Annual
Report &
Accounts
2019
SysGroup plc
Walker House
Exchange Flags
Liverpool L2 3YL
Company Number
06172239
www.sysgroupplc.com
SysGroup plc Annual Report & Accounts 2019
2
Contents
4
6
9
10
18
20
24
28
35
37
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
43
Consolidated Statement of Comprehensive Income
45
Consolidated Statement of Financial Position
48
Company Statement of Financial Position
51
53
55
57
59
90
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 2019
3
Directors,
Secretary &
Advisers
SysGroup plc Annual Report & Accounts 2019
4
Directors,
Secretary &
Advisers
Board of Directors
Michael Edelson
Non-Executive Chairman
Adam Binks
Chief Executive Officer
Martin Audcent
Chief Financial Officer
Mark Quartermaine
Non-Executive Director
Michael Fletcher
Non-Executive Director
Company Secretary
Martin Audcent
Registered Office
Walker House
Exchange Flags
Liverpool L2 3YL
Company Number
06172239
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
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
Legal Entity Identifier (LEI)
Financial PR Advisers
213800D18GPZZJR9SH55
Company Website
www.sysgroupplc.com
Alma PR
71-73 Carter Lane
London EC4V 5EQ
SysGroup plc Annual Report & Accounts 2019
5
Highlights
SysGroup plc Annual Report & Accounts 2019
6
Highlights
Financial
Revenue
Recurring revenue
Adjusted EBITDA 1
+22%
2019
£12.77m
2018
£10.45m
+33%
2019
2018
£9.45m
£7.13m
+41%
2019
2018
£1.41m
£1.0m
Adjusted PBT 2
Cash generated from operations 4
Net cash/(debt) 5
+39%
2019
2018
£0.75m
£0.54m
+50%
£0.47m
2019
2018
£1.21m
2019
£0.47m
£0.80m
2018
£(0.92m)
Highlight
Revenue
Recurring revenue as a % of total revenue
Gross Margin
Gross Margin %
Adjusted EBITDA 1
Adjusted PBT 2
Adjusted Basic EPS 3
Statutory loss before tax
Basic EPS
Net cash/(debt) 5
2019
£12.77m
74%
£7.78m
61%
£1.41m
£0.75m
3.1p
£(0.83)m
(2.8p)
£0.47m
2018
£10.45m
68%
£5.99m
57%
£1.00m
£0.54m
2.3p
£(0.01)m
1.0p
£(0.92)m
Change %
+22%
+6%
+30%
+4%
+41%
+39%
+35%
-
-
-
1.
Adjusted EBITDA, is earnings before interest, taxation, depreciation, amortisation of intangible assets, exceptional items,
fair value adjustments and share based payments.
2.
Adjusted profit before tax (“Adjusted PBT”) is profit before tax after adding back amortisation of intangible assets,
exceptional items, fair value adjustments and share based payments.
3.
Adjusted Basic EPS is profit after tax after adding back amortisation of intangible assets, exceptional items, fair value
adjustments, share based payments and associated tax.
4. Cash generated from operations represents operational cashflows adjusted to exclude cashflows for exceptional items.
5.
Net cash/(debt) represents cash balances less bank loans, finance lease liabilities and contingent consideration.
SysGroup plc Annual Report & Accounts 2019
7
Highlights Continued
Operational
• Acquisition of Certus IT Limited in February 2019 for initial consideration of £8.0m
• Successful placing of new ordinary shares raising £10.0m (gross) in February 2019
• New 5-year bank facilities consisting of:
– £1.75m term loan
– £3.25m acquisition revolving credit facility
Implementation of Employee EMI Share Option Scheme
•
• Completion of office refurbishment programme
Post Period-End Developments
Acquisition of Hub Network Services Limited for £1.45m in cash
•
• Won Autotask International Partner of the Year 2019 Award
• Certus IT acquired on a cash free debt free basis resulting in a post completion adjustment to the initial
consideration of £0.25m cash returned to the Group
SysGroup plc Annual Report & Accounts 2019
8
Strategic
Report
SysGroup plc Annual Report & Accounts 2019
9
Strategic Report
Chairman’s
Statement
We are pleased to present the Group’s final results for the year ended 31 March 2019, delivering double digit growth in
revenue and Adjusted EBITDA and demonstrating the continued execution of the Group’s buy-and-build strategy. The
Group achieved a number of milestones during the year, progressing its journey of becoming the leading provider of
managed IT services.
The Group successfully raised £10.0m (gross) by way of an equity placing (“Placing”) in February 2019 to fund further
opportunities for growth. On behalf of the Company and the rest of the Board, I would like to thank both our new and
existing shareholders for their continued support and commitment to our vision. The support by investors has been
mirrored by the commitment of Santander to the Group through the provision of £5.0m in new bank facilities. This
commitment places the Group in a strong position to continue to execute its growth strategy.
The Placing enabled the acquisition of Certus IT Limited (“Certus”) by the Group in February. The deal was
transformational adding new customers, expertise, further scale and enhanced geographical reach to the Group.
We expect Certus to be trading under the SysGroup brand later this financial year, and the majority of the operations
integration will take place in H2 FY20. We will continue to assess complementary acquisition opportunities in line with
our growth strategy.
The restructuring of the Board was completed during the year with the appointment of Martin Audcent as Chief
Financial Officer in July 2018, putting in place the last of the building blocks in establishing the right mix of experience
on the Board. These results mark the first full year with Adam Binks as Chief Executive Officer and the contribution
his leadership and vision has delivered to the Group is palpable. I believe we have the right team in place to see the
Company through to its next stages of growth.
The market environment remains buoyant and the opportunities for the Group as a trusted IT partner are long term.
Furthermore, we continue to invest in the business and our people, and I would like to thank all of our dedicated
employees for their contribution to the Group. I look forward to the new year with confidence.
Michael Edelson
Chairman
26 June 2019
SysGroup plc Annual Report & Accounts 2019
10
Strategic Report
Chief Executive
Officer’s Report
Introduction
The 2019 financial year saw an acceleration of the Group’s growth strategy, delivering against our expectations and
building upon the newly-formed business foundations established in the prior year.
The Company delivered revenue growth of 22% to £12.77m and adjusted EBITDA growth of 41% to £1.41m which
supported a 50% increase in cash generation to £1.21m. Recurring revenues now represent approximately 74% of the
Group’s total revenue (FY18: 68%), demonstrating our continued shift and strategic focus on higher quality earnings
over lower margin VAR. The addition of new managed service customers to this base has contributed to a steadily
growing monthly run-rate of recurring revenues, which, combined with the addition of Certus during the year, has
launched the business into the next stage of its growth roadmap.
We have spent considerable time during the year enhancing and streamlining the business platform, and ensuring
we remain close to our customer base. During the year we undertook a re-branding exercise, bringing all of the
previously acquired businesses under the SysGroup brand with a single go-to-market offering. We have continued
to invest in our people and systems to support the Group’s growth strategy.
Market
We are still in the infancy in the journey to cloud adoption and fully outsourced IT, and customers and prospects
are looking to trusted IT partners to help them navigate the complexities of the outsourced IT landscape. Security,
compliance and IT governance remain the key drivers for businesses seeking expert advice in helping them to
ultimately outsource to ensure they remain protected and compliant.
The market for managed IT service providers remains highly fragmented and characterised by a plethora of small,
often localised players. Many of these players reach a natural ceiling, above which they do not have either the
inclination or expertise to grow. This provides significant opportunity for further consolidation and we expect to
continue to play a role in that in line with our buy-and-build strategy.
Strategy
The Group’s clear strategy remains consistent: to expand its position as a trusted provider of Managed IT Services
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. In pursuit of this strategy, the Group has positioned itself 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. The process is supplemented by customer service and support. The Group invests
in R&D to ensure its clients take advantage of the latest and best solutions available to them, with a vendor/cloud
agnostic approach.
The Company’s route to execute this strategy is through a combination of organic and acquisitive growth whilst
ensuring we create cross-selling opportunities across our acquired customer bases.
SysGroup plc Annual Report & Accounts 2019
11
Chief Executive Officer’s Report Continued
Acquisitions
The acquisition of Certus IT in February was in line with our stated strategy of augmenting our growth with
carefully selected acquisitions. Certus is a well-established and growing managed services provider which has
a complementary service offering, geographical reach and customer base to SysGroup. Certus has bolstered
the Group’s existing managed service offerings, by expanding the enlarged Group’s current IaaS customer base,
significantly adding to its managed connectivity portfolio and further strengthening the existing relationship with
Dell EMC by upgrading the Group to gold partner status.
Further, the Group announced the acquisition of Hub Network Services Limited (“HNS”) earlier this week for a cash
consideration of £1.45m on a cash free debt free basis. HNS is a well-established B2B managed services provider
with a primary focus on delivering fast, low latency network connectivity and co-location solutions. The integration
of HNS into the Group’s existing operations has already commenced and we expect to be leveraging the operational
benefits of HNS from H2 FY20.
The Board continues to assess strategic acquisition opportunities that fit within its strict criteria and importantly,
further the Group’s customer acquisition priorities.
New Banking Facilities
In February, the Company re-financed its existing term loan facility as a £1.75m term loan over five years and
arranged a new £3.25m acquisition revolving credit facility with Santander to provide additional financial flexibility
for the Group. The continued support from Santander further underpins the external confidence that has been
placed in the Board to deliver on the Group’s growth strategy as well as providing the Group with the capital to
deliver subsequent acquisitions.
The banking facilities have a five-year term with covenants that will be tested quarterly on a 12-month rolling basis
relating to interest cover, net debt to Adjusted EBITDA leverage and debt service cover.
Sales & Marketing
The investments that we have made in sales and marketing have already made a change to the business and we
will continue to see the benefits as we grow. The appointments that we have made to date, and continue to make,
include several highly skilled senior individuals reflecting our consultancy first approach. Our clients come to us with
complex IT needs and it is therefore important that our salespeople fully understand the options available to them
and are able to provide clients with a bespoke, end to end solution that best suits these needs.
The brand consolidation work concluded in the financial year has aided our sales effort and played a key role in
growing our pipeline of opportunities. Recognition of SysGroup is undoubtedly growing in the marketplace and,
with it, our reputation as a trusted provider. The unified brand will also accelerate our ability to integrate acquired
businesses with ease.
Financial Review
Group revenue for the year grew by 22% to £12.77m for the year to 31 March 2019 (2018: £10.45m) with growth from
existing customers and from the post-acquisition trading of Certus IT, acquired in February 2019. The revenue growth
resulted from an increase in higher quality Managed IT Services sales which is principally contracted income on
three-year contracts. Value Added Resale revenue of £3.3m was consistent with the prior year revenue of £3.3m.
Value Added Resale is a complementary sell to the customer base and is subject to the timing and size of customer’s
IT asset refresh cycles.
SysGroup plc Annual Report & Accounts 2019
Chief Executive Officer’s Report Continued
Revenue by
Operating Segment
Managed IT Services
Value Added Reseller
Total
2019
£’000
9,448
3,325
12,773
2019
%
74%
26%
100%
2018
£’000
7,130
3,321
10,451
12
2018
%
68%
32%
100%
The Group adopted “IFRS15 Revenue from Contracts with Customers” and “IFRS9 Financial Instruments” in this years’
financial statements and the changes required have had no material impact to the Group’s financial statements.
Further information on the adoption of IFRS15, IFRS9 and the Group’s revenue recognition policy is included in Note 1 to
the Accounts.
Gross profit for the year was £7.78m (2018: £5.99m) representing a gross margin of 61% (2018: 57%). The increase in
gross margin percentage is attributable to the change in sales mix with the business focussed more on Managed
IT Services growth this year. In 2019, 74% of revenue (2018: 68%) came from Managed IT Services which has a gross
margin of 74% (2018: 75%). Value Added Resale was 26% of revenue (2018: 32%) with gross margin percentage
increasing to 25% in 2019 (2018: 20%) which reflects improvements made in our supplier procurement processes.
Operating expenses before depreciation, amortisation, exceptional items, fair value adjustment and share based
payments increased from £5.0m in 2018 to £6.4m in 2019 reflecting an increase in overhead costs from newly
acquired businesses and an increase in operational investment to enhance our Group Sales and Marketing teams.
Adjusted EBITDA was £1.41m for the year to 31 March 2019, an increase of £0.41m (+41%) compared to £1.0m in 2018.
Adjusted EBITDA is not a defined term and is calculated differently by each Company, the Directors consider that
Adjusted EBITDA figure is the most appropriate measure to assess the business performance since this reflects
the underlying trading performance of the Group. The reconciliation of Operating (loss)/profit to Adjusted EBITDA is
shown below:
Reconciliation of operating (loss)/profit to
Adjusted EBITDA
Operating (loss)/profit
Depreciation
Amortisation of intangible assets
EBITDA
Exceptional items
Fair value adjustment
Share based payments
Adjusted EBITDA
2019
£’000
(659)
494
723
558
736
-
119
1,413
2018
£’000
77
372
500
949
581
(540)
10
1,000
The Group has incurred exceptional costs during the year of £0.74m (2018: £0.58m) comprising £0.55m for
acquisitions of which £0.49m relates to the acquisition of Certus IT Limited and £0.06m is attributable to a terminated
acquisition process. Exceptional costs also include £0.18m of costs associated with integrating acquired businesses
and restructuring the Group’s internal operations. Amortisation of intangible assets was £0.72m (2018: £0.50m), of
which £0.66m (2018: £0.45m) relates to the amortisation of acquired intangible assets. The share-based payments
charge has increased to £0.12m in 2019. The higher charge results from the grant of share options, under new EMI
Schemes registered this year, to the Executive Directors and, in November 2018, to all SysGroup employees who,
at the time of grant, had been employed by the Group for over one year. The loss before tax for the year was
£0.83m (2018: £0.007m) and the loss position results from the impact of acquisition related exceptional costs and
amortisation of acquired intangible assets. The prior year loss before tax includes a one-off £0.54m credit in respect
of a contingent consideration adjustment.
SysGroup plc Annual Report & Accounts 2019
13
Chief Executive Officer’s Report Continued
Cashflow & Net Debt
The cash inflow from operations for the year was £0.60m (2018: £0.21m). This includes interest and tax payments and
the £0.61m of cash costs from acquisitions, integration and restructuring (2018: £0.59m). The underlying operational
cash conversion, i.e. excluding the costs of acquisitions, integration and restructuring, was within expectations
at 86% of Adjusted EBITDA compared to 80% in 2018. The improvement resulted from improvements made to the
Group’s working capital management this year with changes made to the timing of raising contract invoices and a
strengthening of our credit control processes.
Cash conversion
Operational cashflows
Adjustments:
Acquisition, integration and restructuring cashflows
Cash generated from operations
Adjusted EBITDA
Cash conversion
2019
£’000
601
611
1,212
1,413
86%
2018
£’000
207
592
799
1,000
80%
The cash balance increased by £2.06m to £3.38m (2018: £1.32m), with £0.60m of the increase coming from
operational cashflows and a net £1.46m from financing and investing activities. The investment cashflows include
£7.96m cash paid on completion to acquire Certus IT Limited and a £0.95m cash balance was acquired with the
Company. The acquisition was funded by a £10.0m equity share placing of 26,315,792 1p ordinary shares with net
proceeds, after related professional fees, of £9.34m. Net cash/(debt) comprises cash balances less bank loans,
finance lease liabilities and contingent consideration. At 31 March 2019, the Group had a net cash balance of £0.47m
(2018: net debt balance of £0.92m), a cash positive movement of £1.39m.
Reconciliation of Net cash/(debt)
Cash balances
Bank loans – current
Bank loans – non-current
Finance leases
Contingent consideration
Net cash/(debt)
2019
£’000
3,376
(224)
(1,397)
(285)
(1,000)
470
2018
£’000
1,315
(216)
(1,742)
(275)
-
(918)
Consolidated Statement of Financial Position
The principal movements on the consolidated statement of financial position arise from the equity fund raise and
the acquisition of Certus IT Limited in February 2019. Non-current assets of £23.1m (2018: £13.6m) have increased from
the £5.78m goodwill and £3.78m acquired intangible assets relating to Certus. Net working capital including cash
balances is £0.57m (2018: £0.25m) and the impact of Certus working capital balances is detailed in note 10. Non-
current liabilities include £1.0m (2018: £Nil) of fair value contingent consideration relating to the Certus acquisition, this
is payable three months after the earn out period has expired in February 2020.
Following the £10.0m equity raise in February 2019, the equity attributable to the shareholders of the Company
has increased by £9.34m, representing the proceeds of the equity raise less the related costs. The share capital
of £0.49m (2018: £0.23m) has increased by £0.26m and the excess of the net proceeds above the par value of the
shares, £9.08m, has been allocated to the share premium account (2018: £Nil).
SysGroup plc Annual Report & Accounts 2019
14
Chief Executive Officer’s Report Continued
KPIs
The Board of Directors review the performance of the Group using the financial measures outlined below and an
explanation of the financial results is provided in the Financial Review above.
Revenue growth
Recurring revenue as a % of total revenue
Gross Margin
Gross Margin %
Adjusted EBITDA
Adjusted PBT
Statutory loss before tax
Net cash/(debt)
Principal Risks & Uncertainties
2019
£12.77m
74%
£7.78m
61%
£1.41m
£0.75m
£(0.83)m
£0.47m
2018
£10.45m
68%
£5.99m
57%
£1.00m
£0.54m
£(0.01)m
£(0.92)m
Change %
+22%
+6%
+30%
+4%
+41%
+39%
-
-
The Board is responsible for monitoring the Group’s principal risks and uncertainties which are considered in the
context of the nature, size and complexity of the business.
During the year, the Board recognised that a new role, Head of Legal, Quality & Compliance, was required due to the
growth in size of the Group. This Senior Management Team position was recruited in H1 with specific responsibilities in
the areas of corporate governance, compliance and quality. A key project was undertaken to conduct a full review
and evaluation of the Group’s principal risks and to formalise the Group’s Risk Management Framework.
The review was conducted with the full input of the Senior Management Team with the objective to identify and
document the key risks in each area of the business and the principal controls in place to mitigate the risks. The
Board have reviewed the Risk Management Framework and will continue to formally review the Framework on an
annual basis in the future. The Head of Legal, Quality & Compliance is responsible for ensuring the Risk Management
Framework is maintained and updated, and any necessary actions are followed up.
A detailed description of the principal risks and uncertainties faced by the Group, their potential impact and
mitigating processes and controls are set out below.
Risk area
Potential impact
Mitigation
Dependency on
key suppliers
The Group procures certain services from 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.
The Group continually assesses suppliers for
price competitiveness, technical innovation and
good financial standing, and are confident that
alternative providers are available in the market.
Customer
retention
The Group provides an essential service to its
customers. Any diminution in the quality of service
provided could impact customer retention levels
and reduce revenue.
The Group monitors the quality of service provided
by the Customer Service teams. We conduct
customer surveys to measure feedback and we
hold regular service performance reviews with key
customers.
SysGroup plc Annual Report & Accounts 2019
15
Chief Executive Officer’s Report Continued
Risk area
Potential impact
Mitigation
Reliance on high
value customer
contracts
Business risk increases if the Group is over-reliant
on one or several high value customer contracts
since the loss of key contracts may have a material
impact on the financial performance of the Group.
The Board monitors customer concentration
throughout the year with a target of customer
concentration below 5%. This target was achieved
in FY19 and is expected to remain under 5% in the
forthcoming year.
Attracting
and retaining
high quality
employees
The Group’s business depends on providing
high quality service to customers from having
a motivated and skilled workforce. If the staff
turnover is too high there’s a risk that the Group has
insufficient skills and quality in the employee base.
We have made significant progress in FY19 to
develop a corporate culture to attract and retain
our skilled employees. We have extended the
space and refurbished the Liverpool and London
offices, integrated the legacy acquisitions and
established a Senior Management Team with
clear accountability. We have created a People &
Culture team who launched “SysHub”, an online
platform for our employees with employee benefits
and Company latest news. In November 2018, we
issued EMI Scheme share options to a number of
our employees to allow them to participate and
benefit from the growth of the Company. We invest
in training and development and encourage our
teams to identify opportunities to innovate and
improve.
Network
Acquisitions
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.
The Group’s strategy is to continue to make
earnings enhancing acquisitions to strengthen
its growth. We are reliant on suitable acquisition
targets becoming available in the market at
appropriate valuations.
We mitigate this risk by regularly conducting
searches for targets and developing adviser
relationships who introduce targets. We believe the
UK market for MSP companies has characteristics
of fragmentation which provides opportunities for
consolidation. The Board considers all acquisition
valuations after robust due diligence processes
have been undertaken.
Financing Risk
The inability to refinance the Group’s core banking facilities could call into doubt the Group’s longer-term viability.
The Group’s current banking facilities cover all of its expected needs of the Group for the period of such facilities and
are sufficiently flexible to allow the Group to function effectively.
The Impact of Brexit
The Group continues to have little inter-territorial trade from the UK into Europe and vice versa. While Brexit has
already had an impact on exchange rates, there is inevitably some uncertainty around the likely impact of Brexit on
businesses.
SysGroup plc Annual Report & Accounts 2019
16
Chief Executive Officer’s Report Continued
Outlook
The momentum achieved in the year has carried over into the start of the new financial year, and we expect that
pace of growth to continue. We have the right tools and strategic partnerships in place to meet clients increasingly
complex requirements and the relevant expertise to guide our clients from consultation, through to delivery and
on-going support. Our scale, customer base and geographical coverage have grown considerably and, importantly,
so too has the quality of our revenue streams. With a highly fragmented market and the continuing opportunity to
acquire good businesses to complement increasing organic growth, we remain optimistic for the future.
Adam Binks
Chief Executive Officer
26 June 2019
SysGroup plc Annual Report & Accounts 2019
17
Board of
Directors’
Profile
SysGroup plc Annual Report & Accounts 2019
18
Board of Directors’ Profile
Michael Edelson
Non-Executive Chairman
Adam Binks
Chief Executive Officer
Michael brings a wealth of experience as a Board Director to
Adam joined SysGroup in August 2014 and was appointed as
SysGroup plc. He has been a Founding Director or Chairman
Chief Executive Officer on 3rd April 2018 after being formally
of several companies admitted to the AIM market, including
appointed to the board on 31st October 2017. Adam will
Prestbury Group plc, Knutsford Group plc, Mercury Recycling
lead SysGroup through its next stage of growth, which will
Group plc (now Ironveld plc) and ASOS PLC.
incorporate strategic acquisitions and continued organic
growth to expand the customer offering and geographical
He was a non-executive Chairman of Bramhall plc,
reach, as well as investment in capabilities and technology.
subsequently renamed Magic Moments Internet plc and
then Host Europe plc, which acquired Magic Moments Design
He has extensive experience in the Managed IT, Hosting
Limited in September 1999. He has also been on the Board of
& Telecoms sectors across his 19-year career. Adam has
Manchester United Football Club since 1982.
played a pivotal role in the transformation of the Group from
Martin Audcent
Chief Financial Officer
Martin was appointed as Chief Financial Officer on 16th
July 2018 as part of a newly established board to deliver on
the next stage of growth. Martin brings with him significant
senior finance and operational experience.
Martin is a Chartered Accountant, having qualified with PwC
in 2000, and joined the Group from NCC Group plc, where for
a mass-market web hosting Company, to the Managed
Services provider it is today.
Adam has previously held a number of senior management
& board level positions. Prior to joining SysGroup, Adam was
Sales & Technical Director at Vispa Ltd, a managed hosting &
connectivity provider based in Manchester.
Michael Fletcher
Non-Executive Director
four years he was Associate Director of Finance and Group
Mike has extensive public markets experience and is
Financial Controller. Prior to this he worked at Baker Tilly and
currently Non-Executive Chairman of AIM listed Inspired
MBL Group plc in senior finance positions.
Energy PLC (INSE.L), which he helped to successfully bring to
market in November 2011. Mike is the Group CEO of Praetura
Group Limited, a specialist venture capital and advisory
business and sits on the board of several privately-owned
growth companies including Sorted Group, Peak AI, Aberla
Services, Artorius Wealth and EC3 Brokers.
Previously, Mike was a managing director for European
investment bank GCA Altium where he gained 10 years’
experience in M&A and corporate finance. He has advised
a range of clients from public companies, private equity
houses and entrepreneurs. Mike is a chartered accountant,
qualifying with PwC in 1999, and is FCA authorised.
Mark Quartermaine
Non-Executive Director
Mark has over 30 years’ experience in the ICT industry in a
variety of executive, sales and marketing roles. He started
his career at IBM in 1984 where he held different executive
positions both in the UK and abroad culminating in running
the point of sale business in the US, as the Worldwide
Marketing Director for the Retail Division.
In January 2013 Mark joined the board of Alternative
Networks as a Non-Executive Director, he subsequently
moved to become COO in January 2014 and was then
appointed CEO in September 2015. Alternative Networks
was subsequently sold to Daisy Group for £165 million in
December 2016.
SysGroup plc Annual Report & Accounts 2019
19
Directors’
Report
SysGroup plc Annual Report & Accounts 2019
20
Directors’ Report
The Directors present their Annual Report and Audited Financial Statements for the year ended 31 March 2019.
Principal Activities
The principal activities of the business are the provision of Managed IT Services and Value Added Resale of products
and licences.
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 16.
Results & Dividends
The Consolidated Statement of Comprehensive Income for the year is set out on page 43. The Directors do not
propose the payment of a dividend for the year ended 31 March 2019 (2018: 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 to the Accounts.
In February 2019, the Group re-financed its bank loan of £1.75m and entered new loan facility arrangements with
Santander for a period of five years to February 2024.
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 bank facility is on a variable interest rate and the Directors consider this to be appropriate in the current
economic environment.
SysGroup plc Annual Report & Accounts 2019
21
Directors’ Report Continued
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. In order to manage credit risk, managed service
agreements with customers state 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.
Directors
The Directors of the Company who held office during the year are as follows:
Name
Michael Edelson
Adam Binks
Martin Audcent
Position Held
Non-Executive Chairman
Chief Executive Officer
Chief Financial Officer (appointed 16 July 2018)
Mark Quartermaine
Non-Executive Director
Mike Fletcher
Robert Khalastchy
Julian Llewellyn
Non-Executive Director
Non-Executive Director (resigned 21 September 2018)
Chief Financial Officer (resigned 27 June 2018)
The interests of current Directors in shares and options are detailed in the Directors’ Remuneration Report on
page 25.
Share Capital
In February 2019, the Company raised £10.0m in an equity share placing to fund the acquisition of Certus IT Limited.
The Company issued 26,315,792 1p ordinary shares and the proceeds of the equity raise net of related professional
fees was £9.34m.
Significant Shareholdings
As of 1st June 2019, the Company has been notified of the following significant shareholdings:
Name
Number of Shares
Percentage Holding
Gresham House Asset Management Limited
Canaccord Genuity
Legal and General Investment Management Ltd
Downing LLP
Darren Carter
Herald Investment Management Ltd
William Currie
Praetura Group Limited*
Miton UK Microcap Trust PLC
*Mike Fletcher (Non-Executive Director) is a Director and shareholder of Praetura Group Limited.
10,224,086
6,575,029
4,790,024
4,646,777
3,552,632
3,444,581
2,757,895
1,710,256
1,632,656
20.7%
13.3%
9.7%
9.4%
7.2%
7.0%
5.6%
3.5%
3.3%
SysGroup plc Annual Report & Accounts 2019
22
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 24 June 2019 the Group announced the acquisition of Hub Network Services Limited (“HNS”), a Company registered
in England & Wales, for a cash consideration of £1.45m on a cash free debt free basis. HNS is a well-established
B2B managed services provider with a primary focus on delivering fast, low latency network connectivity and co-
location solutions.
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
Martin Audcent
Company Secretary
26 June 2019
SysGroup plc Annual Report & Accounts 2019
23
Directors’
Remuneration
Report
SysGroup plc Annual Report & Accounts 2019
24
Directors’ Remuneration Report
Remuneration Committee
Membership of the Remuneration Committee comprises Mark Quartermaine (Chairman), Michael Edelson and Mike
Fletcher. The Committee meets at least twice a year and is responsible for determining and reviewing the policy
for the remuneration of the Executive Directors and such other members of the Senior Management Team as it is
designated to consider. 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.
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
Each Executive Director has a service contract which is 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
The salaries of the Executive Directors are reviewed annually and are considered in relation to the growth of the
Group, the contributions made by the Directors and the need to retain and motivate individuals. The annual salary
of the Chief Executive Officer is £150,000 and the Chief Financial Officer is £120,000. The salary/fees shown below
includes car allowance.
The Chief Executive Officer and Chief Financial Officer can earn a performance-based cash bonus of up to 50% and
25% of annual salary respectively. In respect of the financial year to 31 March 2019 the cash bonus was paid at the full
amounts.
SysGroup plc Annual Report & Accounts 2019
25
Directors’ Remuneration Report Continued
A summary of the total remuneration paid to Directors is set out below:
Director
Michael Edelson
Mike Fletcher
Mark Quartermaine
Adam Binks
Martin Audcent
Julian Llewellyn*
Robert Khalastchy
Christopher Evans
Amy Yateman-Smith
2019
2018
Salary
£’000
Bonus
£’000
Pension
£’000
BIK
£’000
Total
£’000
Salary
£’000
Bonus
£’000
Pension
£’000
BIK
£’000
Total
£’000
40
40
40
165
93
37
5
-
-
-
-
-
75
30
-
-
-
-
-
-
-
8
4
2
-
-
-
-
-
-
1
1
1
-
-
-
3
40
40
40
249
128
40
5
-
-
40
8
13
48
-
135
12
90
23
542
369
-
-
-
-
-
-
-
-
-
-
-
-
-
6
-
6
-
5
-
17
-
-
-
-
-
2
-
-
-
2
40
8
13
54
-
143
12
95
23
388
Total Remuneration
420
105
14
*In addition to the above Julian Llewellyn was paid £22,500 compensation for loss of office in July 2018.
Directors’ Long-Term Incentive Schemes
The Remuneration Committee implemented a new Long Term Incentive Plan (“LTIP”) for the Executive Directors
in June 2018 following a review and recommendation from an independent firm of advisors. The LTIP has been
established to incentivise management to deliver long-term value creation for shareholders and ensure alignment
with shareholder interests.
The principal performance condition to which the award is subject is Total Shareholder Return (“TSR”). 25% of the
award of performance shares will vest if the Company achieves 10% compound annual TSR over a three-year
period to March 2021 (the “Period”) with full vesting at 25% compound annual growth with straight line vesting for
performance between 10% and 25%.
The Remuneration Committee granted Adam Binks, Chief Executive Officer, 750,000 performance shares with an
exercise price of £0.01 on 26 June 2018 and granted Martin Audcent, Chief Financial Officer, 450,000 performance
shares with an exercise price of £0.01 on 16 July 2018 (the “Awards”). The shares have an expiry date of 25 June 2028
and 15 July 2028 respectively.
Subject to achievement of the performance conditions, up to 50% of the Awards will vest following the
announcement of the Company’s results for the financial year ending on 31 March 2021 with the balancing 50%
vesting following the announcement of the Company’s results for the financial year ending 31 March 2022.
The Awards are also subject to an Adjusted Earnings per Share (“Adjusted EPS”) measurement whereby the award will
normally lapse unless Adjusted EPS growth over the Period is at least 10% CAGR from an initial Adjusted EPS of 2.3p (the
“EPS threshold”).
The awards of performance shares are also subject to continued employment, malus and clawback provisions and
will vest in full on a takeover of the Company.
SysGroup plc Annual Report & Accounts 2019
26
Directors’ Remuneration Report Continued
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
Praetura Group Limited 1
Michael Edelson 2
Adam Binks 2
Number of
Ordinary Shares
Percentage
Interest
1,710,256
858,179
156,042
3.46%
1.74%
0.32%
1.
2.
Michael Fletcher, Non-Executive Director, is a Director and Shareholder of Praetura Group Limited.
The Directors’ interest in shares include directly held shares and interests held via related parties.
Directors’ Options
The Directors had interests in options over ordinary shares of the Company at the end of the year as shown below:
Employee
Adam Binks
Martin Audcent
Directors’ Warrants
Options over
ordinary shares
750,000
450,000
Grant Date
Expiry Date
26/06/2018
16/07/2018
25/06/2028
15/07/2028
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
No. of Warrants
Grant Date
Expiry Date
200p
2,500
09/01/2012
08/01/2022
Michael Edelson’s warrants are exercisable at any time before 8 January 2022, 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 2019
27
Corporate
Governance
Report
SysGroup plc Annual Report & Accounts 2019
28
Corporate Governance Report
Introduction
The SysGroup Board seeks to follow the best practice in corporate governance as appropriate for a Company of our
size, nature and stage of development. As a public Company listed on AIM we recognise the trust placed in the Board
by shareholders, employees and other stakeholders, and the importance of a corporate governance framework that
is robust and effective.
From 28 September 2018 all AIM companies had to adopt a corporate governance code in compliance with AIM Rule
26. The Board has adopted the principles of the 2018 Quoted Companies Alliance Corporate Governance Code (“the
QCA Code”) to support the Company’s governance framework and we set out below the appropriate disclosures
of how the Company complies with the ten principles set out in the QCA Code, and where necessary we detail any
areas of non-compliance. A full copy of the QCA Code is available from the QCA’s website: www.theqca.com
Board of Directors
The Board comprises five Directors, two Executive and three Non-Executive Directors, and reflects a complementary
blend of different experience and backgrounds. During the year there have been several changes to the Board
composition. Following the resignation of Chris Evans in the previous financial year, Adam Binks was appointed as
Chief Executive Officer on 3 April 2018, Adam formerly held the position of Chief Operating Officer at SysGroup. Martin
Audcent was appointed as Chief Financial Officer on 16 July 2018 following the resignation of Julian Llewellyn on 27
June 2018. Robert Khalastchy, Non-Executive Director, stepped down from the Board at the AGM in September 2018
and a replacement remains under consideration.
The principal areas of Board responsibility are:
•
Business strategy and performance review
• Corporate governance and risk management
•
•
• Consideration of Senior employee appointments
•
Identification and approval of acquisition opportunities and key investment decisions
Approval of financing and equity structure changes
Approval of the Annual Operating Plan, financial forecasts and Annual Report & Accounts
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.
SysGroup plc Annual Report & Accounts 2019
29
Corporate Governance Report Continued
The attendance at Board and Committee Meetings in the year was as follows:
Board
Meetings
Audit Committee
Remuneration
Committee
13
10
9
9
13
9 (9)
4 (4)
3 (4)
3
2
3
3
3
2 (2)
1 (1)
1 (1)
2
2
2
2
N/A
N/A
N/A
N/A
Employee
Meetings held
Michael Edelson
Mike Fletcher
Mark Quartermaine
Adam Binks
Martin Audcent 1
Julian Llewellyn 2
Robert Khalastchy 2
1.
2.
Appointed as a director during the year
Resigned as a director during the year
Internal Controls
The Group has a system 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. As with all such systems, the goal is
to manage risk within acceptable parameters rather than to eliminate risk entirely. 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 Group insures against various risks and regularly
reviews both the type and amount of external insurance that it buys.
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 an internal audit function.
1.
Establish a strategy and business model which promote long-term value for shareholders
SysGroup’s business strategy is to expand its position as a trusted provider of Managed IT Services & Cloud
Hosting to clients predominantly in the UK. The Board believes that a business focused on the provision of
Managed IT Services offers the highest growth opportunity, the potential for increased margins, longer-term
contracts, and greater forward revenue visibility. The Group provides managed IT solutions to customers
either as a fully outsourced service or as an extension to their existing IT department. We intend to continue to
supplement organic growth with carefully considered acquisitions that add critical mass and provide benefits
from economies of scale.
2. Seek to understand and meet shareholder needs and expectations
The Directors recognise the importance of listening to and communicating openly with the Company’s
shareholders to ensure that the strategy, business model and financial performance are understood. We
also recognise that understanding what analysts and investors think about the Company helps the Board to
formulate future strategy. The Directors actively seek to build relationships with our major institutional investors
and shareholders. The Executive Directors meet our major shareholders individually each year following the
release of the full year and interim accounts and are available for meetings at other times if requested.
All shareholders are invited to attend the AGM and the Non-Executive Directors can also be contacted by
shareholders if they wish to raise any matters.
SysGroup plc Annual Report & Accounts 2019
30
Corporate Governance Report Continued
We see the Annual Report and Interim Announcement as key communications to our shareholders. In these
Reports we provide a clear explanation of the business performance, financial position, organisational changes
and prospects.
All private and institutional investors are invited to attend the AGM where the Company Directors are present
to answer any questions. Additionally, shareholders can contact the Company with any questions by using the
investor enquiry email address on the website.
3. Take into account wider stakeholder and social responsibilities and their implications for long-term success
In addition to our shareholders, we have a wide Group of stakeholders who assist in creating value in the Group.
We have strong relationships with customers and suppliers, and our workforce is of central importance. It is our
team that provides a high quality service and we ensure that we continue to invest in them through appropriate
training and development.
A high proportion of the Group’s managed services are provided under contracts ranging from twelve months
to three years. We develop close working relationships with our customers through their use of our support
services and from finding solutions to improve their IT infrastructure and processes. We request feedback from
customers on a regular basis to assess how we are performing.
The Group selects suppliers on the basis of their service quality and competitive pricing. Long term relationships
are particularly helpful in situations where we can work with the supplier to identify value creating opportunities.
New suppliers are subject to appropriate due diligence take-on procedures and the Group makes regular
monthly payments to suppliers.
The Group’s employees are key stakeholders in the success of the business. We seek to recruit high calibre
individuals and the Group invests in their ongoing development needs through internal and external training.
The Group offers competitive remuneration and benefits packages. All employees are encouraged to speak
openly with line managers and colleagues, with SMT meetings held on a weekly basis to action any feedback.
We believe that having a contemporary work place environment is a key element to attract, retain and motivate
our employees and in the previous twelve months we have invested in expanding and enhancing our Liverpool
and London offices.
As an AIM listed Group we recognise the importance of high quality regulatory compliance and internal
governance. We comply with AIM, the Companies Act, Employment, GDPR, Health & Safety, Anti-Bribery and
Corruption, and other relevant regulations.
4. Embed effective risk management, considering both opportunities and threats, throughout the organisation
The principal risks and uncertainties of the Group are described in the Annual Report. In the monthly Board
meetings Directors are updated on any significant issues that have arisen and the actions that management
have taken to address them.
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 having reporting processes and
systems that are appropriate to the size and complexity of the Group’s operations and by ensuring the workforce
is sufficiently trained. The Company and Group’s financial reporting procedures and policies are documented in
a formalised Financial Reporting Procedures document.
The Senior Management Team are responsible for monitoring and addressing the key risks of the business and
any significant issues are escalated as high priority to the Executive Directors. As the Group continues to grow
the risks of the business and risk management framework will remain subject to regular review.
SysGroup plc Annual Report & Accounts 2019
31
Corporate Governance Report Continued
5. Maintain the board as a well-functioning, balanced team led by the chair
The Board comprises five Directors, two Executives and three Non-Executives, and reflects a blend of different
experience and backgrounds. There is a clear division of responsibility between the Chairman of the Board
(a Non-Executive role) and the Chief Executive Officer. The Board considers the Non-Executive Directors to
be independent in character and judgement notwithstanding their shareholding and/or share warrants in
the Group. The Board of Directors meet regularly, usually monthly and at least ten times a year. Additional
Board meetings are sometimes held outside the regular calendar of dates and these may be attended by
telephone conference. 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 of the Company.
The Company has effective procedures in place to monitor Directors’ conflicts of interests which are reported to
and dealt with by the Board.
The Board is satisfied that it has a suitable balance between Executive and Non-Executive Directors and is
sufficiently resourced to discharge its duties and responsibilities effectively.
6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
The Board is satisfied that the Directors have an appropriate level of experience, skills and capabilities to
effectively discharge their duties and responsibilities. The recruitment of Executive and Non-Executive Directors
is carefully considered and profiled to match against the specific requirements of the Group. Details of the skills
and experience of each of the Directors can be found in the Annual Report as well as on the Company’s website.
All members of the Board receive training as required and can take independent professional advice if
necessary in the furtherance of their duties.
At each Annual General Meeting of the Company one-third of the Directors retire from office by rotation and a
Director retiring by rotation is eligible for re-election. Subject to the provisions of the Act and of the Articles, the
Directors to retire in every year shall include (so far as necessary to obtain the number required) any Director
who wishes to retire and not to offer himself for re-election. Any further Directors so to retire are those who have
been longest in office since their last appointment or reappointment.
No person other than a Director retiring at the meeting shall, unless recommended by the Directors for
appointment, be eligible for appointment to the office of Director at any General Meeting unless, not less than
seven nor more than 28 days before the day appointed for the meeting, the Company receives notice in writing
by a member duly qualified to attend and vote at the meeting with the necessary particulars and authorities.
7.
Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
The Chairman of the Board is responsible for assessing the individual contributions of the Directors and this is
reviewed on an ongoing basis. The Chairman is satisfied that all the Directors are making valued contributions
and the Board is working effectively together. Whilst the Company does not currently have a formal appraisal
process for Directors, over the next twelve months we intend to review our processes for Board performance
evaluation to establish a more formalised framework of assessment, feedback and review.
SysGroup plc Annual Report & Accounts 2019
32
Corporate Governance Report Continued
8. Promote a corporate culture that is based on ethical values and behaviours
The Directors both individually and together as a Board are committed to promoting ethical values and
behaviours throughout the organisation.
We have demonstrated this in the previous twelve months by creating a People & Culture team who are
responsible for reviewing the Group’s approach to employee communication, embedding the corporate culture
and responsible for general employee engagement. We have also launched “SysHub”, an online platform for
our employees that, in addition to offering employee benefits and Company latest news, is a “go-to” source
for all the Group’s internal policies including the Health & Safety Policy, Anti-Corruption and Bribery Policy,
Whistleblowing Policy, and Data Protection Policy. All new employees are provided with an Employee Handbook
on joining the organisation which explains all the employee related corporate policies.
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.
9. Maintain governance structures and processes that are fit for purpose and support good decision-making
by the board
The Directors recognise the importance of a robust system of governance to ensure appropriate levels of
internal control, financial reporting, risk management, compliance and corporate responsibility.
Board Meetings
Board meetings are attended by the Directors in person and are held on scheduled calendar dates, usually
each month and at least ten times a year. If a Director is unable to attend in person they may attend instead by
telephone conference. An agenda and relevant Board papers are circulated in advance of the meeting to allow
the Directors sufficient time to review. The Board meeting is chaired by the Chairperson, Michael Edelson, and
all matters on the agenda are covered with the opportunity for any additional matters to be raised. Minutes are
recorded for each meeting, reviewed by all Directors, and signed when approved by the Chairperson.
Matters reserved for the Board include delegation of authority, annual budget approval, acquisitions and
business disposals, Executive recruitment and remuneration, capital structure changes, corporate governance,
and the approval of the interim and annual report and accounts. Any other matters of high significance and/or
material in nature are reported to the Board for necessary approvals. The Board is also responsible for reviewing
the effectiveness of the internal controls and risk management framework.
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.
The Audit Committee assist the board in its responsibilities in regard to financial reporting, internal controls
and risk management. No separate audit committee report has been prepared but the audit committee has
reviewed the disclosures surrounding principle risks and uncertainties, corporate governance and internal
controls in the strategic report.
SysGroup plc Annual Report & Accounts 2019
33
Corporate Governance Report Continued
Remuneration Committee
The Company has established a Remuneration Committee that comprises Michael Edelson, 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.
10. Communicate how the Company is governed and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
The Annual Report is a key deliverable to our shareholders to explain how our business is performing and our
approach to governance and risk management. In the Annual Report we endeavour to provide all relevant
information that allows shareholders to gain a clear understanding of how we run the business and we shall
continue to identify areas of disclosure that can be enhanced.
The regular meetings between our principal shareholders and the Executive Directors are a key element
to maintaining a dialogue. The Company communicates with institutional investors through briefings with
management and analyst notes are reviewed to understand the external view of the Company.
Regular communications to shareholders:
•
•
•
•
•
•
Full Year Announcement
Annual Report & Accounts
Interim Announcement
Annual General Meeting
Institutional shareholder meetings following Results Announcements and on request
Regulatory RNS Announcements
Shareholders can find information on our Board of Directors, Shareholder Circulars, Articles of Association,
Admission Document, Financial Reports and Regulatory Announcements on our sysgroupplc.com website.
Rule 21 of The AIM Rules for Companies and MAR (“Market Abuse Regulation”)
The Group complies with Rule 21 of the AIM Rules 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.
SysGroup plc Annual Report & Accounts 2019
34
Statement
of Directors’
Responsibilities
SysGroup plc Annual Report & Accounts 2019
35
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; and
prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the
Company will continue in business.
•
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
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
Martin Audcent
Company Secretary
26 June 2019
SysGroup plc Annual Report & Accounts 2019
36
Independent
Auditor’s Report
to the Members
of SysGroup plc
SysGroup plc Annual Report & Accounts 2019
37
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 2019 which comprise the consolidated statement of comprehensive income, the
consolidated and Company statement of financial position, the consolidated and Company statement of changes
in equity, the consolidated and Company statement of cash flows and notes to the financial statements, including a
summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the 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 2019 and of the Group’s loss 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 2019
38
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
As detailed in note 1 to the Group financial statements the
Group has adopted IFRS 15 Revenue from contracts with
customers during the financial period.
The adoption of IFRS 15 has resulted in changes to the revenue
recognition policies applied by the Group.
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.
We reviewed the Group’s revenue recognition policies for all
revenue streams. We evaluated Management’s assessment
of the performance obligations in relation to IFRS 15 criteria
and challenged the key judgements made by Management.
We corroborated the key points to contracts and have held
meetings with management to challenge the assumptions
and judgements made.
We reviewed the accuracy and completeness of the
disclosure of the transitional adjustments.
There are a number of judgements involved in the application
of this new standard, including 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.
We reviewed the accounting policies established by the
Group by reference to the requirements of IFRS 15 and have
reviewed the adequacy of the disclosures within the financial
statements.
Intangible asset recognition on acquisitions
How we addressed the key audit matter in the audit
The financial statements for the year ended 31 March 2019
include the acquisition accounting for Certus IT Limited which
completed on 22 February 2019.
We obtained the sale and purchase agreement (SPA) to check
that an appropriate accounting treatment has been applied
and the disclosures made in the financial statements are
accurate and complete.
Accounting for acquisitions can be complex and requires
significant judgement. The recognition and valuation of
assets and liabilities acquired, such as customer relationships
and other intangible assets is inherently complex and
judgemental.
As a result of the judgements required to be made by
management there is a risk of material misstatement in the
fair value allocated to assets and liabilities acquired including
intangible assets and the balance of goodwill recognised.
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 and management have
assessed whether there is any indication of impairment at the
year-end.
The business combinations disclosure is set out in note 10
of the consolidated financial statements and the relevant
accounting policies can be seen within note 1.
We confirmed cash consideration as stated in the SPA to bank
statements. The fair value of the deferred consideration was
reviewed and the assumptions made by management within
their calculations were challenged.
In assessing the fair value of the assets acquired we
consulted with our internal valuation specialists in relation
to the identification of intangible assets and the valuation
methodology used to calculate the fair value of customer
relationships.
We tested the acquisition balance sheet by agreeing items
to supporting documentation and have assessed the fair
value adjustments made by management. We considered if
other adjustments or alignment of accounting policies were
required.
We have assessed whether there are any indicators of
impairment at the year end regarding any of the intangible or
other assets recognised on acquisition.
In testing the impairment review prepared by
management, we have specifically reviewed the discount
rate used to discount expected future cash flows and have
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.
SysGroup plc Annual Report & Accounts 2019
39
Independent Auditor’s Report to the Members of SysGroup plc Continued
Our Application of Materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which misstatements, individually or in aggregate
and including omissions, could reasonably be expected to influence the economic decisions of reasonable
users that are taken on the basis of financial statements. Misstatements below these levels will not necessarily be
evaluated as immaterial as we also take into account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, materiality for the Group financial statements as a whole was set as follows:
Group Materiality:
Basis for Materiality:
£100,000 (2018: £78,000)
0.75% of revenue (2018: 0.75% of revenue)
Rationale for the benchmark adopted
The Group has continued to make losses in the current period and therefore revenue is the most stable and relevant
measure and the percentage determined was considered appropriate for a listed entity.
Parent Company Materiality:
£60,000 (2018: £70,200)
Basis for Materiality:
0.5% of gross assets (2018: 0.5% of gross assets)
Rationale for the benchmark applied
The Parent Company does not recognise any external revenue and so an asset measure is considered appropriate.
For 2019, the figure calculated was limited to the component materiality set for the audit of the Group.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality we
use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole. Performance materiality for the Group financial statements was
set at £75,000 (2018: £58,500) and for the parent Company £45,000 (2018: £52,650) representing 75% of materiality.
The performance materiality threshold was selected based on the expected low level of misstatements and the
relatively low number of accounts that are subject to management estimation.
The Group operates through a number of legal entities, which form reporting components. Audits have been
performed over all components of the Group by the Group audit team. Significant components were defined as
those reporting components contributing more than 15% towards Group assets, turnover or profits. Component
materiality on those significant components was set at levels between £30,000 and £60,000 (2018: £16,125 to £52,650).
We agreed with the Audit Committee that we would report to the committee all individual audit differences
identified during the course of the audit in excess of £5,000 (2018: £3,000). We also agreed to report differences
below this threshold that, in our view, warranted reporting on qualitative grounds.
SysGroup plc Annual Report & Accounts 2019
40
Independent Auditor’s Report to the Members of SysGroup plc Continued
An Overview of the Scope of Our Audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s
system of internal control, and assessing the risks of material misstatement in the financial statements.
We also addressed the risk of management override of internal controls, including assessing whether there was
evidence of bias by the Directors that may have represented a risk of material misstatement due to fraud.
The Group manages its operations from the UK and the financial information relating to the parent Company and all
other components of the Group were subject to full scope audit by the Group audit team.
As a consequence of the audit scope determined, we achieved coverage of 100% (2018: 100%) of revenue, 100% (2018:
100%) of profit before tax and 100% (2018: 100%) of net assets.
Other Information
The Directors are responsible for the other information. The other information comprises the information included in
the Annual Report and Accounts, 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.
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, 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.
SysGroup plc Annual Report & Accounts 2019
41
Independent Auditor’s Report to the Members of SysGroup plc Continued
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: 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.
Gary Harding
Senior Statutory Auditor
26 June 2019
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 2019
42
Consolidated
Statement of
Comprehensive
Income
SysGroup plc Annual Report & Accounts 2019
43
Consolidated Statement
of Comprehensive Income
For the year ended 31 March 2019
Revenue
Cost of sales
Gross profit
Operating expenses before depreciation, amortisation,
exceptional items, fair value adjustment and share based
payments
Adjusted EBITDA
Depreciation
Amortisation of intangibles
Exceptional items
Fair value adjustment
Share based payments
Administrative expenses
Operational (loss)/profit
Finance costs
Loss before taxation
Taxation
Total comprehensive (loss)/profit attributable to the
equity holders of the company
Basic (loss)/earnings per share (EPS)
Diluted (loss)/earnings per share (EPS)
Notes
4
14
13
8
9
6
12
11
11
2019
Group
£’000
12,773
(4,994)
7,779
(6,366)
1,413
(494)
(723)
(736)
-
(119)
(8,438)
(659)
(167)
(826)
104
(722)
(2.8p)
(2.8p)
2018
Group
£’000
10,451
(4,456)
5,995
(4,995)
1,000
(372)
(500)
(581)
540
(10)
(5,918)
77
(84)
(7)
245
238
1.0p
1.0p
SysGroup plc Annual Report & Accounts 2019
44
Consolidated
Statement of
Financial Position
SysGroup plc Annual Report & Accounts 2019
45
Consolidated Statement
of Financial Position
As at 31 March 2019
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
Bank loan
Deferred taxation
Current liabilities
Trade and other payables
Contract liabilities
Bank loan
Obligations under finance leases
Total Equity and Liabilities
Notes
13
13
14
16
21
18
17
18
12
17
18
18
2019
Group
£’000
15,508
6,173
1,420
23,101
2,856
3,376
6,232
29,333
494
9,080
2,129
4
8,370
20,077
81
1,000
1,397
1,120
3,598
3,992
1,238
224
204
5,658
29,333
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
1,900
425
216
147
2,688
16,569
SysGroup plc Annual Report & Accounts 2019
46
Consolidated Statement of Financial Position Continued
The financial statements on pages 43 to 88 were approved by the Board and authorised on 26 June 2019.
Martin Audcent
Director
Registered number 06172239
SysGroup plc Annual Report & Accounts 2019
47
Company
Statement of
Financial Position
SysGroup plc Annual Report & Accounts 2019
48
Company Statement
of Financial Position
As at 31 March 2019
Notes
2019
Company
£’000
2018
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
Bank loan
Current liabilities
Trade and other payables
Bank loan
Amounts due to subsidiary undertakings
Total Equity and Liabilities
15
14
16
21
17
18
17
18
17
23,235
17
95
23,347
462
628
1,090
24,437
494
9,080
2,129
6,592
18,295
1,000
1,397
2,397
653
224
2,868
3,745
24,437
14,279
25
54
14,358
135
115
250
14,608
231
-
2,010
7,533
9,774
-
1,742
1,742
292
216
2,584
3,092
14,608
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 2019, the Company made a loss of £941,000 (2018: loss of £527,000).
SysGroup plc Annual Report & Accounts 2019
49
Company Statement of Financial Position Continued
The financial statements were approved by the Board and authorised on 26 June 2019.
Martin Audcent
Director
Registered number 06172239
SysGroup plc Annual Report & Accounts 2019
50
Consolidated
Statement of
Changes in Equity
SysGroup plc Annual Report & Accounts 2019
51
Consolidated Statement
of Changes in Equity
For the year ended 31 March 2019
Attributable to equity holders of the parent
At 1 March 2017
Comprehensive income
Profit for the period
Total Comprehensive income
Distributions to owners
Share options granted
Total Distributions to owners
At 31 March 2018
Comprehensive income
Loss for the period
Total Comprehensive income
Distributions to owners
Share options granted
Issue of share capital - fees
Issue of share capital - placing
Total Distributions to owners
At 31 March 2019
Share
capital
£’000
231
-
-
-
-
231
-
-
-
-
263
263
494
Share
premium
account
£’000
-
-
-
-
-
-
-
-
-
(657)
9,737
9,080
9,080
Other
reserve
£’000
2,000
-
-
10
10
2,010
-
-
119
-
-
119
2,129
Translation
reserve
£’000
4
-
-
-
-
4
-
-
-
-
-
-
4
Retained
profit
£’000
8,854
238
238
-
-
Total
£’000
11,089
238
238
10
10
9,092
11,337
(722)
(722)
-
-
-
-
(722)
(722)
119
(657)
10,000
9,462
8,370
20,077
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
Accumulated losses
Amount reserved for share based payments to be released over the life of the
instruments and the equity element of convertible loans
All other net gains and losses and transactions with owners (e.g. dividends) not
recognised elsewhere.
SysGroup plc Annual Report & Accounts 2019
52
Company
Statement of
Changes in Equity
SysGroup plc Annual Report & Accounts 2019
53
Company Statement
of Changes in Equity
For the year ended 31 March 2019
Attributable to equity holders of the parent
Share
capital
£’000
231
-
-
-
-
231
-
-
-
-
263
263
494
Share
premium
account
£’000
-
-
-
-
-
-
-
-
-
(657)
9,737
9,080
9,080
Other
reserve
£’000
2,000
Retained
profits
£’000
8,059
-
-
10
10
(526)
(526)
-
-
Total
£’000
10,290
(526)
(526)
10
10
2,010
7,533
9,774
-
-
119
-
-
119
(941)
(941)
-
-
-
-
2,129
6,592
(941)
(941)
119
(657)
10,000
9,463
18,295
At 1 March 2017
Comprehensive income
Loss for the period
Total Comprehensive income
Distributions to owners
Share options granted
Total Distributions to owners
At 31 March 2018
Comprehensive income
Loss for the period
Total Comprehensive income
Distributions to owners
Share options granted
Issue of share capital - fees
Issue of share capital - placing
Total Distributions to owners
At 31 March 2019
SysGroup plc Annual Report & Accounts 2019
54
Consolidated
Statement of
Cash Flows
SysGroup plc Annual Report & Accounts 2019
55
Consolidated Statement
of Cash Flows
For the year ended 31 March 2019
Notes
13, 14
6
12
14
10
10
21
Cash flows used in operating activities
(Loss)/profit after tax
Adjustments for:
Depreciation and amortisation
Fair value adjustment on contingent consideration
Finance costs
Share based payments
Taxation
Operating cash flows before movement in working capital
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Operating cashflows before interest and tax
Interest paid
Taxation (paid)/ refunded
Operational cashflows
Cash flows from investing activities
Payments to acquire property, plant & equipment
Deferred consideration
Acquisition of subsidiary companies
Cash acquired with acquisitions
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
(Repayment)/drawdown of loan facility including fees
Capital repayment of finance leases
Net cash from financing activities
Net increase / (decrease) in cash and cash equivalents from
continuing operations
Cash flows from discontinued operations
Net cash used for operating activities
Net 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
2019
Group
£’000
2018
Group
£’000
(722)
1,226
-
167
119
(104)
686
(188)
275
773
(123)
(49)
601
(296)
-
(7,956)
949
(7,303)
9,343
(383)
(197)
8,763
2,061
-
-
1,315
3,376
238
872
(540)
84
10
(245)
419
190
(416)
193
(66)
80
207
(212)
(150)
(3,850)
327
(3,885)
-
1,940
(228)
1,712
(1,966)
(192)
(192)
3,473
1,315
SysGroup plc Annual Report & Accounts 2019
56
Company
Statement
of Cash Flows
SysGroup plc Annual Report & Accounts 2019
57
Company Statement
of Cash Flows
For the year ended 31 March 2019
Notes
2019
Company
£’000
2018
Company
£’000
Cash flows used in operating activities
Loss after tax
Adjustments for:
Depreciation and amortisation
13, 14
Fair value adjustment on contingent consideration
Finance 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
Operating cashflows before interest and tax
Interest paid
Taxation refunded
Operational cashflows
Cash flows from investing activities
Payments to acquire property, plant & equipment
Payments to acquire intangible fixed assets
Payments for acquisitions
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
(Repayment)/drawdown of loan facility
Net cash from financing activities
Net increase/(decrease) 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
14
13
10
21
(941)
67
-
152
119
-
(603)
(327)
644
(286)
(108)
-
(394)
(99)
-
(7,956)
(8,055)
9,343
(382)
8,961
512
116
628
(526)
26
(540)
67
10
(3)
(966)
(19)
1,029
44
(49)
2
(3)
(24)
(25)
(3,850)
(3,899)
-
1,940
1,940
(1,962)
2,077
115
SysGroup plc Annual Report & Accounts 2019
58
Notes to the
Consolidated
Financial
Statements
SysGroup plc Annual Report & Accounts 2019
59
Notes to the Consolidated
Financial Statements
For the year ended 31 March 2019
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 IFRS9.
The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical
accounting estimates. It also requires Group management to exercise judgement in applying the Group’s
accounting policies. The areas where significant judgements and estimates have been made in preparing the
financial statements and their effect are disclosed in note 2. The financial statements are presented in pounds
sterling, rounded to the nearest thousand, unless otherwise stated.
Going Concern
The Directors have prepared the financial statements on a going concern basis which assumes that the Group and
the Company will continue to meet liabilities as they fall due. The Directors have reviewed forecasts prepared for the
period ending 31 March 2021 and considered the projected trading forecasts and resultant cashflows together with
the 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 2019
60
Notes to the Consolidated Financial Statements Continued
New Standards and Interpretations Not yet Adopted
A number of new standards and amendments to standards and interpretations have been issued during the year
ended 31 March 2019. The Group has adopted all of the new and revised standards and interpretations issued by
the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB, as they have been
adopted by the European Union, that are relevant to its operations and effective for accounting years beginning on
1 January 2018.
IFRS15 Revenue from Contracts with Customers
The Group conducted a full review of IFRS15 to assess the impact of the new standard on the Group’s financial
reporting processes. The Group applied the retrospective method to adopt IFRS15 and applied the practical
expedient to not restate contracts starting and completing in the same financial year. A report of the findings was
presented to the Audit Committee with two specific areas of financial reporting identified requiring a change in
accounting treatment:
1. Costs to obtain contracts
In the financial year to 31 March 2019, sales commission was paid in respect of managed service contracts with
the commission payable for the benefit of the full contract period. Under IFRS15, the sales commission cost
is therefore recoverable over the full term of the managed service contract and is therefore capitalised as a
“Prepayment” with the cost charged to the Consolidated Statement of Comprehensive Income on a straight-line
basis over the term of the related managed service contract. In the prior financial year to 31 March 2018, sales
commission was not capitalised. The sales commission scheme in operation at that time paid commission on
a basis where the cost was appropriately matched and recovered against the profits of the related managed
service contracts in the Consolidated Statement of Comprehensive Income, as such no adjustment is required
to the previously recognised figures.
2. Revenue and related costs recognition on set-up of lease lines
In some customer contracts, the Group sets up and installs new lease line connections prior to managed
services being delivered to the customer. The set up and installation is usually delivered by a third party supplier.
Under IFRS15, we consider the set up and installation to be an activity that relates directly to the subsequent
provision of the managed services and as such we have deferred the one-off revenue and costs over the
period of the related managed service contract in the financial statements to 31 March 2019. Deferred revenue is
included in contract liabilities. Previously this revenue was recognised on delivery and not deferred over the life
of the contract. The accounting adjustment is not material to the Group Statement of Comprehensive Income in
the current or prior year due to the qauntam of such revenue.
Following the adoption of IFRS15, the Group’s revenue recognition policy has been outlined in greater detail and is
presented in the Revenue Recognition accounting policy note.
IFRS9 Financial Instruments
The Group has adopted IFRS 9 for the first time in the current financial year. IFRS 9 replaces the provisions of IAS
39 that relate to the recognition, classification and measurement of financial assets and financial liabilities,
derecognition of financial instruments, impairment of financial assets and hedge accounting. The Group applies the
IFRS 9 simplified approach to measuring expected credit losses which uses lifetime expected loss
allowances for all trade receivables.
The Group have reviewed their financial instruments and believe that all assets held at amortised cost have a
low credit risk at the year end. The Group have also identified no assets which include a significant financing
component. Historically the Group’s debtor immpairment has been immaterial, and this is not expected to change in
the near future, as such the Group have assessed the recoverability of financial instruments on a case by case basis
which the Directors do not believe will give a material difference to the impairment of such assets.
SysGroup plc Annual Report & Accounts 2019
61
Notes to the Consolidated Financial Statements Continued
New Standards Not Yet Effective
New standards, amendments to standards and interpretations have been issued but are not effective (and in some
cases had not yet been adopted by the EU) for the financial year beginning 1 January 2019. These have not been early
adopted and the Directors are considering the potential impact of IFRS 16 ‘Leases’.
IFRS16 Leases
IFRS16 replaces IAS17 ‘Leases’ and substantively changes the accounting for operating leases. Where a contract
meets IFRS16’s definition of a lease, lease agreements will give rise to the recognition of a non-current asset
representing the right to use the leased item, and a loan obligation for future lease payables. Lease costs will be
recognised in the form of depreciation of the right to use asset and interest on the lease liability, which may impact
the phasing of operating profit and profit before tax, compared to existing cost profiles and presentation in the
income statement, and will also impact the classification of associated cash flows. The detailed assessment of the
impact on the Group is ongoing, with the current focus being on assessing the completeness of lease contracts. The
Group currently anticipate adopting the modified retrospective approach in adopting IFRS16 but this is still being
considered by the Directors. It is thought that the practical expedients on short term and low value leases will also be
utilised. The adoption is expected to have an impact on the presentation of the Group’s assets and liabilities, relating
to property leases and our initial assessment is that the standard will increase lease assets by £0.4m, increase lease
liabilities by £0.5m and increase adjusted EBITDA by £0.2m but will have an immaterial overall effect on profit before
tax.
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.
Consolidated Statement of Cash Flows
The Group have reclassified cash flows relating to exceptional costs from investing activities to operating cashflows
within the Company and consolidated cash flow statements. This has had no overall effect on the prior year cash
movement but has resulted in £0.59m of cash outflows being reclassified from investing activities to operating
cashflows in the prior year.
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.
SysGroup plc Annual Report & Accounts 2019
62
Notes to the Consolidated Financial Statements Continued
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.
Revenue
Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction
will flow into the Group and revenue represents the fair value of amounts received or receivable for goods and
services provided net of trade discounts and VAT.
The Group’s income streams were reviewed in readiness for the adoption of IFRS15 and three categories of
performance obligation have been identified: managed services, professional services and value added resale.
All customer sales are signed as contracts or orders which separately specify the services and products to be
delivered and these are mapped to one of the three revenue recognition categories. The contracts or orders specify,
by service and product, the sales price and the contracted term of the services. As such, the separate performance
obligations and allocation of transaction price can be identified clearly from the customer sales contracts.
SysGroup plc Annual Report & Accounts 2019
63
Notes to the Consolidated Financial Statements Continued
The revenue recognition policies can be summarised as follows:
Performance delivery
Revenue recognition
Contracted managed IT services are delivered
from an agreed commencement date and for a
contracted time period, typically three years with
a twelve-month automatic extension. Managed
services is comprised of different streams including
hosting and support but due to the nature of
this revenue the streams are considered inter-
dependant. The services are delivered uniformly
over the duration of the contract and invoiced
either quarterly or monthly in advance of the
service delivery period.
Revenue is recognised evenly over the duration of
the contract period based on the sales price as
specified in the customer sales contract. This is on
the basis that the customer receives and consumes
the services evenly over the term of the contract.
Amounts invoiced in advance of service delivery
periods are accounted for as contract liabilities
and recognised as revenue in the Consolidated
Statement of Comprehensive Income to match the
period in which the services are delivered.
Revenue
category
Managed
services
Professional
services
Professional services are delivered by a team of
technical consultants based on a scope of work
agreed and signed with a customer. The scope
of work includes a specification of the work to
be delivered, an estimation of the number of
consultancy days required, and a sales value based
on a day rate. Professional services are invoiced
either in advance of work performed, in arrears
after the service is delivered or as part of a larger
project contract milestone.
Revenue is recognised based on chargeable days
delivered using the sales day rate specified in the
customer contract. Revenue recognition is therefore
matched to the timing of when the customer
receives the benefit of the consultancy services
which is inline with the day the work is perfomed.
The relevant details of customer engagements
and the time delivered by consultants is recorded
on the Group’s financial systems. Professional
services are either invoiced in arrears for the actual
days delivered or invoiced in advance. When
invoiced in advance, the sales value is treated as
contract liabilities and recognised as revenue in the
Consolidated Statement of Comprehensive Income
in the period in which the consultancy days are
delivered.
Revenue is recognised on delivery of the products
from the supplier. Invoices are typically raised
in advance of delivery and treated as contract
liabilities until delivery has been fulfilled. At this
point the revenue and associated purchase cost
is recognised in the Consolidated Statement of
Comprehensive Income.
Value added
resale
Value added resale (“VAR”) comprises sales of IT
hardware, licences and warranties (“products”)
where the Group satisfies its performance
obligation by procuring the products from suppliers
for delivery to the customer. There are no further or
ongoing obligations to the Group after delivery. The
sales price for each product is separately specified
in the customer sales contract. VAR sales are either
invoiced in full in advance of delivery or invoiced
according to an agreed contract milestone if part
of a larger contract.
Segmental Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker. The chief operating decision maker has been identified as the Board of Directors.
Exceptional Items
The Group presents as exceptional items on the face of the Statement of Comprehensive Income those material
items of income and expense which the Directors consider, because of their size or nature and expected non-
recurrence, merit separate presentation to facilitate financial comparison with prior periods and to assess trends
in financial performance. Exceptional items are included in Administration expenses in the Consolidated Statement
of Comprehensive Income but excluded from Adjusted EBITDA as management believe they should be considered
separately to gain an understanding of the underlying profitability of the trading businesses.
SysGroup plc Annual Report & Accounts 2019
64
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 using the simplified approach and 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 9 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
c.
Inputs from the asset or liability that are not based on observable market data (Level 3)
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.
SysGroup plc Annual Report & Accounts 2019
65
Notes to the Consolidated Financial Statements Continued
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
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:
Office equipment
20% – 33.3% straight line
Motor vehicles
Freehold property
25% straight line
2% 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.
SysGroup plc Annual Report & Accounts 2019
66
Notes to the Consolidated Financial Statements Continued
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
Software and web design costs
5-7 years
3-5 years
Estimated discounted cash flow
Cost less amortisation
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.
SysGroup plc Annual Report & Accounts 2019
67
Notes to the Consolidated Financial Statements Continued
2. Significant Accounting Estimates & Judgements
The preparation of this financial information requires management to make estimates and judgements that affect
the amounts reported for assets and liabilities at the period end date and the amounts reported for revenues and
expenses during each period. The nature of the estimation or judgement means that actual outcomes could differ
from the estimates and judgements taken in the preparation of the financial statements.
Significant Accounting Estimates
•
•
•
Impairment of goodwill and other intangibles
The Group tests goodwill for impairment 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.
Valuation of intangible assets acquired in business combinations
Determining the fair value of customer relationships acquired in business combinations requires estimation of
the value of the cash flows related to those relationships and a suitable discount rate in order to calculate the
present value. More details including carrying values are included in note 10.
Valuation of contingent consideration
The Group has contingent consideration payable which is based on the future performance of acquired
companies. 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 an estimate
of the expected future trading performance for the period to the expiry of the earn-out period. 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.
Significant Accounting Judgements
•
•
•
Revenue
Management make judgements in determining the appropriate application of revenue recognition policies to
the sale of services and products. An explanation of the Group’s revenue recognition policy is shown in note 1.
Assessment of CGU’s and carrying value of intangible assets
A CGU is the smallest identifiable Group of assets that generate cash inflows that are largely independent of
the cash inflows from other assets or Groups of assets and the Board of Directors use judgement to identify
the CGUs of the Group. The Board have reviewed the Group’s CGU’s this year and exercised their judgement
to amend the CGUs following the integration of previously acquired businesses and changes to the Group’s
management and reporting structure in the current financial year. The Board have concluded that the Group
has a single CGU of “Managed IT Services”. See note 13.
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.
SysGroup plc Annual Report & Accounts 2019
68
Notes to the Consolidated Financial Statements Continued
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 although the Group have considered the additional requirements in respect of IFRS9. 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. The Group faces a financial
risk that such financial assets are not recovered but a provision is made where recoverability is in doubt.
A summary of financial instruments held by category is shown below:
Financial assets
Assets held at amortised cost
Cash and cash equivalents
Amounts due from subsidiaries
Trade receivables
Total financial assets
Financial liabilities
Amortised cost
Trade and other payables
Amounts due to subsidiaries
Loans and other borrowings
At fair value
Contingent consideration
Total financial liabilities
Group
2019
£’000
3,376
-
1,744
5,120
2,864
-
1,906
4,770
1,000
5,770
2018
£’000
1,315
-
1,101
2,416
1,377
-
2,233
3,610
-
3,610
Company
2019
£’000
628
241
-
869
539
2,868
1,621
5,028
1,000
6,028
2018
£’000
115
-
-
115
262
2,584
1,958
4,804
-
4,804
Per the fair value hierarchy classifications under IFRS 9 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 2017
Settled during the year
Notional interest charged
Fair value adjustment through income statement
At 31 March 2018
Certus IT acquisition
At 31 March 2019
Group
£’000
Company
£’000
690
(150)
16
(556)
-
1,000
1,000
690
(150)
16
(556)
-
1,000
1,000
SysGroup plc Annual Report & Accounts 2019
69
Notes to the Consolidated Financial Statements Continued
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:
Group
At 31st March 2019
Trade and other payables
Contingent consideration
Loans and borrowings
Total
At 31st March 2018
Trade and other payables
Contingent consideration
Loans and borrowings
Total
Company
At 31st March 2019
Trade and other payables
Amounts due to subsidiaries
Contingent consideration
Loans and borrowings
Total
At 31st March 2018
Trade and other payables
Amounts due to subsidiaries
Contingent consideration
Loans and borrowings
Total
Up to
3 months
£’000
Between
3 and
12 months
£’000
Between
1 and
2 years
£’000
Between
2 and
5 years
£’000
Over
5 years
£’000
2,864
-
110
2,974
1,377
-
91
1,468
-
-
318
318
-
-
272
272
-
1,000
305
1,305
-
-
1,826
1,826
-
-
1,173
1,173
-
-
44
44
-
-
-
-
-
-
-
-
Up to
3 months
£’000
Between
3 and
12 months
£’000
Between
1 and
2 years
£’000
Between
2 and
5 years
£’000
Over
5 years
£’000
539
2,868
-
56
3,463
262
2,584
-
52
2,898
-
-
-
168
168
-
-
-
164
164
-
-
1,000
224
1,224
-
-
-
1,742
1,742
-
-
-
1,173
1,173
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
SysGroup plc Annual Report & Accounts 2019
70
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 re-financed its loan facilities
with Santander (Note 18).
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet
its contractual obligations and arises principally from the Group’s receivables from customers. The Group’s exposure
to credit risk is influenced mainly by the individual characteristics of each customer. The Group receives payments
either from automated banking receipts or from customers generally paying on 30-day credit terms. The Group has
a dedicated credit control function to manage customer payments and uses an external credit rating agency to
assess customers and prospects for creditworthiness. Doubtful debts are provided for in accordance with IFRS9. For
cash and cash equivalents, the Group only uses recognised banks with high credit ratings.
Capital Disclosures
The Group monitors 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 IT Services
This segment provides all forms of managed services to customers and includes professional services.
•
Value Added Resale (VAR)
This segment provides all forms of VAR sales where the business sells products and licences from supplier
partners.
The monthly management accounts reported to the Board of Directors is reviewed at a consolidated level with the
operating segments representative of the business model for growth of recurring contract income in Managed
IT Services and VAR sales as a complementary business activity. The Board review the results of the operating
segments at a revenue and gross profit level since the Group’s management and operational structure supports
both operational segments as Group functions. In this respect, assets and liabilities are also not reviewed on a
segmental basis. All assets are within the UK other than a low value of property, plant & equipment in the USA.
All segments are continuing operations and there are no transactions between segments.
Revenue by operating segment
Managed IT Services
Value Added Resale
Total
2019
£’000
9,448
3,325
12,773
2019
%
74%
26%
100%
2018
£’000
7,130
3,321
10,451
2018
%
68%
32%
100%
SysGroup plc Annual Report & Accounts 2019
71
Notes to the Consolidated Financial Statements Continued
No individual customer accounts for more than 5% of the Group’s revenue.
The revenue by geographic location for where services are delivered to customers is shown below.
UK
Rest of World
Total
Revenue
Managed IT Services
Value Added Resale (VAR)
Total
Gross profit
Managed IT Services
Value Added Resale (VAR)
Total
2019
£’000
12,526
247
12,773
2019
%
98%
2%
100%
2018
£’000
10,213
238
10,451
2019
£’000
9,448
3,325
12,773
6,959
820
7,779
2018
%
98%
2%
100%
2018
£’000
7,130
3,321
10,451
5,329
666
5,995
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.
Assets and liabilities related to contracts with customers
The Group has recognised the following liabilities related to contracts with customers. There were no assets arising
from contracts with customers.
Current contract liabilities relating to deposits from customers
Release of contract liability recognised in revenue which was included in the contract
liability balance at the beginning of the year
2019
£’000
1,238
425
2018
£’000
425
465
SysGroup plc Annual Report & Accounts 2019
72
Notes to the Consolidated Financial Statements Continued
5. Operating (Loss)/Profit
Operating (loss)/profit is after charging the following:
Auditor’s remuneration:
Group:
Audit
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
Exceptional items (note 8)
6. Finance Expense
Interest payable on finance leases
Interest payable on bank loan
Arrangement fee amortisation on bank loan
Total
7. Staff Numbers & Costs
2019
£’000
2018
£’000
60
-
4
345
158
723
4,710
119
168
736
2019
£’000
13
108
46
167
49
5
4
201
171
500
3,972
10
156
581
2018
£’000
17
49
18
84
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
2019
2018
3
52
17
15
87
4
48
11
11
74
SysGroup plc Annual Report & Accounts 2019
73
Notes to the Consolidated Financial Statements Continued
The aggregate payroll costs including Executive Directors and excluding Non-Executive Directors were as follows:
Wages and salaries
Social security costs
Benefits in kind
Pension benefits
Share based payment expense
Total
2019
£’000
4,154
441
26
89
119
2018
£’000
3,548
365
22
37
10
4,829
3,982
Total staff costs for the Company are £2,383,000 (2018: £836,000) and average staff numbers for the Company are
43 (2018: 14). The increase in costs and staff numbers reflect the consolidation of legacy subsidiary employees into
SysGroup plc.
Directors
Fees and salaries
Social security costs
Benefits in kind
Pension benefits contributions
Compensation for loss of office
Share based payment expense
Total
2019
£’000
525
43
3
14
23
110
718
2018
£’000
369
35
2
17
-
9
432
Key management personnel are those persons having authority and responsibility for planning, directing and
controlling the activities of the Group, they are the Directors of the Company listed on page 21.
The emoluments of the highest paid Director are £249,000 (2018: £137,000).
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 2019 was £10,000 (2018: £4,000).
SysGroup plc Annual Report & Accounts 2019
74
Notes to the Consolidated Financial Statements Continued
8. Exceptional Costs
Acquisitions
Integration and restructuring
Total
2019
£’000
554
182
736
2018
£’000
186
395
581
The Directors believe these costs are exceptional as their size and one-off nature are significant enough to the
Group’s profit and loss to warrant separate consideration. The acquisitions cost of £554,000 represents £66,000
professional fees incurred on a terminated acquisition process and £498,000 professional fees and other costs
relating to the Certus IT acquisition. In the prior year, the £186,000 costs relate to the acquisition of Rockford IT Limited.
Integration and restructuring costs represent the costs incurred for integrating newly acquired companies and for
restructuring the internal business to manage the requirements of a larger Group.
9. Share Based Payments & 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 1.83p per share. Rights to options over ordinary shares of the Company are summarised as follows:
No. of Ordinary Shares
Grant date
Exercise period
Exercise
price
At
31 March
2018
Granted
27/09/12 to 26/09/15
12/12/13 to 11/12/23
21/02/16 to 20/02/26
13/09/16 to 12/09/26
06/04/17 to 05/04/19
30/08/17 to 29/08/19
02/03/18 to 01/03/21
28/06/18 to 27/06/21
16/07/18 to 15/07/21
80p
60p
55.2p
60.5p
47.5p
43p
35.5p
1p
1p
26/11/18 to 25/11/2021
42.5p
10,000
5,625
11,875
5,000
125,000
5,000
30,000
-
-
-
-
-
-
-
-
-
-
750,000
450,000
534,000
Waived/
lapsed
(10,000)
-
-
(5,000)
(125,000)
(5,000)
-
-
-
-
At
31 March
2019
-
5,625
11,875
-
-
-
30,000
750,000
450,000
534,000
192,500
1,734,000
(145,000)
1,781,500
27/09/2012
12/12/2013
21/02/2016
13/09/2016
06/04/2017
30/08/2017
02/03/2018
28/06/2018
16/07/2018
26/11/2018
Total
SysGroup plc Annual Report & Accounts 2019
75
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
5,625
11,875
30,000
750,000
450,000
534,000
Grant date
Expiry date
Contract term (years)
Exercise price
Share price at granting
Annual risk-free rate (%)
Annual expected dividend yield (%)
Volatility (%)
12/12/13
21/02/16
02/03/18
28/06/18
16/07/18
26/11/18
11/12/23
20/02/26
01/03/21
27/06/21
15/07/21
25/11/21
10
60p
85p
0.5%
0%
90%
10
55.2p
70.8p
0.5%
0%
55%
10
35.5p
35.5p
1.4%
0%
36%
10
1p
10
1p
41.5p
44.4p
1.5%
0%
30%
1.5%
0%
30%
10
42.5p
42.5p
1.5%
0%
30%
Fair value per grant instrument
74.46p
47.6p
16.84p
40.64p
45.64p
22.22p
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 2019 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 1.5%, and volatility 20%. No provision has been made for the warrants in shared
based payments.
10. Acquisitions
In February 2019, the Company acquired 100% of the share capital of Certus IT Limited (“Certus”), a Managed IT
Services Company registered in England & Wales with a head office in Newport, South Wales. Certus provides
Managed IT services, cloud hosting, value added resale, and IT consultancy.
Certus was acquired for an initial £7,956,000 cash consideration paid on completion, subject to final adjustment on
the completion accounts, with a maximum £1,000,000 additional consideration payable in cash in twelve months’
time depending on Certus’ profit performance in the twelve-month period following completion and subject to
70% of the gross margin being achieved from recurring income. In respect of the contingent consideration, the
Company will pay £2.50 consideration for every £1 of EBITDA achieved by Certus over and above a floor of £1.2m and
up to a maximum of £1.6m EBITDA.
The Company incurred £498,000 of professional fees and other acquisition costs in relation to this acquisition. These
costs are included as Exceptional costs in the Group’s consolidated statement of comprehensive income for the
year ended 31 March 2019.
The Directors have considered the intangible assets acquired with Certus and have accordingly recognized an
intangible asset for customer relationships which has been calculated using a discounted cashflow method, based
on the estimated level of profit to be generated from the customers acquired.
SysGroup plc Annual Report & Accounts 2019
76
Notes to the Consolidated Financial Statements Continued
A post tax discount rate of 10.45% was used in the valuation and the customer relationships are being amortised over
an estimated useful life of 7 years. The goodwill arising on this acquisition is attributable to the technical skills of the
workforce and cross-selling opportunities achievable from combining the acquired customer bases and trade with
the existing Group.
The goodwill and intangible asset has been allocated to a new CGU, Certus IT, given the Company has its own
management and operational structure, cash generation and financial reporting processes in place.
Since the acquisition date to 31 March 2019, Certus IT Limited contributed £1.0m to Group revenue and £0.09m to
Group EBITDA. Had the acquisition taken place on 1 April 2018, the contribution to Group revenue would have been
£7.8m to Group revenue and £1.1m to Group EBITDA.
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
Satisfied by:
Cash consideration - paid on acquisition
Contingent consideration
Total consideration
Book
value
£’000
Fair
value adj
£’000
949
1,179
869
32
-
(2,570)
(162)
(56)
241
-
(135)
(32)
(32)
3,777
(2)
-
(642)
2,934
Fair
value
£’000
949
1,044
837
-
3,777
(2,572)
(162)
(698)
3,175
5,781
8,956
7,956
1,000
8,956
SysGroup plc Annual Report & Accounts 2019
77
Notes to the Consolidated Financial Statements Continued
11. Earnings Per Share
(Loss)/profit for the financial year attributable to shareholders
Weighted number of issued equity shares
Weighted number of equity shares for diluted EPS calculation
Adjusted basic earnings per share (pence)
Basic earnings per share (pence)
Diluted earnings per share (pence)
Profit used in the Earnings per Share calculation
(Loss)/profit after tax used for basic earnings per share
Amortisation of intangible assets
Exceptional items
Fair value adjustment
Share based payments
Tax adjustments
Adjusted profit used for Adjusted Earnings per Share
2019
2018
(£722,000)
£238,000
25,843,624
23,103,898
26,999,313
23,298,898
3.1p
(2.8p)
(2.8p)
2019
£’000
(722)
723
736
-
119
(47)
809
2.3p
1.0p
1.0p
2018
£’000
238
500
581
(540)
10
(250)
539
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 of 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 charge/(credit)
Deferred tax
Deferred tax - timing differences
Total deferred tax
Total tax credit
2019
£’000
105
55
(12)
148
(252)
(252)
(104)
2018
£’000
32
(126)
(80)
(174)
(71)
(71)
(245)
SysGroup plc Annual Report & Accounts 2019
78
Notes to the Consolidated Financial Statements Continued
The effective tax rate for the year to 31 March 2019 is higher (2018: lower) than the standard rate of corporation tax in
the UK. The differences are explained below:
Loss on ordinary activities before tax
Loss on ordinary activities before taxation multiplied by the standard rate of UK corporation
tax of 19% (2018:19%)
Effects of:
Expenses not deductible
Income not taxable
Prior year adjustment
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
2019
£’000
2018
£’000
(826)
(7)
(157)
(1)
10
(24)
55
-
-
12
33
(106)
(126)
5
(130)
80
(104)
(245)
2019
£’000
(1,093)
(27)
(1,120)
2018
£’000
(588)
(86)
(674)
Recognition of deferred tax assets is restricted to those instances where it is highly probable that relief against
taxable profit will be available.
The movement in the deferred tax account during the year was:
Capital allowances
timing differences
£’000
Customer
relationships
£’000
Balance at 1 April 2018
Accelerated capital allowances acquired on
acquisition of Certus IT
Deferred tax recognised on customer lists acquired on
acquisition of Certus IT
Credited to statement of comprehensive income
Balance at 31 March 2019
(86)
(56)
-
115
(27)
(588)
-
(642)
137
(1,093)
Total
£’000
(674)
(56)
(642)
252
(1,120)
Factors affecting future tax charges:
The UK corporation tax rate will change from 19% to 17% on 1 April 2020.
SysGroup plc Annual Report & Accounts 2019
79
Notes to the Consolidated Financial Statements Continued
13. Intangible Assets
Cost
At 1 April 2017
Additions
Acquisitions
At 31 March 2018
At 1 April 2018
Additions
Acquisitions
At 31 March 2019
Accumulated amortisation and impairment
At 1 April 2017
Charge for the year
At 31 March 2018
At 1 April 2018
Charge for the year
At 31 March 2019
Net book value
At 31 March 2018
At 31 March 2019
Website
Cost
£’000
Software
Licences
£’000
Customer
Relationships
£’000
Positive
Goodwill
£’000
197
26
-
223
223
-
-
223
191
7
198
198
8
206
25
17
72
6
95
173
173
9
16
198
30
47
77
77
59
136
96
62
2,383
-
1,850
4,233
4,233
-
3,777
8,010
814
446
1,260
1,260
656
1,916
2,973
6,094
7,620
-
2,107
9,727
9,727
-
5,781
15,508
-
-
-
-
-
-
9,727
15,508
Total
£’000
10,272
32
4,052
14,356
14,356
9
9,574
23,939
1,035
500
1,535
1,535
723
2,258
12,821
21,681
All amortisation and impairment charges are included in the depreciation, amortisation and impairment of non-
financial assets classification, which is disclosed as administrative expenses in the statement of comprehensive
income. Customer relationships have a remaining amortisation period of between 2 and 7 years.
Cash-Generating Units
Goodwill and intangible assets are allocated to CGUs in order to be assessed for potential impairment. During the
year, the Directors reconsidered the CGUs within the Group following the unification of all Group management and
operations under a single brand, SysGroup, in April 2018. The Group has a Senior Management Team that manages
the SysGroup business within a single operational and delivery structure having fully integrated previously acquired
Rockford IT, System Professional and Netplan businesses. The Board of Directors review the Group’s performance at
a consolidated level reflecting how the business is managed and controlled. In view of these developments in the
year, the Directors concluded that the CGUs that represented the acquired businesses at the “statutory entity” level
is no longer appropriate and that the Group has a single CGU of “Managed IT Services”. As the Group acquires new
businesses, they will form their own CGU until they have been integrated into the Group’s core operational structure.
Accordingly, Certus IT Limited, acquired in February 2019 is recognised as a separate CGU, “Certus IT”, in this year’s
impairment review.
SysGroup plc Annual Report & Accounts 2019
80
Notes to the Consolidated Financial Statements Continued
The allocation of goodwill and carrying amounts of assets for each CGU is as follows:
Allocation of goodwill
Carrying value of assets
2019
£’000
9,727
5,781
15,508
2018
£’000
9,727
-
9,727
2019
£’000
11,894
8,698
20,592
2018
£’000
13,166
-
13,166
Managed IT Services
Certus IT
Total
Impairment Review
When assessing impairment, the recoverable amount of each CGU is based on value-in-use calculations (VIU). VIU
calculations are an area of material management estimate as set out in note 2. These calculations require the use
of estimates, specifically: pre-tax cash flow projections; long-term growth rates; and a pre-tax discount rate. Cash
flow projections are based on the Group’s detailed annual operating plan for the forthcoming financial year which
has been approved by the Board.
The VIU calculation is determined based on a discounted cash flow basis and is allocated to individual cash
generating units. Cash flows beyond the forthcoming financial year use estimated growth rates which are stated
below. The assumptions for growth rates and margins are based on management’s experience of growth and
knowledge of the industry sector, markets and our own internal opportunities for growth and margin enhancement.
The projections beyond five years use an estimated long-term growth rate of 2.5% (2018: 2.9%) for revenue. This
represents management’s best estimate of a long-term annual growth rate aligned to an assessment of long-
term GDP growth rates. A higher sector-specific growth rate would be a valid alternative estimate. A different set of
assumptions may be more appropriate in future years dependent on changes in the macroeconomic environment.
The discount rates used are based on management’s calculation of the WACC using the capital asset pricing model
to calculate the cost of equity. Specific rates are used for each CGU in the VIU calculation and the rates reflect
management’s assessment on the level of relative risk in each respective CGU. Discount rates can change relatively
quickly for reasons both inside and outside management control. Those outside management direct control
or influence include changes in the Group’s Beta, changes in risk free rates of return and changes in Equity Risk
Premia. Matters inside management control are the delivery of performance in line with plans or budgets and the
production of high or low risk plans.
At the year end reporting date, goodwill was reviewed for impairment in accordance with IAS 36 “Impairment of
Assets”. No impairment charges arose as a result of this review.
The assumptions used for the impairment reviews are as follows:
2019
Discount rate
Revenue growth rate year 2 to year 5
Terminal growth rate
2018
Discount rate
Revenue growth rate year 2 to year 5
Terminal growth rate
*In 2018, the CGU’s were Rockford IT, System Professional and Netplan.
Managed IT
Services*
10.45%
5.0%
2.5%
10.13%
5.0%-7.5%
2.9%
Certus IT
10.45%
5.0%
2.5%
-
-
-
SysGroup plc Annual Report & Accounts 2019
81
Notes to the Consolidated Financial Statements Continued
14. Property Plant & Equipment
Cost
At 1 April 2017
Additions
Acquisition of subsidiary
At 31 March 2018
At 1 April 2018
Additions
Acquisition of subsidiary
Disposals
At 31 March 2019
Accumulated depreciation
At 1 April 2017
Charge for the year
At 31 March 2018
At 1 April 2018
Charge for the year
Disposals
At 31 March 2019
Net book value
At 31 March 2017
At 31 March 2018
At 31 March 2019
Office
Equipment
£’000
Freehold
Property
£’000
Motor
Vehicles
£’000
1,320
181
334
1,835
1,835
296
455
-
2,586
737
352
1,089
1,089
491
-
1,580
583
746
1,006
-
-
-
-
-
-
382
-
382
-
-
-
-
1
-
1
-
-
381
101
-
-
101
101
-
-
(28)
73
18
20
38
38
11
(9)
40
83
63
33
Total
£’000
1,421
181
334
1,936
1,936
296
837
(28)
3,041
755
372
1,127
1,127
503
(9)
1,621
666
809
1,420
Included in the net book value of £1,420,000 (2018: £809,000) are assets held under finance leases with a NBV of
£377,000 (2018: £323,000). The depreciation for the year on these assets was £158,000 (2018: £170,000).
SysGroup plc Annual Report & Accounts 2019
82
Notes to the Consolidated Financial Statements Continued
Company
Cost
At 1 April 2017
Additions
At 31 March 2018
At 1 April 2018
Additions
At 31 March 2019
Accumulated depreciation
At 1 April 2017
Charge for the year
At 31 March 2018
At 1 April 2018
Charge for the year
At 31 March 2019
Net book value
At 31 March 2017
At 31 March 2018
At 31 March 2019
The Company held no finance leases at 31 March 2019 or at 31 March 2018.
Office
Equipment
£’000
Total
£’000
81
24
105
105
99
204
25
26
51
51
58
109
56
54
95
81
24
105
105
99
204
25
26
51
51
58
109
56
54
95
SysGroup plc Annual Report & Accounts 2019
83
Notes to the Consolidated Financial Statements Continued
15. Investments
Company
Investment in subsidiaries
At 1 April 2018
Additions (note 10)
Total
2019
£’000
14,279
8,956
23,235
2018
£’000
10,429
3,850
14,279
The Company’s subsidiary undertakings all of which are wholly owned and included in the consolidated
accounts are:
Undertakings
Registration
Principal activity
System Professional Limited
Netplan Internet Solutions Limited
Netplan LLC*
SysGroup (DIS) Limited
SysGroup (NH) Limited
Node Group Limited
Project Clover Limited
SysGroup (EH) Limited
Rockford IT Limited
Certus IT Limited
England
England
USA
England
England
England
England
England
England
England
Managed Services
Managed Services
Managed Services
Managed Services
Managed Services
Managed Services
Managed Services
Managed Services
Managed Services
Managed Services
*Netplan LLC is a wholly owned subsidiary of Netplan Internet Solutions Limited
The recoverable amounts have been determined from discounted cash flow calculations based on cash flow
projections from the approved annual operating plan covering a one-year period to 31 March 2020. The principal
assumptions can be found in note 13.
SysGroup (NH) Limited (Company Number 03963376), SysGroup (EH) Limited (Company Number 05814619), SysGroup
(DIS) Limited (Company number 05743110), Project Clover Limited (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.
SysGroup plc Annual Report & Accounts 2019
84
Notes to the Consolidated Financial Statements Continued
16. Trade & Other Receivables
Amounts due within one year
Trade debtors
Other debtors
Amounts due from subsidiaries
Prepayments
Total
Group
2019
£’000
1,744
-
-
1,112
2,856
Company
2019
£’000
-
130
241
91
462
The carrying value of trade and other receivables approximates to their fair value.
Debtor impairment disclosure
Trade debtors
Impairment provision
Total
17. Trade & 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
Group
2019
£’000
1,814
(70)
1,744
Group
2019
£’000
1,885
-
979
2,864
311
817
Company
2019
£’000
-
-
-
Company
2019
£’000
252
2,868
287
3,407
-
114
Group
2018
£’000
1,101
-
-
523
1,624
Group
2018
£’000
1,125
(24)
1,101
Group
2018
£’000
893
-
484
1,377
85
438
Company
2018
£’000
-
35
-
100
135
Company
2018
£’000
-
-
-
Company
2018
£’000
102
2,584
160
2,846
-
30
Total
3,992
3,521
1,900
2,876
Contingent consideration
Group
2019
£’000
Company
2019
£’000
Certus IT Ltd
1,000
1,000
Group
2018
£’000
-
Company
2018
£’000
-
The fair value of contingent consideration is in relation to the acquisition of Certus IT Limited (note 10) and is
recognised at the full value of the consideration. The consideration is expected to be paid in the financial year to 31
March 2021. An adjustment for discounting has not been applied given the immateriality.
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 2019 and 31 March 2018.
The maturity of the financial liabilities, excluding loans and borrowings, classified as financial liabilities measured at
amortised cost is shown in note 3.
SysGroup plc Annual Report & Accounts 2019
85
Notes to the Consolidated Financial Statements Continued
18. Loans & Borrowings
Non-Current
Obligations under finance leases
Bank loan
Total
Current
Obligations under finance leases
Bank loan
Total
Group
2019
£’000
81
1,397
1,478
Group
2019
£’000
204
224
428
Company
2019
£’000
-
1,397
1,397
Company
2019
£’000
-
224
224
Group
2018
£’000
128
1,742
1,870
Group
2018
£’000
147
216
363
Company
2018
£’000
-
1,742
1,742
Company
2018
£’000
-
216
216
The Company re-financed its bank loan facilities with Santander in February 2019. The existing drawn down term
loan of £1.75m was re-financed as a new Senior Term Loan facility of £1.75 million with a five-year term to February
2024 and with quarterly bank loan repayments of £62,500 for eight Quarters followed by £104,166 for the following
twelve Quarters. The bank loan is fully secured by a debenture over SysGroup PLC and its subsidiaries and interest is
charged at LIBOR + 3.0% per annum. At 31 March 2019, the Senior Term loan was drawn down by £1.75m.
As part of the same re-financing process, the Company signed a new Acquisition Revolving Credit Facility with
Santander of £3.25 million on a five-year term to February 2024. The Company has not drawn down any funds under
this RCF facility at 31 March 2019. On utilisation of the RCF, quarterly loan repayments will become payable at 3.75% of
the aggregate principal balance following the expiry of a two-year availability period. The RCF is fully secured by a
debenture over SysGroup PLC and its subsidiaries and interest is charged at LIBOR + 3.5% per annum
The Senior Term Loan and RCF loan facilities have financial covenants that are tested quarterly on a twelve-month
rolling basis relating to interest cover, net debt to Adjusted EBITDA leverage and debt service cover.
SysGroup plc Annual Report & Accounts 2019
86
Notes to the Consolidated Financial Statements Continued
19. Leases
Group obligations under finances 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
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
The Company has no finance leases.
Group Operating Leases
Minimum lease
payments
2019
£’000
217
85
-
302
Minimum lease
payments
2018
£’000
158
134
-
292
Interest
2019
£’000
(13)
(4)
-
(17)
Interest
2018
£’000
(11)
(6)
-
(17)
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
2019
£’000
Other
2019
£’000
Leasehold property
2018
£’000
160
108
-
268
-
-
-
-
193
268
-
461
Leasehold property
2019
£’000
Other
2019
£’000
Leasehold property
2018
£’000
23
-
-
23
-
-
-
-
23
23
-
46
Present
value
2019
£’000
204
81
-
285
Present
value
2018
£’000
147
128
-
275
Other
2018
£’000
-
-
-
-
Other
2018
£’000
-
-
-
-
SysGroup plc Annual Report & Accounts 2019
87
Notes to the Consolidated Financial Statements Continued
20. Related Party Transactions
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been
eliminated on consolidation and are not disclosed in this note. Details of the transactions between the Group and
other related parties are disclosed below:
Praetura Capital LLP, a Company of which Mike Fletcher (Non-Executive Director) is a partner, invoiced SysGroup plc
£26,000 (2018: £nil) for a shared cost of corporate services received by SysGroup plc and Praetura Capital LLP. As at 31
March 2019, the balance outstanding was £nil (31 March 2018: £nil) within trade receivables.
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 and
website design services
Training services
All transactions have been made on an arm’s length basis.
Transaction
value
Balance Due to
Related Party
2019
£’000
2018
£’000
2019
£’000
2018
£’000
-
-
5
4
-
-
-
-
21. Share Capital
Equity share capital
Allotted, called up and fully paid
At 1 April 2017
At 31 March 2018
Issue of share capital – equity placing
Issue of share capital – share premium
At 31 March 2019
Group
2019
Number
23,103,898
23,103,898
26,315,792
-
49,419,690
Group
2019
£’000
231
231
263
9,080
9,574
In February 2019, the Company raised £10.0m gross proceeds from an equity share placing to fund the acquisition
of Certus IT Limited. The Company issued 26,315,792 1p ordinary shares at 38.0p. The net proceeds of the equity raise,
including the professional fees incurred, was £9,343,000.
SysGroup plc Annual Report & Accounts 2019
88
Notes to the Consolidated Financial Statements Continued
22. Reconciliation of Net Cash Flow Movement in Net Debt
1 April 2018
£’000
Cash Flow
£’000
Acquired in
Acquisitions
£’000
Profit & Loss
£’000
Reclassifi-
cation
£’000
31 March 2019
£’000
Cash and cash
equivalents
Debt due in less than
one year:
Bank loans
Finance leases
Debt due in more than
one year:
Bank loans
Finance leases
Total
1,315
1,112
949
(216)
(147)
(1,742)
(128)
(918)
216
147
159
50
1,684
-
-
-
(207)
742
-
-
-
(38)
-
(38)
-
3,376
(224)
(204)
224
204
-
(224)
(204)
(1,397)
(81)
1,470
23. Ultimate Controlling Party
The Directors consider that there is no controlling shareholder and no ultimate controlling party of the Group.
24. Post Balance Sheet Events
On 24 June 2019 the Group announced the acquisition of Hub Network Services Limited (“HNS”), a Company registered
in England & Wales, for cash consideration of £1.45m on a cash free debt free basis. The gross assets of the Company
at 31 October 2018, the date of the Company’s last reported accounts, was £0.8m. HNS is a well-established B2B
managed services provider with a primary focus on delivering fast, low latency network connectivity and co-
location solutions.
SysGroup plc Annual Report & Accounts 2019
89
Notice of Annual
General Meeting
SysGroup plc Annual Report & Accounts 2019
90
Notice of Annual
General Meeting
Notice is hereby given that the Annual General Meeting of the Company will be held on 20 September 2019
at 10.00am 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 6 will be proposed as ordinary
resolutions and Resolutions 7 and 8 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 2019
together with the Directors’ and Auditors’ Reports contained therein.
2. TO reappoint Martin Audcent as a director in accordance with the Company’s articles of association.
3. TO reappoint Mark Richard Quartermaine as a director who retires by rotation.
4. TO reappoint Adam Binks as a director who retires by rotation.
5. TO reappoint BDO LLP as auditors of the Company and authorise the Directors to fix their remuneration.
6. THAT, in accordance with section 551 of the Companies Act 2006, the Directors be generally and unconditionally
authorised to allot Relevant Securities (as defined below):
a. comprising equity securities (as defined by section 560 of the Companies Act 2006) up to an aggregate
nominal amount of £329,464 (such amount to be reduced by the nominal amount of any Relevant Securities
allotted pursuant the authority in resolution 6.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 £164,732 (such amount to be reduced by the nominal
amount of any equity securities allotted pursuant to the authority in resolution 6.a above in excess of £164,732),
SysGroup plc Annual Report & Accounts 2019
91
Notice of Annual General Meeting Continued
provided that this authority shall, unless renewed, varied or revoked by the Company, expire 15 months from the
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: (i) an employee share scheme (as defined by
section 1166 of the Companies Act 2006); (ii) a right to subscribe for shares in the Company where the grant of
the right itself constituted a Relevant Security; or (iii) 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 Companies Act 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:
7. THAT, subject to the passing of resolution 6, the Directors be given the general power to allot equity securities
(as defined by section 560 of the Companies Act 2006) for cash, either pursuant to the authority conferred by
resolution 8 or by way of a sale of treasury shares, as if section 561(1) of the Companies Act 2006 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 of equity securities or sale of treasury shares (otherwise than pursuant to resolutions 7.a above) to
any person up to an aggregate nominal amount of £24,709.
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
SysGroup plc Annual Report & Accounts 2019
92
Notice of Annual General Meeting Continued
would or might require equity securities to be allotted (or treasury shares to be sold) after such expiry and
the Directors may allot equity securities (or sell treasury shares) 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 Companies Act 2006 did not apply but without prejudice to any allotment of
equity securities already made or agreed to be made pursuant to such authorities.
8. 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 4,941,969;
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
Martin Audcent
Company Secretary
22 July 2019
Registered Office:
Walker House
Exchange Flags
Liverpool L2 3YL
SysGroup plc Annual Report & Accounts 2019
93
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 10.00 am on 18 September 2019. Changes to entries on the relevant register of securities after 10.00 am on 18
September 2019 shall be disregarded in determining the rights of any person to attend and vote at the meeting.
4. As at 5.00pm on 19 July 2019, which is the latest practicable date before publication of this notice, the Company’s
issued share capital comprised 49,419,690 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 5.00pm on 19 July 2019 is 49,419,690. The Company’s website will include information on the number of
shares and voting rights.
5.
In the case of joint holders, the vote of the senior holder who tenders a vote, whether in person or by proxy,
shall be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority shall be
determined by the order in which the names stand in the register of members of the Company in respect of the
relevant joint holding (the first named being most senior).
6. 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.
7.
The Directors have no present intention of exercising either the allotment authority under resolution 6 or the
disapplication of pre-emption rights authority under resolution 7.
8. 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/