties agreed an earn-out mechanism for a period of twelve months post-acquisition based on profit performance targets. In February 2020 the earn-out period was completed and Certus successfully achieved the maximum EBITDA target. The Company paid £975,000 to the Sellers in full settlement of the contingent consideration during H1 FY21.

6.  Earnings per share

	2021	2020
Profit/(loss) for the financial year attributable to shareholders	£240,000	(£122,050)
Weighted number of issued equity shares	49,234,036	49,419,690
Weighted number of equity shares for diluted EPS calculation	51,811,233	51,734,950
Adjusted basic earnings per share (pence)	3.5p	3.4p
Basic earnings per share (pence)	0.5p	(0.2p)
Diluted earnings per share (pence)	0.5p	(0.2p)
The weighted number of issued equity shares and the weighted number of shares for the diluted calculation both exclude the Treasury shares held by the Company in accordance with accounting standards.
	2021	2020
	£'000	£'000
Profit/(loss) after tax used for basic earnings per share	240	(122)
Amortisation of intangible assets	1,294	1,321
Exceptional items	82	475
Share based payments	504	199
Tax adjustments	(376)	(216)
Adjusted profit used for Adjusted Earnings per Share	1,744	1,657

7.  Taxation

	2021		2020
Current tax	£'000		£'000
Current tax - current year	260		128
Adjustments in respect of prior years	16		(107)
Total current tax charge	276		21
Deferred tax
Deferred tax - timing differences	(311)		(133)
Total deferred tax	(311)		(133)
Total tax credit	(35)		(112)
The effective tax rate for the year to 31 March 2021 is lower (2020: lower) than the standard rate of corporation tax in the UK. The differences are explained below:
	2021		2020
	£'000		£'000
Profit/(loss) on ordinary activities before tax	205		(234)
Profit/(loss) on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 19% (2020:19%)	39		(44)
Effects of:
Expenses not deductible	53		25
Prior year adjustment	17		(107)
Re-measurement of deferred tax due to changes in UK rate	51		85
Deferred tax asset on share-based payments	(122)		-
Use of brought forward losses	(73)		(71)
Total tax credit	(35)		(112)
The Group recognised deferred tax assets and liabilities as follows:
	2021		2020
	£'000		£'000
Deferred tax liability on customer relationships	(927)		(1,149)
Deferred tax asset on share-based payments	122		-
Capital allowances timing differences	(84)		(51)
Deferred tax liability	(889)		(1,200)
Recognition of deferred tax assets is restricted to those instances where it is highly probable that relief against taxable profit will be available.
The movement in the deferred tax account during the year was:
	Capital allowances timing  differences	Customer relationships		Total
	£'000	£'000		£'000
Balance at 1 April 2020	(51)	(1,149)		(1,200)
Credited to statement of comprehensive income	(33)	222		189
Deferred tax asset on share-based payments	122	-		122
Balance at 31 March 2021	38	(927)		(889)

Factors affecting future tax charges:
Deferred tax balances are recognised at 19% (2020: 17%) due to the cancellation of the planned reduction in tax rate to 17%. The government further announced in the Spring Budget 2021 that from 1 April 2023, the corporation tax rate would increase to 25% from 2023.

8.  Intangible assets

Group	Systems Development	Software licences	Customer relationships	Positive goodwill	Total
Cost	£'000	£'000	£'000	£'000	£'000
At 1 April 2019	223	198	8,010	15,508	23,939
Additions	184	6	-	(277)	(87)
Acquisitions	-	-	1,146	323	1,469
At 31 March 2020	407	204	9,156	15,554	25,321
At 1 April 2020	407	204	9,156	15,554	25,321
Additions	395	1	-	-	396
At 31 March 2021	802	205	9,156	15,554	25,717
Accumulated amortisation
At 1 April 2019	206	136	1,916	-	2,258
Charge for the year	9	45	1,267	-	1,321
At 31 March 2020	215	181	3,183	-	3,579
At 1 April 2020	215	181	3,183	-	3,579
Charge for the year	49	20	1,225	-	1,294
At 31 March 2021	264	201	4,408	-	4,873
Net book value
At 31 March 2020	192	23	5,973	15,554	21,742
At 31 March 2021	538	4	4,748	15,554	20,844

All amortisation and impairment charges are included in the depreciation, amortisation and impairment of non-financial assets classification, which is disclosed as administrative expenses in the statement of comprehensive income. Customer relationships have a remaining amortisation period of between 2 and 7 years.

Cash-generating units

Goodwill and intangible assets are allocated to CGUs in order to be assessed for potential impairment. During the year the Directors reconsidered the CGUs within the Group following the unification of all Group management, systems, reporting and operations. The Group has a Senior Leadership Team that manages the SysGroup business within a single operational and delivery structure having fully integrated the previously acquired Certus IT and Hub Network Services ("HNS") businesses. The Board of Directors review the financial and operating performance of the Group as a single performing unit which reflects how the business is managed and controlled. On 31 March 2021, the businesses, assets and liabilities of Certus IT and HNS were hived up to SysGroup Trading Limited.

In view of these developments, the Directors concluded that the CGUs which represented these businesses at the "statutory entity" level were no longer appropriate and that the Group has a single CGU of "Managed IT Services". As the Group acquires new businesses, they will form their own CGU until they have been integrated into the Group's core operational structure.

The allocation of goodwill and carrying amounts of assets for each CGU is as follows:

	Allocation of goodwill			Carrying value of assets
	2021	2020	2021		2020
	£'000	£'000	£'000		£'000
Managed Services	15,554	9,727	19,331		10,892
Certus IT	-	5,504	-		8,341
HNS	-	323	-		1,378
Total	15,554	15,554	19,331		20,611

Impairment review

When assessing impairment, the recoverable amount of each CGU is based on value-in-use calculations (VIU). VIU calculations are an area of material management estimate as set out in note 2. These calculations require the use of estimates, specifically: pre-tax cash flow projections; long-term growth rates; and a pre-tax discount rate. Cash flow projections are based on the Group's detailed annual operating plan for the forthcoming financial year which has been approved by the Board.

		Managed IT Services	Certus IT	HNS
2021
Discount rate		9.50%	-	-
Revenue growth rate year 2 to year 5		5.00%	-	-
Terminal growth rate		2.50%	-	-
2020
Discount rate		11.00%	11.00%	11.00%
Revenue growth rate year 2 to year 5		5.00%	5.00%	5.00%
Terminal growth rate		2.50%	2.50%	2.50%

9.  Trade and other receivables

	Group	Group
	2021	2020
Amounts due within one year	£'000	£'000
Trade debtors	916	1,427
Prepayments	812	1,299
Total	1,728	2,726

10.  Trade and other payables

	Group		Group
	2021		2020
Amounts due within one year	£'000		£'000
Trade payables	811		1,847
Accruals	990		931
Total financial liabilities, excluding loans and borrowings measured at amortised cost	1,801		2,778
Corporation tax	254		158
Other taxes and social security costs	628		552
Total creditors	2,683		3,488
	Group		Group
	2021		2020
Contingent consideration	£'000		£'000
Certus IT Limited	-		1,000

11.  Loans and borrowings

		Group	Group
		2021	2020
Non-current		£'000	£'000
Lease liabilities		190	441
Bank loan		757	1,146
Total		947	1,587
		Group	Group
	2021		2020
Current	£'000		£'000
Lease liabilities	230		268
Bank loan	416		251
Total	646		519

12.  Share Capital

	Group	Group
	2021	2021
	Number	£'000
Allotted, called up and fully paid ordinary shares of £0.01 each
At 1 April 2019	49,419,690	494
At 31 March 2020	49,419,690	494
At 31 March 2021	49,419,690	494

In December 2020, the Company purchased 560,000 of its own ordinary shares of £0.01 each for consideration of £201,000. These shares are being held as Treasury shares and will be used to settle future issues of share options to employees as they vest and become exercised.  

 

END

 

 

FR QBLFLFQLZBBK