CLOUDCOCO GROUP PLC
ANNUAL REPORT 2020
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“Since the change from
Adept4 to CloudCoCo there
have been huge
improvements in customer
and project satisfaction.
When you know that you
can class staff within your
supplier as colleagues then
the relationship is in a great
place”
A CloudCoCo customer
Contents
Strategic report
2
3
7
9
Chairman’s statement
Chief Executive Officer’s review
Financial review
Risks and risk management
11
S172 statement
Corporate governance
12
13
Board of Directors
Corporate governance report
17 Remuneration report
19
21
Directors’ report
Statement of Directors’ responsibilities
Financial statements
22
28
29
30
31
32
53
54
55
60
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
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 2020
1
Chairman’s statement
Following the acquisition of CloudCoCo Limited and re-brand as CloudCoCo Group plc (“CloudCoCo”, the “Group” or the
“Company” together with its subsidiaries) towards the end of 2019, the new management team implemented a plan to address
key areas for improvement and, despite the majority of the financial year taking place against a backdrop of persistent disruption
and uncertainty caused by COVID-19, they have made significant progress on all fronts.
While the headline numbers remain modest, the swing from a negative to a positive Group Trading EBITDA1 is indicative of the
direction of travel. I am very encouraged by the performance, which is a direct result of the good work that has taken place behind
the scenes – both operationally and culturally – and sets the tone for the future of the business. Ultimately, the success of the
turnaround will be judged on CloudCoCo’s ability to deliver on a consistent basis over time, but the progress made in year one is
cause for optimism.
Strategic progress
This time last year I outlined four key objectives for the financial year under review. These were: increase sales, reduce customer
churn, reduce costs, and return to net cash generation. I am pleased with the significant progress against all these objectives,
which is detailed further in the chief executive officer’s review.
Financing
Alongside the acquisition of CloudCoCo Limited, we put measures in place to improve the Group’s financing facilities. As part of
this, our loan note debt was reduced from £5.0 million to £3.5 million, with interest being rolled up rather than paid. We also
received a £0.5 million working capital facility, on which interest is payable on drawn down amounts.
People
On 31 March 2020, Mark Halpin was appointed as Chief Executive Officer. Mark, who founded CloudCoCo Limited in 2018 and
had been responsible for the Group’s business development activities post-acquisition, replaced Andy Mills, with Andy remaining
on the board as a non-executive director. This followed the appointment of Michael Lacey on 21 January 2020 as Chief Financial
Officer. Michael replaced Jill Collighan, who had previously fulfilled the role on a part-time basis. Jill remains on the board as a
non-executive director.
More widely, the fresh perspectives and approaches brought about by our new joiners from CloudCoCo Limited have breathed
new life into the firm. Equally as impressive is the way our existing teams have embraced the change in mentality and new ways
of working. Colleagues old and new across the business are now operating as one cohesive unit with shared values and ambitions,
something Mark has actively promoted since his arrival, culminating in the introduction of ‘CoCo-One’, our colleague share options
and continual improvements programme post-period.
Finally, we remind shareholders of our intention to appoint an additional Independent Non-executive Director as and when we
find a suitable candidate.
Looking ahead
We recognise the pandemic brings a balance of risks and opportunities but, despite ongoing uncertainty, remain confident of the
opportunities available to us , as well as in our ability to capitalise on them. With a combination of exceptional leadership, dedicated
staff delivering a first-class service, and a clear growth strategy, we have made a strong start to the new financial year and are
excited for what lies ahead.
Simon Duckworth
Non-Executive Chairman
1 March 2021
1 earnings before net finance costs, tax, depreciation, amortisation, plc costs, exceptional items and share based-payments
(see calculation on page 28)
CloudCoCo Group plc Annual Report 2020
2
Chief executive officer’s review
Overview
CloudCoCo provides IT and communications solutions to UK businesses. Our skilled team of Microsoft, cloud, cyber security,
connectivity, collaboration, and IT hardware experts work to deliver solutions that underpin and support our customers’ activities.
In doing so, we collaborate extensively with a range of partners, service providers, distributors and vendors. Our services enable
business optimisation and transformation, team-working, cost savings, and streamlined workflows through a commitment to
continued innovation.
Our target market spans mid-to-large organisations in both the commercial and public sectors, united by their desire to work
smarter, innovate and be more efficient. Our transformative technology solutions provide customers with the necessary
foundations to participate in a modern, resilient and secure digital-based economy.
CloudCoCo’s mission has always been straightforward – we want to attract, engage and delight our customers by providing a
highly responsive, talented team to solve business problems with technology. Our business can only move forward if we create
long-lasting and meaningful relationships with our stakeholders – colleagues, customers and ecosystem partners.
Introduction
The focus since my appointment has been to address legacy issues in the former Adept4 business through a disciplined ‘back to
basics’ approach, while positioning the business for long-term, sustainable growth. We are still only scratching the surface in
terms of uncovering the opportunities available to us, and it will take time for us to realise our ambitions, but nonetheless I am
proud of what we have been able to achieve together to date.
This time last year, the Chairman outlined four key objectives for the financial year under review. These were: increase sales,
reduce customer churn, reduce costs, and return to net cash generation. As noted at the time, these were simple objectives, but
it was clear that a return to basics was necessary to correct the course of the business and lay the foundations for future growth.
The progress we have made is all the more encouraging as 2020 was a period defined by significant uncertainty and disruption
as a result of the pandemic. I am particularly pleased with the £0.5 million swing in Group Trading EBITDA, the increase in multi-
year contracts and, most of all, the significant improvements to customer satisfaction and immediate call answer times.
Progress against FY20 objectives
Increasing sales
The business saw sales growth across its recurring services (5% increase) and product (31% increase) reporting segments, with
professional services showing moderate growth despite COVID-19 related disruption.
Revenue
By operating segment
Recurring services
Product
Professional services
Total revenue
12 months to
30 September
12 months to
30 September
2020
£’000
2019
£’000
5,412
1,839
719
7,970
5,153
1,405
699
7,257
Total contract value (“TCV”) is an important performance indicator for the Group, and I am pleased to report it grew 97% to £5.2
million (FY19 at £2.7 million), with several new deals being signed on 36 to 60 month contracts. Improving the average length of
our contracts from a base position of 12 months is crucial to realising our long-term growth ambitions. Doing so provides us with
the additional security of contracted and committed revenues, as well as the scope to develop genuine partnerships with
customers that should prove fruitful over time. In FY20 our average contract value length increased to 1.19 years (FY19: 1.06
years), with our forward pipeline closer to two years.
The solid performance of recurring services is a product of the hard work of our teams in addressing the customer satisfaction
levels that had been diminishing under the Adept4 business. We are seeing particularly promising traction in our telephony
business, both in terms of signing new customers and meeting growing demand from major systems integrators.
CloudCoCo Group plc Annual Report 2020
3
Chief executive’s review (continued)
Our product segment also held up well, with a steady stream of monthly hardware orders driven in part by the transition to home
working beginning in March. We also saw larger orders from boohoo and a major operator of franchised car dealerships as part
of their three and five-year managed cyber security services contracts respectively.
Professional services saw the most pressure as a result of the national lockdown and associated restrictions on travel and social
distancing. These measures made it difficult to either deliver or sign new work in certain periods. That we have achieved modest
growth in our revenues across this segment despite these pressures is testament to the hard work, adaptability and resilience of
our team.
In September, we announced the launch of our Secure Global Learning Access (“SGLA”) solution for UK education institutions
and their students. In partnership with Fortinet, a global leader in broad, integrated and automated cyber security solutions, we
developed a scalable solution allowing students studying abroad to remotely access learning resources without compromising
internet speed, security or contravening internet restriction laws. Post-period, we signed our first education client for the solution,
which is now helping Chinese students learn remotely.
Towards the end of the period, we built the new plan to accelerate sales into the ‘get fit’ stage of the strategy. With the deep
operational reset of the business now largely complete, we can focus more of our efforts on business development – signing new
customers and deepening our relationships with existing ones. The sales function itself is now a much more robust and optimised
operation. The new team has rapidly improved its organisation, reporting, discipline and accuracy, while ensuring resources are
directed into the right places to win high-quality business.
Reducing customer churn
Delighting customers is a key component of CloudCoCo’s mission and I am pleased to report the comprehensive review of our
support function and the subsequent measures we have taken to improve it have largely been successful.
As is the case with all businesses of our nature, the pandemic impacted some of our customers more than others and some have
been forced to reduce the services they take from us but the trend of year on year reduction in customer churn is clear. Overall
satisfaction is now at a high level, reflected in the fact the majority of our largest customers have renewed with us, a key priority
in the period.
Reducing costs
The comprehensive spending review undertaken across the Group’s sites to reduce and optimise costs is now largely complete,
resulting in a material reduction for the financial year and significant annualised savings that will continue to benefit the business
going forwards. The process is ongoing as we look to make the business as efficient as possible and ultimately sustainable on
the strength of its recurring margins.
Returning to net cash generation
The return to net cash generation continues to be on course, with the Group now profitable at a Group Trading EBITDA level.
During the period, cash increased to £0.6 million (FY19: £0.3 million). Some of this increase is new debt, comprised of £0.1 million
of MXC’s working capital facility and a COVID-19 Bounce Back Loan of £50,000.
COVID-19
Our priority from the onset of the pandemic has always been the health and safety of our colleagues and stakeholders. In March
2020, we moved to home working, prior to the national lockdown announcement. Given the extraordinary set of circumstances
prompted by the virus, we made sure to provide all staff with whatever they needed, including mental health support.
As lockdown eased, our offices were made safe and those that needed to work from them could do so. While the ‘work from
anywhere’ mentality had already existed in parts of our mobile workforce, our staff are now fully equipped to work to their best
abilities wherever they are.
The impact of the COVID-19 pandemic on the business has been mixed. Initially, as home working became commonplace across
the country, we saw increased orders for our hardware and support to facilitate the transition. As the economic impact of the
pandemic became clear, we began to experience industry-wide headwinds through delays in orders, including much of our pipeline
of larger opportunities across all three of our service lines – including those linked to planned office moves which were unable to
go ahead in line with original time scales but have shifted to FY21.
To ensure the long-term stability for the Group, we have taken steps to reduce our overheads and safeguard cash. During the
period, we made use of the Government’s furlough scheme and VAT deferral, as well as the previously mentioned COVID-19
Bounce Back Loan.
CloudCoCo Group plc Annual Report 2020
4
Chief executive officer’s review (continued)
Market
CloudCoCo is a sector agnostic business, working across a range of industries and sectors to deliver digital transformation to our
customers.
Within this, our expertise lies within four main areas of technology – cloud, collaboration, connectivity and cyber security, the
business values of which have been amplified by the pandemic, with organisations rapidly pivoting to remote working practices
to ensure business continuity.
Cloud
Hardware-based on-premise solutions continue to make up the majority of IT spend. Despite this, market research indicates
cloud-based solutions are growing rapidly as a result of the business agility, transformation, scalability and innovation they enable.
This trend towards cloud-based solutions predates COVID, but the widespread move to remote working necessitated by the
pandemic has had a significant, positive impact on the rate of adoption.
As a Tier 1 Microsoft Cloud Solution Provider (CSP) with Gold Cloud Platform Competency, CloudCoCo is able to support
organisations throughout their journey of cloud adoption – through strategy, planning, readiness, migration, management and
governance.
Collaboration
With a dramatic increase in the monthly user base of Microsoft’s Teams collaboration platform and with remote working set to
endure for the foreseeable future, there is a significant opportunity for managed services providers like CloudCoCo to lead the
way in enabling organisations to swiftly adopt, actively use and fully realise the user experience and business productivity
outcomes offered by cloud-based unified communications and collaboration solutions.
Connectivity
Organisations now need to connect a more distributed community of users with a more dispersed mix of corporate data centre
applications, public cloud environments, SaaS services and data storage resources. CloudCoCo can support organisations with
hybrid IT and multi-cloud environments across many hundreds of locations and thousands of users, delivering various forms of
modern connectivity such as high speed internet, WiFi and piping.
Cyber security
Cyber security has been propelled to the top of board agendas in recent years and as the world becomes more digitised,
perpetrators become more sophisticated in their approaches, and high-profile attacks make headline news. As organisations
move more of their information assets online, the incentive for criminals to access them increases, as does the financial and
reputational cost of a breach.
The acceleration of the shift to remote working following the outbreak of COVID-19 has exponentially increased the cyber threat
faced by organisations. Devices and data have been moved outside of the relative safety of an organisation’s networks, making
them more vulnerable to unauthorised access and theft. To counter this new threat environment, we expect an uptick in the
adoption of new and innovative security solutions.
While CloudCoCo is well-positioned to benefit from these long-term trends in those four areas, looking ahead to 2021, market
conditions will continue to be affected by COVID-19 uncertainty, with some companies reluctant to commit to the longer-term.
That said, the technology sector has been exceptionally resilient, and our pipeline remains healthy. The past year has
demonstrated there remains a strong appetite among a wide range of organisations to seek to enhance their competitive
advantage through the application of technology.
Partnership ecosystem
Relationships with our world-class vendors and innovative technology partners have developed over the past year, fortifying an
already key competitive advantage for the Group.
We have rationalised our partners within our four main areas of technology while deepening relationships with firms such as
Microsoft, Gamma, Zen, City Fibre, Lenovo, Fortinet and Mitel. In the coming year, we will look to continue in a similar vein,
focusing on areas such as cloud-based business-class communications through Mitel and dynamic cloud security through
Fortinet. Post-period, Lenovo awarded us ‘Gold’ status in its national partner programme, and we are now one of the first partners
to be listed on the AWS marketplace for our Fortinet cloud security capability, demonstrating the growing recognition and
appreciation of the work we do.
CloudCoCo Group plc Annual Report 2020
5
Chief executive officer’s review (continued)
FY21 objectives
With tangible progress against all the objectives laid out by the Chairman a year ago, the Group now enters what is referred to
internally as the ‘get fit’ stage of its recovery strategy, with a focus on landing new contracts and improving the quality of our
revenues while maintaining the highest standards of service. With this in mind, our core objectives evolve into the following:
1. Accelerate sales
With much of the operational heavy-lifting complete and the sales function now fully re-calibrated and re-energised, the
next step is to ramp up business development and keep the top line moving along its current trajectory.
2. Maintain excellent support levels
Customer support has improved dramatically in the past year following a comprehensive review of working practices,
reorganisation and the introduction of a strict set of new performance metrics. With multi-year contracts a key strategic
focus for the business, maintaining leading levels of customer satisfaction is critical to our continued success.
3. Maintain cost vigilance
In the ‘get well’ phase, management left no stone unturned in scrutinising every cost to ensure there is no unnecessary
expenditure throughout the business. This is an ongoing process – as we continue to grow, we will continue to monitor
every penny spent to ensure the business is running as efficiently as possible.
4.
Improve cash position
It follows that if we are able to deliver against the first three objectives, our cash position will continue to steadily improve.
Taking a longer-term view, I am excited to further develop the Group, improving our offering for our existing customers and winning
new ones, while bringing our talented colleagues – now share option holders – even closer together.
I am immensely grateful to all our colleagues for their efforts and continued support, and to our customers who have supported
us and shown patience as we have transitioned to CloudCoCo Group plc. The willingness of both our new joiners from CloudCoCo
Limited and existing teams to collaborate and drive us forward has been fantastic to see, and there is a real sense our colleagues
are now operating together as one team with a set of shared values and ambitions. We look forward this year to making
CloudCoCo an even better place to work. I would also like to express my gratitude to our partners, who have backed my vision
from the start and continue to stand shoulder to shoulder with us on a daily basis.
Current trading and outlook
We have made a strong start to FY21 at a sales and Trading Group EBITDA level. Management accounts for the first 4 months
of FY21 show Trading Group EBITDA already ahead of the £261k achieved in the full 12 months of FY20. The early signs of
success in the ‘get fit’ phase of our recovery are clear, with several multi-year contracts having been signed post-period with both
new and renewing customers.
Key among these were renewals with some of our largest accounts, including Baywater Healthcare on an 18-month term, a major
university on a 24-month term. and Vantage Motor Group on a 36-month term.
New business wins of note include contracts to help a leading law firm, and a major English council successfully transition to
home working through the delivery of our IT hardware and telephony solutions.
We are also seeing the benefits of cost reductions starting to filter through, despite the impact of further lockdowns.
The key is now for us to continue to attract and engage with the considerable number of organisations looking to digitally transform
their operations. I am confident our ability to produce uniquely collaborative offerings through our ecosystem of partners and solve
complex problems for our customers will continue to differentiate us as we move forwards.
Mark Halpin
Chief Executive Officer
1 March 2021
CloudCoCo Group plc Annual Report 2020
6
Financial review
Acquisition of CloudCoCo Limited and Refinancing
On 21 October 2019, the Group acquired the entire share capital of CloudCoCo Limited (“Acquisition”). The consideration for the
acquisition was satisfied through the issue of 218,160,586 ordinary shares in the Company which represented 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.
On completion of the acquisition, a number of actions were taken to refinance the Group (“Refinancing”)
•
£1.5 million of the £5.0m loan notes held by the Business Growth Fund (“BGF”) were waived and cancelled by BGF,
reducing the Company’s liability to £3.5 million.
• BGF’s 50 million options were repriced to 0.35 pence. BGF exercised all of its options in October 2019.
• MXC Guernsey Limited (“MXCG”), 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.
The terms of the loan notes were restructured and the loan notes now carry a coupon of 12%, compounded 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, MXCG 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.
• MXC cancelled the warrants it held over 5% of the then issued and to be issued share capital of the Company.
On 29 November 2019, the Company's name was changed from Adept4 plc to CloudCoCo Group plc.
Revenue and gross margin
Group revenue for the year to 30 September 2020 grew by 10% to £8.0 million (FY19 £7.3 million) with increased sales in each
of the three revenue streams of recurring services, product and professional services.
This produced a gross profit of £3.4 million (FY19: £3.7 million) representing a gross margin of 42.9% (FY19: 51.4%). The
reduction in margin predominantly relates to the recurring services segment, as explained below.
The analysis of revenue from each of our operating segments is shown in Note 3 and is detailed below.
Recurring services
Recurring services relate to the provision of continuing IT services which have an ongoing billing and support element.
Revenues from recurring services were £5.4 million (FY19: £5.2 million), generating a gross profit of £2.5 million (FY19: £2.9
million) and a gross margin of 47% (FY19: 56%). The reduction in the gross margin is due to a different mix of services provided
between in house and third party resources.
The proportion of our total revenue derived from recurring services continued to be high at 68% (FY19: 71%).
Product sales
Product sales are the resale of solutions (hardware and software) from leading technology vendors.
Revenues from product sales were higher than those in FY19 at £1.8 million (FY9: £1.4 million) due to hardware sales in advance
of multi-year support contracts and assisting customers who were transitioning to home working. Product sales generated a gross
profit of £0.4 million (FY19: £0.3 million) and gross margin of 23% (FY19: 20%).
Professional services
Professional services comprises the provision of highly skilled resource to consult, design, install, configure and integrate IT
technologies.
Revenues from professional services were £0.7 million (FY19: £0.7 million) generating a gross profit of £0.5 million (FY19: £0.6
million) as permanent employee costs are included in overheads. In the year to 30 September 2020 a greater proportion of projects
used third party contractors, resulting in a fall in margin to 65% (FY19: 79%).
CloudCoCo Group plc Annual Report 2020
7
Financial review (continued)
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. This measure best equates to the cash profitability of the Group
before exceptional items and net finance expenses.
Excluding plc costs of £0.5 million (FY19: £0.4 million) ,our trading overheads during the year fell by 18% to £3.3 million (FY19:
£4.0 million), of which staff costs comprised 81% (FY19: 84%). Following the COVID-19 epidemic, various measures were taken
in the second half of FY20 to protect the business including temporary pay cuts and use of the Government furlough scheme. In
addition some early successes from the “get well“ initiatives improved trading performance. During the year the Group returned
to modest levels of monthly Trading Group EBITDA profit and resulted in a Trading Group EBITDA of £0.3million (FY19: loss of
£0.2 million).
The adoption of IFRS 16 Leases has resulted in an increase to Trading Group EBITDA of £68,000. Further details can be found
in note 1.2.
Exceptional 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 exceptional items within the Consolidated Income Statement. These items
totalled £0.5 million of which £0.4 million relates to CloudCoCo Limited acquisition costs and £0.1 million relates to integration
and reorganisation costs. In the year to 30 September 2019, exceptional items were £3.2 million of which £3.0 million related to
the impairment of goodwill and other intangible assets on previous acquisitions and £0.2 million related to integration and
reorganisation costs.
Net finance expenses, depreciation, amortisation and financial results for the full year
During the year the Group incurred net finance costs of £0.5 million (FY19: £0.6 million). £0.4 million of this was interest on loan
notes that was rolled up and not paid as a cash cost. The Group incurred non-cash costs including total amortisation and
depreciation charges of £1.8 million (FY19: £1.0 million). After accounting for a deferred tax credit of £0.3 million (2019: £0.4
million) the reported loss for the year after tax was £2.7 million compared to a loss after tax for the year to 30 September 2019 of
£5.2 million after recording an impairment charge of £3.0 million.
Statement of Financial Position and cash
At 30 September 2019, following the £3.0 million impairment charge in respect of its goodwill and intangible assets, the Group
had net liabilities of £1.1 million.
In October 2019 there was a Refinancing of the business and further details are set out above. As a result of this Refinancing,
together with the Acquisition, the Group has now returned to a positive net asset position of £5.0 million. Cash balances at 30
September 2020 were £0.6 million (FY19: £0.3 million) whilst net debt was £3.0 million (FY19: £4.0 million). Net debt comprises
cash balances of £0.6 million less the loan notes and rolled up interest of £3.4 million together with £0.2 million of lease liabilities,
£0.1 million of the MXCG working capital facility and a COVID-19 Bounce Back Loan of some £50,000.
The Group had a net cash inflow during the year of £0.3 million (FY19 cash outflow of £1.1 million). The main components of the
cash inflow in the year were as follows:
•
•
cash generated from operating activities excluding costs of CloudCoCo Limited acquisition of £0.5 million
costs of £0.4 million acquiring CloudCoCo Limited
• monies received for the issue of shares to BGF of £0.2 million and;
•
draw down of MXCG working capital facility of £0.1 million
Further details on the financial position of the Group are contained in the going concern section of the Directors Report on
page 19.
CloudCoCo Group plc Annual Report 2020
8
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 at least on an annual 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 25 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.
The following list highlights the key risks and uncertainties that the Group faces which it can seek to mitigate by a choice of
appropriate strategies; however, this list is not intended to be exhaustive.
Covid-19
The global pandemic has created economic uncertainty for the whole world and there is a risk of an impact on the Group’s
business environment and wider economy.
To date the Covid-19 pandemic has not had any material impact on the Group’s ability to operate. The Group is likely to see
delays in sales cycles for certain services and delays in project delivery as customers assess the impact of Covid-19 on their own
businesses.
The Group also recognises that the pandemic has thrown up some business opportunities as customers transition to home
working and avail themselves of the products and services of the Group.
The Group was quick to facilitate home working for our staff and have provided uninterrupted support for our customers.
The Group is extremely grateful to staff who took temporary pay reductions and the Group has availed itself of the Job Retention
Scheme “furlough” and deferred VAT and PAYE/NIC payments.
The Group carefully monitors guidance from health professionals and the government and will update its business and operational
plans as the situation develops.
Brexit
The UK left the EU on 31 January 2020 and the transition period ended on 31 December 2020 with a trade deal between the UK
and the EU which will avoid the imposition of duties and tariffs on the movement of goods. 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 exchange rate changes. In addition, there is some uncertainty around the likely impact of Brexit on businesses
and the UK economy.
The Group carefully monitors price risk and will ensure customer quotes enable prices to reflect exchange rate changes.
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.
CloudCoCo Group plc Annual Report 2020
9
Risks and risk management (continued)
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.
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.
CloudCoCo Group plc Annual Report 2020
10
Directors’ Duties - Section 172 Statement
The Directors acknowledge their duty under section 172(1) (a) to (f) of the Companies Act 2006 to promote the success of the
Group. The Directors consider they have both individually and collectively acted in such a way they consider in good faith to
promote the success of the Group for the benefit of all stakeholders, and in doing so have regard (amongst other matters) to:
•
•
•
•
•
•
The likely consequences of any action in the long term
The interests of the Group’s employees
The need to foster the Group’s business relationships with suppliers, customers and others
The impact pf the Group’s operations on the community and the environment
The desirability of the Group to maintain a reputation for high standards of business conduct, and
The need to act fairly as between members of the Group
The Directors consider that the following are the Group’s key stakeholders: employees, customers, suppliers, shareholders, debt
providers and the community.
Having regard to the consequences of strategic and long term decision
The Directors hold regular Board meetings which are held monthly on scheduled calendar dates. The Executive Directors prepare
Board papers that cover a full review of the Group’s financial performance, operational issues and plans and opportunities and
threats in the external market. Board meetings are chaired by the Group’s non-executive Chairman, and all issues on the agenda
are covered with the opportunity for additional matters to be raised. Matters reviewed at Board meetings include annual budgets
and forecasts as well as consideration and approval of the interim and annual report and annual accounts.
Having regard to maintaining high standards of business conduct
The Directors recognise the importance of operating a robust corporate governance framework and our Corporate Governance
Report on pages 13 to 16 demonstrates how we comply with the Quoted Companies Alliance Corporate Governance Code (“the
QCA Code”).
Having regard to the interests of the employees
The Group strives to create a diverse and inclusive working environment where every employee feels welcome and can do their
best work. We believe in the benefits of diversity and the importance of bringing a wide range of skills, experience and perspectives
into our business. The Directors continually work with senior management to promote the Group’s values. A prime concern for
the Group during the year was the health and safety of our employees in response to the COVID-19 pandemic and a decision
was taken to move to home working ahead of Government guidance and to provide necessary equipment to facilitate home
working . The CEO regularly briefs employees on developments in the business and we encourage suggestions from employees
on how the improvements to the business and working environment can be addressed.
Having regard to the fostering of relationships with customers and suppliers
Customers
We aim to delight our customers and this sentiment is at the heart of everything we do. We engage with our customers to
understand and exceed their expectations. Updates and feedback from customers as well as operational statistics are regularly
reported to the Board. Key achievements in the year were improved support help desk answering times and reduced number of
open customer support tickets.
Suppliers
The Board takes a close interest in relations with key suppliers whose performance is crucial to our success. The Group is
committed to ensuring the highest standards and quality across our operations and require both our suppliers and partners to
operate to the same high standards.
Having regard to the Company’s operations on the community and the environment
The Board is mindful of the potential social and environmental impacts of the Group’s activities. The Board is committed to
minimising the environmental effect of the Group’s activities wherever possible. The Group recycles paper and packaging and
uses specialist recyclers of scrap telecommunications and IT equipment. The Group makes use of technologies to avoid the need
to travel to meetings. Positive experience of these activities during the COVID-19 pandemic suggests these will continue at a
higher level after the end of the pandemic than before.
Having regard to the need to act fairly between members of the Group
The Group’s intention is to behave responsibly towards all of its shareholders and treat them fairly and equally. The Group’s
website has a section dedicated to investor matters that details, amongst other things, all financial reports, press releases and
other regulatory filings.
Strategic Report
This Strategic Report on pages 2 to 11 was approved by the Board of Directors on 1 March 2021 and signed on behalf of the
Board of Directors by:
Mark Halpin
Chief Executive Officer
CloudCoCo Group plc Annual Report 2020
11
Board of Directors
Simon Duckworth OBE DL
Non-Executive Chairman
Simon Duckworth 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 a Non-Executive Director of the Association of Police and Crime
Commissioners. 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, chaired the Economic
Crime Board of the City of London Police and was the Senior Non-Executive Board Member at the Serious Fraud Office until
December 2019.
Simon is the Chair of the Remuneration Committee and a member of the Audit Committee.
Jill Collighan
Non-Executive Director
A Chartered Certified Accountant, Jill has over 18 years of operational experience at plc board level specialising in finance, human
resources, investor relations and corporate finance. As well as her role with CloudCoCo , Jill is CFO of one of the Group’s major
shareholders, MXC Capital Limited, the technology-focused adviser and investor. From 2004 to 2014 Jill was Chief Financial
Officer of the AIM-quoted mobile technology provider 2ergo Group plc. Until January 2020, Jill also undertook the role of Chief
Financial Officer of the Group.
Jill is the Chair of the Audit Committee and a member of the Remuneration Committee.
Andy Mills
Non-Executive Director
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 on 21 October 2019.
Mark Halpin
Chief Executive Officer
Mark Halpin has 16 years of experience working in the technology sector with a focus on driving new business and sales growth.
His career started at RedCentric PLC in 2004 where he spent 14 years in the sales team, becoming new business sales director
in 2008 responsible for all new business acquisition and, from 2015, focusing on the development of its government and healthcare
activities. In 2018 Mark left RedCentric and co-founded CloudCoCo Limited which was subsequently acquired by the Company
in October 2019. Since founding CloudCoCo Limited, Mark has been its Managing Director.
Mark joined the Board as Chief Executive Officer on 31 March 2020.
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.
CloudCoCo Group plc Annual Report 2020
12
Corporate governance report
CloudCoCo Group plc (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 and communication solutions to provide 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 IT and communication solutions 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.
The Company 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 Chairs 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.
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 2020
13
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. 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 Senior Management Team, who meet regularly with the Chief Executive
Officer and 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 Executive Officer and 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 12. 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 is 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.
Departure from the code
The Group recognises that since Tom Black stood down at the Annual General Meeting in March 2020, that there have not been
two independent directors. However, with an experienced independent Chairman supported, where needed, by retained
professional advisors, it is considered the current composition is appropriate.
CloudCoCo Group plc Annual Report 2020
14
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 was unable to carry out the evaluation in 2020 as the focus was on steering the business through the issues caused
by the COVID-19 pandemic. The Board intend to carry out an evaluation during 2021.
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.
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 12.
The Board has established two standing Committees, the Audit Committee and the Remuneration Committee. A nominations
committee would be established should it be required. Simon Duckworth is Chair of the Remuneration Committee and Jill
Collighan is Chair of the Audit Committee. Terms of reference for the Committees are available on the Company’s website.
Departure from the code
The Group recognises that since Tom Black stood down at the Annual General Meeting in March 2020, that there have not been
two independent directors in terms of the composition of its Board and Committees. However, the Chair of each Committee is
considered experienced and capable of ensuring proper governance is maintained.
CloudCoCo Group plc Annual Report 2020
15
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.
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 2020
16
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
The fees paid to the Executive Directors are determined by the Board. Mark Halpin has a service contract with the Company
terminable on six-months notice. Mike Lacey has a service contract with the Company terminable on three-months notice.
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:
Non-Executive
S Duckworth
T Black (resigned 31 March 2020)
J Collighan1
A Mills (in office 21 October 2019 to
30 September 2020)
Executive
M Halpin (in office 31 March 2020 to
30 September 2020)2
M Lacey (in office 21 January 2020 to
30 September 2020)
Total
Fees and salaries
2020
£’000
2019
£’000
Other benefits
2020
£’000
Totals
2020
£’000
2019
£’000
32
16
38
13
107
60
266
36
32
72
—
—
—
140
—
—
—
—
4
3
7
—
—
—
—
—
—
—
32
16
38
13
111
63
273
2019
£’000
36
32
72
—
—
—
140
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. fees in relation to M Halpin include the period before joining the Board
Directors’ interests in shares
The interests of the Directors in the Ordinary Shares of the Company at 30 September 2020 together with their interests as of 1
March 2021 were as follows:
Name of Director
S Duckworth
A Mills
M Halpin
M Lacey
1 March
2021
Number
9,500,000
30 September
2020
Number
8,500,000
32,724,088 32,724,088
140,713,578 140,713,578
810,000
810,000
MXC Advisory Limited, who provides the services of Jill Collighan, is a wholly owned subsidiary of MXC Capital Limited, which
had a 15.2% holding in the shares of the Company at 30 September 2020.
CloudCoCo Group plc Annual Report 2020
17
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 2020. 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
1 October
2019
3,800,000
207,692
1,135,000
Granted in
the year
Lapsed during
the year
— (3,800,000)
—
—
—
—
30 September
2020
—
207,692
1,135,000
Exercise
price
—
—
9.0p
Date when
Exercisable
—
24 Mar 18
28 Sep 19
Expiry date
—
24 Mar 25
28 Sep 26
All of the 1,342,692 options in place at 30 September 2020 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
1 March 2021
CloudCoCo Group plc Annual Report 2020
18
Directors’ report
The Directors present their Annual Report, together with the financial statements and Auditor’s report, for the year ended 30
September 2020 for CloudCoCo Group plc, company number 05259846.
Principal activities
The principal activity of the Group is the provision of IT and communications solutions UK businesses. Further information can be
found in the Strategic Report on pages 2 to 11.
Corporate governance
The statement on corporate governance on pages 13 to16 is included in the Directors’ Report by way of reference.
Results and dividends
The Group’s loss on ordinary activities after taxation was £2.7 million (FY19: loss of £5.2 million). The audited financial statements
of the Group are set out on pages 13 to 16. The Directors do not propose a dividend for the year ended 30 September 2020
(FY19: £nil).
Strategic review
The information required by schedule 7 of the Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 has been included in the separate Strategic Report on pages 2 to 11 in accordance with section 414C (11) of
the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013.
Going concern
The Group had positive net assets at 30 September 2020 totalling £5.0 million compared to net liabilities at the end of FY19 of
£1.1 million. The acquisition of CloudCoCo Limited during FY20 and the Refinancing referred to in the Financial Review 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 refinancing
of the loan notes of £1.3 million. The Group had an undrawn working capital facility at 30 September 2020 of £0.4m which formally
matures in October 2021 but which the lender has confirmed that it will extend to March 2022.
The Group’s progress towards its key objectives of increasing sales, reducing customer churn, reducing costs, and returning to
net cash generation is described in the Strategic Report. Despite significant uncertainty and disruption as a result of the pandemic,
the Group reported an improvement in underlying profitability as measured by Group Trading EBITDA (2020: £0.3m; 2019:
£(0.2)m) and generated cash from operating activities, excluding costs of acquiring CloudCoCo Limited, of £0.4m.
The Strategic Report on pages 9 to 10 describes the risks associated with the Group’s activities which are reviewed by the
Directors on a regular basis. The key operational risk the Group faces is the general economic outlook including the continuing
uncertainty caused by the pandemic. Although COVID-19 has not a material impact on the Group’s ability to operate, it has
resulted in delays in sales cycles for certain services and delays in project delivery as customers assess the impact of COVID-19
on their own businesses. The Group responded by taking action to conserve cash including temporary pay cuts, use of the
Government’s furlough and VAT deferral schemes and a COVID-19 Bounce Back Loan.
The Directors have reviewed the forecast sales growth, budgets and cash projections for the period to March 2022. The Directors
have performed sensitivity analysis which reflects uncertainty in assumptions regarding growth in services and customer projects
and considered that the Group expects to have sufficient cash resources provided that the MXCG working capital facility is made
available beyond October 2021. At the request of the Directors, MXC has provided confirmation that it will provide continuing
financial support including the extension of the existing facility until March 2022.
After reviewing the forecast sales growth, budgets and cash projections, including sensitivity analysis on the key assumptions
such as the potential impact of COVID-19 on sales, for the next twelve months and beyond and after 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 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. The Directors have not identified any material uncertainties that may cast doubt over the ability of the Group and
Company to continue as a going concern and the Directors continue to adopt the going concern basis in preparing these financial
statements.
Directors
The present membership of the Board is as follows:
Simon Duckworth, Non-Executive Chairman
Jill Collighan, Non-Executive Director
Andy Mills, Non-Executive Director (appointed 21 October 2019)
Mark Halpin, Chief Executive Officer (appointed 31 March 2020)
Mike Lacey, Chief Financial Officer (appointed 21 January 2020)
In addition, Tom Black served as a Non-Executive Director till his resignation on 31 March 2020.
Mark Halpin and Jill Collighan will be offering themselves for re-election at the forthcoming Annual General Meeting.
The biographical details of the current Directors of the Company are given on page 12.
Details of Directors’ interests in the Company’s shares, service contracts and remuneration are set out in the Directors’
Remuneration Report on pages 17 and 18.
CloudCoCo Group plc Annual Report 2020
19
Directors’ report (continued)
Directors (continued)
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 2020: 15.2%) 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 and share options
There were no new share warrants or share options issued during the year. The options previously held by BGF were exercised
during the year and the warrants held by MXC were cancelled in the year. Details of the existing share options remaining in force
can be found in Note 7 to the consolidated financial statements.
Post-balance sheet events
There are no post-balance sheet events to report.
Financial risk management and objectives
Details of financial risk management and objectives are contained in Note 25 to the consolidated financial statements.
Equal Opportunities
The company is an equal opportunities employer and promotes an environment free from discrimination, harassment and
victimisation, where everyone receives equal opportunities and career development regardless of age, gender, nationality, ethnic
origin, religion, marital status, sexual orientation or disability. All decisions relating to employment practices are objective, free
from bias and based solely upon work criteria and individual merit.
The company gives full and fair consideration to applications for employment from disabled people and encourages and assist
the recruitment, training, career development and promotion of disabled people. The company endeavours to retain and adjust
the environment of employees who become disabled during the course of their employment.
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 on 31 March 2021 at 1:00 p.m.
Notice of the Annual General Meeting will be sent to shareholders on 8 March 2021.
Independent Auditor
Nexia, Smith & Williamson Audit Limited resigned as auditors during the year and RSM UK Audit LLP were appointed as auditors.
RSM UK Audit LLP, will be proposed for reappointment in accordance with section 485 of the Companies Act 2006.
By order of the Board
Darron Giddens
Company Secretary
1 March 2021
CloudCoCo Group plc Annual Report 2020
20
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Strategic Report, Directors Report and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and company financial statements for each financial year. The Directors
have elected under company law and the AIM Rules of the London Stock Exchange to prepare Group financial statements in
accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the
Directors have elected under company law to prepare the Company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).
The Group financial statements are required by law and international accounting standards in conformity with the requirements
of the Companies Act 2006 to present fairly the financial position and performance of the Group. The Companies Act 2006
provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true
and fair view are references to their achieving a fair presentation.
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 Group and the Company and of the profit or loss of the Group for that period.
In preparing each of the Group and Company 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;
•
•
for the Group financial statements, state whether they have been prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006; 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 and
Company’s transactions, disclose with reasonable accuracy at any time the financial position of the Group and Company 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 the Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
CloudCoCo Group plc website. 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 2020
21
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’) and its subsidiaries (the ‘group’) for the
year ended 30 September 2020 which comprise the consolidated income statement, the consolidated and company statements
of financial position, the consolidated and company statements of changes in equity, the consolidated statement of cash flows
and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework
that has been applied in the preparation of the group financial statements is applicable law and International Accounting Standards
in conformity with the requirements of the Companies Act 2006 . The financial reporting framework that has been applied in the
preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including
Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United
Kingdom Generally Accepted Accounting Practice).
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30
September 2020 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006;
the parent company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
the financial statements 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 financial statements
section of our report. We are independent of the group and 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 financial statements is not
appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the group’s or 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 financial statements are authorised for issue.
Summary of our audit approach
Key audit matters
Group
• Measurement of identifiable intangible assets acquired in business combinations
• Carrying value of goodwill and other intangible assets
• Refinancing of loan notes
• Going concern
Parent Company
• Impairment of intercompany receivables
Materiality
Group
• Overall materiality: £148,000
• Performance materiality: £111,000
Parent Company
• Overall materiality: £147,999
• Performance materiality: £111,000
Scope
Our audit procedures covered 100% of revenue, 100% of total assets and 100% of loss
before tax.
CloudCoCo Group plc Annual Report 2020
22
Independent Auditor’s report to the members of CloudCoCo Group plc
(continued)
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group and
parent company financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) we identified, including those which had the greatest effect on the overall audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our
audit of the group and parent company statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Measurement of identifiable intangible assets acquired in business combinations
Key audit matter
description
(Refer to page 33 regarding the accounting policy in respect of business combinations, page 37
regarding critical accounting judgements and estimates and note 22 relating to the acquisition of
CloudCoCo Limited).
During the year the group completed the acquisition of the entire share capital of CloudCoCo
Limited.
The group’s accounting policies require 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.
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.
The directors identified intangible assets relating to brands and customer lists of £0.5m and £1.7m
respectively, and goodwill of £5.4m.
The measurement of intangible assets is complex and requires use of judgement in the selection
of an appropriate technique and related inputs.
How the matter was
addressed in the
audit
We engaged valuations specialists to review the design of the models that were used to measure
the intangible assets arising as part of the business combination.
We tested the clerical accuracy of the models.
We compared the models to the group’s accounting policies to check that the policies had been
consistently applied.
We challenged the assumptions used in the models including discount rates and growth rates and
compared them with those used in the assessment of impairment of goodwill and intangible assets
for consistency.
We reviewed the financial projections that had been assessed by the Directors at the time of the
acquisition and compared them to those used in the measurement of intangible assets to check
that they were consistent.
We tested the sensitivity of the values of the brands and customer assets to changes in
assumptions.
We tested the measurement of the cost of the acquisition by reference to the market price of the
parent company’s shares issued in consideration for the shares of CloudCoCo Limited.
CloudCoCo Group plc Annual Report 2020
23
Independent Auditor’s report to the members of CloudCoCo Group plc
(continued)
Carrying value of goodwill and other intangible assets
Key audit matter
description
(Refer to page 35 regarding the accounting policy in respect of impairment testing, page 37
regarding critical accounting judgements and estimates and note 10 relating to the carrying value of
goodwill and intangible assets and the assessment of impairment at 30 September 2020).
The carrying values of goodwill and other intangible assets at 30 September 2020 are £5.4m and
£5.0m respectively.
The carrying value of goodwill is required to be tested for impairment on annual basis and other
intangible assets when there are indicators of impairment. The measurement of recoverable amount
requires use of judgement and estimates regarding future cash flows and selection of an appropriate
discount rate.
How the matter was
addressed in the
audit
•
•
•
•
We tested the design and clerical accuracy of the models used to measure the recoverable amount
of goodwill and intangible assets as described in note 10 to ensure that they were consistent with
the requirements of the financial reporting framework, IAS 36.
We challenged the assumptions used in the models by:
•
Comparing the cash flow forecasts to the actual performance for the year ended 30
September 2020;
Comparing the assumptions to those used in the assessment of impairment in the previous
year to identify changes and obtained explanation from management;
Comparing the forecasts to actual performance observed since the year end;
Performing sensitivity analysis to test the impact on the reported headroom of changes in cash
flows and discount rates;
Comparing the recoverable amount calculated by management to the market capitalisation of
the company; and
Using valuations specialists to review the pre-tax discount rate for reasonableness.
•
We used the knowledge gained in performing other audit procedures to assess whether there were
any indicators of impairment that had not been identified by management.
We assessed whether the testing of impairment was performed at the lowest level of assets that are
capable of generating cash flows independently.
Refinancing of loan notes
Key audit matter
description
(Refer to page 36 regarding the accounting policy in respect of financial liabilities, page 37 regarding
critical accounting judgements and estimates and note 19 relating to the loan notes).
During the year, the group completed a refinancing of its loan notes which included the
extinguishment of £1.5m of loan notes, exercise of share options by the former loan note holder,
BGF, and revision of terms by the new loan note holder, MXC Guernsey Limited as described in
note 19.
The treatment of changes in financial instruments in accordance with the financial reporting
framework is complex in nature and requires judgement in determining the substance of the
transactions.
How the matter was
addressed in the
audit
We read the agreements relating to the refinancing of the loan notes and formed an understanding
of the substance of the transactions.
We assessed management’s proposed treatment of the transactions in accordance with the financial
reporting framework.
We reviewed the disclosures in the financial statements.
CloudCoCo Group plc Annual Report 2020
24
Independent Auditor’s report to the members of CloudCoCo Group plc
(continued)
Going concern
Key audit matter
description
(Refer to page 32 regarding the accounting policy in respect of going concern.)
It is the responsibility of the directors to form an opinion on whether the group and parent company
are a going concern. The risk is that a material uncertainty may exist that casts doubt on the group’s
or parent company’s ability to continue as a going concern for a period of at least twelve months
from the date when the financial statements are authorised for issue and such uncertainties have not
been adequately disclosed.
We have:
•
How the matter was
addressed in the
audit
•
•
•
•
•
•
•
Assessed the cash flow forecasts, which cover a period to March 2022, together with expected
headroom over the facilities in place and challenged the assumptions used by management;
Identified the key assumptions supporting the forecasts, comparing them to historical revenues
and costs incurred where appropriate;
Assessed the quality of management forecasting by comparing forecasts from prior years to
actual outcomes;
Considered the actual cash outflows that had occurred since the date the forecasts were
prepared to determine whether the actual cashflows were in line with those budgeted;
Tested the sensitivity of the available headroom to plausible changes in key assumptions;
Tested the arithmetic integrity of the cash flow forecasts;
Reviewed correspondence relating to the financial support, including extension of the working
capital facility, provided by MXC Capital Limited and assessed the ability and intention of MXC
Capital Limited to provide that support; and
Reviewed the disclosures within the financial statements in respect of the processes carried
out by the Directors in considering the use of the going concern basis and the financial
resources available to the group.
Impairment of intercompany receivables (parent company only)
Key audit matter
description
(Refer to page 56 regarding the critical accounting judgements and estimates and note 8 to the
parent company financial statements regarding the carrying value of amounts receivable from
subsidiary undertakings).
At 30 September 2020 the parent company has receivable balances due from subsidiary
undertakings with a carrying value of £10m. The Group reported operating losses of £2.5m and
therefore there is a risk that the balances may not be recoverable.
The assessment of the recoverability of these balances requires estimation of the cash flows that will
be generated by the subsidiaries.
We reviewed the assessment of the recoverability of the balances due from subsidiary undertakings.
We challenged the assumptions used in the assessment by comparing them to those used in the
discounted cash flow model used by management to assess the carrying value of goodwill and
intangible assets to ensure that they were consistent.
We performed sensitivity analysis to assess the impact of changes in assumptions regarding cash
flows and discount rates on the excess of cash flows over the balances due from subsidiary
undertakings.
How the matter was
addressed in the
audit
Our application of materiality
When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent
of our audit procedures.
When evaluating whether the effects of misstatements, both individually and on the financial statements as a whole, could
reasonably influence the economic decisions of the users we take into account the qualitative nature and the size of the
misstatements. Based on our professional judgement, we determined materiality as follows:
CloudCoCo Group plc Annual Report 2020
25
Independent Auditor’s report to the members of CloudCoCo Group plc
(continued)
Overall materiality
Basis for determining
overall materiality
Rationale for benchmark
applied
Group
Parent company
£148,000 (2019: £145,150)
Overall materiality for the group changed from
£159,000 to £148,000 during the course of the
audit as the initial measure was based on
forecast results.
£147,999 (2019: £108,150)
Overall materiality for the group changed from
£158,999 to £147,999 during the course of the
audit as the initial measure was based on
forecast results.
5% of loss before tax
2.5% of net assets
We believe that loss before tax is an important
measure of performance and is consistent
with the expectations of the users of the
financial statements of an AIM listed entity.
We believe that net assets is an important
measure in assessing the performance of the
parent company.
In the previous year, overall materiality was
calculated by reference to total assets.
Performance materiality
£111,000 (2019: £108,860)
£111,000 (2019: £81,112)
Basis for determining
performance materiality
75% of overall materiality
75% of overall materiality
Reporting of
misstatements to the Audit
Committee
Misstatements
in excess of £7,400 and
misstatements below that threshold that, in
our view, warranted reporting on qualitative
grounds.
Misstatements
in excess of £7,400 and
misstatements below that threshold that, in
our view, warranted reporting on qualitative
grounds.
An overview of the scope of our audit
The group consists of 4 components, all of which are based in the UK. Full scope audit procedures were performed for all entities.
The coverage achieved by our full scope audit procedures was 100% of revenue, 100% of loss before tax and 100% of net assets.
No work was undertaken by component auditors.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report, other than the financial statements and our auditor’s report thereon. Our opinion on the 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 financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the 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 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.
Opinions 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 financial
statements are prepared is consistent with the financial statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
CloudCoCo Group plc Annual Report 2020
26
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 group and the parent company and their 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 in relation to which 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 directors’ responsibilities statement set out on page 21 the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and 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 group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the 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 financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the 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 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 company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Graham Bond FCA (Senior Statutory Auditor)
for and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
20 Chapel St
Liverpool
L3 9AG
2 March 2021
CloudCoCo Group plc Annual Report 2020
27
Consolidated income statement
for the year ended 30 September 2020
Continuing operations
Revenue
Cost of sales
Gross profit
Other income
Administrative expenses
Trading Group EBITDA 1 – non statutory measure
Note
2020
£’000
2019
£’000
3
7,970
7,257
(4,554)
(3,530)
3,416
3,727
97
-
(5,963)
(8,716)
261
(235)
Amortisation of intangible assets
10
(1,623)
Plc costs
Depreciation
Exceptional item – impairment of goodwill and intangible assets
Exceptional items – other
Share-based payments
Operating loss
Interest receivable
Interest payable
Net finance expense
Loss before taxation
Taxation
Loss and total comprehensive loss for the year attributable to owners of the
parent
Loss per share
Basic and fully diluted
(461)
(113)
(907)
(421)
(100)
-
(3,021)
(540)
(234)
26
(71)
(2,450)
(4,989)
1
(518)
(517)
3
(602)
(599)
11
4
4
7
5
6
6
(2,967)
(5,588)
8 288
438
(2,679)
(5,150)
9
(0.56)p
(2.27)p
1earnings before net finance costs, tax, depreciation, amortisation, plc costs, exceptional items and share-based payments
The accompanying accounting policies and notes on pages 32 to 52are an integral part of these consolidated financial
statements.
CloudCoCo Group plc Annual Report 2020
28
Consolidated statement of financial position
as at 30 September 2020
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
Trade and other payables
Contract liabilities
Borrowings
Lease liability
Total current liabilities
Non-current liabilities
Contract liabilities
Borrowings
Lease liability
Deferred tax liability
Total non-current liabilities
Total liabilities
Net assets / (liabilities)
Equity
Share capital
Share premium account
Capital redemption reserve
Merger reserve
Other reserve
Retained earnings
Total equity
Note
10
11
12
13
14
15
16
17
18
16
17
18
20
30 September
2020
£’000
30 September
2019
£’000
10,359
221
10,580
31
1,856
588
2,475
13,055
4,394
62
4,456
32
1,489
311
1,832
6,288
(2,465)
(1,664)
(565)
(104)
(122)
(513)
-
(32)
(3,256)
(2,209)
(364)
(94)
(3,458)
(4,270)
(61)
(940)
(4,823)
(8,079)
4,976
4,952
17,630
6,489
1,997
122
(16)
(810)
(5,190)
(7,399)
(1,111)
2,271
11,337
6,489
1,997
1,720
(26,214)
(24,925)
21
4,976
(1,111)
These financial statements were approved and authorised for issue by the Board of Directors on 1 March2021.
Signed on behalf of the Board of Directors by
Michael Lacey
Director
The accompanying accounting policies and notes on pages 32to 52 form an integral part of these financial statements.
CloudCoCo Group plc Annual Report 2020
29
Consolidated statement of changes in equity
for the year ended 30 September 2020
At 1 October 2018
2,271
11,337
6,489
1,997
1,649
(19,775) 3,968
Loss and total comprehensive loss for the period
—
—
—
—
—
(5,150) (5,150)
Share
capital
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Merger
reserve
£’000
Other
reserve
£’000
Retained
earnings
£’000
Total
£’000
Transactions with owners
Share-based payments
Total transactions with owners
Total movements
—
—
—
—
—
—
—
—
—
—
—
—
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)
Share
capital
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Merger
reserve
£’000
Other
reserve
£’000
Retained
earnings
£’000
Total
£’000
At 1 October 2019
2,271
11,337
6,489
1,997
1,720
(24,925) (1,111)
Loss and total comprehensive loss for the period
—
—
—
—
—
(2,679) (2,679)
Transactions with owners
Extinguishment of BGF Loan Notes in consideration for
issue of 50,000,000 shares at 0.35p per share (note 19)
500
1,275
Issue of 218,160,586 shares to CloudCoCo vendors at
3.3p per share (note 22)
Cancellation of 11,353,255 share warrants held by MXC
Guernsey on acquisition of CloudCoCo Ltd
Share-based payments
Total transactions with owners
Total movements
2,181
5,018
—
—
—
—
2,681
6,293
2,681
6,293
—
—
—
—
—
—
—
(1,330)
1,148 1,593
—
—
—
—
— 7,199
(242)
242
—
(26)
—
(26)
—
(1,598)
1,390 8,766
—
(1,598)
(1,289) 6,087
Equity at 30 September 2020
4,952
17,630
6,489
1,997
122
(26,214) 4,976
The accompanying accounting policies and notes on pages 32to 52form an integral part of these financial statements
CloudCoCo Group plc Annual Report 2020
30
Consolidated statement of cash flows
for the year ended 30 September 2020
Cash flows from operating activities
Loss before taxation
Adjustments for:
Depreciation – owned assets
Depreciation – right of use assets
Amortisation
Share-based payments
Net finance expense
Costs relating to acquisition of CloudCoCo Limited
Settlement of warranty claim
Impairment of goodwill
(Increase) / decrease in trade and other receivables
Decrease/ (increase) in inventories
Increase / (decrease) in trade payables, accruals and deferred income
Cash flows from taxation
Net cash from / (used in) operating activities before acquisition costs
Costs relating to acquisition of CloudCoCo Limited
Net cash from (used in) operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Acquisition of CloudCoCo Limited, net of cash acquired
Purchase of intangible assets
Interest received
Net cash from / (used in) investing activities
Cash flows from financing activities
Proceeds from exercise of BGF share options
Receipt of loan funds from MXCG
Receipt of loan funds from COVID-19 Bounce Back Loan
Payment of lease liabilities
Interest paid
Net cash from / (used in) financing activities
Net increase / (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
2020
£’000
2019
£’000
(2,967)
(5,588)
36
77
1,623
(26)
517
435
—
—
(65)
1
866
—
497
(435)
62
(37)
157
—
1
121
175
100
50
(183)
(48)
94
277
311
588
588
100
—
907
71
599
—
600
3,021
811
(6)
(1,145)
—
(630)
—
(630)
(16)
—
(40)
3
(53)
—
—
—
(30)
(403)
(433)
(1,116)
1,427
311
311
CloudCoCo Group plc Annual Report 2020
31
Notes to the consolidated financial statements
1. General information
CloudCoCo Group plc is a public limited company incorporated in England and Wales under the Companies Act 2006. The
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 applied in accordance with provisions of 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.
Going concern
The Group had positive net assets at 30 September 2020 totalling £5.0 million compared to net liabilities at the end of FY19 of
£1.1 million. The acquisition of CloudCoCo Limited during FY20 and the Refinancing referred to in the Financial Review 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 refinancing
of the loan notes of £1.3 million. The Group had an undrawn working capital facility at 30 September 2020 of £0.4m which formally
matures in October 2021 but which the lender has confirmed that it will extend to March 2022.
The Group’s progress towards its key objectives of increasing sales, reducing customer churn, reducing costs, and returning to
net cash generation is described in the Strategic Report. Despite significant uncertainty and disruption as a result of the pandemic,
the Group reported an improvement in underlying profitability as measured by Group Trading EBITDA (2020: £0.3m; 2019:
£(0.2)m) and generated cash from operating activities, excluding costs of acquiring CloudCoCo Limited, of £0.4m.
The Strategic Report on pages 9 to 10 describes the risks associated with the Group’s activities which are reviewed by the
Directors on a regular basis. The key operational risk the Group faces is the general economic outlook including the continuing
uncertainty caused by the pandemic. Although COVID-19 has not a material impact on the Group’s ability to operate, it has
resulted in delays in sales cycles for certain services and delays in project delivery as customers assess the impact of COVID-19
on their own businesses. The Group responded by taking action to conserve cash including temporary pay cuts, use of the
Government’s furlough and VAT deferral schemes and a COVID-19 Bounce Back Loan.
The Directors have reviewed the forecast sales growth, budgets and cash projections for the period to March 2022. The Directors
have performed sensitivity analysis which reflects uncertainty in assumptions regarding growth in services and customer projects
and considered that the Group expects to have sufficient cash resources provided that the MXCG working capital facility is made
available beyond October 2021. At the request of the Directors, MXC has provided confirmation that it will provide continuing
financial support including the extension of the existing facility until March 2022.
After reviewing the forecast sales growth, budgets and cash projections, including sensitivity analysis on the key assumptions
such as the potential impact of COVID-19 on sales, for the next twelve months and beyond and after 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 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. The Directors have not identified any material uncertainties that may cast doubt over the ability of the Group and
Company to continue as a going concern and the Directors continue to adopt the going concern basis in preparing these financial
statements.
1.2 New standards and interpretations of existing standards that have been adopted by the Group for the first time
During the year ended 30 September 2020 the Group adopted the following new financial reporting standards for the first time:
• Annual Improvements to IFRS Standards 2015-17
• Cycle amendments to IFRS 3 Business Combinations
•
•
•
•
IAS 12 Income Taxes
IAS 23 Borrowing Costs
IFRS 11 Joint Arrangements
IFRS 16 Leases
With the exception of IFRS 16 Leases, none of the new standards had a material impact on the Group.
IFRS 16 Leases has replaced IAS 17 Leases and the new standard became effective for periods commencing after 1 January
2019. The Group has adopted IFRS 16 Leases using the modified retrospective basis with recognition of a transitional adjustment
as described below on the date of initial application being 1 October 2019 and therefore comparatives have not been restated.
IFRS 16 Leases introduces a single lessee accounting model where the Group now recognises a lease liability and a right of use
asset for all leases, except for those with short lives. On adoption of IFRS 16 Leases the Group recognised a right of use asset
in respect of the lease of office space at 7750 Daresbury Business Park, Warrington. As permitted under the practical expedients
contained in the standard, no adjustment was made in respect of leases with a remaining term of less than 12 months. The right
of use asset is then depreciated over the remaining term of the lease.
CloudCoCo Group plc Annual Report 2020
32
Notes to the consolidated financial statements (continued)
1.2 New standards and interpretations of existing standards that have been adopted by the Group for the first time (continued)
On adoption of IFRS16 the Group recognised a lease liability in relation to that office lease which had previously been classified
as an operating lease under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining
lease payments discounted using the Group’s average incremental borrowing rate.
On the transfer to IFRS 16 adjustments were made to create a right of use asset of £148,000 and a lease liability of £148,000.
The adoption of IFRS 16 in the year to 30 September 2020 resulted in a reduction in operating expenses excluding depreciation
of £68,000, and an increase in depreciation costs of £58,000 and an increase in interest in interest costs of £28,000.
There is no overall impact of cash flows or retained earnings from implementing IFRS 16, however trading EBITDA has improved
by £68,000.
A reconciliation between the accounting treatment IAS 17 Leases and IFRS 16 Leases at 1 October 2019 is contained in note 18.
1.3 New standards and interpretations of existing standards that are not yet effective and have not been adopted early by the
Group
A number of other new standards, amendments to standards and interpretations are effective for the annual period commencing on
or after 1 October 2020,.None of these are expected to have a material impact on the Group,
• Amendment to IFRS3 Definition of a Business
• Amendments to IAS11 Construction Contracts and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
• Conceptual Framework Amendments to References to the Conceptual Framework in IFRS Standards
2. Principal accounting policies
a) Basis of consolidation
The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries) prepared to 30 September each year. Control is achieved where the Company is exposed to, or has the rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The Group obtains and exercises control through voting rights.
Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements
of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
Acquisitions of subsidiaries are dealt with using the acquisition method. The acquisition method involves the recognition at fair
value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of
whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the
assets and liabilities of the subsidiary are included in the Consolidated Statement of Financial Position at their fair values, which
are also used as the cost bases for subsequent measurement in accordance with the Group accounting policies.
Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition costs over the
fair value of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition.
b) Goodwill
Goodwill representing the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets
acquired is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses.
Refer to principal accounting policy (k) for a description of impairment testing procedures.
c) Revenue and revenue recognition
Revenue arises from the sale of goods and the rendering of services as it is performed and the performance obligations fulfilled.
It is measured by reference to the fair value of consideration received or receivable, excluding valued added tax, rebates, trade
discounts and other sales-related taxes.
The Group enters into sales transactions involving a range of the Group’s products and services; for example, for the delivery of
hardware, software, support services, managed services and professional services. At the inception of each contract the Group
assesses the goods or services that have been promised to the customer. Goods or services can be classified as either i) distinct
or ii) substantially the same, having the same pattern of transfer to the customer as part of a series. Using this analysis, the
Company identifies the separately identifiable performance obligations over the term of the contract. A contract liability is
recognised when billing occurs ahead of revenue recognition. A contract asset is recognised when the revenue recognition criteria
were met but in accordance with the underlying contract the sales invoice had not been issued.
Goods and services are classified as distinct if the customer can benefit from the 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.
CloudCoCo Group plc Annual Report 2020
33
Notes to the consolidated financial statements (continued)
c) Revenue and revenue recognition (continued)
Sale of goods (hardware and software)
Sale of goods is recognised at the point in time when the customer obtains control of the goods. Revenue from the sale of software
with no significant service obligation is recognised on delivery.
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 and the
performance obligation fulfilled, measured by reference to hourly rates.
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 (i).
f) Right of use assets
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which
comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the
commencement date net of any lease incentives received and any initial direct costs incurred
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of
the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term,
the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement
of lease liabilities.
The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of
12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred.
g) 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 28.
h) Exceptional 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.
Exceptional items are excluded from the headline profit measures used by the Group and are highlighted separately in the
Consolidated Income Statement as management believe that they need to be considered separately to gain an understanding of
the underlying profitability of the trading businesses.
Note 4 contains more detail on exceptional items.
i) 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
Right of use asset –
over the remaining term of the lease
Material residual value estimates are updated as required, but at least annually.
j) 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. Intangible assets 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 2020:
CloudCoCo Group plc Annual Report 2020
34
Notes to the consolidated financial statements (continued)
IT and billing systems amortised over three years;
customer lists amortised over five to ten years; and
brands amortised over ten years.
j) Intangible assets (continued)
•
•
•
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 (v).
k) 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 discount rate specific to each CGU, based on the internal rate of return calculated over the useful economic
life of the asset. Forecast cash flows beyond 5 years assume steady growth at no more than the long-term average growth rate
for the United Kingdom 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 the expected useful life of the asset. 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.
l) Leases
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value
of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate
cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any
lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under
residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and
any anticipated termination penalties. Any variable lease payments that do not depend on an index or a rate are expensed in the
period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if
there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee;
lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is
made to the corresponding right-of-use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written
down.
The following accounting policies were applied to leases in the year ended 30 September 2019:
Management applies judgement in considering the substance of the lease agreement. Leases where the lessor retains
substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are
recognised as an expense in the consolidated statement of profit or loss on a straight-line basis over the lease term. Where the
Group has substantially all the risks and rewards of ownership, the assets are capitalised as property, plant and equipment and
depreciated over the shorter of their useful economic life and the lease term. The resulting lease obligations are included in
borrowings net of finance charges. Interest costs on finance leases are charged to the consolidated statement of profit or loss so
as to produce a constant periodic rate of charge on the remaining balance of the liability for each period.
m) 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.
n) 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.
CloudCoCo Group plc Annual Report 2020
35
Notes to the consolidated financial statements (continued)
n) Taxation (continued)
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
o) Financial assets
All financial assets are initially recognised at fair value, plus transaction costs and subsequently measured at amortised cost.
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.
The Group reviews the amount of credit loss associated with its trade receivables based on forward looking estimates, taking into
account current and forecast credit conditions Details of the expected credit loss provision for trade receivables is shown in note
13.
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. 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.
p) Cash and cash equivalents
Cash at bank and in hand comprises cash on hand and demand deposits.
q) 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. In the financial statements at 30 September 2019, loan notes were
treated as a compound instrument as if the options granted to the lender represented an option to convert loan notes into equity.
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.
Modification of the terms of a liability is accounted for as an extinguishment of the original liability and recognition of a new liability
when the modification is substantial. A modification is deemed to be substantial if the net present value of the cash flows under
the modified terms, including any fees paid or received, is at least 10 per cent different from the net present value of the remaining
cash flows of the liability prior to the modification, both discounted at the original effective interest rate of the liability prior to the
modification
r) Issued share capital
Ordinary shares are classified as equity. Incremental costs attributable to the issue of shares or options are recorded in equity as
a deduction from proceeds.
s) 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.
CloudCoCo Group plc Annual Report 2020
36
Notes to the consolidated financial statements (continued)
t) 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.
u) Government Grants
The Group has received funding from various Government sources in relation to COVID-19. Government income is recognised
in profit or loss (within other income) on a systematic basis over the periods in which the Group recognises costs for which the
grants are intended to compensate. Where it is not yet considered highly probable that Government funding will not have to be
repaid, this element is deferred on the balance sheet within other creditors.
v) Critical accounting judgements and key sources of estimation uncertainty
Critical judgements in applying the Group’s accounting policies
The allocation of fair values to the tangible assets and the identification and valuation of intangible assets requires judgement in
the selection of appropriate valuation techniques and inputs and affect the goodwill and the assignment of that to each cash
generating unit, recognised in respect of the acquisitions (note 22). 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. Judgement was applied in the current year to determine the substance
of the agreements with the BGF relating to the cancellation of loan notes and the modification and exercise of share options. As
described in note 19, the Directors concluded that the exercise of options was in consideration for the extinguishment of the loan
notes as though the loan note instrument had been a convertible instrument. As a result, the transaction resulted in a no gain or
loss being recognised in the income statement which would otherwise have been the case had the agreements been judged to
be unrelated.
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 estimated
future discounted cash flows over a ten-year period from the date of acquisition, depending on class and date of acquisition and
assuming a diminution for retention rate specific to each customer base, calculated using the average actual retention rate over
the prior three or five-year period. All future cash flows are discounted using a discount rate, based on the internal rate of return
for each asset, calculated over its useful economic life.
Determining whether intangible assets, including goodwill, are impaired requires an estimate of whether there is an impairment
indicator. The key estimates for the carrying value of intangible assets are 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.
(j) above and note 10.
Further details on
in principal accounting policy
tests are shown
impairment
the
3. Segment reporting
The Chief Operating Decision Maker (“CODM”) has been identified as the executive directors of the Company and its subsidiaries,
who review the Group’s internal reporting in order to assess performance and to allocate resources.
The CODM assess profit performance principally through adjusted profit measures consistent with those disclosed in the Annual
Report and Accounts. 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.
CloudCoCo Group plc Annual Report 2020
37
Notes to the consolidated financial statements (continued)
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 Revenue
Recognised at a point in time
Recognised over time
Total Revenue
2020
£’000
5,412
1,839
719
7,970
2020
£’000
2,558
5,412
7,970
2019
£’000
5,153
1,405
699
7,257
2019
£’000
2,104
5,153
7,257
4. Exceptional Items
Items which are material and non-routine in nature are presented as exceptional items in the Consolidated Income Statement.
Costs relating to the acquisition of CloudCoCo Limited
Impairment of goodwill and intangible assets (Note 11)
Integration and restructure costs
Foreign exchange rate variances
Exceptional items
2020
£’000
(435)
—
(105)
—
(540)
2019
£’000
—
(3,021)
(226)
(8)
(3,255)
The Board has assessed the carrying value of the Group’s goodwill and intangible assets and following an assessment of current
budgets and forecasts for the Group, no impairment charge (FY19: £3.0m) has been made.
5. Operating loss
Operating loss is stated after charging:
Depreciation of owned assets
Depreciation of right of use assets
Short life lease expense
Operating lease rentals
– Buildings
Amortisation of intangibles
Auditor’s remuneration:
– Audit of parent company
– Audit of subsidiary companies
Predecessor auditor’s remuneration
– Audit of parent company
– Audit of subsidiary companies
– Audit costs of relating to prior year
– Other audit-related assurance services
– Tax compliance services
2020
£’000
36
77
50
—
1,623
20
50
—
—
25
6
17
2019
£’000
100
—
—
106
907
—
—
22
42
20
7
10
CloudCoCo Group plc Annual Report 2020
38
Notes to the consolidated financial statements (continued)
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:
3
Lease liabilities
—
MXC rolling working capital facility
400
Loan note interest
199
Effective interest on liability element of the loan notes
Finance costs
602
Loan note interest includes £398,000 (FY19: £nil) which is accrued and is only payable when the loan notes are repaid in 2024
or earlier if the Group chooses.
27
9
420
62
518
2020
£’000
1
1
2019
£’000
3
3
7. Employee costs
7.1 Directors and employees
At 30 September 2020, the Group employed 51 staff (2019: 51). The average number of staff employed by the Group during the
financial year amounted to 51 (2019: 68) as follows:
Management staff
Operational staff
Total
Employee numbers are stated including Directors.
7.2 Employee remuneration including directors
Wages and salaries
Pension contributions
Social security costs
Total
There were £4,000 of pension contributions payable at the reporting date (2019: £10,000).
2020
11
40
51
2020
£’000
2,320
56
249
2,625
2019
13
55
68
2019
£’000
2,949
69
292
3,310
7.3 Directors
Details of individual Directors’ emoluments for the year (including employer’s National Insurance (“NI”) contributions) are as
follows:
Non-Executive
S Duckworth
T Black (resigned 31 March 2020)
J Collighan1
A Mills (in office 21 October 2019 to
30 September 2020)
Executive
M Halpin (in office 31 March 2020
30 September 2020)2
M Lacey (in office 21 January 2020 to
30 September 2020)
Total
2020
£’000
32
16
38
13
107
60
266
Fees and salaries
Employer’s NI contributions
2019
£’000
2020
£’000
2019
£’000
Other benefits
Totals (including
employer’s NI)
2020
£’000
2019
£’000
2020
£’000
2019
£’000
36
32
72
—
—
—
140
3
2
—
—
14
7
26
4
3
—
—
—
—
7
—
—
—
—
4
3
7
—
—
—
—
—
—
—
35
18
38
13
125
70
40
35
72
—
—
—
299
147
Other benefits include £3,000 (FY19: £nil) in respect of pension contributions for M Halpin and £2,000 (FY19: £nil) in respect of
pension contributions for M Lacey.
1. fees in relation to J Collighan are paid to MXC Capital Advisory Limited (see Note 7).
2. fees in relation to M Halpin include the period before joining the Board
CloudCoCo Group plc Annual Report 2020
39
Notes to the consolidated financial statements (continued)
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
2020
Number
8,547,692
—
(3,800,000)
4,747,692
2020
Weighted
average
exercise price
5.22p
—
1.00p
8.6p
2019
Number
9,849,358
—
(1,301,666)
8,547,692
2019
Weighted
average
exercise price
6.08p
—
11.73p
5.22p
During the year no share options were granted (2019: nil) and 3,800,000 share options lapsed in accordance with the share issue
documents. At 30 September 2020, the Company had granted the following outstanding share options:
Date granted
25 March 2015
28 September 2016
31 March 2017
Total
Balance
2020
207,692
4,540,000
—
4,747,692
Movement
during the year
—
—
(3,800,000)
(3,800,000)
Balance
2019
207,692
4,540,000
3,800,000
8,547,692
Exercise
price
—
Dates exercisable
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)
54
72
78
(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 Note 19.
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 BGF options were modified and exercised at a price of 0.35p in consideration for the extinguishment of loan notes of £1.5m
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 the Director’s Report.
The total non-employee share options and warrants in issue at 30 September 2020 are:
Date granted
28 April 2015
26 May 2016
Total
Balance
2020
Movement
during the year
Balance
2019
— (13,853,255) 13,853,255
— (50,000,000) 50,000,000
(63,853,255 63,853,255
—
Exercise
price
—
—
—
Remaining
contractual
life
(months)
—
—
—
Dates exercisable
—
—
—
The total share-based payments expense included in the Consolidated Income Statement is:
Share options
Share warrants
Total
2020
£’000
(26)
—
(26)
2019
£’000
16
55
71
Post year end, the Company granted options (“Employee Options”) over a total of 55,103,500 ordinary shares of
1 pence each in the Company (“Ordinary Shares”) to members of the senior management team and other employees pursuant
to the Company’s EMI Share Option Scheme (“Scheme”). A further 4,000,000 options over Ordinary Shares have been granted
pursuant to the Company’s Unapproved Share Option Scheme (together with Employee Options, “Options”).
The Options amount to approximately 11.9% of the Company's current non-diluted issued share capital and are issued within the
parameters of the proposed incentive scheme detailed at the time of the Company’s acquisition of CloudCoCo Limited in October
2019.
CloudCoCo Group plc Annual Report 2020
40
Notes to the consolidated financial statements (continued)
7.4 Share-based payments (continued)
The grant of Options is part of the Company’s new ‘CoCo-One’ initiative in which all qualifying colleagues are awarded share
options to encourage shared ownership and enhance retention, recruitment and incentivisation across the business. The Options
will only accrue value in the event the Company’s share price increases, thereby aligning the interests of recipients with those of
shareholders.
Of the 55,103,500 Employee Options, 22,000,000 were granted to certain of the Company’s Persons Discharging Managerial
Responsibilities as follows (representing the relevant individuals’ total interests in Employee Options):
Mark Halpin – Chief Executive Officer
Michael Lacey – Chief Financial Officer
Darron Giddens – Company Secretary
Options Granted
7,500,000
7,500,000
7,000,000
The Options, which have an exercise price of 1 penny per Ordinary Share, can be exercised at any time between 20 November
2022 (or earlier if there is a qualifying transaction) and 20 November 2030.
The Options vest subject to various performance criteria and can only be exercised subject to the Company’s share price being
greater than 2 pence per Ordinary Share at the date of exercise.
The Company had previously granted options over a total of 4,747,692 Ordinary Shares pursuant to the Scheme. The relevant
employees agreed to waive these options prior to the grant of the Employee Options as described above, such that the Options
are the only share options in issue .
8. Income tax
Current tax
UK corporation tax for the period at 19% (2019: 19%)
Deferred tax
Deferred tax credit on intangible assets
Total tax credit for the year
2020
£’000
—
(288)
(288)
2019
£’000
—
(438)
(438)
The relationship between expected tax expense based on the standard rate of tax in the UK of 19% (2019: 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
2020
£’000
(2,967)
19%
(564)
—
91
191
—
(6)
(288)
2019
£’000
(5,588)
19%
(1,062)
—
641
287
(13)
(291)
(438)
The Group has unrecognised deferred tax assets in respect of tax losses carried forward totalling £1,522,000 (2019: £1,290,000).
9. Loss per share
Loss attributable to ordinary shareholders
2020
£’000
(2,679)
2019
£’000
(5,150)
Weighted average number of Ordinary Shares in issue, basic and diluted
Basic and diluted loss per share
Number
Number
478,427,400 227,065,100
(2.27)p
(0.56)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 2020
41
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 amortisation
expense is recorded in administrative expenses in the Consolidated Income Statement
Intangible assets
Cost
At 1 October 2018
Additions
At 1 October 2019
Business combinations (note 22)
At 30 September 2020
Accumulated amortisation
At 1 October 2018
Charge for the year
At 1 October 2019
Charge for the year
At 30 September 2020
Impairment
At 1 October 2018
Charge in the year
At 1 October 2019
Charge in the year
At 30 September 2020
IT, billing and
website
systems
£’000
142
40
182
—
182
(27)
(20)
(47)
(111)
(158)
—
—
—
—
—
Goodwill
£’000
4,447
—
4,447
5,388
9,835
—
—
—
—
—
(2,844)
(1,603)
(4,447)
—
(4,447)
Brand
£’000
1,157
—
1,157
500
1,657
(265)
(115)
(380)
(598)
(978)
—
(225)
(225)
—
(225)
Customer
lists
£’000
7,580
—
7,580
1,700
9,280
(1,908)
(772)
(2,680)
(914)
(3,594)
—
(1,193)
(1,193)
—
(1,193)
Total
£’000
13,326
40
13,366
7,588
20,954
(2,200)
(907)
(3,107)
(1,623)
(4,730)
(2,844)
(3,021)
(5,865)
—
(5,865)
Carrying amount
At 30 September 2020
At 30 September 2019
Average remaining amortisation period
5,388
—
24
135
0.8 years
454
552
9.1 years
4,493
3,707
6.7 years
10,359
4,394
6.9 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.
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. The
Group operates as a single business and there is a single CGU. Each year, management compares the resulting cash flow
projections using a value in use approach to assess the recoverable amount of the CGU to the carrying value of goodwill. Any
material variance in this calculation results in an impairment charge to the Consolidated Income Statement.
The calculations used to compute cash flows for the CGU level are based on the Group’s budget, growth rates, WACC and other
known variables. The calculations are sensitive to movements in both WACC and the revenue growth projections. The current
effective unsecured pre-tax borrowing rate is calculated at 12% per annum (FY19:15%) and the revenue growth rate is 5% per
annum (FY:19 5%) for 5 years and a terminal growth rate of 2% (FY19: 2%) per annum. Sensitivities have been run on cash flow
forecasts for the CGU. Management is satisfied that the key assumptions of revenue and EBITDA growth rates should be
achievable and that reasonably possible changes to those key assumptions would not lead to the carrying amount 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.
CloudCoCo Group plc Annual Report 2020
42
Notes to the consolidated financial statements (continued)
10. Intangible assets (continued)
Sensitivity analysis
Excess of recoverable amount over carrying value:
Base case – headroom
Discount rate increased by 1% - resulting headroom
Revenues growth rate reduced by 1% per annum – resulting headroom
CloudCoCo Group
plc
2,786
1,653
1,632
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 and communication solutions, 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 notices of termination received and the improvement in Trading EBITDA during the
year as indicators that there is no impairment of intangible assets. In the year to 30 September 2019 goodwill and other intangibles
were impaired by £3.0m and this cost was recognised in administrative expenses in the Consolidated Income Statement.
11. Property, plant and equipment
Cost of assets
At 1 October 2018
Additions
Disposals
At 30 September 2019
Right of use assets recognised on transition to IFRS16
Additions
Business combinations (note 22)
At 30 September 2020
Depreciation
At 30 September 2018
Charge for the year
Disposals
At 30 September 2019
Right of use assets recognised on transition to IFRS16
Charge for the year
At 30 September 2020
Net book value
At 30 September 2020
At 30 September 2019
`
Right of Use Assets
£’000
IT equipment
£’000
Fixtures,
fittings and
leasehold
improvements
£’000
—-
—-
—-
—-
257
28
51
336
—-
—-
—-
—-
87
77
164
172
—-
356
23
(125)
254
(56)
42
3
243
231
80
(118)
193
(34)
35
194
49
61
148
—
(54)
94
(53)
—
—
41
127
20
(54)
93
(53)
1
41
—
1
The net book value of right of use assets at 30 September 2020 comprised:
At 30 September 2020
12. Inventories
Consumables
Work in progress
Inventories
Land & buildings
£’000
98
IT equipment
£’000
3
Motor Vehicles
£’000
7
2020
£’000
21
10
31
Total
£’000
504
23
(179)
348
148
70
54
620
358
100
(172)
286
—
113
399
221
62
Total
£’000
121
2019
£’000
14
18
32
CloudCoCo Group plc Annual Report 2020
43
Notes to the consolidated financial statements (continued)
13. Trade and other receivables
Trade receivables
Other Debtors
Contract assets
Prepayments
Trade and other receivables
2020
£’000
985
6
101
764
1,856
2019
£’000
951
3
143
392
1,489
Having adopted in 2019, 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 30 September 2020 trade receivables amounting to £260,000 (2019: £215,000) 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
2020
£’000
548
178
68
41
150
985
2019
£’000
582
154
140
39
36
951
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 38 days (2019: 40 days). Trade receivables are stated net
of an impairment for estimated irrecoverable amounts of £153,000 (2019: £137,000). During the year, £40,000 of the opening
impairment provision of £137,000 from 1 October 2019, was utilised as a result of bad debts written off and subsequently a further
increase in the impairment provision of £56,000 was made, resulting in a Group provision of for impairment of trade receivables
of £153,000 at 30 September 2020.
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
Category
Top 10 customers
Next 50 customers
Other customers
Category
Top 10 customers
Next 50 customers
Other customers
Impairment Rate
0.0%
2.8%
3.0%
2020
Impairment
Rate
16.3%
8.0%
15.4%
13.4%
2019
Impairment
Rate
14.7%
9.0%
10.8%
12.5%
2020
£’000
Net Trade
Receivables
528
347
110
985
2019
£’000
Net Trade
Receivables
529
282
140
951
2020
£’000
Gross Trade
Receivables
631
377
130
1,138
2020
£’000
Impairment
Provision
(103)
(30)
(20)
(153)
2019
£’000
Gross Trade Receivables
620
310
157
1,087
2019
£’000
Impairment
Provision
(91)
(28)
(17)
(136)
CloudCoCo Group plc Annual Report 2020
44
Notes to the consolidated financial statements (continued)
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.
14. Cash and cash equivalents
Cash at bank and in hand
2020
£’000
588
2019
£’000
311
Cash balances are held with a small number of counterparties. There were no borrowing facilities in place at 30 September 2020
other than the loan notes issued to MXC Guernsey Limited, the working capital facility provided by MXC Guernsey Limited and
the COVID-19 Bounce Back Loan (Note 17).
15. Trade and other payables
Trade payables
Accruals
Other taxes and social security costs
16. Contract liabilities
Contract liabilities – short-term element
Contract liabilities – long-term element
At 1 October 2019
Additions
Recognised in revenue in current year
At 30 September 2020
2019
£’000
876
486
302
1,664
2019
£’000
513
94
607
2020
£’000
1,388
460
617
2,465
2020
£’000
565
364
929
607
896
(574)
929
Contract liabilities on unfulfilled performance obligations arise when income is deferred to the Statement of Financial Position due
to invoicing of revenue to customers occurring ahead of revenue recognition in the Income Statement. The long-term element will
be recognised within 60 months of the balance sheet date (FY19: 36 months).
17. Borrowings
17.1 Current
COVID-19 Bounce-back loan repayable – short-term element
MXC Guernsey Limited working capital facility
2020
£’000
4
100
104
2019
£’000
—
—
—
MXCG provide a £0.5 million working capital facility of which £0.1 million had been drawn down at 30 September 2020. There are
no set repayment terms but interest is payable at 12% per annum on drawn down amounts. This facility is set to expire in October
2021 but MXCG has confirmed it will extend to March 2022.
17.2 Non-current
Loan notes
Accrued interest on loan notes repayable in October 2024
Loan notes (note 19}
COVID-19 Business Bounce-back loan repayable – long-term element
2020
£’000
3,014
398
3,412
46
3,458
2019
£’000
4,270
—
4,270
—
4,270
On 10 May 2020, the Company borrowed £50,000 from HSBC Bank UK Plc, under the COVID-19 Business Bounce-back loan
scheme. In accordance with the UK Government’s Business Interruption Payment scheme, the interest on the loan for the first 12
months is covered by the UK Government and the Company will repay the loan in 59 equal monthly instalments, commencing
June 2021.
CloudCoCo Group plc Annual Report 2020
45
Notes to the consolidated financial statements (continued)
17.3 Net debt – net debt comprises:
Loan notes
COVID-19 Bounce-back loan
MXC Guernsey Limited working capital facility
Lease liabilities
Cash and cash equivalents
Total
18. Lease Liabilities
Opening balance
Recognised at 1 October 2019 following adoption of IFRS 16
Additions
Leases acquired on the acquisition of CloudCoCo Limited
Related interest expense
Repayment of lease liabilities
Closing balance
Current
Non-current
2020
£’000
3,412
50
100
183
(588)
Cash
movements
£’000
—
50
100
(183)
(277)
Other
movements
£’000
(858)
—
—
290
—
2019
£’000
4,270
—
—
48
(311)
3,157
(310)
(568)
4,007
2020
£’000
48
148
28
114
28
(183)
183
2020
£’000
122
61
183
2019
£’000
32
16
48
Reconciliation of IAS 17 operating lease commitments at 30 September 2019 to lease liability recognised on adoption of IFRS 16
Operating lease commitments at 30 September 2019
Effect of discounting
Other – leases with less than 12 months unexpired
2020
£’000
197
(29)
(20)
148
19. Financial instrument
On 26 May 2016, the Company issued £5m unsecured loan notes (“Loan Notes”) to the Business Growth Fund (“BGF”) with a
seven-year term (although redemption was 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”). On the same date, 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 were unsecured, no collateral was offered to the BGF as security. The Loan Notes were
not exposed to market interest rate increases over the term.
In the opinion of the directors, the Loan Notes and share option elements were linked and were therefore treated as a single
financial instrument. In accordance with IAS 32, the Loan Notes were recorded at a fair value of £3.6m which was measured using
a discounted cash flow model over the seven-year term of the instrument and an effective interest rate of 15%. The difference to
the consideration received represented the element attributable to the options, which was credited to equity. The Loan Notes were
subsequently measured at amortised cost whereby the difference between the face value of the Loan Notes and their fair value
on initial recognition is recognised as an effective interest charge over the term of the instrument.
On 21 October 2019, the Company and BGF agreed to modify the exercise price of the share options and the options were
immediately exercised. The directors consider this to be in consideration for the extinguishment of Loan Notes with a principal
amount of £1.5m and accrued interest of £0.1m. In accordance with IAS 32, the carrying value of the Loan Notes that were
extinguished, £1.3m, has been derecognised and recorded in equity; no gain or loss has been recognised in the Consolidated
Income Statement.
On the same date, the remaining loan notes with a principal amount of £3.5m were acquired by a MXC Guernsey Limited, a
subsidiary of MXC Capital Limited. The terms of the loan notes were revised by increasing the coupon to 12% per annum
compound, rolled up and payable at maturity, and extending the term to October 2024. When measured using the loan notes’
original effective interest rate, the present value of the cash flows of the revised instrument were not significantly different to that
of the instrument prior to the modification. As a result, the Loan Notes were not treated as a new instrument and continue to be
measured at amortised cost.
CloudCoCo Group plc Annual Report 2020
46
Notes to the consolidated financial statements (continued)
20. Deferred tax liabilities
Deferred tax liability at 30 September 2018
Credited to income statement – on intangibles
Deferred tax liability at 30 September 2019
Deferred tax on acquisition of CloudCoCo Limited
Credited to income statement – on intangibles
Deferred tax liability at 30 September 2020
21. Share capital and reserves
Share capital and reserves comprises the following:
Deferred tax
on acquired
intangibles
£’000
1,248
(438)
810
418
(288)
940
•
•
•
•
•
•
“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. In
the financial statements at 30 September 2019 other reserves also included the equity element in the form of share
options, contained in the financial instrument issued to the Business Growth Fund on 26 May 2016.
Retained earnings reserve” represents retained profits and accumulated losses.
21.1 Share capital
Shares issued and fully paid
Beginning of year
Issued during year to BGF on exercise of options
Issued during year to CloudCoCo Limited vendors
Shares issued and fully paid
Share capital allotted, called up and fully paid
Ordinary shares of £0.01p
21.2 Share premium
Beginning of year
Arising on extinguishment of BGF Loan Notes in consideration of 50,000,000 shares at 0.35p per
share (note 19)
Arising on issue of shares to CloudCoCo Limited vendors at 3.3p
End of year
2020
£’000
2,271
500
2,181
4,952
2019
£’000
2,271
—
—
2,271
2020
No.
Ordinary
Shares
495,225,986
2019
No.
Ordinary
Shares
227,065,100
2020
£’000
11,337
1,275
5,018
17,630
2019
£’000
11,337
—
—
11,337
21.3 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.
CloudCoCo Group plc Annual Report 2020
47
Notes to the consolidated financial statements (continued)
21.4 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.
21.5 Other reserve
Beginning of year
Arising on extinguishment of BGF Loan Notes in consideration of 50,000,000 shares at 0.35p per
share (note 19)
Cancellation of 11,353,255 share warrants held by MXC Guernsey Limited on acquisition of
CloudCoCo Limited
Share based payments expense
End of year
21.6 Retained earnings
Beginning of year
Arising on loss and total comprehensive loss for the period
Arising on extinguishment of BGF Loan Notes in consideration of 50,000,000 shares at 0.35p per
share (note 19)
Cancellation of 11,353,255 share warrants held by MXC Guernsey Limited on acquisition of
CloudCoCo Limited
End of year
2020
£’000
1,720
(1,330)
(242)
(26)
122
2019
£’000
1,649
—
—
71
1,720
2020
£’000
(24,925)
(2,679)
1,148
242
2019
£’000
(19,775)
(5,150)
—
—
(26,214)
(24,925)
CloudCoCo Group plc Annual Report 2020
48
Notes to the consolidated financial statements (continued)
22. Acquisition of CloudCoCo Limited
On 21 October 2019, the Group acquired the entire issued share capital of CloudCoCo Limited for a total consideration of £7.2
million at fair value in accordance with IFRS 3. The consideration was satisfied in full by the issue of 218,160,586 new Ordinary
Shares at 3.3p per share (being the mid-market price on the date of the acquisition). The Group has assessed the fair value of
The acquisition of CloudCoCo Limited as follows:
Non-current assets
Intangible assets – brand
Intangible assets – customer lists
Right of use assets
Property, plant and equipment
Total non-current assets
Current assets
Trade and other receivables
Cash at bank
Total current assets
Total assets
Current liabilities
Lease liability
Trade and other payables
Other taxes and social security costs
Deferred Income and accruals
Non-current liabilities
Lease liability
Deferred tax liability
Total liabilities
Net Assets
Consideration in cash
Consideration in shares
Book
Cost
£’000
-
-
51
3
54
302
157
459
513
(63)
(133)
(24)
(213)
(433)
(51)
-
(484)
29
Fair value of cost of acquisition
Goodwill
Cash consideration paid
Cash acquired
Acquisition of CloudCoCo Limited, net of cash
Fair Value
Adjustment
£’000
Fair Value
£’000
500
1,700
-
-
2,200
-
-
-
2,200
-
-
-
-
-
-
(418)
(418)
1,782
500
1,700
51
3
2,254
302
157
459
2,713
(63)
(133)
(24)
(213)
(433)
(51)
(418)
(902)
1,811
-
7,199
7,199
5,388
2020
£’000
-
157
157
The goodwill arising on this acquisition is attributable to the management team and the sales and marketing systems and
methods operated by CloudCoCo Limited, which will benefit the Group. Direct acquisition costs amounting to £435,000 have
been written off to the income statement within exceptional items.
Subsidiary trading
It is not feasible to separate the performance of CloudCoCo Limited during the year. The business was subsumed into the
Group’s activities and its results are not separately reported. The results of the Group would not be materially different had the
acquisition occurred on 1 October 2019.
These numbers exclude the amortisation charge associated with the intangible assets identified at acquisition.
CloudCoCo Group plc Annual Report 2020
49
Notes to the consolidated financial statements (continued)
23. 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 17 and 18. The Directors are also considered to be the Group’s Key
Management Personnel.
Mark Halpin, a Director of the Company had a 28.4% holding in the shares of the Company at 30 September 2020 and is
considered to have a significant influence over the Group. A. Jill Collighan, a Director of the Company, is an employee of the MXC
Capital Limited (“MXC”). At 30 September 2020, MXC had a 15.2% holding in the shares of the Company 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.
Prior to the acquisition of CloudCoCo Limited by the Group, CloudCoCo Limited purchased services of £100,000 from CoCoNitro
Limited, a company jointly owned by Mark Halpin and Andy Mills of which £70,000 was outstanding at the date of acquisition.
During the year, the Company repaid £45,000, resulting in £25,000 shown as current liability at 30 September 2020.
Fees invoiced by MXC to the Company include £38,000 for Jill Collighan’s services as Non-Executive Director, included as
directors’ emoluments in Note 7. Additionally, corporate finance advisory and transaction services were purchased from MXC as
financial adviser to the Company. The Group purchased services totalling £91,000 (2019: £102,000) from MXC and at 30
September 2020 owed £238,000 to MXC (2019: £129,000).
As part of Refinancing, MXC Guernsey Limited (“MXCG”), a wholly owned subsidiary of MXC, acquired £3.5 million loan notes of
the Company, the terms of which were varied such that interest is charged at 12% compound per annum rolled up and payable
only at the end of the term, which was also extended to October 2024 with no repayment due until that date unless the Company
chooses to pay early. Also, MXCG provided the Company with a £0.5m working capital facility on which interest is charged at
12% per annum on amounts drawn down. At 30 September 2020, the Company owed MXCG £3.9 million in respect of the loan
notes and £101,000 in respect of the working capital facility and interest accrued but not paid.
Prior to his appointment as a Director, the Company purchased services of £9,587 from Connemara Consulting Limited, a
company owned by Michael Lacey.
24. Contingent liabilities
There are no contingent liabilities at 30 September 2020 (2019: nil).
25. 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 9 and 10.
25.1 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, the MXCG working capital facility of £0.5 million of which £0.4 million was undrawn at the 30 September 2020.
25.2 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 (2019: £10,000). The interest rate charged on finance leases and commercial loans is a
fixed rate agreed at the time of signing the agreement. The interest rate charged by MXCG is at a fixed rate.
25.3 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 30.
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.
CloudCoCo Group plc Annual Report 2020
50
Notes to the consolidated financial statements (continued)
25.3 Capital risk management (continued)
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.
25.4 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 13 to the financial statements.
25.5 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:
2020
Trade and other receivables
Other current assets
Cash at bank and in hand
2019
Trade and other receivables
Other current assets
Cash at bank and in hand
Book value approximates to fair value.
2020
Trade and other payables
Contract liabilities – short-term element
Contract liabilities – long-term element
Borrowings – short-term element
Borrowings – long-term element
Lease liability – short-term element
Lease liability – long-term element
Financial
assets
£’000
985
—
588
1,573
Financial
assets
£’000
951
—
311
1,262
Non-financial
assets
£’000
871
31
—
902
Balance Sheet
total
£’000
1,856
31
588
2,475
Non-financial
assets
£’000
538
32
—
570
Balance sheet
total
£’000
1,489
32
311
1,832
Other
financial
liabilities at
amortised cost
in the balance
sheet
£’000
2,465
—
—
104
3,458
—
—
6,027
Other liabilities
not within
scope of
IFRS 9
£’000
—
565
364
—
—
122
61
1,112
Balance sheet
total
£’000
2,465
565
364
104
3,458
122
61
7,139
Book value approximates to fair value with the exception of loan notes where the fair value is £3.9m.
2019
Trade and other payables
Contract liabilities – short-term element
Contract liabilities – long-term element
Borrowings – long-term element
Lease liability – short-term element
Lease liability – long-term element
Book value approximates to fair value.
Other
financial
liabilities at
amortised cost in
the balance sheet
£’000
1,664
—
—
4,270
—
—
5,934
Other liabilities
not within
scope of
IFRS 9
£’000
—
513
94
—
32
16
(75)
Balance sheet
total
£’000
1,664
513
94
4,270
32
16
6,589
CloudCoCo Group plc Annual Report 2020
51
Notes to the consolidated financial statements (continued)
25.5 Risk management analysis (continued)
The remaining contractual maturity of the Group's financial instrument liabilities is analysed as follows:
2020
Trade payables
Borrowings
Lease liabilities
2019
Trade payables
Borrowings
Lease liabilities
0 to 60
days
£’000
613
—
25
638
0 to 60
days
£’000
460
—
5
465
61 days to
6 months
£’000
775
—
46
821
61 days to
6 months
£’000
416
—
11
427
6 to 12
months
£’000
—
104
51
155
6 to 12
months
£’000
—
—
16
16
12 months to
2 years
£’000
—
11
58
69
12 months to
2 years
£’000
—
1,250
16
1,266
2 to 5
years
£’000
—
3,933
3
3,936
2 to 5
years
£’000
—
3,750
—
3,750
Over 5
years
£’000
—
—
—
—
Over 5
years
£’000
—
—
—
—
Total
£’000
1,388
4,048
183
5,619
Total
£’000
876
5,000
48
5,924
26. Ultimate controlling party
There is no ultimate controlling party.
CloudCoCo Group plc Annual Report 2020
52
Statement of financial position (parent company)
as at 30 September 2020
Fixed assets
Intangible assets
Fixed asset investments
Total fixed assets
Current assets
Debtors
Cash at bank and in hand
Total current assets
30 September
2020
£’000
30 September
2019
£’000
Note
6
7
—
1
1
13
1
14
8
10,056
4,545
11
10,067
(694)
9,373
9,374
8
4,553
(599)
3,954
3,968
Creditors: amounts falling due within one year
9
Net current assets
Total assets less current liabilities
Creditors: amounts falling due in more than one year
10
(3,458)
(4,270)
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Merger reserve
Other reserve
Retained earnings
Shareholders’ funds
5,916
(302)
11
11
4,952
2,271
17,630
11,337
6,489
1,997
122
6,489
1,997
1,720
(25,274)
(24,116)
5,916
(302)
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 and included in the Retained earnings movement was
£2,548,000 (2019: (£4,424,000)).
Approved by the Board and authorised for issue on 1 March 2021
Michael Lacey
Director
The accompanying accounting policies and notes form part of these financial statements.
Company number: 05259846
CloudCoCo Group plc Annual Report 2020
53
Statement of changes in equity (parent company)
for the year ended 30 September 2019
At 1 October 2018
Share
capital
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
2,271
11,337
6,489
Merger
reserve
£’000
1,997
Other
reserve
£’000
Retained
earnings
£’000
Total
£’000
1,649
(19,692)
4,051
Loss and total comprehensive loss for the period
—
Transactions with owners
Share-based payments
Total transactions with owners
Total movements
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(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)
Share
capital
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Merger
reserve
£’000
Other
reserve
£’000
Retained
earnings
£’000
Total
£’000
At 1 October 2019
2,271
11,337
6,489
1,997
1,720
(24,116)
(302)
Loss and total comprehensive loss for the period
—
—
—
—
—
(2,548) (2,548)
Transactions with owners
Extinguishment of BGF Loan Notes in consideration for
issue of 50,000,000 shares at 0.35p per share (note
19)
500
1,275
—
—
(1,330)
1,148 1,593
Issue of 218,160,586 shares to CloudCoCo vendors at
3.3p per share (note 22)
2,181
5,018
Cancellation of 11,353,255 share warrants held by
MXC Guernsey on acquisition of CloudCoCo Ltd
Share-based payments
Total transactions with owners
Total movements
—
—
—
—
2,681
6,293
2,681
6,293
—
—
—
—
—
—
—
—
—
— 7,199
(242)
242
—
(26)
—
(26)
—
(1,598)
1,390 8,766
—
(1,598)
(1,289) 6,087
Equity at 30 September 2020
4,952
17,630
6,489
1,997
122
(25,274) 5,916
The accompanying accounting policies and notes on pages 55 to 59 form an integral part of these financial statements.
CloudCoCo Group plc Annual Report 2020
54
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.
Going concern
The Group had positive net assets at 30 September 2020 totalling £5.0 million compared to net liabilities at the end of FY19 of
£1.1 million. The acquisition of CloudCoCo Limited during FY20 and the Refinancing referred to in the Financial Review 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 refinancing
of the loan notes of £1.3 million. The Group had an undrawn working capital facility at 30 September 2020 of £0.4m which formally
matures in October 2021 but which the lender has confirmed that it will extend to March 2022.
The Group’s progress towards its key objectives of increasing sales, reducing customer churn, reducing costs, and returning to
net cash generation is described in the Strategic Report. Despite significant uncertainty and disruption as a result of the pandemic,
the Group reported an improvement in underlying profitability as measured by Group Trading EBITDA (2020: £0.3m; 2019:
£(0.2)m) and generated cash from operating activities, excluding costs of acquiring CloudCoCo Limited, of £0.4m.
The Strategic Report on pages 9 to 10 describes the risks associated with the Group’s activities which are reviewed by the
Directors on a regular basis. The key operational risk the Group faces is the general economic outlook including the continuing
uncertainty caused by the pandemic. Although COVID-19 has not a material impact on the Group’s ability to operate, it has
resulted in delays in sales cycles for certain services and delays in project delivery as customers assess the impact of COVID-19
on their own businesses. The Group responded by taking action to conserve cash including temporary pay cuts, use of the
Government’s furlough and VAT deferral schemes and a COVID-19 Bounce Back Loan.
The Directors have reviewed the forecast sales growth, budgets and cash projections for the period to March 2022. The Directors
have performed sensitivity analysis which reflects uncertainty in assumptions regarding growth in services and customer projects
and considered that the Group expects to have sufficient cash resources provided that the MXCG working capital facility is made
available beyond October 2021. At the request of the Directors, MXC has provided confirmation that it will provide continuing
financial support including the extension of the existing facility until March 2022.
After reviewing the forecast sales growth, budgets and cash projections, including sensitivity analysis on the key assumptions
such as the potential impact of COVID-19 on sales, for the next twelve months and beyond and after 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 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. The Directors have not identified any material uncertainties that may cast doubt over the ability of the Group and
Company to continue as a going concern and the Directors continue to adopt the going concern basis in preparing these financial
statements.
1.2 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.
CloudCoCo Group plc Annual Report 2020
55
Notes to the parent company financial statements (continued)
1.7 Share-based remuneration
The Company issues equity-settled share-based payments to certain employees. The fair value of the shares granted is borne by
the Company and is not recharged to the Company’s subsidiaries. Share-based payments are 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
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. Judgement
was applied in the current year to determine the substance of the agreements with the BGF relating to the cancellation of loan
notes and the modification and exercise of share options. As described in note 19, the Directors concluded that the exercise of
options was in consideration for the extinguishment of the loan notes as though the loan note instrument had been a convertible
instrument. As a result, the transaction resulted in a no gain or loss being recognised in the income statement which would
otherwise have been the case had the agreements been judged to be unrelated.
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 £9.9 million is recorded in the Company’s Balance Sheet and relates to the amounts owed by subsidiary
undertakings after impairment. At the end of each period, the minimum level of impairment provided is calculated such that the
net assets of the Company are equal to the net assets of the Group net of any Deferred Tax. In addition, a full line-by-line
review of the debtors is carried out for any further impairment. Whilst every attempt is made to ensure that the impairment
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 assets
Financial assets comprise amounts due from subsidiary undertakings and are initially recognised at fair value, plus transaction
costs and subsequently measured at amortised cost in accordance with Paragraph 11 of FRS 102. At the end of each reporting
period, the company assesses whether there is objective evidence of impairment. If there is objective evidence of impairment,
the company recognises an impairment loss in profit or loss immediately.
1.10 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. In the financial statements at 30 September 2019, loan notes were
treated as a compound instrument as if the options granted to the lender represented an option to convert loan notes into equity.
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.
Modification of the terms of a liability is accounted for as an extinguishment of the original liability and recognition of a new liability
when the modification is substantial. A modification is deemed to be substantial if the net present value of the cash flows under
the modified terms, including any fees paid or received, is at least 10 per cent different from the net present value of the remaining
cash flows of the liability prior to the modification, both discounted at the original effective interest rate of the liability prior to the
modification.
2. Auditor remuneration
Fees payable to the Company’s Auditor for the audit of the parent company’s annual accounts were £20,000 (2019: £22,000).
3. Employee costs
The average number of staff employed by the Company during the year was 5 (2019: 3). These were all Directors. The costs for
the year were £294,000 (2019: £147,000). Further detail is provided in note 7 to the consolidated financial statements.
4. Pension payments
The Company made pension payments of £5,000 during the year (2019: £nil). Further detail is provided in note 7 to the
consolidated financial statements.
5.Share-based payments
The Company has share option plans for employees and there were movements in non-employee share options and warrants
during the year. Further detail is provided in note 7 to the consolidated financial statements.
CloudCoCo Group plc Annual Report 2020
56
Notes to the parent company financial statements (continued)
6. Intangible fixed assets
Cost
At 1 October 2018 and 1 October 2019
Additions during the year
At 30 September 2020
Depreciation
At 1 October 2018
Charge for the year
At 30 September 2019
Charge for the year
At 30 September 2020
Net book value
At 30 September 2020
At 30 September 2019
7. Fixed asset investments
Cost and net book value
At 1 October 2019 and 30 September 2020
At 30 September 2020 the Company had two subsidiary undertakings.
Company
Subsidiary undertakings
CloudCoCo Holdings Limited
CloudCoCo Cloud Services Limited
Country of registration
or incorporation
Class of
shares held
Scotland
England and Wales
Ordinary
Ordinary
£’000
60
—
60
27
20
47
13
60
—
13
£’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
CloudCoCo Cloud Services Limited
Principal activity
Intermediate holding company
Dormant
At 30 September 2020, the Company had the following subsidiaries:
Net assets
£’000
(11,034)
1,000
Loss for
the year
£’000
(187)
—
Active companies
Subsidiary company
CloudCoCo Holdings Limited
CloudCoCo Managed IT Limited
CloudCoCo Managed IT Limited
Holding
100%
100%
100%
Country of
incorporation
Scotland
England and Wales
England and Wales
Shares
Ordinary
Ordinary
Ordinary
Nature of business
Holding company
IT Managed Services
IT Managed Services
On 21 October 2019, CloudCoCo Holdings Limited acquired the entire issued share capital of CloudCoCo Limited for a total
consideration of £7.2 million. The consideration was satisfied in full by the Company on behalf of CloudCoCo Holdings Limited,
by the issue of 218,160,586 new Ordinary Shares at 3.3p per share (being the mid-market price on the date of the acquisition).
Dormant companies
Subsidiary company
Pinnacle CDT Limited
CloudCoCo Cloud Services Limited
Ancar-B Technologies Limited
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
CloudCoCo Group plc Annual Report 2020
57
Notes to the parent company financial statements (continued)
For the year ending 30 September 2020 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
Ancar-B Technologies Ltd
Companies House Registration Number
04613699
11504479
03347248
The registered office of all of the above companies apart from CloudCoCo Holdings Limited is 7750 Daresbury Business Park,
Warrington, WA4 4BS. The registered office of CloudCoCo Holdings Limited is 12/13 St Andrew Square, Edinburgh, EH2 2AF.
8. Debtors
Amounts owed by subsidiary undertakings after impairment
Prepayments
Other taxes and social security costs
2020
£’000
9,989
32
35
10,056
2019
£’000
4,497
31
17
4,545
The charge in the period for impairment of amounts owed by subsidiary undertakings was £1.4m, (FY19: £3.4m). The amounts
owed by subsidiaries are unsecured, interest free and are repayable on demand.
9. Creditors: amounts falling due within one year
Trade creditors
Other taxes and social security costs
COVID-19 Bounce back loan repayable – short-term element
MXC Guernsey Limited working capital facility
Accruals
2020
£’000
442
—
4
100
148
694
2019
£’000
356
2
—
—
241
599
Further detail on the COVID-19 Bounce back loan and the MXC Guernsey Limited working capital facility is provided in note 17
of the consolidated financial statements.
10. Creditors: amounts falling due in more than one year
Loan notes
Accrued interest on loan notes repayable in October 2024
Loan notes
COVID-19 Bounce back loan repayable – long-term element
2020
£’000
3,014
398
3,412
46
3,458
2019
£’000
4,270
—
4,270
—
4,270
Further detail on the COVID-19 Bounce back loan is provided in note 17 of the consolidated financial statements.
11. Financial instrument
The Company has loan notes in issue and further detail is provided in note 19 of the consolidated financial statements.
12 Share capital and reserves
Share capital and reserves 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. In
the financial statements at 30 September 2019 other reserves also included 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 2020
58
Notes to the parent company financial statements (continued)
12.1 Share capital
Shares issued and fully paid
Beginning of year
Issued during year on exercise of share options and extinguishment of £1.5m loan notes
Issued during year to CloudCoCo Limited vendors
Shares issued and fully paid
2020
£’000
2,271
500
2,181
4,952
2019
£’000
2,271
—
—
2,271
The shares issued to the CloudCoCo Limited vendors were issued on behalf of CloudCoCo Holdings Limited in settlement of the
consideration payable for the purchase of the entire issued share capital of CloudCoCo Limited.
Share capital allotted, called up and fully paid
Ordinary shares of £0.01p
12.2 Share premium
Beginning of year
Arising on extinguishment of BGF Loan Notes in consideration of 50,000,000 shares at 0.35p per
share
Arising on issue of shares to CloudCoCo Limited vendors at 3.3p
End of year
2020
No.
Ordinary
Shares
2019
No.
Ordinary
Shares
495,225,986 227,065,100
2020
£’000
11,337
1,275
5,018
17,630
2019
£’000
11,337
—
—
11,337
12.3 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.
12.4 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.
12.5 Other reserve
The Other reserve relates to share-based employee remuneration to be settled in equity. Further detail is provided in note 21.5
of the consolidated financial statements.
13. Related party transactions
There were related party transactions during the year. Further detail is provided in note 23 of the consolidated financial
statements.
14. Contingent liabilities
There are no contingent liabilities at 30 September 2020 (2019: nil).
CloudCoCo Group plc Annual Report 2020
59
Directors, Secretary and advisers
Directors
Simon Duckworth OBE DL
Non-Executive Chairman
Jill Collighan
Non-Executive Director
Andy Mills
Non-Executive Director
Mark Halpin
Chief Executive Officer
Mike Lacey
Chief Financial Officer
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 2020
60
N
O
I
S
S
I
M
&
N
O
I
S
I
V
O
C
O
C
D
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O
L
C
CloudCoCo is a people-led business first
and foremost. With a skilled team of
Microsoft, cloud, cybersecurity,
connectivity, collaboration and IT
hardware 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 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 realise 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.
Registered Office:
5 Fleet Place
London
EC4M 7RD
Leeds Hub:
920 Park House
Bradford Road, Birstall
Leeds
WF17 9PH
Warrington Hub:
7750 Daresbury Business Park
Warrington
WA4 4BS
0333 455 9885
Company – hello@cloudcoco.co.uk
Shareholder PR - cloudcoco@almapr.co.uk
www.cloudcoco.co.uk
Follow us on LinkedIn - https://www.linkedin.com/company/cloudcoco