TIDMESYS
RNS Number : 7777R
essensys PLC
31 October 2023
31 October 2023
essensys plc
("essensys" or the "Group")
Full year results
essensys plc (AIM:ESYS), the leading global provider of software
and technology to the flexible workspace industry, announces its
audited results for the financial year ended 31 July 2023.
On track to return to profit and cash generation
-- Reorganisation of global operations to align cost base with
current revenues and near-term growth opportunities largely
complete
-- Headcount reduced to 122 (previously 180) following completion of reorganisation
-- GBP8m annualised operational cost reduction achieved
Focus on larger, strategic customers
-- Strong SaaS metrics performance from strategic customer(1) cohort
-- Strategic customers now account for 77% of Group revenue (FY22: 72%)
-- Strategic customer Net Revenue Retention is 108% (FY22:
105%), total customer Net Revenue Retention 98% (FY22: 101%)
-- Zero strategic customer churn
-- 21 new customers signed in the period, of which 15 live in FY23
Resilient financial performance
-- Group total revenues up 9% driven by new site activity, 94%
of new sites with strategic customers
-- Adjusted EBITDA(2) loss improved by 10% year on year and 7% ahead of market expectations
-- Strong US performance, our primary growth market and 62% of
Group revenue (up 20%; 10% at constant currency)
-- UK & Europe revenues down 11%, reflecting ongoing
strategic customer portfolio rebalancing and expected churn of low
value customers
-- Recurring revenues(2) 83% of total revenue (FY22: 86%)
-- ARR(2) GBP20.0m, down -9%, reflecting churn of non-strategic
customers, lower occupancy-based marketplace revenues and foreign
exchange movement
-- Group remains debt-free with cash balance of GBP7.9m.
Additional GBP2m unsecured loan facility provided by Mark Furness,
the Group CEO and largest shareholder, which is a related party
transaction under the AIM Rules for Companies and is described
further below.
Current trading and outlook
-- Sales pipeline remains strong with strategic customers'
expansion plans and new customer opportunities underpinning future
growth
-- ARR contracted but not yet live as of 31 July GBP1.1m
-- Extended sales cycles and delays to capital deployment
continue to reflect macroeconomic uncertainty
-- On track to return to run-rate positive Adjusted EBITDA in
FY24 and net cash generation in FY25
-- Future growth and margin expansion is expected to be
supported by improving customer mix and upsell of new products and
product modules
-- The Group remains confident in the longer-term structural growth opportunity
Mark Furness, Chief Executive Officer of essensys, said:
"Delivering 9% revenue growth is a resilient performance in a
challenging macro context and a testament to the quality of our
product and teams. We have accelerated our plans to return to
profitability and cash generation by realising GBP8 million of
annualised cost savings which align our cost base and investments
to current revenues and the near-term market opportunity. As we
enter FY24, essensys is a leaner organisation and has the right
operational base to support our customers as they increasingly
prioritise automation and tenant experience across their premium
office footprint.
"We remain o n track to return to run-rate positive Adjusted
EBITDA in FY24 and net run rate cash generation in FY25 and the
Group is confident in the longer-term structural growth opportunity
in the flexible workspace market."
Financial summary:
GBPm unless otherwise stated FY23 FY22 Change
Revenue 25.3 23.3 +9%
Recurring revenue(3) 20.9 20.1 +4%
Run Rate Annual Recurring Revenue(3) 20.0 21.9 -9%
Revenue at constant currency 24.0 23.3 +3%
Recurring revenue 19.9 20.1 -1%
Run Rate Annual Recurring Revenue 20.7 21.9 -5%
Statutory loss before tax (15.5) (11.1)
Adjusted EBITDA (6.3) (7.0)
Loss per share (pence) (24.4p) (16.8p)
Proposed final dividend per Nil Nil
share (pence)
Net Cash 7.9 24.1
For further information, please contact:
essensys plc +44 (0)20 3102 5252
Mark Furness, Chief Executive Officer
Sarah Harvey, Chief Financial Officer
Singer Capital Markets (Nominated Adviser
and Broker) +44 (0)20 7496 3000
Peter Steel / Harry Gooden / James Fischer
FTI Consulting
Jamie Ricketts / Eve Kirmatzis / Talia Shirion
/ Victoria Caton +44 (0)20 3727 1000
Notes
1. A strategic customer is typically a global landlord or a
large specialist flexible workspace operator who has the potential
to deliver $1m of Annual Recurring Revenue.
2. Adjusted EBITDA is earnings before interest, tax,
depreciation, amortisation, exceptional restructuring costs and
other non-trading items such as impairment, share option charges
and exchange differences.
3. Further definitions included in Financial Review
About essensys plc
essensys is the leading global provider of software and
technology for flexible, digitally-enabled spaces, buildings and
portfolios. The essensys Platform simplifies and automates the
delivery and management of next generation, flexible, multi-tenant
real estate.
The real estate industry is transforming - it must be flexible
to changing market demands, accommodate hybrid working styles,
provide move-in ready spaces and deliver frictionless experiences
and on-demand services. The office sector is becoming an
increasingly digital-first landscape - driven by end-user demand
and delivering digitally enabled spaces is key to success. Our
software and technology is designed and developed to help solve the
complex operational challenges faced by landlords and flexible
workspace operators as they grow and scale their operations. We
help our customers to deliver a simple, secure and scalable
proposition, respond to changing occupier demands in a hybrid
world, provide seamless occupier experiences, and realise smart
building and ESG ambitions.
Founded in 2006 and listed on the AIM market of the London Stock
Exchange since 2019, essensys is active in the UK, Europe, North
America and APAC.
Chairman's statement
In the 2023 financial year our primary goals of delivering our
upgraded core product, essensys Platform and taking actions to
accelerate our return to profitability and cash generation have
been achieved.
It is a credit to all our people at essensys that we have been
able to accelerate these programmes - and deliver Adjusted EBITDA
ahead of market expectations - while retaining our commitment to
delivering quality products for high value customers.
In a challenging macro context, particularly for landlords,
achieving revenue growth of 9% in FY23 shows the resilience of our
model and the underlying demand for flexible workspace
solutions.
Inevitably, we have had to take difficult decisions this year to
manage our cost base. I would like to thank all of essensys'
people, including those who left us in the last twelve months, for
their diligence, persistence and integrity.
I would also like to thank Alan Pepper for five years of valued
and important leadership as CFO and COO. Alan stepped down from his
Board responsibilities and left essensys during the financial year
after the conclusion of the reorganisation and resultant
simplification of operational structures, which removed the need
for the Chief Operating Officer ("COO") role.
As we look ahead to our 2024 financial year, we are on track to
return to run-rate positive Adjusted EBITDA in FY24, with net cash
generation expected to follow in FY25. We remain debt-free and have
a net cash position of GBP7.9m at year end.
We now have a strong platform to drive sustainable growth.
essensys remains extremely well placed to take advantage of the
increasing demand for flexible workspace, notwithstanding the drag
on spend in the current environment. We continue to see
opportunities to grow with flexible workspace operators and
traditional landlords, as they build their presence in the flexible
workspace industry.
Strategic and operational review
2023 has been a year of continued progress for our business. Our
strategy to target only large landlords and flexible workspace
providers is continuing to drive improvements in customer mix,
product adoption and revenue quality. The performance of this
strategic customer cohort underpins our confidence in our long-term
growth plans, with this group delivering strong SaaS metrics whilst
providing significant future expansion opportunities.
Our accelerated investment into new product development over the
past three years is also beginning to deliver results. 75% of all
customers have now migrated onto essensys Platform and we are also
nearing the full launch of our smart access solution which
converges hardware and software to provide a powerful answer to the
challenges of delivering access control in a flexible, hybrid
world.
Hybrid work is now embedded across companies of all sizes and
has led to a complete rethink of how, when and why we use offices.
This is driving significant change in the real-estate industry.
Companies now want flexibility, agility and access to high quality
amenities and services from their landlords and workspace
providers. This is resulting in a period of significant change for
the real-estate industry as it evolves to meet these changing
demands. Office space requirements are very different in a hybrid
world and landlords are increasingly adapting their offerings to
meet this need by providing access to shared spaces, better
amenities and additional in-building services. This change is also
resulting in a flight to quality as companies reassess their office
space requirements, and whilst this may involve their need for less
permanent space, it is clear that businesses want to be in premium
buildings that deliver high quality employee experiences.
Delivering and managing these networks of multi-tenant spaces is
operationally complex and that complexity increases significantly
with scale, meaning large landlords and flexible workspace
providers need to leverage technology, workflow automation and
digital platforms to achieve their desired outcomes. Our products
have been designed and developed to help our customers manage these
complex operations efficiently at scale, automating and simplifying
the onboarding, off-boarding and in-life management of occupiers,
spaces and services. We expect this evolution of the real-estate
industry to provide our business with a significant long term
growth opportunity as our customers continue to expand their
flexible space offerings to meet the current and future demands of
their tenants.
This year, post-pandemic disruption has given way to a period of
consistent macroeconomic uncertainty with many companies facing
increasing capital costs, inflationary pressures and changes in
customer demand. We are not immune to these challenges and in the
year, we made a number of key decisions to help our business adapt
and ensure we are well placed to deliver our long-term strategy. We
completed a restructure of our global operations and implemented
several cost-cutting measures to accelerate our path to
profitability and cash generation. Whilst these decisions were
difficult and resulted in us saying goodbye to a number of talented
and committed colleagues, we exit the year with our business in a
stronger position and remain well placed to meet the current and
future needs of our customers.
Accelerated strategy to drive near-term profit and cash
generation
Whilst our long-term ambition is unchanged, we have evolved our
strategy to align our cost base and investments to our current
revenues and near-term customer demand. This work is largely
complete and has resulted in our global headcount reducing from 184
at its peak to 122. The reorganisation accelerates our pathway to
profitability and is expected to deliver GBP8m annualised cost
savings. We remain on track to return to run-rate positive Adjusted
EBITDA in FY24 and net cash generation in FY25.
Following this reorganisation our go-to-market team is now a
single function, we have centralised our global operations and
simplified our management structure:
-- All sales and marketing activities centralised under the
leadership of new Chief Revenue Officer, Daniel Brown;
-- Singapore and Hong Kong offices closed with our APAC business
now supported by a regional sales team based in Sydney,
Australia;
-- Customer operations streamlined into global functional teams,
delivering an improved customer experience, better cross business
alignment and lower operating costs. This change resulted in the
removal of the Group COO role; and
-- Removal of the three regional CEO roles in North America,
APAC and UK & Europe with James Lowery (previously CEO for UK
& Europe) moving into the role of Chief Customer Officer.
Market opportunity and strategic focus
We remain confident in essensys' market opportunity,
notwithstanding challenging macro conditions which has led to
elongated sales cycles and capital deployment delays.
The flexible workspace industry benefits from attractive
long-term structural growth drivers, defined by the shift towards
hybrid working and flexible workspaces.
We have a well-established and proven plan to Land, Expand and
Grow, focusing on high value, strategic customers in the flexible
workspace market with the potential to deliver at least $1m ARR.
These customers typically engage us for multiple sites, generate
higher revenue per site and deliver stronger net margins due to the
lower cost to serve that their operational maturity provides.
Land
We continue to win new strategic customers globally with each
presenting significant future expansion opportunities. We signed 21
new customers in FY23. These are largely strategic customers who we
expect to support the expansion of our business in FY24 and beyond.
New customers this year include large US landlords and significant
operators in Australia and Europe. New customers won but not yet
live also include large landlords in the UK, a positive sign for
that market.
Expand
Our existing customer base, particularly in the US, is
indicating continued growth over the coming years as customers look
to increase the amount of flexible space they operate. Our
strategic customers, who are aiming to scale their flex offerings
across their portfolios globally, present a large long-term growth
opportunity for essensys. Leading operators and landlords such as
Industrious, Hines, Carr Workplaces, JLL and Tishman Speyer will
leverage essensys' software and technology to help realise their
expansion aims. An example of this is demonstrated by a recent
press release by essensys' customer Hines, which announced 'Hines
is investing in a new digital ecosystem that makes it easier to
access buildings, amenities and experiences while generating more
in-depth insights about building utilization and client
satisfaction' and referenced research 'showing that a good building
experience can increase tenant retention by 20% and owners seeing
12% higher tenant demand for a diverse roster of amenities, this
investment makes it easier and faster for people in Hines office
buildings to get the most out of their experience in one place'
Grow
Our core product, essensys Platform, has been developed and
built to serve as its own distribution vehicle for future value-add
functionality and modules. This product-led growth (PLG) strategy
is designed to reduce sales cycles for upsell, improve customer LTV
(lifetime value) and drive gross margin performance. An example of
the success of this is the new booking module in essensys Platform,
which has resulted in increased ARR yield per site and a more
powerful platform for our customer. The ability to activate
additional modules and functionality at the press of a button
creates upsell opportunities for the Group and supports further
growth with existing and future strategic customers in a
cost-effective way, which is a core element of our sustainable
growth plan.
We remain engaged at senior levels with large commercial real
estate organisations, both existing and prospective customers,
helping them to understand how essensys products can help their
transition to more flexible, digital-first real-estate offerings.
Whilst most of these landlords are in the early phase of flex
adoption it is these strategic customers that will continue to
provide the Group with significant long-term expansion
opportunities.
Strategic customers
Our customer mix continues to improve with strategic customers
now representing 41% of all core platform customers and 77% of
Group revenue in FY23. This customer cohort delivers strong SaaS
metrics as we embed and scale with them and are very sticky with
zero customer churn in the year.
Our strategic customers had 108% net revenue retention compared
with 98% for the full customer base and our top tier strategics
(those already representing over $1m ARR) had 118% net revenue
retention. In FY23 strategic customers represented 77% of our total
revenue (FY22: 72%). As a result of this focus on higher value
customers, we continue to expect a higher level of churn at the
smaller, non-strategic end of our customer base - particularly in
the UK - which offset our overall growth during FY23. These
customers have largely been single site operators that do not offer
an expansion opportunity and have high service costs and we expect
their numbers to continue to reduce further in the year ahead.
Momentum with strategic customers remains strong and underpins a
significant pipeline of opportunities with some exciting new large
landlords and flexible workspace operators at advanced stages in
the sales process, particularly in the US. This has offset
extensions to sales cycles and capital deployment delays due to the
current macro environment.
We continue to see strong demand from strategic customers;
during the year we added 65 new sites with existing and new
customers and entered FY24 with a healthy contracted pipeline of 35
sites representing GBP1.1m annual recurring revenue, the majority
with strategic customers . Total active sites increased by 8 on
FY22 closing at 466 (FY22: 458; H123 459 ) .
Product development
essensys Platform
Our targeted investment in our products continues, primarily
through the evolution of essensys Platform. The focus of our
development efforts is tightly tied to the requirements of
strategic customers, ensuring that our solutions solve the specific
needs of large-scale landlords and flex operators. This year we
have enhanced its core functionality and added new capability that
is designed to embed essensys Platform further into spaces, as we
seek to help landlords connect their existing tenants digitally to
the amenities and communal spaces in their buildings. We see this
trend continuing as enterprises of all size adopt hybrid models and
landlords respond by providing access to a wide variety of
digitally connected spaces across their portfolios. essensys
Platform allows landlords and flex workspace providers to solve the
complex challenges they face and deliver seamless, digital-first
in-building and cross-portfolio experiences. Strategic customers
have continued to move to essensys Platform in the 2023 financial
year, which presents a long-term opportunity for margin and revenue
growth through greater automation and greater access to in-building
services and amenities.
essensys Cloud
Last year we announced a decoupling of our global private
network (essensys Cloud) from essensys Platform, which reduces our
requirement for future data centre expansion and removes the
requirement for essensys Platform and essensys Cloud to be bundled
together, which in turn lowers barriers to entry for our customers,
for example where they can use existing telecoms solutions. We
expect this to deliver improvement in gross margins over time as
the lower margin network element of our product suite becomes a
lower proportion of overall revenues.
As a standalone product we have also been able to develop new
functionality for essensys Cloud which we will be launching in the
coming months. We expect to increase the value of this product to
customers in future.
Our new dynamic access control solution
We're excited by the progress we've made with our dynamic access
control hardware and software. Leveraging the ubiquity of
smartphone wallets to create a seamless book-pay-access experience
for occupiers, the solution converges access control, space booking
and an IoT (Internet of Things) sensor gateway providing a powerful
answer to the problem of managing real-time access and control of
space in today's dynamic and hybrid world. We reached another major
milestone in the development process recently when we received the
final CE and FCC certification of the hardware components and as
such, we now anticipate launch of this exciting new product before
the end of the year.
Operate
Operate remains an important product for several of our
strategic customers. Its core functionality helps customers to
manage contracts, billing and customer invoices and now benefits
from a new integration to essensys Platform.
Regional performance
US
We continue to see strong performance in North America, where
total revenue increased by 20% and recurring revenue by 15%. The US
continues to be our primary growth market providing a significant
long-term opportunity and accounted for 62% of Group revenues in
the year. We have a high-quality sales pipeline with new and
existing strategic customers and many of these also provide further
international expansion opportunities. We added 8 new strategic
customers with further expansion potential.
Key customers continue to set out their near-term expansion
plans, providing visibility of expected future site growth.
Evidence of the structural shift to a more flexible way of working
continues to grow with an increasing number of landlords using
essensys to deliver flexible real estate solutions as they continue
to repurpose traditional office space assets. Those engagements
involve a number of recognisable global real estate operators which
each individually provide the opportunity for significant long term
account growth.
Some customers continue to optimise their portfolios. We believe
this optimisation is necessary and will serve to strengthen our
customers businesses and our relationship with them and so will
continue to provide this flexibility for our largest partners.
UK & Europe
The strong US performance offset a continued decline in the UK
which was largely driven by expected churn from our smaller, legacy
customers, with 12 customers positioned at the low-value end of the
customer base leaving during the period. UK and Europe revenues
declined by 11%, with growth in Europe offset by the UK
performance. This forms part of our planned and long-term focus on
strategic customers with our value proposition as we align our
product development efforts to the needs of large landlords and
real estate operators.
Activity levels continue to be subdued in the UK and Europe,
reflecting the challenging macro backdrop. Despite this, we saw
positive activity, including a return to growth in new sites from
one of our largest UK customers with 8 sites signed in Q4 FY23, of
which 6 have already gone live. During the year we also upsold an
existing large (27 site) Operate customer in France onto the
essensys Platform with an initial pilot of 1 site already live and
a second due to go live during the first half of FY24. We also
expanded into Europe with one of our large US customers with 2
sites live and, since the year end, we have signed further new
sites with the same customer, including our first sites in Belgium
and the Netherlands. We also added our first 4 sites in Ireland in
FY23.
As previously announced and as expected, the UK experienced a
higher level of site closures with the increased churn of our
smaller non-strategic customers. We also saw continued site
rationalisation with some large UK customers as they have exercised
their option to close sites within their current contract. This
contract mechanic allows them to close an agreed number of sites
within the contract period and is primarily used if the customer is
exiting that location.
APAC
We onboarded 9 new sites with new and existing strategic
customers in Australia and Singapore in FY23, with additional sites
due to go live over the coming quarter. Our recent reorganisation
will see our APAC team primarily focused on sales and customer
success with all associated operational support provided centrally
from the Group. Our pipeline in the region remains strong and we
have signed the first 5 sites with a multi-site operator that we
believe will be a key strategic customer for APAC and serve as an
eye-catching case study.
Current trading and outlook
Following our reorganisation, we have a strong operational base
to capture demand for flexible workspace and drive profitable
long-term growth. We continue to see evidence of structural growth
drivers in our market, even in a challenging macro backdrop
characterised by delays to sales cycles and capital deployment
decisions. Our sales pipeline is growing, underlying customer
occupancy appears to be stabilising and both our operator and
landlord customers are reporting increased occupier demand for
premium flexible space solutions. This is reflected in positive
engagement with our large customers about the ability of our
products to support their expansion plans. We entered FY24 with
contracted new ARR of GBP1.1m and have continued to sign new deals
through the first quarter of FY24.
essensys creates seamless in-building experiences for flexible
operations by removing complexity and reducing costs through
automation and simplification. With 30% of all office space
expected to be flexible by 2030, compared to less than 2% today,
the market opportunity remains sizeable. As we look ahead to our
2024 financial year, we are on track to return to run-rate positive
Adjusted EBITDA in FY24, with net cash generation expected to
follow in FY25. We remain debt-free and have a net cash position of
GBP7.9m at year end.
essensys enters FY24 as a leaner, more efficient business and
our momentum with strategic customers and new product developments
supports our confidence of further progress in the year ahead.
Financial Review
Scope of financial results
The financial results included in this annual report cover the
Group's consolidated activities for the 12 months ended 31 July
2023. The comparatives for the previous 12 months were for the
Group's consolidated activities for the 12 months ended 31 July
2022.
Financial Key Performance Indicators
GBP'm unless otherwise stated 2023 2022 Change
Group Total Revenue 25.3 23.3 9%
North America 15.8 13.2 20%
UK & Europe 8.7 9.8 -11%
APAC 0.8 0.3 207%
Recurring Revenue 20.9 20.1 4%
North America 12.6 11.0 15%
UK & Europe 7.8 9.0 -13%
APAC 0.5 0.1 400%
Recurring Revenue %age of Total 83% 86% -3ppt
Run Rate Annual Recurring Revenue 20.0 21.9 -9%
Non-recurring revenue 4.4 3.2 38%
Gross Profit 14.9 14.1 6%
Gross Profit percentage 59% 61% -2ppt
Recurring Revenue margin %age 63% 64% -1ppt
Statutory loss before tax (15.5) (11.1) -40%
Adjusted EBITDA (6.3) (7.0) 10%
Adjusted EBITDA margin (25)% (30)% 5ppt
Exceptional restructuring costs (2.6) -
Net Cash 7.9 24.1
See commentary following and in the strategic and operational
review above together with the financial statements below for
explanation of significant movements in the above Financial Key
Performance Indicators.
Revenue
Group total revenue increased by 9% to GBP25.3m in the year. As
outlined in the strategic and operational review, we continued to
see growth in the US, driven by new site activity and our
relationships with large strategic customers, offset by a decline
in the UK primarily due to the expected churn in smaller single
site customers and a reduction in usage revenue. The strengthening
of the US Dollar in the first half of the year was a benefit to
reported revenue in the year. This trend reversed during the second
half of the year as the US Dollar weakened. The movement in foreign
exchange rates in the full year had a net positive impact on
reported revenue of GBP1.3m (FY22: GBP0.5m). APAC continued to grow
revenues in its first full year of operations through new and
existing customer relationships.
Recurring revenue comprises income invoiced for services that
are repeatable and are consumed and delivered monthly over the term
of a customer contract, including a fixed contracted fee and a
variable usage-based fee. Recurring revenue increased by 4% in the
year which reflected the benefit of the stronger US dollar during
the year; at constant currency recurring revenue declined by 1%.
The Group continued to experience portfolio rebalancing by large
customers and churn of smaller customers, which partially offset
the growth from new sites in the year. The Group also saw a
continuing and expected decline in its traditional occupancy-based
revenue, primarily relating to voice services, given the lower
usage of desktop phones and bandwidth charges as more bandwidth is
included in contracted fees.
Run Rate Annual Recurring Revenue (Run Rate ARR) is an
annualisation of the underlying recurring revenue for the month
identified (July 2023 and 2022, as appropriate) and is used as an
indication of the annual value of the recurring revenue for that
month. Run Rate ARR declined by 9% to GBP20.0m (from GBP21.9m in
FY22). The weakening of the US dollar between July 2022 and July
2023 had a GBP0.8m impact on ARR and this, together with a decline
in usage-based revenue, more than offset the net positive impact
from new customer sites and new sites with existing customers.
Non-recurring revenue comprises activation fees charged to
customers in respect of installations of hardware and services at
locations, together with training and customer onboarding and is a
positive indicator for future recurring revenue for new sites. The
38% increase in non-recurring revenue in FY23 represented increased
new site activity with new and existing customers, particularly in
the US.
Gross profit
Overall gross profit increased by 6% to GBP14.9m, reflecting
increased revenue. Gross margin declined to 59% (2021: 61%) and
recurring revenue margins decreased to 63% (2021: 64%) reflecting
the higher proportion of revenue from the US, the decline in the
traditionally higher margin UK revenue, the overall decline in
higher margin usage-based revenue and an increase in recurring
costs due to the full year run rate of the operational running
costs for APAC data centres.
Administrative expenses
Total administrative expenses increased by GBP5.3m in FY23. This
increase was primarily due to a GBP2.6m one-off cost to achieve the
Group reorganisation and a GBP2.8m increase in depreciation,
amortisation and impairment explained below. Excluding these
amounts and the non-cash charge for share options, administrative
expenses were flat in the year, as the benefit of the global
reorganisation in the second half of the year offset much of the
impact of the higher run rate cost in the first half and the higher
overall bad debt charge in the year.
Underlying staff-related costs increased by GBP0.5m with the
final element of the Group reorganisation taking place at the end
of the year which reduces the run rate going into the new financial
year. Bad debt expense, net of the movement in the expected credit
loss provision, increased by GBP0.6m, largely reflecting the impact
of smaller customers going into administration or walking away from
contracts following the Covid-19 pandemic which meant that, despite
ongoing efforts during the year, debts were not able to be
recovered. Reductions in marketing and travel costs offset these
increases during the year.
The Group reorganisation, which commenced in January 2023 as
part of the strategy to return the Group to profitability and cash
generation, was achieved at a cost of GBP2.6m, recognised as an
exceptional cost in the year. The cost of reorganisation related
primarily to termination payments to impacted employees and
included a reduction in the executive team with the removal of
regional CEO and Group COO roles and a reduction in all functional
teams through centralising and simplifying operations to create
more efficient ways of working. This reorganisation removed GBP8
million of annualised run rate cost from the business.
Depreciation increased by GBP0.9m in the year, reflecting the
FY22 investment in data centre equipment and lease property, and
amortisation increased by GBP1.2m, reflecting the increased size of
the development team in FY22 and accelerated amortisation of part
of the Connect platform because the migration of customers to
essensys Platform is at an advanced stage. The Group incurred
impairment charges of GBP0.8m in relation to its Operate platform
and of its assets in the APAC region as part of the restructuring
in the year. As previously reported, the Operate platform is not
currently being sold to any new customers and therefore the annual
impairment review considers the future benefit of the goodwill and
remaining net book value of the capitalised software development
for this platform. The Connect platform has evolved into the
essensys Platform and while the core functionality remains
consistent across both platforms, the impairment reflects the fact
that new customers and sites will not be using Connect to generate
future revenues and all existing customers are expected to have
migrated to the essensys Platform by the end of FY24.
Statutory loss for the year
The Group made a loss before tax for the year of GBP15.5m (FY22:
loss of GBP11.1m). The year-on-year increased loss is primarily
driven by the one-off cost of the group reorganisation and higher
level of impairment charges due to the changes in the key
platforms.
GBP'm 2023 2022
Turnover 25.3 23.3
Cost of sales (10.4) (9.2)
Gross profit 14.9 14.1
Administrative expenses (26.8) (24.7)
Bad debt expense net of provision (1.0) (0.4)
Cost of Group reorganisation (2.6) -
Operating loss (15.5) (11.0)
Net interest receivable/(payable) - (0.1)
Loss before taxation (15.5) (11.1)
======= =======
Adjusted EBITDA
Adjusted results are prepared to provide a more comparable
indication of the Group's core business performance by removing the
impact of certain items including exceptional items (material and
non-recurring), and other, non-trading, items that are reported
separately. Adjusted results exclude adjusting items as set out in
the statement of consolidated loss and below, with further details
given in Note 8 of the financial statements. In addition, the Group
also measures and presents performance in relation to various other
non-IFRS measures, such as recurring revenue, run-rate annual
recurring revenue and revenue growth.
Adjusted results are not intended to replace statutory results.
These have been presented to provide users with additional
information and analysis of the Group's performance, consistent
with how the Board monitors results.
Adjusted EBITDA (being EBITDA prior to exceptional restructuring
costs and non-cash impairment and share based payment) is
calculated as follows:
GBP'm 2023 2022
Operating loss (15.5) (11.0)
Add back:
Depreciation & amortisation 5.2 3.1
Impairment charge 0.8 0.1
------- -------
EBITDA (9.5) (7.8)
Add back:
Exceptional reorganisation costs 2.6 -
Share based payment expense 0.6 0.8
Adjusted EBITDA (6.3) (7.0)
======= =======
The exceptional reorganisation cost, share-based payment expense
and impairment charge are excluded from Adjusted EBITDA as they are
not considered relevant for assessment of underlying
profitability.
Taxation
The Group incurred a tax charge in the year of GBP245,000 (FY22:
tax credit GBP286,000). This was made up of foreign tax on income
for the year.
Cash
Net cash at year end was GBP7.9m (FY22: GBP24.1m) and the Group
remains debt-free. The most significant cash outflow during the
year continued to be on the Group's personnel with the first half
of FY23 seeing a normalised run rate from the investment in product
and go-to-market capability during FY22. The Group also made
payments for the inventory build which occurred in FY22 to provide
certainty of supply and made the final payments on its data centre
equipment in the APAC region. Net cash flow reduced each quarter
from an outflow of GBP7.4m during the first quarter to an outflow
of GBP1.5m in the final quarter. The final stage of the Group
reorganisation took place after the year end and reduces run rate
cost further from Q1 FY24. The Group's current cash reserves
provide sufficient capital for the foreseeable future.
On 30 October 2023, the Group entered into an unsecured loan
facility with Mark Furness, the Group's Chief Executive Officer and
largest shareholder, which provides the Group with up to GBP2
million of additional funding in the event that it is required,
available for drawdown until 31 July 2025. Interest is charged at
base rate plus 500bps p.a. on any amounts drawn under the facility.
There has been no drawdown on this facility and none is
expected.
Entry into the facility with a director and substantial
shareholder in the Company constitutes a related party transaction
under the AIM Rules for Companies. The independent directors of the
Company (with the exception of Mark Furness who is involved in the
transaction as a related party) consider, having consulted with
Singer Capital Markets Advisory LLP, the Company's nominated
adviser, that entry into the facility is fair and reasonable
insofar as shareholders are concerned.
Capital Expenditure
During the year the Group incurred capital expenditure of
GBP0.6m which, as noted above, primarily comprised the final
payments in relation to its data centre infrastructure in the APAC
region which had commenced during FY22.
Capitalised Software Development Costs
The Group continues to invest in software development resulting
in ongoing enhancements to its software platforms. During the year
it expanded the essensys Platform which brings together the
existing functionality of its Connect platform with new
functionality. Customers continued to be migrated onto the essensys
Platform through FY23. Where such work is expected to result in
future revenue, costs incurred that meet the definition of software
development in accordance with IAS38, Intangible Assets, are
capitalised in the statement of financial position. During the year
the Group capitalised GBP3.8m in respect of software development
(FY22: GBP4.1m).
Dividend policy
It remains the Group's intention in the short to medium-term to
invest in order to deliver capital growth for shareholders. The
Board has not recommended a dividend in respect of the year ended
31 July 2023 and does not anticipate recommending a dividend within
the next year but may do so in future years.
essensys plc
Consolidated Statement of Comprehensive Loss
for the year ended 31 July 2023
Notes 2023 2022
GBP000 GBP000
Turnover 6 25,254 23,298
Cost of sales (10,347) (9,190)
_________ _________
Gross profit 14,907 14,108
Administrative expenses (26,176) (23, 976)
Expected credit loss provision (1,037) (423)
Share based payment expense (597) (741)
Restructuring expenses 7 (2,610) -
_________ _________
Operating loss 8 (15,513) (11,032)
Interest receivable and similar income 11 216 94
Interest payable and similar charges 12 (164) (147)
_________ _________
Loss before taxation (15,461) (11,085)
Taxation 13 (245) 286
_________ _________
Loss for the year from continuing
operations (15,706) (10,799)
_________ _________
Other comprehensive loss
Items that may be reclassified to profit
or loss:
Currency translation differences (246) 583
_________ _________
Other comprehensive loss for the year (246) 583
_________ _________
Total comprehensive loss for the year (15,952) (10,216)
_________ _________
Basic and Diluted loss per share 14 (24.4p) (16.8p)
essensys plc
Consolidated Statement of Financial Position
as at 31 July 2023
Notes 2023 2022
GBP000 GBP000
ASSETS
Non-current assets
Intangible assets 15 10,059 8,922
Property, plant and equipment 16 1,577 2,819
Right of use assets 17 1,140 2,482
_________ _________
12,776 14,223
Current assets
Inventories 19 2,260 2,546
Trade and other receivables 20 4,617 6,434
Cash at bank and in hand 7,862 24,122
_________ _________
14,739 33,102
_________ _________
TOTAL ASSETS 27,515 47,325
_________ _________
EQUITY AND LIABILITIES
EQUITY
Shareholders' equity
Called up share capital 21 162 161
Share premium 22 51,660 51,660
Share based payment reserve 3,382 2,811
Merger reserve 28 28
Retained earnings (34,652) (18,700)
_________ _________
TOTAL EQUITY 20,580 35,960
LIABILITIES
Non-current liabilities
Lease liabilities 24 307 1,659
_________ _________
307 1,659
Current liabilities
Trade and other payables 23 4,762 7,422
Contract liabilities 6E 420 815
Lease liabilities 24 1,264 1,469
Current taxes 182 -
_________ _________
6,628 9,706
_________ _________
TOTAL LIABILITIES 6,935 11,365
_________ _________
TOTAL EQUITY AND LIABILITIES 27,515 47,325
_________ _________
essensys plc
Consolidated Statement of Changes in Equity
for the Year Ended 31 July 2023
Share
based
Share Share payment Merger Retained Total
capital premium Reserve Reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
1 August 2022 161 51,660 2,811 28 (18,700) 35,960
Comprehensive loss for
the year
Loss for the year - - - - (15,706) (15,706)
Currency translation differences - - (26) - (246) (272)
_______ _______ _______ _______ _______ _______
Total comprehensive loss
for the year - - (26) - (15,952) (15,978)
_______ _______ _______ _______ _______ _______
Transactions with shareholders
Share based payment charge - - 597 - - 597
Issue of new shares 1 - - - - 1
_______ _______ _______ _______ _______ _______
31 July 2023 162 51,660 3,382 28 (34,652) 20,580
_______ _______ _______ _______ _______ _______
Consolidated Statement of Changes in Equity
For the Year Ended 31 July 2022
Share
based
Share Share payment Merger Retained Total
capital premium Reserve Reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
1 August 2021 161 51,660 2,045 28 (8,484) 45,410
Comprehensive loss for
the year
Loss for the year - - - - (10,799) (10,799)
Currency translation differences - - 25 - 583 608
_______ _______ _______ _______ _______ _______
Total comprehensive loss
for the year - - 25 - (10,216) (10,191)
_______ _______ _______ _______ _______ _______
Transactions with shareholders
Share based payment charge - - 741 - - 741
_______ _______ _______ _______ _______ _______
31 July 2022 161 51,660 2,811 28 (18,700) 35,960
_______ _______ _______ _______ _______ _______
essensys plc
Consolidated Statement of Cash Flows
for the Year Ended 31 July 2023
Notes 2023 2022
GBP000 GBP000
Cash used by operations 32 A (9,745) (6,789)
Corporation tax paid (63) (11)
Foreign exchange (31) -
_________ _________
Net used by operating activities (9,839) (6,800)
_________ _________
Cash flows from investing activities
Purchases of intangible assets 15 (3,843) (4,087)
Purchases of property plant and equipment 16 (630) (1,541)
Proceeds from the disposal of fixed 120 -
assets
Interest received 216 94
_________ _________
Net cash used in investing activities (4,137) (5,534)
_________ _________
Cash flows from financing activities
Proceeds from the issuance of new
shares 20 1 -
Repayment of lease principal 24 (1,842) (893)
Interest paid on lease liabilities 24 (164) (147)
_________ _________
Net cash used in financing activities (2,005) (1,040)
_________ _________
Net decrease in cash and cash equivalents (15,981) (13,374)
Cash and cash equivalents at beginning
of year 24,122 36,903
Effects of foreign exchange rate changes (279) 593
_________ _________
Cash and cash equivalents at end
of year 7,862 24,122
_________ _________
Cash and cash equivalents comprise:
Cash at bank and in hand 7,862 24,122
_________ _________
Notes to the financial statements
General information
1
essensys plc (the "Company") is a public limited company,
incorporated in the United Kingdom under the Companies Act 2006
(registration number 11780413). The Company is domiciled in the
United Kingdom and its registered address is Aldgate Tower 7(th)
Floor, 2 Leman Street, London, E1 8FA. The Company's ordinary
shares are traded on the Alternate Investment Market (AIM) of the
London Stock Exchange.
The Group's principal activities are the provision of software
and technology platforms that manage critical digital
infrastructure and business processes, primarily of operators of
flexible workspace within the real estate industry. These
activities are carried out by the Group's wholly owned
subsidiaries.
The Company's principal activity is to provide funding and
management services to its subsidiaries.
Authorisation of financial statements and statement
2 of compliance with IFRS
The financial statements for the year ended 31 July 2023 were
authorised for issue by the Board of Directors and the Statement of
Financial Position was signed on the Board's behalf by Sarah Harvey
on 30 October 2023.
The Group's financial statements have been prepared in
accordance with UK adopted international accounting Standards and
as applied in accordance with the provisions of the Companies Act
2006.
Basis of Preparation
3
Publication of non-statutory accounts
In accordance with section 435 of the Companies Act 2006, the
Directors advise that the financial information set out in this
announcement for the years ended 31 July 2023 and 31 July 2022 do
not constitute the Group's statutory financial statements for those
years but is derived from those financial statements. The statutory
financial statements for the year ended 31 July 2022 have been
audited and filed with the Registrar of Companies. The statutory
financial statements for the year ended 31 July 2023 have been
audited and will be delivered to the Registrar of Companies in due
course.
The Independent Auditor's Reports on the Group's financial
statements for the years ended 31 July 2023 and 31 July 2022 were
unqualified, did not draw attention to any matters by way of
emphasis, and did not contain a statement under 498(2) or 498(3) of
the Companies Act 2006.
These financial statements have been prepared under the
historical cost basis and are presented in Sterling and all values
are rounded to the nearest thousand pounds (GBP000) except when
otherwise indicated.
The Group's business activities, together with factors likely to
affects its future development, performance and position are set
out in the Strategic report. The financial position of the Group is
described in the Financial Review.
Going concern
The Group's consolidated financial statements have been prepared
on a going concern basis.
As at 31 July 2023 the Group had net assets of GBP20.7m (2022:
GBP36.0m), including cash of GBP7.9m (2022: GBP24.1m) as set out in
the Consolidated Statement of Financial Position, with no external
debt. In the year ended 31 July 2023 the Group generated a loss
before tax of GBP15.5m (2022: loss of GBP11.1m). The group used net
cash before financing in the year of GBP16.3m (2022: GBP12.3m)
after investment in software development of GBP4.1m. Following the
year end the Group entered into an agreement with Mark Furness, the
Group's Chief Executive Officer and largest shareholder, to provide
a loan of up to GBP2 million in the event that the Group has a
requirement for additional liquidity.
During the year, Group revenue increased by 9.0% from GBP23.3m
to GBP25.3m, with recurring revenue increasing by 3.8% primarily as
a result of a strengthening of the US dollar, which increased the
reported revenue from its US subsidiary which is an increasing
proportion of the Group's business. The Group generated an
operating loss of GBP15.6m (2022: GBP10.1m). The Group has long
term contracts with a number of customers and suppliers across
different geographical areas and industries.
The Directors have prepared a detailed budget and forecast of
the Group's expected performance over a period covering at least
the next twelve months from the date of the approval of these
financial statements. As well as modelling the realisation of the
sales pipeline, these forecasts also cover a number of scenarios
and sensitivities in order for the Board to satisfy itself that the
Group remains within its current available cash and committed
facilities.
Whilst the Directors are confident in the Group's ability to
grow revenue, the Board's sensitivity modelling shows that the
Group can remain within its cash facilities, without recourse to
the committed facility, for a period in excess of twelve months, in
the event that revenue growth is delayed (i.e. new sales bookings
are not achieved). The Directors' financial forecasts and
operational planning and modelling also include the actions, under
the control of the Group, that they could take to further
significantly reduce the cash outflow in its sensitivity modelling.
On the basis of this financial and operational modelling, the
Directors believe that the Group has the capability and the
operational agility to react quickly, cut further costs from the
business and ensure that the cost base of the business is aligned
with its revenue and funding scale.
As a result, the Directors have a reasonable expectation that
the Group can continue to operate and be able to meet its
commitments and discharge its liabilities in the normal course of
business for a period of not less than twelve months from the date
of approval of these financial statements. Accordingly, they
continue to adopt the going concern basis in preparing the Group
financial statements.
Basis of consolidation
The consolidated financial statements incorporate the results of
essensys plc and all of its subsidiary undertakings.
Essensys plc was incorporated on 22 January 2019, and on 18 May
2019 it acquired the issued share capital of essensys (UK) Ltd,
previously essensys Limited, by way of a share for share exchange.
The latter had four wholly owned subsidiaries:
-- essensys, Inc
-- Hubcreate Limited
-- TVOC Limited
-- Spacebuddi Limited
The consideration for the acquisition was satisfied by the issue
of 38,836,044 ordinary shares in essensys plc to the shareholders
of essensys (UK) Limited.
The accounting treatment for the year to 31 July 2020 in
relation to the addition of essensys plc as a new UK holding
company of the group falls outside the scope of IFRS 3 'Business
Combinations'. The share scheme arrangement constituted a
combination of entities under common control due to all
shareholders of essensys (UK) Ltd being issued shares in the same
proportion, and the continuity of ultimate controlling parties. The
reconstructed group was consolidated using merger accounting
principles which treated the reconstructed group as if it had
always been in existence. Any difference between the nominal value
of shares issued in the share exchange and the book value of the
shares obtained was recognised in a merger reserve.
The company applied the statutory relief as prescribed by
Companies Act 2006 in respect of the share for share exchange as
the issuing company has secured more than 90% equity in the other
entity. The carrying value of the investment is carried at the
nominal value of the shares issued.
Summary of significant accounting policies
4
Revenue
The Group generates revenue primarily in the UK and the United
States of America (USA). Turnover represents services provided in
the normal course of business; net of value added tax. Services
provided to clients during the year, including any amounts which at
the reporting date have not yet been billed to the clients, have
been recognised as revenue.
(a) Contract
Set up and installation costs are partially invoiced once the
customer contract is signed with the remaining balance invoiced
when the service goes live. Fixed monthly costs are invoiced one
month in advance and revenue is recognised in the month the service
is provided. Deferred revenue is recognised for the Group's
obligation to transfer services to customers for which they have
already received consideration (or an amount of consideration is
due) from the customer. Variable monthly costs (including internet
usage and telephone call charges) are invoiced monthly in arrears
and accrued revenue is recognised in the month that the services
were consumed.
(b) Contractual obligation
The majority of customer contracts have two main services that
the Group provides to the customer:
-- Set up / installation
-- Ongoing monthly software, services and support
Where a contract is modified and the remaining services are
distinct from the services transferred on or before the date of the
contract modification, then the Group accounts for the contract
modifications as if it were a termination of the existing contract
and the creation of a new contract.
The amount of consideration allocated to the remaining
performance obligations is the sum of the consideration promised by
the customer and the consideration promised as part of the contract
modification.
(c) Determining the transaction price
The transaction price is determined as the fair value of the
consideration the Group expects to receive over the course of the
contract. There are no incentives given to customers that would
have a material effect on the financial statements.
(d) Allocate the transaction price to the performance
obligations in the contract
The allocation of the transaction price to the performance
obligations in the contract is non-complex for the Group. There is
a fixed unit price for each product sold. Therefore, there is
limited judgement involved in allocating the contract price to each
unit ordered.
(e) Recognise revenue when or as the entity satisfies its
performance obligations
The contracts may cover multiple sites, but the overarching
terms are consistent in each contract. The set up/installation is
seen as a distinct performance obligation and revenue is recognised
at a point in time, when the installation is completed, and any
hardware is provided to the client for their use. The customer can
benefit from the set up / installation such as new internet
connectivity or new hardware provided, and therefore revenue is
recognised in full when these services are provided.
The second performance obligation is the provision of software,
infrastructure and on-demand services over the term of the
contract, and the Group recognises the revenue each month as it
provides these services for the duration of the contract, i.e. over
time.
(f) Costs to obtain and fulfil a contract
Set up and installation costs are partially invoiced once the
customer contract is signed. The value of the invoiced amount is
held as a contract liability until the performance obligation is
satisfied.
The company incurs incremental costs in obtaining a contract in
the form of sales commissions. The Company recognises the sales
commissions as an asset in relation to costs to obtain a contract.
The company believes that the costs are recoverable as the proceeds
from the customer over the contract period exceed the costs to
obtain the contract. The asset is amortised over the contract life
on a systematic basis.
Contract assets arise from the group's revenue contracts, where
work is performed in advance of invoicing customers, and contract
liabilities arise where revenue is received in advance of work
performed. Cumulatively, payments received from customers at each
balance sheet date do not necessarily equal the amount of revenue
recognised on the contracts. Commission costs capitalised on
contracts represents internal sales commission costs incurred on
signing of customer contracts and, in line with the requirements of
IFRS15, spread over the life of the customer contract.
Finance income
Finance income comprises interest receivable on funds invested
and loans to related parties. Interest income is recognised in
profit or loss as it accrues using the effective interest
method.
Finance costs
Finance costs comprise interest on lease liabilities. Interest
on lease liabilities is charged to the consolidated statement of
comprehensive income over the term of the debt using the effective
interest rate method so that the amount charged is at a constant
rate on the carrying amount. Issue costs are initially recognised
as a reduction in the proceeds of the associated capital
instrument.
Intangible assets
a) Internal software development
Research expenditure is written off in the year in which it is
incurred.
Expenditure on internally developed products is capitalised if
it can be demonstrated that:
-- it is technically and commercially feasible to develop the
asset for future economic benefit;
-- adequate resources are available to maintain and complete the development;
-- there is the intention to complete and develop the asset for future economic benefit;
-- the company is able to use the asset;
-- use of the asset will generate future economic benefit; and
-- expenditure on the development of the asset can be measured reliably.
Where the costs are capitalised, they are written off over their
economic life which is considered by the directors to be 5 to 7
years.
Internally developed products in the course of construction are
carried at cost, less any recognised impairment loss. Amortisation
of these assets, determined on the same basis as other property
assets, commences when the assets are ready for their intended
use.
(b) Goodwill
Goodwill arising on the acquisition of a business represents the
excess of the fair value of the consideration and the fair value of
the Group's share of the identifiable assets and liabilities
acquired. The identifiable assets and liabilities acquired are
incorporated into the consolidated financial statements at their
fair value to the Group.
Subsequent to initial recognition, goodwill is measured at cost
less accumulated impairment losses. Goodwill is tested for
impairment annually. Any impairment is recognised immediately in
the Consolidated Statement of Comprehensive Income and is not
subsequently reversed. On disposal of a business, the attributable
amount of goodwill is included in the determination of the profit
or loss on disposal.
(c) Other intangible assets
Other intangible assets are initially recognised at cost or, if
recognised as part of a business combination, at fair value. After
recognition, intangible assets are measured at cost or fair value
less any accumulated amortisation and any accumulated impairment
losses. Amortisation is calculated to write off the cost or fair
value of intangible assets in equal annual instalments over their
estimated useful lives and is included within administrative
expenses.
The estimated useful lives for other intangible fixed assets
range as follows:
Customer relationships - 6.3 years
Website - 1 year
Acquired software - 5 years
Property, plant and equipment
Property, plant and equipment is carried at historical cost less
accumulated depreciation and any accumulated impairment losses.
Historical cost comprises the aggregate amount paid to acquire
assets and includes costs directly attributable to making the asset
capable of operating as intended.
At each reporting date the Group assesses whether there is an
indication of impairment. If such indication exists, the
recoverable amount of the asset is determined which is the higher
of its fair value less costs to sell and its value in use. An
impairment loss is recognised where the carrying value exceeds the
recoverable amount.
Depreciation is charged so as to allocate the cost of assets
less their residual value over their estimated useful lives or, if
held under a finance lease, over the shorter of the lease term and
the estimated useful life, using the straight line method.
Depreciation is provided at the following annual rates:
Leasehold improvements - 20%
Fixtures and fittings - 25%
Computer equipment - 10% - 25%
The assets residual values, useful lives and depreciation
methods are reviewed, and adjusted prospectively if appropriate, if
there is an indication of a significant change since the last
reporting date.
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised within 'other
operating income or loss' in the statement of comprehensive
income.
Leasehold improvements include security equipment purchased.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial information of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates ("the functional
currency"). The consolidated financial information is presented in
'sterling', which is essensys plc's functional and the Group's
presentation currency.
On consolidation, the results of overseas subsidiaries are
translated into sterling at rates approximating to those ruling
when the transactions took place. All assets and liabilities of
overseas operations are translated at
Foreign currency translation (continued)
the rate ruling at the reporting date, including any goodwill in
relation to that entity. Exchange differences arising on
translating the opening net assets at opening rate and the results
of overseas operations at actual rate are recognised in other
comprehensive income.
(b) Transactions and balances
Foreign currency transactions are translated into essensys plc's
functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in
profit or loss.
Foreign exchange gains and losses that relate to borrowings and
cash and cash equivalents are presented in profit or loss within
'finance income or costs. All other foreign exchange gains and
losses are presented in the statement of comprehensive income
within 'other operating income or expense'.
Inventories
Inventories are valued at the lower of cost and net realisable
value. Inventories consist of work in progress, which are items and
third party services that have been purchased and allocated to
satisfy specific customer contracts where title has not yet passed,
and finished goods, which are mostly made up of items purchased in
the previous financial year to secure sufficient resources, with a
global shortage of silicon, to satisfy expected future customer
contracts. As the items have yet to be installed at the customer
location, and where title has not yet passed, they remain on the
statement of financial position until title has passed.
Trade and other receivables
Trade receivables, which are generally received by the end of
the month following terms, are recognised and carried at the lower
of their original invoiced value less provision for expected credit
losses.
Cash and cash equivalents
All cash and short-term investments with original maturities of
three months or less are considered cash and cash equivalents,
since they are readily convertible to cash. These short-term
investments are stated at cost, which approximates fair value.
Trade and other payables
Trade payables are obligations to pay for goods and services
that have been acquired in the ordinary course of business from
suppliers. Trade and other payables are recognised at original
cost.
Exceptional items
Exceptional items are those that, in the Directors' view, are
required to be separately disclosed by virtue of the size or
incidence to enable a full understanding of the Group's financial
performance.
Taxation
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the consolidated statement of
comprehensive income, except that a charge attributable to an item
of income or expense recognised as other comprehensive income or to
an item recognised directly in equity is also recognised in other
comprehensive income or directly in equity respectively.
The current income tax charge is calculated on the basis of tax
rates and laws that have been enacted or substantively enacted by
the reporting date in the countries where essensys plc's
subsidiaries operate and generate taxable income.
Deferred tax balances are recognised in respect of all timing
differences that have originated but not reversed by the statement
of financial position date, except:
-- The recognition of deferred tax assets is limited to the
extent that it is probable that they will be recovered against the
reversal of deferred tax liabilities or other future taxable
profits;
-- Any deferred tax balances are reversed if and when all
conditions for retaining associated tax allowances have been met;
and
-- Where timing differences relate to interests in subsidiaries,
associates, branches and joint ventures and the Group can control
their reversal and such reversal is not considered probable in the
foreseeable future.
Deferred tax balances are not recognised in respect of permanent
differences except in respect of business combinations, when
deferred tax is recognised on the differences between the fair
values of assets acquired and the future tax deductions available
for them and the differences between the fair values of liabilities
acquired and the amount that will be assessed for tax. Deferred
income tax is determined using tax rates and laws that have been
enacted or substantively enacted by the reporting date.
Share capital
Ordinary shares are classified as equity. There is one class of
ordinary share in issue, as detailed in note 21.
Reserves
The Group and Company's reserves are as follows:
-- Called up share capital reserve represents the nominal value of the shares issued;
-- The share premium account includes the premium on issue of
equity shares, net of any issue costs;
-- Share based payment reserve represents the total value
expensed at the balance sheet date in relation to the fair value of
the share options at their grant date expensed over the vesting
period under the relevant share option schemes;
-- Merger reserve arose on the business combination that was
accounted for as a merger in accordance with FRS 102;
-- Retained earnings represents cumulative profits or losses,
net of dividends paid and other adjustments.
Financial assets
The Group classifies all of its financial assets at amortised
cost. Financial assets do not comprise prepayments, or contract
assets, although contract assets are in scope of IFRS 9's
impairment requirements as discussed below. Management determines
the classification of its financial assets at initial
recognition.
The Group's financial assets held at amortised cost comprise
trade and other receivables and cash and cash equivalents in the
consolidated statement of financial position. These assets are
non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They arise principally
through the provision of goods and services to customers (e.g.
trade receivables), but also incorporate other types of financial
assets where the objective is to hold their assets in order to
collect contractual cash flows and the contractual cash flows are
solely payments of the principal and interest. They are initially
recognised at fair value plus transaction costs that are directly
attributable to their acquisition or issue and are subsequently
carried at amortised cost using the effective interest rate method,
less provision for impairment.
Impairment provisions for trade receivables are recognised based
on the simplified approach within IFRS 9 using the lifetime
expected credit losses. During this process the probability of the
non-payment of the trade receivables is assessed. This probability
is then multiplied by the amount of the expected loss arising from
default to determine the lifetime expected credit loss for the
trade receivables. For trade receivables, which are reported net;
such provisions are recorded in a separate provision account with
the loss being recognised within administrative expenses in the
consolidated statement of comprehensive income. On confirmation
that the trade receivable will not be collectable, the gross
carrying value of the asset is written off against the associated
provision.
The expected loss rates are based on the Group's historical
credit losses experienced over the last three periods prior to the
period end. The historical loss rates are then adjusted for current
and forward-looking information on macroeconomic factors affecting
the Group's customers. The Group has identified the gross domestic
product (GDP), unemployment rates and inflation rate as the key
macroeconomic factors in the countries that the Group operates.
Impairment provisions for other receivables are recognised based
on the general impairment model within IFRS 9. Under the General
approach, at each reporting date, the Group determines whether
there has been a significant increase in credit risk (SICR) since
initial recognition and whether the loan is credit impaired. This
determines whether the loan is in Stage 1, Stage 2 or Stage 3,
which in turn determines both the amount of ECL to be recognised
i.e. 12-month ECL or Lifetime ECL.
Financial liabilities
The Group classifies its financial liabilities in the category
of financial liabilities at amortised cost. All financial
liabilities are recognised in the statement of financial position
when the Group becomes a party to the contractual provision of the
instrument.
Financial liabilities measured at amortised cost include:
-- Trade payables and other short-dated monetary liabilities,
which are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest rate
method.
-- Bank and other borrowings are initially recognised at fair
value net of any transaction costs directly attributable to the
issue of the instrument. Such interest-bearing liabilities are
subsequently measured at amortised cost using the effective
interest rate method, which ensures that any interest expense over
the period to repayment is at a constant rate on the balance of the
liability carried in the consolidated statement of financial
position. For the purposes of each financial liability, interest
expense includes initial transaction costs and any premium payable
on redemption, as well as any interest or coupon payable while the
liability is outstanding.
Unless otherwise indicated, the carrying values of the Group's
financial liabilities measured at amortised cost represents a
reasonable approximation of their fair values.
Impairment of assets
Assets that are subject to depreciation or amortisation are
assessed at each reporting date to determine whether there is any
indication that the assets are impaired. For the purposes of
assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash flows (cash-generating
units or CGUs).
Where there is any indication that an asset may be impaired, the
carrying value of the asset (or CGUs to which the asset has been
allocated) is tested for impairment. An impairment loss is
recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset's (or 'GU's) fair value less costs to sell and
value in use. Non-financial assets that have been previously
impaired are reviewed at each reporting date to assess whether
there is any indication that the impairment losses recognised in
prior periods may no longer exist or may have decreased. Goodwill
is reviewed for impairment on an annual basis, with any impairment
to goodwill not reversed at a later period.
Share-based payments
Equity-settled share-based payments to employees and others
providing similar services are measured at the fair value of the
equity instruments at the grant date.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on the Group's estimate of the
number of equity instruments that will eventually vest. At each
reporting date, the Group revises its estimate on the number of
equity investments expected to vest. The impact of the revision of
the original estimates, if any, is recognised in the Statement of
Comprehensive Income over the remaining vesting period, with a
corresponding adjustment to the Share Based Payment Reserve.
In the event that the terms of equity-settled share-based
payments are modified these are valued at the date of modification
and, where this results in an increase to fair value, the charge is
recognised in the statement of comprehensive income over the
remaining vesting period, or recognised immediately where the
vesting period has already passed.
Leases
All leases are accounted for by recognising a right-of-use asset
and a lease liability except for leases of low value assets; and
leases with a duration of twelve months or less, in line with the
requirements of IFRS 16.
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.
On initial recognition, the carrying value of the lease
liability also includes:
-- Amounts expected to be payable under any residual value guarantee;
-- The exercise price of any purchase option granted in favour
of the Group if it is reasonably certain to assess that option;
-- Any penalties payable for terminating the lease, if the term
of the lease has been estimated on the basis of termination option
being exercised.
Right-of-use assets ("ROUA") are initially measured at the
amount of the lease liability, reduced for any lease incentives
received, and increased for:
-- Lease payments made at or before commencement of the lease;
-- Initial direct costs incurred; and
-- The amount of any provision recognised where the Group is
contractually required to dismantle, remove or restore the leased
asset.
Subsequent to initial measurement lease liabilities increase as
a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use
assets are amortised on a straight-line basis over the remaining
term of the lease or over the remaining economic life of the asset
if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease
(because, for example, it re-assesses the probability of a lessee
extension or termination option being exercised), it adjusts the
carrying amount of the lease liability to reflect the payments to
make over the revised term, which are discounted at the same
discount rate that applied on lease commencement. The carrying
value of lease liabilities is similarly revised when the variable
element of future lease payments dependent on a rate or index is
revised. In both cases an equivalent adjustment is made to the
carrying value of the right-of-use asset, with the revised carrying
amount being amortised over the remaining (revised) lease term.
When the Group renegotiates the contractual terms of a lease
with the lessor, the accounting depends on the nature of the
modification:
-- If the renegotiation results in one or more additional assets
being leased for an amount commensurate with the standalone price
for the additional rights-of-use obtained, the modification is
accounted for as a separate lease in accordance with the above
policy;
-- In all other cases where the renegotiated increases the scope
of the lease (whether that is an extension to the lease term, or
one or more additional assets being leased), the lease liability is
remeasured using the discount rate applicable on the modification
date, with the right-of-use asset being adjusted by the same
amount;
-- If the renegotiation results in a decrease in the scope of
the lease, both the carrying amount of the lease liability and
right-of-use asset are reduced by the same proportion to reflect
the partial or full termination of the lease with any difference
recognised in profit or loss. The lease liability is then further
adjusted to ensure its carrying amount reflects the amount of the
renegotiated payments over the renegotiated term, with the modified
lease payments discounted at the rate applicable on the
modification date. The right-of-use asset is adjusted by the same
amount.
For contracts that both convey a right to The Group to use an
identified asset and require services to be provided to The Group
by the lessor, The Group has elected to account for the entire
contract as a lease, i.e. it does allocate any amount of the
contractual payments to, and account separately for, any services
provided by the supplier as part of the contract.
Retirement benefits
The Group operates a number of defined contribution plans. A
defined contribution plan is a pension plan under which the
employer pays fixed contributions into a separate entity.
Contributions payable to the plan are charged to the income
statement in the period in which they relate. The Group has no
legal or constructive obligations to pay further contributions if
the fund does not hold sufficient assets to pay all employees the
benefits relating to employee service in the current and prior
periods.
Holiday pay accrual
All employees accrue holiday pay during the calendar year, the
Board encourages all employees to use their full entitlement
throughout the year. A liability is recognised to the extent of any
unused holiday pay entitlement which has accrued at the statement
of financial position date and carried forward to future periods.
This is measured at the undiscounted salary cost of the future
holiday entitlement so accrued at the balance sheet date.
Standards adopted in the year
No new standards have been adopted in the reporting period as
all were adopted previously.
Standards, amendments and interpretations not yet effective
There are no standards issued not yet effective that will have a
material effect on the Group's financial statements. The Group has
not early adopted any standards, interpretations or amendments that
have been issued but are not yet effective.
Significant accounting judgements, estimates and assumptions
5
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including the expectation
of future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions. The estimates and judgements that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year are detailed below.
Capitalisation of development costs
Costs are capitalised in relation to the development of the
underlying software utilised within the Group. The most critical
judgement is establishing whether the costs capitalised meet the
criteria set out within IAS 38. Further, the most critical estimate
is how the intangible asset can generate future economic benefit.
Projects that are maintenance in nature are expensed as incurred
whereas development that generates benefits to the group are
capitalised. After capitalisation management monitors whether the
recognition requirements continue to be met and whether there are
any indicators that the capitalised costs are required to be
impaired. See note 15 for details of amounts capitalised.
Measurement and impairment of goodwill and intangible assets
As set out in note 4 above the carrying value of goodwill is
reviewed for impairment at least annually and for other intangible
assets when an indication of impairment is identified. In
determining whether goodwill or intangible assets are impaired, an
estimation of the value in use of each cash generating unit (CGU)
is required. This calculation of value in use requires estimates to
be made relating to the timing and amount of future cash flows
expected and suitable discount rates based on the Group's weighted
average cost of capital, in addition to the estimation involved in
preparing the initial projected cash flows for the next 5
years.
These estimates have been used to conclude on any impairment
required to either goodwill or intangible assets but are
judgemental in nature. See note 15 for details of the key
assumptions made.
Valuation of Share Options
During the year the Group incurred a share-based payment charge
of GBP597,000 (2022: GBP741,000).
The charge related to options in the Group granted at IPO,
options granted in previous financial years, new share options
granted in this financial year and a modification to the terms of
certain of those options granted in this financial year. New
options granted during the year ended 31 July 2023 is based on
valuations undertaken using a Black Scholes or Monte Carlo
Simulation option pricing models, depending on the type of option.
Judgements were required when assessing the valuation in relation
to share price volatility, the expected life of the options issued,
the proportion that would be exercised, the risk-free rate
applicable and the likely achievement of performance targets where
applicable. The modification to the terms of certain options
granted in the year resulted in an increased fair value for which a
charge was recognised immediately as the original vesting period
had passed. The valuation of those options issued after IPO is
spread over the vesting period and there will, therefore, be
further share based payment expenses in future years in relation to
those options. See note 28 for details.
Segmental Reporting
6
The Group generates revenue largely in the UK and the USA. The
majority of the Group's customers provide flexible office
facilities together with ancillary services (e.g. meeting rooms and
virtual services) including technology connectivity.
The Group generates revenue from the following activities:
-- Establishing services at customer sites (e.g. providing and
managing installations, equipment and
training on software); Recurring monthly fees for using the Group's software platforms;
-- Revenue from usage of on demand services such as internet and
telephone usage and other, on demand, variable services; and
-- Other ad-hoc service.
The Group has one single business segment which is the provision
of software and technology platforms that manage the critical
infrastructure and business processes, primarily to the flexible
workspace segment of the real estate industry. The Group has two
revenue streams and three geographical segments, as detailed in the
tables below.
6A Revenue analysis by geographic area
The Group operates in two main geographic areas, the United
Kingdom and the United States of America. The whole of
the turnover is attributed to the principal activity. The
Group's revenue per geographical segment is as follows:
2023 2022
GBP000 GBP000
Analysis of turnover by country of destination:
United Kingdom and Europe 8,673 9,797
North America 15,747 13,233
Asia Pacific region 834 268
_________ _________
Total Income 25,254 23,298
_________ _________
6B Revenue analysis by revenue streams
The Group has two main revenue streams, Operate, and essensys
Platform and Connect. The Group's revenue per revenue
stream is as follows:
2023 2022
GBP000 GBP000
Essensys Platform and Connect 23,543 21,479
Operate 1,711 1,819
_________ _________
Total Income 25,254 23,298
_________ _________
Connect revenue includes all revenue generated in relation to
the Group's Connect product. It includes revenue recognised at a
point in time as well as recognised over a period of time.
Operate revenue includes all revenue generated in relation to
the Group's Operate product. The revenue is recognised over a
period of time.
6C Revenue disaggregated by 'point in
time' and 'over time'
The Group revenue disaggregated between revenue recognised
'at a point in time' and 'over time' is as follows:
2023 2022
GBP000 GBP000
Revenue recognised at a point in time 4,341 3,158
Revenue recognised over time 20,913 20,140
_________ _________
Total Income 25,254 23,298
_________ _________
Segmental Reporting (continued)
6
6D Revenue from customers greater than
10%
Revenue from customers greater than 10% in each reporting
period is as follows:
2023 2022
GBP000 GBP000
Customer 1 6,865 5,422
_________ _________
Contract assets and liabilities
6E
Contract asset movements were as follows:
2023 2022
GBP000 GBP000
At 1 August 887 345
Transfers in the period from contract
assets to trade receivables (544) (85)
Excess of revenue recognised over cash
(or rights to cash) being recognised
during the period 175 558
Capital asset contract contributions
capitalised 57 37
Capital asset contract contributions
released as contract obligations are
fulfilled (58) (28)
Capitalised commission cost released
as contract obligations fulfilled (210) (111)
Commission costs capitalised on contracts 161 171
_________ _________
At 31 July 468 887
_________ _________
Contract liability movements were as follows:
2023 2022
GBP000 GBP000
At 1 August 815 323
Amounts included in contract liabilities
that were recognised as revenue during
the period (815) (323)
Cash received and receivables in advance
of performance and not recognised as
revenue during the period 420 815
_________ _________
At 31 July 420 815
_________ _________
Contract assets are included within 'trade and other
receivables' and contract liabilities is shown separately on the
face of the statement of financial position. Contract assets arise
from the group's revenue contracts, where work is performed in
advance of invoicing customers, and contract liabilities arise
where revenue is received in advance of work performed.
Cumulatively, payments received from customers at each balance
sheet date do not necessarily equal the amount of revenue
recognised on the contracts. Capital asset contract contributions
represents costs incurred by the Group in the form of customer
incentives spread over the life of the customer contract.
Commission costs capitalised on contracts represents internal sales
commission costs incurred on signing of customer contracts and, in
line with the requirements of IFRS15, spread over the life of the
customer contract.
7 Restructuring costs
Restructuring costs were as follows:
2023 2022
GBP000 GBP000
Restructuring costs 2,610 -
_________ _________
During the year the Group announced a global reorganisation
which positions it for sustainable growth, profitability and a
return to cash generation. This included the simplification of
global operations and moves the Group from a regional to a
functional structure. The restructuring costs in FY23 reflect the
total expected cost of the reorganisation, which was completed
after the year end as disclosed in note 31; there are not expected
to be any significant further costs incurred. The cost relates to
termination of employment, being redundancy costs and payment in
lieu of notice in certain cases, and any other costs to achieve the
reorganisation including the cost to exit the Singapore office and
the cost of external legal advice specific to the reorganisation.
In addition to the restructuring costs, the Group recognised
impairment costs for tangible fixed assets and right of use assets
in Hong Kong and Singapore which are described separately within
the impairment charge in notes 16 and 17 below.
Operating loss
8
2023 2022
GBP000 GBP000
This is arrived at after charging/(crediting):
Amortisation of intangible assets 2,081 1,241
Depreciation of tangible fixed assets 1,405 617
Depreciation of right of use assets 1,349 1,268
Impairment of right of use assets 274 -
Impairment of goodwill 275 122
Accelerated amortisation of other intangible 350 -
assets
Impairment of tangible fixed assets 313 -
Fees payable to the Group's auditor (see
below) 315 260
(Profit)/loss on disposal of tangible
fixed assets (5) 36
Exchange differences 31 -
Research & Development expense 3,428 3,006
Staff costs (note 9) 19,858 19,384
Share based payment charges 597 741
_______ _______
Analysis of fees paid to the Group's
auditor:
Annual financial statements - parent
company 75 60
Annual financial statements - subsidiary
companies 133 94
_________ _________
Audit Fee 208 154
_________ _________
Assurance services 41 35
Other services 66 71
_________ _________
Non audit services 107 106
_________ _________
Total fee 315 260
_______ _______
Employees
9
Staff costs (including directors) consist
of:
2023 2022
GBP000 GBP000
Wages and salaries 14,898 13,898
Social security costs 1,740 1,546
Cost of defined contribution scheme 603 426
Other 2,617 3,514
_________ _________
19,858 19,384
_________ _________
Other staff costs comprise the cost of recruitment, other
employee benefits, redundancy and temporary staff.
The average number of employees (including directors)
during the year was as follows:
2023 2022
No. No.
Executive 9 9
Sales & Marketing 28 26
Finance & Administration 22 26
Support 47 38
Development 58 52
Provisioning 7 6
_________ _________
171 157
_________ _________
Key management remuneration
10
Key management personnel include all the directors of the
Company and the senior management and directors of essensys
(UK) Limited and essensys, Inc, the Group's principal trading
subsidiaries, who together have authority and responsibility
for planning, directing, and controlling the activities
of the Group.
2023 2022
GBP000 GBP000
Salaries and fees 2,949 2,658
Social security costs 268 275
Short term non-monetary benefits 56 23
Company contributions to money purchase
pension schemes 131 129
Share based payment expense 569 409
_________ _________
3,973 3,494
_________ _________
Interest receivable and similar income
11
2023 2022
GBP000 GBP000
Interest receivable from bank deposits 216 94
_________ _________
216 94
_________ _________
Interest payable and similar charges
12
2023 2022
GBP000 GBP000
Lease liabilities 164 147
_________ _________
164 147
_________ _________
Taxation on loss on ordinary activities
13
2023 2022
GBP000 GBP000
Current tax
UK corporation tax - -
Adjustment in respect of previous periods - -
Foreign tax on income for the year 245 8
_________ _________
Total current tax 245 8
_________ _________
Deferred tax
Origination and reversal of timing differences - (260)
Adjustments in respect of prior periods - (34)
_________ _________
Total deferred tax - (294)
_________ _________
Taxation on loss on ordinary activities 245 (286)
_________ _________
The tax assessed for the year is higher than the standard rate
of corporation tax in the UK applied to profit before tax. The
differences are explained below:
2023 2022
GBP000 GBP000
Loss on ordinary activities before tax (15,473) (11,085)
_________ _________
Tax using the Group's domestic tax rates
(21% (2022:19%)) (3,249) (2,106)
Effects of:
Fixed asset differences 53 199
Expenses not deductible for tax purposes 175 351
Income not taxable for tax purposes - (14)
Difference in current tax and deferred
tax rates (473) (36)
Timing differences not recognised - (24)
Other permanent differences 669 -
Deferred tax not recognised 3,070 1,344
_________ _________
Total tax charge for period 245 (286)
_________ _________
Factors that may affect future tax charges
Changes to the UK corporation tax rates were substantively
enacted as part of Finance Bill 2022 (on 10 June 2021). This
included an increase to the main rate to increase the rate to 25%
from 1 April 2023. The change being affective from 1 April 2023 has
resulted in a blended tax rate of 21% for this financial year.
The deferred tax arises primarily from timing differences on the
taxation related to capitalised development costs.
Earnings per share
14
2023 2022
Basic weighted average number of shares 64,407,222 64,385,219
_________ _________
Fully diluted weighted average number of
shares 64,407,222 64,385,219
_________ _________
2023 2022
GBP000 GBP000
Loss for the year attributable to owners
of the group (15,706) (10,799)
_________ _________
Basic and diluted loss per share (pence) (24.4p) (16.8p)
_________ _________
The loss per share has been calculated using the loss for the
year and the weighted average number of ordinary shares outstanding
during the period.
Share options held at the year-ended 31 July 2023 are
anti-dilutive and so have not been included in the diluted earnings
per share calculation.
Intangible assets
15
Assets in Customer Internal
the course software
Group of construction relationships development Software Goodwill Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 August 2022 215 335 13,116 280 1,263 15,209
Additions 407 - 3,436 - - 3,843
Transfers - - - - - -
_________ _________ _________ _________ _________ _________
At 31 July 2023 622 335 16,552 280 1,263 19,052
_________ _________ _________ _________ _________ _________
Amortisation
At 1 August 2022 - 335 5,550 280 122 6,287
Charge for year - - 2,431 - - 2,431
Impairment - - - - 275 275
_________ _________ _________ _________ _________ _________
At 31 July 2023 - 335 7,981 280 397 8,993
_________ _________ _________ _________ _________ _________
Net book value
At 31 July 2023 622 - 8,571 - 866 10,059
_________ _________ _________ _________ _________ _________
At 31 July 2022 215 - 7,566 - 1,141 8,922
_________ _________ _________ _________ _________ _________
The goodwill relates to the acquisition of Hubcreate Limited on
18 February 2016. The goodwill all relates to the Operate cash
generating unit (CGU).
The Group estimates the recoverable amount of the Operate CGU
using a value in use model by projecting pre-tax cash flows for the
next 5 years. The key assumptions underpinning the recoverable
amount of the CGU are forecast revenue and forecast EBITDA
percentage. The forecast revenues in the model are based on
management's past experience and future expectations of
performance. The post-tax discount rate used in all periods is 14%
derived from a WACC calculation and benchmarked against similar
organisations within the sector. Management do not anticipate this
CGU providing long term future cash flows for the group. As such
the latest projection shows an average 8% decline in revenue year
on year which is consistent with the decline in revenue during the
financial year ended 31 July 2023. Using a discount rate of 14%
(2022: 12%) resulted in an additional impairment of GBP275,000 and
as such an impairment charge has been booked in this period (2022:
122,000).
Capitalised internal software development costs relates to both
the essensys CGUs, the first CGU being essensys Platform and
Connect and the second CGU being Operate. The amounts specific to
each CGU can be separately determined.
The Group estimates the recoverable amount of the essensys
Platform and Connect CGU using a value in use model by projecting
pre-tax cash flows for the next 5 years including a terminal value
calculation after the fifth year. The key assumptions underpinning
the recoverable amount of the CGU are forecast revenue and forecast
EBITDA percentage. The forecast revenues in the model are based on
management's past experience and future expectations of
performance. The post-tax discount rate used in all periods is 14%
derived from a WACC calculation and benchmarked against similar
organisations within the sector. Using a discount rate of 14%
resulted in no impairment of the CGU; however, as more customers
move from Connect to essensys Platform as a result of its strategic
benefits to their business, management foresee that Connect will
ultimately become obsolete and as such have increased the rate of
amortisation by GBP350,000 of those assets directly attributed to
the product. Management expects a similar amount in the financial
year-ended 31 July 2024 by which point all assets directly
attributed to the Connect product will be fully amortised.
The asset in course of construction capitalised this year is the
cost to date for development of the software for the Group's
in-development dynamic access control solution. It is expected that
the asset will be complete before the end of the next financial
year.
Intangible assets
15 (continued)
Assets in Customer Internal
the course software
Group Of construction relationships development Software Goodwill Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 August 2021 1,412 335 7,832 280 1,263 11,122
Additions 215 - 3,872 - - 4,087
Transfers (1,412) - 1,412 - - -
_________ _________ _________ _________ _________ _________
At 31 July 2022 215 335 13,116 280 1,263 15,209
_________ _________ _________ _________ _________ _________
Amortisation
At 1 August 2021 - 335 4,309 280 - 4,924
Charge for year - - 1,241 - - 1,241
Impairment - - - - 122 122
_________ _________ _________ _________ _________ _________
At 31 July 2022 - 335 5,550 280 122 6,287
_________ _________ _________ _________ _________ _________
Net book value
At 31 July 2022 215 - 7,566 - 1,141 8,922
_________ _________ _________ _________ _________ _________
At 31 July 2021 1,412 - 3,523 - 1,263 6,198
_________ _________ _________ _________ _________ _________
Property, plant and
16 equipment
Fixtures Computer Leasehold
and
Group fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 August
2022 242 10,605 686 11,533
Additions - 566 64 630
Disposals - (313) - (313)
Exchange adjustments (2) (264) - (266)
_________ _________ _________ _________
At 31 July
2023 240 10,594 750 11,584
_________ _________ _________ _________
Depreciation
At 1 August
2022 207 8,109 398 8,714
Charge for year 10 1,101 294 1,405
Impairment - 313 - 313
Disposals - (198) - (198)
Exchange adjustments (2) (225) - (227)
_________ _________ _________ _________
At 31 July
2023 215 9,100 692 10,007
_________ _________ _________ _________
Net book value
At 31 July
2023 25 1,494 58 1,577
_________ _________ _________ _________
At 31 July 2022 35 2,496 288 2,819
_________ _________ _________ _________
Fixtures Computer Leasehold
and
fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 August
2021 382 8,387 130 8,899
Additions 34 1,504 3 1,541
Disposals (188) - (33) (221)
Transfers (note
17) - 180 584 764
Exchange adjustments 14 534 2 550
_________ _________ _________ _________
At 31 July
2022 242 10,605 686 11,533
_________ _________ _________ _________
Depreciation
At 1 August
2021 322 7,020 86 7,428
Charge for year 29 564 24 617
Disposals (152) - (33) (185)
Transfers (note
17) - 129 318 447
Exchange adjustments 8 396 3 407
_________ _________ _________ _________
At 31 July
2022 207 8,109 398 8,714
_________ _________ _________ _________
Net book value
At 31 July
2022 35 2,496 288 2,819
_________ _________ _________ _________
At 31 July 2021 60 1,367 44 1,471
_________ _________ _________ _________
Property, plant and
16 equipment ( continued
)
Transfers represent right of use assets which reached their
contract term and where legal title transferred to the Group.
As a result of the reorganisation that has centralised the
Group's APAC operations in Sydney, Australia and the evolution of
the 'capital light' strategy, Management have reviewed the carrying
value of the computer hardware within the APAC region and have
impaired those assets where the carrying value was in excess of
their recoverable value resulting in an impairment of GBP313,000
and as such the impairment charge has been booked in this
period.
.
Right of use assets
17
Leasehold Computer Leasehold
Group property equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 August 2022 7,049 162 - 7,211
Additions 198 - - 198
Lease remeasurement 95 - - 95
Exchange adjustments (128) - - (128)
_________ _________ _________ _________
At 31 July 2023 7,214 162 - 7,376
_________ _________ _________ _________
Depreciation
At 1 August 2022 4,567 162 - 4,729
Charge for year 1,349 - - 1,349
Impairment 274 - - 274
Exchange adjustments (116) - - (116)
_________ _________ _________ _________
At 31 July 2023 6,074 162 - 6,236
_________ _________ ______ _________
Net book value
At 31 July 2023 1,140 - - 1,140
_________ _________ _________ _________
At 31 July 2022 2,482 - - 2,482
_________ _________ _________ _________
Leasehold Computer Leasehold
Property equipment improvements Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 August 2021 5,482 342 584 6,408
Additions 1,062 - - 1,062
Lease remeasurement 1,136 - - 1,136
Disposal (872) - - (872)
Transfers (note 16) - (180) (584) (764)
Exchange adjustments 241 - - 241
_________ _________ _________ _________
At 31 July 2022 7,049 162 - 7,211
_________ _________ _________ _________
Depreciation
At 1 August 2021 3,693 278 277 4,248
Charge for year 1,214 13 41 1,268
Disposal (462) - - (462)
Transfers (note 16) - (129) (318) (447)
Exchange adjustments 122 - - 122
_________ _________ _________ _________
At 31 July 2022 4,567 162 - 4,729
_________ _________ ______ _________
Net book value
At 31 July 2022 2,482 - - 2,482
_________ _________ _________ _________
At 31 July 2021 1,789 64 307 2,160
_________ _________ _________ _________
Right of use assets
17 ( continued )
As a result of the reorganisation that has centralised the
Group's APAC operations in Sydney, Australia and the evolution of
the 'capital light' strategy, Management have reviewed the carrying
value of the right of use assets within the APAC region and have
impaired those assets where the carrying value was in excess of
their recoverable value resulting in an impairment of GBP274,000
and as such the impairment charge has been booked in this
period.
The transfers are assets that were classified as right of use
assets where the lease term expired and the Group chose to purchase
the assets at the end of the lease term, as they were still in
active use within the Group. The assets are now listed within note
16.
Subsidiaries
18
Subsidiary undertakings, associated undertakings and other
investments
The following were subsidiary undertakings of the company:
Proportion
of
Country of voting rights
incorporation and ordinary
Name or registration share capital Status Nature of business
held
essensys United Kingdom 100% Trading Provider of software
(UK) Ltd and technology
platforms to the
flexible workspace
industry
essensys, United States 100% Trading Provider of software
Inc of America and technology
platforms to the
flexible workspace
industry
essensys Canada 100% Trading Provider of software
(Canada) and technology
Inc platforms to the
flexible workspace
industry
essensys Netherlands 100% Trading Provider of software
(Europe) and technology
BV platforms to the
flexible workspace
industry
essensys United Kingdom 100% Non-trading Provider of software
(APAC Holdings) and technology
Ltd platforms to the
flexible workspace
industry
essensys Hong Kong 100% Trading Provider of software
(Hong Kong) and technology
Ltd platforms to the
flexible workspace
industry
essensys Singapore 100% Trading Provider of software
(Singapore) and technology
Pte Ltd platforms to the
flexible workspace
industry
essensys Australia 100% Trading Provider of software
(Australia) and technology
Pty Ltd platforms to the
flexible workspace
industry
Hubcreate United Kingdom 100% Non-trading Provider of workspace
Limited management software
TVOC Limited United Kingdom 100% Non-trading Virtual office
provider
Spacebuddi United Kingdom 95% Dormant -
Limited
The registered office of essensys (UK) Ltd, essensys (APAC
Holdings) Ltd, Hubcreate Limited, TVOC Limited and Spacebuddi
Limited are as per the Company as given on the company information
page.
The office of essensys Inc is 600 5(th) Avenue, Floor 2, New
York City, NY 10020, United States of America.
The registered office of essensys (Canada) Inc is 550 Burrard
Street, Vancouver, British Columbia, V6C 0A3
The registered office of essensys (Europe) BV is Herikerbergweg
88, Amsterdam, 1101CM.
The registered office of essensys (Hong Kong) Ltd Room 1901,
19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong.
The registered office of essensys (Singapore) Pte Ltd is 9
Raffles Place, #26-01, Republic Plaza, 048619, Singapore.
The registered office of essensys (Australia) Pty Ltd is Suite
902, 146 Arthur Street, North Sydney, NSW 2060, Australia.
19 Inventories
2023 2022
GBP000 GBP000
Finished goods 2,021 2,353
Work in progress 239 193
_________ _________
2,260 2,546
_________ _________
Work in progress are items and third-party services purchased to
satisfy specific customer contracts, where title has not yet
passed. Finished goods are items purchased in the prior financial
year to secure sufficient resources, with a global shortage of
silicon, to satisfy expected future customer contracts.
20 Trade and other receivables
2023 2022
GBP000 GBP000
Trade receivables (net) 3,053 3,684
Other receivables 268 465
Prepayments 828 1,316
Contract assets (note 6E) 468 887
Current taxes receivable - 82
_________ _________
4,617 6,434
_________ _________
Analysis of trade receivables based on age of invoices
31 - Total Total
< 30 60 61 -90 > 90 Gross ECL Net
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---- -------- -------- -------- -------- -------- -------- --------
2023 2,042 242 146 1,016 3,446 (393) 3,053
2022 1,762 256 429 1,871 4,318 (634) 3,684
---- -------- -------- -------- -------- -------- -------- --------
Trade receivables are amounts due from customers for goods sold
or services performed in the ordinary course of business. They are
generally due for settlement within 30 days and therefore are all
classified as current. The majority of trade and other receivables
are non-interest bearing. Where the effect is material, trade and
other receivables are discounted using discount rates which reflect
the relevant costs of financing. The carrying amount of trade and
other receivables approximates fair value.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses (ECL) which uses a lifetime expected loss
allowance for all trade receivables. The ECL balance has been
determined based on historical data available to management in
addition to forward looking information utilising management
knowledge.
At 31 July 2023 the lifetime expected loss provision for trade
receivables and contract assets is as follows:
31 July 2023
Less than 31 to 61 to 91 or
30 60 90 more
days past days days past days past Total
due past due due due
GBP000 GBP000 GBP000 GBP000 GBP000
Expected loss
rate 0% 6.8% 10.9% 35.5%
Gross carrying
amount 2,510 242 146 1,016 3,914
ECL - 17 16 360 393
31 July 2022
Less than 31 to 61 to 91 or
30 60 90 more
days past days days past days past Total
due past due due due
GBP000 GBP000 GBP000 GBP000 GBP000
Expected loss
rate 0% 5.4% 8.6% 31.2%
Gross carrying
amount 2,650 256 429 1,871 5,206
ECL - 14 37 583 634
20 Trade and other receivables ( continued
)
Movements in the ECL are as follows:
2023 2022
GBP000 GBP000
Opening ECL at 1 August 634 580
ECL charge for the year 1,037 423
Receivables written off as uncollectable (1,278) (369)
_______ _______
At 31 July 393 634
_______ _______
Share capital
21
2023 2022
GBP000 GBP000
Allotted, called up and fully paid
64,649,260 (2022 - 64,385,219) ordinary
shares of 0.25p each (2022 - 0.25p) 162 161
_______ _______
264,041 shares were issued on 7(th) July 2023 as a result of
vested share options being exercised.
Share premium
22
2023 2022
GBP000 GBP000
Share premium at start of period 51,660 51,660
Issue of new shares - -
Cost of issuing new shares recognised - -
in equity
_______ _______
51,660 51,660
_______ _______
Trade and other payables
23
2023 2022
GBP000 GBP000
Amounts falling due within one year
Trade payables 1,399 4,487
Other taxes and social security 528 244
Other creditors 511 1,050
Accruals 2,324 1,641
_________ _________
4,762 7,422
_________ _________
Lease liabilities
24
Nature of leasing activities
The Group leases a number of assets in the jurisdictions from
which it operates in with all lease payments fixed over the lease
term.
2023 2022
GBP000 GBP000
Number of active leases 15 15
_________ _________
The Group sometimes negotiates break clauses in its leases. On a
case-by-case basis, the Group will consider whether the absence of
a break clause would expose the Group to excessive risk. Typically,
factors considered in deciding to negotiate a break clause
include:
-- The length of the lease term;
-- The economic stability of the environment in which the property is located; and
-- Whether the location represents a new area of operations for the Group.
At both 31 July 2023 and 2022 the carrying amounts of lease
liabilities are not reduced by the amount of payments that would be
avoided from exercising break clauses because on both dates it was
considered reasonably certain that the Group would not exercise its
right to exercise any right to break the lease. Where extensions to
leases are permitted the Group has chosen to assume that the
extensions will be taken and liabilities reflect this position.
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 August 2022 3,128 - - - 3,128
Additions - - - - -
Interest expense 164 - - - 164
Effect of modifying
lease term 292 - - - 292
Variable lease payment
adjustment 28 - - - 28
Lease payments (2,006) - - - (2,006)
Foreign exchange
movements (35) - - - (35)
_________ _________ _________ _________ _________
At 31 July 2023 1,571 - - - 1,571
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 August 2021 1,841 29 20 45 1,935
Additions 1,061 - - - 1,061
Interest expense 145 1 - 1 147
Effect of modifying
lease term 877 - - - 877
Lease payments (944) (30) (20) (46) (1,040)
Foreign exchange
movements 148 - - - 148
_________ _________ _________ _________ _________
At 31 July 2022 3,128 - - - 3,128
_________ _________ _________ _________ _________
Lease liabilities ( continued )
24
Lease maturity
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2023 2023 2023 2023 2023
Up to 3 months 207 - - - 207
3 to 12 months 704 - - - 704
1-2 years 660 - - - 660
2-5 years - - - - -
_________ _________ _________ _________ _________
1,571 - - - 1,571
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2022 2022 2022 2022 2022
Up to 3 months - - - - -
3 to 12 months 135 - - - 135
1-2 years 389 - - - 389
2-5 years 2,604 - - - 2,604
More than 5 years _________ _________ _________ _________ _________
3,218 - - - 3,218
_________ _________ _________ _________ _________
Analysis by current and non-current
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2023 2023 2023 2023 2023
Due within a year 1,264 - - - 1,264
Due in more than
one year 307 - - - 307
_________ _________ _________ _________ _________
1,571 - - - 1,571
_________ _________ _________ _________ _________
Leasehold Fixtures Computer Leasehold
and
property fittings equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
2022 2022 2022 2022 2022
Due within a year 1,469 - - - 1,469
Due in more than
one year 1,659 - - - 1,659
_________ _________ _________ _________ _________
3,128 - - - 3,128
_________ _________ _________ _________ _________
Deferred taxation
25
2023 2022
GBP000 GBP000
Brought forward - 294
(Credited)/charged to the income statement - (294)
_________ _________
Carried forward - -
_________ _________
The provision for deferred taxation is
made up as follows:
2023 2022
GBP000 GBP000
Fixed asset timing - -
differences
_________ _________
-
- _________
The Group has an unrecognised deferred taxation asset of
GBP9,771,000 (2022: GBP3,043,000) in respect of tax losses and
deductible temporary differences. The Group has not recognised the
deferred tax asset due to the lack of certainty over recovery of
the asset.
2023 2022
GBP000 GBP000
Short term timing differences 487 415
Losses and other deductions 9,284 2,628
_________ _________
Unrecognised deferred taxation asset 9,771 3,043
_________ _________
Factors that may affect future tax charges
Changes to the UK corporation tax rates were substantively
enacted as part of Finance Bill 2015 (on 26 October 2015) and
Finance Bill 2016 (on 7 September 2016). These included reductions
to the main rate to reduce the rate to 19 per cent. From 1 April
2017 and to 17 per cent. From 1 April 2021. However, on 17 March
2021 the rate reduction due to come in effect on 1 April 2021 was
substantively reversed so that the main rate of taxation will
remain at 19 per cent, and this has been reflected in these
financial statements.
Changes to the UK corporation tax rates were substantively
enacted as part of Finance Bill 2021 (on 10 June 2021). This
included an increase to the main rate to increase the rate to 25%
from 1 April 2023. The UK government has proposed the abolishment
of the increase to the tax rate, but at the signing date of these
financial statements the reversal has not yet been substantively
enacted and so the rate has not been adjusted.
Financial instruments
26
The Group is exposed through its operations to the following
financial risks:
-- Credit risk
-- Foreign exchange risk
-- Liquidity risk
In common with all other business, the Group is exposed to risks
that arise from its use of financial instruments. This note
describes the Group's objectives, policies and processes for
managing those risks and the methods used to measure them. Further
quantitative information in respect to these risks is presented
throughout these financial statements.
There have been no substantive changes in the Group's exposure
to financial instrument risks, its objectives, policies and
procedures for managing those risks or the methods used to measure
them from previous periods unless otherwise stated in this
note.
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises are as follows:
-- Trade receivables
-- Cash and cash equivalents
-- Trade and other payables
-- Bank overdrafts
It is Group policy that no trading in financial instruments
should be undertaken.
Financial instruments ( continued )
26
Financial instruments by category
2023 2022
GBP000 GBP000
Financial assets at amortised cost
Cash and cash equivalents 7,862 24,122
Trade and other receivables 3,495 4,707
_________ _________
Total financial assets at amortised cost 11,357 28,829
_________ _________
Financial liabilities
Trade and other payables 4,233 7,178
Lease liabilities 1,571 3,128
_________ _________
Total financial liabilities 5,804 10,306
_________ _________
Financial instruments not measured at fair value
These include cash and cash equivalents, trade and other
receivables, trade and other payables, and loans and borrowings.
Due to their short-term nature, the carrying value of cash and cash
equivalents, trade and other receivables and trade and other
payables approximates their fair value.
The Group's activities expose it to a variety of financial
risks:
-- Market risk (including foreign exchange risk, price risk and interest rate risk)
-- Credit risk
-- Liquidity risk
The financial risks relate to the following financial
instruments:
-- Cash and cash equivalents
-- Trade and other receivables
-- Trade and other payables
-- Loans and borrowings
The accounting policies with respect to these financial
instruments are described above.
Risk management is carried out by the key management personnel.
Key management personnel include all the directors of the Company
and the senior management and directors of essensys (UK) Limited,
the Group's principal trading subsidiary, who together have
authority and responsibility for planning, directing, and
controlling the activities of the Group. The key management
personnel identify and evaluate financial risks and provide
principals for overall risk management.
(a) Credit Risk
Credit risk is the risk of financial loss to the Group if a
customer fails to meet its contractual obligations. The Group is
mainly exposed to credit risk from credit sales. It is Group
policy, implemented locally, to assess the credit risk of new
customers before entering contracts.
Financial instruments ( continued )
26
Financial instruments not measured at fair value (continued)
(b) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises because the Group operates in the
United Kingdom, Europe, North America and the Asia Pacific region,
whose functional currency is not the same as the presentational
currency of the Group. Foreign exchange risk also arises when
individual companies within the group enter into transactions
denominated in currencies other than their functional currency.
Such transactions are kept to a minimum either through the choice
of suppliers or presenting sales invoices in the functional
currency.
Certain assets of the group companies are denominated in foreign
currencies. Similarly, the Group has financial liabilities
denominated in those same currencies. In general, the Group seeks
to maintain the financial assets and financial liabilities in each
of the foreign currencies at a reasonably comparable level, thus
providing a natural hedge against foreign exchange risk and
reducing foreign exchange exposure to a minimal level.
2023 2022
GBP000 GBP000
Financial assets 5,026 21,541
Financial liabilities 2,733 3,368
_________ _________
The table below represents financial instruments that
are denominated in currencies other than the functional
currencies of the group entities:
2023 2022
US$000 US$000
Financial assets 7,126 7,249
Financial liabilities 1,683 3,661
_________ _________
2023 2022
CA$000 CA$000
Financial assets 25 93
Financial liabilities 13 6
_________ _________
2023 2022
EUR000 EUR000
Financial assets 794 658
Financial liabilities 192 336
_________ _________
2023 2022
HK$000 HK$000
Financial assets 683 1,962
Financial liabilities 442 1,064
_________ _________
2023 2022
SG$000 SG$000
Financial assets 155 1,024
Financial liabilities 475 829
_________ _________
2023 2022
AU$000 AU$000
Financial assets 470 545
Financial liabilities 266 379
_________ _________
Financial instruments ( continued )
26
A 10 per cent weakening of the Group's reporting currency
against the United States Dollar would have the following impacts
on the groups reporting currency on the financial assets and
liabilities listed above in United States Dollar:
2023 2022
$000 $000
Financial assets (504) (541)
Financial liabilities (119) (273)
_________ _________
(ii) Interest rate risk
The Group's interest rate exposure arises mainly from the
interest-bearing borrowings as disclosed in note 24. All the
Group's facilities were floating rates excluding interest from
leases, which exposed the group to cash flow risk. As at 31 July
2023 there are no loans outstanding, (2022 - GBPnil) and the
overdraft facility is available but not in use. Therefore, there is
no material exposure to interest rate risk.
(c) Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient
cash flows for operations. The Group manages its risk to shortage
of funds by monitoring forecast and actual cash flows. The Group
monitors its risk to a shortage of funds using a recurring
liquidity planning tool. This tool considers the majority of both
its borrowings and payables.
The Group has no borrowings at 31 July 2023 (2022: GBPnil).
A maturity analysis of the Group's trade and other payables is
shown below:
2023 2022
GBP000 GBP000
Less than one year 4,781 7,178
_________ _________
4,781 7,178
_________ _________
Pension commitments
27
The group operates defined contribution pension schemes. The
assets of the schemes are held separately from those of the group
in an independently administered fund. The pension cost charge
represents contributions payable by the group to the funds.
2023 2022
GBP000 GBP000
Pension charge 603 426
_______ _______
Pension liability 100 78
_______ _______
Share based payments
28
The Company operates five equity-settled share-based
remuneration schemes for employees; two United Kingdom tax
authority approved schemes (one EMI and one CSOP), an unapproved
Performance Share Plan scheme, a share option plan for non-United
Kingdom employees and an unapproved Non-Executive Director Plan.
The UK plans includes employees from the Company and its main UK
trading subsidiary essensys (UK) Ltd.
Weighted Weighted
average average
exercise exercise
price price
(GBP) Number (GBP) Number
2023 2023 2022 2022
Outstanding at the
beginning of the year 1.04 3,357,503 1.08 3,378,829
Granted during the
year 0.0025 2,702,178 0.25 89,219
Forfeited during the
year 0.4482 (375,157) 1.60 (110,545)
Exercised during the
year 0.0025 (264,041) - -
_________ _________
Outstanding at the
end of the year 0.6139 5,420,483 1.04 3,357,503
_________ _________
The weighted average exercise price of options outstanding at
the end of the year was 0.6139p (2022: 103.93p) and their weighted
average contractual life was 7.21 years (2022: 7.1 years).
During the year the equity-settled share-based schemes under
which options were granted immediately prior to IPO vested at the
end of their 3 year vesting period. Given the volatility in the
share price during the year the Remuneration Committee agreed to
extend the vesting period for the performance share element of the
scheme by a further two years. This modification gave rise to an
increase in the fair value of the Performance Share Plan options,
for which a charge was taken immediately as the original vesting
period had passed.
Of the total number of options outstanding at the end of the
year and following the modification to the options granted prior to
IPO, no options had vested or were exercisable.
Market Value Options were valued using the Black Scholes option
pricing model. Performance Share options granted and modifications
made to pre-existing Performance Share options were valued using a
Monte Carlo Simulation option pricing model. Expected dividends are
not incorporated into the fair value calculations. The assumptions
used in the calculations are as follows:
2023 2022
Risk free investment 3.03% 1.06%
Expected life 3 3
Expected volatility 56.8% 57.8%
The volatility used for the share option grants during the
current year was from a median of peers, including that actually
experienced by the group during the period from the IPO that
actually experienced during the period from the IPO. The expected
life was based initially on the minimum vesting period with an
assumption that more senior personnel would not exercise
immediately. The risk-free rate was based on the yield on UK
government 3-year gilts at the time of the grant.
The Group recognised a total Share based payment expense of
GBP597,000 in the year (2022: GBP741,000), all of which related to
options in the Company issued immediately prior to the IPO or
subsequent thereto.
Related party transactions
29
The Group has taken advantage of the exemption available under
IAS 24 Related Party Disclosures not to disclose transactions
between Group Undertakings which are eliminated on
consolidation.
Key management personnel
Key management personnel include all the directors of the
Company and the senior management and directors of essensys (UK)
Limited and essensys, Inc, the Group's principal trading
subsidiaries, who together have authority and responsibility for
planning, directing, and controlling the activities of the Group.
Details of key management compensation is shown in note 10.
Directors Loans
There were no directors' loans during the years ended 31 July
2023 and 31 July 2022.
Capital commitments and contingent liabilities
30
The Group had no capital commitments or contingent liabilities
at 31 July 2023 (2022: GBPnil)
Events after the reporting date
31
Following the financial year-end, the Group completed the
reorganisation described in note 7. This involved the termination
of employment for a further 31 employees at a one-off cost of
GBP1.0 million. This amount was included in the GBP2.6 million
restructuring cost recognised in FY23. No further significant
restructuring cost is expected.
Following the year end two of the Group's dormant subsidiary
companies, Hubcreate Limited and TVOC Limited, were formally
dissolved and removed from the Companies House Register,
As at 31 July 20223 the Group had cash reserves of GBP7.9
million. On 30 October 2023 the Group entered into an unsecured
loan agreement with Mark Furness, the Group's Chief Executive
Officer and largest shareholder, to provide GBP2 million of
additional funding in the event that the Group requires it. This
loan facility has not been drawn and is effective to 31 July
2025.
Notes supporting statement of cash flows
32
32 A Cash from operations
2023 2022
GBP000 GBP000
Cash flows from operating activities
Loss for the financial year before
taxation (15,461) (11,085)
Adjustments for non-cash/non-operating
items:
Amortisation of intangible assets 2,081 1,241
Depreciation of property, plant and
equipment 1,405 617
Depreciation of right of use assets 1,349 1,269
Impairment of goodwill 275 122
Impairment of intangible assets 350 -
Impairment of property, plant and 313 -
equipment
Impairment of right of use assets 274 -
(Profit)/loss on disposal of fixed
assets (5) 36
Share based payment expense 597 741
Losses on foreign exchange transactions 31 -
Finance income (216) (94)
Finance expense 164 147
Other 51 49
_________ _________
(8,792) (6,957)
Changes in working capital:
Decrease/(increase) in inventories 286 (2,362)
Decrease/(increase) in trade and other
debtors 1,819 (1,155)
(Decrease)/increase in trade and other
creditors (3,058) 3,685
_________ _________
Cash used by operations (9,745) (6,789)
_________ _________
32 Notes supporting statement of cash flows (continued)
32 Movement in net debt
B
Cash and
cash equivalents Leases Total
GBP000 GBP000 GBP000
As at 1 August 2021 36,903 (1,935) 34,968
Lease additions - (1,061) (1,061)
Effect of modifying lease term - (877) (877)
Cashflow (13,374) 1,040 (12,334)
Interest charges - (147) (147)
Exchange movements 593 (148) 445
_________ _________ _________
As at 31 July 2022 24,122 (3,128) 20,994
Lease additions - (292) (292)
Effect of modifying lease term - (28) (28)
Cashflow (15,981) 2,006 (13,975)
Interest charge - (164) (164)
Exchange movements (279) 35 (244)
_________ _________ _________
As at 31 July 2023 7,862 (1,571) 6,291
_________ _________ _________
Cash and
cash equivalents Leases Total
GBP000 GBP000 GBP000
Balances as at 31 July 2023
Current assets 7,862 - 7,862
Current liabilities - (1,264) (1,264)
Non-current liabilities - (307) (307)
_________ _________ _________
7,862 (1,571) 6,291
_________ _________ _________
Cash and
cash equivalents Leases Total
GBP000 GBP000 GBP000
Balances as at 31 July 2022
Current assets 24,122 - 24,122
Current liabilities - (1,469) (1,469)
Non-current liabilities - (1,659) (1,659)
_________ _________ _________
24,122 (3,128) 20,994
_________ _________ _________
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END
FR EAFEEDSDDFAA
(END) Dow Jones Newswires
October 31, 2023 03:00 ET (07:00 GMT)
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