TIDMIDE
RNS Number : 7393D
IDE Group Holdings PLC
28 June 2019
IDE Group Holdings Plc
("IDE", the "Group" or the "Company")
Unaudited Results for the Year Ended 31 December 2018
IDE, the mid-market network, cloud and IT Managed Services
provider, announces its unaudited preliminary results for the year
ended 31 December 2018.
Summary
-- Revenue of GBP41.1 million from continuing operations* (2017: GBP53.7 million)
-- Adjusted EBITDA** loss of GBP3.9 million from continuing
operations* (2017: profit of GBP4.1 million), following review of,
inter alia, onerous contracts, capitalised staff costs and
classification of exceptional items
-- New leadership team appointed with significant industry
experience; Andy Parker as Executive Chairman, Ian Smith as
Executive Director and Max Royde as Non-Executive Director
-- Total funds of GBP7.55 million raised by way of equity and
convertible loan notes in order to provide working capital and
re-capitalise Company's balance sheet
-- Strategic and operational review undertaken resulting in a
total of GBP7.2 million of annualised staff cost reductions, along
with other operational cost savings
-- Settlement reached in relation to an outsourced service
contract which resulting in a total saving of c.GBP3 million over
the next three years
-- Disposal of 365 ITMS Limited together with PACT business unit in October 2018 for total cash consideration of GBP3 million, proceeds used to reduce net debt
Post period-end
-- Issue of GBP10 million secured loan notes, the proceeds of
which were used to repay the Company's debt facilities with
National Westminster Bank plc and to provide additional working
capital(1)
-- Loan notes subscribed for by existing shareholders, Company
now has no external debt other than with key shareholders
-- Strong pipeline of opportunities with both existing and new customers and partners
-- Group trading profitably at an Adjusted EBITDA** level for year to date
* Total revenue from continuing and discontinued operations of
GBP51.5 million (2017: GBP65.0 million) and total Adjusted EBITDA**
loss of GBP3.3 million (2017: profit of GBP5.4 million) including 9
months' contribution from 365 ITMS Limited and the PACT business
unit until date of disposal. 2017 comparative includes 9 months'
contribution from 365 ITMS Limited from date of acquisition and 6
months of the PACT business unit from date of establishment
** Adjusted EBITDA is defined as earnings before interest, tax,
depreciation, amortisation, impairment charges, exceptional items,
loss on disposal of fixed assets and share-based payments
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014.
IDE Group Holdings Plc Tel: +44 (0)344
Andy Parker, Executive Chairman 874 1000
finnCap Limited Tel: +44 (0)20 7220
Nominated Adviser and Broker 0500
Corporate finance: Jonny Franklin-Adams/
Scott Mathieson/ Hannah Boros
ECM: Tim Redfern/ Richard Chambers
Chairman's Statement
The year being reported was a difficult one for IDE. The
business has faced significant challenges created by the previous
leadership team which have necessitated substantial effort and work
in order to right-size the cost base and re-capitalise the balance
sheet, the detail of which I will take you through below.
At the beginning of the year, in order to improve cash
generation and reduce net debt, the then Board announced a cost
reduction programme, targeting a reduction of at least GBP2.0
million from personnel costs and at least GBP1.5 million from third
party costs on an annualised basis, the benefit of which they
expected to come through before the end of March 2018. Furthermore,
at the time of reporting the final results for the year ended 31
December 2017 in May 2018 (the "Final Results"), it was noted by
the then Chairman that profitability in 2018 was expected to be
significantly lower than in 2017 but was expected to improve
steadily throughout 2018 following implementation of a strategic
and operational review. However, progress with both the cost
reductions and the strategic and operational review was at best
limited in the hands of the previous leadership team which resulted
in the Company facing severe financial pressures.
As a result of these financial pressures, shortly after the
publication of the Final Results, the Company raised GBP2.0 million
by way the issue of loan notes in May 2018. This raise was
supported by William ("Bill") Dobbie, MXC Capital Limited ("MXC")
and Kestrel Partners LLP, the latter two being the largest
shareholders of the Company. At the same time Ian Smith, Chief
Executive Officer and substantial shareholder of MXC, joined the
Board to lead the strategic and operational review and Julian
Phipps stepped down from the Board, with the other former executive
director, Andy Ross, having resigned in March 2018.
Strategic and Operational Review
As part of the strategic and operational review the little
integration that had been initiated by the previous management was
reversed and the Group was split back into the three component
parts which comprised the original acquisitions made by the Group,
namely, IDE Group Manage Limited (formerly Selection Services), IDE
Group Connect Limited (formerly C4L) and 365 ITMS Limited. There
was a considerable lack of clarity around the trading performance
of the Group and in doing this the activities which generate cash
and those which are loss-making were able to be identified.
Generally, when completing a "Buy and Build", which was IDE's
stated strategy, synergies are part and parcel of the business
case. One would reasonably expect that as a result of putting
together the three companies that comprised the Group, there would
be a smaller number of staff than would have existed across the
three companies at the time of acquisition. However, this was far
from the case: at the time of the acquisitions there were a
combined 440 members of staff across all three companies and as at
31 December 2017 the Group had 550 members of staff, an increase of
over 100 heads for which there was little or no incremental revenue
gain. Splitting the Group back into the component parts allowed us
to identify where all the additional headcount was added.
As part of the review it was discovered that previous management
had entered into many onerous contracts which created little or no
value to the Group, including a single outsourced service contract
that was costing the Group more than GBP1.0 million a year and
which has only generated net cost savings of GBP50,000. This
contract, alongside others, was signed without due process or
compliance with the Group's authority limits. I am pleased to say
that in December 2018 we reached a settlement in relation to this
contract which will result in a saving of c.GBP3.0 million over the
next three years.
Further investigation into the state of the Company's finances
led to a further fundraising of GBP5.55 million by way of the issue
of new equity and zero coupon, unsecured, convertible loan notes
("CLNs") which completed in August 2018. At the same time the
GBP2.0 million loan notes which were issued in May 2018 were
repaid; GBP0.75 million by way of the issue of equity with the
remaining GBP1.25 million reissued as CLNs. The additional funding
allowed the Group to continue restructuring with the aim of
right-sizing the business to enable the Group to trade
profitably.
Having explored various options with respect to the disposal of
one or more of the component parts of the business, in October 2018
the Company announced the completion of the strategic and
operational review and the disposal of 365 ITMS Limited (the
"Sale"), further detail of which can be found below.
It was at this point that I became interim Executive Chairman in
order to assist with the Group's restructure. Our focus as a Board
was now on right-sizing the Group to enable it to trade profitably.
To that end, a total of GBP7.2 million of annualised staff cost
reductions were implemented throughout 2018, along with other
operational cost savings including, inter alia, a reduction in
software licencing costs and property costs and, most
significantly, the settlement of the outsourced service contract as
detailed above.
Following the Sale, the Group's remaining two trading businesses
are IDE Group Manage Limited ("Manage") and IDE Group Connect
Limited ("Connect"). Manage provides traditional people-based
managed services, including service desk and remote technical
support, project management and delivery, onsite and field-based
engineering and device lifecycle services, the latter from our IL3
certified Lifecycle facility in Dartford. There is considerable
capacity within this facility, and we see this as an opportunity
for growth. Connect provides network services and data centre
hosting services. A significant number of customers take services
from both businesses and therefore we believe there remains the
opportunity to upsell to our current customer base as well as
growing by bringing new customers on board.
Sale of 365 ITMS Limited
On 15 October 2018 the Company announced the sale of 365 ITMS
Limited ("365 ITMS") to PTCA Newco Limited ("PTCA"), a newly
incorporated company owned by certain members of the management
team within 365 ITMS, on a cash free, debt free basis with a
normalised level of working capital. 365 ITMS was acquired by the
Group in April 2017 and provides a range of complementary data
centre, network, security and cloud services. The consideration for
the Sale was GBP2.8 million, payable in cash. In addition, as part
of the Sale, certain assets including contracts and staff relating
to PACT, the Group's business unit focused on cyber security which
was established in 2017, were transferred to 365 ITMS for cash
consideration of GBP0.2 million which was paid by 365 ITMS to the
Group upon completion of the Sale. The proceeds of the Sale were
used to reduce the Company's net debt.
Board Changes
There were wholesale changes to the Board during the year,
starting with Jonathan Watts stepping down from his position as
Chairman in January 2018 at which time Bill Dobbie stepped up as
interim Chairman. Jonathan's departure was followed by Andy Ross'
resignation as Chief Executive Officer in March 2018 at which time
Julian Phipps, the Chief Financial Officer, also took on the role
of Chief Operating Officer. Following a review of the Group's
financial position, at the end of May 2018, when the Company
announced the issue of GBP2.0 million of unsecured loan notes, Ian
Smith was appointed as Executive Director to lead the Group's
strategic and operational review, simultaneously with Julian Phipps
stepping down from his position on the Board. MXC Capital Markets
LLP, a subsidiary of MXC, was also appointed as financial
adviser.
In August 2018, I joined the Board as a Non-Executive Director.
Also in August 2018, at the time of the GBP5.55 million
fundraising, Katherine Ward stepped down from her position of
Non-Executive Director. In October 2018, Bill Dobbie stepped down
from the Board at which point I became Non-Executive Chairman and
Max Royde, co-founder of Kestrel Partners LLP, was appointed as a
Non-Executive Director. Kestrel Partners LLP are a significant
shareholder of the Company. Finally, in October 2018 when the
Company announced the sale of 365 ITMS and the completion of the
strategic and operational review, I became interim Executive
Chairman in order to lead the restructuring of the Group.
The Board has been supported through these tumultuous times by
an interim Chief Financial Officer and the management team within
the business. We recognise that the current structure of the Board
is not ideal from a corporate governance perspective but believe
that we have the skills and experience to best lead the Group at
this current time. That said, we are looking to add an independent
Non-Executive Director to the Board and intend to further enhance
the Board with appropriate executive appointments to lead the Group
through its next stage of development.
Trademark Dispute
In July 2017, the UK Intellectual Property Enterprise Court
ruled that the CORETX brand (the Group's former trading brand)
infringed a pre-existing trade mark. The previous leadership
appealed against the decision, which the Court of Appeal did not
permit. Consequently, the Group had to re-brand to IDE Group
incurring significant cost in doing so. In February 2018, a claim
for significant damages was received from Coreix Limited, the party
who brought the brand infringement claim. Despite the previous
leadership asserting that Coreix Limited's claim should not exceed
GBP10,000, on 29 May 2018 the Group reached a full and final
settlement with Coreix Limited, under which the Group had to pay
damages of GBP250,000 over the course of 10 months, plus costs of
GBP3,000 relating to a court hearing. As the previous leadership
had believed that the claim would be under the excess amount for
insurance purposes, the insurance company was not informed within
the appropriate time limit and hence the Group was unable to claim
under its policy, meaning that the settlement agreement resulted in
a significant cash outflow for the Group.
Bank Refinancing
Throughout the difficulties that faced IDE during 2018, the
Group's bankers, National Westminster Bank plc ("Natwest"),
remained supportive of the Company. The proceeds of the 365 ITMS
Sale were used to reduce IDE's level of debt, however, at the end
of the year the Group's remaining revolving credit facility of
GBP4.75 million was fully drawn and it had c.GBP0.6 million
headroom on its GBP3.5 million overdraft facility (the
"Facilities"). In order to provide additional, secure and
longer-term funding to replace the Facilities, on 10 January 2019
the Company announced that it proposed to raise GBP10.0 million by
way of an issue of secured loan notes ("Loan Notes") in two
tranches. Under the first tranche, GBP5.3 million of Loan Notes
were subscribed for by two existing shareholders of the Company,
MXC and Blake Holdings Limited, a company controlled by Richard
Griffiths, a significant shareholder in the Company. The second
tranche of GBP4.7 million was made available to all other
shareholders by way of an open offer and was fully underwritten by
MXC; in the end GBP1.0 million was taken up by other shareholders
with the remaining GBP3.7 million subscribed for by MXC. The
proceeds of the issue of the Loan Notes were used to fully repay
the Facilities and provide additional working capital for the
Group. With the issue of the Loan Notes, the Group now has no
external debt other than with key shareholders and has longer-term
funding, thereby affording security for all the Group's
stakeholders.
Outlook
As a result of the actions taken during 2018, we ended the year
in a much stronger position than we started it with a strong
leadership team, an appropriate cost base and clear focus on
operational execution and customer service to drive increased
profitability and cash generation. The refinancing, which was
completed post year end, has provided long term funding and means
that the Company has no other external debt, as the Loan Notes are
held solely by shareholders, and predominantly by the largest
shareholders.
I would like to thank the management and staff for their
continued support and resolve to deliver value to our customers
during what has been a challenging year. Despite the incredible
pressure they have found themselves under, they have behaved
impeccably and, in many cases, have gone above and beyond to
support the Group and service customers in the most difficult of
circumstances.
With the upheaval of last year behind us, we are now focused on
driving the core activities necessary to support our customers and
rebuild value for shareholders. Towards the end of the year,
several of the Group's material customers renewed their contracts
with IDE, some on a multi-year basis, and at the time of writing,
the pipeline of opportunities across the business both with
existing and new customers and partners is the strongest it has
been since my involvement. I am also pleased to report that the
Group has been trading profitably at an Adjusted EBITDA level in
the year to date. We are confident our strategy is on track and
look forward to reporting continued progress throughout the current
year.
Financial Review
New IFRS Implementation
These are the first full year results which are presented by IDE
following the adoption of IFRS 9 and 15. The adoption of both IFRS
15 and IFRS 9 has not resulted in restatements but has resulted in
additional disclosure.
IFRS 15 standard sets out revenue recognition requirements, and
establishes principles for reporting information about the nature,
amount, timing and uncertainty of revenue and cash ows arising from
the Group's contracts with customers. The standard requires
entities to apportion revenue earned from contracts to performance
obligations on a relative stand-alone basis, based on a five-step
model. Having undertaken a review of all the services and products
the Group provides, and the main types of commercial arrangements
used with each service and product, the Group has concluded that
the implementation of the new standard has not resulted in a change
in the revenue recognition accounting policies of the Group.
Therefore, following implementation of IFRS 15, there was no impact
of transition on retained earnings at 1 January 2018, on the
Group's statement of financial position as at 31 December 2018, on
its consolidated income statement, its consolidated statement of
other comprehensive income, or on the cash flows for the period to
31 December 2018.
IFRS 9 introduces principle-based requirements for the
classification of financial assets, using the following measurement
categories: (i) Amortised cost; (ii) Fair value through Other
Comprehensive Income with cumulative gains and losses reclassified
to profit or loss upon derecognition; and (iii) Fair value through
profit or loss. IFRS 9 also introduces a new impairment model, the
expected credit loss model. The Group now reviews the amount of
credit loss associated with its trade receivables based on forward
looking estimates that consider current and forecast credit
conditions as opposed to relying on past historical default. The
Group undertook an assessment of how the adoption of IFRS 9 would
impact the Group's financial instruments. The key area that was
identified across the business was the bad debt provisioning
because of the implementation of the expected credit loss model and
it was concluded that no restatement was required.
Results for the Year - Continuing Operations
The Group reported total revenues from continuing operations of
GBP41.1 million in the year to December 2018, down from GBP53.7
million in the year to 31 December 2017 and gross profit of GBP6.6
million (2017 restated: GBP15.9 million). The results for the year
ended 31 December 2017 have been restated to reflect the change in
allocation of certain salary costs which are directly attributable
to the provision of services from administrative expenses to cost
of sales. Gross margin decreased from 30% in 2017 (restated) to 16%
in the year under review. A contributing factor to this decrease in
margin was an increase in provisions for onerous contracts
amounting to GBP1.9 million, further detail of which can be found
below.
In our managed services division, a large proportion of managed
services revenue recorded in 2017 arose from one-off projects,
which came to an end either in 2017 or early 2018 resulting in a
decrease in overall revenue in that division; GBP16.5 million from
continuing operations in the year to 31 December 2018 vs GBP23.0
million in 2017. Cost of sales in 2018 were 5% higher as a % of
revenue than in 2017 due to the inclusion of the total cost of an
onerous outsourced supply contract, whereas in the year to 31
December 2017 the majority of this cost was classed as exceptional.
In the interim results to 30 June 2018 (the "Interim Results"), a
provision of GBP2.2 million was recognised in relation to this
contract, however, the contract was settled in December 2018
therefore the provision has been reversed and there are no longer
any costs associated with this contract going forward.
In our cloud and hosting division, revenue slightly decreased to
GBP10.2 million compared to GBP10.7 million due to certain
contracts coming to an end during the year. Cost of sales of
GBP10.1 million were significantly higher compared to last year
(2017 restated: GBP7.0 million) due in part to an increase of
GBP1.3 million in the provision relating to a colocation contract
following a review of the utilisation of this contract. The
resulting gross profit for this division was GBP0.2 million (2017:
GBP4.2 million).
Networks revenue was GBP7.3 million for the year (2017: GBP8.7
million) with the decrease compared to last year due to certain
customer contracts finishing during the year, with gross profit of
GBP0.7 million (2017 restated: GBP2.2 million). The decrease in
gross profit can be attributed to, inter alia, a GBP0.6 million
increase in the provision relating to a fibre supply contract and
the fact that when customer contracts come to an end, the
associated costs often do not cease coterminously.
Projects revenue was down GBP4.2 million to GBP7.0 million
(2017: GBP11.2 million), although gross margin remained relatively
stable at 33% (2017: 35%).
Administrative expenses excluding impairment were GBP19.5
million (2017: GBP22.3 million) and include GBP2.4 million of
exceptional costs (2017: GBP1.2 million) primarily in relation to
the reduction in headcount which took place during the year. Over
GBP1.3 million of previously capitalised staff costs were
reclassified to administrative expenses and the associated
depreciation reversed. In addition, administrative expenses
included a charge of GBP3.3 million for the amortisation of
intangible assets (2017: GBP3.1 million), depreciation of tangible
fixed assets of GBP2.8 million (2017: GBP3.0 million) and a loss on
disposal of fixed assets of GBP0.7 million (2017: GBP0.1
million).
The Group uses Adjusted EBITDA which is a non-GAAP measure of
performance as it believes this more accurately reflects the
underlying performance of the business. This is one of the key
operational performance measures monitored by the Board. Adjusted
EBITDA is defined as earnings before interest, tax, depreciation,
amortisation, impairment charges, exceptional items, loss on
disposal of fixed assets and share-based payments. The Adjusted
EBITDA loss for the year was GBP3.9 million (2017: profit GBP4.1
million). A major contributor to this loss was the increase in
provisions for onerous supply contracts and property amounting to
GBP3.5 million. Furthermore, though costs were significantly
reduced during 2018, the savings were staggered throughout the year
hence for part of the year the Group's cost base was
disproportionate to its revenue. The trading performance of the
Group improved in the second half of the year once the cost savings
started to come through.
At the time of the Interim Results, impairment charges totalling
GBP27.5 million were recognised in relation to goodwill and
intangible assets resulting from the acquisitions of IDE Group
Manage (formerly Selection Services) and 365 ITMS to reflect what
the Directors believed at the time to be the then current fair
values of these businesses. However, given the restructuring which
took place in the second half of the year and the improving
performance of IDE Group Manage, the Board has reassessed the value
of IDE Group Manage and reversed GBP17.5 million of impairment in
relation to customer contracts which was recognised at the time of
the Interim Results. Furthermore, 365 ITMS was sold in October 2018
hence the GBP4.0 million impairment charge relating to goodwill
arising from the acquisition of 365 ITMS, which had been recognised
at the time of the Interim Results, has been included in
discontinued operations.
At the time of the Interim Results, no impairment charge was
recognised in relation to the goodwill arising from the acquisition
of IDE Group Connect (formerly C4L), however, a review at the end
of the year resulted in an impairment charge of GBP6.9 million. The
resulting net impairment charges for the year ended 31 December
2018 were GBP14.9 million (2017: GBP9.3 million). These significant
charges have been a major contributor towards the operating loss in
relation to continuing operations of GBP28.1 million (2017: GBP12.7
million).
After incurring net finance costs of GBP0.4 million (2017:
GBP0.3 million), the loss before tax on continuing operations was
GBP28.2 million (2017: loss of GBP13.0 million).
The utilisation of tax losses and a deferred tax credit arising
on the amortisation of intangible assets has resulted in a tax
credit for the year of GBP0.6 million (2017: GBP1.6 million).
The Group therefore reported a loss after tax from continuing
operations of GBP27.6 million (2017: loss of GBP11.4 million),
which equates to a basic loss per share from continuing operations
of 11.22p (2017: 5.76p). The Group's adjusted loss per share from
continuing operations, based on the underlying performance of the
business, equated to 2.42p per share (2017: 0.19p per share).
Discontinued Operations
During the year the Group undertook a strategic and operational
review which culminated in the sale of 365 ITMS in October 2018.
365 ITMS was sold to PTCA, a newly incorporated company owned by
certain members of the management team within 365 ITMS, on a cash
free, debt free basis with a normalised level of working capital.
365 ITMS was acquired by the Group in April 2017 and provides a
range of complementary data centre, network, security and cloud
services. The consideration for the Sale was GBP2.8 million,
payable in cash. In addition, as part of the Sale, certain assets
including contracts and staff relating to PACT, the Group's
business unit focused on cyber security which was established in
2017, were transferred to 365 ITMS for a cash consideration of
GBP0.2 million which was paid to the Group by 365 ITMS upon
completion of the Sale. The net proceeds of the Sale were used to
reduce the Company's net debt.
Discontinued Operations
From 1 January 2018 to the date of sale, 365 ITMS and PACT
generated revenues of GBP10.4 million (2017: GBP11.2 million) and
Adjusted EBITDA of GBP0.6 million (2017: GBP1.0 million). The
figures for 2017 included 9 months' contribution from 365 ITMS from
the date of acquisition and 6 months' contribution from PACT which
was established in June 2017. After all costs, including a GBP4.0
million impairment charge relating to the original acquisition of
365 ITMS and the GBP0.9 million profit on disposal arising from the
sale, the loss after tax from discontinued operations for the year
ended 31 December 2018 amounted to GBP2.9 million (2017: profit of
GBP0.2 million).
Statement of Financial Position
The Group had property, plant and equipment at 31 December 2018
of GBP9.8 million (2017: GBP13.0 million). Intangible assets of
GBP30.0 million at the year-end (2017: GBP55.4 million) related
predominantly to customer contracts. As detailed above, impairment
charges of GBP14.9 million were recognised in the year, principally
in relation to the goodwill arising on the acquisitions of
Selection Services and C4L.
Trade and other receivables of GBP8.9 million (2017: GBP15.2
million) include trade receivables of GBP6.4 million (2017: GBP8.6
million), a decrease of 25% reflecting the drop in turnover, and
includes an expected credit loss provision of GBP0.7 million (2017:
GBP0.4 million).
Trade and other payables, excluding deferred income, amounted to
GBP7.7 million (2017: GBP15.4 million), including trade creditors
of GBP4.9 million (2017: GBP8.8 million) and accruals of GBP1.8
million (2017: GBP5.0 million). Deferred income, arising from
customers invoiced in advance of services delivered, amounted to
GBP3.0 million (2017: GBP6.7 million). A review of the utilisation
of the Group's onerous contracts, primarily relating to property
and supplier contracts, resulted in a net increase in provisions of
GBP1.5 million to GBP3.2 million (2017: GBP1.7 million).
Funding and Debt
In May 2018, IDE issued GBP2.0 million of unsecured loan notes
with an annual coupon of 10% to support the Group during the
strategic and operational review. In August, the Company announced
a further fundraising of GBP5.5 million to be effected by the issue
of both equity and convertible loan notes. The convertible loan
notes are unsecured, have a term of 5 years, carry no interest and
are convertible into ordinary shares in the capital of IDE
("Ordinary Shares") at a price of 2.5 pence per Ordinary Share
("CLNs"). To that end, GBP1.8 million was raised by the issue of
CLNs and GBP3.7 million was raised by the issue of new Ordinary
Shares at price of 2.5 pence per share. At the same time, the
GBP2.0 million of loan notes which were issued in May 2018 were
repaid; GBP1.25 million by way of the issue of new Ordinary Shares
at a price of 2.5 pence per share and GBP0.75 million by way of the
issue of CLNs. At 31 December 2018, the Group had GBP2.55 million
CLNs in issue (2017: GBPnil), with a fair value of GBP2.7 million,
split into an equity component (GBP1.0 million) and a debt
component (GBP1.7 million) as detailed in note 23.
As at 31 December 2018 the Group had a net overdraft position of
GBP2.9 million (2017: GBP1.5 million), finance lease liabilities of
GBP0.7 million (2017: GBP0.8 million) and GBP4.8 million (2017:
GBP7.5 million) was due under the RCF facility. The net proceeds of
the 365 ITMS Sale were used to reduce the RCF from GBP7.5 million
to GBP4.75 million in October 2018.
Post year end, on 10 January 2019 the Company announced that it
proposed to raise GBP10.0 million by way of an issue of secured
loan notes ("Loan Notes") in two tranches; one in January 2019 and
the second in March 2019. The Loan Notes have a term of 6 years and
an annual coupon of 12% which is compounded and payable at the end
of the term. The proceeds of the issue of the Loan Notes were used
to fully repay Natwest and provide additional working capital for
the Group. With the issue of the Loan Notes, the Group now has no
external debt other than with its major shareholders and has
longer-term funding, thereby affording security for all the Group's
stakeholders.
Dividend
The Directors do not propose a dividend in respect of the
current financial year (2017: GBPnil).
Update and Outlook for 2019
Following the major cost reduction programme undertaken in 2018,
the Group ended the year in a much stronger position than it
started it with a strong leadership team, an appropriate cost base
and clear focus on operational execution and customer service to
drive increased profitability and cash generation. The refinancing,
which was completed post year end, has provided long term funding
and means that the Company has no external debt, as the Loan Notes
are held solely by shareholders, and predominantly by the largest
shareholders.
Since the year end there has been a marked improvement in the
pipeline of opportunities across the business both with existing
and new customers and the Group has been trading profitably at an
Adjusted EBITDA level in the year to date. The Board remains
confident of the Group's future prospects.
Going Concern
The Directors have prepared detailed cash flow projections;
these projections, reasonably taking into account possible changes
in trading performance and the timing of key strategic events, show
the Group should be able to operate within the level and conditions
of available funding. Furthermore, taking into account the level of
support demonstrated by shareholders in the refinancing at the
beginning of this current year and given the fact that two of the
largest shareholders have representatives on the Board, the
Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future.
Accordingly, the Group continues to adopt the going concern
basis in preparing its consolidated financial statements
Consolidated Income Statement
for the year ended 31 December 2018
Year ended Restated
31 December - Year ended
2018 31 December
2017
GBP000 GBP000
Continuing operations
Revenue 41,137 53,745
Cost of sales (34,521) (37,812)
__________ __________
Gross profit 6,616 15,933
Administrative expenses excluding
impairment (19,524) (19,328)
Impairment charge on goodwill
and intangibles (14,923) (9,339)
__________ __________
Total administrative expenses (34,447) (28,667)
Adjusted EBITDA* (3,892) 4,137
Exceptional items (2,368) (1,212)
Depreciation (2,848) (3,003)
Amortisation (3,290) (3,090)
Impairment charge on goodwill
and intangibles (14,923) (9,339)
Loss on disposal of fixed assets (712) (112)
Charges for share-based payments 202 (115)
------------------------------------------ -------------------------------------- --------------
Operating loss (27,831) (12,734)
Finance costs (389) (291)
__________ __________
Loss on ordinary activities
before taxation (28,220) (13,025)
Income tax 602 1,599
__________ __________
Loss for the year from continuing
operations (27,618) (11,426)
Discontinued Operations
(Loss) /profit after tax for
the year from discontinued operations (2,876) 185
__________ __________
Loss for the year attributable
to owners of the parent company (30,494) (11,241)
From continuing operations
Basic loss per share (11.22)p (5.76p)
_________ _________
Diluted loss per share (11.22)p (5.76p)
_________ _________
From discontinued operations
Basic (loss)/ profit per share (1.17)p 0.09p
_________ _________
Diluted (loss)/ profit per share (1.17)p 0.09p
_________ _________
* Adjusted EBITDA is defined as earnings before interest, tax,
depreciation, amortisation, impairment charge, exceptional items,
loss on disposal of fixed assets and share-based payments
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2018
Year ended Year ended
31 December 31 December
2018 2017
GBP000 GBP000
Loss for the year attributable
to the owners of the parent company (30,494) (11,241)
Items that are or may be reclassified
subsequently to the income statement
Foreign exchange translation
differences (23) 3
______ ______
Total other comprehensive (loss)/
income (23) 3
_________ _________
Total comprehensive loss for
the year attributable to the
owners of the parent company (30,517) (11,238)
Statements of Financial Position
As at 31 December 2018
Group Company
2018 2017 2018 2017
GBP000 GBP000 GBP000 GBP000
Non-current assets
Property, plant and equipment 9,803 13,044 - -
Intangible assets 30,000 55,350 - -
Investments - - 7,877 7,877
Financial assets - 89 - -
39,803 68,483 7,877 7,877
Current assets
Trade and other receivables 8,893 15,177 46 57,653
Inventory - 366 - -
Cash and cash equivalents - 1,106 5,488 378
8,893 16,649 5,534 58,031
Total assets 48,696 85,132 13,411 65,908
Current liabilities
Trade and other payables 7,669 15,429 1,651 1,256
Deferred income 2,962 6,405 - -
Borrowings 3,119 2,895 - -
Provisions 1,514 1,157 50 252
15,264 25,886 1,701 1,508
Non-current liabilities
Deferred income 13 341 - -
Borrowings 5,175 7,920 4,681 7,402
Convertible loan notes 1,654 - 1,654 -
Provisions 1,705 577 - -
Deferred tax liabilities 4,342 5,115 - -
12,889 13,953 6,335 7,402
Total liabilities 28,153 39,839 8,036 8,910
Net assets 20,543 45,293 5,375 56,998
Equity attributable to
equity holders of the parent
Share capital 10,020 5,018 10,020 5,018
Share premium 35,439 35,439 35,439 35,439
Equity reserve 967 - 967 -
Retained earnings (25,733) 4,963 (41,051) 16,541
Foreign currency translation
reserve (150) (127) - -
Total equity 20,543 45,293 5,375 56,998
Statements of Changes in Equity
for the year ended 31 December 2018
Group Share Share Equity Retained Foreign currency Total
Capital Premium reserve Earnings translation equity
(a) (b) (c) (d) reserve (e)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January
2017 4,773 32,684 - 16,089 (130) 53,416
Total comprehensive
loss for the year
Loss for the financial
year - - - (11,241) - (11,241)
Movement in foreign
currency translation - - - - 3 3
Transactions with
owners recorded
directly in equity
Share issues 245 2,755 - - - 3,000
Share based payments - - - 115 - 115
Balance at 31 December
2017 5,018 35,439 - 4,963 (127) 45,293
Total comprehensive
loss for the year
Loss for the financial
year - - - (30,494) - (30,494)
Movement in foreign
currency translation - - - - (23) (23)
Transactions with
owners recorded
directly in equity
Share issues 5,002 - - - - 5,002
Share based payments - - - (202) - (202)
Convertible loan notes - - 967 - - 967
Balance at 31 December
2018 10,020 35,439 967 (25,733) (150) (20,543)
(a) Share capital represents the nominal value of equity shares
(b) Share premium represents the excess over nominal value of
the fair value of consideration received for equity shares; net of
expenses of the share issue;
(c) The equity reserve consists of the equity component of
convertible loan notes that were issued as part of the fundraising
in August 2018 less the equity component of instruments converted
or settled.
The fair value of the equity component of convertible loan notes
issued is the residual value after deduction of the fair value of
the debt component of the instrument from the face value of the
loan note.
(d) Retained earnings represents retained profits and accumulated losses
(e) On consolidation, the balance sheets of the Group's foreign
subsidiaries are translated into sterling at the rates of exchange
ruling at the balance sheet date. Exchange gains or losses arising
from the consolidation of these foreign subsidiaries are recognised
in the foreign currency translation reserve.
Statements of Cash Flows
for the year ended 31 December 2018
Group
2018 2017
GBP000 GBP000
Cash flows from operating
activities
Loss for the year (27,618) (11,241)
Adjustments for:
Depreciation 2,848 3,158
Amortisation 3,290 3,602
Impairment charge 14,923 9,339
Net finance expenses 389 341
Taxation (602) (1,600)
Share based payments (202) 115
Loss on disposal of fixed
assets 712 112
Other - 13
(6,260) 3,839
Decrease/ (increase) in trade
and other receivables 2,330 (1,936)
(Decrease)/ increase in trade
and other payables and deferred
income (7,576) 496
Increase/ (decrease) in provisions 1,794 (1,185)
Net cash (used in)/ from continuing
activities (9,712) 1,214
Net cash from discontinued
operations 2,391 -
Net cash (used in)/ from operating
activities (7,321) 1,214
Cash flows from investing
activities
Proceeds from sale of subsidiary,
net of cash sold
Acquisition of subsidiary, 2,587 -
net of cash acquired - (597)
Acquisition of property, plant
and equipment (533) (2,396)
Acquisition of other intangible
assets - (754)
Realisation/ (acquisition)
of non-current financial assets 89 (4)
Proceeds from sale of fixed
assets - 4
Net cash generated/ (used
in) investing activities 2,143 (3,747)
Cash flows from financing
activities
Interest paid (318) (322)
Share issue, net of expenses 3,752 -
New loans and borrowings,
net of expenses 3,800 1,300
Repayment of loans and borrowings (2,750) (800)
Repayment of discontinued
operations overdraft (611)
New finance leases 233 488
Repayment of finance leases (335) (763)
Net cash generated / (used
in) from financing activities 3,771 (97)
Net decrease in cash and cash
equivalents (1,407) (2,630)
Cash and cash equivalents
at 1 January (1,498) 1,132
Cash and cash equivalents
at 31 December (2,905) (1,498)
Cash and cash equivalents
comprise
Cash at bank - 1,106
Overdrafts (2,905) (2,604)
(2,905) (1,498)
Notes to the Consolidated Financial Statements
1 Accounting policies
IDE Group Holdings plc ("IDE Group") is a company incorporated
in Scotland, domiciled in the United Kingdom and limited by shares
which are publicly traded on AIM, the market of that name operated
by the London Stock Exchange. The registered office is 24 Dublin
Street, Edinburgh EH1 3PP and the principal place of business is in
the United Kingdom.
The principal activity of the Group is the provision of network,
cloud and IT managed services.
1.1 Basis of preparation
The consolidated financial statements of IDE Group have been
prepared on the going concern basis and in accordance with EU
adopted International Financial Reporting Standards (IFRS), IFRS
Interpretations Committee (IFRS IC) and the Companies Act 2006
applicable to companies reporting under IFRS. The consolidated
financial statements have been prepared under the historical cost
convention.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies.
The financial information set out in this preliminary
announcement does not constitute the company's statutory financial
statements for the years ended 31 December 2019 or 2018.
The financial statements have been prepared on a going concern
basis. The Directors have prepared cash flow forecasts for the
Group which show that the Group expects to meet its liabilities
from existing cash resources as they fall due for a period in
excess of 12 months from date of approval of these financial
statements.
Post the year end, the Group fully repaid its banking facilities
with National Westminster Bank plc which consisted of a GBP4.75
million Revolving Credit Facility (the total facility was GBP7.5
million; GBP2.75 million was repaid in October 2018 with the
proceeds of the disposal of 365 ITMS Limited) and a GBP3.5 million
overdraft facility. The facilities were repaid with the proceeds of
the issue of 6-year secured loan notes post year to certain of the
Company's shareholders.
Based on the above and taking into account the support of
certain of the Company's significant shareholders, of which two are
represented on the Board, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future.
1.2 Basis of consolidation
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control
ceases.
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the total of the fair values of the assets
transferred, the liabilities incurred to the former owners of the
acquiree and the equity interests issued by the Group. The
consideration transferred includes the fair value of any asset or
liability resulting from a contingent consideration arrangement.
Identifiable assets are acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date. The Group
recognises any non-controlling interest in the acquiree on an
acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest's proportionate share of the recognised
amounts of the acquiree's identifiable net assets.
Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated on
consolidation. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with policies adopted
by the Group.
1.19 Revenue
Revenue is measured at the fair value of the consideration
received or receivable for the sale of goods and services in the
ordinary course of the Group's activities. Revenue is shown net of
Valued Added Tax, returns, rebates and discounts and after the
elimination sales within the Group.
The Group recognises revenue when the amount of revenue can be
reliably measured, it is probable that future economic benefits
will flow to the entity and when specific criteria have been met
for each of the Group's activities as described below.
Recurring revenue
The largest portion of the Group's revenues relates to a number
of network, cloud and IT managed services, which the Group offers
to its customers. All of the revenue in this category is contracted
and includes a full range of support, maintenance, subscription and
service agreements. Revenue for these types of services is
recognised as the services are provided on the basis that the
customer simultaneously receives and consumes the benefits provided
by the Group's performance of the services over the contract term.
In terms of performance obligations, the customer can benefit from
each service on its own and the Group's promise to transfer the
service to the customer is separately identifiable from other
promises in the contract. The transaction price for each service is
allocated to each performance obligation. The costs incurred for
these revenue streams typically match the revenue pattern. Deferred
income is recognised when billing occurs ahead of revenue
recognition. Accrued revenue is recognised when the revenue
recognition criteria were met but in accordance with the underlying
contract, the sales invoice has not been issued yet.
Project revenue
These project services include mainly installation and
consultancy services. Revenue from these services is recognised in
accordance with the underlying contracts. Performance obligations
are met once the hours or days have been worked. Revenue is
therefore recognised over time based on the hours or days worked at
the agreed price per hour or day. The costs incurred for this
revenue stream generally match the revenue pattern, as a
significant portion of consultancy costs relate to staff costs,
which are recognised as incurred. Consultancy services are
generally provided on a time and material basis.
1.3 Application of new IFRSs and interpretations
International Financial Reporting Standard (IFRS) 15 "Revenue
from contracts with customers"
The Group implemented IFRS 15 Revenue from Contracts with
Customers, as of 1 January 2018 and has also considered the impact
on the comparative results for the year ended 31 December 2017. The
new standard sets out revenue recognition requirements, and
establishes principles for reporting information about the nature,
amount, timing and uncertainty of revenue and cash ows arising from
the Group's contracts with customers. The standard requires
entities to apportion revenue earned from contracts to performance
obligations on a relative stand-alone basis, based on a five-step
model. Having undertaken a review of all the services and products
the Group provides, and the main types of commercial arrangements
used with each service and product, the Group has concluded that
the implementation of the new standard has not resulted in a change
in the revenue recognition accounting policies of the Group.
Therefore, following implementation of IFRS 15, there was no
material impact of transition on retained earnings at 1 January
2018 or 1 January 2017, on the Group's consolidated statement of
financial position as at 31 December 2018 or 31 December 2017, on
its consolidated income statement and consolidated statement of
other comprehensive income, or on the cash flows for the year to 31
December 2018 or 31 December 2017. The new standard also introduces
expanded disclosure requirements.
The Company has limited or no revenue.
International Financial Reporting Standard (IFRS) 16
"Leases"
IFRS 16 Leases, is effective for periods beginning on or after 1
January 2019. IFRS 16 removes the operating and finance lease
classification for lessees in IAS 17 Leases and replaces them with
the concept of right-of-use assets and associated financial
liabilities. This change results in the recognition of a liability
on the balance sheet for all leases which convey a right to use the
asset for the period of the contract. The lease liability reflects
the present value of the future rental payments, discounted using
either the effective interest rate or the incremental borrowing
rate of the entity. The operating lease charges currently reflected
within operating expenses (and EBITDA) will be eliminated and
instead depreciation and finance charges will be recognised in
respect of the lease assets and liabilities.
As an indication of the effect of IFRS 16 for the current
reporting period, based on the operating leases in place and
qualifying for recognition under IFRS 16 it has been estimated that
this would have resulted in the recognition of additional lease
assets within property, plant and equipment of approximately GBP2.0
million and additional lease liabilities of approximately GBP2.0
million in total for the Group. An estimation of the expected
depreciation charge against the right of use asset in 2018 has been
calculated to be GBP0.8 million, with an interest charge of GBP0.4
million, which compares to an operating lease charge within
operating expenses of GBP1.4 million, resulting in an increase in
Adjusted EBITDA of GBP1.4 million.
The Group plans to adopt the modified retrospective
approach.
The Company has no operating leases.
International Financial Reporting Standard (IFRS) 9 "Financial
Instruments"
The Group implemented IFRS 9 Financial Instruments, as of 1
January 2018 and has also considered the impact on the comparative
results. The new standard includes revised guidance on the
classification and measurement of financial instruments.
IFRS 9 introduces principle-based requirements for the
classification of financial assets, using the following measurement
categories: (i) Amortised cost; (ii) Fair value through Other
Comprehensive Income with cumulative gains and losses reclassified
to profit or loss upon derecognition; and (iii) Fair value through
profit or loss. IFRS 9 also introduces a new impairment model, the
expected credit loss model.
The Group now reviews the amount of credit loss associated with
its trade receivables based on forward looking estimates that take
into account current and forecast credit conditions as opposed to
relying on past historical default rates. In adopting IFRS 9 the
Group has applied the simplified approach applying a provision
matrix based on number of days past due to measure lifetime
expected credit losses and after taking into account customers with
different credit risk profiles and current and forecast trading
conditions. Having assessed the requirements according to the new
standard, the Group has concluded that no significant additional
impairment to the carrying values of the assets was required at 1
January 2018, at 31 December 2018 or at 31 December 2017.
2 Exceptional costs
In accordance with the Group's policy in respect of exceptional
items, the following charges were incurred for the year in relation
to continuing operations:
2018 2017
GBP000 GBP000
Restructuring and reorganisation
costs 2,368 1,034
Acquisition costs - 178
2,368 1,212
Restructuring and reorganisation costs in the year ended 31
December 2018 relate to costs incurred on the restructure of the
Group, predominantly redundancy costs. Restructuring costs in the
year ended 31 December 2017 relate to costs incurred on the
integration of the businesses acquired during the year and the
previous year. These costs include employment related costs of
staff made redundant as a consequence of integration, rebranding
costs, other non-recurring costs associated with the integration
during the year and costs following the disposal of the Group's
legacy business.
Acquisition costs in the year ended 31 December 2017
predominantly related to costs incurred on the acquisition of 365
ITMS during the year and include legal, financial due diligence and
corporate advisory fees.
3 Discontinued operations
On 12 October 2018, the Company sold the entire issued share
capital of 365 ITMS Limited ("365 ITMS") and its subsidiaries to
PTCA Newco Limited ("PTCA"), a newly incorporated company owned by
certain members of the management team within 365 ITMS, on a cash
free, debt free basis with a normalised level of working capital
(the "Sale"). The consideration for the Sale was GBP2.8 million,
payable in cash. The proceeds of the Sale were used to reduce the
Group's net debt.
Prior to the Sale certain assets relating to PACT, the Group's
business unit focused on cyber security, including contracts and
staff, were transferred to 365 ITMS for GBP0.2 million. The results
for 2018 below are from 1 January to the date of the Sale. The
figures for 2017 included 9 months' contribution from 365 ITMS from
the date of acquisition and 6 months' contribution from PACT which
was established in June 2017.
The results of the discontinued operations were as follows:
2018 2017
GBP000 GBP000
Revenue 10,428 11,206
Expenses (14,400) (11,022)
(Loss)/ profit before tax (3,972) 184
Attributable tax credit 171 1
Profit on disposal of discontinued
operations 924 -
Net (loss)/ profit attributable
to discontinued operations (2,877) 185
During the year to 31 December 2018, 365 ITMS and the PACT
business contributed GBP2.4 million to the Group's net operating
cash flows.
The net assets and liabilities at disposal and the profit on
disposal were as follows:
2018
Total
GBP000
Goodwill 2,148
Intangible assets 754
Property, plant and equipment 257
Trade and other receivables 2,578
Trade and other payables (4,988)
Deferred tax liability 57
---------
Net assets 806
---------
Cash consideration 3,000
Working capital adjustment (1,270)
Net assets disposed of (806)
---------
Profit on disposal 924
=========
The working capital adjustment relates to the repayment of the
portion of the Group's overdraft which sat within 365 ITMS
amounting to GBP856k, plus additional amounts to allow for a
normalised level of working capital within 365 ITMS at the point of
disposal.
4 Intangible assets
Group
Customer
contracts
and related Technology
Goodwill Trademarks relationships development Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost:
At 1 January 2017 32,256 1,707 29,076 341 63,380
Business combinations 6,125 - 1,111 - 7,236
Additions - - - 754 754
At 31 December 2017 38,381 1,707 30,187 1,095 71,370
Disposal of subsidiary (6,125) - (1,111) (160) (7,396)
At 31 December 2018 32,256 1,707 29,076 935 63,974
_______ _______ _______ _______ _______
Impairment and amortisation:
At 1 January 2017 - 299 2,716 64 3,079
Charge for the year 341 3,125 136 3,602
Impairment charge 9,339 - - - 9,339
At 31 December 2017 9,339 640 5,841 200 16,020
Amortisation for the
year - continuing operations 341 2,865 84 3,290
Impairment charge - continuing
operations 16,986 - 14,914 542 32,442
Reversal of impairment
charge - - (17,519) - (17,519)
Impairment charge - discontinued
operations 3,977 3,977
Amortisation for the
year - discontinued operations 259 259
Disposal of subsidiary (3,977) - (518) (4,494)
At 31 December 2018 26,325 981 5,842 826 33,974
_______ _______ _______ _______ _______
Net carrying amount:
31 December 2018 5,931 726 23,234 109 30,000
___ __ _ __ ___ __ ____
31 December 2017 29,042 1,067 24,346 895 55,350
_______ ___ __ _______ ______ ___ ___
The amortisation charge of GBP3.3 million relates to continuing
operations and is included in the loss for the year from continued
operations in the Income Statement within administrative expenses.
Prior to disposal, an impairment charge of GBP4.0 million was
recognised in relation to the goodwill recognised on the
acquisition of 365 ITMS.
Goodwill is reviewed for impairment annually or more frequently
if events or changes in circumstances indicate that the carrying
value may be impaired. Goodwill is supported by calculating the
discounted cash flows arising from the businesses acquired which
represent the cash generating unit ("CGU") to which goodwill is
allocated. The Group's CGUs are considered to be the two trading
subsidiaries, IDE Group Manage (formerly Selection Services) and
IDE Group Connect (formerly C4L).
Other intangible assets are reviewed for impairment indicators
in line with the Group's accounting policy.
At the time of the interim results for the six months to 30 June
2018 ( "Interim Results"), impairment charges totalling GBP25.0
million were recognised in relation to goodwill and intangible
assets resulting from the acquisition of Selection Services (now
IDE Group Manage) to reflect what the Directors believed at the
time to be the then current value of the business. However, given
the restructuring which took place in the second half of the year
and the improving performance of IDE Group Manage, the Board has
reassessed the value of IDE Group Manage and reversed GBP17.5
million of impairment in relation to customer contracts within IDE
Group Manage which was recognised at the time of the Interim
Results.
The impairment charges in 2018 include a GBP10.1 million
impairment to the goodwill arising on acquisition of Selection
Services and GBP6.9 million impairment to the goodwill arising on
the acquisition of C4L.
The recoverable amount of all cash generating units has been
determined based on value-in-use calculations. These calculations
use pre-tax cash flow projections based on financial budgets until
31 December 2019 and extrapolated for a further four years by
growth rates applicable to the CGU. The financial budgets were
approved by the Board of Directors post publication of the Interim
Results to 30 June 2018. The recoverable amount in relation to IDE
Group Manage was calculated to be GBP17.8 million and the
recoverable amount in relation to IDE Group Connect was calculated
to be GBP19.4 million.
The calculations used to compute cash flows at CGU level are
based on the Group's budget, growth rates, WACC and other known
variables. The calculations are sensitive to movements in both
WACC, the effective unsecured borrowing rate of the Group and the
customer retention ratio. The current effective unsecured borrowing
rate is calculated at 15% per annum. Sensitivities have been run on
cash flow forecasts for all CGUs. The Board is satisfied that the
key assumptions of revenue, gross margin and EBITDA growth rates
are achievable and that reasonably possible changes to those key
assumptions would not lead to the carrying amount of the relevant
CGU exceeding the recoverable amount. Sensitivity analyses have
been performed and the table below summarises the effects of
changing certain key assumptions and the resultant excess (or
shortfall) of discounted cash flows against the aggregate of
goodwill and intangible assets:
Sensitivity analysis
IDE Group Manage IDE Group
GBP000s Connect
GBP000s
Base case fair value of intangible
assets 17,810 19,386
----------------- ---------------------
Excess of fair value over carrying
value:
----------------- ---------------------
Base case 2,810 4,386
----------------- ---------------------
Discount rate increased to 16% 1,276 2,901
----------------- ---------------------
Gross margin growth rate reduced
by 3% per annum (1,206) 2,076
----------------- ---------------------
Base case calculations demonstrate an adequate level of headroom
whilst highlighting that the impairment review is sensitive to the
discount rate and growth rate. Given the Group's current pipeline
and ability to undertake large projects which could result higher
gross margin, as well as the fact that further direct cost savings
are in the process of being identified, the Board is satisfied with
the rates of growth in the base case and believe there could be
significant upside.
The remaining unamortised life of the intangible assets at 31
December 2018 is as follows:
-- Trademarks - 3 years
-- Customer contracts and related relationships - 3 to 11 years
-- Technology - 2 years
Company
The Company has no intangible assets at 1 January 2017, 31
December 2017 and at 31 December 2018.
5 Borrowings
Group Company
2018 2017 2018 2017
GBP000 GBP000 GBP000 GBP000
Non-current
Bank loan 4,750 7,500 4,750 7,500
Unamortised loan arrangement
fee (69) (98) (69) (98)
Finance leases 494 518 - -
5,175 7,920 4,681 7,402
Group Company
2018 2017 2018 2017
GBP000 GBP000 GBP000 GBP000
Current
Bank loan - - - -
Bank overdraft 2,905 2,604 - -
Finance Leases 214 291 - -
3,119 2,895 - -
The carrying amounts and fair value of the non-current
borrowings are as follows:
Group Carrying Fair Carrying Fair
value Value Value Value
2018 2018 2017 2017
GBP000 GBP000 GBP000 GBP000
Non-current
Bank loan 4,750 4,750 7,500 7,098
Finance leases 494 494 518 485
5,244 5,244 8,018 7,583
Company Carrying Fair Carrying Fair
value Value Value Value
2018 2018 2017 2017
GBP000 GBP000 GBP000 GBP000
Non-current
Bank loan 4,750 4,750 7,500 7,098
Bank facilities
As at the beginning of the year the Group's facilities with
National Westminster Bank plc ("Natwest") comprised a five-year
GBP7.5 million Revolving Credit Facility ("RCF") available to the
Group until 22 January 2021 and a GBP3.5 million overdraft
facility, renewable annually (the "Facilities"). In October GBP2.75
million was repaid and the RCF was reduced to GBP4.75 million.
Interest was payable on the utilised RCF at 2% above LIBOR.
Interest was payable on the unutilised RCF at 0.8%. As at 31
December 2018, GBP4.75 million of the RCF was drawn (31 December
2017: GBP7.5 million).
Post year end, in January 2019, GBP4.125 million was repaid to
Natwest and the RCF was reduced to GBP625,000. In March 2019 the
remaining RCF was repaid alongside the overdraft and the Facilities
were cancelled.
Post year end, in January 2019 the Company issued GBP5.3 million
of secured loan notes with a six year term and a 12% coupon
("Secured LNs"). The proceeds of the Secured LNs were used to part
repay the Facilities. In March 2019 a further GBP4.7 million of
Secured LNs were issued to repay the remaining Facilities and
provide additional working capital. The Secured LNs carry an
arrangement fee of 2.5 per cent., payable at the end of the term,
and an exit fee of 2.5 per cent., also payable at the end of the
term.
Reconciliation of borrowings:
Group Non-current Current Total
Borrowings Borrowings Borrowings
GBP000 GBP000 GBP000
Balance at 1 January 2018 7,920 2,895 10,815
Issue of loan notes 2,000 - 2,000
Repayment of loan notes (2,000) - (2,000)
Repayment of loan (2,750) - (2,750)
New finance leases 190 43 233
Reclassification of finance
lease payment (214) 214 -
Repayment of finance leases - (334) (334)
Overdraft - 301 301
Amortisation of loan fee 29 - 29
Balance at 31 December 2018 5,175 3,119 8,294
Company Non-current Total
Borrowings Borrowings
GBP000 GBP000
Balance at 1 January 2018 7,402 7,402
Issue of loan notes 2,000 2,000
Repayment of loan notes (2,000) (2,000)
Repayment of bank loan (2,750) (2,750)
Amortisation of loan fee 29 29
Balance at 31 December 2018 4,681 4,681
6 Convertible loan notes
Group and Company
GBP000
Balance at 1 January
2018 -
Additions 1,583
Interest unwound 71
Balance at 31 December
2018 1,654
On 21 August 2018, as part of a wider fundraising, the Company
issued GBP2.55 million of unsecured loan notes, which have a term
of 5 years and a zero per cent. Coupon ("CLNs"). The CLNs can be
converted into new ordinary shares in the capital of IDE at a price
of 2.5 pence per share. Conversion is at the option of the holder
at any time during the 5 year term. At the end of the term, if the
holder has not chosen to convert the CLNs, the CLNs will be settled
with a cash repayment. The CLNs have a fair value of GBP2.7
million, split into an equity component (GBP1.0 million) and a debt
component (GBP1.7 million).
7 Post balance sheet events
Issue of Loan Notes & Bank Repayment
In January 2019 the Company announced an issue of GBP10 million
secured loan notes (the "Loan Notes"), the proceeds of which were
used to repay IDE's GBP8.25 million debt facilities with National
Westminster Bank plc ("Natwest") consisting of a revolving credit
facility ("RCF") of GBP4.75 million and an overdraft of GBP3.5
million (together, the "Facilities") and to provide additional
working capital for the Company. The Facilities were repaid in two
tranches; GBP4.125 million in January 2019 and the remainder in
March 2019.
The Loan Notes have a term of six years (the "Term") and an
annual coupon of 12%, which is rolled up, compounded annually and
payable at the end of the Term. The Loan Notes carry an arrangement
fee of 2.5 per cent., payable at the end of Term, and an exit fee
of 2.5 per cent., also payable at the end of the Term. The Loan
Notes have first charge over the Company's assets. The Loan Notes
can be redeemed at any time at the Company's option, however,
should the Company opt to redeem the Loan Notes prior to the end of
the Term, all interest due until the end of the Term will become
payable, together with the arrangement and exit fees, upon such
early redemption.
Part Surrender of Property Lease
Due to the reduction in staff over the year to 31 December 2018,
a significant proportion of the Company's offices at Interchange,
Croydon, were empty. Therefore, on 18 April 2019, IDE Group Manage
Limited entered into an agreement for surrender and a deed of
variation in relation to part of the property it leases at
Interchange which has resulted in a reduction in the annual rent
and service charge payable.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR MMGZVGNZGLZZ
(END) Dow Jones Newswires
June 28, 2019 02:01 ET (06:01 GMT)
Tialis Essential It (LSE:TIA)
Historical Stock Chart
From Apr 2024 to May 2024
Tialis Essential It (LSE:TIA)
Historical Stock Chart
From May 2023 to May 2024