Annual
Report &
Accounts
2018
SysGroup plc
Walker House
Exchange Flags
Liverpool L2 3YL
Company Number
06172239
www.sysgroupplc.com
2
Contents
4
6
9
10
15
17
21
25
28
30
37
39
42
45
48
50
53
55
84
Directors, Secretary & Advisers
Highlights
Strategic Report – Chairman’s Statement
Strategic Report – Chief Executive Officer’s Report
Board of Directors’ Profile
Directors’ Report
Directors’ Remuneration Report
Corporate Governance Report
Statement of Directors’ Responsibilities
Independent Auditor’s Report to the Members of SysGroup plc
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Notes to the Consolidated Financial Statements
Notice of Annual General Meeting
SysGroup plc Annual Report & Accounts 2018 3
Directors,
Secretary &
Advisers
SysGroup plc Annual Report & Accounts 2018 4
Nominated Adviser
Shore Capital and Corporate Ltd
Bond Street House
14 Clifford Street
London W1S 4JU
Broker
Shore Capital Stockbrokers Ltd
The Corn Exchange
Fenwick Street
Liverpool L2 7RB
Registrar
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol BS13 8AE
Lawyers
Kuit Steinart Levy LLP
3 St Mary’s Parsonage
Manchester M3 2RD
Hill Dickinson LLP
No.1 St. Paul’s Square
Liverpool L3 9SJ
Independent Auditor
BDO LLP
3 Hardman Street
Manchester M3 3AT
Bankers
Santander (UK) plc
298 Deansgate
Manchester M3 4HH
Financial PR Advisers
Alma PR
1 Fore Street
London EC2Y 9DT
Directors,
Secretary &
Advisers
Board of Directors
Michael Edelson
Non-Executive Chairman
Adam Binks
Chief Executive Officer
Julian Llewellyn
Chief Financial Officer
Robert Khalastchy
Non-Executive Director
Mark Quartermaine
Non-Executive Director
Michael Fletcher
Non-Executive Director
Company Secretary
Julian Llewellyn
Registered Office
Walker House
Exchange Flags
Liverpool L2 3YL
Company Number
06172239
Legal Entity Identifier (LEI)
213800D18GPZZJR9SH55
Company Website
www.sysgroupplc.com
SysGroup plc Annual Report & Accounts 2018 5
Highlights
SysGroup plc Annual Report & Accounts 2018 6
Highlights
Financial
• Record revenues delivered with revenue increasing by 45.7% to £10.45 million (2017: £7.17 million)
benefiting from the contribution of Rockford IT Ltd (“Rockford IT”) in H2 2018
• £7.13m of revenue is recurring in nature (2017: £5.0m)
• Organic revenue growth of 20.8% generating revenues of £8.65 million
• Adjusted EBITDA* increased by 61.3% to £1.0 million (2017: £0.62 million)
• £0.86 million EBITDA delivered in H2
• Adjusted PBT** growth of 104.2% to £0.49 million (2017: £0.24 million)
• Cash generated from operations of £0.79 million (£1.00 million)
• Net (debt)/cash*** of £(0.92) million (2017: £3.07 million)
Revenue (continuing operations)
Gross margin
Gross margin %
Adjusted EBITDA 1 (continuing operations)
Adjusted PBT 2
(Loss) before tax (continuing operations)
Operating cash inflow
Net (Debt)/Cash 3
2018
£10.45m
£5.99m
57.4%
£1.00m
£0.49m
£(0.007)m
£0.79m
£(0.92)m
2017
£7.17m
£4.38m
61.3%
£0.62m
£0.24m
£(1.35)m
£1.0m
£3.07m
2018
% Increase /
Decrease
+45.7%
+36.8%
(6.4)%
+61.3%
+104.2%
-
(21.0)%
-
1. Adjusted EBITDA, is earnings before interest, taxation, depreciation, amortisation,
acquisition and restructuring costs, fair value adjustments and share based payments
2. Adjusted PBT is profit before taxation after adding back share-based payments,
amortisation on acquired intangibles, fair value adjustments and costs relating
to acquisition and restructuring
3. Net (debt)/cash represents cash balances less loans and finance lease liabilities
Operational
Integration of System Professional Ltd (“Sys-Pro”) completed
•
• Acquisition of Rockford IT in November 2017 for an aggregate consideration of £3.85 million and subsequent
integration completed
Improved sales and marketing functions
•
• Creation of a single team focused on managed IT services and cloud hosting
• Appointment of a Group Marketing Director
•
• Three year c£1.0 million contract win with T.J. Morris Limited demonstrating success of sales and marketing focus
Investment in a single CRM system, to unify the sales operations onto a single platform
SysGroup plc Annual Report & Accounts 2018 7
Highlights Continued
Board Transition
• Mark Quartermaine appointed as an independent Non-Executive Director in November 2017
• Mike Fletcher appointed as an independent Non-Executive Director in January 2018
•
New executive team with the appointment of Adam Binks as CEO, having joined the Board as COO in October
2017, and Martin Audcent appointed as CFO post period end
Post Period-End Developments
Transition to a single brand complete
•
• Momentum generated in H2 FY2018 continuing into H1 FY2019 with trading in line with expectations
SysGroup plc Annual Report & Accounts 2018 8
Strategic
Report
SysGroup plc Annual Report & Accounts 2018 9
Strategic Report
Chairman’s
Statement
SysGroup made considerable progress during the financial year to 31 March 2018. Revenue increased by 45.7%
(including organic growth of 20.8%) with Adjusted EBITDA improving by 61.3%. Recurring revenue for the year increased
to £7.13m (2017: £5.0m), evidence that the transformation of the Group into a trusted provider of managed IT services
and cloud hosting is now complete.
During the course of the year Chris Evans left the business to focus on his health following long-standing issues. The
Board naturally considered his replacement extensively and ultimately were delighted that Adam Binks, previously
Chief Operating Officer, agreed to step up to become Chief Executive Officer in April 2018.
Adam has been integral to the development of SysGroup and has an unrivalled knowledge of our business through
his previous role as Chief Operating Officer. The Board has been impressed with his strategic vision for the Company.
As separately announced this morning, Martin Audcent will be joining the Company as Chief Financial Officer in July,
following Julian Llewellyn’s decision to pursue other opportunities. Julian will remain with the Group for a brief period
to oversee an orderly handover and we thank him for his contribution to the Group and wish him success for the
future. Martin’s appointment completes an Executive team positioned to drive this business through its next phase
of growth and which will be ably supported by a Board which was strengthened further during the year with the
appointments of Mark Quartermaine and Mike Fletcher as Non-Executive Directors. Mark and Mike bring a significant
blend of industry and listed company expertise.
The market opportunity for SysGroup is both considerable and growing as the secular trend continues towards
trusted, outsourced partners driven by increasingly complex regulatory requirements and security needs. The Board
believes that it has the right strategy and the right team in place to execute. With further investment in the current
year we are confident that we can take advantage of this opportunity and look forward to another busy year.
Michael Edelson
Chairman
27 June 2018
SysGroup plc Annual Report & Accounts 2018
10
Strategic Report
Chief Executive
Officer’s Report
Introduction
During the financial year ended 31 March 2018 my role was that of Chief Operating Officer, joining the Board of
Directors at the end of October 2017 before taking up the post of Chief Executive Officer at the outset of the current
financial year. I believe that the operational insights that I gained as COO provide the right grounding for driving the
strategic direction of the business. SysGroup is well placed for continued profitable organic and acquisitive growth.
I’d also like to thank Michael Edelson for his contribution and support during his tenure as Interim Executive Chairman
towards the end of the period.
In 2016 SysGroup commenced a transition of the business to become a trusted provider of managed IT services and
cloud hosting. This has been executed through the acquisitions of Sys-Pro (2016) and Rockford IT (2017) and disposal
of the Group’s SME mass market business (2016). These corporate actions, coupled with structural change within
the organisation, have transformed the Group. The Group now has a robust platform, underpinned by high levels of
recurring income, to execute its growth strategy.
Following the integration of the Sys-Pro and Rockford IT businesses the Group now has the capability to offer fully
managed end to end solutions for its prospects and customers. From managed end user support through to hosted
infrastructure, we have an excellent platform from which to deliver further organic growth. Another beneficial aspect
of the integration is that we have been able to establish and develop a highly capable senior leadership team
across the Group and an engaged workforce who are committed to executing our strategic objectives.
Market
The overall market for our services continues to be buoyant. Companies are increasingly looking for trusted partners
to manage their IT needs, driven by the growing focus on security and burdens of compliance and governance,
rather than applying internal resource that could struggle with the changing regulatory dynamics. As well as
ensuring the best solutions this frees up time and resources for management teams to focus on their business
operations.
As with most evolving and growing markets, ours is highly fragmented with a vast array of providers on a national
and regional basis varying from full service offerings such as SysGroup through to niche operators.
Strategy
SysGroup’s clear focus is to expand its position as a trusted provider of managed IT services and cloud hosting
to clients in the UK. The Board believes that a business focused on the provision of managed IT services offers the
highest growth opportunity and the potential for increased margins and longer-term contracts, thereby providing
greater revenue visibility for the future. In pursuit of this strategy, the Group has been positioned as an extension of
a customer’s existing IT department, with an emphasis on consultative-led sales to guide customers through the
complexities and developments in the market.
SysGroup plc Annual Report & Accounts 2018 11
Chief Executive Officer’s Report Continued
Acquisitions
In November 2017 the Group acquired Rockford IT for an aggregate consideration of £3.85m in cash (on a cash-free/
debt-free basis). Rockford enhanced the Group’s offering in hosting and security services as well as complementing
with connectivity capabilities which now completes the product offering for the provision of end to end managed
solutions.
Acquisitions will continue to play a significant role in the Group’s strategy to complement organic growth. As
previously mentioned, the market in which we operate remains highly fragmented and we believe that we are well
placed to be a consolidator. The Board remains alert to earnings enhancing opportunities which will enable us to
expand our customer base and / or enhance our offering alongside our internal initiatives.
Sales & Marketing
As highlighted in the group’s Half Year Report, a number of strategic changes to the Sales and Marketing functions
were implemented in the first half of the year to better support the business. The sales function was restructured to
create a single team focused fully on managed IT services and cloud hosting, now headed up by the post-period
appointment of Colin Deamer to the role of Group Sales Director. Colin was previously Group Sales Director at IDE
Group Holding plc. All supporting teams have likewise been integrated across the Group with single teams operating
across the service desk, infrastructure support, cloud delivery and professional services teams. Investments have
been made in a new CRM system which has enabled us to unify our sales operations onto a single platform across
the group.
In Marketing, the Group initiated a complete overhaul of the marketing efforts to create a new strategic marketing
function. This included the appointment of Emmy Lippold to the newly created role of Group Marketing Director.
Emmy has previously held senior positions in technology companies with Data8 Limited and Upland Software Inc.
based in the USA. This has led to a much more coherent message and strategy with a newly embraced digital
marketing capability.
The results of the improved sales and marketing functions are already being seen in the business, as evidenced by
the three year contract with T.J Morris Limited which was announced in March of this year. This contract win came
as a direct result of our improved marketing initiatives and underpinned the Board’s belief in this strategy. As a result,
further investments in marketing will be made throughout the current financial year. Whilst this will have an impact
on profitability in the current year, the Board firmly believes that it will accelerate our rate of growth and enable us to
better take advantage of the current market opportunity.
Financial Review
In the following review, the numbers provided for 2017 exclude operations which were discontinued during that year,
in order to give a meaningful comparison for progress achieved in the year to 31 March 2018.
Group revenue for the year grew by 45.7% to £10.45m for the year to 31 March 2018 (2017: £7.17m). Revenue growth was
predominantly driven by the Managed Services division and complemented by the value added resale services that
the Group offers. Organic revenue growth was 20.8% for the year to 31 March 2018.
We continue to have good visibility of future revenues as the vast majority of our customers have entered into multi-
year contracts. As at 31 March 2018 there is £0.43m of deferred revenue (2017: £0.47m) which will be released to profit
in future periods.
Gross profit for the year was £5.99m (2017: £4.38m) representing a gross margin of 57.4% (2017: 61.2%). The reduction
in gross margin is attributable to the change of sales mix during the year including the introduction of connectivity
SysGroup plc Annual Report & Accounts 2018 12
Chief Executive Officer’s Report Continued
products which contribute less at the gross margin level. The loss before tax for the year of £(0.007)m was a
significant improvement on the previous period (2017: £(1.35)m).
Adjusted earnings before interest, taxation, depreciation and amortisation (“EBITDA”) for the year to 31 March 2018
increased by 61.3% to £1.0m (2017: £0.62m). Adjusted EBITDA is calculated after excluding acquisition and restructuring
costs, share based payment costs and fair value adjustments. The Directors consider that an adjusted EBITDA figure
is a more appropriate measure of the underlying performance of the business.
Revenue by
Operating Segment
Hosting / Managed Services
Value Added Reseller
SME Mass Market (discontinued)
Total
2018
£’000
7,130
3,321
-
10,451
2018
%
68%
32%
-
100%
2017
£’000
5,400
1,765
700
7,865
2017
%
69%
22%
9%
100%
Balance Sheet, Cashflow & Net Debt/Cash
Net cash inflow from operating activities during the year amounted to £0.79m (2017: £1.0m). Net debt (comprising
cash balances less loans and finance lease liabilities) at 31 March 2018 was £(0.92)m (2017: net cash £3.07m). During
the period the Group drew down £2.0m from an acquisition facility to part fund the acquisition of Rockford IT on 1
November 2017.
Principal Risks & Uncertainties
In line with the nature, size and complexity of the business the senior management team work very closely to identify
and evaluate areas of risk whilst developing and monitoring action plans to deal with any potential threats. All
outcomes are reported to the Board and support is given as necessary to ensure actions are carried out. Identifiable
areas of risk include:
• Dependency on key suppliers – the Group is dependent on certain key suppliers for the continued operation
of its business, the most significant of which are the supply of third party software and datacentre services.
If any of these suppliers fail in the provision of their services it may have an adverse effect on the Group’s
ability to provide services to its customers. However, the Group continually assess suppliers for both price
competitiveness and technical innovation and are confident that alternative providers could be found.
•
• Customer retention – the Group provides an essential service to its customers. Any diminution in service levels
could impact customer retention levels. However, the Group constantly monitors service levels through its
Customer Service teams, conducting regular customer surveys and reviewing performance against service
level agreements. The low level of customer attrition is evidence of the Group’s ability to provide the level of
service required.
Network – the datacentres we utilise are linked by fibre that we lease. Should the network fail there would be an
adverse impact on the service provided to our customers. The Group has designed its network to have no single
point of failure, it connects with transit providers at different geographical locations.
Employees – the Group is a service organisation and as such, is dependent on the skills, knowledge and
commitment of its staff. The performance of the Group is dependent on retaining its staff. We mitigate this risk by
offering competitive reward packages.
Acquisitions – the Group has stated that its strategy is to continue to make acquisitions to strengthen its
growth. The risk is that we may not be able to find suitable acquisition targets. We mitigate this risk by regularly
conducting searches for targets and also retain advisers who introduce targets.
•
•
The areas of risk identified above are consistent with the prior year.
SysGroup plc Annual Report & Accounts 2018 13
Chief Executive Officer’s Report Continued
Summary & Outlook
With the integration of acquired businesses and subsequent transformation of the Group now complete, I am
confident that SysGroup is well placed to take advantage of strong market dynamics. The momentum within the
business is demonstrated by the fact that £0.86 million of the Group’s Adjusted EBITDA performance was delivered in
the second half of the year.
We have a full end-to-end managed service offering which provides the solutions that our clients need in an
increasingly complex regulatory environment and with the necessary levels of security to protect their businesses.
We have a clear go-to-market strategy that has already started to deliver results, led by an impressive senior
leadership team and supported by a highly engaged workforce and the appropriate levels of infrastructure.
Our successful track record of identifying and integrating acquisitions positions us well in a market ripe for further
consolidation, which will complement and enhance our organic initiatives.
The current year has started well and trading in line with expectations supported by a growing pipeline of
opportunities. The Board will continue to invest in this financial year as we look to accelerate our growth and target
profitability improvements next year and beyond.
Adam Binks
Chief Executive Officer
27 June 2018
SysGroup plc Annual Report & Accounts 2018
14
Board of
Directors’
Profile
SysGroup plc Annual Report & Accounts 2018 15
Board of Directors’ Profile
Michael Edelson
Non-Executive Chairman
Robert Khalastchy
Non-Executive Director
Michael brings a wealth of experience as a Board Director to
Robert is a graduate from the University of Sussex where
SysGroup plc. He has been a Founding Director or Chairman
he received a bachelor’s degree in Electronic Engineering.
of several companies admitted to the AIM market, including
For the past 20 years he has been involved in commercial
Prestbury Group plc, Knutsford Group plc, Mercury Recycling
property management working with high net worth overseas
Group plc (now Ironveld plc) and ASOS plc. He was a non-
clients, assisting in the management of their total UK portfolio
executive Chairman of Bramhall plc, subsequently renamed
and various planning applications, as well as the day to day
Magic Moments Internet plc and then Host Europe plc, which
management of the portfolio. In 2001 he set up RK Management
acquired Magic Moments Design Limited in September 1999.
Limited, a commercial property management company
He has also been on the Board of Manchester United Football
handling a portfolio in excess of £35 million. In 2011 he set up
Club since 1982.
Adam Binks
Chief Executive Officer
Sterling Property Management, a residential block property
management company which manages several prestigious
blocks in Central and West London.
Adam joined SysGroup in August 2014 and was appointed as
Chief Executive Officer on 3rd April 2018 after being formally
Mark Quartermaine
Non-Executive Director
appointed to the board on 31st October 2017. Adam will
Mark has over 30 years’ experience in the ICT industry in a
lead SysGroup through its next stage of growth, which will
variety of executive, sales and marketing roles. He started
incorporate strategic acquisitions and continued organic
his career at IBM in 1984 where he held different executive
growth to expand the customer offering and geographical
positions both in the UK and abroad culminating in running the
reach, as well as investment in capabilities and technology.
point of sale business in the US, as the Worldwide Marketing
He has extensive experience in the Managed IT, Hosting &
Director for the Retail Division. In January 2013 Mark joined the
Telecoms sectors across his 18 year career. Adam has played
board of Alternative Networks as a Non-Executive Director, he
a pivotal role in the transformation of the group from a mass-
subsequently moved to become COO in January 2014 and was
market web hosting company, to the Managed Services
then appointed CEO in September 2015. Alternative Networks
provider it is today. Adam has previously held a number of
was subsequently sold to Daisy Group for £165 million in
senior management & board level positions. Prior to joining
December 2016.
SysGroup, Adam was Sales & Technical Director at Vispa Ltd,
a managed hosting & connectivity provider based in
Manchester.
Michael Fletcher
Non-Executive Director
Julian Llewellyn
Chief Financial Officer
Mike has extensive public markets experience and is currently
Non-Executive Chairman of AIM listed Inspired Energy plc
(INSE.L), which he helped to successfully bring to market in
Julian was appointed as Chief Financial Officer on 23
November 2011. Mike is the Managing Partner of Praetura Capital
January 2017 and formally joined the Board on 6 April 2017.
LLP, a specialist venture capital and advisory business and sits
Julian’s two previous roles were as Interim Chief Financial
on the board of several privately-owned growth companies
Officer of Redcentric plc and Business Improvement Director
including Sorted Group, Peak AI, Starcount, Aberla Services,
at Exertis (part of DCC plc). Julian has over 20 years’ senior
EC3 Brokers and Praetura Asset Finance. Previously, Mike was a
finance experience in both privately held and publicly quoted
managing director for European investment bank GCA Altium
businesses. Prior to those two roles, from 2010 to 2014, Julian
where he gained 10 years’ experience in M&A and corporate
was Group Financial Controller of Greenergy International Ltd,
finance. He has advised a range of clients from public
one of the UK’s largest privately held companies.
companies, private equity houses and entrepreneurs. Mike is a
chartered accountant, qualifying with PwC in 1999, and is both
FCA and SRA approved.
SysGroup plc Annual Report & Accounts 2018 16
Directors’
Report
SysGroup plc Annual Report & Accounts 2018 17
Directors’ Report
The Directors present their Annual Report and Audited Financial Statements for the year ended 31 March 2018.
Principal Activities
The principal activities of the business are the provision of managed IT services and cloud hosting.
Business Review & Future Developments
A review of the Group’s operations and performance during the financial year, setting out the position at the year-
end, significant changes in the year and providing an indication of the outlook for the future is contained in the
Strategic report on pages 9 to 13.
Results & Dividends
The Consolidated Statement of Comprehensive Income for the year is set out on page 37. The Directors do not
propose the payment of a dividend for the year ended 31 March 2018 (2017: nil).
Financial Instruments
The Group uses various financial instruments. These include bank loans, finance leases, cash and various items
(such as trade receivables and trade payables) that arise directly from its operations. The main purpose of these
financial instruments is to raise finance for the Group’s operations. The existence of these financial instruments
exposes the Group to a number of financial risks, which are described in more detail in note 3 below.
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. Short-term flexibility is achieved through available cash balances and its
overdraft facility.
Interest Rate Risk
The Group finances its operations through a mixture of bank loans, finance leases and the placing of new ordinary
shares. The Group drew down £2m from an acquisition loan facility during the year. This facility is on a variable
interest rate and the Directors consider this to be appropriate in the current economic environment.
Credit Risk
The Group’s principal financial assets are cash, and trade and other receivables. These balances are actively
monitored to avoid significant concentrations of credit risk however the total of the cash balances and trade and
other receivables represents the maximum exposure to credit risk.
SysGroup plc Annual Report & Accounts 2018 18
Directors’ Report Continued
In order to manage credit risk, the agreement with the customer states preferred collection by direct debit and limits
are set for customers based on a combination of payment history and third-party credit references. Credit limits
are reviewed by the credit control team on a regular basis in conjunction with debt ageing and collection history.
For hosting services, the Group predominantly invoices in advance and the agreement with the customer states
preferred collection by direct debit, therefore the financial risk in respect of these debtors is limited.
Directors
The Directors of the Company who held office during the year are as follows:
Name
Position Held
Michael Edelson
Christopher Evans
Robert Khalastchy
Julian Llewellyn
Adam Binks
Non-Executive Chairman
Chief Executive (resigned 30 November 17)
Non-Executive Director
Chief Financial Officer (appointed 06 April 2017)
Chief Operating Officer (appointed 31 October 2017) and subsequently
Chief Executive Officer (appointed 3 April 2018)
Mark Quartermaine
Non-Executive Director (appointed 7 November 2017)
Mike Fletcher
Non-Executive Director (appointed 8 January 2018)
Amy Yateman-Smith
Non-Executive Director (resigned 23 October 2017)
The interests of current Directors in shares and options are detailed in the Directors’ Remuneration Report on
page 21.
Significant Shareholdings
As of 1st June 2018, the Company has been notified of the following significant shareholdings:
Name
Livingbridge EP LLP
Canaccord Genuity
Legal and General Investment Management Ltd
Downing LLP
Herald Investment Management Ltd
Miton UK Microcap Trust plc
William Currie
Hawk Investment Holdings Ltd
Michael Edelson
Number of
Shares
Percentage
Holding
4,603,700
3,153,976
2,239,355
1,906,517
1,734,055
1,206,340
970,000
837,120
726,600
19.93%
13.65%
9.69%
8.25%
7.51%
5.22%
4.20%
3.62%
3.14%
SysGroup plc Annual Report & Accounts 2018 19
Directors’ Report Continued
Disclosure of Information to Auditors
The Directors who held office at the date of approval of this Directors’ report confirm that, so far as they are each
aware, there is no relevant audit information of which the Company’s auditors are unaware; and each Director has
taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information
and to establish that the Company’s auditors are aware of that information.
Going Concern
The Directors have reasonable expectation that the Group has adequate resources to continue to operate for the
foreseeable future. For this reason, they adopt the going concern basis for preparing the financial statements.
Post Balance Sheet Event
On 3 April 2018 the Company appointed Adam Binks as the CEO.
Auditors
Pursuant to s487 of the Companies Act 2006, the auditor will be deemed to be reappointed and BDO LLP will therefore
continue in office.
By order of the Board
Julian Llewellyn
Company Secretary
27 June 2018
SysGroup plc Annual Report & Accounts 2018 20
Directors’
Remuneration
Report
SysGroup plc Annual Report & Accounts 2018 21
Directors’ Remuneration Report
Remuneration Policy
The Group has a policy to attract, motivate and reward individuals of the highest calibre who are committed to
growing the value of the business and to maximising returns to shareholders.
The policy is as relevant to Executive Directors as it is to employees, as we aim to reward Executive Directors and
senior employees aligned to the performance of the Group.
The remuneration structure for all employees considers remuneration rates of competitors to ensure continuity and
commitment.
Directors’ Service Contracts
Copies of Directors’ service contracts will be available for inspection at the Annual General Meeting.
The Group does not operate a final salary pension scheme. Executive Directors who are entitled to receive pension
contributions may nominate a defined contribution scheme into which the Company makes payments on their
behalf.
Directors’ Remuneration
A summary of the total remuneration paid to current Directors is set out below:
Director
Michael Edelson
Christopher Evans
(resigned 30 November 2017)
Michael Hogan
(resigned 1 December 2016)
Julie Joyce
(resigned 15 August 2016)
Julian Llewellyn
(appointed 6 April 2017)
Adam Binks
(appointed 31 October 2017)
Robert Khalastchy
Mark Quartermaine
(appointed 7 November 2017)
2018
Benefits
in Kind
£’000
Salary
£’000
Total
£’000
Salary
£’000
2017
Benefits
in Kind
£’000
Total
£’000
40
90
-
-
135
48
12
13
-
-
-
-
2
-
-
-
40
90
-
-
137
48
12
13
40
96
80
126
-
-
12
-
-
-
-
2
-
-
-
-
40
96
80
128
-
-
12
-
SysGroup plc Annual Report & Accounts 2018 Directors’ Remuneration Report Continued
Director
Amy Yateman-Smith
(resigned 23 October 2017)
Mike Fletcher
(appointed 8 January 2018)
Total Remuneration
2018
Benefits
in Kind
£’000
-
-
2
Salary
£’000
23
8
369
The following pension contributions were paid within the year:
Director
Christopher Evans
Julian Llewellyn
Adam Binks
Michael Hogan
22
Total
£’000
21
-
377
2017
Total
£’000
5
-
-
1
2017
Benefits
in Kind
£’000
-
-
2
Total
£’000
Salary
£’000
21
-
375
23
8
371
2018
Total
£’000
5
6
6
-
Directors’ Interests in Ordinary Shares of SysGroup plc
The Directors in office at the end of the year had interests in the ordinary share capital of the company as shown
below:
Director
Michael Edelson
Adam Binks
Julian Llewellyn
Robert Khalastchy
Number of
Ordinary Shares
Percentage
Interest
726,600
129,843
37,499
6,346
3.14%
0.56%
0.16%
0.13%
Directors’ Interests in Share Options
The Directors had interests in options over ordinary shares of the Company at the end of the year as shown below:
Director
Robert Khalastchy
Julian Llewellyn
Total Options Over
Ordinary Shares
7,500
125,000
Grant Date
Expiry Date
19/12/2012
18/12/2022
06/04/2017
05/04/2027
SysGroup plc Annual Report & Accounts 2018
23
Directors’ Remuneration Report Continued
Directors’ Warrants
The Directors held the following warrants over the ordinary shares of the Company at the end of the year as follows:
Director
Michael Edelson
Exercise
Price
200p
No. of
Warrants
Grant Date
Expiry Date
2,500
09/01/2012
08/01/2022
Michael Edelson’s warrants are exercisable at any time before 8 January 2022, provided that the Company may
require the exercise of these warrants if its shares are traded at a price in excess of 320p per share for a period of 60
business days and an aggregate value of bargains exceeding £60,000 occurs over that period.
SysGroup plc Annual Report & Accounts 2018 24
Corporate
Governance
Report
SysGroup plc Annual Report & Accounts 2018 25
Corporate Governance Report
Introduction
The Directors recognise the importance of, and are committed to, high standards of corporate governance.
Although compliance with the UK Corporate Governance Code is not compulsory for AIM companies, and therefore
the Directors do not claim compliance with the code, the Directors intend to apply the principles as they consider
appropriate to a public company of the size of SysGroup plc quoted on AIM, considering the recommendations
contained in the Quoted Companies Alliance Guidelines.
Board of Directors
The Board comprises six Directors - two Executives and four Non-Executives - and reflects a blend of different
experience and backgrounds. The Chairman (which is a Non-Executive position) took on the role of Interim Executive
Chairman after the resignation of Chris Evans on 30 November 2017. Subsequently, on 3 April 2018, Adam Binks
was promoted to Chief Executive Officer and from then the roles have now been split by the Board and there
is a clear division of responsibility between the two. The Board considers Michael Edelson, Robert Khalastchy,
Mark Quartermaine and Michael Fletcher to be independent in character and judgement notwithstanding their
shareholding and/or share warrants in the Group. The Board, through the Chairman and the Non-Executive Directors
as well as the Executive Directors, maintains regular contact with its advisers and seeks to ensure that the Board
develops an understanding of the views of the major shareholders about the Company. The Board meets regularly
throughout the year and is responsible for formulating, reviewing and approving the Company’s strategy, financial
activities and operating performance. Day-to-day management is delegated to the Executive Directors who are
charged with consulting the Board on all significant matters. Consequently, decisions are made promptly following
consultation amongst the Directors concerned where necessary and appropriate. All necessary information is
supplied to the Directors on a timely basis to enable them to discharge their duties effectively and all Directors
have access to independent professional advice at the Company’s expense, as and when required. The Chairman
is available to meet with institutional shareholders to discuss any issues and concerns regarding the Group’s
governance. The participation of the private and institutional investors at the AGM is welcomed by the Board.
Internal Controls
The Directors acknowledge their responsibility for the Company’s and the Group’s systems of internal controls,
which are designed to safeguard the assets of the Group and ensure the reliability of financial information for both
internal use and external publication. Overall control is achieved by a regular detailed reporting system covering
both technical progress of a project and the state of the Group’s financial affairs. Any system of internal controls can
provide only reasonable, and not absolute, assurance that material financial irregularities will be detected or that
risk of failure to achieve business objectives is eliminated. The Directors consider that the system of internal controls
operated effectively throughout the financial year and up to the date the financial statements were signed. Based
on the size and complexity of the Group, the Board of Directors do not consider that there is a need for any internal
audit function.
SysGroup plc Annual Report & Accounts 2018 26
Corporate Governance Report Continued
Committees
Audit Committee
The Company has established an Audit Committee that comprises of Michael Edelson, Mark Quartermaine and Mike
Fletcher. Mike Fletcher is the Chairman of this Committee. The Audit Committee meets at least twice a year and is
responsible for reviewing the integrity of the financial statements of the Group, the Group’s compliance with legal
and regulatory requirements, and the adequacy and effectiveness of the Group’s internal financial controls and
risk management processes including the extent to which internal audit review is required. It reviews the external
auditors’ performance and independence and makes recommendations to the Board on the appointment of the
auditors.
Remuneration Committee
The Company has established a Remuneration Committee that comprises Michael Edelson, Robert Khalastchy, Mike
Fletcher and Mark Quartermaine. Mark Quartermaine is the Chairman. The Committee meets at least twice a year
and is responsible for determining and reviewing with the Board the policy for the remuneration of the Executive
Directors and such other members of the executive management it is designated to consider. Within the terms
of the agreed policy, it determines the total individual remuneration of the Executive Directors. The Remuneration
Committee also approves the design of, and determines targets for, any performance related pay schemes, reviews
the design of any share incentive plans, determines the awards to the Executive Directors and determines the policy
for, and scope of, pension arrangements for each Executive Director.
Rule 21 of The AIM Rules for Companies and MAR (“Market Abuse Regulation”)
The Group will comply with Rule 21 of the AIM Rules (as amended to incorporate the provisions of MAR) relating to
dealing during close periods. The Group has a reasonable and effective dealing policy in place. All employees
are notified when the company enters and exits close periods but the dealing code in any event requires that an
employee seek permission from certain designated people before trading in the shares of the Group. The Market
Abuse Regulation (MAR) came into effect on 3 July 2016. It aims to increase market integrity and investor protection,
enhancing the attractiveness of securities markets for capital raising.
Human Resources
The Group endeavours to appoint employees with appropriate skills, knowledge and experience for the roles they
undertake. The Group has a range of policies which are aimed at retaining and providing incentives for key staff.
Objectives are set for departments and employees that are derived from the Group’s business objectives. The Group
has a clear and well-understood organisational structure and each employee knows his or her line of accountability.
SysGroup plc Annual Report & Accounts 2018 27
Statement
of Directors’
Responsibilities
SysGroup plc Annual Report & Accounts 2018 28
Statement of Directors’
Responsibilities
The Directors are responsible for preparing the Annual Report of the Director’s and the Financial Statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the
Directors have elected to prepare the Group and company financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union. 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 Company and of the profit or loss of the Group for that period. The directors are also required to
prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading
securities on Alternative Investment Market.
In preparing these Financial Statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to
any material departures disclosed and explained in the financial statements;
• 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
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the company
and enable them to ensure that the Financial Statements comply with the requirements of the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the annual report and the Financial Statements are made available on a
website. Financial statements are published on the Company’s website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in
other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The
Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.
By order of the Board
Julian Llewellyn
Company Secretary
27 June 2018
SysGroup plc Annual Report & Accounts 2018 29
Independent
Auditor’s Report
to the Members
of SysGroup plc
SysGroup plc Annual Report & Accounts 2018 30
Independent Auditor’s Report to
the Members of SysGroup plc
Opinion
We have audited the financial statements of SysGroup plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’)
for the year ended 31 March 2018 which comprise the consolidated statement of comprehensive income, the
consolidated statement of financial position, the Company statement of financial position, the consolidated
statement of changes in equity, the Company statement of changes in equity, the consolidated statement of
cashflows, the Company statement of cashflows 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 financial statements is applicable
law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the
Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
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 31 March 2018 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union;
the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by
the European Union and as applied in accordance with the provisions of the Companies Act 2006; 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 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.
SysGroup plc Annual Report & Accounts 2018 31
Independent Auditor’s Report to the Members of SysGroup 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
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 financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Revenue recognition
How we addressed the key audit matter in the audit
The Group has two main revenue streams, each of
which has a different revenue recognition policy
dependent on the specific terms of the transfer of
goods or the service provision.
Judgements are involved in determining the
appropriate timing of revenue recognition and in the
unbundling of contracts that relate to the provision of
more than one service and/or product.
In view of the judgements required to be made by
management in this area we have determined that
revenue recognition is a significant risk of material
misstatement in the audit, specifically over the
existence of reported revenues, and hence a key audit
matter.
Refer to note 1 for the revenue accounting policy and
note 4 of the financial statements for disclosure.
We performed detailed testing, on a sample basis, of
sales transactions across the year for each significant
revenue stream by agreeing balances to underlying
calculations, contracts and purchase orders to provide
evidence for the existence of recorded transactions.
This included a sample of bundled contracts.
We performed detailed cut off procedures to test
transactions around the year end and agreed
a sample of sales to originating documentation
such as contracts, purchase orders and delivery
documentation to provide evidence that transactions
were recorded in the correct period.
SysGroup plc Annual Report & Accounts 2018
32
Independent Auditor’s Report to the Members of SysGroup plc Continued
Acquisition accounting
How we addressed the key audit matter in the audit
The financial statements for the year ended 31 March
2018 include the acquisition accounting for Rockford IT
Limited.
Management has prepared detailed calculations to
determine the fair value of the assets acquired and the
acquisition consideration. The difference between this
consideration and the net assets acquired, including
the recognition of intangible assets is goodwill which is
required to be tested annually for impairment.
A valuation of intangible assets acquired has been
performed by management. Significant judgement is
involved in determining the fair value.
In view of the judgements required to be made by
management in this area, we have determined
that the calculation of goodwill and the valuation of
other intangible assets identified in the acquisition of
Rockford IT Limited in the year is a significant risk of
material misstatement in the audit and hence a key
audit matter.
Refer to note 1 for the business combinations and
intangible assets accounting policies and notes 10 and
13 of the financial statements for disclosure.
We tested the acquisition balance sheet by
agreeing items to supporting documentation such
as management accounts, invoices and contracts
and assessed the fair value adjustments made by
management. We considered if other adjustments or
alignment of accounting policies were required.
In particular, we tested the fair value ascribed to
the customer relationships intangible asset by
understanding the assumptions adopted in the
valuation model.
In testing the impairment review prepared by
management, we have specifically reviewed the
discount rate used to discount expected future cash
flows and compared this to an independently obtained
discount rate. We also tested the appropriateness of
those cash flows used in the calculation attributed to
the individual cash generating unit.
Sensitivity analysis was performed on the calculations.
We engaged our internal specialists to assist us in
challenging the appropriateness of the underlying
assumptions in the above procedures.
Our Application of Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality
both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group Materiality:
Basis for Materiality:
£78,000 (2017: £61,000)
0.75% of revenue (2017: 1% of revenue)
Rationale for the benchmark adopted: The Group has made a small loss in the year and a relatively low level of
profit in relation to its revenue in the prior year. Therefore, a profit measure is not considered to be suitable. Revenue
is the most stable and relevant alternative measure and the percentage determined was considered appropriate
for a listed entity.
Parent Company Materiality:
£70,200 (2017: £45,750)
Basis for Materiality:
0.5% of gross assets (2017: 0.4% of gross assets)
Rationale for the benchmark adopted: The Parent Company does not recognise any external revenue and so an
asset measure is considered appropriate.
SysGroup plc Annual Report & Accounts 2018 33
Independent Auditor’s Report to the Members of SysGroup plc Continued
In considering individual account balances and classes of transactions we apply a lower level of materiality
(performance materiality) in order to reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality. In setting the level of performance materiality
we considered a number of factors including the expected total value of known and likely misstatements (based
on past experience and other factors), the amount of areas of estimation within the financial statements and the
type of audit testing to be completed. Group performance materiality was set at £58,500 (2017: £45,750), and Parent
Company performance materiality was set at £52,650 (2017: £34,313) representing 75% of materiality.
For each component in the Group audit we allocated a planning materiality lower than our overall Group planning
materiality in the range of £16,125 to £52,650 with a similar restriction of 75% for performance materiality. The
materiality level was calculated by reference to a proportion of Group materiality appropriate to the relative scale of
the component concerned.
We agreed with the audit committee that we would report to the committee all individual audit differences
identified during the course of our audit in excess of £3,120 (2017: £1,220). We also agreed to report differences below
these thresholds that, in our view, warranted reporting on qualitative grounds.
An Overview of the Scope of Our Audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-
wide controls, and assessing the risks of material misstatement at the Group level.
Our Group audit scope focused on the Group’s components in the United Kingdom and United States of America. The
components in the United Kingdom were each subject to a full scope audit by BDO LLP. The component in the United
States of America, which we considered to be not significant, was subject to a desktop review.
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.
SysGroup plc Annual Report & Accounts 2018
34
Independent Auditor’s Report to the Members of SysGroup 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 its environment
obtained in the course of the audit, we have not identified material misstatements in the strategic report or the
directors’ report.
We have nothing to report in respect of the following matters 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 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: 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 Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company
and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
SysGroup plc Annual Report & Accounts 2018 Independent Auditor’s Report to the Members of SysGroup plc Continued
35
Gary Harding
Senior Statutory Auditor
27 June 2018
For and on behalf of BDO LLP
Statutory Auditor
Manchester
United Kingdom
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127)
SysGroup plc Annual Report & Accounts 2018 36
Consolidated
Statement of
Comprehensive
Income
SysGroup plc Annual Report & Accounts 2018 Consolidated Statement
of Comprehensive Income
For the year ended 31 March 2018
Revenue
Total group revenue –
continuing and discontinued operations
Revenue – discontinued operations
Revenue – continuing operations
Cost of sales
Gross profit
Operating expenses before depreciation, amortisation,
acquisition and restructuring costs, fair value
adjustment and share based payments
Adjusted EBITDA - continuing
Depreciation
Amortisation of intangibles
Acquisition and restructuring costs
Fair value adjustments
Share based payments
Administrative expenses
Profit/(loss) from operations
Finance costs
Loss before taxation
Taxation
Profit/(loss) from continuing operations
Profit from discontinued operations –
net of income tax
Total comprehensive profit attributable to the
equity holders of the company
Basic earnings per share (EPS)
Diluted earnings per share (EPS)
*Restated - note 22
Notes
4
14
13
8
3
9
6
12
23
11
11
2018
Group
£’000
10,451
-
10,451
(4,456)
5,995
(4,995)
1,000
(372)
(500)
(581)
540
(10)
(5,918)
77
(84)
(7)
245
238
-
238
£0.0103
£0.0102
37
2017*
Group
£’000
7,865
700
7,165
(2,783)
4,382
(3,767)
618
(324)
(326)
(791)
(498)
-
(5,706)
(1,324)
(27)
(1,351)
20
(1,331)
1,508
177
£0.0090
£0.0088
SysGroup plc Annual Report & Accounts 2018 38
Consolidated
Statement of
Financial Position
SysGroup plc Annual Report & Accounts 2018 Consolidated Statement
of Financial Position
As at 31 March 2018
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Current assets
Trade and other receivables
Cash and cash equivalents
Total Assets
Equity and Liabilities
Equity attributable to the equity
shareholders of the parent
Called up share capital
Share premium reserve
Other reserve
Translation reserve
Retained earnings
Non-current liabilities
Obligations under finance leases
Contingent consideration due on acquisitions
Bank loan
Deferred taxation
*Restated - notes 21 and 22
Notes
13
13
14
16
21
19
17
18
12
2018
Group
£’000
9,727
3,094
809
13,630
1,624
1,315
2,939
16,569
231
-
2,010
4
9,092
11,337
128
-
1,742
674
2,544
39
2017*
Group
£’000
7,620
1,617
666
9,903
1,311
3,473
4,784
14,687
231
-
2,000
4
8,854
11,089
184
690
-
365
1,239
SysGroup plc Annual Report & Accounts 2018 Consolidated Statement of Financial Position Continued
Current liabilities
Trade and other payables
Deferred Income
Bank loan
Obligations under finance leases
Total Equity and Liabilities
*Restated - notes 21 and 22
Notes
17
17
18
19
2018
Group
£’000
1,900
425
216
147
2,688
16,569
The financial statements on pages 37 to 82 were approved by the Board and authorised on 27 June 2018.
40
2017*
Group
£’000
1,671
465
-
223
2,359
14,687
Julian Llewellyn
Director
Registered number 06172239
SysGroup plc Annual Report & Accounts 2018 41
Company
Statement of
Financial Position
SysGroup plc Annual Report & Accounts 2018 42
Company Statement
of Financial Position
As at 31 March 2018
Notes
2018
Company
£’000
2017*
Company
£’000
Assets
Non-current assets
Investments
Intangible assets
Property, plant and equipment
Current assets
Trade and other receivables
Cash and cash equivalents
Total Assets
Equity and Liabilities
Equity attributable to the equity
shareholders of the parent
Called up share capital
Share premium reserve
Other reserve
Retained earnings
Non-current liabilities
Contingent consideration due on acquisitions
Bank loan
Current liabilities
Bank loan
Amounts due to subsidiary undertakings
Trade and other payables
Total Equity and Liabilities
*Restated - notes 21 and 22
15
13
14
16
21
17
18
18
17
14,279
25
54
14,358
135
115
250
10,429
-
56
10,485
100
2,077
2,177
14,608
12,662
231
-
2,010
7,533
9,774
-
1,742
1,742
216
2,584
292
3,092
14,608
231
-
2,000
8,059
10,290
690
-
690
-
1,531
151
1,682
12,662
SysGroup plc Annual Report & Accounts 2018 43
Company Statement of Financial Position Continued
As permitted by section 408 of the Companies Act 2006, the holding company’s profit and loss statement has not
been included in the financial statements.
For the year ended 31 March 2018, the Company made a loss of £526,783 (2017: loss of £85,672)
The financial statements were approved by the Board and authorised on 27 June 2018.
Julian Llewellyn
Director
Registered number 06172239
SysGroup plc Annual Report & Accounts 2018 44
Consolidated
Statement of
Changes in Equity
SysGroup plc Annual Report & Accounts 2018 Consolidated Statement
of Changes in Equity
For the year ended 31 March 2018
Attributable to equity holders of the parent
Share
capital
£’000
Share
premium
account
£’000
Other
reserve
£’000
Translation
reserve
£’000
Retained
profit
£’000
At 1 April 2016
2,552
6,493
1,008
Profit for the period
Translation of foreign
subsidiaries
Issue of share capital -
placing
Issue of share capital -
consideration
Expenses of share issue
Capital reorganisation
Movement in share
option reserve
At 31 March 2017
(as previously reported)
Treatment of the
premium on placing
shares (note 22)
Capital reorganisation
(note 22)
Q4Ex - contingent
consideration (note 22)
At 31 March 2017
(as restated)
Profit for the period
Share based payments
At 31 March 2018
-
-
-
-
1,686
3,367
382
-
-
-
-
4,620
(180)
(4,209)
-
231
-
-
231
(277)
(9,583)
-
-
-
-
-
-
-
-
-
-
-
-
616
-
-
(2)
1,622
180
-
198
2,000
-
10
2,010
-
-
4
-
-
-
-
-
4
-
-
-
4
-
-
4
45
Total
£’000
4,935
378
4
5,053
998
(277)
-
(2)
(5,118)
378
-
-
-
-
9,583
-
4,843
11,089
-
4,209
(198)
-
-
-
8,854
11,089
238
-
238
10
9,092
11,337
SysGroup plc Annual Report & Accounts 2018 46
Consolidated Statement of Changes in Equity Continued
The following describes the nature and purpose of each reserve within equity:
Reserve
Description and purpose
Share Premium Reserve
Amount subscribed for share capital in excess of nominal values.
Other Reserve
Amount reserved for share based payments to be released over the life of
the instruments and the equity element of convertible loans and amounts in
excess of nominal value for shares issued as consideration.
Accumulated losses
All other net gains and losses and transactions with owners (e.g. dividends)
not recognised elsewhere.
SysGroup plc Annual Report & Accounts 2018 47
Company
Statement of
Changes in Equity
SysGroup plc Annual Report & Accounts 2018 48
Total
£’000
4,606
(86)
5,053
998
(277)
-
(4)
Company Statement
of Changes in Equity
For the year ended 31 March 2018
Attributable to equity holders of the Company
Share
capital
£’000
2,552
-
1,686
382
-
-
-
4,620
(180)
(4,209)
-
231
-
-
231
Share
premium
reserve
£’000
6,493
-
3,367
-
(277)
(9,583)
-
-
-
-
-
-
-
-
-
At 1 April 2016
Loss for the period
Issue of share capital -
share placing
Issue of share capital -
consideration shares
Expenses of share issue
Capital reorganisation
Movement in share
option reserve
At 31 March 2017
(as previously reported)
Treatment of the
premium on placing
shares (note 22)
Capital reorganisation
(note 22)
Q4Ex - contingent
consideration (note 22)
At 31 March 2017
(as restated)
Loss for the period
Share based payments
At 31 March 2018
Other
reserve
£’000
Accumulated
losses
£’000
1,008
(5,447)
-
-
616
-
-
(2)
(86)
-
-
-
9,583
(2)
1,622
4,048
10,290
180
-
198
-
4,209
(198)
-
-
-
2,000
8,059
10,290
-
10
2,010
(526)
-
7,533
(526)
10
9,774
SysGroup plc Annual Report & Accounts 2018 49
Consolidated
Statement of
Cash Flows
SysGroup plc Annual Report & Accounts 2018 Consolidated Statement
of Cash Flows
For the year ended 31 March 2018
Cash flows used in operating activities
Profit after tax
Profit net of tax - discontinued operations
Adjustments for:
Depreciation and other amortisation
Fair Value adjustment on contingent consideration
Finance costs
Acquisition costs
Share based payments
Taxation
Operating cash flows before movement in working capital
Decrease / (increase) in trade and other receivables
(Decrease) / increase in trade and other payables
Taxation refunded/ (paid)
Cash generated from operations
Cash flows from investing activities
Payments to acquire property, plant & equipment
Acquisition and integration costs
Deferred consideration
Payments to acquire intangible assets
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
Repayment of loan facility
Interest element on acquisition loan
Interest element of finance lease payments
Drawdown of acquisition facility (net of fees)
Drawdown of finance lease facility
*Restated
50
2017*
Group
£’000
177
(1,508)
650
501
27
791
-
(20)
618
(163)
544
(197)
802
(380)
(742)
-
(3,425)
(4,547)
4,722
(105)
-
(27)
-
189
2018
Group
£’000
238
-
872
(540)
84
581
10
(245)
1,000
190
(405)
80
865
(212)
(592)
(150)
(3,523)
(4,477)
-
-
(49)
(17)
1,940
-
SysGroup plc Annual Report & Accounts 2018 Consolidated Statement of Cash Flows Continued
Capital repayment of finance leases
Net cash from financing activities
Net (decrease)/ increase in cash and cash equivalents from continuing
operations
Cash flows from discontinued operations
Net cash used for operating activities
Net cash provided for investing activities
Net cash used for financing activities
Net (decrease)/ increase in cash and cash equivalents from discontinued
operations
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
*Restated
51
2017*
Group
£’000
(153)
4,626
881
99
1,987
(7)
2,079
513
3,473
2018
Group
£’000
(228)
1,646
(1,966)
(192)
-
-
(192)
3,473
1,315
SysGroup plc Annual Report & Accounts 2018 52
Company
Statement
of Cash Flows
SysGroup plc Annual Report & Accounts 2018 Company Statement
of Cash Flows
For the year ended 31 March 2018
Cash flows used in operating activities
Loss after tax
Adjustments for:
Depreciation and other amortisation
Fair Value adjustment on contingent consideration
Impairment of investments
Finance costs
Acquisition and restructuring costs
Share based payments
Taxation
Operating cash flows before movement in working capital
Increase in trade and other receivables
Increase in trade and other payables
Taxation refund received
Cash generated from operations
Cash flows from investing activities
Payments to acquire property, plant and equipment
Payments to acquire intangible fixed assets
Acquisition and restructuring costs
Payments for acquisitions
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue ordinary share capital
Received from subsidiary company
Drawdown of acquisition facility (net of fees)
Interest element on acquisition loan
Net cash from financing activities
Net (decrease)/ increase in cash and cash equivalents from continuing
operations
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
*Restated
53
2018
Company
£’000
2017*
Company
£’000
(526)
(86)
26
(540)
-
67
316
10
(3)
(650)
(19)
1,188
3
522
(24)
(25)
(476)
(3,850)
(4,375)
-
-
1,940
(49)
1,891
(1,962)
2,077
115
15
300
1,099
-
791
-
-
2,119
(66)
86
-
2,139
(37)
-
(742)
(3,720)
(4,499)
4,722
(297)
-
-
4,425
2,065
12
2,077
SysGroup plc Annual Report & Accounts 2018 54
Notes to the
Consolidated
Financial
Statements
SysGroup plc Annual Report & Accounts 2018 55
Notes to the Consolidated
Financial Statements
For the year ended 31 March 2018
1. Accounting Policies
SysGroup plc (the ‘Company’) is a company incorporated and domiciled in the United Kingdom. The company’s
registered office is at Walker House, Exchange Flags, Liverpool, L2 3YL. These consolidated financial statements
comprise the Company and its subsidiaries (together referred to as the ‘Group’).
Statement of Compliance
These Group and Company financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRSs and IFRIC interpretations) as endorsed by the European Union (“endorsed IFRS”) and with
those parts of the Companies Act 2006 applicable to companies preparing their accounts under endorsed IFRS.
Basis of Preparation
The principal accounting policies adopted in the preparation of the Financial Statements are set out below. The
policies have been consistently applied to all the years presented, unless otherwise stated. The consolidated
financial statements have been prepared under the historical cost basis, except for the revaluation of certain
financial liabilities which have been valued in accordance with IAS 39.
The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical
accounting estimates. It also requires Group management to exercise judgement in applying the Group’s
accounting policies. The areas where significant judgements and estimates have been made in preparing the
financial statements and their effect are disclosed in note 2. The financial statements are presented in pounds
sterling, rounded to the nearest thousand, unless otherwise stated.
Going Concern
The Directors have prepared the financial statements on a going concern basis which assumes that the Group and
the company will continue to meet liabilities as they fall due. The Directors have reviewed forecasts prepared for
the period ending 31 March 2020 and considered the projected trading forecasts and resultant cash flows together
with confirmed loan facilities and other sources of finance. The Group’s forecasts and projections, taking account
of reasonably possible changes in trading performance, show that the Group can continue to operate within the
current facilities available to it.
The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future and thus they continue to adopt the going concern basis of
accounting in preparing the financial statements.
SysGroup plc Annual Report & Accounts 2018 56
Notes to the Consolidated Financial Statements Continued
New Standards and Interpretations Not yet Adopted
A number of new standards, amendments to standards and interpretations have been issued during the year ended
31 March 2018 but are not yet effective, and therefore have not yet been adopted by the Group:
•
IFRS 15 Revenue from Contracts with Customers is effective after 1 January 2018. This standard will change how
revenue is recognised based on a framework. The interim accounts to 30 September 2018 will be prepared in
accordance with IFRS15. IFRS15 seeks to identify linked revenue transactions and to recognise that revenue over
the period in which benefits accrue to the customers. The potential impact on the Group has been assessed by
management and there is not currently expected to be a significant impact.
• Amendments to IAS12 ‘Recognition of Deferred Tax Assets for Unrealised Losses’ have not yet been endorsed but
•
•
the IASB effective date will be 1 January 2018.
IFRS 9 ‘Financial Instruments’ is effective from 2018. This standard will simplify the classification of financial assets
for measurement purposes but is not anticipated to have a significant impact on the financial statements.
IFRS 16 Leases is expected to be applicable after 1 January 2019. If endorsed, this standard will affect the
presentation of the Group financial statements with all leases apart from short term leases being recognised as
on-balance sheet finance leases with a corresponding liability being the present value of lease payments. The
potential impact on the Group has not yet been assessed by management.
The Group continues to monitor the potential impact of other new standards and interpretations which may be
endorsed by the European Union and require adoption by the Group in future reporting periods.
The adoption of these standards does not have an impact on the results and net assets of the Group.
Revenue
Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction
will flow into the Group. Revenue represents the fair value of amounts received or receivable for goods and services
provided net of trade discounts and VAT. Revenue from the sale of managed IT services and cloud hosting is
recognised evenly over the life of the contract as benefits accrue to the customer. Revenue from value added resale
is recognised as these products or services are delivered. This revenue policy also applies to Rockford IT Ltd, acquired
during the year.
Basis of Consolidation
Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee
if all three of the following elements are present: power over the investee; exposure to variable returns from the
investee; and the ability of the investor to use its power to affect those variable returns. Control is re-assessed
whenever facts and circumstances indicate that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the company and its subsidiaries (“the Group”) as if
they formed a single entity. Intercompany transactions and balances between group companies are therefore
eliminated in full.
The consolidated financial statements incorporate the results of business combinations using the acquisition
method. In the statement of financial position, the acquirer’s identifiable assets, liabilities and contingent liabilities
are initially recognised at their fair values at the acquisition date. The results of acquired operations are included
in the consolidated statement of comprehensive income from the date on which control is obtained. They are
deconsolidated from the date on which control ceases.
SysGroup plc Annual Report & Accounts 2018 57
Notes to the Consolidated Financial Statements Continued
Business Combinations
All business combinations are accounted for by applying the purchase method. On acquisition, all the subsidiaries’
assets and liabilities that exist at the date of acquisition are recorded at their fair values reflecting the conditions at
that date. The results of subsidiaries acquired in the period are included in the income statement from the date on
which control is obtained.
Goodwill
Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of
the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is not amortised but is capitalised
as an intangible asset with any impairment in carrying value being charged to the consolidated statement of
comprehensive income. In determining the fair value of consideration, the fair value of equity issued is the market
value of equity at the date of completion, and the fair value of contingent consideration is based on the expected
future cashflows based on whether the Directors believe performance conditions will be met and thus the extent to
which the further consideration will be payable. Where the fair value of identifiable assets, liabilities and contingent
liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of
comprehensive income on the acquisition date.
Impairment of Non-Financial Assets
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken
annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or
changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of
an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is
written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out
on the asset’s cash-generating unit (i.e. the lowest Group of assets in which the asset belongs for which there are
separable identifiable cash flows that are largely independent of the cash flows from the other assets or Groups of
assets). Goodwill is allocated on initial recognition to each of the Group’s cash-generating units that are expected to
benefit from the synergies of the combination giving rise to the goodwill.
The estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted.
Foreign Currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling
at the balance sheet date and the gains or losses on translation are included in the consolidated statement of
comprehensive income. The results of foreign subsidiaries that have a functional currency different from the group’s
presentation currency are translated at the average rates of exchange for the year. Assets and liabilities of foreign
subsidiaries that have a functional currency different from the group’s presentation currency, are translated at the
exchange rates prevailing at the balance sheet date. Exchange differences arising from the translation of the results
of foreign subsidiaries and their opening net assets are recognised as a separate component of equity.
Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker. The chief operating decision maker has been identified as the Board of Directors.
SysGroup plc Annual Report & Accounts 2018 58
Notes to the Consolidated Financial Statements Continued
Financial Instruments
Financial instruments are classified and accounted for, according to the substance of the contractual arrangement,
as either financial assets, financial liabilities or equity instruments. An equity instrument is any contract that
evidences a residual interest in the assets of the company after deducting all of its liabilities.
Financial Assets
The Group’s financial assets comprise trade and other receivables and cash and cash equivalents in the
consolidated statement of financial position. Trade receivables are stated at their nominal value and an impairment
provision will be recognised if there is evidence that the amount is irrecoverable and will be shown in administrative
expenses in the Consolidated Statement of Comprehensive Income. Cash and cash equivalents includes cash in
hand and deposits held at call with banks.
Share Capital
Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the
definition of a financial liability or financial asset. The Group’s ordinary shares are classified as equity instruments
and are recorded at the proceeds received, net of direct issue costs. Proceeds of any share issue in excess of the
nominal value of the share capital is recognised within the share premium account.
Financial Liabilities
The Group classifies its financial liabilities into one of two categories, depending on the purpose for which it was
acquired. The Group’s accounting policy for each category is as follows:
•
Fair Value Through Profit or Loss – This category comprises only contingent consideration. They are carried
in the statement of financial position at fair values with changes in fair value recognised in the consolidated
income statement.
• Other Financial Liabilities – Other financial liabilities include trade payables and other short-term monetary
liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the
effective interest rate method.
Fair Value Measurement Hierarchy
IFRS 7 requires certain disclosures which require the classification of financial assets and financial liabilities
measured at fair value to reflect the significance of the inputs used in making the fair value measurement. The fair
value hierarchy has the following levels:
a. Quoted prices in active markets for identical assets or liabilities (Level 1)
b.
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and
Inputs from the asset or liability that are not based on observable market data (Level 3)
c.
The level in the fair value hierarchy within which the financial asset or financial liability is categorised is determined
on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial
liabilities are classified in their entirety into only one of the three levels.
Share Based Payments
The fair value of employee options, along with any share warrants granted, is charged to the consolidated statement
of comprehensive income with a corresponding increase in equity. The fair value is measured at grant date and
spread over the period during which the employees become unconditionally entitled to the options. The fair value of
SysGroup plc Annual Report & Accounts 2018 59
Notes to the Consolidated Financial Statements Continued
the options granted is measured using the Black Scholes pricing model, considering the terms and conditions upon
which the options were granted. The fair value of warrants is also reviewed to the extent that exercise of the warrants
is considered likely.
Leases
Assets obtained under hire purchase contracts and finance leases are capitalised as tangible assets and
depreciated over the shorter of the lease term and their useful lives. Obligations under such agreements are
included in payables net of the finance charge allocated to future periods. The finance element of the rental
payment is charged to the consolidated statement of comprehensive income so as to produce a constant periodic
rate of charge on the net obligation outstanding in each period. Rentals payable under operating leases are
charged against income on a straight-line basis over the lease term.
Property Plant and Equipment
Items of property, plant and equipment are stated at cost less depreciation. Depreciation is provided at annual rates
calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows:
IT hardware
20% – 33.3% straight line
Furniture and fittings
20% – 33.3% straight line
Motor vehicles
25% straight line
Investment in Subsidiaries
Fixed asset investments in the Parent Company are shown at cost less any provision for impairment as necessary.
Research and Development
Research expenditure is written off to the consolidated statement of comprehensive income in the year in which
the expenditure occurs. Development expenditure is treated in the same way unless the Directors are satisfied as to
the technical, commercial and financial viability of individual projects, there is an intention to complete and sell the
product and the costs can be easily measurable. In this situation, the expenditure is capitalised and the amortised
expense is included in administrative expenses in the Consolidated Statement of Comprehensive Income over the
years during which the Group is to benefit.
Intangible Assets
Intangible assets are recognised on business combinations if they are separable from the acquired entity or give
rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate
valuation techniques (see section related to critical estimates and judgements below).
The significant intangibles recognised by the Group, their estimated useful economic lives and the methods used to
determine the cost of intangibles acquired in business combinations are as follows:
Intangible asset
Estimated UEL
Valuation method
Customer relationships
5-7 years
Estimated discounted cash flow
Software and web design costs
3-5 years
Cost less amortisation
SysGroup plc Annual Report & Accounts 2018 60
Notes to the Consolidated Financial Statements Continued
Deferred Taxation
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the
consolidated statement of financial position differs from its tax base, except for differences arising on:
•
•
•
the initial recognition of goodwill;
the initial recognition of an asset or liability in a transaction which is not a business combination and at the time
of the transaction affects neither accounting or taxable profit; and
investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the
reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is highly probable that relief against
taxable profit will be available.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted
by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax
assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on
either:
•
•
the same taxable Group company; or
different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise
the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred
tax assets or liabilities are expected to be settled or recovered.
Deferred tax liabilities are recognised on intangible assets and other temporary differences recognised in business
combinations.
2. Significant Accounting Estimates and Judgements
The preparation of this financial information requires management to make estimates and assumptions that affect
the amounts reported for assets and liabilities at the period end date and the amounts reported for revenues and
expenses during each period. However, the nature of estimation means that actual outcomes could differ from
those estimates. The key sources of estimation that have a significant impact on the carrying value of assets and
liabilities are discussed below.
Revenue
Management make judgements in determining the appropriate timing of revenue recognition and in unbundling
contracts that relate to the provision of more than one service and/or product.
Impairment of Goodwill and Other Intangibles
The Group tests goodwill for impairment on an annual basis in line with the accounting policy noted above. This
involves judgement regarding the future development of the business and the estimation of the level of future
profitability and cash flows to support the carrying value of goodwill. An impairment review has been performed
at the reporting date, taking into account sensitivities around future business performance, covering a range of
outcomes and risks over levels of revenue, cost and cash generation. No impairment has been identified. More
details including carrying values are included in note 13.
SysGroup plc Annual Report & Accounts 2018 61
Notes to the Consolidated Financial Statements Continued
Impairment of Other Assets
The Group reviews the carrying value of all other assets for indications of impairment at each period end. If
indicators of impairment exist, the carrying value of the asset is subject to further testing to determine whether its
carrying value exceeds its recoverable amount.
Valuation of Intangibles Acquired in Business Combinations
Determining the fair value of customer relationships acquired in business combinations requires estimation of the
value of the cash flows related to those relationships and a suitable discount rate in order to calculate the present
value. More details including carrying values are included in note 13.
Valuation of Contingent Consideration
When valuing the contingent consideration still payable on acquisitions, the Group considers various factors
including the performance of the acquired entity since acquisition together with its expected performance to
the end of the earn-out period. Following the adoption of IFRS 3 (revised) – Business Combinations, contingent
consideration is recognised at, and carried thereafter at, fair value. All changes in fair value (other than
measurement period adjustments) are reflected in the income statement.
Useful Economic Lives of Intangible Assets
Intangible assets are amortised over their useful economic lives. Useful lives are based on management’s
estimates of the period over which the assets will generate revenue, which are periodically reviewed for continued
appropriateness. Changes to estimates can result in changes in the carrying values and hence amounts charged to
the income statement in particular periods which could be significant.
3. Financial Instruments – Risk Management
The Group’s financial instruments comprise cash and liquid resources and various items such as trade receivables
and trade payables that arise directly from its operations. There have been no substantive changes in the Group’s
objectives, policies and processes for managing those risks or the methods used to measure them from previous
periods. The Group’s objective is to ensure adequate funding for continued growth and expansion.
All the Group’s financial instruments are carried at amortised cost with the exception of contingent consideration.
There is no material difference between the carrying and fair value of its financial instruments, in the current or prior
year, due to the instruments bearing interest at fixed rates or being of short term nature.
A summary of financial instruments held by category is shown below:
Financial assets
Loans and receivables
Cash and cash equivalents
Trade receivables
Total financial assets
Group
2018
£’000
1,315
1,101
2,416
2017
£’000
3,473
902
4,375
Company
2018
£’000
115
-
115
2017
£’000
2,077
-
2,077
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
Financial liabilities
At amortised cost
Trade and other payables
Amounts due to subsidiaries
Loans and other borrowings
At fair value
Contingent consideration
Total financial liabilities
Group
Company
2018
£’000
1,377
-
2,233
3,610
-
3,610
2017
£’000
1,349
-
407
1,756
690
2,446
2018
£’000
262
2,584
1,958
4,804
-
4,804
62
2017
£’000
134
1,531
-
1,665
690
2,355
Per the fair value hierarchy classifications under IFRS 7 Financial Instruments the contingent consideration due
on acquisitions shown above are considered to be level 3 financial liabilities as there are no observable inputs for
valuation.
Contingent consideration
At 1 April 2016
Settled during the year
Notional interest charged
Fair value adjustment through income statement
At 31 March 2017
Settled during the year
Notional interest charged
Fair value adjustment through Income Statement
At 31 March 2018
Group
£’000
Company
£’000
435
(243)
116
382
690
(150)
16
(556)
-
435
(243)
116
382
690
(150)
16
(556)
-
The fair value adjustment related to the change in fair value calculation of the contingent consideration payable on
the System Professional acquisition.
Liquidity Risk
Liquidity risk arises from the Group’s management of working capital and the finance charges and principal
repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial
obligations as they fall due.
The Group’s policy is to prepare periodic working capital forecasts, allowing an assessment of the cash requirements
of the Group and Company, to manage liquidity risk. Cash resources are managed in accordance with planned
expenditure forecasts and the Directors have regard to the maintenance of sufficient cash resources to fund the
Group and Company’s immediate operating requirements and capital expenditure.
The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of
financial liabilities:
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
Group
At 31st March 2018
Trade and other payables
Contingent consideration
Loans and borrowings
Total
Group
At 31st March 2017
Trade and other payables
Contingent consideration
Loans and borrowings
Total
Company
At 31st March 2018
Trade and other payables
Amounts due to
subsidiaries
Contingent consideration
Loans and borrowings
Total
Company
At 31st March 2017
Trade and other payables
Amounts due to
subsidiaries
Contingent consideration
Total
Up to 3
months
£’000
1,377
-
91
1,468
Up to 3
months
£’000
1,349
-
56
1,405
Up to 3
months
£’000
262
2,584
-
52
2,898
Up to 3
months
£’000
134
1,531
-
1,665
Between
3 and 12
months
£’000
-
-
272
272
Between
3 and 12
months
£’000
-
-
167
167
Between
1 and 2
years
£’000
-
-
1,826
1,826
Between
1 and 2
years
£’000
-
690
136
826
Between
2 and 5
years
£’000
-
-
44
44
Between
2 and 5
years
£’000
-
-
48
48
Between
3 and 12
months
£’000
Between
1 and 2
years
£’000
Between
2 and 5
years
£’000
-
-
-
164
164
-
-
-
1,742
1,742
-
-
-
-
-
Between
3 and 12
months
£’000
Between
1 and 2
years
£’000
Between
2 and 5
years
£’000
-
-
-
-
-
-
690
690
-
-
-
-
63
Over
5 years
£’000
-
-
-
-
Over
5 years
£’000
-
-
-
-
Over
5 years
£’000
-
-
-
-
-
Over
5 years
£’000
-
-
-
-
SysGroup plc Annual Report & Accounts 2018 64
Notes to the Consolidated Financial Statements Continued
Interest Rate Risk
The Group seeks to minimise exposure to interest rate risk by borrowing at a mix of fixed and floating interest
rates appropriate to the nature and term length of borrowings. During the period the Group drew down on a £2m
acquisition facility with an interest rate set at LIBOR + 5%.
Credit Risk
The Group generally gives 30-day credit terms on its continuing business and provides against doubtful debts only
when recoverability is considered to be at risk. For cash and cash equivalents, the Group only uses recognised banks
with high credit ratings.
Capital Disclosures
The Group monitors “adjusted capital” which comprises all components of equity (i.e. share capital, share premium
and retained earnings).
The Group’s objective when maintaining capital are:
•
•
to safeguard the entity’s ability to continue as a going concern, so that it can provide returns for shareholders in
future periods and benefits for other stakeholders, and
to provide an adequate return to shareholders by pricing products and services commensurately with the level of
risk.
The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and
adjusts it in the light of changes in economic conditions and the risk characteristics of the underlying assets.
4. Segmental Analysis
The chief operating decision maker for the Group is the Board of Directors. The Group reports in two segments:
• Managed Services – this segment provides all forms of managed services to customers. This segment was
•
created on the acquisition of Netplan in November 2013 and has been further expanded with the acquisition of
Q4Ex Limited, System Professional Ltd and Rockford IT Limited.
Value Added Resale (VAR) of products/services – this segment provides all forms of VAR sales where the
business is acting as a reseller. This segment was created following the acquisition of System Professional
Limited and has been further expanded by the acquisition of Rockford IT Limited.
Information regarding the operation of the reportable segments is included below. The performance of each
operating segment is based on revenue and gross profit as the Board believe this is the best measure for segmental
performance.
Assets and liabilities are not reviewed on a segmental basis. All non-current assets are within the UK. All segments
are continuing operations. The accounting policies of the operating segments are the same as those described in
the summary of significant accounting policies. Transactions between segments are accounted for using an arm’s
length commercial basis.
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
Revenue by operating
segment
Managed Services
Value Added Reseller
SME Mass Market
(discontinued)
Total
2018
£’000
7,130
3,321
-
10,451
2018
%
68%
32%
-
100%
2017
£’000
5,400
1,765
700
7,865
No individual customer accounts for more than 10% of the Group’s revenue.
The Group operates out of the UK and sells services to the following geographical locations:
UK
Rest of World*
Total
2018
£’000
9,437
1,014
10,451
2018
%
90%
10%
100%
2017
£’000
7,267
598
7,865
*The largest components are: France £0.5m; and USA £0.2m
Revenue
SME Mass market - discontinued
Managed IT Services - continuing
Value Added Resale (VAR) - continuing
Total
Gross profit
SME Mass market - discontinued
Managed IT Services - continuing
Value Added Resale (VAR) - continuing
Total
2018
£’000
-
7,130
3,321
10,451
-
5,224
771
5,995
65
2017
%
69%
22%
9%
100%
2017
%
92%
8%
100%
2017
£’000
700
5,400
1,765
7,865
436
3,932
450
4,818
There were no sales between the two business segments, and all revenue is earned from external customers. The
business segments’ gross profit is reconciled to profit before taxation as per the consolidated income statement. The
Group’s overheads are managed centrally by the Board and consequently there is no reconciliation to profit before
tax at a segmental level.
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
5. Operating Profit/(Loss)
Operating profit/(loss) is after charging the following:
Auditor’s remuneration:
Group:
Audit
Corporate finance
Other advisory
Company:
Audit
Depreciation of tangible fixed assets:
Owned
Held under finance leases
Amortisation of intangible assets
Staff costs (note 7)
Share based payments (note 9)
Rentals payable under operating leases
Acquisition and restructuring costs
6. Finance Expense
Interest payable on finance leases
Interest payable on bank loan
Arrangement fee amortisation on bank loan
Total
7. Staff Numbers and Costs
66
2018
£’000
2017
£’000
49
-
5
4
201
171
500
36
75
1
4
189
135
326
3,972
3,622
10
156
581
-
89
791
2018
£’000
2017
£’000
17
49
18
84
27
-
-
27
The average monthly number of full time persons employed by the Group, including executive Directors during the
year was:
Research and Development
Technical Support
Sales and Marketing
Executive and Administration
Total
2018
2017
4
48
11
11
74
6
37
5
8
56
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
The aggregate monthly payroll costs including Executive Directors and excluding Non-Executive Directors were as
follows:
67
Wages and salaries
Social security costs
Benefits in kind
Pension benefits
Share based payment expense
Total
Total staff costs for the Company are £836,188 (2017: £580,907).
Average staff numbers for the Company are 14 (2017: 11).
Directors and Key Management Personnel
Fees and salaries
Social security costs
Benefits in kind
Pension benefits contributions
Share based payment expense
Total
2018
£’000
3,548
365
22
37
10
2017
£’000
3,278
289
24
31
-
3,982
3,622
2018
£’000
369
35
2
14
9
2017
£’000
375
27
2
6
-
429
410
Key management personnel are those persons having authority and responsibility for planning, directing and
controlling the activities of the Group, they are also the Directors of the Company listed on page 18.
The emoluments of the highest paid Director, Julian Llewellyn, were £136,609 (2017: Julie Joyce £128,000).
The Group does not operate a defined benefits pension scheme and Executive Directors who are entitled to receive
pension contributions may nominate a defined contribution scheme into which the Company makes pension
contributions.
The fees relating to Non-Executive Directors are in some cases payable to third parties in connection with the
provision of their services. The balance outstanding at 31 March 2018 was £4,331 (2017: nil).
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
8. Acquisition and Restructuring Costs
Professional fees on acquisition of System Professional Limited
Professional fees on aborted transaction
Professional fees on acquisition of Rockford IT Limited
Integration and restructuring of continuing business*
Total
*Integration and restructuring costs relate to closing and relocating offices/teams, streamlining
operations and establishing single front and back office IT platform/systems. This includes costs
of £94k (2017: £161k) in relation to the use of internal technical staff and management resources to
deliver the changes.
68
2018
£’000
2017
£’000
-
-
186
395
581
414
38
-
339
791
9. Share Based Payments and Warrants
The Company has granted a number of EMI options. The Directors have the discretion to grant options to subscribe
for ordinary shares up to a maximum of 10 per cent of the Company’s issued share capital. Options can be granted
to any employee of the Group. For options to vest the employee has to be employed by the Group at the vesting
date. There are no other performance criteria attached to the options. The weighted average exercise price of
options in issue is 48.4p per share.
Rights to options over ordinary shares of the Company are summarised as follows:
Exercise period
27/09/12 to 26/09/15
19/12/12 to 18/12/22
12/12/13 to 11/12/23
02/03/15 to 01/03/25
14/08/15 to 13/08/25
21/02/16 to 20/02/26
15/08/16 to 14/08/26
13/09/16 to 12/09/26
31/07/07 to 30/07/17
06/04/17 to 05/04/27
30/08/17 to 29/08/27
30/08/17 to 29/08/27
No. of Ordinary Shares
Exercise
price
At
31 March
2017
Granted
Waived/
lapsed
At
31 March
2018
80p
40p
60p
62.8p
68p
55.2p
60.5p
60.5p
28p
47.5p
43p
43p
10,000
54,375
15,625
2,500
25,000
11,875
3,125
5,000
2,232
-
-
-
-
-
-
-
-
-
-
-
-
-
125,000
5,000
15,000
30,000
-
10,000
(54,375)
(10,000)
(2,500)
(25,000)
-
5,625
-
-
-
11,875
(3,125)
-
-
5,000
(2,232)
-
-
(15,000)
-
125,000
5,000
-
-
30,000
129,732
175,000
(112,232)
192,500
02/03/18 to 01/03/28
35.5p
Grant date
27/09/2012
19/12/2012
12/12/2013
02/03/2015
14/08/2015
21/02/2016
15/08/2016
13/09/2016
24/08/2017
06/04/2017
30/08/2017
30/08/2017
02/03/2018
Total
SysGroup plc Annual Report & Accounts 2018
69
Notes to the Consolidated Financial Statements Continued
The options have been valued, using the Black Scholes method, using the following assumptions:
Number of instruments
granted
Grant date
Expiry date
Contract term (years)
Exercise price
Share price at granting
Annual risk-free rate (%)
Annual expected
dividend yield (%)
Volatility (%)
Fair value per grant
instrument
10,000
5,625
11,875
5,000
125,000
5,000
30,000
27/09/12
12/12/13
21/02/16
13/09/16
06/04/17
30/08/17
02/03/18
26/09/22
11/12/23
20/02/26
12/09/26
05/04/27
29/08/27
01/03/28
10
80p
2p
5%
0%
50%
10
60p
85p
0.5%
0%
90%
10
55.2p
70.8p
0.5%
0%
55%
10
60.5p
60.5p
0.5%
0%
55%
10
47.5p
48p
1.4%
0%
36%
10
43p
43p
1.4%
0%
36%
10
35.5p
35.5p
1.4%
0%
36%
18.4p
74.46p
47.6p
52.17p
22.77p
20.39p
16.84p
The inputs to the share valuation model utilised at the grant of the option is shown in the tables above. Management
has determined volatility using their knowledge of the business.
At 31 March 2018 there were 2,500 outstanding warrants to subscribe for the ordinary share capital of the Company
as follows:
Grant date
09/01/2012
Exercise period
08/01/2022
No. of Warrants
and Exercise price
200p
2,500
The fair value of the warrants has been calculated at 0.36p based on the following assumptions – share price at
granting 50p, annual risk-free rate 0.5%, and volatility 20%. No provision has been made for the warrants in shared
based payments.
10. Acquisitions
There has been one acquisition during the period. The Board strategically expect acquisitions to be a common
component of growth in the future.
Acquisitions made during the year to 31 March 2018 were:
Rockford IT Limited
The Group acquired 100% of the share capital of Rockford IT Limited on 1 November 2017. Rockford provides managed
services, cloud hosting, value added resale services, and IT consultancy support.
During the year to 31 March 2018 the Group incurred £186,458 of costs in relation to this acquisition. These costs are
included in administrative expenses in the Group’s consolidated statement of comprehensive income for the year
ended 31 March 2018.
SysGroup plc Annual Report & Accounts 2018 70
Notes to the Consolidated Financial Statements Continued
The fair value of acquired customer relationships intangible asset has been estimated using a discounted cashflow
method, based on the estimated level of profit to be generated from them. A post tax discount rate of 10.3% was used
in the valuation. Customer relationships are being amortised over an estimated useful life of 7 years.
Since the acquisition date to 31 March 2018, Rockford IT Limited has contributed £1,796,400 to Group revenue and
£278,656 to Group EBITDA. Had the acquisition taken place on 1 April 2017, the contribution to Group revenue would
have been £4,250,080 and £701,800 to Group EBITDA.
Book
value
£’000
Fair
value adj
£’000
327
446
421
21
95
(791)
(81)
(66)
372
-
34
(87)
-
1,850
(111)
-
(315)
1,371
Recognised amounts of net assets
acquired and liabilities assumed
Cash and cash equivalents
Trade and other receivables
Property, plant and equipment
Stock and work in progress
Intangible assets
Trade and other payables
Current income tax liability
Deferred tax liability
Identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash consideration
Total consideration
11. Earnings Per Share
Continuing
Operations
2018
Discontinued
Operations
2018
Profit for the financial year attributable to shareholders
£237,923
Weighted number of equity shares used in basic EPS
23,103,898
Weighted number of equity shares used in diluted EPS
23,298,898
Basic earnings per share
Diluted earnings per share
£0.0103
£0.0102
-
-
-
-
-
Fair
value
£’000
327
480
334
21
1,945
(902)
(81)
(381)
1,743
2,107
3,850
3,850
3,850
Total
2018
£237,923
23,103,898
23,298,898
£0.0103
£0.0102
SysGroup plc Annual Report & Accounts 2018
71
Notes to the Consolidated Financial Statements Continued
(Restated)
(Restated)
(Restated)
Continuing
Operations
2017
Discontinued
Operations
2017
Total
2017
(Loss)/profit for the financial year attributable to shareholders
(£1,331,054)
£1,508,499
£177,445
Weighted number of equity shares used in basic EPS
19,805,397
19,805,397
19,805,397
Weighted number of equity shares used in diluted EPS
20,164,861
20,164,861
20,164,861
Basic (Loss)/earnings per share
Diluted (Loss)/earnings per share
(£0.0672)
(£0.0672)
£0.0762
£0.0748
£0.0090
£0.0088
Basic (loss)/earnings per share is calculated by dividing the earnings attributable to equity shareholders by the
weighted average of ordinary shares in issue during the year.
For diluted earnings per share, the weighted number of ordinary shares in issue during the year is adjusted to include
the weighted average number of ordinary shares that would be issued on the conversion on all the dilutive potential
shares into ordinary shares.
12. Taxation
Current tax
Current tax - current year
Adjustments in respect of prior years
Tax refund
Total current tax credit
Deferred tax
Deferred tax - timing differences
Total tax credit
Total current tax credit
2018
£’000
32
(126)
(80)
(174)
(71)
(71)
(245)
2017
£’000
65
-
-
65
(123)
(123)
(58)
SysGroup plc Annual Report & Accounts 2018 72
Notes to the Consolidated Financial Statements Continued
The effective tax rate for the year to 31 March 2018 is higher (2017: higher) than the standard rate of corporation tax in
the UK. The differences are explained below:
(Loss)/ profit on ordinary activities before tax
(Loss)/ profit on ordinary activities before taxation multiplied by the standard rate
of UK corporation tax of 19% (2017:20%)
Effects of:
Expenses not deductible
Income not taxable
Prior year adjustment
Deferred tax - timing differences
Re-measurement of deferred tax due to changes in UK rate
Deferred tax not recognised
Tax refund
Total tax credit
The Group recognised deferred tax assets and liabilities as follows:
Deferred tax on customer relationships
Capital allowances timing differences
Deferred tax liability
2018
£’000
2017
£’000
(7)
320
(1)
65
33
(106)
(126)
-
5
(130)
80
-
-
-
(123)
-
-
-
(245)
(58)
2018
£’000
(588)
(86)
(674)
2017
£’000
(242)
(123)
(365)
Recognition of deferred tax assets is restricted to those instances where it is highly probable that relief against
taxable profit will be available.
The movement in the deferred tax account during the year was:
Balance at 1 April 2017
Accelerated capital allowances
Accelerated capital allowances acquired on
acquisition of Rockford IT
Deferred tax recognised on customer lists
acquired on acquisition of Rockford IT
Credited to statement of comprehensive income
Balance at 31 March 2018
Factors affecting future tax charges:
Capital allowances
timing differences
Customer
relationships
£’000
-
(20)
(66)
-
-
(86)
£’000
(365)
-
-
(315)
92
(588)
Total
£’000
(365)
(20)
(66)
(315)
92
(674)
The UK corporation tax rate will change from 19% to 17% on 1 April 2020.
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
13. Intangible Assets
Website
Development
Software
Customer
Licences
Relationships
Group
At 1 April 2016
Additions
Acquired from
acquisition
Disposals
At 31 March 2017
At 1 April 2017
Additions
Acquired from
acquisition (note 10)
Disposals
At 31 March 2018
Cost
£’000
197
-
-
-
197
197
26
-
-
223
Accumulated amortisation and impairment
At 1 April 2016
On disposals
Charge for the year
At 31 March 2017
At 1 April 2017
On disposals
Charge for the year
At 31 March 2018
Net book value
At 31 March 2017
At 31 March 2018
180
-
11
191
191
-
7
198
6
25
Cost
£’000
232
-
-
(232)
-
-
-
-
-
-
232
(232)
-
-
-
-
-
-
-
-
£’000
61
11
-
-
72
72
6
95
-
173
8
-
22
30
30
-
47
77
42
96
73
Total
£’000
6,858
11
4,792
(1,389)
10,272
10,272
32
4,052
-
Positive
Goodwill
£’000
4,454
-
3,844
(678)
7,620
7,620
-
2,107
-
£’000
1,914
-
948
(479)
2,383
2,383
-
1,850
-
4,233
9,727
14,356
655
(479)
638
814
814
-
446
1,260
-
-
-
-
-
-
-
-
1,075
(711)
671
1,035
1,035
-
500
1,535
1,569
2,973
7,620
9,727
9,237
12,821
The Company had intangible assets of £25,083, comprising website development costs, at 31 March 2018 (2017: Nil)
All amortisation and impairment charges are included in the depreciation, amortisation and impairment of non-
financial assets classification, which is disclosed as administrative expenses in the statement of comprehensive
income.
During the year, goodwill was reviewed for impairment in accordance with IAS 36 “Impairment of Assets”. No
impairment charges arose as a result of this review.
SysGroup plc Annual Report & Accounts 2018 74
Notes to the Consolidated Financial Statements Continued
The recoverable amount is determined based on a discounted cash flow basis and is allocated to individual cash
generating units. The calculation uses pre-tax cash flow projections based on financial budgets approved by the
Board covering a two-year period. Cash flows beyond the two-year period are extrapolated using the estimated
growth rates stated below. The growth rates and margins used to estimate future performance are based on past
performance and the experience of growth rates.
The carrying value of each CGU is as follows:
Netplan
System Professional
Rockford IT
Total
2018
£’000
4,564
4,710
3,892
13,166
2017
£’000
5,348
4,585
-
9,933
The assumptions used for the impairment reviews are as follows:
Discount rate
Growth rate year 2 to year 5
Terminal growth rate
Forecast period for which cashflows are estimated
System
Professional
Netplan
Rockford IT
10.13%
2.9%
2.9%
2
10.13%
2.9%
2.9%
2
10.13%
2.9%
2.9%
2
The Group had no contractual liability for development costs at 31 March 2018. As a result of the impairment testing
carried out on the basis of these estimates and assumptions, no impairment provisions are required.
14. Property Plant and Equipment
Group
Cost
At 1 April 2016
Additions
Acquisition of subsidiary
Disposals
At 31 March 2017
At 1 April 2017
Additions
Acquisition of subsidiary
Disposals
At 31 March 2018
Furniture
and
equipment
£’000
1,491
571
96
(737)
1,421
1,421
181
334
-
1,936
Total
£’000
1,491
571
96
(737)
1,421
1,421
181
334
-
1,936
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
Group
Cost
Accumulated depreciation
At 1 April 2016
Charge for the year
On disposal
At 31 March 2017
At 1 April 2017
Charge for the year
On disposal
At 31 March 2018
Net book value
At 31 March 2016
At 31 March 2017
At 31 March 2018
Furniture
and
equipment
£’000
1,041
337
(623)
755
755
372
-
1,127
449
666
809
Included in the net book value of £809,000 (2017: £666,000) are assets held under finance leases with a NBV of
£322,823 (2017: £340,291).
The depreciation for the year on these assets was £170,143 (2017: £135,000).
75
Total
£’000
1,041
337
(623)
755
755
372
-
1,127
449
666
809
Total
£’000
45
36
-
-
81
81
24
-
-
Furniture
and
equipment
£’000
45
36
-
-
81
81
24
-
-
105
105
Company
Cost
At 1 April 2016
Additions
Acquisition of subsidiary
Disposals
At 31 March 2017
At 1 April 2017
Additions
Acquisition of subsidiary
Disposals
At 31 March 2018
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
Company
Cost
Accumulated depreciation
At 1 April 2016
Charge for the year
On disposal
At 31 March 2017
At 1 April 2017
Charge for the year
On disposal
At 31 March 2018
Net book value
At 31 March 2016
At 31 March 2017
At 31 March 2018
The Company held no finance leases at 31 March 2018 or at 31 March 2017.
15. Investments
Company
Investment in subsidiaries
At 1 April 2017
Acquisitions (note 10)
Impairment following disposals
Cost 31 March 2018
76
Furniture
and
equipment
£’000
Total
£’000
12
13
-
25
25
26
-
51
33
56
54
12
13
-
25
25
26
-
51
33
56
54
2018
£’000
10,429
3,850
-
14,279
2017
£’000
6,576
4,952
(1,099)
10,429
SysGroup plc Annual Report & Accounts 2018 77
Notes to the Consolidated Financial Statements Continued
The Company’s subsidiary undertakings all of which are wholly owned and included in the consolidated accounts
are:
Undertakings
SysGroup Trading Limited
Netplan Internet Solutions Limited
Netplan LLC*
SysGroup (DIS) Limited
SysGroup (NH) Limited
System Professional Limited
SysGroup (EH) Limited
Rockford IT Limited
Node Group Limited
Registration
Principal activity
England
England
USA
England
England
England
England
England
England
Managed Services
Managed Services
Managed Services
Managed Services
Managed Services
Managed Services
Managed Services
Managed Services
Dormant
*Netplan LLC is a wholly owned subsidiary of Netplan Internet Solutions Ltd
The recoverable amounts have been determined from discounted cash flow calculations based on cash flow
projections from approved budgets covering a one-year period to 31 March 2019. The major assumptions can be
found in note 13. The impairment charge above relates to the disposal of the SME segment during the prior year.
SysGroup (NH) Limited (Company Number 03963376), SysGroup (EH) Limited (Company Number 05814619), SysGroup
(DIS) Limited (Company number 05743110), Project Clover Ltd (Company number 08995906) are taking advantage
of the exemption from audit under section 479a of the Companies Act 2006 following the guarantee provided by
SysGroup plc under section 479C of the Companies Act 2006.
The registered office of all subsidiaries is the same as the registered office of the parent company with the exception
of Netplan LLC whose registered office is c/o USA Corporate Services Inc, 19 West 34Th Street, Suite 1018, New York,
10001.
16. Trade and Other Receivables
Amounts due within one year
Trade debtors
Other debtors
Prepayments and accrued
income
Total
Group
2018
£’000
1,101
-
523
1,624
Company
2018
£’000
-
35
100
135
Group
2017
£’000
902
-
409
1,311
Company
2017
£’000
-
-
100
100
The Group is not exposed to any significant credit risk from trade receivables. There are no impaired trade
receivables which are past due at 31 March 2018 or at 31 March 2017.
SysGroup plc Annual Report & Accounts 2018 78
Notes to the Consolidated Financial Statements Continued
17. Trade and Other Payables
Amounts due within one year
Trade payables
Amounts due to subsidiaries
Accruals
Total financial liabilities,
excluding loans and
borrowings measured at
amortised cost
Corporation tax
Other taxes and social security
costs
Deferred income
Total
Contingent consideration
due on acquisitions
System Professional Limited
Group
2018
£’000
893
-
484
Company
2018
£’000
102
2,584
160
Group
2017
£’000
590
-
653
Company
2017
£’000
36
1,531
98
1,377
2,846
1,243
1,665
85
439
425
-
30
-
2,326
2,876
Group
2018
£’000
-
Company
2018
£’000
-
106
322
465
2,136
Group
2017
£’000
690
-
17
-
1,682
Company
2017
£’000
690
The fair value of contingent consideration was based on the present value of cash flows and the market value of the
shares to be issued.
To the extent trade payables and other payables are not carried at fair value in the consolidated balance sheet,
book value approximates to fair value at 31 March 2018 and 31 March 2017.
Maturity of the financial liabilities, excluding loans and borrowings, classified as financial liabilities measured at
amortised cost is shown in note 3.
18. Loans and Borrowings
Non-Current
Obligations under finance
leases
Bank loan*
Total
Group
2018
£’000
128
1,742
1,870
Company
2018
£’000
-
1,742
1,742
Group
2017
£’000
184
-
184
Company
2017
£’000
91
-
91
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
Current
Obligations under finance
leases
Bank loan*
Other loan
Total
Group
2018
£’000
147
216
-
363
Company
2018
£’000
-
216
-
216
Group
2017
£’000
223
-
-
223
*The bank loan is fully secured by a debenture over SysGroup plc and its subsidaries and interest
charged at LIBOR + 5% per annum.
79
Company
2017
£’000
111
-
105
216
19. Leases
Group Finance Leases
Future lease payments are due as follows:
Not later than one year
Later than one year and not later than 5 years
Later than 5 years
Total
Not later than one year
Later than one year and not later than 5 years
Later than 5 years
Total
Minimum lease
payments
2018
£’000
158
134
-
292
Minimum lease
payments
2017
£’000
235
189
-
424
Interest
2018
£’000
11
6
-
17
Interest
2017
£’000
12
5
-
17
Present
value
2018
£’000
147
128
-
275
Present
value
2017
£’000
223
184
-
407
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
Group Operating Leases
The total future value of minimum lease payments is due as follows:
Current
Within one year
Within two to five years
After five years
Total
Company Operating Leases
Current
Within one year
Within two to five years
After five years
Total
Leasehold
property
2018
£’000
193
268
-
461
Leasehold
property
2018
£’000
23
23
-
46
Other
2018
£’000
-
-
-
-
Other
2018
£’000
-
-
-
-
Leasehold
property
2017
£’000
109
364
13
486
Leasehold
property
2017
£’000
13
52
-
65
80
Other
2017
£’000
-
-
-
-
Other
2017
£’000
-
-
-
-
20. Related Party Transactions
Details of Directors’ remuneration are given in the Directors’ Remuneration Report. Other related party transactions
are as follows:
Related party relationship
Type of Transaction
Companies in which Directors or
their immediate family have a
significant / controlling interest
Provision of management
services and website design
Training services
Transaction
value
Balance Due to
Related Party
2018
£’000
2017
£’000
2018
£’000
2017
£’000
5
4
13
-
-
-
-
-
SysGroup plc Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements Continued
21. Share Capital and Capital Restructuring
At 1 April 2016
Consolidation of 0.5p shares to 20p shares
Issue of share capital - placing
Issue of share capital - consideration
At 31 March 2017 (as previously stated)
Restatement of Court capital reduction 4 August 2016
Restatement of the excess over nominal value on deferred consideration shares
on the acquisition of Q4Ex Ltd
At 31 March 2017 (as restated)
At 1 April 2017
At end of year 23,103,898 Ordinary shares of 1p
Number
510,379,336
(497,619,852)
9,391,667
952,747
23,103,898
-
-
23,103,898
23,103,898
23,103,898
81
£’000
2,552
-
1,686
382
4,620
(4,209)
(180)
231
231
231
The Group now has distributable reserves and so is in a position to pay a dividend in the future if appropriate. When
appropriate a progressive dividend policy will be adopted.
22. Prior Year Accounting Restatement – Share Capital and Reserves
The Group has identified an error in the way it accounted for the court sanctioned capital reduction in its interim
results to 30 September 2016, and this error has been replicated in subsequent reporting, being corrected in the
year ended 31 March 2018. The Group has aIso identified an unrelated error in the accounting for the deferred
consideration on the acquisition of Q4Ex Ltd in the year ended 31 March 2017. The errors have been corrected by
restating each of the affected financial statement line items for prior periods. The following tables summarise the
impacts on the Group’s consolidated financial statements.
Group
Consolidated statement of financial position
31 March 2017
As previously
reported
£’000
Adjustments
£’000
As restated
£’000
Share capital
Share premium account
Other reserves
Translation reserve
Retained profit
Total equity
4,620
-
1,622
4
4,843
11,089
(4,389)
-
378
-
4,011
-
231
-
2,000
4
8,854
11,089
SysGroup plc Annual Report & Accounts 2018 82
Notes to the Consolidated Financial Statements Continued
Group
Consolidated statement of comprehensive income
31 March 2017
As previously
reported
£’000
Adjustments
£’000
As restated
£’000
Fair value adjustment
Others
Loss from continuing operations
Total comprehensive income
Basic earnings/ (loss) per share
Diluted earnings/ (loss) per share
(300)
(830)
(1,130)
378
£0.0190
£0.0187
(198)
(3)
(201)
(201)
£(0.0100)
£(0.0098)
(498)
(833)
(1,331)
177
£0.0090
£0.0088
There is no impact on the total operating, investing or financing cash flows for the year ended 31 March 2017 and 31
March 2018.
23. Discontinued operations
Discontinued operations relate to the SME Mass Market business. The trade and assets of this business were disposed
of on 22 July 2016 for a total cash consideration of £2,735,727 (less an initial amount of £465,519 in respect of advance
receipts/payments).
The following table summarises the results of the SME Mass Market segment included in discontinued operations in
the consolidated statement of income:
Sales
Costs and expenses
Profit on sale
Profit before tax
Taxation
Profit attributable to the shareholders of the Company
Year to
31 March
2018
£’000
Year to
31 March
2017
£’000
-
-
-
-
-
-
700
(566)
1,336
1,470
38
1,508
Profit on disposal is calculated as the fair value of consideration received less the fair value of assets and liabilities
disposed.
SysGroup plc Annual Report & Accounts 2018 83
Notice of Annual
General Meeting
SysGroup plc Annual Report & Accounts 2018 84
Notice of Annual
General Meeting
Notice is hereby given that the Annual General Meeting of SysGroup plc (Company) will be held on 21 September
2018 at 11.00 am at SysGroup plc, Walker House, Exchange Flags, Liverpool L2 3YL for the purpose of considering and, if
thought fit, passing the resolutions set out below, of which Resolutions 1 to 7 will be proposed as ordinary resolutions
and Resolutions 8 and 9 will be proposed as special resolutions.
Ordinary Business
To consider and, if thought fit, pass the following resolutions:
1. TO receive, consider and adopt the Annual Report and Financial Statements for the year ended 31 March 2018
together with the Directors’ and Auditors’ Reports contained therein.
2. TO reappoint Adam Binks as a director in accordance with the Company’s articles of association.
3. TO reappoint Michael James Fletcher as a director in accordance with the Company’s articles of association.
4. TO reappoint Mark Richard Quartermaine as a director in accordance with the Company’s articles of association.
5. TO reappoint John Michael Edelson as a director who retires by rotation.
6. TO reappoint BDO LLP as auditors of the Company and authorise the Directors to fix their remuneration.
7. THAT, in accordance with section 551 of the CA 2006, the Directors be generally and unconditionally authorised to
allot Relevant Securities (as defined in the notes to this resolution):
a. comprising equity securities (as defined by section 560 of the CA 2006) up to an aggregate nominal amount of
£154,025 (such amount to be reduced by the nominal amount of any Relevant Securities allotted pursuant the
authority in resolution 7.b below) in connection with an offer by way of a rights issue:
i. to holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings; and
ii. to holders of other equity securities as required by the rights of those securities or as the Directors otherwise
consider necessary,
but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in
relation to treasury shares, fractional entitlements, record dates, legal or practical problems in or under the
laws of any territory or the requirements of any regulatory body or stock exchange; and
b. in any other case, up to an aggregate nominal amount of £23,103 (such amount to be reduced by the nominal
amount of any equity securities allotted pursuant to the authority in resolution 7.a above in excess of £23,103),
provided that this authority shall, unless renewed, varied or revoked by the Company, expire 15 months from the
SysGroup plc Annual Report & Accounts 2018 85
Notice of Annual General Meeting Continued
date of this resolution or, if earlier, the date of the next annual general meeting of the Company save that the
Company may, before such expiry, make offers or agreements which would or might require Relevant Securities
to be allotted and the Directors may allot Relevant Securities in pursuance of such offer or agreement
notwithstanding that the authority conferred by this resolution has expired.
This resolution revokes and replaces all unexercised authorities previously granted to the Directors to allot
Relevant Securities but without prejudice to any allotment of shares or grant of rights already made, offered or
agreed to be made pursuant to such authorities.
For the purposes of the resolution: ‘Relevant Securities’ means:
i. shares in the Company other than shares allotted pursuant to: an employee share scheme (as defined by
section 1166 of the CA 2006); a right to subscribe for shares in the Company where the grant of the right itself
constituted a Relevant Security; or a right to convert securities into shares in the Company where the grant of
the right itself constituted a Relevant Security; and
ii. any right to subscribe for or to convert any security into shares in the Company other than rights to subscribe
for or convert any security into shares allotted pursuant to an employee share scheme (as defined by
section 1166 of the CA 2006). References to the allotment of Relevant Securities in the resolution include the
grant of such rights.
Special Business
As special business, to consider and, if thought fit, pass the following resolutions:
8. THAT, subject to the passing of resolution 7, the Directors be given the general power to allot equity securities (as
defined by section 560 of the Act) for cash, either pursuant to the authority conferred by resolution 7 or by way of a
sale of treasury shares, as if section 561(1) of the Act did not apply to any such allotment, provided that this power
shall be limited to:
a. the allotment of equity securities in connection with an offer by way of a rights issue:
i. to the holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings;
and
ii. to holders of other equity securities as required by the rights of those securities or as the Directors otherwise
consider necessary,
but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in
relation to treasury shares, fractional entitlements, record dates, legal or practical problems in or under the laws
of any territory or the requirements of any regulatory body or stock exchange; and
b. the allotment (otherwise than pursuant to resolutions 8.a above) of equity securities up to an aggregate
nominal amount of £23,103.
The power granted by this resolution will expire 15 months from the date this resolution is passed or, if earlier, the
conclusion of the Company’s next annual general meeting (unless renewed, varied or revoked by the Company
prior to or on such date) save that the Company may, before such expiry make offers or agreements which
would or might require equity securities to be allotted after such expiry and the Directors may allot equity
SysGroup plc Annual Report & Accounts 2018
86
Notice of Annual General Meeting Continued
securities in pursuance of any such offer or agreement notwithstanding that the power conferred by this
resolution has expired.
This resolution revokes and replaces all unexercised powers previously granted to the Directors to allot equity
securities as if section 561(1) of the 2006 Act did not apply but without prejudice to any allotment of equity
securities already made or agreed to be made pursuant to such authorities.
9. TO authorise the Company generally and unconditionally to make market purchases (within the meaning of
section 693(4) of the Companies Act 2006) of ordinary shares of £0.01 each (Ordinary Shares) provided that:
a. the maximum aggregate number of Ordinary Shares that may be purchased is 3,465,584;
b. the minimum price (excluding expenses) which may be paid for each Ordinary Share is £0.01;
c. the maximum price (excluding expenses) which may be paid for each Ordinary Share is the higher of:
i.
105 per cent of the average market value of an Ordinary Share in the Company for the five business days
prior to the day the purchase is made; and
ii. the value of an Ordinary Share calculated on the basis of the higher of the price quoted for:
a) the last independent trade of; and
b) the highest current independent bid for,
any number of the Company’s Ordinary Shares on the trading venue where the purchase is carried out;
d. the authority conferred by this resolution shall expire 15 months from the date this resolution is passed or, if
earlier, at the conclusion of the Company’s next annual general meeting save that the Company may, before
the expiry of the authority granted by this resolution, enter into a contract to purchase ordinary shares which
will or may be executed wholly or partly after the expiry of such authority.
By order of the board
Kirsti Pinnell
Company Secretary
20 July 2018
Registered Office:
Walker House
Exchange Flags
Liverpool L2 3YL
SysGroup plc Annual Report & Accounts 2018
87
Notice of Annual General Meeting Continued
Notes
1. Any member entitled to attend and vote at the Annual General Meeting is entitled to appoint one or more proxies
who need not be a member of the Company to attend and to vote instead of the member. Completion and
return of a form of proxy will not preclude a member from attending and voting at the meeting in person, should
he subsequently decide to do so.
2.
In order to be valid, any form of proxy and power of attorney or other authority under which it is signed,
or a notarially certified or office copy of such power of attorney, must reach the Company’s registrars,
Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZZ, not less than 48 hours
(excluding weekends and bank holidays) before the time of the meeting or of any adjournment of the meeting.
3. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 the Company specifies that to be
entitled to attend and vote at the meeting (and for the purposes of the determination by the Company of the
number of votes they may cast), holders of Ordinary Shares must be entered on the relevant register of securities
by 11.00 am on 19 September 2018. Changes to entries on the relevant register of securities after 11.00 am on 19
September 2018 shall be disregarded in determining the rights of any person to attend and vote at the meeting.
4. As at 5:00 pm on 19 July 2018, which is the latest practicable date before publication of this notice, the Company’s
issued share capital comprised 23,103,898 ordinary shares of £0.01 each. Each ordinary share carries the right to
one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company
as at 5:00 pm on 19 July 2018 is 23,103,898. The Company’s website will include information on the number of
shares and voting rights.
5. Copies of the service contracts and letters of appointment of each of the Directors of the Company together
with the Register of Directors’ Interests will be available for inspection at the registered office of the Company
during usual business hours on any weekday (Saturday and public holidays excluded) and at the place of the
Annual General Meeting from at least 15 minutes prior to and until the conclusion of the Annual General Meeting.
6. The Directors have no present intention of exercising either the allotment authority under resolution 7 or the
disapplication of pre-emption rights authority under resolution 8.
7.
The Annual Report and Financial statements can be downloaded from the investor section of the Company’s
website at the following location www.sysgroupplc.com/financial-reports/
SysGroup plc Annual Report & Accounts 2018