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Cloudcoco Group PLC (CLCO)

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Tuesday 30 June, 2020

Cloudcoco Group PLC

Interim Results

RNS Number : 4566R
Cloudcoco Group PLC
30 June 2020
 

30 June 2020

 

CloudCoCo Group plc

 

("CloudCoCo", "the Group" or "the Company")

 

Interim Results

 

CloudCoCo (AIM: CLCO), a UK provider of IT and communications solutions to businesses and public sector organisations, announces its unaudited interim results for the six months ended 31 March 2020.

 

Financial highlights

 

The six months prior to the period under review have been included for comparison to help investors gauge the initial progress the business has made since the completion of the acquisition of CloudCoCo Limited on 21 October 2019 and the introduction of a new management team.

 

·

Revenue of £4.43m, up 44% against the previous six-month period (H2 2019: £3.08m, H1 2019: £4.18m)

 

 

·

Recurring revenue of £2.79m, up 31% on the previous six-month period (H2 2019: £2.13m, H1 2019: £3.02m), a key focus for the Group in becoming a sustainable growth business

 

 

·

Total contract value ("TCV") signed of £3.33m, up 158% against the previous six-month period (H2 2019: £1.29m, H1 2019: £1.37m), reflecting early successes in prioritising multi-year over single-year deals

 

 

·

Positive Trading Group EBITDA1 of £68k from a loss of £250k in the previous six-month period (H2 2019: loss of £250k, H1 2019: profit of £15k)

 

 

·

Pre-tax loss reduced to £1.57m from a loss of £5.59m in FY2019 (H1 2019: loss of £1.21m)

 

 

·

Cash at bank of £0.27m at 31 March 2020 (H2 2019: £0.31m, H1 2019: £0.84m) and £0.4m undrawn working capital facility

 

 

·

Net assets of £5.69m at 31 March 2020 (H2 2019 negative £1.11m, H1 2019 £2.92m)

 

1 earnings before net finance costs, tax, depreciation, amortisation, plc costs, separately identifiable items and share-based
  income and payments

 

Operational highlights

 

·

Acquisition of CloudCoCo Limited on 21 October 2019

 

 

·

Rebrand and change of name to CloudCoCo Group plc on 29 November 2019

 

 

·

Refinancing of the Group's debt reducing loan note debt from £5m to £3.5m and extension of new £0.5m working capital facility

 

 

·

Appointment of new CEO, Mark Halpin, and CFO, Michael Lacey

 

 

·

Encouraging early progress made against new strategy both operationally and commercially

 

 

·

5-year cyber security management deal with a major operator of franchised car dealerships

 

 

·

Voted Zen Internet New Partner of the Year

 

Post-period highlights

 

·

Move to new Leeds office completed in June

 

 

·

3-year cyber security management deal with major online fashion retailer, boohoo

 

 

·

Resilient trading during pandemic but experiencing industry-wide headwinds

 

 

·

Growing recurring revenue and margin, together with cost reduction measures means the business is well-positioned to withstand the current situation

 

Simon Duckworth, non-executive chairman of CloudCoCo, commented:

 

"The new management team has made a promising start, implementing positive changes across the business and making progress against all four of the objectives outlined at the full year despite the significant operational and wider economic challenges posed by the outbreak of the pandemic. There will be more obstacles to overcome as CloudCoCo continues through its recovery phase, but there is renewed optimism in the business, and a sense that after a prolonged period of instability the business is now on the right track."

 

Mark Halpin, CEO of CloudCoCo, commented:

 

"We expect demand for our products and services to evolve as organisations seek to adapt to the 'new normal'. IT and communications infrastructure is increasingly extending beyond physical premises and with that comes fresh challenges, particularly around cyber security and collaborative working practices. We believe that through our expert skillset and deep partner relationships with industry-leading providers, we are well-positioned to help organisations meet these challenges.

 

"While we should not lose sight of the fact we are still in the early stages of our turnaround story and recognise we are operating against a backdrop of unprecedented uncertainty, we have a talented team in place and are already seeing benefits from the hard work done thus far, which gives us confidence that our strategy is the right one."

 

Contacts

 

 

 

CloudCoCo

via Alma PR

Mark Halpin, CEO

 

Michael Lacey, CFO

 

 

 

N+1 Singer (nominated adviser & broker)

+44 (0)20 7496 3000

Peter Steel

 

Ben Farrow

 

 

 

Alma PR (financial PR adviser)

+44 (0)20 3405 0205

David Ison

[email protected]

Josh Royston

 

Kieran Breheny

 

 

 

 

About CloudCoCo

 

Supported by a team of industry experts and harnessing a diverse ecosystem of partnerships with blue-chip technology vendors, CloudCoCo makes it easy for businesses and public sector organisations to work smarter, faster and more securely by providing a single point of purchase for their connectivity, telephony, cyber security, cloud, IT hardware and support needs.

 

CloudCoCo has offices in Warrington and Leeds in the UK.

 

www.cloudcoco.co.uk

 

 

CHIEF EXECUTIVE'S REVIEW

 

H1 2020 results

 

The financial results for the six months to 31 March 2020 should be viewed in the context of a period of significant change in the Group, with the completion of the acquisition of CloudCoCo Limited taking place on 21 October 2019 followed by the introduction of a new management team.

 

The focus for the period under review has been to address legacy issues and create a sustainable foundation for future growth.

 

Progress against objectives

 

At the final results for the last financial year released in February 2020, the chairman outlined four key objectives for the current financial year. These were:

 

1. 

Increase sales

2. 

Reduce customer churn

3. 

Reduce costs

4. 

Return to net cash generation

 

As noted at the time, while simple objectives, it was clear the business needed to return to basics and shore up its fundamentals before it could drive improved performance. Progress against each objective in the first half of the current financial year is summarised below:

 

Increasing sales

 

The business saw sales growth across all three of its reporting segments during the period as shown below:

 

 

 

6 months to

6 months to

6 months to

 

 

31 March

30 September

31 March

 

 

2020

2019

2019

 

 

£'000

£'000

£'000

By operating segment

 

 

 

 

Recurring services

 

2,785

2,131

3,022

Product

 

1,208

612

793

Professional services

 

437

333

366

Total revenue

 

4,430

3,076

4,181

 

Total contract value signed, an important performance indicator, grew to £3.33m, an increase of 158% against the previous six-month period.

 

Product sales increased primarily due to hardware sales delivered in advance of multi-year support contracts.

 

One of the key benefits of the acquisition of CloudCoCo was the strong and experienced sales and business development team it brought to the Group. On appointment, the new management team identified a number of ways in which existing methods could be improved upon. While the changes made were substantial and will take time to yield sustained, positive results, the sales function is now a more professional and optimised operation with a clear plan. Reporting and accountability has improved, and there is a greater emphasis on liaising with the support team to better understand demand.

 

One of the most significant strategic objectives for the Company - and perhaps the biggest change in mindset from the way the legacy business tended to work - is a shift towards prioritising multi-year over single-year deals. This provides greater revenue visibility and reduces the need to re-negotiate contracts annually. Leveraging our partnership with Fortinet, in the first half we were able to secure a five-year cyber security management deal with a major operator of franchised car dealerships, a contract that exemplifies the kind of business we would like to take on going forwards. In what was a competitive pitch against several major managed service providers, we were selected because the customer was looking for a partner rather than a supplier, that showed a deep understanding of its business and held strong accreditations, relationships and expertise with the Fortinet security fabric technologies. Post-period, we were able to sign a similar three-year deal with a major online fashion retailer, boohoo.

 

Both names are among the biggest in their respective industries. Being trusted by organisations of this calibre is a valuable endorsement of CloudCoCo's cyber security capabilities, and indicative of our desire to move up a weight division in terms of customer and contract size.

 

The first half also saw our first sales of Nyotron's end point protection platform, Paranoid, which is a strong USP for CloudCoCo as the solution's exclusive UK supplier. We also secured a three-year WiFi and wide area network deal with one of the UK's leading charities, and saw encouraging traction in our telephony business, both in terms of signing new customers and meeting growing demand from major systems integrators looking to leverage the expertise we have in areas such as integrating older PBX systems with newer technologies like Microsoft Teams.

 

In March, we launched five new campaigns geared towards our preferred type of business, targeted at both new and existing customers:

 

1. 

Microsoft and modern working collaboration - leveraging our accreditations and deep-level skills in Azure, Microsoft Teams, Office 365 and Windows Virtual Desktop

2. 

Cyber security - through our partnerships with American corporations Fortinet and Nyotron, a key growth area

3. 

Telephony and unified communications - including traditional PBX (telephony systems) maintenance, modern cloud-hosted telephony, contact centres and our rare ability to integrate legacy PBX with more modern collaboration technology, such as Microsoft Teams, helping organisations have the best of both worlds while reducing spend

4. 

"Risk Mitigation as a Service" - an audit and analysis of an organisation's IT environment to highlight risk in areas such as end of life Microsoft software, server & PC hardware, anti-virus protection, patch management, data back-up and Microsoft SharePoint & Teams access

5. 

Network - connecting business premises and enabling home working in the UK and EMEA with bandwidth from 10Mbps to 10Gbps

 

Despite the disruption caused by the pandemic, these campaigns have been well-received and continue to generate promising leads. This is particularly the case in Microsoft working collaboration and cyber security, driven by the change in enterprise IT created by the shift to remote working environments.

 

At this stage, while our primary focus remains optimising the sales function and making sure we do the basics right, we have already had some success in signing larger and longer-term deals, our pipeline of opportunities is growing, and notwithstanding external factors beyond our control, we expect to be in a position to accelerate this as we move into the next financial year.

 

Reducing customer churn

 

The initial steps we have taken to re-organise and re-energise our support teams and reduce response and ticket resolution times have yielded some early results, with positive feedback and a moderate reduction in churn rates. While we are still in the first months after the transaction and continue to navigate the effects of a global pandemic, we have made good progress to date in improving customer satisfaction and are optimistic about our ability to continue to improve retention levels.

 

Reducing costs

 

In the weeks immediately following Adept4's acquisition of CloudCoCo, we undertook a comprehensive spending review across both sites aimed at reducing and optimising costs. This exercise will not only result in a material cost reduction for the current financial year and significant annualised savings, but gave management the opportunity to introduce better and more efficient ways of working.

 

Cost optimisation remains a key objective. Management is partway through a further spending review and expects to be able to report on additional savings in more detail at the full year. 

 

Returning to net cash generation

 

The business is making steady progress in returning to being cash generative. In the six months to 31 March 2020, the net decrease in cash was £37k which was a significant improvement on the six months to September 2019 where the net cash decrease was £530k. Returning the business to profitability at a Trading Group EBITDA level, and not having to pay interest on loan notes for much of the period following the restructure of the Group's debt facilities (see note 8), were key contributory factors.

 

Our people

 

We firmly believe our people are our most important asset in building CloudCoCo into a sustainable growth business. We also believe that high levels of morale lead to high levels of performance, so making the Company a great place to work has been an important priority.

 

In December, as part of the rebranding exercise, we asked colleagues to submit suggestions for how we can improve the working environment - the response was excellent and, while lockdown has slowed the implementation of some initiatives, we are incorporating them where we can.

 

Given the core of colleagues that came over from the legacy Adept4 business have been through a prolonged period of upheaval and uncertainty, their dedication, commitment, and openness to a different way of thinking has been exemplary.

 

Across the business, all of our colleagues have made a huge contribution to the Company since the acquisition and the energy and passion they have shown in coming together and producing results even in a few short months, has been remarkable.

 

On behalf of management I would like to take this opportunity to wholeheartedly thank our colleagues from across the business for the way they have applied themselves and risen to the challenges of the past months. Building a culture and getting everyone to buy into a set of values takes time, but we are proud of the way the team has responded and the progress we are making.

 

Partnership ecosystem

 

A key competitive advantage of CloudCoCo is its diverse ecosystem of partnerships with blue-chip technology vendors.

 

Microsoft collaborative working and Fortinet cyber security are two key growth areas in which we now have a powerful combination of in-house expertise and are continuing to widen and deepen our accreditations. We have seen significant commercial traction with both providers since the acquisition, and expect demand for their solutions to continue to be healthy through and as we begin to emerge from lockdown.

 

Similarly, our relationship with Nyotron continues to develop as evidenced by the Paranoid deals we have signed and the number of joint engagements and marketing ventures we continue to work on.

 

During the period, Zen Internet, a Which? and PC Pro multi-award-winning internet service provider, invited CloudCoCo to be one of ten companies on its partner advisory strategy board and voted it New Partner of the Year.

 

We are constantly looking at ways we can grow our relationships with our partners while enhancing our credentials and look forward to updating shareholders on further positive developments in our partnership ecosystem in the coming months.

 

Office move

 

In June, despite the obvious operational challenges posed by lockdown, we were able to complete the move to our new premises in Leeds. Finding the right location to fit our business plans while providing high quality facilities to support our teams has been high on the management team's agenda since the acquisition, and we are confident we have secured a space that will be an ideal platform from which to service our customers.

 

Management changes

 

The Company's management team has continued to strengthen this calendar year.

 

In March, Mark Halpin, who founded CloudCoCo Limited in 2018 and had been responsible for the Group's business development activities post-acquisition, replaced Andy Mills as CEO with Andy remaining on the board as a non-executive director.

 

In January, the Group appointed Michael Lacey as CFO replacing Jill Collighan who had previously fulfilled the role on a part-time basis. Jill remains on the board as a non-executive director.

 

COVID-19 response

 

Our priority from the outset has been the health and safety of our colleagues, partners, and customers. We transitioned to home working earlier than most businesses in the UK and we have seen minimal impact, with customer support, engineers and sales and marketing teams continuing to function.

 

The Company has taken a number of precautionary actions to ensure the business remains on a sound long-term financial footing including temporary voluntary pay reductions at all levels except those in the lowest earning bracket and the furloughing of some colleagues. These measures are being kept under review.

 

Business planning has been made more challenging by the current situation but by growing recurring revenue and margin and by taking steps to reduce overheads, we believe we are well-positioned to withstand the current situation.

 

Cash flow and debt remain in line with management's expectations and to date have not been materially affected by the pandemic. We have a separate working capital facility of which £0.4m remains unused.

 

Current trading and outlook

 

Initially, at the outbreak of the pandemic, we saw an uptick in trading as businesses and public sector organisations turned to us for additional support and hardware as they transitioned towards remote working. In the months since, while trading has remained generally resilient and we are tracking against budget to the end of June, we are experiencing some industry-wide headwinds as organisations delay and defer IT and communications-related decisions.

 

The impact of a prolonged COVID-19 lockdown on our customers is difficult to forecast, and in turn it is hard for us to be precise about our sales expectations for the rest of the year. However, while it is still only a short while since the acquisition completed - much of which has been spent in lockdown - we are cautiously optimistic and have made an encouraging amount of progress in steadying the ship and laying the foundations for future growth. We will remain focused on our strategic objectives in the second half.

 

We expect demand for our products and services to evolve as organisations seek to adapt to the 'new normal'. IT and communications infrastructure is increasingly extending beyond physical premises and with that comes fresh challenges, particularly around cyber security and collaborative working practices. We believe that through our expert skillset and deep partner relationships with industry-leading providers, we are well-positioned to help organisations meet these challenges.

 

While we should not lose sight of the fact we are still in the early stages of our turnaround story and recognise we are operating against a backdrop of unprecedented uncertainty, we have a talented team in place and are already seeing benefits from the hard work done thus far which gives us confidence that our strategy is the right one.

 

Note to shareholders

 

Since the acquisition, the new management team has been focused on the operations of the business but recognises this has come at the expense of clear and regular communications with shareholders. We are grateful to our investors for their continued support, value their feedback and have appointed external advisors to help us address this. 

 

 

CONSOLIDATED INCOME STATEMENT
for the six-month period ended 31 March 2020

 

 

6 months to 31 March 2020

6 months to 30 September
2019

6 months to 31 March 2019

Year to 30 September 2019

 

Note

£'000

£'000

£'000

£'000

Continuing operations

 

 

 

 

 

Revenue

3

4,430

3,076

4,181

7,257

Cost of sales

 

(2,513)

(1,490)

(2,040)

(3,530)

Gross profit

3

1,917

1,586

2,141

3,727

 

 

 

 

 

 

Administrative expenses

 

(2,083)

(2,065)

(2,318)

(4,383)

Amortisation of intangible assets

7

(799)

(453)

(454)

(907)

Depreciation

 

(28)

(42)

(58)

(100)

Separately identifiable costs

4

(381)

(3,112)

(143)

(3,255)

Share-based income/(payments)

 

26

10

 (81)

(71)

Operating loss

 

(1,348)

(4,076)

(913)

(4,989)

 

 

 

 

 

 

Interest receivable

 

1

1

2

3

Interest payable

 

(227)

(299)

 (303)

(602)

 

 

 

 

 

 

Net finance expense

 

(226)

(298)

(301)

(599)

 

 

 

 

 

 

Loss before taxation

 

(1,574)

(4,374)

(1,214)

(5,588)

 

 

 

 

 

 

Taxation

 5

 150

354

 84

438

Loss and total comprehensive loss for the period attributable to owners of the parent

(1,424)

(4,020)

(1,130)

(5,150)

 

 

 

 

 

 

Loss per share

 

 

 

 

 

Basic and fully diluted

6

(0.31)p

(1.77)p

(0.50)p

(2.27)p

 

 

 

 

 

 

Non-statutory measure: Trading Group EBITDA1

 

 

 

 

 

Operating loss

 

(1,348)

(4,076)

(913)

(4,989)

Plc costs

 

234

229

192

421

Amortisation of intangible assets

7

799

453

454

907

Depreciation

 

28

42

58

100

Separately identifiable costs

4

381

3,112

143

3,255

Share-based (income)/payments

 

(26)

(10)

81

71

Trading Group EBITDA1

 

68

(250)

15

(235)

 

1 earnings before net finance costs, tax, depreciation, amortisation, plc costs, separately identifiable items and share-based
  income and payments

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2020

 

 

 

 

At 30

 

 

At 31 March

At 31 March

September

 

 

2020

2019

2019

 

Note

£'000

£'000

£'000

Non-current assets

 

 

 

 

Intangible assets

7

11,540

7,849

4,394

Property, plant and equipment

 

52

103

62

 

 

 

 

 

Total non-current assets

 

11,592

7,952

4,456

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

52

86

32

Trade and other receivables

 

2,454

2,443

1,489

Cash and cash equivalents

 

274

841

311

 

 

 

 

 

Total current assets

 

2,780

3,370

1,832

 

 

 

 

 

Total assets

 

14,372

11,322

6,288

 

 

 

 

 

Liabilities

 

 

 

 

Short-term borrowings

8

(95)

(32)

(32)

Trade and other payables

 

(1,541)

(1,421)

(876)

Other taxes and social security costs

 

(388)

(373)

(302)

Accruals and deferred income

 

(1,372)

(1,208)

(1,093)

 

 

 

 

 

Total current liabilities

 

(3,396)

(3,034)

(2,303)

 

 

 

 

 

Non-current liabilities

 

 

 

 

Long-term borrowings

8

(3,925)

(4,205)

(4,286)

Deferred tax liability

 9

(1,357)

(1,164)

(810)

 

 

(5,282)

(5,369)

(5,096)

Total liabilities

 

(8,678)

(8,403)

(7,399)

 

 

 

 

 

Net assets

 

5,694

2,919

(1,111)

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

4,952

2,271

2,271

Share premium account

 

16,355

11,337

11,337

Capital redemption reserve

 

6,489

6,489

6,489

Merger reserve

 

1,997

1,997

1,997

Other reserve

 

2,008

1,730

1,720

Retained earnings

 

(26,107)

(20,905)

(24,925)

 

 

 

 

 

Total equity

 

5,694

2,919

(1,111)

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six-month period ended 31 March 2020
 

 

Share
capital
£'000

Share
premium
£'000

Capital
redemption
reserve
£'000
 

Merger
reserve
£'000

Other
reserve
£'000

Retained
earnings
£'000

 

Total
£'000

 

 

 

 

 

 

 

 

At 1 October 2018

2,271

11,337

6,489

1,997

1,649

(19,775)

3,968

Loss and total comprehensive loss for the period

-

-

-

-

-

(1,130)

(1,130)


Transactions with owners

 

 

 

 

 

 

 

Share-based payments

-

-

-

-

81

-

81


Total transactions with owners

-

-

-

-

81

-

81


Total movements

-

-

-

-

81

(1,130)

(1,048)

 

 

 

 

 

 

 

 

Equity at 31 March 2019

2,271

11,337

6,489

1,997

1,730

(20,905)

2,919

         

 

 

 


Share
capital
£'000


Share
premium
£'000

Capital
redemption
reserve
£'000


Merger
reserve
£'000


Other
reserve
£'000


Retained
earnings
£'000


Total
£'000

 

At 1 April 2019

2,271

11,337

6,489

1,997

1,730

(20,905)

2,919

 

Loss and total comprehensive loss for the period

-

-

-

-

-

(4,020)

(4,020)

 

Transactions with owners

 

 

 

 

 

 

 

 

Share-based payments

-

-

-

-

(10)

-

 

Total transactions with owners

-

-

-

-

(10)

-

(10)

 

Total movements

-

-

-

-

(10)

(4,020)

(4,030)

 

Equity at 30 September 2019

2,271

11,337

6,489

1,997

1,720

(24,925)

(1,111)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

 

Share

Share

redemption

Merger

Other

Retained

 

 

 

capital

premium

reserve

reserve

Reserve

earnings

Total

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

At 1 October 2019

2,271

11,337

6,489

1,997

1,720

(24,925)

(1,111)

 

Loss and total comprehensive loss for the period

-

-

-

-

-

(1,424)

(1,424)

 

Transactions with owners

 

 

 

 

 

 

 

 

Issue of 50,000,000 shares to BGF at 0.35p per share and exceptional gain on write-off of BGF Loan Notes at fair value.

500

-

-

-

556

-

1,056

 

Issue of 218,160,586 shares to CloudCoCo vendors at 3.3p per share

2,181

5,018

-

-

-

-

7,199

 

Cancellation of 11,353,255 share warrants held by MXC Guernsey on acquisition of CloudCoCo Ltd

-

-

-

-

(242)

242

-

 

Share-based income

-

-

-

-

(26)

-

(26)

 

Total transactions with owners

2,681

5,018

-

-

(268)

242

8,229

 

Total movements

2,681

5,018

-

-

(268)

(1,182)

6,805

 

 

 

 

 

 

 

 

 

 

Equity at 31 March 2020

4,952

16,355

6,489

1,997

2,008

(26,107)

5,694

                 
 

 CONSOLIDATED STATEMENT OF CASH FLOWS
for the six-month period ended 31 March 2020

 

 

6 months to 31 March 2020

6 months to 30 September
2019

6 months to 31 March 2019

Year to 30 September 2019

 

£'000

£'000

£'000

£'000

Cash flows from operating activities

 

 

 

 

Loss before taxation

(1,574)

(4,374)

(1,214)

(5,588)

Adjustments for:

 

 

 

 

Depreciation

28

42

58

100

Amortisation

799

453

454

907

Share-based (income)/payments

(26)

(10)

81

71

Net finance expense

226

298

301

599

Costs relating to acquisition of CloudCoCo Limited

346

-

-

-

Settlement of Warranty Claim

-

600

-

600

Impairment of goodwill

-

3,021

-

3,021

(Increase)/decrease in trade and other receivables

(567)

354

457

811

(Increase)/decrease in inventories

(20)

54

(60)

(6)

Increase/(decrease) in trade payables, accruals and deferred income

756

(711)

(334)

(1,045)

Net cash used in operating activities

(32)

(273)

(257)

(530)

Cash flows from investing activities

 

 

 

 

Purchase of property, plant and equipment

(15)

(1)

(15)

(16)

Costs relating to acquisition of CloudCoCo Limited

(346)

-

-

-

Acquisition of CloudCoCo Limited, net of cash acquired

157

-

-

-

Purchase of Intangible assets

-

(40)

-

(40)

Interest received

1

1

2

3

Net cash used in investing activities

(203)

(40)

(13)

(53)

Cash flows from financing activities

 

 

 

 

Issue of shares under BGF share option scheme

175

-

-

-

Receipt of loan funds from MXC Capital

100

-

-

-

Payment of finance lease liabilities

(49)

(18)

(12)

(30)

Interest paid

(28)

(199)

(204)

(403)

Net cash used in financing activities

198

(217)

(216)

(433)

Cash flows from discontinued operations

 

 

 

 

Settlement of dispute regarding Pinnacle CDT Limited

-

-

(100)

(100)

Net cash used in discontinued operations

-

-

(100)

(100)

Net decrease in cash

(37)

(530)

(586)

(1,116)

Cash at bank and in hand at beginning of period

311

841

1,427

1,427

Cash at bank and in hand at end of period

274

311

841

311

Comprising:

 

 

 

 

Cash at bank and in hand

274

311

841

311

 

 

NOTES TO THE FINANCIAL INFORMATION
for the six-month period ended 31 March 2020

1.  General Information


CloudCoCo Group plc is a company incorporated in the United Kingdom under the Companies Act 2006. The principal activity of the group is the provision of IT as a Service ("ITaaS") to small and medium sized businesses in the United Kingdom. The interim financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which each of the Group's subsidiaries operates.

 

  The address of its registered office is 5 Fleet Place, London, EC4M 7RD and its principal places of business are Leeds and Warrington. The company is quoted on AIM, the market of that name operated by the London Stock Exchange, under ticker symbol CLCO.L

 

These interim financial statements contain inside information.

 

2.  Basis of preparation 

The annual financial statements of the Group are prepared in accordance with applicable International Financial Reporting Standards (IFRSs) as adopted by the EU and in accordance with the Companies Act 2006. The interim financial information in this report has been prepared using accounting standards consistent with IFRS as adopted by the European Union.  IFRS is subject to amendment and interpretation by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee and there is an ongoing process of review and endorsement by the European Commission.  The financial information has been prepared on the basis of IFRS that the Directors expect to be adopted by the European Union and applicable at 30 September 2020.

 

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ("the Act").  The statutory accounts for the year ended 30 September 2019 have been filed with the Registrar of Companies.  The report of the auditors on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act. The financial information for the six months ended 31 March 2020 and 31 March 2019 is unaudited.

 

The accounting standards applied by the Group in these interim financial statements are the same as those applied by the Group in the consolidated financial statements for the year ended 30 September 2019 with the exception of IFRS 16 Leases (effective for accounting periods commencing on or after 1 January 2019).

 

Using the modified retrospective method, we assessed the impact of IFRS 16 and confirm that no material changes were required to the Group's financial results. 

Under IFRS 16 there is a standard accounting model for lessees. As lessees we are obliged to recognise assets and liabilities for all leases over twelve months unless the underlying asset has a low value. Under IFRS 16 we recognise an asset reflecting our right to use the underlying leased object, in addition to the lease liability, reflecting our obligation to make the lease payments. The main impact of IFRS 16 is around property leases, of which the Group currently has two.

 

Business planning has been made more challenging by the current Covid-19 situation but by growing recurring revenue and margin together with taking steps to reduce overheads, we believe we are well-positioned to withstand the current situation. After reviewing budgets, forecasts and cash projections for the next twelve months and beyond, the Directors have a reasonable expectation that the Group has adequate resources to continue operations for the foreseeable future and for this reason they have adopted a going concern basis in preparing the interim financial statements.

 

The interim financial statements were approved by the Board of Directors on 29 June 2020.

 

 

3.  Segment Reporting


The Chief Operating Decision Maker ("CODM") has been identified as the executive directors of the Company and its subsidiaries, who review the Group's internal reporting in order to assess performance and to allocate resources.

 

The CODM assesses profit performance principally through adjusted profit measures consistent with those disclosed in the Annual Report and Accounts. The Board believes that the Group comprises a single reporting segment, being the provision of IT managed services to customers. Whilst the CODM reviews the revenue streams and related gross profits of three categories separately (Recurring Services, Product and Professional Services), the operating costs and operating asset base used to derive these revenue streams are the same for all three categories and are presented as such in the Group's internal reporting. Accordingly, the segmental analysis below is therefore shown at a revenue and gross profit level in line with the CODM's internal assessment based on the following reportable operating segments: 
 

• Recurring Services  This segment comprises the provision of continuing IT services which have
  an ongoing billing and support element.

• Product  This segment comprises the resale of solutions (hardware and software)
  from leading technology vendors.

• Professional Services  This segment comprises the provision of highly skilled resource to consult,
  design, install, configure and integrate IT technologies.

 

All revenues are derived from customers within the UK. Inter-segment transactions are accounted for using an arm's length commercial basis.

 

3.1 Analysis of revenue

 

6 months to

6 months to

6 months to

Year to

 

 

31 March

30 September

31 March

30 September

 

 

2020

2019

2019

2019

 

 

£'000

£'000

£'000

£'000

By operating segment

 

 

 

 

 

Recurring services

 

2,785

2,131

3,022

5,153

Product

 

1,208

612

793

1,405

Professional services

 

437

333

366

699

Total revenue

 

4,430

3,076

4,181

7,257

 

 

 

 

 

 

3.2 Analysis of gross profit

 

6 months to

6 months to

6 months to

Year to

 

 

31 March

30 September

31 March

30 September

 

 

2020

2020

2020

2019

 

 

£'000

£'000

£'000

£'000

By operating segment

 

 

 

 

 

Recurring services

 

1,343

1,229

1,667

2,896

Product

 

259

111

167

278

Professional services

 

315

246

307

553

Total gross profit

 

1,917

1,586

2,141

3,727

 

 

 

 

 

 

 

 

 

 

 

 

 

4.  Separately identifiable costs
 

During the period, the Group incurred the following separately identifiable costs which are material by their size or incidence:

 


6 months to 
31 March
2020
£'000


6 months to 
30 September
2019
£'000


6 months to 
31 March
2019
£'000


Year to
30 September
2019
£'000

 

 

 

 

 

Costs in relation to M&A activities

(346)

-

-

-

Impairment of goodwill and intangible assets

-

(3,021)

-

(3,021)

Foreign exchange rate variances

-

(8)

-

(8)

Integration and restructure costs

(35)

(83)

(143)

(226)

Separately identifiable costs

(381)

(3,112)

(143)

(3,255)



5.  Taxation

 

6 months to 

6 months to 

6 months to 

Year to

 

31 March

30 September

31 March

30 September

 

2020

2019

2019

2019

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Current tax

 

 

 

 

UK corporation tax for the period on continuing operations

-

-

-

-

 

 

 

 

 

Deferred tax credit

 

 

 

 

Deferred tax credit on intangible assets from continuing operations


150

 

354

 

84

 

438

 

 

 

 

 

Total taxation credit for the period

150

354

84

438

 

6.  Loss per share

 


6. Loss per share

6 months to

6 months to

6 months to

Year to

 

31 March

30 September

31 March

30 September

 

2020

2019

2019

2019

 

p/share

p/share

p/share

p/share

Basic and fully diluted - continuing operations

(0.31)

(1.77)

(0.50)

(2.27)

 

£000

£000

£000

£000

Loss on continuing operations

(1,424)

(4,020)

(1,130)

(5,150)

Weighted average number of shares in issue:

 

 

 

 

Basic and fully diluted

461,720,917

227,065,100

227,065,100

227,065,100

 

The weighted average number of ordinary shares for the purpose of calculating the basic and diluted measures is the same. This is because the outstanding share incentives would have the effect of reducing the loss per ordinary share and therefore would be anti-dilutive under the terms of IAS 33.

 

7. Intangible assets

Goodwill

IT, billing and
website
systems

Brand

Customer lists

Total

 

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

At 1 October 2018

4,447

142

1,157

7,580

13,326

Additions

-

21

-

-

21

At 31 March 2019

4,447

163

1,157

7,580

13,347

 

 

 

 

 

 

Additions

-

19

-

-

At 30 September 2019

4,447

182

1,157

7,580

13,366

 

 

 

 

 

 

Additions

3,845

-

700

3,400

7,945

At 31 March 2020

8,292

182

1,857

10,980

21,311

 

 

 

 

 

 

 

 

 

 

 

 

Amortisation

 

 

 

 

 

At 1 October 2018

(2,844)

(27)

(265)

(1,908)

(5,044)

Charge for the period

  -

  (15)

(57)

(382)

(454)

At 31 March 2019

(2,844)

(42)

(322)

(2,290)

(5,498)

 

 

 

 

 

 

Impairment charge

(1,603)

-

(225)

(1,193)

(3,021)

Charge for the period

-

(5)

(58)

(390)

(453)

At 30 September 2019

(4,447)

(47)

(605)

(3,873)

(8,972)

 

 

 

 

 

 

Charge for the period

(249)

(9)

(81)

(460)

(799)

At 31 March 2020

(4,696)

(56)

(686)

(4,333)

(9,771)

 

 

 

 

 

 

Net Book Value

 

 

 

 

 

At 31 March 2019

1,603

121

835

5,290

7,849

At 30 September 2019

-

135

552

3,707

4,394

At 31 March 2020

3,596

126

1,171

6,647

11,540

 


 

 

 

7.1 Acquisition of CloudCoCo Limited
 

On 21 October 2019, the Group acquired the entire issued share capital of CloudCoCo Limited for a total consideration of £7.2 million at fair value in accordance with IFRS 3. The consideration was satisfied in full by the issue of 218,160,586 new Ordinary Shares at 3.3p per share (being the mid-market price on the date of the acquisition). The Group has assessed the provisional fair value of the acquisition of CloudCoCo Limited as follows:

 


 

Book
Cost

 

Provisional
Fair Value
Adjustment

 

Provisional
Fair Value

 

£'000

 

£'000

 

£'000

Non-current assets

 

 

 

 

 

 

Intangible assets

-

 

4,100

 

4,100

 

Property, plant and equipment

3

 

-

 

3

 

Total non-current assets

3

 

4,100

 

4,100

 

Current assets

 

 

 

 

 

 

Trade and other receivables

383

 

-

 

383

 

Cash at bank

157

 

-

 

157

 

Total current assets

540

 

-

 

540

 

Total assets

543

 

4,100

 

4,643

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Short-term borrowings

(63)

 

-

 

(63)

 

Trade and other payables

(159)

 

-

 

(158)

 

Other taxes and social security costs

(24)

 

-

 

(24)

 

Deferred Income and accruals

(205)

 

-

 

(205)

 

Total current liabilities

(451)

 

-

 

(451)

 

Total non-current liabilities

 

 

 

 

 

 

Long term borrowings

(141)

 

-

 

(141)

 

Deferred Tax Liability

-

 

(697)

 

(961)

 

Total liabilities

(592)

 

(697)

 

(1,553)

 

Net (Liabilities) / Assets

(49)

 

3,403

 

3,354

 

Consideration in cash

 

 

 

 

-

 

Consideration in shares

 

 

 

 

7,199

 

Fair value of cost of acquisition

 

 

 

 

7,199

 

Goodwill 

 

 

 

 

3,845

 

        

 

 

 

 

8.   Borrowings

 

At

31 March
2020

£'000

At  31 March
2019

£'000

At

30 September
2019

£'000

 

Short-term borrowings

 

 

 

Finance lease liability - short term element

95

32

32

Total short-term borrowings

95

32

32


Long-term borrowings

 

 

 

Finance lease liability - long term element

137

34

16

BGF loan notes repayable to BGF

-

5,000

5,000

MXCG loan notes repayable 2024

3,500

-

-

Interest accrued on MXCG loan notes at 12% per annum

188

-

-

MXCG 24 month Working capital facility at 12% per annum

100

-

-

Warrant adjustment relating to BGF loan notes

-

(829)

(730)

Total long-term borrowings

3,925

4,205

4,286

 

 

On 21 October 2019, pursuant to the debt refinancing agreement entered into as part of the acquisition of CloudCoCo Limited, £1.5 million of the BGF loan notes were cancelled, thereby reducing the liability to the Group. The remaining £3.5 million of loan notes were purchased by MXC Guernsey Limited (MXCG) and were amended to a term of five years, with a coupon of 12% per annum, which is to be rolled up, compounded annually and payable at the end of the term.

 

In addition, MXCG agreed to provide an additional unsecured working capital facility to the Group of up to £0.5 million, with a term of 24 months and interest charged at a rate of 12% per annum on amounts drawn down, payable monthly.

 

9.   Deferred tax

 


 

 

 

 

 

 

At
31 March  2020

At
31 March
2019

At   30 September
2019

 

 

£'000

£'000

£'000

Provision brought forward

 

810

1,248

1,248

Additions relating to acquisition of subsidiary

 

697

-

-

Credits to income statement - on intangibles

 

(150)

(84)

(438)

Provision carried forward

 

1,357

1,164

810

 

 

 

 

 

 

 


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END
 
 
IR FIFIIRVIIVII

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