CLOUDCOCO GROUP PLC
Annual Report 2019
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“ W E A R E U LT R A- R E S P O N S I V E , D I F F E R E N T
I N O U R A P P R O A C H A N D C R E AT I V E .
W E E N G A G E Q U I C K LY A N D A I M T O
D E L I G H T A LWAY S B Y B U I L D I N G
PA S S I O N AT E W O R K I N G R E L AT I O N S H I P S
W I T H O U R P R O S P E C T S , C L I E N T S ,
C O N N E C T I O N S A N D C O L L A B O R AT I V E
PA R T N E R S .
W E W I L L C O N T I N U E T O G E N E R AT E
F A N TA S T I C R E S U LT S F O R T H E P E O P L E
W H O T R U LY B E L I E V E I N U S A N D A C T I N A
U N I Q U E , E N E R G E T I C , F L E X I B L E A N D
T R A N S PA R E N T WAY AT A L L T I M E S .
T H E F U T U R E S TA R T S N O W ”
A n d y M i l l s – C E O
Contents
Strategic report
2
4
6
7
Chairman’s statement
Business overview
Financial review
Risks and risk management
Corporate governance
9
10
14
16
18
Board of Directors
Corporate governance report
Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Financial statements
19
23
24
25
26
27
47
50
51
52
57
Independent Auditor’s report
Consolidated income statement
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Independent Auditor’s report (parent company)
Statement of financial position (parent company)
Statement of changes in equity (parent company)
Notes to the parent company financial statements
Directors, Secretary and advisers
CloudCoCo Group plc Annual Report 2019
1
Chairman’s statement
The last few months have seen significant change for CloudCoCo Group plc (formerly Adept4 plc) (“Adept4” or the “Company”, and
together with its subsidiaries the “Group”) as we begin our journey of returning the Group to growth, profitability and delivering
improved shareholder value.
Following the acquisition of CloudCoCo Limited on 21 October 2019, the Company's name was changed to CloudCoCo Group plc
(“CloudCoCo Group”) on 29 November 2019. The results contained within this report reflect trading for the year ended 30 September
2019 (“FY19”) and as such relate to the period prior to the recent changes within the business. The Company is therefore referred
to under its former name of Adept4 in the context of last year’s performance.
As the challenges of FY19 have been well-documented in previous shareholder reports and detailed commentary is provided
elsewhere, I have instead focused on the steps taken by the Board to move the Group forward in a positive way.
Overview and strategy
As previously reported, the Group has been challenged in the recent past by the general level of economic uncertainty in the market
coupled with the investments made in a new sales team during the previous financial years not delivering the results the Board had
expected. Continued delays in new sales in FY19 led to the Group experiencing monthly Trading Group EBITDA1 and cash losses.
As a result, and in order to protect the cash reserves of the Group whilst the Board considered the strategic options available to the
Company, the decision was taken to focus on the Group’s existing customer base with less emphasis on new business acquisition.
Whilst this led to reduced revenue and gross profit, it requires a significantly lower operating cost base and therefore a cost reduction
programme was implemented which completed in March 2019.
The performance of the Group was further affected by the loss, in April 2019, of a customer contract which had generated £0.7
million of revenue in the year ended 30 September 2018. The combined effect of these changes meant that during the year, the
Group returned to modest levels of monthly Trading Group EBITDA profit generation and reduced levels of monthly net cash outflows
(after plc costs and debt service costs).
The Company explored several strategic options and the Board concluded that the acquisition of CloudCoCo Limited (“CloudCoCo”)
(the “Acquisition”) represented the best opportunity to return to growth and generate long-term value for all stakeholders.
CloudCoCo was established in September 2017 and started trading in April 2018. It was formed by the former sales directors of
Redcentric plc (a UK managed service provider) and offers a variety of cloud computing services, IT hardware, managed IT services,
voice and connectivity solutions via its partner ecosystem, aiming to provide its customers with a simplified approach to IT services.
Though only recently established, CloudCoCo has a very strong and experienced sales and business development team which had
already shown its ability to win new business using its agile sales methodology.
The Acquisition completed on 21 October 2019 and was facilitated by the issue of 218,160,568 ordinary shares of 1 penny each in
the share capital of the Company, representing a total value of £7.2 million at completion. At the same time Andy Mills, Chairman of
CloudCoCo, joined the board of Adept4 as Chief Executive Officer.
We are pleased with the progress Andy and the senior management teams of both businesses have made so far. Some details of
the progress to date are given below and we look forward to updating the market further as the team continue to make progress.
Financing
In 2016, the Company issued unsecured loan notes with a value of £5.0 million to BGF Investments L.P. (“BGF”). These loan notes
were repayable between 2021 and 2023 and carried a coupon of 8% per annum, payable quarterly. In addition, BGF held 50 million
options in the Company at an exercise price of 6 pence per share.
On completion of the Acquisition, £1.5 million of the loan notes were waived and cancelled by BGF, reducing the Company’s liability
to £3.5 million. MXC Guernsey Limited, a wholly owned subsidiary of MXC Capital Limited (“MXC”), who currently hold 15.2% of the
shares in the Company, purchased the remaining £3.5 million loan notes from BGF and restructured their terms. The loan notes now
carry a coupon of 12% per annum which is rolled up, compounded annually and payable only at the end of the term. The term of the
loan notes has been extended to October 2024 with no repayment due until that date unless the Company chooses to repay early.
At the same time, MXC extended a £0.5 million, 2 year, working capital facility to the Company with interest charged at a rate of 12%
per annum on amounts drawn down.
As part of the refinancing package, MXC also cancelled the warrants it held over 5% of the then issued and to be issued share
capital of Adept4 and BGF’s options were repriced to 0.35 pence. BGF exercised all of its options in October 2019 (and sold the
resulting shares issued) and, as MXC no longer holds warrants in the Company, the only obligations over the Company’s shares
are in respect of outstanding staff share options. As part of the Acquisition, the Board agreed to put in place a management incentive
scheme over an amount equal to up to 15% of the Company’s post-Acquisition share capital to motivate and retain certain key staff.
It is envisaged that this scheme will be implemented during the current financial year.
People
Having the right management team in place is key to the success of our business. The Acquisition brought a strong team which have
been able to complement and enhance our existing management team. Andy Mills, former Chairman of CloudCoCo, has joined the
Board of Adept4 as Chief Executive Officer, focussing on driving the growth of the enlarged Group. Mark Halpin (founder and former
Chief Executive Officer of CloudCoCo) is leading the Group’s business development activities.
The Company has recently announced a further key appointment, with Mike Lacey taking on the role of full time Chief Financial
Officer (“CFO”), a role previously performed on an interim, part-time basis by Jill Collighan, CFO of MXC. Jill will continue on the
Board as a non-executive director.
CloudCoCo Group plc Annual Report 2019
2
Chairman’s statement (continued)
We previously announced Tom Black’s intention to step down from the Board as a non-executive director once a suitable
replacement has been found. The search for a replacement for Tom is well underway and he will therefore stand down as a non-
executive director at this year’s Annual General Meeting. I would like to place on record my thanks to Tom for all of his work over
the past 7 years and especially during the recent difficult times.
Given the enormous change which has taken place within Adept4 in the past year, I would, once again, like to take this opportunity
to thank our dedicated staff. There have been many examples of our people simply continuing to work very hard to produce great
outcomes for our customers despite the significant challenges we have faced, and I would like to assure them of the Board’s
appreciation.
FY19 results
As explained above, the challenges of the past few years have been well-documented and significant change has already been
effected in the Company in the first few months of the current financial year. The Acquisition was completed 3 weeks after the end
of FY19, with the new management team therefore only joining after the year end. As stated above, these results therefore reflect
the performance of the legacy Adept4 business only and for that reason, to avoid any confusion, the Company is referred to under
its former name of Adept4 in the context of last year.
As a result of the Board’s decision to focus on existing customers rather than the generation of new sales, together with the loss of
the customer announced in April 2019, revenue for FY19 decreased to £7.3 million (2018: £10.2 million) with gross profits of £3.7
million (2018: £5.7 million).
Trading overheads fell by 23% to £4.0 million (2018: £5.1 million), reflecting the cost reduction programme undertaken during the
year. The resultant Trading Group EBITDA for the year was a loss of £0.2 million (2018: profit of £0.6 million).
After all costs and income, including, inter alia, restructuring costs and an impairment charge of £3.0 million (2018: £2.6 million) in
respect of the Group’s intangible assets in its legacy businesses (see Note 10), the operating loss for the year was £5.0 million (2018:
loss of £3.4 million) with a retained loss for the year after tax of £5.2 million (2018: loss of £3.8 million).
Post-year end progress
Significant work has been undertaken since the completion of the Acquisition. The rebrand of the Group to CloudCoCo and the
change of the Company’s name to CloudCoCo Group plc were completed on 29 November 2019 at which point the Group’s new
website was launched. The staff from both companies are integrating well, leading to a more-settled team. Steady progress has
been made with improving customer service which in turn is leading to improved relationships with customers and is opening up new
opportunities within the base.
The strong sales pedigree of the CloudCoCo team is already being proven as the number, and value, of sales opportunities grow.
The team has already had success securing wins with six new customers, including one of the UK’s largest automotive dealers,
competing against large traditional IT services companies, leveraging our security solutions and vendor partnerships.
The entire team is focussed on the four key objectives of the business for the new financial year. These are:
Increasing sales;
1.
2. Reducing customer churn;
3. Reducing costs whilst ensuring the business can deliver high levels of service; and
4. Returning to net cash generation.
Whilst seemingly simple objectives, it is important that the business returns to basics to ensure the underpinning fundamentals are
right in order to drive improved performance. All staff are focused on the delivery of these objectives and the benefits are already
being seen. Performance against these objectives will be detailed in subsequent reports on a continuing basis. The Group has
achieved management’s forecasts for the first quarter of the new financial year and work continues to strengthen its propositions in
key growth areas of security and hybrid cloud computing.
Outlook
The past couple of years have clearly been extremely challenging for the business. However, with the acquisition of CloudCoCo we
believe we now have the right platform and the right team to re-invigorate the business. There are significant opportunities to improve
performance by increasing customer satisfaction through improved customer service, which will enable more sales to the existing
customer base as well as driving new customer sales. In addition, by harnessing CloudCoCo’s proven and experienced salesforce
with our existing operations, we believe that there is a clearly defined opportunity to return the Group to growth whilst benefitting from
the headroom the refinancing has provided us. We can now look forward with renewed confidence.
Simon Duckworth
Non-Executive Chairman
14 February 2020
1earnings before net finance costs, tax, depreciation, amortisation, plc costs, separately identifiable items and share-based payments
(see calculation on page 23)
CloudCoCo Group plc Annual Report 2019
3
Business overview
What we do
First and foremost, CloudCoCo Group is a people-led business. With a skilled team of Microsoft, cloud, telephony, hardware, cyber
security, support and connectivity experts we unlock business optimisation and transformation, team-working, cost savings,
streamlined workflows and innovative solutions to business problems for clients of all sizes.
The Group’s knowledge, gained through employees with multiple years of industry experience, helps our customers create a
competitive edge, by providing IT solutions that underpin and support our customers’ business activities. We have a burning passion
to delight people with every aspect of our service and provide the alternative to the archaic managed IT services models. We also
champion putting the power back into the hands of customers, offering easy-to-use self-service options and knowledge and skills
transfer.
At CloudCoCo Group we seek to be highly responsive and provide customers with modern and innovative solutions to achieve their
objectives, achieved through collaborative partnerships with IT solution and service providers, distributors and vendors. Our 24/7 UK
response team, together with our strategic consulting and professional services team, provides exactly what businesses need from
IT right now and into the future.
The revenue generated by CloudCoCo Group typically comes from three core areas of our business: contracted recurring managed
services, professional services and the sale of associated hardware and other products.
As many of the Enterprise-class technologies which underpin our product suite can be provided “as a service”, we provide our clients
with exactly what is required to support their needs in accordance with business demands, billed on a monthly basis, based on what
is consumed.
Our market
The CloudCoCo Group customer base spans all aspects of the UK market and the requirements for each can be quite different. We
typically see businesses more inclined to look for a single organisation to provide as many services as possible across IT, telephony
and connectivity providing them with a “one stop shop” approach. As we move towards the medium and large enterprise clients, we
typically see these look to a more specialist provider for different aspects of the services they require. These customers will generally
start with a specific service from CloudCoCo Group which addresses a particular business need and will then engage in additional
solution discussions once the initial service is being successfully delivered. With the depth and breadth of our technology offering,
together with our specialist teams and our flexible service options, we are ideally placed to grow our existing enterprise accounts
whilst continuing to service and support our overall base.
In addition to its private sector customer base, the Group has a number of public sector clients and we have experienced an increase
in requests to transact business through recognised government procurement frameworks.
Our technology
As part of our drive to engage quickly and delight our customers, we have continued the development of our technical skills,
accreditations, competencies and our engagement with key vendor partners across our key strategic managed service sectors.
We utilise industry leading technology products and services from a number of vendor partners, including Microsoft, Mitel and Fortinet
in delivering our managed service offering.
This year we have been awarded the Microsoft “Gold Cloud Platform” competency, which validates our continuously evolving tech
intensity in cloud technologies, identity management, systems management, virtualisation, storage and networking. We have also
secured “Silver Data Platform” partner status which demonstrates our competencies in collecting and managing diverse data types
and versatile database platforms. As a business we have also retained two further Microsoft silver competencies in Application
Development and Cloud Solutions.
Telephony services continue to drive strong opportunities for the Group, in both the traditional telecoms market – where we sell,
install and support systems from Mitel, a market leading voice technology company – and in new technologies, such as integrated
solutions from Microsoft based on their Teams unified communication and collaboration platform. We increasingly see customers
looking to introduce Microsoft Teams into their business as the basis for modernised team working. We have added further
functionality to our offering, with the introduction of a contact centre product called Anywhere365. This software application, which
works directly with Microsoft Teams, provides additional multichannel communication functionality (telephone, text, e-mail, social
media and web chat). With the Group’s capability across the telephony market, we are ideally placed to continue to sell to and support
clients requiring traditional infrastructure and provide a migration strategy for those that want to move to the new collaboration
platforms.
CloudCoCo Group continues to see significant interest across its security portfolio, including the innovative Paranoid EPR (Endpoint
Protection & Response) solution from US based company Nyotron. This interest has led to introductions into large enterprise
organisations and businesses that are currently at varying stages of the sales cycle. The Group continue to have exclusivity within
the UK for Paranoid, whilst also making sales in mainland Europe over recent months. The Paranoid solution’s approach to post
execution damage protection provides CloudCoCo Group with clear differentiators and offers a unique selling point against alternative
solutions available.
CloudCoCo Group plc Annual Report 2019
4
Business overview (continued)
Additionally, in the cyber security market, we have built on our strong relationship with Fortinet to sell security and threat detection
solutions. Given our post year sales success, we are due to become a Fortinet Gold partner and have already executed on some of
our healthy growing pipeline in this area.
The need to interrogate data from multiple applications, information stores and bring this all together to provide analytical intelligence,
collaboration and real-time reporting is driving new conversations in our customer base, especially with the ability to use tools such
as PowerBI and PowerApps, and this is expected to provide the Group with new revenue streams. We have a team of in-house
developers and, additionally, we have agreed a partnership with a "nearshore" development provider to supplement our own software
development capabilities in a cost efficient and scalable manner to allow us to maximise revenue opportunities.
Summary and outlook
As detailed above, we have made progress against our key objectives during the year, but this was tempered by certain challenges
faced by the Group. Going forward, following the acquisition of CloudCoCo Limited and our debt refinancing, we look forward with
renewed confidence. The priorities are to maintain our strong relationships with existing customers, and to re-energise new sales
generation through a strengthened sales team.
CloudCoCo Group plc Annual Report 2019
5
Financial review
Revenue and gross margin
As detailed in the Chairman’s statement, following the decision to focus on existing customers rather than new sales generation,
Group revenue for the year to 30 September 2019 was below that generated in the previous financial year, at £7.3 million (FY18:
£10.2 million). This produced a gross profit of £3.7 million (FY18: £5.7 million) representing a gross margin of 51.4% (FY18: 56.0%).
The reduction in margin predominantly relates to the recurring services segment, as explained below.
The analysis of revenue and gross profit from each of our operating segments of recurring services, product sales and professional
services is shown in Note 3 and is detailed below.
Recurring services
Revenues from recurring services were £5.2 million (FY18: £7.1 million), generating a gross profit of £2.9 million (FY18: £4.2 million)
and a gross margin of 56% (FY18: 60%). We continue to see a reduction in the gross profit from recurring services due to the
migration of certain services from our infrastructure to that of a third party (such as Microsoft), in line with our asset-light strategy.
Whilst initially resulting in some margin reduction, this strategy reduces risk and cost of ownership for us and allows us to provide
customers with best-of-breed solutions with the ability to sell a wider range of services to the customer. Our revenue in this sector
was further affected by the cancellation of a contract by a major customer who generated £0.7 million of revenue in FY18, as
announced on 8 April 2019. We continue to dispute the validity of the cancellation of this contract and are currently seeking legal
redress.
The proportion of our total revenue derived from recurring services continued to be high at 71% (FY18: 70%).
Product sales
Consistent with our strategy of focussing on sales with existing customers, revenues from product sales were lower than those in
FY18 at £1.4 million (FY17: £2.0 million) generating a gross profit of £0.3 million (FY18: £0.4 million) and gross margin of 20% (FY18:
22%).
Professional services
Revenues from professional services were £0.7 million (FY18: £1.1 million) generating a gross profit of £0.6 million (FY18: £1.0
million) as permanent employee costs are included in overheads. Following our cost reduction programme, certain projects are now
outsourced using third party contractors, resulting in a fall in margin to 79% (FY18: 94%).
Operating performance, costs and EBITDA
Aside from revenue, gross profit and cash balances, one of our main financial key performance indicators is our Trading Group
EBITDA – our operational trading performance before plc costs.
Excluding plc costs of £0.4 million (FY18: £0.5 million) and following the successful implementation of our cost reduction programme,
our trading overheads during the year fell by 23% to £4.0 million (FY18: £5.1 million), of which staff costs comprised 84% (FY18:
88%). As a result of the cost reduction programme, during the year the Group returned to modest levels of monthly Trading Group
EBITDA profit, however, the total Trading Group EBITDA for the year was a loss of £0.2 million as a result of an increase in certain
provisions following a year-end review (FY18: £0.6 million profit).
Separately identifiable items
During the year we incurred certain costs which were not directly related to the generation of revenue and trading profits. Given their
size and nature, they have been classified as separately identifiable items within the Consolidated Income Statement. These items
totalled £3.2 million of which £3.0 million relates to the impairment of goodwill and other intangible assets on previous acquisitions
and £0.2 million relates to integration and reorganisation costs.
Net finance expenses
During the year the Group incurred net finance costs of £0.6 million (FY18: £0.6 million). £0.4 million of this was a cash cost in relation
to the interest on the BGF loan notes and £0.2 million related to the release to the income statement of the fair value adjustments in
respect of these loan notes.
Loss for the period
The Group incurred non-cash costs including total amortisation and depreciation charges of £1.0 million (FY18: £1.0 million) and a
share-based payments charge of £0.1 million (2018: £0.1 million). After accounting for a deferred tax credit of £0.4 million (2018:
£0.2 million) the reported loss for the year after tax was £5.2 million (FY18: £3.8 million).
Statement of Financial Position and cash
Cash balances at 30 September 2019 were £0.3 million (FY18: £1.4 million) whilst net debt was £4.0 million (FY18: £2.7 million). Net
debt comprises cash balances of £0.3 million less the fair value of the BGF loan notes of £4.3 million.
The main components of the Group’s cash flows during the year were as follows:
cash used in operating activities of £0.6 million (after the payment of separately identifiable costs of £0.2 million and plc costs
of £0.4 million);
£0.1 million settlement of Chess dispute paid in October 2018; and
financing interest payments of £0.4 million.
At 30 September 2019, following the impairment charge in respect of its intangible assets, the Group had negative net assets of £1.1
million (FY18: net assets of £4.0 million).
Post-period end, in October 2019, significant refinancing took place as part of the Acquisition. Further details are given in the
Chairman’s statement and in Note 23. As a result of this refinancing, together with the Acquisition, the Group has now returned to a
positive net asset position.
CloudCoCo Group plc Annual Report 2019
6
Risks and risk management
Principal risks and uncertainties
The Group is affected by a number of risks and uncertainties, not all of which are wholly within its control as they relate to the wider
macroeconomic and legislative environment within which the Group operates. In addition, we have seen caution evident in some of
our target markets due to the uncertainty surrounding Brexit.
The Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. Responsibility for
implementing sound and effective systems of internal control has been delegated by the Board to senior management. The purpose
of the system of internal control is to manage and mitigate rather than entirely eliminate the risk of failure to achieve business
objectives and can only provide reasonable, but not absolute, assurance against material misstatement or loss.
The Directors have established an organisational structure with clear operating procedures, lines of responsibility and delegated
authority. There are clear procedures for capital investment appraisal and approval, contract risk appraisal and financial reporting
within a comprehensive financial planning and accounting framework.
The Group’s risk register is reviewed on a quarterly basis for additions, changes and mitigation strategies. This review is overseen
by the Company Secretary, who ensures the appropriate level of action and reports by exception to the Board.
Given the size of the Group it is not considered necessary to establish an internal audit function.
The key financial risks of the Group are detailed in Note 22 to the consolidated financial statements. The key non-financial risks that
the Group faces are listed below.
Non-financial risks
The key operational risk the Group faces is the general economic outlook. The Group has chosen to invest in a sector that has shown
resilience through the economic cycle; however, there is no guarantee that this can continue and, should there be a reduction in
demand in this sector, then revenues, margin, profitability and cash flow could all be affected adversely.
This following list highlights the key risks and uncertainties that the Group can seek to mitigate by a choice of appropriate strategies;
however, this list is not intended to be exhaustive.
Reputational risk
The nature of the Group’s business is such that it provides a service which its customers depend upon and any significant or lengthy
period of service disruption would materially affect its customers and adversely impact upon the Group’s reputation in the market.
The Group constantly monitors performance and availability and responds quickly to any service outages. Wherever possible it
ensures that there are no single points of failure in its service delivery infrastructure and where there are these are clearly reflected
in service levels made available to customers.
Commercial risk
We seek to mitigate commercial and operational risks through operating policies, credit control procedures and strong relationships
with customers and suppliers built on mutual trust.
The Group does have reliance on a number of suppliers for specific IT technologies. However, in such cases it seeks, where possible,
to have alternative resellers open to it to purchase from and it also seeks to add value through its development capability which
should reduce the risk of supplier loss.
Technology risk
The market in which the Group operates has the potential for significant technological change, which could undermine the Group’s
delivery capabilities.
The Group monitors technology developments through close links with suppliers and through a team with significant experience and
expertise in this sector. This is augmented with the addition of product specialists, who are able to more readily identify new trends,
product developments, etc. in their sphere of excellence, where deemed necessary.
Key resources
Commensurate with an organisation of the Group’s size is the dependence placed upon certain key personnel, including executive
and senior management who have significant experience within the Group and IT sector and who would be difficult to replace.
The Group continues to seek to mitigate these risks through the continued strengthening of middle management in the key areas of
finance, operations and technology and through the use of bonuses and employee options to incentivise and reward key staff.
Contractual liabilities
In instances where the Group’s services or products fail to meet agreed timescales or standards there is a risk that the Group will be
exposed to claims for contractual liabilities as a result of failure.
The Group seeks to mitigate these risks through the following methods:
contractual reviews prior to execution by legal advisers where the contract is material and differs from the Group’s standard
terms and conditions;
where products or services are being resold, the Group seeks to take no additional risk by simply seeking to back terms and
conditions from its suppliers; and
only accepting a level of contractual liability which is commensurate with insurance policies and the value of the contract.
CloudCoCo Group plc Annual Report 2019
7
Risks and risk management (continued)
Legacy liabilities
As part of the acquisition process of any business, the Group ensures significant due diligence is undertaken on the target. This
process includes both internal due diligence and due diligence carried out by external experts. There can be no guarantee that the
due diligence performed will identify all issues existing within a target company at the point of acquisition. To mitigate this risk, the
Board ensures that suitable warranties are given by vendors of the acquired businesses. There can be no guarantee, however, that
such warranties will be sufficient to provide full recompense for any losses suffered by the Company as a result of such issues.
Regulatory compliance
The Group provides services, some of which are in regulated markets. The Group must maintain compliance with applicable
regulations. Regulated services may also be affected by price changes. In both cases, there is risk of an adverse impact on
the Group’s business, financial and operational position.
The Group carefully monitors proposed or adopted regulatory changes to assess the impact that such changes have on its business
operations or its customers.
Malicious activity and data protection
The Group operated in the technology and software sector and as a result has information assets that could be compromised,
disrupted or lost as a result of malicious activity.
The Group operates protective equipment to defend against malicious attacks and has staff policies in place to enforce good practice
on data security.
Acquisitions
Integrating acquisitions and the associated change management can take a period of time. The Group may lose existing customers
or the customers of an acquired entity as a result of an acquisition. The Group also may lose key personnel, either from the acquired
entity or from itself, as a result of an acquisition.
The Group has an experienced management team, with a proven track record of integrating businesses and managing change.
Appropriate due diligence is undertaken by the Company’s advisers prior to the completion of an acquisition and appropriate incentive
schemes are put in place for certain key personnel.
Brexit
The Group purchases and provides the majority of its goods and services within the UK. However, some vendors reside outside the
UK and it is possible that prices may be affected by changes in duties and tariffs arising from any new UK trading agreements.
The Group carefully monitors price risk and will ensure customer quotes enable prices to reflect changes in duties and tariffs.
CloudCoCo Group plc Annual Report 2019
8
Board of Directors
Andy Mills
Chief Executive Officer
Andy Mills over the past 25 years has managed and helped to grow numerous technology businesses. Andy co-founded Intrinsic
Networks which he sold to a buy and build IT services company and has held a number of senior leadership positions. He has worked
successfully in the technology industry as sales director and managing director and was most recently the sales director of Tax
Systems plc which was a successful public company until it was taken private in 2019 by a private equity company. Andy was the
chairman of CloudCoCo Limited at the time of the acquisition by the Company.
Andy joined the Board as Chief Executive Officer on 21 October 2019.
Mike Lacey
Chief Financial Officer
Mike Lacey is a chartered accountant with over 30 years of experience working in senior finance roles across a variety of sectors.
Mike’s career started at Ernst & Young followed by roles at AMEC plc, Kwik Save Group plc and the Co-operative Group then as
Finance Director of Calyx UK Limited. Between 2013 and 2017 Mike was Finance Director at Character World Limited and has also
run his own consultancy business and has worked with clients ranging from SME’s to £750m turnover companies on projects such
as turnarounds, fundraising and business sales.
Mike joined the Board as full time Chief Financial Officer on 21 January 2020.
Simon Duckworth
Non-Executive Chairman
Simon Duckworth OBE DL is Non-Executive Chairman. Simon holds a number of non-executive positions in the public and private
sectors and is currently Chairman of Baring Targeted Return Fund and the Senior Non-Executive Board Member at the Serious Fraud
Office (SFO). He was a Non-Executive Director of Fidelity’s flagship European Investment Trust, Fidelity European Values plc, for a
decade, and has sat on the boards of a number of AIM-quoted companies as a non-executive director, including Accumuli plc from
2010 until its sale to NCC plc in 2015.
A University of Cambridge graduate, Simon is a former Chairman of the City of London Police Authority and currently chairs the
Economic Crime Board of the City of London Police. He worked closely with the Home Office as Chairman of the National Olympics
Security Oversight Group and is a Non-Executive Director of the Association of Police and Crime Commissioners.
Simon is the Chair of the Remuneration Committee and a member of the Audit Committee.
Dr Tom Black
Non-Executive Director
Tom Black is co-founder and Chairman of Thruvision plc, an AIM-quoted business focused on the people-screening sector of the
global homeland security market. Thruvision was previously named Digital Barriers and changed when it divested its video security
business in 2017. Prior to setting up Digital Barriers in 2009, Tom was Chief Executive of Detica Group plc where he led the
management buyout in 1997, the Group’s flotation on the London Stock Exchange in April 2002 and, ultimately, the acquisition by
BAE Systems in 2008. Tom is also a Non-Executive Director of Herald Investment Trust plc and a Trustee of the Black Family
Charitable Trust.
Tom is the Chair of the Audit Committee and a member of the Remuneration Committee.
Jill Collighan
Non-Executive Director
A Chartered Certified Accountant, Jill has over 15 years of operational experience at plc board level specialising in finance, human
resources, investor relations and corporate finance. As well as her role with Adept4, Jill is CFO of one of the Group’s major
shareholders, MXC Capital Limited, the AIM-quoted technology-focused adviser and investor. From 2004 to 2014 Jill was Group
Finance Director of the AIM-quoted mobile technology provider 2ergo Group plc. Until January 2020, Jill also undertook the role of
Chief Financial Officer of Adept4.
CloudCoCo Group plc Annual Report 2019
9
Corporate governance report
The Company is committed to operating proper standards of good corporate governance and has established a corporate governance
model based on the key principles of the Quoted Companies Alliance Corporate Governance Code (“QCA Code”). The following
outlines how the Company addresses the ten broad governing principles defined in the QCA Code. The Non-Executive Chairman is
responsible for corporate governance and the overall leadership of the Board and ensuring its effectiveness.
The Company operates a business model and growth strategy that promotes the generation of shareholder value through the growth
and retention of recurring revenue streams. The Company promotes professionalism, openness, honesty and integrity between its
customers, staff, shareholders and suppliers.
Principle 1 – Establish a strategy and business model which promote long-term value for shareholders.
Goals:
As a public company we are focused on delivering value for both our shareholders and customers and have three goals that drive
our business:
Deliver shareholder value
Provide high levels of customer satisfaction
Differentiate our service through expertise, innovation and successful execution of solutions
Purpose:
The purpose of the business is to generate shareholder value and help our customers achieve their business goals and objectives
through the profitable delivery of IT as a Service (“ITaaS”) . ITaaS provides customers with exactly the right amount of technology
and support that they need, ensuring that they only pay for what they receive.
Strategy:
The company currently delivers ITaaS to business customers by leveraging strong partnerships and a single operating platform
established from the integration of several businesses. Our strategy is to:
Transform the way our customers use and pay for IT
Leverage our expertise to provide all customers with a corporate IT department experience
Lead our customers on their journey from on-premise to the cloud
Partner with the best public cloud and application providers
Cross-sell IT and telephony services to customers
Develop and expand an innovative portfolio of solutions
Stay close to the customer, small enough to care and large enough to cope
Focus on growing our recurring revenues through organic growth
Principle 2 – Seek to understand and meet shareholder needs and expectations.
CloudCoCo Group is committed to open communication with all its shareholders. The Chief Executive Officer and Chief Financial
Officer are primarily responsible for investor relations.
The Company values the views of its shareholders and recognises their interest in the Group’s strategy and performance, Board
membership and quality of management. The Company believes it is important to explain business developments and financial results
to its shareholders, to understand shareholder concerns, and to ensure that suitable arrangements are in place to ensure a balanced
understanding of the issues and concerns of major shareholders.
The principal method of communication with private investors is via the Company’s Annual Report and Accounts, Interim Reports,
the Annual General Meeting and other relevant announcements that are maintained on the Group’s investor website,
www.cloudcoco.co.uk. As appropriate, business-related announcements may also be published there if the Group considers them to
be of significant interest to shareholders.
Shareholders are given the opportunity to raise questions at the Annual General Meeting and the Directors are available both before
and after the meeting for further discussion with shareholders. The Annual General Meeting is used to communicate with all
shareholder and investor groups, and they are encouraged to participate. The Chairmen of the Audit and Remuneration Committees
are available to answer questions. Separate resolutions are proposed on each issue so that they can be given proper consideration
and there are resolutions to receive the Annual Report and Accounts and the report on Directors’ remuneration. The Company counts
all proxy votes and will indicate the level of proxies lodged on each resolution, after it has been dealt with by a show of hands.
Meetings are offered to major institutional shareholders to discuss strategy, financial performance and investment activity immediately
after the full year and interim results announcements. The non-executive Directors are available to meet with major shareholders if
such meetings are required. Feedback from such meetings with shareholders is provided to the Board to ensure that the Directors
have a balanced understanding of the issues and concerns of major shareholders.
The Board receives share register analysis reports to monitor the Company’s shareholder base and help identify the types of investors
on the register.
CloudCoCo Group plc Annual Report 2019
10
Corporate governance report (continued)
Principle 3 – Take into account wider stakeholder and social responsibilities and their implications for long-term success.
The Company regards its shareholders, employees, customers, suppliers, advisors and others as the wider stakeholder group.
Management prioritises its relationships with customers and staff and effort is directed to ensuring they are managed appropriately.
Regular reviews are undertaken to ensure any issues are addressed promptly.
The Company records and regularly reviews customer service levels. There is a feedback system in place representing customer
success, the results of which are measured and acted upon to ensure the drive for constant improvement is met.
The Company’s internal stakeholders are its employees. The Group is committed to employment policies which follow best practice,
based on equal opportunities for all employees, irrespective of sex, gender reassignment, race, disability, sexual orientation,
pregnancy and/or maternity, marital or civil partner status, religion or belief or age.
Employee involvement in the Group is encouraged, as achieving a common awareness on the part of all employees of the financial
and economic factors affecting the Group plays a major role in maintaining good relations with them. Employees receive regular
updates from the Chief Executive Officer on the Company’s progress and new initiatives via monthly staff updates and regular town
hall meetings, which offers an opportunity for them to raise queries or issues. Employees are also surveyed on a quarterly basis to
measure satisfaction and solicit feedback to improve the business.
Principle 4 – Embed effective risk management, considering both opportunities and threats, throughout the organisation.
The Board has established a risk register relating to the Company’s business. At least annually, it meets to consider the
appropriateness of the risks identified and the mitigating action taken by management on a risk by risk basis focusing on those
deemed most critical.
For further details of the Company’s approach to risk and its management, please refer to the Risk Management and Principal Risks
section of the Strategic Report as set out above.
The Board has also set out a policy defining the Group’s compliance, procedures and position regarding the prevention of the
facilitation of tax evasion as defined by the Criminal Finances Act 2017.
Principle 5 – Maintain the Board as a well-functioning, balanced team led by the Chair.
The size of the board is considered to be appropriate to the current size and character of the Group. The majority of the non-executive
directors are independent of management and any business or other relationships which could interfere with the exercise of their
independent judgement. Each non-executive director is expected to devote a minimum of one day per month to the Company’s
business, plus any additional time which may be required to fulfil their duties.
The Board directs the Group's activities in an effective manner through regular monthly board meetings and monitors performance
through timely and relevant reporting procedures which enable risks to be assessed and managed. During this financial year, 12
monthly board meetings were held with all Directors then in office present in person or via conference call.
Operational management of the Group is delegated to the Managing Director of the trading business and the Senior Management
Team, who meet regularly with the Chief Financial Officer to review current business performance, sales activity, operational projects,
customer service, human resourcing matters and other day to day activities.
Detailed Board packs include information on all revenue streams and financial performance and are circulated ahead of Board
meetings. Key issues are highlighted and explained, providing Board members with sufficient information to enable a relevant
discussion in the Board meeting. The Chief Financial Officer attends the Company’s senior management meetings and updates the
Board accordingly on any issues and developments.
Principle 6 – Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities.
The Board members and their relevant experience and skills are detailed on page 9. The Non-Executive Chairman believes that, as
a whole, the Board has a suitable mix of skills and competencies covering all essential disciplines bringing a balanced perspective
that is beneficial both strategically and operationally and will enable the Company to deliver its strategy.
The Board consists of two executive directors and three non-executive directors, of whom Simon Duckworth and Tom Black are
considered independent. The nature of the Company’s business requires the Directors to keep their skillset up to date. Updates to
the Board on regulatory matters are given by the Company’s professional advisers when appropriate.
In addition to the support provided by the Company’s retained professional advisers (Nominated Adviser, lawyers, auditor and M&A
adviser), external consultants are engaged when needed to advise on any relevant matters. External advisers attend Board meetings
or committee meetings as invited by the Non-Executive Chairman to report and/or discuss specific matters relevant to the Company.
CloudCoCo Group plc Annual Report 2019
11
Corporate governance report (continued)
Principle 7 – Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement.
Board performance effectiveness process
The Chairman is responsible for the regular evaluation of the Board’s performance and that of its committees and individual Directors.
In 2017, the Directors took part in an independent Board Effectiveness exercise that gathered feedback and measured the
performance and effectiveness of the Board across a number of parameters including:
setting, guiding and monitoring group strategy;
standard of internal reporting;
channels of communication;
support of management with appropriate challenge;
structure and effectiveness of meetings;
appropriate use of external advisors;
quality debate and appropriate preparation;
compliance with governance, legislation and regulation;
focus on future vs past; and
skills of board members.
The Board intend to carry out the next evaluation during 2020.
Succession planning and Board appointments
The Remuneration Committee meets as and when necessary to consider the appointment of new executive and non-executive
directors, although the Board as a whole takes responsibility for succession planning. Board members all have appropriate notice
periods so that if a Board member indicates his/her intention to step down, there is sufficient time to appoint a replacement, whether
internal or external.
Each director is required to offer themselves for re-election at least once every three years as per the Company’s Articles of
Association. Dr Tom Black is currently the longest serving Board member having been appointed in 2013. Tom has indicated his
intention to step down from the Board at this year’s Annual General Meeting. A suitable replacement for Tom is currently being
sought.
Board appointments are made after consultation with advisers including the Nominated Adviser who undertakes due diligence on all
new potential Board candidates.
Principle 8 – Promote a corporate culture that is based on ethical values and behaviours.
The Board recognises that core values provide a framework which influences every level of the Group. Under guidance from the
Board, the Chief Executive Officer takes the lead in developing and promoting the corporate culture and ensures that employees
understand the business values and behaviours required to ensure that we perform as one team to deliver our business goals and
maintain good employee relations.
The Company’s environmental and health and safety policies are as follows:
Environmental policy
The Group acknowledges the importance of environmental matters and where possible uses environmentally friendly policies in its
offices, such as recycling and energy-efficient practices.
Health and safety
The Group aims to provide and maintain a safe working environment for all colleagues and visitors to its premises, and to comply
with all relevant UK health and safety legislation. Health and safety matters are delegated to representatives within the business, who
can raise any issues arising via a number of means, including the corporate risk register whose highest rated risks are reviewed
periodically by the Board.
Principle 9 – Maintain governance structures and processes that are fit for purpose and support good decision-making by the
Board.
On behalf of the Board, the Chief Executive Officer has overall responsibility for managing the day to day operations of the Company
and the Board as a whole is responsible for monitoring performance against the Company’s goals and objectives. The individual
Board members’ specific responsibilities, contributions and skills are set out on page 9.
The Board has established two standing Committees, the Audit Committee and the Remuneration Committee. Membership of both
the Audit Committee and the Remuneration Committee during the year under review was exclusively non-executive.
A nominations committee would be established should it be required. Simon Duckworth is Chairman of the Remuneration Committee
and Dr Tom Black is Chairman of the Audit Committee. Terms of reference for the Committees are available on the Company’s
website.
CloudCoCo Group plc Annual Report 2019
12
Corporate governance report (continued)
Principle 10 – Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and
other relevant stakeholders.
The Company maintains a regular dialogue with key stakeholders including shareholders to enable interested parties to make
informed decisions about the Group and its performance.
Historical annual reports and notices of general meetings can be found in the Financial Reports section of the Group’s website.
The Board discloses the results of Annual General Meetings and these can be found in the Regulatory News section of the website.
Historically, the Board has not disclosed proxy voting numbers to those attending the meetings, but in order to improve transparency,
the Board has committed to announcing proxy voting results in future. In the event that a significant portion of voters have voted
against a resolution, an explanation of what actions it intends to take to understand the reasons behind the vote will be included.
The Audit Committee meets at least twice a year, although the Company's Auditors or any member of the Audit Committee may
request a meeting at any time, should they consider that one is necessary. The role of the Audit Committee is to make
recommendations to the directors and shareholders, in relation to the appointment, re-appointment and removal of the Company’s
Auditors and to approve their remuneration and terms of engagement. Prior to the commencement of each annual or interim audit,
the Audit Committee will discuss and agree the nature and scope of the audit with the Auditors and in discussion with them, will
monitor the integrity of the financial statements of the Group and approve any formal announcements relating to the Company’s
financial performance.
The Audit Committee develops and implements policies on the engagement of the Auditors to supply non-audit services and will
report to the Directors, identifying any matters where the Audit Committee considers that action or improvement is needed, making
recommendations as to the steps to be taken.
The Audit Committee is authorised by the Board to investigate any activity within its terms of reference and may seek information it
requires from any employee of the Company. The Audit Committee may seek outside professional advice at the cost of the Company,
in order to secure any relevant experience or expertise it considers necessary to fulfil its duties.
The terms of reference of the Remuneration Committee and its report can be found below.
CloudCoCo Group plc Annual Report 2019
13
Remuneration report
Remuneration Committee
The Remuneration Committee determines, on behalf of the Board, the Group’s policy for executive remuneration and the individual
remuneration packages for the Executive Directors. In setting the Group’s remuneration policy, the Remuneration Committee
considers a number of factors, including the following:
salaries and benefits available to Executive Directors of comparable companies;
the need to attract and retain Executives of an appropriate calibre; and
the need to ensure continued commitment of Executives to the Group’s success through appropriate incentive schemes.
The Committee meets at least once a year.
Remuneration of Executive Directors
No Executive Directors received any salary during the year.
Remuneration of Non-Executive Directors
The fees paid to the Non-Executive Directors are determined by the Board. They are not entitled to receive any bonus or other
benefits. Non-Executive Directors’ letters of appointment are on a three-month rolling basis.
Directors’ remuneration
Details of individual Directors’ emoluments for the year (excluding employer’s National Insurance contributions) are as follows:
Fees and salaries
2019
£’000
2018
£’000
Other benefits
2019
£’000
Totals
2019
£’000
2018
£’000
Non-Executive
S Duckworth
T Black
Executive
J Collighan1
N Deman (in office 20 March 2018 to
30 September 2018)
I Winn (resigned 20 March 2018) 2
36
32
72
—
—
36
32
30
76
70
Total
140
244
—
—
—
—
—
—
—
—
—
—
—
(29)
(29)
2018
£’000
36
32
30
76
41
36
32
72
—
—
140
215
1 Jill Collighan’s services are secured under a secondment agreement with MXC Advisory Limited. All fees are paid to MXC Advisory Limited and
the agreement contains a notice provision of 3 months.
2 Included in “Other benefits” are the costs of share options issued in accordance with IFRS 2 Share-based Payments as follows:
Name of Director
I Winn (resigned 20 March 2018)
2019
£’000
-
2018
£’000
(30)
Directors’ interests in shares
The interests of the Directors in the Ordinary Shares of the Company at 30 September 2019 together with their interests as of
14 February 2020 were as follows:
Name of Director
T Black
S Duckworth
14 February
2020
Number
8,842,199
6,900,000
30 September
2019
Number
8,842,199
5,700,000
MXC Advisory Limited, who provides the services of Jill Collighan, is a wholly owned subsidiary of MXC Capital Limited, which had
a 29.9% holding in the shares of the Company at 30 September 2019. This holding subsequently reduced to 15.2% on 21 October
2019, following the issue of new shares. See Note 23 for further details. MXC Capital Limited held warrants over 5% of the share
capital of the Company at 30 September 2019, as detailed in Note 7.
CloudCoCo Group plc Annual Report 2019
14
Remuneration report (continued)
Directors’ interests in share options
No Directors held options over the Ordinary Shares of the Company or any other share incentives at 30 September 2019. Two
directors of the Company’s subsidiaries have been granted options over the shares of the Company as follows:
D Griffiths (resigned 20 Nov 19)
D Giddens
D Giddens
D Giddens
1 October
2018
3,800,000
83,333
207,692
1,135,000
Granted in
the year
—
—
—
—
Lapsed during
the year
30 September
2019
— 3,800,000
—
(83,333)
—
207,692
— 1,135,000
Exercise
price
1.0p
30.0p
Date when
Exercisable
31 Mar 20
9 Jul 11
— 24 Mar 18
28 Sep 19
9.0p
Expiry date
31 Mar 27
9 Jul 19
24 Mar 25
28 Sep 26
All of the 5,142,692 options in place at 30 September 2019 have been granted under the terms of the Company’s approved EMI
share option scheme.
By order of the Board
Simon Duckworth
Chairman, Remuneration Committee
14 February 2020
CloudCoCo Group plc Annual Report 2019
15
Directors’ report
The Directors present their Annual Report on the affairs of the Group, together with the financial statements and Auditor’s report, for
the year ended 30 September 2019.
Principal activities
The principal activity of the Group is the provision of IT as a Service to small and medium-sized enterprises in the UK. Further
information can be found in the Strategic Report on pages 2 to 8.
Corporate governance
The statement on corporate governance on pages 10 to 13 is included in the Directors’ Report by way of reference.
Results and dividends
The Group’s loss on ordinary activities after taxation was £5.2 million (FY18: loss of £3.8 million). The audited financial statements
of the Group are set out on pages 19 to 46. The Directors do not propose a dividend for the year ended 30 September 2019 (FY18:
£nil).
Strategic review
The information satisfying the strategic review requirements is set out in this report on pages 2 to 8.
Going concern
The Group had cash balances of £0.3 million at 30 September 2019, and total debt (comprising of asset finance agreements and
loan notes at fair value) of £4.3 million, of which only £0.1 million was due within twelve months. However, after the year end, there
was a refinancing, the impact of which was to replace the £5.0 million BGF loan notes with £3.5 million of loan notes from MXC
Guernsey Limited (a wholly owned subsidiary of MXC Capital Limited). Interest on the MXC loan notes is rolled up and will be paid
on redemption in October 2024. In addition, MXC has provided the Group with a £0.5 million working capital facility, on which interest
is payable. This facility is repayable by October 2021.
The Group had negative net assets at 30 September 2019 totalling £1.1 million compared to positive net assets at the end of FY18
of £4.0 million. The acquisition of CloudCoCo Limited after the year end and the refinancing referred to above have returned the
Group to a positive net assets position due to the issue of share capital of £7.2 million at completion and a reduction in the fair value
of loan notes of £1.3 million.
The acquisition of CloudCoCo Limited after the year end and the refinancing above was the outcome of the Board’s strategic review
of the business and the options available. The acquisition brought together the sales and marketing skillset of CloudCoCo Limited
with the technical knowledge and product suite of Adept4.
After reviewing the forecast sales growth, budgets and cash projections, including sensitivity analysis on the key assumptions, for
the next twelve months and beyond the Directors have reasonable expectations that the Group and the Company have adequate
resources to continue operations for the foreseeable future, being a period of at least one year from the date of approval of these
financial statements. Furthermore, taking into account the assurance of ongoing support from a significant shareholder, which the
Directors reasonably believe has sufficient resources to provide such support, the Directors continue to adopt the going concern
basis in preparing these financial statements.
Directors
The present membership of the Board is as follows:
Andy Mills, Chief Executive Officer (appointed 21 October 2019)
Mike Lacey, Chief Financial Officer (appointed 21 January 2020)
Simon Duckworth, Non-Executive Chairman
Dr Tom Black, Non-Executive Director
Jill Collighan, Non-Executive Director
The names and biographical details of the current Directors of the Company are given on page 9.
Dr Tom Black will not be offering himself for re-election at the forthcoming Annual General Meeting.
Details of Directors’ interests in the Company’s shares, service contracts and remuneration are set out in the Directors’
Remuneration Report on pages 14 and 15.
Fees in relation to Jill Collighan are paid to MXC Advisory Limited a subsidiary of MXC Capital Limited which has a 15.2% holding in
the shares of the Company (shareholding at 30 September 2019: 29.9%) and which holds loan notes in the Company to the value of
£3.5 million. No other Director had a material interest in any significant contract with the Company or any of its subsidiaries during
the year.
The Company maintains liability insurance for its Directors and Officers. The Directors and Officers have also been granted
a qualifying third-party indemnity provision under the Companies Act 2006. That indemnity provision has been in force throughout
the year and remains in force at the date of this report.
Share warrant instruments
There were no new share warrants issued during the year. Details of the existing share warrants remaining in force can be found in
Note 7 to the consolidated financial statements.
CloudCoCo Group plc Annual Report 2019
16
Directors’ report (continued)
Issue of shares
At the general meeting held on 25 March 2019, shareholders granted authority to the Board under the Articles and Section 551 of
the Companies Act 2006 (the “Act”) to exercise all powers of the Company to allot relevant securities up to an aggregate amount of
up to one-third of the authorised share capital of the Company, up to the amount specified in the resolutions. At the same meeting
shareholders granted authority to the Board under the Articles and Section 570 of the Act to exercise all powers of the Company to
allot relevant securities wholly for cash up to an aggregate amount of up to 10% of the share capital, without application of the
statutory pre-emption rights contained in Section 561(1) of the Act.
Post-balance sheet events
Details of post-balance sheet events are given in Note 23.
Financial risk management and objectives
Details of financial risk management and objectives are contained in Note 22 to the consolidated financial statements.
Awareness of relevant audit information
Each of the Directors who held office at the date of approval of this Directors’ Report confirms that, so far as they are aware:
there is no relevant audit information of which the Auditor is unaware; and
the Directors have taken all the steps they ought to have taken to make themselves aware of any relevant audit information
and to establish that the Auditor is aware of that information.
Annual General Meeting
The Annual General Meeting will be held in London on 31 March 2020 at 1:00 p.m..
Notice of the Annual General Meeting will be sent to shareholders on 6 March 2020.
Independent Auditor
Nexia Smith & Williamson was appointed as Auditor to the Group on 29 October 2014. Andrew Bond of Nexia Smith & Williamson
has therefore acted as Senior Statutory Auditor of the Group, for a period of five years. On 19 November 2019, the Group’s Audit
Committee informed Adept4 shareholders that it had sought, and received, the approval of Nexia Smith & Williamson to extend Mr
Bond’s tenure for one year beyond the five years normally permitted by the Financial Reporting Council’s Ethical Standard (“the
Ethical Standard”). This extension was granted in the interests of maintaining audit quality and continuity following the acquisition of
CloudCoCo Limited on 21 October 2019. This extension is permitted under the Ethical Standard and will enable Mr Bond to sign the
auditor’s report on the financial statements for the year ended 30 September 2019. There are no contractual obligations in place that
restrict our choice of statutory Auditor.
By order of the Board
Darron Giddens
Company Secretary
14 February 2019
CloudCoCo Group plc Annual Report 2019
17
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected
to prepare the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the
European Union (IFRSs). The Directors have elected to prepare the Company financial statements under UK Generally Accepted
Accounting Practice (UK GAAP).
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the parent company and of the Group and of the profit or loss of the Group for that period. In preparing
these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable IFRSs and UK accounting standards have been followed, subject to any material departures
disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s
transactions, disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that
the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for ensuring that the Directors’ Report and the Strategic Report, in addition to any other information
included in the Annual Report, is prepared in accordance with United Kingdom company law. They are also responsible for ensuring
that the Annual Report includes information required by the AIM Rules.
Legislation in the United Kingdom governing the preparation and dissemination of the accounts and other information included in
annual reports may differ from legislation in other jurisdictions.
CloudCoCo Group plc Annual Report 2019
18
Independent Auditor’s report to the members of CloudCoCo Group plc
Opinion
We have audited the Group financial statements of CloudCoCo Group plc (the 'Group') for the year ended 30 September 2019 which
comprise the Consolidated Income Statement, the Consolidated Statement of Financial Position, the Consolidated Statement of
Changes in Equity, the Consolidated Statement of Cash Flows and the notes to the Group financial statements, including a summary
of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, the Group financial statements:
give a true and fair view of the state of the Group's affairs as at 30 September 2019 and of the Group's loss for the year then
ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the Group financial
statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to
our audit of the Group financial statements in the UK, including the FRC's Ethical Standard as applied to SME listed entities and we
have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
the Directors' use of the going concern basis of accounting in the preparation of the Group financial statements is not appropriate;
or
the Directors have not disclosed in the Group financial statements any identified material uncertainties that may cast significant
doubt about the Group's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months
from the date when the Group financial statements are authorised for issue.
Key audit matters
We identified the key audit matters described below as those which were of most significance in the audit of the Group financial
statements of the current period. Key audit matters include the most significant assessed risks of material misstatement, including
those risks that had the greatest effect on our overall audit strategy, the allocation of resources in the audit and the direction of the
efforts of the audit team.
In addressing these matters, we have performed the procedures below which were designed to address the matters in the context of
the Group financial statements as a whole and in forming our opinion thereon. Consequently, we do not provide a separate opinion
on these individual matters.
CloudCoCo Group plc Annual Report 2019
19
Independent Auditor’s report to the members of CloudCoCo Group plc
(continued)
Key audit matter
Revenue recognition
(See Note 2c)
Description of risk
Revenue growth is a key performance
indicator of the Group. Revenue based
targets may place pressure on
management to distort revenue
recognition. This may result in
overstatement or deferral of revenues to
assist in meeting current or future targets
or expectations.
This is the first year in which the Group is
required to apply IFRS15 ‘Revenue
recognition’.
Going concern
(See Note 1.1)
The Group recorded a loss for the year of
£5.15m, net liabilities at the year-end of
£1.1m and a net cash outflow of £1.1m.
The Company issued £5 million of
unsecured loan notes to the BGF on 26
May 2016. The loan notes have regular
interest payments with a maximum credit
exposure at 30 September 2019 of £6m.
Subsequent to the year end on 21
October 2019 £1.5million of the loan notes
were waived and cancelled by BGF,
reducing the liability to £3.5million and
MXC purchased the remaining £3.5million
loan notes from BGF and restructured
their terms (note 23). The assessment of
forward-looking projections requires
significant judgement and estimates
How the matter was addressed in the audit with respect
to that risk
The Group’s revenue recognition policies are stated in
Note 2c. In testing revenue recognition we have:
gained an understanding of the design and
implementation of the controls over revenue
recognition which have been designed by the Group
to prevent and detect fraud and errors in revenue
recognition;
recalculated the revenue recognised on a sample of
contracts, corroborating the details to the underlying
contracts. In respect of bundled contracts we tested
the individual components of a sample of contracts to
ensure that the revenue was appropriately allocated
to the components and that the substance of the
contract was appropriately accounted for;
performed tests of detail of a sample of accrued
revenue and deferred revenue items to ensure the
items are accounted for in accordance with the
revenue recognition policy;
performed tests of detail on revenue cut-off to ensure
that items are accounted for in the correct period;
reviewed the Group’s assessment of the IFRS15
impact on their accounts;
reviewed terms of major contracts and assessed the
accounting for each revenue stream for compliance
with IFRS15; and
performed a review of credit notes to ensure that all
sales made in the year relate to services provided
during the year.
We discussed the detailed cash flow forecasts prepared
by management in their model. The main procedures
performed on the model and areas where we challenged
management were as follows:
assessed the quality of management forecasting by
comparing forecasts from prior periods to actual
outcomes;
the consistency of forecasts for the enlarged Group
used in the going concern assessment with those
used for the pre-acquisition business year end
impairment calculations;
tested the appropriateness of the assumptions that
had the most material impact. In challenging these
assumptions we took account of actual results,
revenue growth and costs projected together with
market conditions;
test checked the arithmetic integrity of the
calculations including those related to management’s
sensitivities;
performed our own sensitivity calculations to test the
adequacy of the available headroom;
reviewed the appropriateness of the disclosures
made in the Group Financial Statements in respect of
going concern; and
Reviewed correspondence relating to shareholder
support and financial statements for the relevant
shareholder.
CloudCoCo Group plc Annual Report 2019
20
Independent Auditor’s report to the members of CloudCoCo Group plc
(continued)
Carrying value
of goodwill
and intangibles
(see Note 10)
The Group has significant intangible asset
balances including customer bases,
brands and goodwill derived from historic
acquisitions. The assessment of the
carrying value requires significant
judgement in assessing forecast cash
flows, growth rates and discount rates.
The assessment of the carrying value of
these balances and consequently any
required impairment is sensitive to these
assumptions.
We challenged the assumptions used in the impairment
model for goodwill, as described in note 10. These
assumptions were also used in assessing the carrying
value and impairment of other intangible assets. As part of
our procedures we:
examined management’s assessment as to whether
indicators of impairment have been identified and
appropriately evaluated;
assessed whether the cash generating unit (CGU),
identified is at the lowest level at which management
monitors goodwill;
challenged the discounted cash flow model used to
support the carrying values of intangibles and
goodwill, including the appropriateness of the
assumptions used in the forecasts such as projected
growth rate, cost projections and the discount rate;
test checked arithmetic formulae within the model;
compared the group’s historical forecasting accuracy
by comparing the previous years’ forecasts to the
actual outturn;
performed sensitivity analyses of the key
assumptions used by management and assessed the
adequacy of management's disclosures of sensitivity
and key risks inherent in the calculation;
compared the carrying values of the cash generating
units in total against the Group’s market
capitalisation; and
compared actual trading results post year end to
those included within forecasts.
Materiality
The materiality for the Group financial statements as a whole was set at £145,150. This has been determined with reference to the
benchmark of the Group's revenue, which we consider to be one of the principal considerations for members of the parent company
in assessing the performance of the Group. Materiality represents 2% of revenue as presented on the face of the Consolidated
Income Statement.
An overview of the scope of our audit
Of the Group's five reporting components, three were subject by us to full scope audit procedures and two to specific audit procedures
where the extent of our audit work was based on the significance of that component to the group.
The components within the scope of our work covered: 100% of Group revenue and 100% of Group net assets.
Other information
The other information comprises the information included in the annual report, other than the Group and parent company financial
statements and our auditor's reports thereon. The Directors are responsible for the other information. Our opinion on the Group
financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the Group financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the Group financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the Group financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
CloudCoCo Group plc Annual Report 2019
21
Independent Auditor’s report to the members of CloudCoCo Group plc
(continued)
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the Strategic Report and the Directors' Report for the financial year for which the Group financial
statements are prepared is consistent with the Group financial statements; and
the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we have not
identified material misstatements in the Strategic Report or the Directors' Report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our
opinion:
certain disclosures of Directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Statement of Directors' responsibilities set out on page 18, the Directors are responsible for the
preparation of the Group financial statements and for being satisfied that they give a true and fair view, and for such internal controls
as the Directors determine is necessary to enable the preparation of Group financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the Group financial statements, the Directors are responsible for assessing the Group's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the Group financial statements
Our objectives are to obtain reasonable assurance about whether the Group financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Group
financial statements.
A further description of our responsibilities for the audit of the Group financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Other matter
We have reported separately on the parent company's financial statements of CloudCoCo Group plc for the year ended 30 September
2019.
Use of our report
This report is made solely to the parent company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the parent company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the parent company and the parent company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
Andrew Bond
Senior Statutory Auditor,
for and on behalf of Nexia Smith & Williamson
Statutory Auditor, Chartered Accountants
25 Moorgate London EC2R 6AY
14 February 2020
CloudCoCo Group plc Annual Report 2019
22
Consolidated income statement
for the year ended 30 September 2019
Note
2019
£’000
2018
£’000
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Amortisation of intangible assets
Depreciation
Separately identifiable costs
Share-based payments
Operating loss
Interest receivable
Interest payable
Net finance expense
Loss before taxation
Taxation
3
3
10
11
4
7
5
6
6
7,257
10,185
(3,530)
(4,480)
3,727
5,705
(4,383)
(5,598)
(907)
(100)
(907)
(136)
(3,255)
(2,390)
(71)
(48)
(4,989)
(3,374)
3
(602)
(599)
(5,588)
8 438
7
(609)
(602)
(3,976)
169
Loss and total comprehensive loss for the year attributable to owners of the
parent
(5,150)
(3,807)
Loss per share
Basic and fully diluted
Non-statutory measure: Trading Group EBITDA*
Operating loss
Plc costs
Amortisation of intangible assets
Depreciation
Separately identifiable costs
Share-based payments
Trading Group EBITDA*
9
(2.27)p
(1.68)p
10
11
4
7
(4,989)
(3,374)
421
907
100
482
907
136
3,255
2,390
71
(235)
48
589
*earnings before net finance costs, tax, depreciation, amortisation, plc costs, separately identifiable items and share-based payments
The accompanying accounting policies and notes on pages 27 to 46are an integral part of these consolidated financial
statements.
CloudCoCo Group plc Annual Report 2019
23
Consolidated statement of financial position
as at 30 September 2019
Non-current assets
Intangible assets
Property, plant and equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Short-term borrowings
Trade and other payables
Other taxes and social security costs
Accruals and deferred income
Total current liabilities
Non-current liabilities
Long-term borrowings
Deferred tax liability
Total non-current liabilities
Total liabilities
Net (liabilities) / assets
Equity
Share capital
Share premium account
Capital redemption reserve
Merger reserve
Other reserve
Retained earnings
Total equity
Note
10
11
13
14
15
16
16
18
30 September
2019
£’000
30 September
2018
£’000
4,394
62
4,456
32
1,489
311
1,832
6,288
(32)
(876)
(302)
(1,093)
(2,303)
(4,286)
(810)
(5,096)
(7,399)
(1,111)
2,271
11,337
6,489
1,997
1,720
8,282
146
8,428
26
2,900
1,427
4,353
12,781
(32)
(1,102)
(377)
(1,937)
(3,448)
(4,117)
(1,248)
(5,365)
(8,813)
3,968
2,271
11,337
6,489
1,997
1,649
(24,925)
(19,775)
19
(1,111)
3,968
These financial statements were approved and authorised for issue by the Board of Directors on 14 February 2020.
Signed on behalf of the Board of Directors by
Michael Lacey
Director
The accompanying accounting policies and notes on pages 27 to 46form an integral part of these financial statements.
CloudCoCo Group plc Annual Report 2019
24
Consolidated statement of changes in equity
for the year ended 30 September 2019
At 1 October 2017
Loss and total comprehensive loss for the period
Transactions with owners
Share-based payments
Total transactions with owners
Total movements
Share
capital
£’000
2,271
Share
premium
£’000
11,337
Capital
redemption
reserve
£’000
6,489
Merger
reserve
£’000
1,997
Other
reserve
£’000
1,601
Retained
earnings
£’000
(15,968)
Total
£’000
7,727
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (3,807)
(3,807)
48
48
48
—
—
48
48
(3,807)
(3,759)
Equity at 30 September 2018
2,271
11,337
6,489
1,997
1,649
(19,775)
3,968
At 1 October 2018
Loss and total comprehensive loss for the period
Transactions with owners
Share-based payments
Total transactions with owners
Total movements
Share
capital
£’000
2,271
Share
premium
£’000
11,337
Capital
redemption
reserve
£’000
6,489
Merger
reserve
£’000
1,997
Other
reserve
£’000
1,649
Retained
earnings
£’000
(19,775)
Total
£’000
3,968
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (5,150)
(5,150)
71
71
71
—
—
71
71
(5,150)
(5,079)
Equity at 30 September 2019
2,271
11,337
6,489
1,997
1,720
(24,925)
(1,111)
The accompanying accounting policies and notes on pages 27 to 46form an integral part of these financial statements.
CloudCoCo Group plc Annual Report 2019
25
Consolidated statement of cash flows
for the year ended 30 September 2019
Cash flows from operating activities
Loss before taxation
Adjustments for:
Depreciation
Amortisation
Share-based payments
Net finance expense
Settlement of warranty claim
Impairment of goodwill
Decrease in trade and other receivables
(Increase)/decrease in inventories
(Decrease)/increase in trade payables, accruals and deferred income
Net cash used in operating activities
Cash flows from taxation
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Payment of deferred consideration
Interest received
Net cash used in investing activities
Cash flows from financing activities
Finance lease income received
Payment of finance lease liabilities
Interest paid
Net cash used in financing activities
Cash flows from discontinued operations
Settlement of dispute with Chess ICT Limited
Net cash used in discontinued operations
Net decrease in cash
Cash at bank and in hand at beginning of period
Cash at bank and in hand at end of period
Comprising:
Cash at bank and in hand
2019
£’000
2018
£’000
(5,588)
(3,976)
100
907
71
599
600
3,021
811
(6)
(1,045)
(530)
—
(16)
(40)
—
3
(53)
—
(30)
(403)
(433)
(100)
(100)
(1,116)
1,427
311
136
907
48
602
(1,578)
2,644
73
40
195
(909)
—
(70)
—
(8)
7
(71)
56
(44)
(410)
(398)
(100)
(100)
(1,478)
2,905
1,427
311
1,427
CloudCoCo Group plc Annual Report 2019
26
Notes to the consolidated financial statements
1. General information
CloudCoCo Group plc (formerly Adept4 plc) is a public limited company incorporated in England and Wales under the Companies
Act 2006. The address of the registered office is given on the back cover of this report. The principal activity of the Group is the
provision of IT Services to small and medium-sized enterprises in the UK. The financial statements are presented in pounds sterling
because that is the currency of the primary economic environment in which each of the Group’s subsidiaries operates.
1.1 Basis of preparation
The consolidated financial statements have been prepared in accordance with applicable International Financial Reporting Standards
(IFRSs) as adopted by the EU and in accordance with the Companies Act 2006. The measurement bases and principal accounting
policies of the Group are set out below. These policies have been consistently applied to all years presented unless otherwise stated.
As detailed further in the Directors’ Report, taking into account post balance sheet financial restructuring and after reviewing the
forecast sales growth, budgets and cash projections, including sensitivity analysis on the key assumptions, for the next twelve months
and beyond, the Directors have reasonable expectations that the Group and the Company have adequate resources to continue
operations for the foreseeable future. Furthermore, taking into account the assurance of ongoing support from a significant
shareholder, which the Directors reasonably believe has sufficient resources to provide such support, the Directors continue to adopt
the going concern basis in preparing these financial statements.
1.2 New standards and interpretations of existing standards that have been adopted by the Group for the first time
During the year ended 30 September 2019, the Group adopted the following new financial reporting standards for the first time:
IFRS 15 Revenue from Contracts with Customers (for accounting periods commencing on/after 1 January 2018); and
IFRS 9 Financial Instruments (for accounting periods commencing on/after 1 January 2018).
The key areas of difference between the IFRS 15 policies and those used in prior financial years are as follows:
Previously, we did not capitalise the cost of obtaining a contract unless it involved significant set-up costs. Under IFRS 15 there is a
broader definition of what can be capitalised as cost to obtain a contract. Where these costs have been identified, we have
matched the amortisation of capitalised costs to obtain a contract to the revenue recognised in the period but have used the
practical expedient of lFRS 15 not to capitalise costs that relate to revenue that will be recognised within twelve months.
As a practical expedient and as allowed under the standard we have applied the five-step approach under IFRS 15 to portfolios of
contracts which have similar characteristics and where we expect that the financial statements would not reasonably differ
materially had the standard been applied to the individual contracts within the portfolio.
IFRS 15 has not had a material impact on the timing and amount of revenue and costs being recognised in the current or previous
financial year and there was no impact on cash flows with cash collections remaining in line with contractual terms.
IFRS 9 has not had a material impact on the results of the Group.
1.3 New standards and interpretations of existing standards that are not yet effective and have not been adopted early by the Group
The following standards and interpretations, which are endorsed by the EU, have not been adopted early by the Group but will be adopted
in future accounting periods:
IFRS 16 Leases (effective for accounting periods commencing on/after 1 January 2019).
IFRS 16, covers the accounting of leases and has replaced IAS 17 and associated interpretations. It has introduced 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. Once we adopt the standard, we will 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.
2. Principal accounting policies
a) Basis of consolidation
The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries) prepared to 30 September each year. Control is achieved where the Company is exposed to, or has the rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The
Group obtains and exercises control through voting rights.
Unrealised gains on transactions between the Group and its subsidiaries or associates are eliminated. Unrealised losses are also
eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial
statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
Acquisitions of subsidiaries are dealt with using the acquisition method. The acquisition method involves the recognition at fair value
of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether
or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and
liabilities of the subsidiary are included in the Consolidated Statement of Financial Position at their fair values, which are also used
as the cost bases for subsequent measurement in accordance with the Group accounting policies.
Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition costs over the fair
value of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition.
CloudCoCo Group plc Annual Report 2019
27
Notes to the consolidated financial statements (continued)
b) Goodwill
Goodwill representing the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets
acquired is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Refer
to principal accounting policy (j) for a description of impairment testing procedures.
c) Revenue and revenue recognition
Revenue arises from the sale of goods and the rendering of services. It is measured by reference to the fair value of consideration
received or receivable, excluding valued added tax, rebates, trade discounts and other sales-related taxes.
The Group enters into sales transactions involving a range of the Group’s products and services; for example, for the delivery of
hardware, software, support services, managed services and professional services. At the inception of each contract the Group
assesses the goods or services that have been promised to the customer. Goods or services can be classified as either i) distinct or
ii) substantially the same, having the same pattern of transfer to the customer as part of a series. Using this analysis, the Company
identifies the separately identifiable performance obligations over the term of the contract.
Goods and services are classified as distinct if the customer can benefit from the good or services on their own or in conjunction with
other readily available resources. A series of goods or services, such as Recurring Services, would be an example of a performance
obligation,that is transferred to the customer consecutively over time. The Group applies the revenue recognition criteria set out below
to each separately identifiable performance obligation of the sale transaction. The consideration received from multiple-component
transactions is allocated to each separately identifiable performance obligation in proportion to its relative fair value.
Sale of goods (hardware and software)
Sale of goods is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer, generally
when the customer has taken undisputed delivery of the goods. Revenue from the sale of software with no significant service
obligation is recognised on delivery.
Rendering of services
The Group generates revenues from managed services, support services, maintenance, resale of telecommunications (“Recurring
Services”) and professional services. Consideration received for these services is initially deferred (when invoiced in advance),
included in accruals and deferred income and recognised as revenue in the period when the service is performed.
In recognising Recurring Services revenues, the Group recognises revenue equally over the duration of the contractual term. Third-
party costs (where relevant) relating to these services are, likewise, spread equally over the duration of the contractual term.
d) Foreign currencies
Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and
liabilities in foreign currencies are translated at the rates of exchange ruling at the statement of financial position date. All exchange
differences are recognised in the Consolidated Income Statement.
e) Property, plant and equipment
Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment. The depreciation policy is
contained in principal accounting policy (h).
f) Disposal of assets
The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying
amount of the asset and is recognised in the Consolidated Income Statement on page 23.
g) Separately identifiable items
Items which are material either because of their size or their nature, are highlighted separately on the face of the Consolidated Income
Statement. The separate reporting of these items helps provide a better picture of the Group’s underlying performance. Items which
may be included within this category include, but are not limited to, acquisition costs, spend on the integration of significant
acquisitions and other major restructuring or rationalisation programmes, significant goodwill or other asset impairments and other
particularly significant or unusual items.
Separately identifiable items are excluded from the headline profit measures used by the Group and are highlighted separately in the
Consolidated Income Statement as management believe that they need to be considered separately to gain an understanding of the
underlying profitability of the trading businesses.
Note 4 contains more detail on separately identifiable items.
h) Depreciation
Depreciation is calculated on a straight-line basis so as to write off the cost of an asset, less its estimated residual value, over the
useful economic life of that asset as follows:
IT equipment
Fixtures, fittings and leasehold improvements
Plant, machinery and Motor vehicles
–
–
–
three to four years
three to four years
three to four years
Material residual value estimates are updated as required, but at least annually.
CloudCoCo Group plc Annual Report 2019
28
Notes to the consolidated financial statements (continued)
i) Intangible assets
Intangible assets mainly comprise the fair value of customer bases and other identifiable assets acquired which are not included on
the balance sheets of the acquired companies. A fair value calculation is carried out based on evaluating the net recurring income
stream from each type of intangible asset. Intangibles are initially recognised at fair value, and are subsequently carried at this fair
value, less accumulated amortisation and impairment. The following items were identified as part of the acquisitions of entities by the
Group and were still owned at 30 September 2019:
IT and billing systems amortised over three years (previously amortised over ten years);
customer lists amortised over five to ten years; and
brands amortised over ten years.
The allocation of fair values to the tangible assets and the identification and valuation of intangible assets affect the calculation of
goodwill recognised in respect of an acquisition and as such represent a key source of estimation uncertainty. Refer to principal
accounting policy (t).
j) Impairment testing of goodwill, other intangible assets and property, plant and equipment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (cash generating units). As a result, some assets are tested individually for impairment and some are tested at cash generating
unit (“CGU”) level. Goodwill is allocated to those CGUs that are expected to benefit from the synergies of the related business
combination and represent the lowest level within the Group at which management monitors the related cash flows.
Impairment reviews are carried out using multi-year cash flow projections from the approved budgets of the Group. These are
discounted using a weighted average cost of capital (WACC) specific to each CGU, based on the internal rate of return calculated
over the useful economic life of the asset or ten years (whichever is the sooner). The internal rate of return for each CGU reflects the
time value of money and the nature and risks of the CGU. Where the CGU contains a customer base, then this asset is discounted
further using an annual customer retention ratio to reflect the assumed diminution of revenues from a customer base over time. The
customer retention ratio used is measured separately by CGU and is calculated as the higher of the actual customer base retention
ratio experienced or 80% per annum. Cash flows are estimated over a maximum of ten years. The term and customer retention ratio
is attributed separately to each asset and is assessed by the Board at the time of acquisition.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal
discounted cash flow evaluation. Impairment losses are credited to the carrying amount of the relevant asset. With the exception of
goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.
k) Leased assets
In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all
the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the
lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if
any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability.
The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the
Consolidated Income Statement over the period of the lease. All other leases are regarded as operating leases and the payments
made under them are charged to the Consolidated Income Statement on a straight-line basis over the lease term. Lease incentives
are spread over the term of the lease.
l) Inventories and work in progress
Inventories are stated at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items.
The cost is calculated using the FIFO basis. Work in progress relates to costs incurred on part-completed work.
m) Taxation
Current tax is the tax currently payable based on taxable results for the year. Deferred income taxes are calculated using the liability
method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and
liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition
of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.
In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition
as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the
extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income.
Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of
realisation, provided they are enacted or substantively enacted at the reporting date.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Consolidated Income Statement,
except where they relate to items that are charged or credited directly to equity, in which case the related deferred tax is also charged
or credited directly to equity.
CloudCoCo Group plc Annual Report 2019
29
Notes to the consolidated financial statements (continued)
n) Financial assets
Financial assets are divided into categories as appropriate. These are the first full year results which are presented by the Group
following the adoption of IFRS 9 and 15. The adoption of both IFRS 15 and IFRS 9 has not resulted in restatements but has resulted
in additional disclosure.
The Group implemented IFRS 9 Financial Instruments, as of 1 October 2018 and also considered the impact on the comparative
results. IFRS 9 introduces principle-based requirements for the classification of financial assets, using the following measurement
categories: (i) Amortised cost; (ii) Fair value through Other Comprehensive Income with cumulative gains and losses reclassified to
profit or loss upon derecognition; and (iii) Fair value through profit or loss. IFRS 9 also introduces a new impairment model, the
expected credit loss model.
The Group undertook an assessment of how the adoption of IFRS 9 would impact the Group’s financial instruments. The key area
that was identified across the business was the bad debt provisioning because of the implementation of the expected credit loss
model and it was concluded that no restatement was required.
The Group now reviews the amount of credit loss associated with its trade receivables based on forward looking estimates, taking
into account current and forecast credit conditions as opposed to relying on past historical default rates. In adopting IFRS 9 the Group
has applied the Simplified Approach, applying a provision matrix based on number of days past due to measure lifetime expected
credit losses and after taking into account customers with different credit risk profiles and current and forecast trading conditions.
Having assessed the requirements according to the new standard, the Group has concluded that no significant additional impairment
to the carrying values of the assets was required at 1 October 2017, at 30 September 2018 or at 30 September 2019. Details of the
expected credit loss provision for trade receivables is shown in note 14.
Trade receivables are held in order to collect the contractual cash flows and are initially measured at the transaction price as defined
in IFRS 15, as the contracts of the Group do not contain significant financing components. Impairment losses are recognised based
on lifetime expected credit losses in profit or loss.
Other receivables are held in order to collect the contractual cash flows and accordingly are measured at initial recognition at fair
value, which ordinarily equates to cost and are subsequently measured at cost less impairment due to their short-term nature. A
provision for impairment is established based on 12-month expected credit losses unless there has been a significant increase in
credit risk when lifetime expected credit losses are recognised. The amount of any provision is recognised in profit or loss.
All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. All financial
assets are initially recognised at fair value, plus transaction costs. Derecognition of financial assets occurs when the rights to receive
cash flows from the instruments expire or are transferred and substantially all of the risks and rewards of ownership have been
transferred. An assessment for impairment is undertaken, at least, at each reporting date.
Interest and other cash flows resulting from holding financial assets are recognised in the Consolidated Income Statement when
receivable.
o) Cash and cash equivalents
Cash at bank and in hand comprises cash on hand and demand deposits.
p) Financial liabilities
Financial liabilities are obligations to pay cash or other financial instruments and are recognised when the Group becomes a party to
the contractual provisions of the instrument. All interest-related charges are recognised as an expense in “finance costs” in the
Consolidated Income Statement. Loan notes are raised for support of long-term funding of the Group’s operations. The financial
liability arising on the loan notes is carried at amortised cost.
Finance charges, including premiums payable on settlement or redemption, and direct issue costs are charged to the Consolidated
Income Statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument
to the extent that they are not settled in the period in which they arise.
q) Equity
Equity comprises the following:
“Share capital” represents the nominal value of equity shares;
“Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares; net of
expenses of the share issue;
“Capital redemption reserve” represents the nominal value of cancelled Deferred Shares;
“Merger reserve” represents the excess over nominal value of the fair value of consideration received for equity shares, net of
expenses of the share issue, in connection with acquisitions;
“Other reserve” represents equity-settled share-based employee remuneration until such share options are exercised, and the
equity element in the form of share warrants, contained in the financial instrument issued to the Business Growth Fund
(“BGF”) on 26 May 2016.
“Retained earnings reserve” represents retained profits and accumulated losses.
CloudCoCo Group plc Annual Report 2019
30
Notes to the consolidated financial statements (continued)
r) Employee benefits
Share-based payment – equity-settled
All material share-based payment arrangements are recognised in the financial statements. All goods and services received in
exchange for the grant of any share-based remuneration are measured at their fair values. Fair values of employee services are
indirectly determined by reference to the fair value of the share options awarded. Their value is appraised at the grant date and
excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets).
All share-based remuneration is ultimately recognised as an expense in the Consolidated Income Statement with a corresponding
credit to “other reserve”. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting
period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if
there is any indication that the number of share options expected to vest differs from previous estimates.
Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in
prior periods if share options ultimately exercised are different to that estimated on vesting.
Upon exercise of share options, the proceeds received, net of attributable transaction costs, are credited to share capital and share
premium.
s) Pension
The Group makes payments to defined contribution retirement benefit plans that are charged as an expense as they fall due.
Payments are made on the basis of a percentage of qualifying salary for certain employees to personal pension schemes. The total
charge to the Consolidated Income Statement for the period was £69,000 (2018: £125,000). There were £10,000 of pension
contributions payable at the reporting date (2018: £15,000).
t) Critical accounting judgements and key sources of estimation uncertainty
Critical judgements in applying the Group’s accounting policies
The allocation of fair values to the tangible assets and the identification and valuation of intangible assets affect the goodwill and the
assignment of that to each cash generating unit, recognised in respect of the acquisitions. The allocation of fair value between the
loan note and share option elements of the financial instrument issued to the BGF on 26 May 2016 uses the Black Scholes pricing
model to calculate the fair value of the share option element. The resulting fair value calculation of the share option element is then
used to determine the implied effective borrowing rate of the loan notes. Note 7 contains more detail on the BGF financial instrument.
Estimates and judgements around the allocation of fair values are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Key sources of estimation uncertainty
The key assumptions concerning the future and other sources of estimation uncertainty at the reporting date that have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Intangible assets
Intangible assets are non-physical assets which have been obtained as part of an acquisition and which have an identifiable future
economic benefit to the Group at the point of acquisition. Customer bases are valued at acquisition by measuring the future
discounted cash flows over a ten-year period from the date of acquisition, depending on class and date of acquisition and assuming
a diminution for retention rate specific to each customer base, calculated using the average actual retention rate over the prior three
or five-year period. All future cash flows are discounted using a WACC, based on the internal rate of return for each asset, calculated
over its useful economic life.
Determining whether intangible assets, including goodwill, are impaired requires an estimate of whether there is an impairment
indicator. The key estimate for the carrying value of intangible assets is the cash flows associated with the intangible assets and the
WACC. Each of the intangible assets held by the Group is measured regularly to ensure that they generate discounted positive cash
flows.
Where there is indication of impairment, the intangible asset is impaired by a charge to the Consolidated Income Statement. Further
details on the impairment tests are shown in principal accounting policy (j) above and Note 10.
CloudCoCo Group plc Annual Report 2019
31
Notes to the consolidated financial statements (continued)
3. Segment reporting
The Chief Operating Decision Maker (“CODM”) has been identified as the directors of the Company and its subsidiaries, who review
the Group’s internal reporting in order to assess performance and to allocate resources.
The CODM assess profit performance principally through adjusted profit measures consistent with those disclosed in the Annual
Report and Accounts. 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
Product
Professional Services
–
–
–
This segment comprises the provision of continuing IT services which
have an ongoing billing and support element.
This segment comprises the resale of solutions (hardware and software)
from leading technology vendors.
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 and no customer accounts for more than 10% of external revenues. Inter-
segment transactions are accounted for using an arm’s length commercial basis.
3.1 Analysis of continuing results
All revenues from continuing operations are derived from customers within the UK. This analysis is consistent with that used internally
by the CODM and, in the opinion of the Board, reflects the nature of the revenue.
3.1.1 Revenue
Recurring Services
Product
Professional Services
Total Revenue
3.1.2 Gross Profit
Recurring Services
Product
Professional Services
Total Gross Profit
2019
£’000
5,153
1,405
699
7,257
2019
£'000
2,896
278
553
3,727
2018
£’000
7,100
1,987
1,098
10,185
2018
£'000
4,231
439
1,035
5,705
4. Separately identifiable costs
Items which are material and non-routine in nature are presented as separately identifiable items in the Consolidated Income
Statement.
Income from settlement of warranty claim
Costs in relation to the warranty claim and other M&A activities
Settlement of historic Microsoft licence review
Impairment of goodwill and intangible assets (Note 10)
Integration and restructure costs
Foreign exchange rate variances
Costs in relation to disposal of Pinnacle CDT Limited
Separately identifiable costs
2019
£’000
—
—
—
(3,021)
(226)
(8)
—
(3,255)
2018
£’000
1,578
(481)
(376)
(2,644)
(271)
—
(196)
(2,390)
The Board has assessed the carrying value of the Group’s goodwill and following an assessment of current budgets and forecasts
for the Group, an impairment charge of £3.0m (FY18: £2.6m) has been made.
CloudCoCo Group plc Annual Report 2019
32
Notes to the consolidated financial statements (continued)
5. Operating loss
Operating loss is stated after charging:
Depreciation of owned assets
Amortisation of intangibles
Operating lease rentals:
– Buildings
Auditor’s remuneration:
– Audit of parent company
– Audit of subsidiary companies
– Audit costs relating to prior year
– Audit-related assurance services
– Corporation tax services
2019
£’000
100
907
106
22
42
20
7
10
2018
£’000
136
907
105
20
37
28
6
16
6. Finance income and finance costs
Finance cost includes all interest-related income and expenses. The following amounts have been included in the Consolidated
Income Statement line for the reporting periods presented:
Interest income resulting from short-term bank deposits
Finance income
Interest expense resulting from:
Finance leases
BGF loan notes
Effective interest on liability element of the BGF loan notes
Finance costs
2019
£’000
3
3
3
400
199
602
2018
£’000
7
7
10
400
199
609
As detailed in Note 7, the company had a liability to the Business Growth Fund (“BGF”) in respect of loan notes and share options.
In accordance with IAS 32, the BGF loan note and share option elements were linked and treated as a single financial instrument
and shown at fair value. On initial recognition, the fair value of the loan amount was calculated at £3.6m using a discounted cash flow
model over the seven-year term of the instrument and an effective borrowing rate of 15%. This was deemed to be an appropriate
market rate, reflecting the 8% coupon interest payments and the capital repayment profile of the loan notes. The unwinding of the
difference between the face value of the loan notes and their fair value on acquisition resulted in an effective interest charge on the
BGF loan notes of £199,000 during the year (2018: £199,000).
7. Employee costs
7.1 Directors and employees
At 30 September 2019, the Group employed 51 staff (2018: 88). The average number of staff employed by the Group during the
financial year amounted to 68 (2018: 102) as follows:
Management staff
Operational staff
Total
Employee numbers are stated including Directors.
7.2 Employee remuneration
Wages and salaries
Pension contributions
Share-based payments
Social security costs
Total
2019
13
55
68
2019
£’000
2,949
69
99
292
3,409
2018
15
87
102
2018
£’000
3,990
125
(7)
391
4,499
CloudCoCo Group plc Annual Report 2019
33
Notes to the consolidated financial statements (continued)
7.3 Directors
Details of individual Directors’ emoluments for the year (including employer’s National Insurance (“NI”) contributions) are as follows:
Fees and salaries
2019
£’000
2018
£’000
Employer’s NI contributions
2018
£’000
2019
£’000
Other benefits
Totals (including
employer’s NI)
2019
£’000
2018
£’000
2019
£’000
2018
£’000
Non-Executive
S Duckworth
T Black
Executive
J Collighan1
N Deman (in office 20 March 2018 to
30 September 2018)
I Winn (resigned 20 March 2018)
36
32
72
—
—
36
32
30
76
70
Total
140
244
4
3
—
—
—
7
4
3
—
1
8
16
—
—
—
—
—
—
—
—
—
—
—
(29)
(29)
40
35
72
—
—
40
35
30
77
49
147
231
1. fees in relation to J Collighan are paid to MXC Capital Advisory Limited (see Note 20).
The Managing Director and the Finance Director of the trading business as at 30 September 2019 are considered to be key
management personnel and had aggregate emoluments during the year of £201,600 (2018: £203,100).
Benefits include the costs of share options issued in accordance with IFRS 2 Share-based Payments to the Directors of the Company
as follows:
Name of Director
I Winn (resigned 20 March 2018)
2019
£’000
—
2018
£’000
(30)
7.4 Share-based payments
(i) Share option plans for employees
The Company has an HMRC-approved EMI share option scheme for certain staff and senior management. There is also an
unapproved share option scheme in place which is used where the individuals do not fall under the rules of the approved scheme.
The unapproved scheme has no set term and the current arrangements continue until further notice. In both schemes, upon vesting,
each option allows the holder to purchase one Ordinary Share at the pre-agreed option price. All share-based employee remuneration
will be settled in equity. The Group has no legal or other obligation to repurchase or settle the options.
Outstanding at 1 October
Granted
Lapsed
Outstanding at 30 September
2019
Number
9,849,358
—
(1,301,666)
8,547,692
2019
Weighted
average
exercise price
6.08p
—
11.73p
5.22p
2018
Number
15,597,691
—
(5,748,333)
9,849,358
2018
Weighted
average
exercise price
6.82p
—
8.09p
6.08p
During the year no share options were granted (2018: nil) and 1,301,666 share options lapsed in accordance with the share issue
documents. At 30 September 2019, the Company had granted the following outstanding share options:
Date granted
9 July 2009
25 March 2015
28 September 2016
31 March 2017
Total
Balance
2019
—
207,692
4,540,000
3,800,000
8,547,692
Movement
during the year
(166,666)
—
(1,135,000)
—
(1,301,666)
Balance
2018
166,666
207,692
5,675,000
3,800,000
9,849,358
Exercise
price
30.00p
—
Dates exercisable
9 July 2011–9 July 2019
25 March 2018–25 March 2025
9.00p 28 September 2019–28 September 2026
1.00p
1 April 2022–31 March 2027
5.22p
Remaining
contractual life
(months)
—
66
84
90
CloudCoCo Group plc Annual Report 2019
34
Notes to the consolidated financial statements (continued)
7.4 Share-based payments (continued)
(ii) Non-employee share options and warrants
In consideration of the issue of £5m loan notes on 26 May 2016 by the BGF, they were granted an option to subscribe for 50,000,000
Ordinary Shares of 1p each in the capital of the Company at a price of 6p per Ordinary Share. The fair value of these options is linked
to the treatment of the loan notes and valued in accordance with Notes 6 and 17.
In consideration of its agreement to partially underwrite the placing of £0.86m on 14 May 2015, MXC Capital Limited was granted
warrants over 5% of the share capital of the Company. The warrant instrument provided that the number of warrants created under
the terms of this instrument shall at all times be equal to 5% of the issued share capital of the Company. This figure of 5% will be
reduced pro rata by any allotment and issue of new Ordinary Shares pursuant to any partial exercise of warrants during the seven-
year exercise period.
The warrants were exercisable at the price of 6.50p and shall be exercisable over a seven-year period from 28 April 2015 on the
following terms:
(i)
the warrants vest a third per annum over the first three years; and
(ii) 50% of the warrants that vest in any year (one-third of the total) become exercisable immediately and the remaining 50% of the
warrants only become exercisable subject to a 12% per annum compound growth in the Company’s share price above 6.50p.
Certain provisions were contained in the warrant instrument to provide for the entire award being exercisable on a takeover of the
Company.
The BGF options were restructured and the MXC warrants were cancelled as part of the refinancing following the acquisition of
CloudCoCo Limited on 21 October 2019. Further details are given in note 7.
The total non-employee share options and warrants in issue at 30 September 2019 are:
Date granted
28 April 2015
26 May 2016
Total
Balance
2019
13,853,255
50,000,000
63,853,255
Movement
during the year
Balance
2018
— 13,853,255
— 50,000,000
— 63,853,255
Exercise
price
6.50p
6.00p
6.11p
Dates exercisable
28 April 2018–28 April 2022
26 May 2016–26 May 2031
Remaining
contractual
life
(months)
31
140
The total share-based payments expense included in the Consolidated Income Statement is:
Share options
Share warrants
Total
2019
£’000
16
55
71
2018
£’000
(7)
55
48
CloudCoCo Group plc Annual Report 2019
35
Notes to the consolidated financial statements (continued)
8. Income tax
Current tax
UK corporation tax for the period at 19% (2018: 19%)
Deferred tax
Deferred tax credit on intangible assets
Total tax credit for the year
2019
£’000
—
(438)
(438)
2018
£’000
—
(169)
(169)
The relationship between expected tax expense based on the standard rate of tax in the UK of 19% (2018: 19%) and the tax expense
actually recognised in the Consolidated Income Statement can be reconciled as follows:
Loss for the year before tax:
Tax rate
Expected tax credit
Adjusted for:
Credits not chargeable to tax
Non-deductible expenses
Movement in unprovided deferred tax relating to losses
Change in tax rates
Short-term timing differences
2019
£’000
(5,588)
19%
(1,062)
—
641
287
(13)
585
438
2018
£’000
(3,976)
19%
(755)
(300)
908
5
24
287
169
The Group has unrecognised deferred tax assets in respect of tax losses carried forward totalling £1,290,000 (2018: £1,577,000).
9. Loss per share
Loss attributable to ordinary shareholders
2019
£’000
(5,150)
2018
£’000
(3,807)
Weighted average number of Ordinary Shares in issue, basic and diluted
Basic and diluted loss per share
Number
Number
227,065,100 227,065,100
(1.68)p
(2.27)p
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, details of which are given in Note 7, would have the effect of reducing the loss per ordinary
share and therefore would be anti-dilutive under the terms of IAS 33.
CloudCoCo Group plc Annual Report 2019
36
Notes to the consolidated financial statements (continued)
10. Intangible assets
Intangible assets are non-physical assets which have been obtained as part of an acquisition or research and development activities,
such as innovations, introduction and improvement of products and procedures to improve existing or new products. All intangible
assets have an identifiable future economic benefit to the Group at the point the costs are incurred. The Group’s policy is to amortise
IT and billing and website systems over 3 years. Customer lists and brands are amortised over a maximum period of ten years from
the date of acquisition.
Intangible assets
Cost
At 1 October 2017
Adjustments to provisional fair values
At 1 October 2018
Additions
At 30 September 2019
Accumulated amortisation
At 1 October 2017
Charge for the year
At 1 October 2018
Charge for the year
At 30 September 2019
Impairment
At 1 October 2017
Charge in the year
At 1 October 2018
Charge in the year
At 30 September 2019
Carrying amount
At 30 September 2019
At 30 September 2018
Average remaining amortisation period
Goodwill
£’000
4,447
—
4,447
—
4,447
—
—
—
—
—
(200)
(2,644)
(2,844)
(1,603)
(4,447)
—
1,603
IT, billing and
website
systems
£’000
113
29
142
40
182
(7)
(20)
(27)
(20)
(47)
—
—
—
—
—
Brand
£’000
1,157
—
1,157
—
1,157
(150)
(115)
(265)
(115)
(380)
—
—
—
(225)
(225)
Customer
lists
£’000
7,580
—
7,580
—
7,580
(1,136)
(772)
(1,908)
(772)
(2,680)
—
—
—
(1,193)
(1,193)
Total
£’000
13,297
29
13,326
40
13,366
(1,293)
(907)
(2,200)
(907)
(3,107)
(200)
(2,644)
(2,844)
(3,021)
(5,865)
135
115
1.8 years
552
892
4.8 years
3,707
5,672
4.8 years
4,394
8,282
4.8 years
Intangible assets require three conditions to be fulfilled:
i.
identifiable – either separable or arising from a contractual or other legal right;
ii. can be controlled; and
iii.
future economic benefits exist.
On acquisition, cash flows from customer assets, which are not subject to a defined contract term and can be cancelled by serving
notice, are subject to an attrition analysis using projected growth rates for the first three years and 5% growth per annum thereafter,
and the actual retention rates for each customer base acquired. The resulting cash flows are modelled over an extended number of
years until all of the expected future cash flows are identified. The discount rates used in the cash flow projections were calculated
using a weighted average cost of capital (WACC) specific to each asset acquired and ranged from 10.2% to 17.3% across the
acquisitions.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (cash generating units). Goodwill is allocated to those assets that are expected to benefit from synergies of the related business
combination and represent the lowest level within the Group at which management monitors the related cash flows. Each year,
management compares the resulting cash flow projections by CGU to the carrying value of goodwill. Any material variance in this
calculation results in an impairment charge to the Consolidated Income Statement.
CloudCoCo Group plc Annual Report 2019
37
Notes to the consolidated financial statements (continued)
10. Intangible assets (continued)
The calculations used to compute cash flows at CGU level are based on the Group’s budget, growth rates, WACC and other known
variables. The calculations are sensitive to movements in both WACC, the effective unsecured borrowing rate of the Group and the
customer retention ratio. The current effective unsecured borrowing rate is calculated at 15% per annum. Sensitivities have been run
on cash flow forecasts for all CGUs. Management is satisfied that the key assumptions of revenue and EBITDA growth rates are
achievable and that reasonably possible changes to those key assumptions would not lead to the carrying amount of the relevant
CGU exceeding the recoverable amount. Sensitivity analyses have been performed and the table below summarises the effects of
changing certain key assumptions and the resultant excess (or shortfall) of discounted cash flows against the aggregate of goodwill
and intangible assets.
Sensitivity analysis
Sensitivity analysis
Base case fair value of intangible assets by CGU (including goodwill)
Excess of fair value over carrying value:
Base case
Discount rate increased to 16%
Revenues reduced by 5% per annum
Adept4 Managed
IT Limited
£’000
4,394
—
(269)
(455)
Base case calculations highlight that the impairment review is sensitive to the discount rate and growth rate. Given the Group’s value
proposition is centred around generating monthly recurring fees for IT as a Service, the Directors are satisfied that the Group’s
objectives are to maximise the cash flows generated through the sales of Recurring Services.
In determining whether intangible assets including goodwill were impaired, the directors estimated the discounted future cash flows
associated with the intangible assets over a ten-year period, using a discount rate equivalent to the WACC. The directors also
considered the impact of the customer notice of termination received and the reduction in Trading EBITDA* during the year as
indicators that the intangible assets were impaired. The goodwill and other intangibles were impaired by £3.0m during the year (2018:
£2.6m).
At 30 September 2019, the Company had the following subsidiaries:
Active companies
Subsidiary company
CloudCoCo Holdings Limited
(formerly Adept4 Holdings Limited)
CloudCoCo Managed IT Limited
(formerly Adept4 Managed IT Limited)
Dormant companies
Subsidiary company
Pinnacle CDT Limited
CloudCoCo Cloud Services Limited
(formerly Adept4 Cloud Services Limited)
Ancar-B Technologies Limited
Holding
100%
Country of
incorporation
Scotland
Shares
Ordinary
Nature of business
Holding company
100%
England and Wales
Ordinary
ITaaS
Holding
100%
100%
100%
Country of
incorporation
England and Wales
England and Wales
England and Wales
Shares
Ordinary
Ordinary
Ordinary
Nature of business
Dormant
Dormant
Dormant
For the year ending 30 September 2019 the following subsidiaries of the Company were entitled to exemption from audit under s479A
of the Companies Act 2006 relating to subsidiary companies.
Subsidiary Name
Pinnacle CDT Limited
CloudCoCo Cloud Services Limited
(formerly Adept4 Cloud Services Limited)
Ancar-B Technologies Ltd
Companies House Registration Number
04613699
11504479
03347248
CloudCoCo Group plc Annual Report 2019
38
Notes to the consolidated financial statements (continued)
11. Property, plant and equipment
Cost of assets
At 1 October 2017
Additions
Disposals
At 30 September 2018
Additions
Disposals
At 30 September 2019
Depreciation
At 30 September 2017
Charge for the year
At 30 September 2018
Charge for the year
Disposals
At 30 September 2019
Net book value
At 30 September 2019
At 30 September 2018
Fixtures,
fittings and
leasehold
improvements
£’000
IT equipment
£’000
302
70
(16)
356
23
(125)
254
152
79
231
80
(118)
193
61
125
148
—
—
148
—
(54)
94
70
57
127
20
(54)
93
1
21
Total
£’000
450
70
(16)
504
23
(179)
348
222
136
358
100
(172)
286
62
146
12. Leases
12.1 Operating leases
The Group’s minimum operating lease payments relate to motor vehicles and land and buildings as follows:
12.1.1 Land and Buildings
At 30 September 2019
At 30 September 2018
Within 1 year
£’000
70
70
1 to 5 years
£’000
117
177
Total
£’000
187
247
Lease payments recognised as an expense during the year amounted to £106,000 (2018: £105,000). No sublease income is expected
as all assets held under lease agreements are used exclusively by the Group. The terms left on the non-cancellable leases can be
summarised as follows:
Property
7750 Daresbury Business Park, Warrington
Victoria Spring Business Park, Liversedge, West Yorkshire
Non-cancellable term left
36 months
3 months
Operating leases do not contain any contingent rent clauses. None of the operating lease agreements contain renewal of purchase
options or escalation clauses or any restrictions regarding dividends, further leasing or additional debt. Dilapidations are considered
on a lease by lease basis based on the Group's best estimate of the likely committed cash outflow in the last 36 months of expected
occupancy as the lease comes to an end. Dilapidations provisions during the year amounted to £15,000 (2018: Nil).
12.1.2 Motor Vehicles
At 30 September 2019
At 30 September 2018
Within 1 year
£’000
10
37
1 to 5 years
£’000
—
10
Total
£’000
10
47
CloudCoCo Group plc Annual Report 2019
39
Notes to the consolidated financial statements (continued)
12.2 Finance leases
Adept4 has finance leases which relate to assets used within the Group. The net carrying amount of the assets held under the leases
is £25,000 (2018: £32,000). The assets are included under IT equipment and leasehold improvements. The amounts held under
finance leases are secured on the assets concerned. Future minimum lease payments as at 30 September 2019 are:
Payments due within 1 year
Payments due between 1 and 5 years
Future minimum lease payments
Less interest due in payments
Capital sum due
Short-term obligations under finance leases
Long-term obligations under finance leases
13. Inventories
Consumables
Work in progress
Inventories
IT
equipment
£'000
26
9
35
(4)
31
21
10
Leasehold
improvements
£'000
13
9
22
(4)
17
11
6
2019
£’000
14
18
32
14. Trade and other receivables
These are the first full year results which are presented by the Group following the adoption of IFRS 9 and 15.
Trade receivables
Warranty settlement
Other Debtors
Prepayments and accrued income
Trade and other receivables
2019
£’000
951
—
3
535
1,489
Total
£'000
39
18
57
(8)
48
32
16
2018
£’000
12
14
26
2018
£’000
1,343
600
36
921
2,900
In adopting IFRS 9, the Group now reviews the amount of credit loss associated with its trade receivables based on forward looking
estimates that take into account current and forecast credit conditions as opposed to relying on past historical default rates. In
adopting IFRS 9 the Group has applied the Simplified Approach applying a provision matrix based on number of days past due to
measure lifetime expected credit losses and after taking into account customers with different credit risk profiles and current and
forecast trading conditions.
At period end, customers were categorised into three categories based on spend in the last 12 months:
1. Top 10 customers, 2. Next 50 customers and 3. Others
Specific provisions are also made based on known issues or changes in the lifetime expected credit loss.
Category
Top 10 customers
Next 50 customers
Other customers
Impairment Rate
0.0%
0.8%
1.0%
Trade receivables at the reporting date comprise amounts receivable from the provision of the Group’s products and services. The
average credit period taken on the provision of these services is 40 days (2018: 47 days). Trade receivables are stated net of an
impairment for estimated irrecoverable amounts of £137,000 (2018: £147,000). During the year, £118,000 of the opening impairment
provision of £147,000 from 1 October 2018, was utilised as a result of bad debts written off and subsequently a further increase in
the impairment provision of £108,000 was made, resulting in a Group provision of for impairment of trade receivables of £137,000 at
30 September 2019.
CloudCoCo Group plc Annual Report 2019
40
Notes to the consolidated financial statements (continued)
14. Trade and other receivables (continued)
At 30 September 2019 trade receivables amounting to £215,000 (2018: £206,000) were past due but not impaired.
The age of trade receivables not impaired is as follows:
Less than 30 days
30–59 days
60–89 days
90–119 days
120+ days
2019
£’000
582
154
140
39
36
951
2018
£’000
686
451
93
50
63
1,343
Credit risk
The Group’s main risk relates to trade receivables which are stated net of the provisions above. No collateral is held as security
against these debtors and the carrying value represents the fair value. The Group does not identify specific concentrations of credit
risk with regards to trade and other receivables, as the amounts recognised represent a large number of receivables from various
customers, including some government authorities.
15. Cash and cash equivalents
Cash at bank and in hand
2019
£’000
311
2018
£’000
1,427
Cash balances are held with a small number of counterparties. There were no borrowing facilities in place at 30 September 2019
other than the loan notes issued to the BGF (Note 17).
16. Trade and other payables
16.1 Current
Trade payables
Accruals and deferred income
Finance leasing liability – short-term element
Other taxes and social security costs
Total current liabilities
16.2 Non-current
BGF loan notes repayable to the BGF between three and seven years
Less fair value adjustment relating to the BGF loan notes
Fair value of BGF loan notes
Finance leasing liability – long-term element
Total non-current liabilities
Note 17 contains more detail on the loan notes repayable to the BGF.
Note 12 contains further information on the finance lease liability.
2019
£’000
876
1,093
32
302
2,303
2019
£’000
5,000
(730)
4,270
16
4,286
2018
£’000
1,102
1,937
32
377
3,448
2018
£’000
5,000
(929)
4,071
46
4,117
CloudCoCo Group plc Annual Report 2019
41
Notes to the consolidated financial statements (continued)
17. Financial instrument
On 26 May 2016, the Company issued £5m unsecured loan notes (“Loan Notes”) to the BGF with a seven-year term (although
redemption is permissible from the third anniversary) with repayment between the fifth and seventh anniversaries in equal semi-
annual repayments that carry interest at 8% per annum (“Coupon”). Assuming that the Loan Notes were held for seven years and
not redeemed early, the maximum credit exposure at 30 September 2019, including interest, is £6.0m (2018: £6.4m), of which £1.0m
(2018: £1.4m) relates to interest. As previously described, the Company also agreed to grant the BGF an option to subscribe for
50,000,000 Ordinary Shares of 1p at a subscription price of 6p any time before 26 May 2031. As the Loan Notes are unsecured, no
collateral was offered to the BGF as security. The Loan Notes are not exposed to market interest rate increases over the term.
In accordance with IAS 32, the Loan Notes and share warrant elements were linked and treated as a single financial instrument and
shown at fair value.
The fair value of the share options at 26 May 2016 (date of grant) has been calculated using the Black Scholes pricing model
incorporating the following key assumptions:
share price volatility of 40%;
spot price of 6p per share;
risk-free rate of 0.9%; and
option period, aligned with the maximum amount of time the loan can remain outstanding.
Based on the assumptions above, the Black Scholes pricing model provided a fair value for the share option of 2.89p per share,
which implied a total fair value for the share option of £1.4m. Based on the expected Coupon payments and repayment profile under
the loan notes, this implies an effective borrowing rate of 15%. This resulted in a fair value of the loan amount at 26 May 2016 of
£3.6m. The difference between the Coupon rate and the effective interest charge at 15% is charged through the Consolidated Income
Statement over the life of the loan notes, and increases the outstanding loan note balance over time to match actual Coupon and
capital cash repayments relating to the Loan Notes.
Cash received from the BGF on 26 May 2016 for Loan Notes at 8% per annum interest
At 30 September 2018
Interest on Loan Notes at 8% per annum for the year to 30 September 2019
Notional interest on liability element of the BGF Loan Notes to 30 September 2019
At 30 September 2019
Loan
Note
balance
£’000
5,000
5,000
—
—
5,000
Carrying
value
Loan Notes
£’000
—
4,071
—
199
4,270
8%
interest
payable
£’000
—
—
400
—
400
On 21 October 2019, the Group reached a settlement with BGF in relation to the £5m unsecured loan notes, further details are
contained in note 23.
18. Deferred tax liabilities
Deferred tax liability at 30 September 2017
Credited to income statement – on intangibles
Deferred tax liability at 30 September 2018
Credited to income statement – on intangibles
Deferred tax liability at 30 September 2019
Deferred tax
on acquired
intangibles
£’000
1,416
(168)
1,248
(438)
810
CloudCoCo Group plc Annual Report 2019
42
Notes to the consolidated financial statements (continued)
19. Share capital and reserves
19.1 Share capital
Shares issued and fully paid
Beginning of year
Issued during year
Shares issued and fully paid
Share capital allotted, called up and fully paid
Ordinary shares of £0.01p each
At 30 September 2018 and 30 September 2019
2019
£’000
2,271
—
2,271
2018
£’000
2,271
—
2,271
Ordinary
Shares
227,065,100
19.2 Capital redemption reserve
At the Company’s Annual General Meeting on 27 March 2015, the Company was authorised to enter into a contract for the off-market
purchase of all of the Deferred Shares of £0.009 each in its capital for cancellation. A single new Ordinary Share of £0.01 was issued
by the Company on that date to finance the off-market purchase. In accordance with Section 733 of the Companies Act 2006, this
cancellation of shares created a capital redemption reserve. Article 3 of the Companies (Reduction of Share Capital) Order 2008 (SI
2008/1915) allows such reduction to be treated as a realised profit and it therefore may be used to distribute to shareholders or used
to buy back shares.
19.3 Merger reserve
The merger reserve represents the excess over nominal value of the fair value of consideration received for equity shares, net of
expenses of the share issue, in connection with acquisitions.
19.4 Other reserve
Other reserves comprise:
fair value of equity-settled share-based payments;
fair value of MXC Capital warrants; and
fair value adjustment relating to share option element of the BGF Loan Notes.
20. Related party transactions
Details of Directors’ interests in the Company’s shares, service contracts and remuneration are set out in the report of the Board to
the members on Directors’ remuneration on pages 14 and 15.
Jill Collighan, a Director of the Company, is an employee of the MXC Capital Limited group (“MXC”). At 30 September 2019, MXC
had a 29.9% holding in the shares of the Company and also held share warrants, as disclosed in Note 7 and is considered to have a
significant influence over the Group. No other Director had a material interest in any significant contract with the Company or any of
its subsidiaries during the year save for those disclosed in the accounts.
Fees invoiced by MXC include £72,000 for Jill Collighan’s services as an Executive Director, included as directors’ emoluments in
Note 20. Additionally, corporate finance advisory and transaction services were purchased from MXC as financial adviser to the
Company. The Group purchased services totalling £102,000 (2018: £70,000) from MXC and at 30 September 2019 owed £129,000
to MXC (2018: £21,000).
21. Contingent liabilities
There are no contingent liabilities at 30 September 2019 (2018: nil).
CloudCoCo Group plc Annual Report 2019
43
Notes to the consolidated financial statements (continued)
22. Risk management
The Group finances its activities through equity, loan notes and bank funds. No speculative treasury transactions are undertaken and
during the last two years no derivative contracts were entered into. Financial assets and liabilities include those assets and liabilities
of a financial nature, namely cash and borrowings. The Group is exposed to a variety of financial risks arising from its operating
activities, which are monitored by the Directors and are reported in the principal risks and uncertainties contained within the Strategic
Report on pages 7 and 8.
22.1 Cash and liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash
assets safely and profitably. The Group policy throughout the year has been to ensure continuity of funding by a combination of loan
note funding, available bank facilities and the issue of equity.
22.2 Interest rate risk
The interest rate on the Group’s cash at bank is determined by reference to the bank rate. The Group has available credit card
facilities with HSBC of up to £10,000 (2018: £10,000). The interest rate charged on finance leases and commercial loans is a fixed
rate agreed at the time of signing the agreement.
22.3 Capital risk management
The Group’s policy on capital structure is to maintain a level of gross cash available, which the Board considers to be adequate to
fund a range of potential EBITDA movements, taken from a series of business projections and scenarios. Based on these business
projections, the Board believes it has sufficient cash resources at its disposal to pursue its chosen strategy of maximising shareholder
returns over the medium to long term from the customer base with a high proportion of contracted recurring revenues.
The Group manages its capital to ensure that trading entities in the Group will be able to continue as going concerns, while maximising
the medium and long term returns to shareholders through the organisation of cash, debt and equity balances. The capital structure
of the Group consists of cash at bank and in hand, debt and equity attributable to equity holders of the parent, comprising issued
share capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity on page 25.
The Directors seek to promote recurring revenues to a wide range of business customers, to reduce the risks associated with
fluctuations in the UK economy and to increase the long-term value to customers and shareholders. If required, the Group will
subsidise one-off connection fees in order to generate contracted recurring revenues and secure longer-term business relationships
with customers.
The declaration and payment by the Group of any future dividends on the Ordinary Shares and the amount will depend on the results
of the Group’s operations, its financial condition, cash requirements, future prospects, profits available for distribution and other
factors deemed to be relevant at the time.
Given the Group’s stage of development, the Directors do not envisage that the Group will pay dividends in the foreseeable future
and intend to reinvest surplus funds in the development of the Group’s business. The Board will regularly review the appropriateness
of its dividend policy.
In order to maintain or adjust the capital structure, the Group may adjust the amount of any pay-outs to the shareholders, return
capital to the shareholders, issue new shares, make borrowings or sell assets to reduce debt.
22.4 Credit risk
The Group’s policy is to monitor trade and other receivables and avoid significant concentrations of credit risk. The principal credit
risk arises from trade receivables. Aged receivables reports are reviewed monthly as a minimum. The credit control function follows
a policy of sending reminder letters that start once an invoice is over 30 days overdue. These culminate in a legal letter with the threat
of legal action. In a limited number of cases, legal action has been pursued. An aged analysis of receivables is shown in Note 14 to
the financial statements.
CloudCoCo Group plc Annual Report 2019
44
Notes to the consolidated financial statements (continued)
22.5 Risk management analysis
The information below provides an analysis of the financial assets and liabilities within the scope of IFRS 9 Financial
Instruments,required by IFRS 7 Financial Instruments: Disclosure. An analysis of the principal sums, relevant to an analysis of risk
management, is as follows:
2019
Trade and other receivables
Other current assets
Cash at bank and in hand
2018
Trade and other receivables
Other current assets
Cash at bank and in hand
2019
Trade and other payables
Finance lease liability – current
Finance lease liability – non-current
Commercial loans – non-current
2018
Trade and other payables
Finance lease liability – current
Finance lease liability – non-current
Commercial loans – non-current
Financial
assets
£’000
951
—
311
1,262
Financial
assets
£’000
1,356
600
1,427
3,383
Non-financial
assets
£’000
—
32
—
32
Non-financial
assets
£’000
—
26
—
26
Total
£’000
951
32
311
1,294
Total
£’000
1,356
626
1,427
3,409
Other
financial
liabilities at
fair value
£’000
2,303
—
—
5,000
7,303
Other liabilities
not within
scope of
IFRS 9
£’000
—
32
16
—
48
Balance sheet
total
£’000
2,303
32
16
5,000
7,351
Other
financial
liabilities at
fair value
£’000
3,448
—
—
5,000
8,448
Other liabilities
not within
scope of
IAS 39
£’000
—
32
46
—
78
Balance sheet
total
£’000
3,448
32
46
5,000
8,526
2019
Trade payables
Long-term borrowings
Finance lease liabilities
2018
Trade payables
Long-term borrowings
Finance lease liabilities
0 to 60
days
£’000
460
—
5
465
0 to 60
days
£’000
691
—
5
696
61 days to
6 months
£’000
416
—
11
427
61 days to
6 months
£’000
411
—
11
422
6 to 12
months
£’000
—
—
16
16
6 to 12
months
£’000
—
—
16
16
12 months to
2 years
£’000
—
1,250
16
1,266
12 months to
2 years
£’000
—
—
32
32
2 to 5
years
£’000
—
3,750
—
3,750
2 to 5
years
£’000
—
5,000
14
5,014
Over 5
years
£’000
—
—
—
—
Over 5
years
£’000
—
—
—
—
Total
£’000
876
5,000
48
5,924
Total
£’000
1,102
5,000
78
6,180
CloudCoCo Group plc Annual Report 2019
45
Notes to the consolidated financial statements (continued)
23. Post-balance sheet events
On 21 October 2019, the Group acquired the entire share capital of CloudCoCo Limited (“CloudCoCo”). CloudCoCo is a cloud, IT
hardware, and IT services company that commenced trading in 2018 and has seen impressive growth in that short period. The
consideration for the acquisition was satisfied through the issue of 218,160,586 ordinary shares in the Company which represents
approximately 49.0% of the enlarged share capital. The shares were issued at the mid-market closing price of 3.3 pence, representing
a total value of £7.2 million at completion.
Whilst it is too early to accurately assess the fair value of the assets and liabilities acquired prior to the production of this report, on
21 October 2019, CloudCoCo had cash balances of £157,000 and had signed a number of recurring customer contracts generating
unaudited revenue of over £1 million per annum. CloudCoCo has a very strong and experienced sales and business development
team which had already shown its ability to win new business using its agile sales methodology. On 21 October 2019, following the
acquisition, Andy Mills, former Chairman of CloudCoCo, joined the Board as Chief Executive Officer, focussing on driving the growth
of the enlarged Group. Mark Halpin (founder and former Chief Executive Officer of CloudCoCo) is leading the Group’s business
development activities.
On completion of the acquisition, £1.5 million of the loan notes were waived and cancelled by BGF, reducing the Company’s liability
to £3.5 million. MXC Guernsey Limited, a wholly owned subsidiary of MXC Capital Limited (“MXC”), which now holds 15.2% of the
shares in the Company, purchased the remaining £3.5 million loan notes from BGF and restructured their terms. The loan notes now
carry a coupon of 12% compound per annum, rolled up and payable only at the end of the term. The term of the loan notes has been
extended to October 2024 with no repayment due until that date unless the Company chooses to repay early. At the same time, MXC
extended a £0.5 million, 2 year, working capital facility to the Company with interest charged at a rate of 12% per annum on amounts
drawn down.
As part of the refinancing package, MXC also cancelled the warrants it held over 5% of the then issued and to be issued share capital
of Adept4 and BGF’s options were repriced to 0.35 pence. BGF exercised all of its options in October 2019 and, as MXC no longer
holds warrants in the Company, the only obligations over the Company’s shares are in respect of outstanding staff share options.
On 29 November 2019, the Company's name was changed to CloudCoCo Group plc.
The website address, at which information required pursuant to AIM Rule 26 is available, was changed with effect from 2 December
2019, to www.cloudcoco.co.uk.
24. Ultimate controlling party
There is no ultimate controlling party.
CloudCoCo Group plc Annual Report 2019
46
Independent Auditor’s report to the members of CloudCoCo Group plc
Opinion
We have audited the financial statements of CloudCoCo Group plc (the 'parent company') for the year ended 30 September 2019
which comprise the Statement of Financial Position (parent company), the Statement of Changes in Equity (parent company) and
the notes to the financial statements (parent company), including a summary of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102
“The Financial Reporting Standard applicable in the UK and the Republic of Ireland” (United Kingdom Generally Accepted Accounting
Practice).
In our opinion, the parent company financial statements:
give a true and fair view of the state of the parent company’s affairs as at 30 September 2019;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the parent company
financial statements section of our report. We are independent of the parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to SME listed
entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
the Directors' use of the going concern basis of accounting in the preparation of the parent company’s financial statements is not
appropriate; or
the Directors have not disclosed in the parent company financial statements any identified material uncertainties that may cast
significant doubt about the parent company's ability to continue to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the parent company financial statements are authorised for issue.
Key audit matters
We identified the key audit matters described below as those which were of most significance in the audit of the parent company
financial statements of the current period. Key audit matters include the most significant assessed risks of material misstatement,
including those risks that had the greatest effect on our overall audit strategy, the allocation of resources in the audit and the direction
of the efforts of the audit team.
In addressing these matters, we have performed the procedures below which were designed to address the matters in the context of
the parent company financial statements as a whole and in forming our opinion thereon. Consequently, we do not provide a separate
opinion on these individual matters.
Going Concern
The parent company recorded net liabilities of £0.3m at 30 September 2019 and is dependent on the Group’s subsidiaries to generate
cashflow to fund its own expenses. The procedures undertaken to address the key audit matters relating to Going Concern set out
in the Group audit report on page 19 are therefore also applicable to this parent company audit report. A further key audit matter for
the parent company is set out in the following table.
CloudCoCo Group plc Annual Report 2019
47
Independent Auditor’s report to the members of CloudCoCo Group plc
(continued)
Key audit matter
Carrying value of
amounts owed by
subsidiary undertakings
(See Note 5)
Description of risk
The Group recorded losses in the year
of £5.15m. The parent company has
significant receivable balances due from
Group companies. The assessment of
the recoverability of these balances
requires significant judgement.
How the matter was addressed in the audit with
respect to that risk
We reviewed management’s assessment of the
recoverability of receivables due from Group companies.
As part of our procedures we:
examined management’s assessment as to
whether indicators of impairment have been
identified and appropriately evaluated;
challenged the discounted cash flow model also
used in the Group audit to support the carrying
values of intangibles and goodwill, including the
appropriateness of the assumptions used in the
forecasts such as projected growth, future capital
expenditure, cash flows, cost projections, central
overhead allocation and the discount rate;
test checked arithmetic formulae within the model;
compared management’s historical forecasting
accuracy by comparing the previous years’
forecasts to the actual outturn; and
performed sensitivity analyses of the key
assumptions used by management and assessed
the adequacy of management’s disclosures of
sensitivity and key risks inherent in the calculation.
Materiality
The materiality for the parent company financial statements as a whole was set at £108,750. This has been determined with reference
to the benchmark of the parent company’s total assets, which we consider to be an appropriate measure as the parent company
exists only as a holding company for the Group and carries on no trade in its own right. Materiality represents 1% of total assets as
presented on the face of the parent company’s Statement of Financial Position.
An overview of the scope of our audit
The parent company was subject to a full scope audit.
Other information
The other information comprises the information included in the annual report, other than the Group and parent company financial
statements and our auditor’s reports thereon. The Directors are responsible for the other information. Our opinion on the parent
company financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion thereon.
In connection with our audit of the parent company financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the parent company financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or
apparent material misstatements, we are required to determine whether there is a material misstatement in the parent company
financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the Strategic Report and the Directors’ Report for the financial year for which the parent company
financial statements are prepared is consistent with the parent company financial statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
CloudCoCo Group plc Annual Report 2019
48
Independent Auditor’s report to the members of CloudCoCo Group plc
(continued)
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the parent company and the environment obtained in the course of the audit, we
have not identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our
opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Statement of Directors’ responsibilities set out on page 18, the Directors are responsible for the
preparation of the parent company financial statements and for being satisfied that they give a true and fair view, and for such internal
controls as the Directors determine is necessary to enable the preparation of parent company financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the parent company financial statements, the Directors are responsible for assessing the parent company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the parent company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the audit of the parent company’s financial statements
Our objectives are to obtain reasonable assurance about whether the parent company financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent
company financial statements.
A further description of our responsibilities for the audit of the parent company financial statements is located on the Financial
Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Other matter
We have reported separately on the Group financial statements of CloudCoCo Group plc for the year ended 30 September 2019.
Use of our report
This report is made solely to the parent company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the parent company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the parent company and the parent company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
Andrew Bond
Senior Statutory Auditor,
for and on behalf of Nexia Smith & Williamson
Statutory Auditor, Chartered Accountants
25 Moorgate London EC2R 6AY
14 February 2020
CloudCoCo Group plc Annual Report 2019
49
Statement of financial position (parent company)
as at 30 September 2019
Fixed assets
Intangible assets
Fixed asset investments
Total fixed assets
Current assets
Debtors
Cash at bank and in hand
Total current assets
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due in more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Merger reserve
Other reserve
Retained earnings
Shareholders’ funds
30 September
2019
£’000
30 September
2018
£’000
Note
3
4
5
6
7
9
9
9
10
13
1
14
4,545
8
4,553
(599)
3,954
3,968
33
1
34
7,609
1,050
8,659
(571)
8,088
8,122
(4,270)
(4,071)
(302)
4,051
2,271
2,271
11,337
11,337
6,489
1,997
1,720
6,489
1,997
1,649
(24,116)
(19,692)
(302)
4,051
The parent company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own profit and loss
account in the financial statements. The parent company’s loss for the year was £4,424,000 (2018: £1,436,000).
Approved by the Board and authorised for issue on 14th February 2020.
Michael Lacey
Director
The accompanying accounting policies and notes form part of these financial statements.
Company number: 05259846
CloudCoCo Group plc Annual Report 2019
50
Statement of changes in equity (parent company)
for the year ended 30 September 2019
At 1 October 2017
Loss and total comprehensive loss for the period
Transactions with owners
Share-based payments
Total transactions with owners
Total movements
Share
capital
£’000
2,271
Share
premium
£’000
11,337
Capital
redemption
reserve
£’000
6,489
Merger
reserve
£’000
1,997
Other
reserve
£’000
1,601
Retained
earnings
£’000
(18,256)
Total
£’000
5,439
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (1,436)
(1,436)
48
48
48
—
—
48
48
(1,436)
(1,388)
Equity at 30 September 2018
2,271
11,337
6,489
1,997
1,649
(19,692)
4,051
At 1 October 2018
Loss and total comprehensive loss for the period
Transactions with owners
Share-based payments
Total transactions with owners
Total movements
Share
capital
£’000
2,271
Share
premium
£’000
11,337
Capital
redemption
reserve
£’000
6,489
Merger
reserve
£’000
1,997
Other
reserve
£’000
1,649
Retained
earnings
£’000
(19,692)
Total
£’000
4,051
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (4,424)
(4,424)
71
71
71
—
—
71
71
(4,424)
(4,353)
Equity at 30 September 2019
2,271
11,337
6,489
1,997
1,720
(24,116)
(302)
The accompanying accounting policies and notes form an integral part of these financial statements.
CloudCoCo Group plc Annual Report 2019
51
Notes to the parent company financial statements
1. Accounting policies
1.1 Accounting convention
The financial statements are prepared under the historical cost convention basis.
These financial statements have been prepared in accordance with applicable United Kingdom accounting standards, including
Financial Reporting Standard 102 – The Financial Reporting Standard Applicable in the United Kingdom and Republic of Ireland
(FRS 102), and with the Companies Act 2006.
After reviewing the budgets and cash projections for the next twelve months and beyond the Directors believe that the Group and
Company have adequate resources to continue operations for the foreseeable future and for this reason they have adopted a going
concern basis when preparing these financial statements.
1.2 Compliance with accounting standards
The parent company has taken advantage of the reduced disclosure framework and has the following exemptions available to it:
the exemption from preparing a statement of cash flows;
the exemption from providing a reconciliation on the number of shares outstanding; and
the exemption from disclosing key management personnel compensation.
1.3 Intangible fixed assets
Intangible fixed assets, comprising the cost of the Company and Group website, is valued at cost less amortisation. Amortisation is
provided at rates calculated to write off the cost over its estimated useful life, estimated to be three years.
1.4 Investments
Fixed asset investments are stated at cost less provision for diminution in value.
1.5 Pensions
The Company does not currently offer a pension scheme for the benefit of its employees.
1.6 Deferred taxation
Deferred tax is provided in full on timing differences which result in an obligation at the reporting date to pay more tax, or a right to
pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences
arise from the inclusion of items of income and expenditure in taxation computations in different periods from those in which they are
included in the accounts.
Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax
assets and liabilities are not discounted.
1.7 Share-based remuneration
The Company issues equity-settled share-based payments to certain employees. The fair value of the shares granted is recharged
to the Company’s subsidiaries and is calculated at the grant date, based on an estimate of the shares that will ultimately vest, using
the Black Scholes model and in accordance with FRS 102.
1.8 Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted accounting practice requires management to make
estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and
liabilities at the reporting date and the reported amounts of revenues and expenses during the reporting period.
Key sources of estimation uncertainty
Where there is indication of impairment, the debtors balance is impaired by a charge to the Company’s Income Statement. The
debtors’ balance of £4.8m is recorded in the Company’s Balance Sheet, of which £4.7m relates to amounts owed by subsidiary
undertakings after impairment. A full line-by-line review of the debtors is carried out at the end of each period. Whilst every attempt
is made to ensure that the bad debt provision is as accurate as possible, there remains a risk that the provisions do not match the
level of debts which ultimately prove to be uncollectable.
1.9 Financial liabilities
Financial liabilities are obligations to pay cash or other financial instruments and are recognised when the Company becomes a party
to the contractual provisions of the instrument. All interest-related charges are recognised as an expense in “finance costs” in the
Income Statement. Loan Notes are raised for support of long-term funding of the Company’s operations. The financial liability arising
on the Loan Notes is carried at fair value.
Finance charges, including premiums payable on settlement or redemption, and direct issue costs are charged to the Company’s
Income Statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument
to the extent that they are not settled in the period in which they arise.
CloudCoCo Group plc Annual Report 2019
52
Notes to the parent company financial statements (continued)
2. Auditor remuneration
Fees payable to the Company’s Auditor for the audit of the parent company’s annual accounts were £22,000 (2018: £20,000).
3. Intangible fixed assets
Cost
At 1 October 2017 and 1 October 2018
Additions during the year
At 30 September 2019
Depreciation
At 1 October 2017
Charge for the year
At 30 September 2018
Charge for the year
At 30 September 2018
Net book value
At 30 September 2019
At 30 September 2018
4. Fixed asset investments
Cost and net book value
At 1 October 2018 and 30 September 2019
At 30 September 2019 the Company had two subsidiary undertakings.
Company
Subsidiary undertakings
CloudCoCo Holdings Limited (formerly Adept4 Holdings Limited)
CloudCoCo Cloud Services Limited (formerly Adept4 Cloud Services
Limited)
Country of registration
or incorporation
Class of
shares held
Scotland
England and Wales
Ordinary
Ordinary
£’000
60
—
60
7
20
27
20
47
13
33
£’000
1
%
100
100
The aggregate amount of capital and reserves and the results of the subsidiary undertakings for the last relevant financial year was:
Company
CloudCoCo Holdings Limited
(formerly Adept4 Holdings Limited)
CloudCoCo Cloud Services Limited
(formerly Adept4 Cloud Services Limited)
Principal activity
Intermediate holding company
Dormant
Net assets
£’000
(6,958,014)
Loss for
the year
£’000
(491)
1,000
—
The complete list of subsidiaries of CloudCoCo Holdings Limited (formerly Adept4 Holdings Limited) is disclosed in Note 10 to the
Group accounts.
5. Debtors
Amounts owed by subsidiary undertakings after impairment
Prepayments and accrued income
Other taxes and social security costs
6. Creditors: amounts falling due within one year
Trade creditors
Other taxes and social security costs
Accruals and deferred income
2019
£’000
4,497
31
17
4,545
2019
£’000
356
2
241
599
2018
£’000
6,910
641
58
7,609
2018
£’000
347
4
220
571
CloudCoCo Group plc Annual Report 2019
53
Notes to the parent company financial statements (continued)
7. Creditors: amounts falling due in more than one year
Loan notes repayable to the BGF between three and seven years
Less fair value adjustment relating to the BGF loan notes
2019
£’000
5,000
(730)
4,270
2018
£’000
5,000
(929)
4,071
7.1 Financial instrument
On 26 May 2016, the Company issued £5m unsecured loan notes (“Loan Notes”) to the BGF with a seven-year term (although
redemption is permissible from the third anniversary) with repayment between the fifth and seventh anniversaries in equal semi-
annual repayments that carry interest at 8% per annum (“Coupon”). Assuming that the Loan Notes were held for seven years and
not redeemed early, the maximum credit exposure at 30 September 2019, including interest, was £6.0m (2018: £6.4m), of which
£1.0m (2018: £1.4m) relates to interest. As previously described, the Company also agreed to grant the BGF an option to subscribe
for 50,000,000 Ordinary Shares of 1p at a subscription price of 6p any time before 26 May 2031. As the Loan Notes are unsecured,
no collateral was offered to the BGF as security. The Loan Notes are not exposed to market interest rate increases over the term.
The Loan Notes and share warrant elements were linked and treated as a single financial instrument and shown at fair value.
The fair value of the share options at 26 May 2016 (date of grant) has been calculated using the Black Scholes pricing model
incorporating the following key assumptions:
share price volatility of 40%;
spot price of 6p per share;
risk-free rate of 0.9%; and
option period, aligned with the maximum amount of time the loan can remain outstanding.
Based on the assumptions above, the Black Scholes pricing model provided a fair value for the share option of 2.89p per share,
which implied a total fair value for the share option of £1.4m. Based on the expected Coupon payments and repayment profile under
the Loan Notes, this implies an effective borrowing rate of 15%. This resulted in a fair value of the loan amount at 26 May 2016 of
£3.6m. The difference between the Coupon rate and the effective interest charge at 15% is charged through the Income Statement
over the life of the Loan Notes and increases the outstanding loan note balance over time to match actual Coupon and capital cash
repayments relating to the Loan Notes.
Cash received from the BGF on 26 May 2016 for Loan Notes at 8% per annum interest
At 30 September 2018
Interest on Loan Notes at 8% per annum for the year to 30 September 2019
Notional interest on liability element of the BGF Loan Notes to 30 September 2019
At 30 September 2019
8. Pension and other post-retirement benefit commitments
No contributions to Company pension schemes were made during the year (2018: £nil).
9. Share capital
9.1 Share capital
Shares issued and fully paid
Beginning of year
Issued during year
Shares issued and fully paid
Share capital allotted, called up and fully paid
Ordinary shares of £0.01p each
At 30 September 2018 and 30 September 2019
Loan
Note
balance
£’000
5,000
5,000
—
—
5,000
Carrying
value
Loan Notes
£’000
—
4,071
—
199
4,270
8%
interest
payable
£’000
—
—
400
—
400
2019
£’000
2,271
—
2,271
2018
£’000
2,271
—
2,271
Ordinary
Shares
227,065,100
CloudCoCo Group plc Annual Report 2019
54
Notes to the parent company financial statements (continued)
9.2 Capital redemption reserve
At the Company’s Annual General Meeting on 27 March 2015, the Company was authorised to enter into a contract for the off-market
purchase of all of the Deferred Shares of £0.009 each in its capital for cancellation. A single new Ordinary Share of £0.01 was issued
by the Company on that date to finance the off-market purchase. In accordance with Section 733 of the Companies Act 2006, this
cancellation of shares created a capital redemption reserve. Article 3 of the Companies (Reduction of Share Capital) Order 2008 (SI
2008/1915) allows such reduction to be treated as a realised profit and it therefore may be used to distribute to shareholders or used
to buy back shares.
9.3 Merger reserve
The merger reserve represents the excess over nominal value of the fair value of consideration received for equity shares, net of
expenses of the share issue, in connection with acquisitions.
10. Other reserve
The Company has an HMRC-approved EMI share option scheme as part of the remuneration of senior management. There is also
an unapproved share option scheme in place which is used where the individuals do not fall under the rules of the approved scheme.
The unapproved scheme has no set term and the current arrangements continue until further notice. In both schemes, upon vesting,
each option allows the holder to purchase one Ordinary Share at the pre-agreed option price. All share-based employee remuneration
will be settled in equity. The Group has no legal or other obligation to repurchase or settle the options.
Outstanding at 1 October
Granted
Lapsed
Outstanding at 30 September
2019
Number
9,849,358
—
(1,301,666)
8,547,692
2019
Weighted
average
exercise price
6.08p
—
2018
Number
15,597,691
—
11.73p (5,748,333)
9,849,358
5.22p
2018
Weighted
average
exercise price
6.82p
—
8.09p
6.08p
During the year, no options were granted (2018: nil) and 1,301,666 share options lapsed in accordance with the share issue
documents. At 30 September 2019, Adept4 plc had granted the following outstanding share options:
Date granted
9 July 2009
25 March 2015
28 September 2016
31 March 2017
Total
Balance
2019
166,666
207,692
Movement
during the year
(166,666)
—
4,540,000 (1,135,000)
—
3,800,000
8,547,692 (1,301,666)
Balance
2018
Exercise
price
— 30.00p
—
207,692
5,675,000
3,800,000
9,849,358
Dates exercisable
9 July 2011–9 July 2019
25 March 2018–25 March 2025
9.00p 28 September 2019–28 September 2026
1.00p
1 April 2022–31 March 2027
5.22p
Remaining
contractual life
(months)
—
66
84
90
In total £71,000 of share-based expense has been included in the Company Income Statement for 2019 (2018: expense of £46,000).
Share options
Share warrants
Total
2019
£’000
16
55
71
2018
£’000
(7)
55
48
10.1 Share warrant instrument
In consideration of the issue of £5m Loan Notes on 26 May 2016 by the Business Growth Fund (BGF), the BGF were granted an
option to subscribe for 50,000,000 Ordinary Shares of 1p each in the capital of the Company at a price of 6p per Ordinary Share. The
option can be exercised any time before 26 May 2031. The fair value of these options is linked to the treatment of the Loan Notes
and valued in accordance with Notes 7 and 10.
In consideration of its agreement to partially underwrite the placing of £0.86m on 14 May 2015, MXC was granted warrants over 5%
of the share capital of the Group. The warrant instrument provides that the number of warrants created under the terms of this
instrument shall at all times be equal to 5% of the issued share capital of the Company. This figure of 5% will be reduced pro rata by
any allotment and issue of new Ordinary Shares pursuant to any partial exercise of warrants during the seven-year exercise period.
The warrants were exercisable at the price of 6.50p and shall be exercisable over a seven-year period from 28 April 2015 on the
following terms:
(i)
the warrants vest a third per annum over the first three years; and
(ii) 50% of the warrants that vest in any year (one-third of the total) become exercisable immediately and the remaining 50% of the
warrants only become exercisable subject to a 12% per annum compound growth in the Company’s share price above 6.50p.
CloudCoCo Group plc Annual Report 2019
55
Notes to the parent company financial statements (continued)
10.1 Share warrant instrument (continued)
Certain provisions were contained in the warrant instrument to provide for the entire award being exercisable on a takeover of the
Company.
The BGF options were restructured and the MXC warrants were cancelled as part of the refinancing following the acquisition of
CloudCoCo Limited on 21 October 2019. Further details are given in note 13.
Date granted
28 April 2015
26 May 2016
Total
Balance
2019
13,853,255
50,000,000
63,853,255
Movement
during the year
Balance
2018
— 13,853,255
— 50,000,000
— 63,853,255
Exercise
price
6.50p
6.00p
6.11p
Dates exercisable
28 April 2018–28 April 2022
26 May 2016–26 May 2031
Remaining
contractual
life
(months)
31
140
11. Related party transactions
Details of Directors’ interests in the Company’s shares, service contracts and remuneration are set out in the report of the Board to
the members on Directors’ remuneration on pages 14 and 15.
Jill Collighan, a Director of the Company, is an employee of the MXC Capital Limited group (“MXC”). MXC currently has a 15.2.%
holding in the shares of the Company and also holds share warrants, as disclosed in Note 10.1, and is considered to have a significant
influence over the Company. No other Director had a material interest in any significant contract with the Company or any of its
subsidiaries during the year save for those disclosed in the accounts.
Fees invoiced by MXC include £72,000 for Jill Collighan’s services as an Executive Director, included as directors’ emoluments.
Additionally, corporate finance advisory and transaction services were purchased from MXC as financial adviser to the Company.
The Company purchased services totalling £102,000 (2018: £70,000) from MXC and at 30 September 2019 owed £129,000 to MXC
(2018: £21,000).
12. Employee costs
The average number of staff employed by the Company during the year was 3 (2018: 3). These were all Directors. The costs for the
year were £147,000 (2018: £160,000).
13. Post-balance sheet events
On 21 October 2019, the Company acquired the entire share capital of CloudCoCo Limited (“CloudCoCo”). CloudCoCo is a cloud,
IT hardware, and IT services company that commenced trading in 2018 and has seen impressive growth in that short period. The
consideration for the acquisition was satisfied through the issue of 218,160,586 ordinary shares in the Company which represents
approximately 49.0% of the enlarged share capital. The shares were issued at the mid-market closing price of 3.3 pence, representing
a total value of £7.2 million at completion.
Whilst it is too early to accurately assess the fair value of the assets and liabilities acquired prior to the production of this report, on
21 October 2019, CloudCoCo had cash balances of £157,000 and had signed a number of recurring customer contracts generating
unaudited revenue of over £1m per annum. CloudCoCo has a very strong and experienced sales and business development team
which had already shown its ability to win new business using its agile sales methodology. On 21 October 2019, following the
acquisition, Andy Mills, former Chairman of CloudCoCo, has joined the Board as Chief Executive Officer, focussing on driving the
growth of the enlarged Group. Mark Halpin (founder and former Chief Executive Officer of CloudCoCo) is leading the Group’s
business development activities.
On completion of the acquisition, £1.5 million of the loan notes were waived and cancelled by BGF, reducing the Company’s liability
to £3.5 million. MXC Guernsey Limited, a wholly owned subsidiary of MXC Capital Limited (“MXC”), who now hold 15.2% of the
shares in the Company, purchased the remaining £3.5 million loan notes from BGF and restructured their terms. The loan notes now
carry a coupon of 12% compound per annum, rolled up and payable only at the end of the term. The term of the loan notes has been
extended to October 2024 with no repayment due until that date unless the Company chooses to repay early. At the same time, MXC
extended a £0.5 million, 2 year, working capital facility to the Company with interest charged at a rate of 12% per annum on amounts
drawn down.
As part of the refinancing package, MXC also cancelled the warrants it held over 5% of the issued and future share capital of Adept4
and BGF’s options were repriced to 0.35 pence. BGF exercised all of its options in October 2019 and, as MXC no longer holds
warrants in the Company, the only obligations over the Company’s shares are in respect of outstanding staff share options.
On 29 November 2019, the Company's name was changed to CloudCoCo Group plc.
The website address, at which information required pursuant to AIM Rule 26 is available, was changed with effect from 2 December
2019, to www.cloudcoco.co.uk.
CloudCoCo Group plc Annual Report 2019
56
Directors, Secretary and advisers
Directors
Andy Mills
Chief Executive Officer
Mike Lacey
Chief Financial Officer
Simon Duckworth OBE DL
Non-Executive Chairman
Dr Tom Black
Non-Executive Director
Jill Collighan
Non-Executive Director
Company Secretary
Darron Giddens
Company number
05259846
Registered office
5 Fleet Place
London
EC4M 7RD
Nominated adviser and broker
N+1 Singer Advisory LLP
1 Bartholomew Lane
London
EC2A 2AX
Solicitors
DAC Beachcroft LLP
25 Walbrook
London
EC4N 8AF
CloudCoCo Group plc Annual Report 2019
57
CloudCoCo Group plc Annual Report 2019
58
C
L
O
U
D
C
O
C
O
V
I
S
I
O
N
&
M
I
S
S
I
O
N
CloudCoCo is a people-led business first and foremost. With a
skilled team of Microsoft, cloud, telephony, hardware, security,
support and connectivity experts we unlock business optimisation
and transformation, cost savings, streamlined workflows and
innovative solutions to business problems for clients of all sizes.
The Group’s knowledge, gained through employees with multiple
years of industry experience, helps our customers create a
competitive edge, by providing IT solutions that understand and
support our customers business activities. We have a burning
passion to delight people with every aspect of our service and
provide the alternative to the archaic managed IT services models.
We also champion putting the power back into the hands of
customers, offering easy-to-use self-service options.
CloudCoCo seeks to be highly responsive and provide customers
with modern and innovative solutions to achieve their sought
outcomes, achieved through collaborative partnerships with an
ecosystem of solution and service providers, distributors and
vendors. Our 24/7 UK response team, together with our strategic
consulting and professional services team, provide exactly what
businesses need from IT at any given time.
5 Fleet Place
London
EC4M 7RD
0333 455 9885
hello@cloudcoco.co.uk
www.cloudcoco.co.uk