Annual
Report &
Accounts
2020
SysGroup plc
Walker House
Exchange Flags
Liverpool L2 3YL
Company Number
06172239
www.sysgroupplc.com
2
Contents
4
6
9
10
14
21
26
28
32
36
43
45
51
53
56
59
61
63
65
67
96
Directors, Secretary & Advisers
Highlights
Strategic Report – Chairman’s Statement
Strategic Report – Chief Executive Officer’s Report
Strategic Report – Chief Financial Officer’s Report
s172 Statement
Board of Directors’ Profile
Directors’ Report
Directors’ Remuneration Report
Corporate Governance Report
Statement of Directors’ Responsibilities
Independent Auditor’s Report to the Members of SysGroup plc
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Statement of Cashflows
Company Statement of Cashflows
Notes to the Consolidated Financial Statements
Notice of Annual General Meeting
SysGroup plc Annual Report & Accounts 2020 3
Directors,
Secretary &
Advisers
SysGroup plc Annual Report & Accounts 2020 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
Legal Entity Identifier (LEI)
213800D18GPZZJR9SH55
Company Website
www.sysgroupplc.com
Nominated Adviser
Shore Capital and Corporate Ltd
57 St James’s Street
St James
London SW1A 1LD
Broker
Shore Capital Stockbrokers Ltd
The Corn Exchange
Fenwick Street
Liverpool L2 7RB
Registrar
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Lawyers
Hill Dickinson LLP
50 Fountain Street
Manchester M2 2AS
Independent Auditor
BDO LLP
3 Hardman Street
Manchester M3 3AT
Bankers
Santander (UK) plc
298 Deansgate
Manchester M3 4HH
Financial PR Advisers
Alma PR
71-73 Carter Lane
London EC4V 5EQ
SysGroup plc Annual Report & Accounts 2020 5
Highlights
SysGroup plc Annual Report & Accounts 2020 6
Highlights
Financial
Revenue
Gross profit
Adjusted EBITDA 1
+53%
+44%
+99%
2020
£19.49m
2020
£11.20m
2020
£2.81m
2019
£12.77m
2019
£7.78m
2019
£1.41m
Adjusted PBT 2
Operational cashflows
Net cash4
+135%
+222%
£0.45m
2020
£1.76m
2020
£1.93m
2020
£0.45m
2019
£0.75m
2019
£0.60m
2019
£0.47m
Highlight
Revenue
Recurring revenue as a % of total revenue
Gross profit
Adjusted EBITDA1
Adjusted EBITDA 1 Margin %
Adjusted PBT 2
Adjusted Basic EPS 3
Statutory loss before tax
Basic EPS
Operational cashflows
Net cash4
2020
£19.49m
77%
£11.20m
£2.81m
14%
£1.76m
3.4p
£(0.23)m
(0.2)p
£1.93m
£0.45m
2019
Change %
£12.77m
74%
£7.78m
£1.41m
11%
£0.75m
3.1p
£(0.83)m
(2.8)p
£0.60m
£0.47m
+53%
+3%
+44%
+99%
+3%
+135%
+10%
-
-
+222%
(4%)
1.
Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation of intangible assets, exceptional items,
and share based payments.
2.
Adjusted profit before tax (“Adjusted PBT”) is profit before tax after adding back amortisation of intangible assets,
exceptional items, and share based payments.
3.
Adjusted Basic EPS is profit after tax after adding back amortisation of intangible assets, exceptional items, share based
payments and associated tax, divided by the number of shares in issue.
4.
Net cash represents cash balances less bank loans, lease liabilities and contingent consideration, and excludes IFRS16
lease liabilities.
SysGroup plc Annual Report & Accounts 2020 7
Highlights Continued
Operational
• Successful COVID-19 response and transition of all employees to home working with continuation of services
to customers
• Acquisition of Hub Network Services Limited for £1.45m in cash; integration completed in under three months
• New Executive Operational Board and Senior Leadership Team following the integration of Certus IT Limited
Introduction of Customer Engagement plan demonstrating >97% satisfaction
•
•
Increased investment in sales and demand generation training
• Planned closure of legacy Coventry office and datacentre complete
Post Period-End Developments
• Business continuity plans successfully implemented and remote working facilitated across the business
in response to the COVID-19 pandemic, with minimal impact to operations
• Strategic sales engagement relating to digital transformation with both new and existing customers
has increased although the Group is seeing some major asset refreshes and contract renewal decisions
being delayed
• Strong balance sheet with a cash balance of £3.0m and a net cash4 balance of £0.45m at 31 March 2020.
The Group has facilities of £5m expiring in 2024, consisting of a £1.75m term loan which has £0.35m of
headroom at 31 March 2020 and an undrawn £3.25m acquisition revolving credit facility, providing the
Group with additional available liquidity to execute on acquisition opportunities.
SysGroup plc Annual Report & Accounts 2020 8
Strategic
Report
SysGroup plc Annual Report & Accounts 2020 9
Strategic Report
Chairman’s
Statement
The year ended 31 March 2020 saw the Company progress against each of its priorities and continue to build
high levels of recurring revenue. Top line growth of over 50% and doubling of Adjusted EBITDA validates the success
of management’s buy and build strategy, further underpinned by the increase in Adjusted EBITDA margin to 14.4%
(FY19: 11.1%).
In the first half of the year we acquired Hub Network Services Limited (“HNS”) for £1.45m and have been pleased
with its contribution since. We will continue to consider further acquisitions which fit our strict criteria and help
us to meet our goals and believe that the current environment will present further opportunities.
The end of the financial year was clearly dominated by the impact of the COVID-19 pandemic and, as a business,
we have been well served by the strength and stability of the senior management team assembled during recent
years, including Martin Audcent who joined as Chief Financial Officer (“CFO”) in July 2018, and led by Adam Binks,
our Chief Executive Officer (“CEO”). The Group’s ‘people first’ mentality saw us adopt safe working practices ahead
of government guidance and our continued priority remains the health and wellbeing of our employees. This has
undoubtedly been reflected in their professionalism and commitment to serve our customers at a time when our
services are even more critical to their own business needs. On behalf of the Board, I would like to offer them all
sincere thanks.
SysGroup’s services are designed to provide customers with the greatest levels of flexibility and are tailor made
to meet the requirements of each and every individual business. As companies come to terms with the current
environment and adapt their working practices for both the short and long term, we are ideally placed to support
them along the way.
The material economic impact of COVID-19 is already beginning to become clear with recent government statistics
and undoubtedly some of our customers will be affected, either directly or through their end market. However, with
a cash generative business underpinned by a robust balance sheet, alongside contracted revenues from a diverse
and well balanced customer base, combined with the growing relevance of our services and solutions, the Board’s
confidence in the future of SysGroup remains undiminished.
Michael Edelson
Chairman
30 June 2020
SysGroup plc Annual Report & Accounts 2020
10
Strategic Report
Chief Executive
Officer’s Report
Introduction
I am pleased to report on another successful year for the Group, in which we continued to make significant strides
towards becoming the leading provider of Managed IT Services to businesses in the UK. The team effort which
has been demonstrated throughout the course of the period is unparalleled and I am delighted that we continue
to work towards the same common goal of being the best in class.
The Company delivered revenue growth of 53% to £19.49m and Adjusted EBITDA growth of 99% to £2.81m, with
Managed IT Services recurring revenues now representing 77% of the Group’s total revenue (FY19: 74%). In line with
our well known acquisition strategy, we are continuing to engage and nurture relationships with potential target
companies, with business models that either complement or significantly enhance our existing solution offering.
The acquisition of HNS in June last year enabled the Group to effectively compete in the managed connectivity
market space, supplementing our datacentre and cloud offerings and further enhancing the offering of Certus IT
Limited (“Certus”), which the Group acquired in the previous financial year. Both acquisitions have been pivotal to
our future success and continue to make a great contribution. Through the enlarged business, we are now able to
offer our customer base a large and growing suite of managed IT service solutions, positioning us well against the
competition and enabling the way for further growth. Additionally, the growth of the business is allowing the benefits
of economies of scale and dilution of central costs to come to the fore.
During the year, we invested a considerable amount of time and resources preparing for the integration of the
systems of the newly acquired businesses with our own. As a result, the Group is now well on the way to having the
benefit of a consolidated platform across its operations for day to day management, providing fast and accurate
access to business intelligence across the entire Group. Additionally, the re-branding of the enlarged Group has
begun with great momentum – this will bring both Certus and HNS into the SysGroup brand, which aligns with
our single go-to-market offering.
Throughout the course of the year, in recognition of SysGroup’s growth, to adequately resource the Group for the
next stage in its development the Board has elected to invest in a broader senior leadership team to increase
managements’ bandwidth. In addition to the PLC Board, the Group has introduced an Executive Operational Board
that reports to the PLC Board. The Operational Board consists of the CEO, CFO and three new roles: Chief Sales Officer,
Chief Marketing Officer and a Chief Technology Officer. Each post holder was recruited during the last financial
year, into the Group by way of a rigorous selection process and brings with them a number of years of industry
experience. The benefits of this newly formed team are already being felt across the Group as a whole.
COVID-19
As announced in the April trading update, the Group was quick to implement its business continuity plan in response
to the global outbreak of COVID-19. After internally publishing our first COVID-19 policy to the team in February 2020,
we continued to monitor the unfolding situation and in mid-March successfully executed a transition to remote
working across all of our operations. We have continued providing uninterrupted service and support to our
customers throughout this challenging period. I would like to thank our entire team for their cooperation as well
as for adapting to a new way of working both quickly and seamlessly.
SysGroup plc Annual Report & Accounts 2020
11
Chief Executive Officer’s Report Continued
Whilst we have started to see delays to both existing and new sales cycles, with some customers unable to commit
to major asset refreshes and contract renewals until they have established the full impact of COVID-19 on their
own businesses, we have seen minimal impact to our operational performance. We are not only well placed to
benefit from our strong levels of recurring revenue and solid cash position, but owing to the very nature of the
services that we provide, we have been able to operate remotely and adapt quickly allowing our sales teams to stay
engaged and our technical teams continue to provide the same levels of quality service to which our customers
are accustomed. Looking ahead, we will continue to build upon our own internal IT strategy as well as our working
practices to further promote flexible and secure working habits that are scalable to meet future growth and that
will ultimately benefit our customers.
We believe COVID-19 has dramatically accelerated the trend towards flexible and remote working practices and
that this new way of working will only intensify over the coming year as more businesses realise the benefits not
only to their existing teams but also by opening up to a wider talent pool that is less geographically focused. In
preparation, we have ensured we maintain regular dialogue with our customers in order to help them rethink
their own IT strategy to support their enablement for seamless remote working and so that we are in a position to
offer them the appropriate solutions when they are ready and able to commit. We have invested significantly in
additional coaching and training for our sales team as well as our newly formed demand generation team so they
can confidently engage with our customers and offer the advice on the best solutions for their business.
Market
The market opportunity for SysGroup is substantial and continues to grow rapidly underpinned by the evermore
visible need for digital transformation. Now, more so than ever, businesses are relying on proven technology to
ensure the smooth running of their operations and business continuity as a result of COVID-19 whilst adjusting
to remote working and social distancing measures in the workplace. Businesses are now seeing the value of
outsourced managed IT services and are looking to trusted providers to help them navigate the complexities
of the technological landscape. We are well positioned to support our customers through this period of global
change which will be further underpinned by our buy-and-build strategy.
Strategy
The Group’s strategy remains consistent: to expand its position to be the leading provider of Managed IT Services to
businesses 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
managed IT services and cloud hosting marketplace. Our primary purpose is to remain abreast of developments
in technology and advise our customers accordingly. This leading role is supplemented by exceptional customer
service and support resulting in strong client engagement embedding SysGroup into their organisation. The Group
continues to invest in R&D to ensure its clients are making use of the latest and best solutions available to them whilst
maintaining its vendor agnostic approach.
The Company’s route to execute this strategy is through a combination of organic and acquisitive growth whilst
ensuring cross-selling opportunities are created throughout the acquired customer bases, providing a single
go-to-market offering under the SysGroup brand.
SysGroup plc Annual Report & Accounts 2020
12
Chief Executive Officer’s Report Continued
Acquisitions
At the start of the financial year the Group acquired HNS, 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 superfast,
low latency network connectivity and datacentre solutions. HNS supplements the acquisition of Certus IT, which
was acquired in FY19 and provides a complementary service offering, geographical reach and customer base
to SysGroup.
Both acquisitions reinforce the Group’s growth strategy and the Board will continue to assess strategic acquisition
opportunities going forward. Management are open to the potential impact of COVID-19 on its peers and the
opportunities this may bring to undertake further consolidation within the sector.
Sales & Marketing
The investments we are making in sales and marketing are integral to the successful running of our operations, and
we are pleased with the progress that has been made during the year. We completed the integration of the Certus
and HNS sales teams into our wider sales organisation and we have already started to see encouraging results,
including strengthened relationships with existing customers coupled with opportunities to cross-sell the Group’s
enhanced portfolio of services into the enlarged customer base. We will continue to align our sales, marketing and
operational functions in order to further integrate all parts of the business over the course of FY21. Alongside this,
towards the end of the period we commenced the re-brand of the enlarged business to reflect our operating model
of a single brand across the Group.
In the final month of the period, we formed a new “Demand Generation” team as part of our graduate programme
which has been created to actively pursue new business opportunity. The programme has been designed to train
and develop graduates with a passion for a career in sales and whilst this function is in its infancy, we remain
confident that our investment will bear fruit in the future. The demand generation process will be aided by our newly
integrated CRM and marketing platforms supported by both our existing marketing team and our digital marketing
strategy.
Our customer engagement strategy launched earlier in the financial year was designed to help us better identify
customer motivations and preferences to ensure we maintain our excellent customer retention rates, and we are
pleased to report our customer satisfaction rate for the year was 97%. Throughout the course of the FY21 period
we intend to build upon this and dig deeper with our existing customer base to determine the levels of customer
satisfaction from all touch points across the business which we expect will highlight areas for improvement to
enable even further future success.
In the first half of the year we commenced a project to consolidate all of our legacy network assets onto a single
platform that will interconnect at each of our key datacentre locations, providing further scalability and redundancy
to our hyper-scale hosting platforms. We expect completion of this project in calendar year 2021. The project is
expected to drive further operational cost synergies and will therefore remain a priority for the Group.
During the period we closed our Coventry office and data centre, migrating customers to other facilities within our
existing footprint, which was enhanced following the acquisition of Certus. This has provided us with operational cost
savings and we will continue focusing on consolidating our data centre and network footprint in order to provide a
resilient, secure and scalable infrastructure to service our customers throughout the UK.
SysGroup plc Annual Report & Accounts 2020
13
Chief Executive Officer’s Report Continued
Summary & Outlook
The performance in FY20 from our team has been outstanding, with the Group integrating its largest acquisition
to date as well as doubling its Adjusted EBITDA whilst improving margins. The outset of FY21 has been impacted by
the interruption caused by COVID-19 however despite this, our people have continued to support and service our
customers under the extremely challenging circumstances. I am pleased to be able to report that, underpinned by
our strong levels of recurring revenue, momentum in the first months of FY21 trading has continued.
The world has undergone material change and SysGroup is continuing to innovate. We have adapted to a very new
style of working and we are using our own experiences to strategically advise our customers to enable their own
future success.
Technology has been the enabler for many businesses to continue to operate during this global crisis and whilst
some have already accelerated their digital transformation projects, many are yet to make the necessary long term
changes required to allow their businesses to continue operating in the future. Consequently, the market opportunity
for the Group remains substantial as investment in the appropriate technology is becoming ever more mission
critical for businesses to survive and thrive.
Despite the opportunity that lies ahead, there still remains much near term uncertainty as to the impact on the
wider UK economy and we are prepared to face delays to our sales cycles whilst businesses assess the impact
of COVID-19 and are once again ready to commit to long term contracts and enhanced IT spend. At this stage
therefore it remains too early to provide guidance for the current financial year.
I would like to take this opportunity to give my thanks to our entire team, not only for their sterling performance over
the course of FY20 but also for their continued dedication, commitment and effort during the COVID-19 pandemic
which has created a situation that has never been experienced like this in modern history.
Adam Binks
Chief Executive Officer
30 June 2020
SysGroup plc Annual Report & Accounts 2020
14
Strategic Report
Chief Financial
Officer’s Report
Group Statement of Comprehensive Income
Group revenue for the year grew by 53% to £19.49m (FY19: £12.77m) with acquisition led growth from a full year’s
trading of Certus and part year trading from HNS which we acquired in June 2019.
Managed IT Services revenue increased by 60% to £15.1m compared to FY19 and comprised 77% of the overall Group
revenue (FY19: 74%) which was slightly ahead of our expectations. Value Added Resale revenue of £4.4m was an
increase of 32% compared to FY19 but still below planned levels due to the political uncertainty leading to delays
in customers making capex expenditure decisions. Our business model and internal forecasts are targeted at
maintaining an approximate 75%:25% split of Managed IT Services to Value Added Resale revenue.
Revenue by
Operating Segment
Managed IT Services
Value Added Resale
Total
2020
£’000
15,092
4,400
19,492
2020
%
77%
23%
100%
2019
£’000
9,448
3,325
12,773
2019
%
74%
26%
100%
Gross profit for the year was £11.2m (FY19: £7.8m) with a gross margin percentage of 57% (FY19: 61%). Managed IT
Services gross profit increased to £10.3m (FY19: £7.0m) with a gross margin of 68% (FY19: 74%). Value Added Resale
gross profit increased to £0.9m (FY19: £0.8m) with a gross margin of 21% (FY19: 25%). These movements in gross margin
percentages were anticipated as the Certus and HNS business models have a higher proportion of direct costs than
SysGroup historically and this has had a dilutive impact on the Group’s overall gross margin.
Operating expenses were controlled well throughout the year and the Group is beginning to see the benefits of
economies of scale with savings made from the closure of the Coventry office and streamlining of the team as part
of the wider Group integration. Operating expenses before depreciation, amortisation, exceptional items and share
based payments of £8.4m were 43% of revenue in FY20 which compares to £6.4m and 50% of revenue in FY19. The
reduction of 7% reflects the scale we are now achieving. The overall increase in operating expenses arises from the
addition of the overhead bases from the Certus and HNS acquisitions.
Adjusted EBITDA was £2.81m for the twelve months to 31 March 2020, an increase of £1.4m (+99%) compared to £1.41m
in FY19. The Adjusted EBITDA margin was 14.4% in FY20 compared to 11.1% in FY19 which is a progressive improvement
as the Group continues on its scale- up strategy.
The reconciliation of operating profit to Adjusted EBITDA is shown below. The Directors consider that Adjusted EBITDA
is the most appropriate measure to assess the business performance since this reflects the underlying trading
performance of the Group. Adjusted EBITDA is not a defined term and is calculated differently by each Company.
SysGroup plc Annual Report & Accounts 2020
Chief Financial Officer’s Report Continued
Reconciliation of operating loss to Adjusted EBITDA
Operating loss
Depreciation
Amortisation of intangible assets
EBITDA
Exceptional items
Share based payments
Adjusted EBITDA
15
2019
£’000
(659)
494
723
558
736
119
1,413
2020
£’000
(28)
847
1,321
2,140
475
199
2,814
The Group incurred exceptional costs during the year of £0.48m (FY19: £0.74m) comprising £0.09m of professional
fees for the acquisition of HNS and £0.39m for integration and restructuring costs. The costs for integration and
restructuring relate to the closure of the Coventry office and planned exits of employees following the acquisitions
or as part of the Leadership Team restructure. Amortisation of intangible assets was £1.32m (FY19: £0.72m), of which
£1.27m (FY19: £0.66m) relates to the amortisation of acquired intangible assets from acquisitions.
The share-based payments charge has increased to £0.20m in FY20 (FY19: £0.12m). The increase in the charge results
from a grant of share options to the Executive Directors in July 2019.
The adjusted profit before tax for the year was £1.76m (FY19: £0.75m) and the loss before tax for the year was £0.23m
(FY19: £0.83m).
IFRS16 - Leases
The Group has adopted IFRS 16 – Leases for the financial year ended 31 March 2020 and has chosen to use the
modified retrospective approach to adoption which means there are no restatements to the prior year figures.
Within the consolidated income statement, operating lease charges which previously sat in administrative expenses
have been replaced by depreciation and interest expenses. The adoption of IFRS16 resulted in a right of use asset of
£0.51m, with a corresponding liability of £0.58m, being recognised as at 1 April 2019. Within the consolidated income
statement, the operating lease charge has been replaced by depreciation and interest expenses. This has resulted
in a decrease in operating expenses and an increase in finance costs. Further information is disclosed in the notes
to the consolidated financial statements.
Net cash and cashflow
The Group had a net cash balance, excluding IFRS16 lease liabilities, of £0.45m at 31 March 2020 (FY19: £0.47m).
Net cash excluding IFRS16 Lease liabilities
Cash balances
Bank loans - current
Bank loans - non-current
Lease liabilities excl IFRS16
Contingent consideration
Net cash
2020
£’000
3,036
(251)
(1,146)
(186)
(1,000)
453
2019
£’000
3,376
(224)
(1,397)
(285)
(1,000)
470
SysGroup plc Annual Report & Accounts 2020
16
Chief Financial Officer’s Report Continued
The Group’s net cash inflow from operations increased to £1.93m (FY19: £0.60m). This includes payments for interest
and taxation and £0.49m exceptional cash costs (FY19: £0.61m). The underlying operational cash conversion, which
excludes the exceptional cashflows for acquisitions, integration and restructuring, was 86% and within our target
range. This was a similar result to last year (FY19: 86%).
Net cash/(debt) is considered to be a KPI of the business since the level of financial indebtedness of the Group is
relevant for Board strategic decisions and a key financial measure for the Group’s shareholder base and potential
investors.
Cash conversion
Operational cashflows
Adjustments:
Acquisition, integration and restructuring cashflows
Cash generated from operations
Adjusted EBITDA
Cash conversion
2020
£’000
1,930
492
2,422
2,814
86%
2019
£’000
601
611
1,212
1,413
86%
Consolidated Statement of Financial Position
The Group’s net assets of £20.1m at the 31 March 2020 year-end have remained at a similar level to the prior year
(FY19: £20.1m).
Non-current assets have increased by £0.47m which is a net movement of capital expenditure and the period
charges for depreciation and intangible amortisation. Intangible asset additions included £1.47m for the intangible
assets and goodwill relating to the acquisition of HNS and £0.19m for the capitalised Project Fusion development
costs. The Group invested £0.35m (FY19: £0.30m) in property, plant and equipment and the adoption of IFRS16 –
Leases led to £0.51m of property related assets being recognised as non-current assets for the first time on 1 April
2019.
Working capital was managed well throughout the year and the gross trade debtor balance of £1.6m was lower
than the £1.8m balance in the previous year. However, the 31 March 2020 year-end landed at the beginning of the
COVID-19 lockdown period and we are mindful that cash collections carry a higher risk as businesses contend with
the wider economic impact. For this reason, we have increased our doubtful debt provision to £0.21m at 31 March
2020 (FY19: £0.07m), which is 13% of the gross trade debtor balance at 31 March 2020 (FY19: 4%). In a small number of
cases, customers have requested financial support from us and where this has been the case, we have assessed
their particular situation and longer-term viability and taken a supportive approach where practically possible.
Financial support, where it has been offered, has typically been in the form of extended settlement terms for a
temporary period. We believe this is the right thing to do in the face of the disruption to the economy and in support
of the wider business community.
The bank loan at 31 March 2020 was £1.40m (FY19: £1.62m), there have been no further drawdowns of the facilities
during the year and the bank loan covenants have been met throughout the year. The acquisition of HNS was
funded from the Group’s existing cash balances.
Current liabilities includes contingent consideration of £1.0m which relates to the acquisition of Certus in February
2019 and is recognised at the full value of the consideration. In February 2020 the earn-out period was completed
and Certus successfully achieved the EBITDA upper target. Following the 31 March 2020 year end, SysGroup paid
£0.975m contingent consideration to the vendors of Certus in full settlement.
SysGroup plc Annual Report & Accounts 2020
17
Chief Financial Officer’s Report Continued
Project Fusion
During the year, the Group launched Project Fusion, a project to deliver a unified platform of systems across the
Group to enable more efficient working practices and higher quality operating and reporting information. The
Project has multiple workstreams for systems covering Customer Relationship Management (“CRM”), Service Desk,
Financial Accounts, Marketing and Risk Management.
Substantial progress has been achieved under the co-ordination of both the Executive and Senior Leadership Team.
The project is a substantial one and a huge step forward for the Group not only providing for enhanced business
intelligence but also making the integration of future acquisitions simpler and easier. Project Fusion is expected to
continue through the course of FY21.
During FY20, £0.19m of development costs were capitalised as an intangible asset comprising employee and
contractor costs.
Grants under the Long Term Incentive Plan
In July 2019, the Group announced the grant of 250,000 and 150,000 performance shares with an exercise price
of £0.01 (the “Awards”) under the 2018 Long Term Incentive Plan (“LTIP”) to Adam Binks, CEO, and Martin Audcent, CFO,
respectively.
The LTIP was established in June 2018 to incentivise management to deliver long-term value creation for
shareholders and ensure alignment with shareholder interests. The Awards are subject to the same performance
conditions as those set out in the announcement of 29 June 2018 and 50 per cent. of the Awards will vest following
the announcement of the Group’s financial results for the financial year ending 31 March 2022, with the residual 50
per cent. vesting following the announcement of the Group’s financial results for the year ending 31 March 2023.
The Award represents 0.81% of the current issued share capital of the Company. The Award is also subject to
continued employment, malus and clawback provisions and will vest in full on a takeover of the Company.
Summary
The Group has made good strategic progress and delivered on its financial initiatives over the course of the period.
The Group benefits from a diverse customer base underpinned by contracted revenue. In addition, the Group
has a strong balance sheet with a net cash position meaning the Group is well placed to endure the economic
uncertainty generated by COVID-19.
SysGroup plc Annual Report & Accounts 2020
Chief Financial 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 Chief Financial Officers’s Report.
Revenue growth
Recurring revenue as a % of total revenue
Gross Profit
Gross Profit %
Adjusted EBITDA
Adjusted PBT
Statutory loss before tax
Net cash
Principal Risks & Uncertainties
2020
£19.49m
77%
£11.20m
57%
£2.81m
£1.76m
£(0.23)m
£0.45m
2019
£12.77m
74%
£7.78m
61%
£1.41m
£0.75m
£(0.83)m
£0.47m
18
Change %
+53%
+3%
+44%
-4%
+99%
+135%
-
-4%
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. The Group employs a Head of Legal, Risk & Compliance
who operates as a member of the Senior Leadership Team and reports to the Executive Directors. The Head of Legal,
Risk & Compliance has the responsibility for managing the Group’s Risk Management framework, GDPR policy, Data
Protection and other regulatory and compliance processes.
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.
Principal risk
Potential impact
How we mitigate the risk
Impact on trading from the effect a
global pandemic has on the business
environment and wider economy
A summary of the Group’s response to
the COVID-19 pandemic is included in
the Chief Executive and Chief Financial
Officer’s Reports.
A summary of the mitigating actions the
Group has taken is included in the Chief
Executive and Chief Financial Officer’s
Reports.
Likelihood: High
We recognise that the UK Government’s
response to the COVID-19 pandemic and
related economic policy is an unfolding
situation and the Group is presently
operating at a higher level of trading
risk. The Group is likely to experience
delays in customer sales cycles and
a period where professional services
delivery is below planned levels due to
restrictions on attending customer sites.
The Directors are also aware that the
downturn in the UK and global economy
will have an impact on our customers’
businesses which increases the risk of
customer contract cancellations and
corporate defaults.
SysGroup plc Annual Report & Accounts 2020 Chief Financial Officer’s Report Continued
Principal risk
Potential impact
How we mitigate the risk
19
Political uncertainty related to
the Brexit negotiations negatively
impacts the wider economy
Likelihood: Medium
Dependency on key suppliers
Likelihood: Low
Over-reliance on high value
customer contracts or high value
industry sectors
Likelihood: Low
The UK formally left the EU on 31 January
2020 and entered a transition period
which is scheduled to end on 31
December 2020.
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 and the UK economy.
The Group procures services from
key suppliers that are critical to 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.
Business risk increases if the Group is
over-reliant on one or several high value
customer contracts, or over-reliant on
one or several industry sectors. The
loss of key contracts or a downturn in
a particular industry sector may have
a material impact on the financial
performance of the Group.
Attracting and retaining high quality
employees
Likelihood: Low
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.
The Directors will continue to monitor
the progress of Brexit negotiations and
remain up to date with the latest UK
Government guidance to ensure that
any specific risks are identified.
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.
The Board monitors customer
concentration throughout the year with
a target of customer concentration
below 5%. This target was achieved in
FY20 and FY19 and is expected to remain
under 5% in the forthcoming year.
The Group’s customer base is diversified
across multiple industry sectors which
mitigates the impact of a sector specific
industry downturn.
The Group’s employees are key to the
success of the business. We seek to
recruit high calibre individuals who
have an appropriate level of skills,
knowledge and experience for the role
and have personal attributes that fit
with our corporate values. The Group
invests in training and development for
our employees through internal and
external training and offers competitive
remuneration and benefits packages.
At all levels we encourage our people
to be bold and find opportunities to
innovate and improve.
Failure in the Group’s network
infrastructure prevents SysGroup and
our customers from operating key
business systems
Likelihood: Low
The datacentres we utilise are linked
together by diverse fibre cables. Should
the whole network fail there would
be an adverse impact on SysGroup’s
systems and 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 with
failover resilience.
SysGroup plc Annual Report & Accounts 2020 20
Chief Financial Officer’s Report Continued
Principal risk
Potential impact
How we mitigate the risk
Attracting and retaining high quality
employees
Likelihood: Low
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 and the
Executive and Senior Leadership Team
has the responsibility to successfully
integrate acquisitions into the Group to
maximise operational opportunities and
financial benefits.
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.
The Executive team plan the integration
of acquisitions during the acquisition
process and the approach typically
depends on the size of the business and
systems complexity in each case. Where
possible, smaller bolt-on acquisitions
are expected to be integrated within six
months.
Financial position and COVID-19
The Board consider the Group to be in a resilient financial position with a cash balance of £3.04m and £0.45m net
cash position at 31 March 2020. Furthermore, the Group’s business model is geared to delivering circa 75% of revenue
from contracted managed IT services which is a continuous service supply to customers and largely uninterrupted
by the impact of COVID-19. These services are critical to our customers to support their own business activities.
The Group’s working capital management has remained consistent throughout the year and during the COVID-19
affected period. We have agreed to provide financial support to a small number of customers with temporary
periods of extended settlement terms and in some cases the deferral of fees into future periods but in the main
we continue to invoice and collect cash following our usual practices. We continue to pay our suppliers in
accordance with our usual payment routines. Since our operations and service delivery have continued throughout
the COVID-19 period we have not taken advantage of the furlough scheme or requested any loan assistance from
the UK government.
Notwithstanding this, the Group has taken a number of financial measures to sensibly manage our finances with
caution as we enter the FY21 financial year. We have implemented a hold on recruitment across the Group, deferred
the annual salary review which had been due on 1 April 2020, and we have taken advantage of the allowance from
HMRC to withhold paying the Q4 VAT payment which was due to be paid in May 2020. This is a deferral only and the
VAT will be paid to HMRC before 31 March 2021.
The Group has a term loan with Santander and there was a liability of £1.4m outstanding at 31 March 2020. The loan
facility is subject to covenants that are tested each quarter on a 12-month rolling basis for interest cover, net debt to
Adjusted EBITDA leverage and debt service cover. The Group met all the covenants with a good level of headroom
throughout FY20.
The Board recognises that the Group is trading in an economy that has suffered a significant downturn and with
considerable uncertainty in the timing and rate of recovery. The Directors have reviewed financial forecasts and
a Reverse Stress Test model in order to assess the Group’s business viability and to form a judgement on going
concern. Having reviewed the forecasts the Board were satisfied that the Group remains a going concern.
SysGroup plc Annual Report & Accounts 2020
21
Chief Financial Officer’s Report Continued
Strategic Report
s172 Statement
This section describes how the Directors have had regard to the matters set out in section 172(1)(a) to (f) of the
Companies Act 2006 in exercising their duty to promote the success of the Group for the benefit of its members
as a whole.
The Directors consider that the following are the Group’s key stakeholders: employees, customers, suppliers,
shareholders, the community and regulators, and the Board seeks to understand the respective interests of the
stakeholders so they are properly considered in the Board’s decisions. We do this by members of the Board having
direct engagement with the stakeholder groups and by receiving reports and updates from the Senior Leadership
Team who have certain delegated responsibility for stakeholder engagement.
SysGroup purpose, culture and values
The Group’s clear strategy and purpose is to become the leading provider of Managed IT Services to clients in the UK.
The Group delivers solutions that enable clients to understand and benefit from industry leading technologies and
advanced hosting capabilities. SysGroup focuses on a customer’s strategic and operational requirements which
enables clients to free up resources, grow their core business and avoid the distractions and complexity of delivering
IT services.
To ensure we meet our strategic goals it’s vital that our organisation is structured, managed and operates in
accordance with our core corporate values.
Love what you do
Our people are passionate about what they do, committed to their team, their colleagues, and the success of
our business. Loving your job is a part of everybody’s role at SysGroup and we aim to inspire our colleagues and
customers by our energy, tenacity and adaptability.
Work smart
Being part of a fast-paced, dynamic and growing organisation means it is critical that our people work hard to
help us achieve our goals and vision. We encourage people to be innovative, contribute ideas and to work in a way
that is efficient and helps them to get the job done. Our people get a real buzz from the pace at which our business
operates and work with a strong sense of urgency and purpose which places them outside of their comfort zone.
Own it
Our people stand up and take ownership of tasks and take accountability for their actions. They volunteer to step up
when help is needed from their colleagues. Our people are expected to use their own judgement and consistently
challenge their own assumptions.
Delight your customers
At SysGroup, we don’t want happy, we want delighted! At the heart of everything we do is the desire to set ourselves
apart from our competitors by delighting our customers. We want to build our business through our excellent
reputation. We take the same approach with our internal customers, taking the time and making the effort to delight
our colleagues and stakeholders to promote a positive working environment.
Be bold and deliver
Our people are sharp, agile and insightful. We actively promote an environment where suggestions and ideas
are welcome, where people can speak up about an idea, discuss it, then formulate a way to deliver it.
SysGroup plc Annual Report & Accounts 2020
22
Chief Financial Officer’s Report Continued
Having regard to the consequences of strategic and long-term decisions
The Directors hold regular Board meetings which are usually held each month on scheduled calendar dates.
The Executive Directors prepare Board papers that cover a full review of the Group’s financial performance,
operational issues and plans, and opportunities and threats in the external market. In addition, the Board considers
the following matters of strategic importance: delegation of authority, annual operating plan and forecast approval,
acquisitions, senior management recruitment, capital structure and financing decisions, corporate governance,
and the approval of the interim and annual report and accounts. The Board is also responsible for reviewing the
effectiveness of the internal controls and risk management framework.
Board meetings are chaired by the Chairperson, Michael Edelson, and all matters on the agenda are covered with
the opportunity for additional matters to be raised. The complementary skills and experience of the Directors ensure
that strategic decisions are made with consideration to all the key stakeholder groups.
Having regard to maintaining high standards of business conduct
Corporate governance
The Board recognises the importance of operating a robust corporate governance framework, and you can read
about how we comply with the Quoted Companies Alliance Corporate Governance Code (“the QCA Code”) and
our approach to governance in our Corporate Governance Report on pages 36 to 41.
Political donations
No donations were made for political purposes (FY19: £nil)
Having regard to the interests of the employees
The Group’s employees are key stakeholders in the success of the business. We look to recruit high calibre individuals
and the Group invests in their ongoing development needs through internal and external training. All employees are
encouraged to speak openly with line managers and colleagues, and Senior Leadership Team meetings are held
once a week to ensure the teams are working with co-ordination and focus in the right areas. We have undertaken
employee engagement surveys during the year to gauge how our people feel about working at SysGroup and how
they are coping with working from home. The results from these surveys have been very positive and have led to the
Senior Leadership team finding new ways to engage with their teams and support their well-being at a time where
households are under considerable strain.
The most significant matter on which the Board have recently considered our employees as prime stakeholders has
been in dealing with the COVID-19 situation. The health and safety of our employees was our prime concern from
the outset and we took an early decision to move all of our employees to work from home ahead of the government
guidance. This was accomplished speedily and with minimal disruption and our offices were placed on lockdown.
We have changed the way we communicate and “socialise” with our teams and the employee survey results spoke
positively about how our people have been able to manage their workloads and private time. The Board considered
whether the company should furlough any employees and judged that the right decision, all factors considering,
was to place a hold on further recruitment and defer the pay review which would protect employment for the
current workforce and avoid the need for government assistance.
SysGroup plc Annual Report & Accounts 2020
23
Chief Financial Officer’s Report Continued
Having regard to the fostering of relationships with customers and suppliers
Suppliers
The Board is briefed on major contract negotiations and strategy with regards to key suppliers, notably with the
Group’s providers of datacentre services, telecommunications and connectivity. The Board seeks to balance the
benefits of maintaining strong partnering relationships with key suppliers alongside the need to obtain value for
money for our shareholders and ensuring continued high quality and service levels for our customers.
Customers
We aim to delight our customers and this sentiment is at the heart of everything we do. Our Head of Customer
Experience is a key member of the Senior Leadership Team and her primary responsibility is to liaise with our
customers to understand how we can help them solve their IT problems and how we can improve our services.
We measure our customer feedback by asking clients to provide us with an automated response for their level
of satisfaction for every service ticket we complete and our level of satisfied or very satisfied is consistently higher
than 95% which is industry benchmark.
The Board Meetings include reviews of Sales, Marketing, Technical Operations and Customer Experience, all of
which highlight areas which directly affect our customers. Adam Binks, Chief Executive Officer, regularly meets with
our larger customers which strengthens relationships and allows opportunities and issues to be discussed and
followed up.
Strategic decisions that the Board discuss that may particularly affect our customers are on the portfolio of
services and products we offer, the supplier partners we engage with and changes to our operational structure.
For both our suppliers and customers the Board recently had to consider our relationships in response to the
COVID-19 situation. The steps we took to address the COVID risk and our decision to transition all of our employees
to home working was communicated clearly and early to all of our customers and suppliers with a commitment
that our services would continue to run seamlessly. For our customers, we have provided financial support to a
small number of customers and in some cases the deferral of fees into future periods. For our suppliers we have
maintained our operational relationships as “business as usual” and continued to make payments according
to our usual payment calendar. We believe we’ve taken the right approach on corporate responsibility in this
unprecedented situation by not taking advantage of the UK Government’s financial assistance or seeking cost
reductions from our suppliers when other industry sectors have suffered significantly more.
Regulators
As an AIM listed Group, we recognise the importance of maintaining high quality regulatory compliance and internal
governance which is described in further detail in the Corporate Government Report. We comply with regulations
for AIM, the Companies Act, Employment, GDPR, Health & Safety, Anti-Bribery and Corruption, and all other relevant
regulations.
Bank provider
We see Santander, our bank operator and lender, as a key partner to the continued success of SysGroup. We have
a Term Loan and an undrawn Revolving Credit Facility with Santander which provides funding for the future growth
of the organisation. The Directors maintain regular contact with our Relationship contacts at the bank by arranging
meetings where updates on the business are provided and by supplying monthly reports on financial performance.
The Board keep the capital and funding structure of the Group under consideration as the Group continues its scale
up strategy.
SysGroup plc Annual Report & Accounts 2020
24
Chief Financial Officer’s Report Continued
Having regard to the business impact on the community & environment
SysGroup endeavours to operate as a “good citizen” to its local communities and environment. We encourage and
support our employees to participate in charitable events and members of our teams have voluntarily contributed
their own time to support local educational groups with careers advice and developments in information
technology. SysGroup is a low waste business and all our offices recycle to the fullest extent they can.
Having regard to the need to act fairly between members
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 recognise that
understanding what analysts and investors think about the Company helps the Board to formulate future strategy.
The Executive Directors meet our major shareholders individually 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.
The Non-Executive Directors can also be contacted by shareholders if they wish to raise any matters.
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, organisation structure changes
and prospects.
Acquisition of Hub Network Services Limited
A key decision taken by the Board of Directors this finanicial year has been the acquisition of Hub Network Services
Limited (“HNS”) in June 2019. The key stakeholders relevant to this decision were the company’s shareholders who
support the Group’s buy and build strategy and seek long-term value growth, and our employees whom are key to
ensuring that the teams working for acquired companies are welcomed into the Group and the business integration
process is managed well.
The Board identified the strategic benefits of acquiring HNS for sales growth and complementary services and
undertook robust financial, legal and technical due diligence processes which gave sufficient assurances to
decide that the acquisition would be in the interests of the shareholders, employees and Group as a whole.
Martin Audcent
Chief Financial Officer
30 June 2020
SysGroup plc Annual Report & Accounts 2020
25
Board of
Directors’
Profile
SysGroup plc Annual Report & Accounts 2020 26
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
SysGroup plc. He has been a Founding Director or Chairman
as Chief Executive Officer in April 2019 after being formally
of several companies admitted to the AIM market, including
appointed to the board in October 2017. Adam will lead
Prestbury Group plc, Knutsford Group plc, Mercury Recycling
SysGroup through its next stage of growth, which will
Group plc (now Ironveld plc) and ASOS PLC.
incorporate strategic acquisitions and continued organic
He was a Non-Executive Chairman of Bramhall plc,
reach, as well as investment in capabilities and technology.
growth to expand the customer offering and geographical
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
& Telecoms sectors across his 18-year career. Adam has
of 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 in 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 2020
27
Directors’
Report
SysGroup plc Annual Report & Accounts 2020 28
Directors’ Report
The Directors present their Annual Report and Audited Financial Statements for the year ended 31 March 2020.
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 for the twelve months to 31 March 2020, a summary of the
financial position at the year-end and an indication of the outlook for the future is contained in the Strategic Report
on pages 9 to 24.
Results & Dividends
The Consolidated Statement of Comprehensive Income for the year is set out on page 51 The Directors do not
propose the payment of a dividend for the year ended 31 March 2020 (FY19: nil).
Financial Instruments
The Group uses various financial instruments. These include bank loans, lease contracts, 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.
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 an overdraft facility.
Interest Rate Risk
The Group finances its operations through a mixture of bank loans, property and equipment 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 2020 29
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 and the total of the cash balances and trade and other
receivables represents the maximum exposure to credit risk. In order to manage credit risk, the Group employs a
dedicated credit control team who have access to credit agency rating services. This allows the team to assess new
customers for creditworthiness and continually monitor and address credit risks in our customer base.
Directors
The Directors of the Company who held office during the year are as follows:
Name
Michael Edelson
Adam Binks
Martin Audcent
Mark Quartermaine
Mike Fletcher
Position Held
Non-Executive Chairman
Chief Executive Officer
Chief Financial Officer
Non-Executive Director
Non-Executive Director
The interests of the current Directors in shares and options are detailed in the Directors’ Remuneration Report
on pages 32 to 34.
Significant Shareholdings
As of 25th June 2020, the Company has been notified of the following significant shareholdings:
Name
Number of Shares
Percentage Holding
Gresham House Asset Management Limited
Canaccord Genuity Group Inc
Downing LLP
Darren Carter
Herald Investment Management Ltd
William Currie
Helium Rising Stars Fund
Praetura Group Limited*
Premier Miton Investors
13,739,563
6,998,803
3,880,841
3,552,632
3,444,581
2,757,895
2,285,000
1,710,256
1,582,656
27.81%
14.16%
7.85%
7.19%
6.97%
5.58%
4.62%
3.46%
3.20%
*Mike Fletcher (Non-Executive Director) is a Director and shareholder of Praetura Group Limited.
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.
SysGroup plc Annual Report & Accounts 2020 30
Directors’ Report Continued
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.
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
30 June 2020
SysGroup plc Annual Report & Accounts 2020 31
Directors’
Remuneration
Report
SysGroup plc Annual Report & Accounts 2020 32
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 and no pay review increase was
awarded in the current or prior year. The salary/fees shown below includes car allowances.
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 2020 the cash bonus was paid
at the full amounts.
SysGroup plc Annual Report & Accounts 2020 Directors’ Remuneration Report Continued
A summary of the total remuneration paid to Directors is set out below:
33
Director
Michael Edelson
Mike Fletcher
Mark Quartermaine
Adam Binks
Martin Audcent
Julian Llewellyn
Robert Khalastchy
2020
2019
Salary
£’000
Bonus
£’000
Pension
£’000
BIK
£’000
Total
£’000
Salary
£’000
Bonus
£’000
Pension
£’000
BIK
£’000
Total
£’000
40
40
40
165
130
-
-
-
-
-
75
30
-
-
-
-
-
8
6
-
-
-
-
-
2
1
-
-
3
40
40
40
250
167
-
-
40
40
40
165
93
37
5
-
-
-
75
30
-
-
-
-
-
8
4
2
-
537
420
105
14
-
-
-
1
1
1
-
3
40
40
40
249
128
40
5
542
Total Remuneration
415
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 Executive Directors have a Long-Term Incentive Plan (“LTIP”) which has been designed to incentivise
management to deliver long-term value creation for shareholders and ensure alignment with shareholder
interests. Awards of share options are granted by the Remuneration Committee following a review of management
performance in the financial year.
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
with full vesting at 25% compound annual growth with straight line vesting for performance between 10% and 25%.
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 three-year period is at least 10% CAGR (the “EPS threshold”).
During the year, the Remuneration Committee granted Adam Binks, Chief Executive Officer, 250,000 performance
shares with an exercise price of £0.01 and granted Martin Audcent, Chief Financial Officer, 150,000 performance
shares with an exercise price of £0.01 (the “Awards”). The shares have an expiry date of 14 July 2029.
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 2020
34
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
Mike Fletcher*
Michael Edelson*
Adam Binks
Martin Audcent*
Mark Quartermaine
Number of
Ordinary Shares
Percentage
Interest
1,787,179
858,179
220,134
117,499
76,923
3.62%
1.74%
0.45%
0.24%
0.16%
* 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
250,000
450,000
150,000
Grant Date
Expiry Date
26/06/2018
25/06/2028
15/07/2019
16/07/2018
15/07/2019
14/07/2029
15/07/2028
14/07/2029
The Directors held the following warrants over the ordinary shares of the Company at the end of the year as follows:
Director
Exercise Price
No. of Warrants
Grant Date
Expiry Date
Michael Edelson
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 2020
35
Corporate
Governance
Report
SysGroup plc Annual Report & Accounts 2020 36
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.
All AIM companies have to operate a corporate governance code in compliance with AIM Rule 26 and the SysGroup
Board have adopted the principles of the 2019 Quoted Companies Alliance Corporate Governance Code (“the QCA
Code”) to support the Company’s governance framework. 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 Directors and three Non-Executive Directors, and reflects
a complementary blend of different experience and backgrounds.
The principal areas of Board responsibility are:
Identification and approval of acquisition opportunities and key investment decisions
• Business strategy and performance review
• Corporate governance and risk management
•
• Approval of financing and equity structure changes
• Consideration of Senior employee appointments
• 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. Decisions are made promptly following full Board consultation when necessary and appropriate.
The Executive Directors provide the Non-Executive Directors with full operational and financial information regularly
to enable them to discharge their duties effectively and all Directors have access to independent professional
advice at the Company’s expense, as and when required.
The attendance at Board and Committee Meetings in the year was as follows:
Meetings held
Michael Edelson
Mike Fletcher
Mark Quartermaine
Adam Binks
Martin Audcent
Plc Board
Audit Committee
Remuneration
Committee
12
12
10
11
12
12
4
4
4
3
4
4
2
2
2
2
-
-
SysGroup plc Annual Report & Accounts 2020 37
Corporate Governance Report Continued
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.
QCA Code Principles
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. Further detail on the Group’s strategy can be found in the strategic report on page 11.
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 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 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. The Non-Executive Directors can also be contacted by shareholders if they
wish to raise any matters.
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, organisation structure
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 wider group of stakeholders who assist in creating value in the Group.
We have strong relationships with customers and suppliers, and the service and delivery capability of our
employees is of central importance. It is our teams that provide the high quality service to customers and we
ensure that we continue to invest in them through appropriate training and development.
SysGroup plc Annual Report & Accounts 2020
38
Corporate Governance Report Continued
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 by assisting them with suggested 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 quality of their products or services and on competitive pricing. Long term
relationships are particularly helpful in situations where we can work with the supplier to identify value creation
opportunities. New suppliers are subject to 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 look 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, and Senior Leadership Team meetings are held once a week to
ensure the team are working with co-ordination and focus on the right priorities. We believe that having
a contemporary workplace environment is a key element to attract, retain and motivate our employees
and we ensure our workplaces are vibrant and energising places to work.
As an AIM listed Group, we recognise the importance of maintaining 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, the 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 Leadership Team are responsible for monitoring and addressing the key risks of the business
and any significant issues are escalated rapidly to the Executive Board.
As the Group continues to grow the risks of the business and risk management framework will remain subject
to regular review.
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.
SysGroup plc Annual Report & Accounts 2020
39
Corporate Governance Report Continued
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.
Unless recommended by the Directors for appointment, no person other than a Director retiring at the meeting
shall be eligible for appointment to the office of Director at any General Meeting unless the Company receives
notice in writing by a member duly qualified to attend and vote at the meeting with the necessary particulars
and authorities. The notice must be received not less than seven nor more than 28 days before the day
appointed for the meeting.
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. The Company does not currently have a formal appraisal process
for Directors, but we shall keep this under review.
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. SysGroup has a well-established set of corporate values that
are communicated and understood throughout the organisation, these are:
Love what you do
•
• Work smart
• Own it
• Delight your customers
Be bold and deliver
•
SysGroup plc Annual Report & Accounts 2020
40
Corporate Governance Report Continued
The Board and Senior Leadership Team have key roles in promoting, demonstrating and embedding these
values across the Group. All new employees are provided with an Employee Handbook on joining the
organisation which explains all the key internal policies including the Security Policy, Health & Safety Policy,
Anti-Corruption and Bribery Policy, Whistleblowing Policy, and Data Protection Policy. These policies are also
available to view on our Group’s online corporate platform “SysHub” which also offers employee benefits and
Company latest news. We use personality insight tools in our recruitment processes and we seek to recruit
candidates who fit well with our corporate values as well as for having the appropriate skills, knowledge and
experience for the roles. 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.
Maintain governance structures and processes that are fit for purpose and support good
decision-making by the board
The Directors recognise the importance of having a robust system of governance to ensure there are
appropriate levels of internal control for 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
every 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 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, senior management recruitment and remuneration, capital structure changes, corporate
governance, and the approval of the interim and annual report and accounts. The Board is also responsible
for reviewing the effectiveness of the internal controls and risk management framework.
Audit Committee
The membership of the Company’s Audit Committee comprises Michael Edelson, Mark Quartermaine and Mike
Fletcher. Mike Fletcher is the Chairman of this Committee. The Audit Committee meets at least three times 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. It reviews the external auditors’ performance and independence and makes recommendations to the
Board on the appointment of the auditors.
During the year to 31 March 2020, there were four Audit Committee meetings and the principal items are detailed
below.
•
•
•
•
•
•
•
BDO auditor independence, audit fee and engagement letters
Adoption of the new standard, IFRS16 Leases
Review of the Group’s classification of Cash Generating Units
Review of Going Concern & Viability
Review of the BDO Planning, Interim and Full Year Audit Review reports
Review and approval of the Interim Results Announcement, Preliminary Announcement
and Annual Report & Accounts
Review and approval of the Management Letters of Representation
SysGroup plc Annual Report & Accounts 2020
41
Corporate Governance Report Continued
The Group have not included a separate Audit Committee report in its financial statements, the contents of such
a report including the principal risk and uncertainties, the role and structure of the audit committee and the
corporate governance disclosure are separately included throughout the report and have been reviewed by
the Audit Committee.
Remuneration Committee
The membership of the Company’s Remuneration Committee 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.
During the year to 31 March 2020, two Remuneration Committee meetings were held and the principal items
were to approve the grant of 400,000 EMI and Unapproved share options to the Executive Directors and to
approve an allocation of up to 350,000 share options to be granted to other employees at the discretion
of the Executive Directors.
8. 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 aim to provide all relevant information
that allows shareholders to gain a clear understanding of how we manage the business and we shall continue
to identify areas of disclosure that can be enhanced.
We arrange regular meetings for our principal shareholders to meet with the Executive Directors so they can
receive an update on the business and have the opportunity to ask questions. Broker research notes on the
Group are also available for investors to review. Across the financial year, the regular communications to
shareholders are:
•
•
•
•
•
•
Preliminary 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 the 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 seeks permission from
certain designated people before trading in the shares of the Group.
SysGroup plc Annual Report & Accounts 2020
42
Statement
of Directors’
Responsibilities
SysGroup plc Annual Report & Accounts 2020 43
Statement of Directors’
Responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the
Directors have elected to prepare the 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
30 June 2020
SysGroup plc Annual Report & Accounts 2020
44
Independent
Auditor’s Report
to the Members
of SysGroup plc
SysGroup plc Annual Report & Accounts 2020 45
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 2020 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 2020 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 2020 46
Independent Auditor’s Report to the Members of SysGroup plc Continued
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Revenue recognition
How we addressed the key audit matter in the audit
The group has a number of different revenue streams, each
of which has a different revenue recognition policy dependent
on the specific terms of the transfer of goods or the service
provided. Full details of these policies can be found in note 1
to the financial statements.
There are a number of judgements involved in the application
of IFRS15, the revenue recognition 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.
Because of this we determined revenue recognition to be
a key audit matter.
We reviewed the Group’s revenue recognition policies for all
revenue streams to ensure that these were in accordance
with accounting standards. We evaluated Management’s
assessment of the performance obligations in relation to the
IFRS 15 criteria and whether revenue should be recognised
at a point in time or over time and challenged the key
judgements made by Management.
We agreed the revenue recognition criteria for a sample
of new contracts and checked that assumptions and
judgements made were in accordance with the underlying
contracts
During the year, the group acquired a new subsidiary, Hub
Network Services Limited. We checked that the revenue
recognition policies for this company was consistent with
both IFRS15 and other group companies.
Key observation: We are satisfied that the group’s revenue
recognition is materially correct.
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 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:
£120,000 (2019: £100,000)
0.6% of revenue (2019: 0.75% of revenue)
Rationale for the benchmark adopted:
The Group has continued to make losses in the current period and therefore revenue was considered the most
stable and relevant measure and the percentage determined was considered appropriate for a listed entity.
Parent Company Materiality:
£60,000 (2019: £60,000)
Basis for Materiality:
Capped at 50% of group materiality (2019 – Capped at 60%
of group materiality).
SysGroup plc Annual Report & Accounts 2020
47
Independent Auditor’s Report to the Members of SysGroup plc Continued
Rationale for the benchmark applied:
The Parent Company does not recognise any external revenue and so a revenue basis was not considered
appropriate and materiality was capped at a percentage of Group materiality.
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 £90,000 (2019: £75,000) and for the parent Company £45,000 (2019: £45,000) 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.
Component materiality was set at levels between £30,000 and £100,000 (2019: £30,000 to £60,000).
We agreed with the Audit Committee that we would report all individual audit differences identified during the
course of the audit in excess of £5,000 (2019: £5,000). We also agreed to report differences below this threshold
that, in our view, warranted reporting on qualitative grounds.
An Overview of the Scope of Our Audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including 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 operates through a number of legal entities, which form reporting components. Significant components
were defined as those reporting components contributing more than 15% towards Group assets, turnover or profits.
The Group manages its operations from the UK and the financial information relating to the parent Company and
all other components of the Group including 5 significant components and 1 non-significant component were
subject to full scope audit by the Group audit team.
As a consequence of the audit scope determined, we achieved coverage of 100% (2019: 100%) of revenue, 100%
(2019: 100%) of profit before tax and 99% (2019: 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.
SysGroup plc Annual Report & Accounts 2020 48
Independent Auditor’s Report to the Members of SysGroup plc Continued
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 by the Parent Company, or returns adequate for our audit
have not been received from branches not visited by us; or
the Parent Company financial statements are not in agreement with the accounting records and returns; or
•
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the statement of Directors’ responsibilities, 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.
SysGroup plc Annual Report & Accounts 2020 49
Independent Auditor’s Report to the Members of SysGroup plc Continued
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
30 June 2020
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 2020 50
Consolidated
Statement of
Comprehensive
Income
SysGroup plc Annual Report & Accounts 2020 Consolidated Statement
of Comprehensive Income
For the year ended 31 March 2020
Revenue
Cost of sales
Gross profit
Operating expenses before depreciation, amortisation,
exceptional items and share based payments
Adjusted EBITDA
Depreciation
Amortisation of intangibles
Exceptional items
Share based payments
Administrative expenses
Operating loss
Finance costs
Loss before taxation
Taxation
Total comprehensive loss attributable to the
equity holders of the company
Basic loss per share (EPS)
Diluted loss per share (EPS)
Notes
4
14
13
8
9
6
12
11
11
2020
Group
£’000
19,492
(8,291)
11,201
(8,387)
2,814
(847)
(1,321)
(475)
(199)
(11,229)
(28)
(206)
(234)
112
(122)
(0.2p)
(0.2p)
51
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)
SysGroup plc Annual Report & Accounts 2020
52
Consolidated
Statement of
Financial Position
SysGroup plc Annual Report & Accounts 2020 53
Consolidated Statement
of Financial Position
As at 31 March 2020
Notes
2020
Group
£’000
2019
Group
£’000
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
Contingent consideration
Bank loan
Lease liabilities
Deferred taxation
Current liabilities
Trade and other payables
Contingent consideration
Contract liabilities
Bank loan
Lease liabilities
Total Equity and Liabilities
13
13
14
16
20
17
18
18
12
17
17
18
18
15,554
6,188
1,824
23,566
2,726
3,036
5,762
29,328
494
9,080
2,328
4
8,163
20,069
-
1,146
441
1,200
2,787
3,488
1,000
1,465
251
268
6,472
29,328
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
1,000
1,397
81
1,120
3,598
3,992
-
1,238
224
204
5,658
29,333
SysGroup plc Annual Report & Accounts 2020
Consolidated Statement of Financial Position Continued
The financial statements on pages 51 to 94 were approved by the Board and authorised on 30 June 2020.
54
Martin Audcent
Director
Registered number 06172239
SysGroup plc Annual Report & Accounts 2020 55
Company
Statement of
Financial Position
SysGroup plc Annual Report & Accounts 2020 56
Company Statement
of Financial Position
As at 31 March 2020
Notes
2020
Company
£’000
2019
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
Lease liabilities
Current liabilities
Contingent consideration
Amounts due to subsidiary undertakings
Trade and other payables
Bank loan
Lease liabilities
Total Equity and Liabilities
15
14
16
20
17
18
18
17
17
17
18
18
24,895
8
194
25,097
314
217
531
25,628
494
9,080
2,328
6,421
18,323
-
1,146
104
1,250
1,000
4,110
655
251
39
6,055
25,628
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
-
2,868
653
224
-
3,745
24,437
SysGroup plc Annual Report & Accounts 2020
Company Statement of Financial Position Continued
As permitted by section 408 of the Companies Act 2006, the holding Company’s statement of comprehensive
income has not been included in the financial statements. For the year ended 31 March 2020, the Company
made a loss of £159,000 (FY19: loss of £941,000).
57
Martin Audcent
Director
Registered number 06172239
SysGroup plc Annual Report & Accounts 2020 58
Consolidated
Statement of
Changes in Equity
SysGroup plc Annual Report & Accounts 2020 59
Total
£’000
11,337
(722)
(722)
119
(657)
10,000
9,462
Consolidated Statement
of Changes in Equity
For the year ended 31 March 2020
Attributable to equity holders of the parent
Translation
reserve
£’000
Retained
earnings
£’000
9,092
(722)
(722)
-
-
-
-
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
Balance as at 31 March 2019
(as previously stated)
Adjustment on adoption of IFRS16
As at 1 April 2019 (restated)
Comprehensive income
Loss for the period
Total Comprehensive income
Distributions to owners
Share options granted
Total Distributions to owners
Share
capital
£’000
231
-
-
-
-
263
263
494
494
-
494
-
-
-
-
Share
premium
reserve
£’000
-
-
-
-
(657)
9,737
9,080
9,080
9,080
-
9,080
-
-
-
-
Other
reserve
£’000
2,010
-
-
119
-
-
119
2,129
2,129
-
2,129
-
-
199
199
At 31 March 2020
494
9,080
2,328
The following describes the nature and purpose of each reserve within equity:
4
-
-
-
-
-
-
4
4
-
4
-
-
-
-
4
8,370
20,077
8,370
20,077
(85)
8,285
(122)
(122)
-
-
(85)
19,992
(122)
(122)
199
199
8,163
20,069
Reserve
Description and purpose
Share Premium Reserve
Amount subscribed for share capital in excess of nominal values.
Other Reserve
Translation Reserve
Amount reserved for share based payments to be released over the life of the
instruments and the equity element of convertible loans.
Amount represents differences in relation to the consolidation of subsidiary
companies which are accounted for in currencies other than the Group’s functional
currency.
Retained Earnings
All other net gains and losses and transactions with owners not recognised elsewhere.
SysGroup plc Annual Report & Accounts 2020
60
Company
Statement of
Changes in Equity
SysGroup plc Annual Report & Accounts 2020 61
Total
£’000
9,774
(941)
(941)
119
(657)
10,000
9,462
Company Statement
of Changes in Equity
For the year ended 31 March 2020
Attributable to equity holders of the Company
At 31 March 2018
Comprehensive income
Profit 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
Balance as at 31 March 2019
(as previously stated)
Adjustment on adoption of IFRS16
As at 1 April 2019 (restated)
Comprehensive income
Loss for the period
Total Comprehensive income
Distributions to owners
Share options granted
Total Distributions to owners
Share
capital
£’000
231
-
-
-
-
263
263
494
494
-
494
-
-
-
-
Share
premium
reserve
£’000
-
-
-
-
(657)
9,737
9,080
9,080
9,080
-
9,080
-
-
-
-
Other
reserve
£’000
Retained
earnings
£’000
2,010
7,533
-
-
119
-
-
119
(941)
(941)
-
-
-
-
2,129
6,592
18,295
2,129
-
2,129
-
-
199
199
6,592
18,295
(12)
6,580
(159)
(159)
-
-
(12)
18,283
(159)
(159)
199
199
At 31 March 2020
494
9,080
2,328
6,421
18,323
SysGroup plc Annual Report & Accounts 2020
62
Consolidated
Statement
of Cashflows
SysGroup plc Annual Report & Accounts 2020 63
Consolidated Statement
of Cashflows
For the year ended 31 March 2020
Notes
13,14
6
12
14
13
10
10
10
Cashflows used in operating activities
Loss after tax
Adjustments for:
Depreciation and amortisation
Finance costs
Share based payments
Taxation
Operating cashflows before movement
in working capital
(Decrease)/increase in trade and other receivables
(Decrease)/increase in trade and other payables
Operating cashflows before interest and tax
Interest paid
Taxation paid
Operational cashflows
Cashflows from investing activities
Payments to acquire property, plant & equipment
Payments to acquire intangible assets
Acquisition of subsidiary companies
Amounts received in respect of previous acquisitions
Cash acquired with acquisitions
Net cash used in investing activities
Cashflows from financing activities
Net proceeds from issue of ordinary share capital
Repayment of loan facility including fees
Capital/principal paid on lease liabilities
Net cash from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
2020
Group
£’000
2019
Group
£’000
(122)
2,168
206
199
(112)
2,339
501
(533)
2,307
(205)
(172)
1,930
(353)
(190)
(1,911)
252
609
(1,593)
-
(224)
(453)
(677)
(340)
3,376
3,036
(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
SysGroup plc Annual Report & Accounts 2020
64
Company
Statement
of Cashflows
SysGroup plc Annual Report & Accounts 2020 65
Company Statement
of Cashflows
For the year ended 31 March 2020
Notes
2020
Company
£’000
2019
Company
£’000
Cashflows used in operating activities
Loss after tax
Adjustments for:
Depreciation and amortisation
Finance costs
Share based payments
Operating cashflows before movement
in working capital
Decrease/(Increase) in trade and other receivables
Increase in trade and other payables
Operating cashflows before interest and tax
Interest paid
Operational cashflows
Cashflows from investing activities
Payments to acquire property, plant & equipment
Acquisition of subsidiary companies
Amounts received in respect of previous acquisitions
Net cash used in investing activities
Cashflows from financing activities
Net proceeds from issue of ordinary share capital
Repayment of loan facility
Capital/principal paid on lease liabilities
Net cash (outflow)/inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
16
17
14
10
10
(159)
100
169
199
309
148
1,244
1,701
(169)
1,532
(33)
(1,911)
252
(1,692)
-
(224)
(27)
(251)
(411)
628
217
(941)
67
152
119
(603)
(327)
644
(286)
(108)
(394)
(99)
(7,956)
-
(8,055)
9,343
(382)
-
8,961
512
116
628
SysGroup plc Annual Report & Accounts 2020
66
Notes to the
Consolidated
Financial
Statements
SysGroup plc Annual Report & Accounts 2020 67
Notes to the Consolidated
Financial Statements
For the year ended 31 March 2020
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. This is the first set of Group’s financial
statements in which IFRS16 has been applied.
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 Board recognises that the Group is trading in an economy that has suffered a significant downturn following
the onset of the COVID-19 pandemic and there is considerable uncertainty in the timing and rate of recovery. The
Group has an operating model with circa 75% of revenue deriving from contracted managed IT services which is
a continuous service supply to customers and largely uninterrupted by the impact of COVID-19. The Group has a
resilient financial position with a cash balance of £3.04m and a net cash position of £0.45m at 31 March 2020. Net
cash includes a £1.4m Senior Term loan with Santander at 31 March 2020 which is subject to quarterly loan covenant
tests which are calculated on a 12-month rolling basis for interest cover, net debt to Adjusted EBITDA leverage and
debt service cover.
The Directors have reviewed the financial forecasts and a Reverse Stress Test model. The Reverse Stress Test model
has allowed the Board to assess a significant downside scenario set to the point where the bank loan covenants
would breach. The projected trading forecasts and resultant cashflows, together with the confirmed loan facilities
and other sources of finance, taking account of reasonably possible changes in trading performance, show that
the Group can continue to operate within the current facilities available to it.
SysGroup plc Annual Report & Accounts 2020 68
Notes to the Consolidated Financial Statements Continued
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.
New standards and interpretations
A number of new standards and amendments to standards and interpretations have been issued during the year
ended 31 March 2020. 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 2019. Other new amended standards and interpretations issued by the IASB that apply to the financial
statements do not impact the Group as they are either not relevant to the Group’s activities or require accounting
which is consistent with the Group’s current accounting policies.
New standards not yet effective
There are a number of standards and amendments to standards, and interpretations which have been issued by
the IASB that are effective in future accounting periods that the Group has decided not to adopt early. SysGroup plc
is currently assessing the impact of these new standard and amendments. The Group does not expect any other
standards issued by the IASB, but not yet effective, to have a material outcome on the Group.
IFRS16 - Leases
IFRS16 has replaced IAS17 Leases and the new standard became effective for the period commencing after 1
January 2019. The Group has adopted IFRS16 using the modified retrospective basis with recognition of a transitional
adjustment on the date of initial application being 1 April 2019 and therefore comparatives have not been restated.
IFRS 16 introduces a single lessee accounting model, where the Group now recognises a lease liability and a right of
use asset for all leases. The group has no significant leasing activities acting as a lessor. On adoption of IFRS16 the
group recognised a right of use asset in relation to the lease of motor vehicles, office space and equipment.
At 1 April 2019
Recognition of right of use assets on initial application of IFRS16
Additions
Disposals
Interest expense
Lease payments
At 31 March 2020
Repayment of lease liabilities are analysed as follows:
Due within 1 year
Instalments due after 1 year but no more than 5 years
Instalments due after 5 years
Land &
Buildings
£’000
Plant &
Machinery
£’000
Motor
Vehicles
£’000
-
578
204
(80)
28
(207)
523
247
-
130
-
14
(232)
159
38
-
-
-
3
(14)
27
Total
£’000
285
578
334
(80)
45
(453)
709
2020
£’000
268
441
-
The weighted average incremental borrowing rate applied to lease liabilities on 1 April 2019 was 4%.
SysGroup plc Annual Report & Accounts 2020
Notes to the Consolidated Financial Statements Continued
Reconciliation to operating lease commitment
The aggregate lease liability recognised in the statement of financial position at 1 April 2019 and the Group’s operating
lease commitment at 31 March 2019 can be reconciled as follows:
Operating lease commitment at 31 March 2019
Effect of estimating for the purpose of IFRS 16 that lease break clause will not be exercised
(i.e. present value of lease payments to be made after the transition date)
Discounting
Aggregate lease liability at 1 April 2019
69
2020
£'000
268
349
(39)
578
IFRS16 provided for certain optional practical expedients, including those in relation to the initial adoption
of the standard. The group applied the following practical expedients:
• The group did not reassess any contracts not previously identified as a lease under IAS17 or IFRIC4 prior to the
transition date of 1 April 2019.
• A single discount rate was applied to a portfolio of leases with reasonably similar characteristics, which was
deemed to be the inherent interest rate at the date of initial application.
• Applied the exemption not to recognise a right-of-use asset and liability for leases with less than 12 months
of lease term remaining as at the date of initial application.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease
term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case)
this is not readily determinable, in which case the group’s incremental borrowing rate on commencement of the
lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend
on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will
remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which
they relate.
Right of use assets have been calculated as if the standard had been applied from the lease commencement date
subject to the practical expedients noted above.
At 1 April 2019
Recognition of lease liabilities on initial application of IFRS16
Additions
Disposals
Depreciation
At 31 March 2020
Land &
Buildings
£’000
Plant &
Machinery
£’000
Motor
Vehicles
£’000
-
512
204
(51)
(171)
494
427
-
107
-
(206)
328
33
-
-
-
(15)
18
Total
£’000
460
512
311
(51)
(392)
840
Within the income statement, operating lease charges, which previously sat in administrative expenses, have been
replaced by depreciation and interest expenses. The adoption of IFRS 16 resulted in a right of use asset of £0.51m,
with a corresponding liability of £0.58m, being recognised at 1 April 2019. Within the consolidated income statement,
the operating lease charge has been replaced by depreciation and interest expense. This has resulted in a £0.2m
decrease in operating expenses and corresponding increase to Adjusted EBITDA, and a £0.05m increase in finance
costs. Cashflows in respect of lease liabilities are included in operating cashflows in the Group and Company
statement of cashflows.
SysGroup plc Annual Report & Accounts 2020
Notes to the Consolidated Financial Statements Continued
Gross profit - consistent with 2019 presentation and accounting policy
Changes due to new accounting policy - IFRS 16
Gross profit - consistent with 2020 presentation and accounting policy
Adjusted EBITDA* - consistent with 2019 presentation and accounting policy
Changes due to new accounting policy - IFRS 16
Adjusted EBITDA* - consistent with 2020 presentation and accounting policy
70
2019
£'000
7,779
-
7,779
1,413
-
1,413
2020
£'000
11,201
-
11,201
2,617
197
2,814
*Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation of intangible assets, exceptional items and share based payments.
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.
Business Combinations
All business combinations are accounted for by applying the purchase method. On acquisition, all the subsidiaries’
assets and liabilities that exist at the date of acquisition are recorded at their fair values reflecting the conditions
at that date. The results of subsidiaries acquired in the period are included in the income statement from the date
on which control is obtained.
Goodwill
Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value
of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is not amortised but is capitalised
as an intangible asset with any impairment in carrying value being charged to the consolidated statement of
comprehensive income. In determining the fair value of consideration, the fair value of equity issued is the market
value of equity at the date of completion, and the fair value of contingent consideration is based on the expected
future cashflows based on whether the Directors believe performance conditions will be met and thus the extent
to which the further consideration will be payable. Where the fair value of identifiable assets, liabilities and
contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated
statement of comprehensive income on the acquisition date.
Impairment of Non-Financial Assets
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken
annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events
or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying
value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell),
the asset is written down accordingly.
SysGroup plc Annual Report & Accounts 2020 71
Notes to the Consolidated Financial Statements Continued
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 has three principal categories of performance obligation: managed IT 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.
The revenue recognition policies can be summarised as follows:
Revenue
category
Managed
services
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.
SysGroup plc Annual Report & Accounts 2020 Notes to the Consolidated Financial Statements Continued
72
Revenue
category
Professional
services
Performance delivery
Revenue recognition
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 in line with the day the work is performed.
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.
For managed services and professional services revenue, these are recognised over time as the entity’s
performance does not create an asset with an alternative use to the entity and the entity has an enforceable
right to payment for performance completed to date.
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.
Alternative profit measures
In reporting its results, the Directors have presented various alternative profit measures (APMs) of financial
performance, position or cashflows, which are not defined or specified under the requirements of IFRS. On the basis
that these measures are not defined by IFRS, they may not be directly comparable with other companies. The key
APMs that the group uses include recurring revenue as a percentage of revenue, Adjusted EBITDA, Adjusted PBT,
Adjusted EPS and Net cash/(debt).
The Group makes certain adjustments to the statutory profit in order to derive many of these APMs. These include
exceptional items and share based payments. 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 on a consistent basis from year to year.
SysGroup plc Annual Report & Accounts 2020
73
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 expected
lifetime credit loss will be recognised using the simplified approach and shown in administrative expenses in the
Consolidated Statement of Comprehensive Income. Impairment reviews for other receivables, including those due
from related parties, use the general approach whereby twelve month expected credit losses are provided for and
lifetime credit losses are only recognised where there has been a significant increase in credit risk, by monitoring
the credit worthiness of the other party. Cash and cash equivalents include 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 2020
74
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.
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
Motor vehicles
Freehold property
20% – 33.3% straight line
25% straight line
2% straight line
Right of use assets
over the period of the lease
Investment in Subsidiaries
Fixed asset investments in the Parent Company are shown at cost less any provision for impairment as necessary.
Research and Development
Research expenditure is written off to the consolidated statement of comprehensive income in the year in which
the expenditure occurs. Development expenditure is treated in the same way unless the Directors are satisfied as to
the technical, commercial and financial viability of individual projects, there is an intention to complete and sell the
product and the costs can be easily measurable. In this situation, the expenditure is capitalised, and the amortised
expense is included in administrative expenses in the Consolidated Statement of Comprehensive Income over the
years during which the Group is to benefit.
Intangible Assets
Intangible assets are recognised on business combinations if they are separable from the acquired entity or give
rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate
valuation techniques (see section related to critical estimates and judgements below).
The significant intangibles recognised by the Group, their estimated useful economic lives and the methods used
to determine the cost of intangibles acquired in business combinations are as follows:
Intangible asset
Estimated UEL
Valuation method
Customer relationships
Software
System development
5-7 years
3-5 years
5 years
Estimated discounted cash flow
Cost less amortisation
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.
SysGroup plc Annual Report & Accounts 2020 75
Notes to the Consolidated Financial Statements Continued
Recognition of deferred tax assets is restricted to those instances where it is highly probable that relief against
taxable profit will be available.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted
by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax
assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on
either the same taxable Group Company; or different Group entities which intend either to settle current tax assets
and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period
in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.
Deferred tax liabilities are recognised on intangible assets and other temporary differences recognised in business
combinations.
2. Significant Accounting Estimates & 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.
SysGroup plc Annual Report & Accounts 2020
76
Notes to the Consolidated Financial Statements Continued
Significant Accounting Judgements
• Going concern
The Board recognises that the Group is trading in an economy that has suffered a significant downturn following
the onset of the COVID-19 pandemic and there’s considerable uncertainty in the timing and rate of economic
recovery. Management have to exercise judgement in the preparation of financial forecasts particularly on the
level of future sales, customer contract uplifts and cancellations, and working capital assumptions. The Directors
have reviewed the Group’s financial forecasts and a Reverse Stress Test model in order to assess the Group’s
business viability and to form a judgement on going concern. Having reviewed the forecasts the Board were
satisfied that the Group remains a going concern.
• 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 and the only change this year is to include the new
acquisition in the year, Hub Network Services Limited, as a separate CGU (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.
•
IFR16 - Leases
Management make judgements in their assessment of lease contract agreements to ensure the appropriate
lease accounting recognition under IFRS16 – Leases. The main elements of judgement are:
• Determining the inherent rate of interest which applies to each lease or family of leases with similar
characteristics;
• Establishing whether or not it is reasonably certain that an extension option will be exercised; and
• Considering whether or not it is reasonably certain that a termination option will not be exercised.
3. Financial Instruments – Risk Management
The Group’s financial instruments comprise cash and liquid resources and various items such as trade receivables
and trade payables that arise directly from its operations. There have been no substantive changes in the Group’s
objectives, policies and processes for managing those risks or the methods used to measure them from previous
periods. The Group’s objective is to ensure adequate funding for continued growth and expansion.
All the Group’s financial instruments are carried at amortised cost with the exception of contingent consideration.
There is no material difference between the carrying and fair value of its financial instruments, in the current or
prior year, due to the instruments bearing interest at fixed rates or being of short term nature.
The Group faces a financial risk that such financial assets are not recovered but a provision is made where
recoverability is in doubt.
SysGroup plc Annual Report & Accounts 2020
Notes to the Consolidated Financial Statements Continued
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
2020
£’000
3,036
-
1,427
4,463
2,778
-
2,106
4,884
1,000
5,884
2019
£’000
3,376
-
1,744
5,120
2,864
-
1,906
4,770
1,000
5,770
Company
2020
£’000
217
176
-
393
569
4,110
1,397
6,076
1,000
7,076
Per the fair value hierarchy classifications under IFRS9 Financial Instruments the contingent consideration
due on acquisitions shown above is considered to be level 3 financial liabilities as there are no observable
inputs for valuation.
77
2019
£’000
628
241
-
869
539
2,868
1,621
5,028
1,000
6,028
At 1 April 2018
Certus IT acquisition
At 31 March 2019
At 31 March 2020
Group
£’000
-
1,000
1,000
1,000
Company
£’000
-
1,000
1,000
1,000
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.
SysGroup plc Annual Report & Accounts 2020 78
Notes to the Consolidated Financial Statements Continued
The following table sets out the contractual maturities (representing undiscounted contractual cashflows)
of financial liabilities:
Group
At 31st March 2020
Trade and other payables
Contingent consideration
Loans and borrowings
Total
At 31st March 2019
Trade and other payables
Contingent consideration
Loans and borrowings
Total
Company
At 31st March 2020
Trade and other payables
Amounts due to subsidiaries
Contingent consideration
Loans and borrowings
Total
At 31st March 2019
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
2,778
1,000
123
3,901
2,864
-
110
2,974
-
-
396
396
-
-
318
318
-
-
830
830
-
1,000
305
1,305
-
-
757
757
-
-
1,173
1,173
-
-
-
-
-
-
-
-
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
569
4,110
1,000
56
5,735
539
2,868
-
56
3,463
-
-
-
195
195
-
-
-
168
168
-
-
-
389
389
-
-
1,000
224
1,224
-
-
-
757
757
-
-
-
1,173
1,173
-
-
-
-
-
-
-
-
-
-
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. The Group has not completed a sensitivity analysis on its
interest rate risk, as any sensitivity would be immaterial to the user of the financial statements.
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 of a negative or above
on the standard and poor’s rating system.
SysGroup plc Annual Report & Accounts 2020 79
Notes to the Consolidated Financial Statements Continued
Capital Disclosures
The Group monitors capital which comprises all components of equity (i.e. share capital, share premium and
retained earnings).
The Group’s objectives 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
This segment provides all forms of sales where the business sells products and licences from supplier partners.
The monthly management accounts reported to the Board of Directors are 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 Value Added Resale 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
2020
£’000
15,092
4,400
19,492
2020
%
77%
23%
100%
2019
£’000
9,448
3,325
12,773
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
2020
£’000
19,310
182
19,492
2020
%
99%
1%
100%
2019
£’000
12,526
247
12,773
2019
%
74%
26%
100%
2019
%
98%
2%
100%
SysGroup plc Annual Report & Accounts 2020 Notes to the Consolidated Financial Statements Continued
Revenue
Managed IT Services
Value Added Resale
Total
Gross profit
Managed IT Services
Value Added Resale
Total
80
2019
£’000
9,448
3,325
12,773
6,959
820
7,779
2020
£’000
15,092
4,400
19,492
10,281
920
11,201
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.
The Group has recognised the following assets and liabilities related to 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
2020
£’000
1,465
1,238
2019
£’000
1,238
425
The Group expect to recognise all such revenue within twelve months of the balance sheet date.
5. Operating Loss
Operating loss is after charging the following:
Auditor’s remuneration:
Group:
Audit
Other advisory
Company:
Audit
Depreciation of tangible fixed assets
Amortisation of Intangible assets
Staff costs (note 7)
Share based payments (note 9)
Short term lease costs
Exceptional items (note 8)
2020
£’000
2019
£’000
68
16
4
847
1,321
6,544
199
55
475
60
-
4
503
723
4,710
119
168
736
SysGroup plc Annual Report & Accounts 2020
Notes to the Consolidated Financial Statements Continued
6. Finance Expense
Interest payable on lease liabilities
Interest payable on bank loan
Arrangement fee amortisation on bank loan
Total
7. Staff Numbers & Costs
81
2019
£’000
13
108
46
167
2020
£’000
45
134
27
206
The average monthly number of full-time persons employed by the Group, including Executive Directors during
the year was:
Technical Support
Sales and Marketing
Administration
Total
2020
2019
84
22
14
120
55
17
15
87
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
2020
£’000
5,757
627
59
101
199
2019
£’000
4,154
441
26
89
119
6,743
4,829
Total staff costs for the Company are £2,781,000 (FY19: £2,383,000) and average staff numbers for the Company
are 60 (FY19: 43). 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
2020
£’000
520
48
3
14
-
186
771
2019
£’000
525
43
3
14
23
110
718
SysGroup plc Annual Report & Accounts 2020 82
Notes to the Consolidated Financial Statements Continued
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 29.
The emoluments of the highest paid Director are £250,000 (FY19: £249,000).
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 2020 was £10,000 (FY19: £10,000).
8. Exceptional Items
Acquisitions
Integration and restructuring
Total
2020
£’000
85
390
475
2019
£’000
554
182
736
The Group has incurred exceptional costs during the year of £475,000 (FY19: £736,000) comprising £390,000 costs
for integration and restructuring and £85,000 of professional fees for the acquisition of Hub Network Services Limited.
The costs for integration and restructuring are for the exit of the Coventry office and anticipated employee exits
following acquisitions or as part of the Leadership Team restructure.
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. The weighted average exercise price of options in issue is 9.0p per share. For new share options issued in the
year, the volatility was estimated using the previous twelve months of the Group’s share price. 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
2019
Granted
12/12/13 to 11/12/23
21/02/16 to 20/02/26
02/03/18 to 01/03/21
28/06/18 to 27/06/21
16/07/18 to 15/07/21
60.0p
55.2p
35.5p
1.0p
1.0p
5,625
11,875
30,000
750,000
450,000
26/11/18 to 25/11/21
42.5p
534,000
-
-
-
-
-
-
Waived/
lapsed
(1,875)
-
-
-
-
At
31 March
2020
3,750
11,875
30,000
750,000
450,000
(223,000)
311,000
15/07/19 to 14/07/22
1.0p
-
400,000
-
400,000
1,781,500
400,000
(224,875)
1,956,625
12/12/2013
21/02/2016
02/03/2018
28/06/2018
16/07/2018
26/11/2018
15/07/2019
Total
SysGroup plc Annual Report & Accounts 2020
83
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
3,750
11,875
30,000
750,000
450,000
311,000
400,000
Grant date
Expiry date
Contract term (years)
Exercise price
Share price at granting
Annual risk-free rate (%)
Annual expected dividend yield (%)
Volatility (%)
12-Dec-13
21-Feb-16
02-Mar-18
28-Jun-18
16-Jul-18
26-Nov-18
15-Jul-19
11-Dec-23
20-Feb-
26
01-Mar-21
27-Jun-21
15-Jul-21
25-Nov-21
14-Jul-22
10
60p
85p
5.0%
0%
17%
10
55.2p
70.8p
5.0%
0%
17%
10
35.5p
35.5p
5.0%
0%
17%
10
1.0p
41.5p
5.0%
0%
17%
10
1.0p
44.4p
5.0%
0%
17%
10
42.5p
42.5p
5.0%
0%
17%
10
1.0p
42.0p
5.0%
0%
17%
Fair value per grant instrument
25.8p
38.2p
15.3p
40.9p
43.7p
18.3p
41.4p
At 31 March 2020 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 June 2019, the Company acquired 100% of the issued share capital of HNS, a managed services provider registered
in England & Wales with a head office in Bristol. HNS is a well-established B2B managed services provider with
a primary focus on delivering superfast, low latency network connectivity and datacentre solutions.
HNS was acquired for £1.45m cash paid on completion, cash free debt free, with a further £0.45m cash payment
following the agreement of the completion accounts for the cash balance acquired, debt items and working
capital adjustment. The company incurred £85,000 of professional fees and other acquisition costs in relation to this
acquisition. These costs are included as Exceptional items in the consolidated statement of comprehensive income.
The Directors have considered the intangible assets acquired with HNS and have recognised an intangible asset
in respect of customer relationships. The asset value has been calculated using a discounted cashflow method,
based on the estimated level of profit to be generated from the customers acquired. A post tax discount rate of
11.0% was used in the valuation and the customer relationships are amortised over an estimated useful life of seven
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, “HNS”, since the Company has its own
operational structure, cash generation and financial reporting processes. The Directors consider that HNS does
not form a separate operating segment and instead the revenue and gross profit is included in the Managed IT
services and Value Added Resale segments.
SysGroup plc Annual Report & Accounts 2020
Notes to the Consolidated Financial Statements Continued
84
Recognised amounts of net assets
acquired and liabilities assumed
Cash and cash equivalents
Trade and other receivables
Property, plant and equipment
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
Cash paid - consideration adjustment
Total consideration
Book
value
£’000
Fair
value adj
£’000
Fair
value
£’000
609
341
111
-
(338)
(8)
(19)
-
2
(8)
1,146
(53)
-
(195)
609
343
103
1,146
(391)
(8)
(214)
1,588
323
1,911
1,457
454
1,911
Since the acquisition date to 31 March 2020, Hub Network Services Limited contributed £1.7m to Group revenue and
£0.35m to Group EBITDA. Had the acquisition taken place on 1 April 2019, the contribution would have been £2.2m
to Group revenue and £0.45m to Group EBITDA.
In the prior financial year, 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 services, cloud hosting, value added resale, and consultancy.
Certus was acquired for an initial £7,956,000 cash consideration paid on completion, with a consideration
adjustment of £252,000 paid by the Sellers to SysGroup on the finalization of the completion accounts in June 2019.
The parties agreed an earn-out mechanism for a period of twelve months post-acquisition with the potential for
the Sellers to receive up to £1,000,000 additional consideration for achieving performance criteria based on EBITDA
targets. The mechanism was for the SysGroup to pay £2.50 additional 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. In February 2020 the earn-out
period was completed and Certus successfully achieved the maximum EBITDA target. Following the 31 March 2020
year end, the company paid £975,000 to the Sellers in full settlement of the contingent consideration.
SysGroup plc Annual Report & Accounts 2020
Notes to the Consolidated Financial Statements Continued
11. Earnings Per Share
Loss 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)
85
2020
2019
(£122,050)
(£722,000)
49,419,690
25,843,624
51,734,950
26,999,313
3.4p
(0.2p)
(0.2p)
3.1p
(2.8p)
(2.8p)
The inclusion of share options in the weighted number of equity shares is anti-dilutive to the EPS calculation
and accordingly diluted earnings per share is presented at the same value as Basic earnings per share.
Profit used in the Earnings per Share calculation
Loss after tax
Amortisation of intangible assets
Exceptional items
Share based payments
Tax adjustments
Adjusted profit used for Adjusted Earnings per Share
12. Taxation
Current tax
Current tax - current year
Adjustments in respect of prior years
Tax refund
Current tax charge
Deferred tax
Deferred tax - temporary differences
Deferred tax credit
Total tax credit
2020
£’000
2019
£’000
(122)
(722)
1,321
723
475
736
199
119
(216)
(47)
1,657
809
2020
£’000
2019
£’000
128
(107)
-
21
(133)
(133)
(112)
105
55
(12)
148
(252)
(252)
(104)
SysGroup plc Annual Report & Accounts 2020
86
Notes to the Consolidated Financial Statements Continued
The effective tax rate for the year to 31 March 2020 is lower (2019: higher) than the standard rate of corporation
tax in the UK. The differences are explained below:
Loss on ordinary activities before tax
2020
£’000
2019
£’000
(234)
(826)
Loss on ordinary activities before taxation multiplied by the standard rate of UK corporation
tax of 19% (2019:19%)
(44)
(157)
Effects of:
Expenses not deductible
Income not taxable
Prior year adjustment
Re-measurement of deferred tax due to change in UK rate
Use of brought forward losses
Tax refund
Total tax credit
The Group recognised deferred tax assets and liabilities as follows:
Deferred tax on customer relationships
Capital allowances temporary differences
Deferred tax liability
25
-
(107)
85
(71)
-
10
(24)
55
-
-
12
(112)
(104)
2020
£’000
(1,149)
(51)
(1,200)
2019
£’000
(1,093)
(27)
(1,120)
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:
Temporary
differences
£’000
Customer
relationships
£’000
Balance at 1 April 2019
Effect in change in tax rate
Accelerated capital allowances acquired on
acquisition of HNS
Deferred tax recognised on acquired intangible assets
Credited to statement of comprehensive income
Balance at 31 March 2020
(27)
-
(18)
-
(6)
(51)
(1,093)
(85)
-
(195)
224
(1,149)
(1,200)
Total
£’000
(1,120)
(85)
(18)
(195)
218
Factors affecting future tax charges:
Deferred tax balances are recognised at 19% (2019 – 17%) due to the cancellation of the planned reduction
in tax rate to 17%.
SysGroup plc Annual Report & Accounts 2020 Notes to the Consolidated Financial Statements Continued
13. Intangible Assets
Systems
Development
£’000
Software
Licences
£’000
Customer
Relationships
£’000
Positive
Goodwill
£’000
Cost
At 1 April 2018
Additions
Acquisitions
At 31 March 2019
At 1 April 2019
Additions
Acquisitions
At 31 March 2020
Accumulated amortisation and impairment
At 1 April 2018
Charge for the year
At 31 March 2019
At 1 April 2019
Charge for the year
At 31 March 2020
Net book value
At 31 March 2019
At 31 March 2020
223
-
-
223
223
190
-
413
198
8
206
206
9
215
17
198
173
9
16
198
198
-
-
198
77
59
136
136
45
181
62
17
4,233
-
3,777
8,010
8,010
-
1,146
9,156
1,260
656
1,916
1,916
1,267
3,183
6,094
5,973
87
Total
£’000
14,356
9
9,574
23,939
23,939
(87)
1,469
9,727
-
5,781
15,508
15,508
(277)
323
15,554
25,321
-
-
-
-
-
-
15,508
15,554
1,535
723
2,258
2,258
1,321
3,579
21,681
21,742
The addition to goodwill is a consideration adjustment following the settlement of the completion accounts
which resulted in a net repayment from the Sellers to the Company.
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. There have
been no changes to the CGU’s since 31 March 2019 other than the addition of Hub Network Services Limited (“HNS”)
which is a separate business that SysGroup acquired in June 2019. The allocation of goodwill and carrying amounts
of assets for each CGU is as follows:
Managed IT Services
Certus IT
HNS
Total
Allocation of goodwill
Carrying value of assets
2020
£’000
9,727
5,504
323
15,554
2019
£’000
9,727
5,781
-
15,508
2020
£’000
10,892
8,341
1,378
20,611
2019
£’000
11,894
8,698
-
20,592
SysGroup plc Annual Report & Accounts 2020
88
Notes to the Consolidated Financial Statements Continued
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. The projections beyond
five years use an estimated long-term growth rate of 2.5% (FY19: 2.5%) 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. The same rate is 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” and no impairment charges arose as a result of this review.
The assumptions used for the impairment reviews are detailed below. All CGU’s have over 45% headroom of VIU
compared to the carrying value of assets. For this headroom to reduce to nil, the discount rates would have to
increase to 16.3% for Managed IT Services, 16.7% Certus and 17.8% for HNS, or future CGU profits would have to be
significantly below current forecast levels. All CGU’s have been tested for profit sensitivity and would remain with
VIU headroom in the event of zero revenue growth being achieved in years 2-5.
2020
Discount rate
Revenue growth rate year 2 to year 5
Terminal growth rate
2019
Discount rate
Revenue growth rate year 2 to year 5
Terminal growth rate
Managed IT
Services
Certus IT
11.00%
5.00%
2.50%
10.45%
5.00%
2.50%
11.00%
5.00%
2.50%
10.45%
5.00%
2.50%
HNS
11.00%
5.00%
2.50%
-
-
-
SysGroup plc Annual Report & Accounts 2020 Notes to the Consolidated Financial Statements Continued
14. Property Plant & Equipment
Cost
At 1 April 2018
Additions
Acquisition of subsidiary
Disposals
At 31 March 2019
At 1 April 2019
IFRS16 adoption
Additions
Acquisition of subsidiary
Disposals
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Charge for the year
Disposals
At 31 March 2019
At 1 April 2019
IFRS16 adoption
Charge for the year
Disposals
At 31 March 2020
Net book value
At 31 March 2018
At 31 March 2019
At 31 March 2020
Office
Equipment
£’000
Right of
Use Lease
£’000
Freehold
Property
£’000
Motor
Vehicles
£’000
1,835
296
455
-
2,586
2,586
(1,083)
353
103
-
1,959
1,089
491
-
1,580
1,580
(679)
447
-
1,348
746
1,006
611
-
-
-
-
-
-
1,668
334
-
(60)
1,942
-
-
-
-
-
719
392
(9)
1,102
-
-
840
-
-
382
-
382
382
-
-
-
-
382
-
1
-
1
1
-
8
-
9
-
381
373
101
-
-
(28)
73
73
(73)
-
-
-
-
38
11
(9)
40
40
(40)
-
-
-
63
33
-
89
Total
£’000
1,936
296
837
(28)
3,041
3,041
512
687
103
(60)
4,283
1,127
503
(9)
1,621
1,621
-
847
(9)
2,459
809
1,420
1,824
SysGroup plc Annual Report & Accounts 2020 Notes to the Consolidated Financial Statements Continued
90
Company
Cost
At 1 April 2018
Additions
At 31 March 2019
At 1 April 2019
Additions
Adoption of IFRS16
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Charge for the year
At 31 March 2019
At 1 April 2019
Charge for the year
At 31 March 2020
Net book value
At 31 March 2018
At 31 March 2019
At 31 March 2020
Office
Equipment
£’000
Right of
Use Lease
£’000
Total
£’000
105
99
204
204
33
-
237
51
58
109
109
56
165
54
95
72
-
-
-
-
-
157
157
-
-
-
-
35
35
-
-
122
105
99
204
204
33
157
394
51
58
109
109
91
200
54
95
194
SysGroup plc Annual Report & Accounts 2020
Notes to the Consolidated Financial Statements Continued
15. Investments
Company
Investment in subsidiaries
At 1 April 2019
Certus consideration adjustment
HNS acquisition (note 10)
Total
91
2019
£’000
14,279
8,956
-
2020
£’000
23,235
(251)
1,911
24,895
23,235
The Certus consideration adjustment is a net repayment from the Sellers to the Company following the settlement
of the completion accounts.
The Company’s subsidiary undertakings all of which are wholly owned and included in the consolidated
accounts are:
Subsidiary companies
SysGroup Trading Limited
Certus IT Limited
Registration
Principal activity
England & Wales
Managed Services
England & Wales
Managed Services
Hub Network Services Limited
England & Wales
Managed Services
Netplan LLC*
USA
Managed Services
Netplan Internet Solutions Limited
Rockford IT Limited
System Professional Limited
SysGroup (DIS) Limited
SysGroup (NH) Limited
Node Group Limited
SysGroup (EH) Limited
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Non-trading
Non-trading
Dormant
Dormant
Dormant
Dormant
Dormant
*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 2021. 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), System Professional 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 2020 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
2020
£’000
1,427
-
-
1,299
2,726
Company
2020
£’000
-
46
176
92
314
The carrying value of trade and other receivables approximates to their fair value.
Debtor impairment disclosure
Trade debtors
Impairment provision
Total
Group
2020
£’000
1,640
(213)
1,427
Company
2020
£’000
-
-
-
Group
2019
£’000
1,744
-
-
1,112
2,856
Group
2019
£’000
1,814
(70)
1,744
92
Company
2019
£’000
-
130
241
91
462
Company
2019
£’000
-
-
-
The Group have applied the simplified approach to calculate its impairment of trade receivables. In completing this
review, the Group have segregated its receivables into categories based on the number of days past due for each
invoice and used this to estimate the expected lifetime credit loss, with the historic credit losses being adjusted for
expected forward cashflows given the current economic environment.
Up to
1 month
past due
£’000
443
(1)
442
Group
Over
1 month
past due
£’000
1,197
(212)
985
Up to
1 month
past due
£’000
Company
Over
1 month
past due
£’000
-
-
-
-
-
-
Total
£’000
1,640
(213)
1,427
Total
£’000
-
-
-
Trade debtors
Expected credit loss
Net carrying amount
SysGroup plc Annual Report & Accounts 2020 Notes to the Consolidated Financial Statements Continued
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
Total
Contingent consideration
Certus IT Ltd
Group
2020
£’000
1,847
-
931
2,778
158
552
3,488
Group
2020
£’000
1,000
Company
2020
£’000
147
4,110
422
4,679
-
86
4,765
Company
2020
£’000
1,000
Group
2019
£’000
1,885
-
979
2,864
311
817
3,992
Group
2019
£’000
1,000
93
Company
2019
£’000
252
2,868
287
3,407
-
114
3,521
Company
2019
£’000
1,000
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. In February 2020 the earn-out period was completed and Certus
successfully achieved the EBITDA maximum target. Following the 31 March 2020 year end, the company has paid
£975,000 to the Sellers in full settlement of the contingent consideration.
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 2020 and 31 March 2019.
The maturity of the financial liabilities, excluding loans and borrowings, classified as financial liabilities measured
at amortised cost is shown in note 3.
18. Loans and Borrowings
Non-current
Lease liabilities
Bank loan
Total
Current
Lease liabilities
Bank loan
Total
Group
2020
£’000
441
1,146
1,587
Group
2020
£’000
268
251
519
Company
2020
£’000
104
1,146
1,250
Company
2020
£’000
39
251
290
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
SysGroup plc Annual Report & Accounts 2020
94
Notes to the Consolidated Financial Statements Continued
19. 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 (2019: £26,000) for a shared cost of corporate services received by SysGroup plc and Praetura Capital LLP.
At 31 March 2020, the balance outstanding was £nil (31 March 2019: £nil) within trade payables.
20. Share Capital
Equity share capital
Allotted, called up and fully paid ordinary shares of £0.01 each
At 1 April 2018
Issue of share capital – equity placing
At 31 March 2019
At 31 March 2020
Group
Number
Group
£’000
23,103,898
26,315,792
49,419,690
49,419,690
231
263
494
494
21. Reconciliation of Net Cashflow Movement in Net Cash/(debt)
Cash and cash
equivalents
Debt due in less
than one year:
Bank loans
Lease liabilities
Contingent
consideration
Debt due in
more than one
year:
Bank loans
Lease liabilities
Contingent
consideration
3,376
609
(224)
(204)
-
(1,397)
(81)
(1,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(129)
-
(747)
-
(949)
-
3,036
224
453
(251)
(517)
(251)
(268)
-
-
-
-
(1,000)
(1,000)
251
517
1,000
-
(1,146)
(440)
-
(69)
Total
470
609
(129)
(747)
(272)
22. Ultimate Controlling Party
The Directors consider the company and Group have no controlling shareholder and no ultimate controlling party.
SysGroup plc Annual Report & Accounts 2020
95
Notice of Annual
General Meeting
SysGroup plc Annual Report & Accounts 2020 96
Notice of Annual
General Meeting
Notice is hereby given that the Annual General Meeting of the Company will be held on 4 August 2020 at 10.00 am at
the offices of Hill Dickinson LLP, 50 Fountain Street, Manchester M2 2AS for the purpose of considering and, if thought
fit, passing the resolutions set out below, of which Resolutions 1 to 5 will be proposed as ordinary resolutions and
Resolutions 6 and 7 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 2020
together with the Directors’ and Auditors’ Reports contained therein.
2. TO reappoint Michael James Fletcher as a director who retires by rotation.
3. TO reappoint John Michael Edelson as a director who retires by rotation.
4. TO reappoint BDO LLP as auditors of the Company and authorise the Directors to fix their remuneration.
5. 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 5.b below) in connection with an offer by way of a rights issue:
i.
ii.
to holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings;
and
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 5.a above
in excess of £164,732),
SysGroup plc Annual Report & Accounts 2020
97
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:
6. THAT, subject to the passing of resolution 5, 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 5 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.
ii.
to the holders of ordinary shares in proportion (as nearly as may be practicable) to their respective
holdings; and
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 6.a above)
to any person up to an aggregate nominal amount of £24,709.
SysGroup plc Annual Report & Accounts 2020
98
Notice of Annual General Meeting Continued
The power granted by this resolution will expire 15 months from the date this resolution is passed or, if earlier, the
conclusion of the Company’s next annual general meeting (unless renewed, varied or revoked by the Company
prior to or on such date) save that the Company may, before such expiry make offers or agreements which
would or might require equity securities to be allotted (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.
7. 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
9 July 2020
Registered Office:
Walker House
Exchange Flags
Liverpool L2 3YL
SysGroup plc Annual Report & Accounts 2020
99
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 31 July 2020. Changes to entries on the relevant register of securities after 10.00am
on 31 July 2020 shall be disregarded in determining the rights of any person to attend and vote at the meeting.
4. As at 5.00pm on 8 July 2020, 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 8 July 2020 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/
SysGroup plc Annual Report & Accounts 2020