Interim Results, Related Party Loan, Board Changes
Tialis Essential IT plc
("Tialis", the "Group" or the "Company")
10 September 2024
Unaudited Interim Results, Related Party Loan and Board Changes
Tialis Essential IT plc, the mid-market IT managed services provider, today announces its unaudited results for the six months ended 30 June 2024.
Highlights
· Revenue of £10.7 million (H1 2023: £11.6 million).
· Gross profit of £3.0 million (H1 2023: £3.6 million).
· Adjusted EBITDA* profit of £0.9 million (H1 2023: £1.2 million).
· Significant year on year increase in cash generation.
· The revenue drop was largely due to the fall in project revenue of £1.3m from our largest Partner, together with some run-off contracts we acquired from Allvotec, which offset new business wins.
· Positive start to 2024 with eight new end-user customer contract awards, adding four new channel partners, with a current pipeline of £22.9m across 15 partners, only two of which resulted from the Allvotec acquisition. However, we have continued to be frustrated by delays in new contract awards.
· Lifecycle revenue in the first six months increased by 37% to £2.0m. As we pivot from traditional engineering services, this is the strategic service we provide to the majority of our Partners, and continue to see significant opportunities in this space, both in end-user devices and increasingly in mobile.
· We have a cash-generative business and a profitable business at an adjusted EBITDA level.
· Andy Parker, the Executive Chairman, has stepped down today and Nicolas Bedford, current Non-Executive Director, has been appointed Non-Executive Chairman.
Financing
· We are pleased to announce that we have agreed a £4m Revolving Credit Facility ("RCF") with Santander. The RCF carries an interest rate of SONIA + 3.75 per cent. and is for a term of 3 years. The RCF will be used for early repayment of the loan notes of £4.2m which are due for repayment in January and December 2025.
· In addition to the RCF, MXC Capital ("MXC") has agreed to provide a convertible loan note of £300k to bridge the small shortfall between the RCF and the outstanding balance of the loan notes plus associated costs of setting up the RCF and to provide a small amount of working capital. See further details below.
Related party loan
The loan with MXC is an unsecured convertible loan for £300,000 which has an annual compound interest rate of 15%. The convertible is for a term of five years. However, the Company expects to repay the loan by 31 March 2025. MXC has the option to convert the loan to new ordinary shares at a fixed price of 40 pence.
MXC is deemed to be a related party of the Company pursuant to the AIM Rules for Companies (the "AIM Rules") as they are a substantial shareholder and because Ian Smith, CEO of MXC is Executive Director of Tialis.
Nicolas Bedford and Matt Riley, being the independent directors of Tialis for these purposes consider, having consulted with the Company's nominated adviser, Cavendish Capital Markets Limited, that the terms of the related party transaction are fair and reasonable insofar as the shareholders of the Company are concerned.
Board changes
Andy Parker, Executive Chairman, has today stepped down following six years with the Company as both Non-Executive and Executive Chairman. Nicolas Bedford, current Non-Executive Director replaces Andy as Non-Executive Chairman.
Ian Smith, Executive Director, commented: "On behalf of the board I thank Andy for his valuable input. Under his leadership as Chairman the Company has made considerable progress and I am grateful for the support and guidance he has given me and the Board over the past six years. Andy leaves the Company with our best wishes.
The Board are delighted that Nick has accepted the offer to become Non-Executive Chairman. We look forward to continuing to work with him and benefitting from his expertise."
* Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, impairment charge, non-underlying items, loss on disposal of fixed assets and share-based payment
For more information, contact:
|
Tialis Essential IT Plc Nick Bedford, Non-Executive Chairman
|
Tel: +44 (0)344 874 1000 |
|
Cavendish Capital Markets Ltd Nominated Adviser and Broker Corporate finance: Jonny Franklin-Adams/ Abby Kelly Corporate Broking: Tim Redfern
|
Tel: +44 (0)20 7220 0500 |
Financial Review
Results for the six months to 30 June 2024
Revenue from continuing operations for the six months to 30 June 2024 from operations was £10.7 million (H1 2023: £11.6 million).
Gross profit from continuing operations for the six months to 30 June 2024 was £3.0 million (H1 2023: £3.6 million), representing an overall decline in gross margin of 2 percentage points, compared to the prior period. The change in gross profit in the six months to 30 June 2024 was due to a change in product mix with less Lifecycle project work.
At an Adjusted EBITDA* level for continuing operations the Group generated a profit of £0.9 million (H1 2023: £1.2 million).
Exceptional costs amounted to £0.2 million (H1 2023: £0.4 million) and related predominantly to an aborted acquisition. Going forward, we expect exceptional costs to decrease.
Net financial costs were £0.3 million (H1 2023: £0.3 million), which include £0.25 million of interest on the loan notes issued which is payable at the end of their term.
The loss after tax for the period was £0.9 million (H1 2023: loss of £0.9 million).
Loss per share was 3.82p (H1 2023: loss per share 0.18p).
Cashflow and Net Debt
The Group's cash generated from operating activities in the period was £1.4 million (H1 2023: £0.2 million), reflecting positive underlying performance and careful management of working capital. The second half is expected to be stronger, with further improvements in working capital and a continued reduction in exceptionals. The Group invested £0.02 million in fixed assets. There were no new borrowings, but repayment of lease liabilities consumed £0.1 million (H1 2023: £0.1 million). The net result is that as at 30 June 2024 there were no bank borrowings or overdraft debt and the cash balance was £0.6 million (H1 2023: £0.5 million). Net debt as at 30 June 2024 was £4.4 million (H1 2023: £4.1 million).
Consolidated Statement of Comprehensive Income
|
|
Note |
Unaudited Six months ended 30 June 2024 £000 |
Unaudited Six months ended 30 June 2023 £000 |
Audited Year ended 31 December 2023 £000 |
|
Continuing Operations |
||||
|
Revenue |
2 |
10,740 |
11,592 |
22,412 |
|
Cost of sales |
|
(7,728) |
(8,013) |
(15,762) |
|
Gross profit |
|
3,012 |
3,579 |
6,650 |
|
Administrative expenses |
|
(3,723) |
(3,976) |
(7,866) |
|
Operating loss |
|
(711) |
(397) |
(1,216) |
|
Analysed as: |
|
|
|
|
|
Adjusted EBITDA* |
|
936 |
1,203 |
1,985 |
|
Non underlying items |
3 |
(155) |
(355) |
(713) |
|
Depreciation |
|
(176) |
(145) |
(312) |
|
Amortisation and impairment |
|
(1,140) |
(1,032) |
(2,187) |
|
Loss on the disposal of fixed assets |
|
- |
(1) |
- |
|
Fair value loss on deferred consideration |
|
- |
(67) |
22 |
|
Charges for share-based payments |
|
(176) |
- |
(11) |
|
Net financial costs |
|
(280) |
(256) |
(556) |
|
Loss before taxation |
|
(991) |
(653) |
(1,772) |
|
Income tax |
|
63 |
(292) |
227 |
|
Loss for the period after taxation |
|
(928) |
(945) |
(1,545) |
|
Discontinued operations: |
|
|
|
|
|
Profit on discontinued operations |
|
- |
9 |
9 |
|
Loss for the period and total comprehensive income attributable to equity holders of the parent |
|
(928) |
(936) |
(1,536) |
|
Basic and diluted loss per share - continuing operations |
4 |
|
|
|
|
Basic and diluted per share |
|
(3.82) p |
(0.18) p |
(6.45) p |
|
Basic and diluted loss per share - discontinued operations |
|
|
|
|
|
Basic and diluted share |
|
- |
- |
0.04 p |
|
Total basic and diluted loss per share |
|
(3.82) p |
(0.18) p |
(6.41) p |
* Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, impairment charge, non-underlying items, loss on disposal of fixed assets and share-based payment
Consolidated Statement of Financial Position
|
|
Note |
Unaudited 30 June 2024 |
Unaudited 30 June 2023 |
Audited 31 December 2023 |
|
|
|
£000 |
£000 |
£000 |
|
Non-current assets |
|
|
|
|
|
Property, plant and equipment |
|
839 |
970 |
943 |
|
Intangible assets |
|
5,957 |
8,179 |
7,097 |
|
Deferred tax asset |
|
3,398 |
2,816 |
3,335 |
|
Trade and other receivables |
|
100 |
100 |
100 |
|
|
|
10,294 |
12,065 |
11,475 |
|
Current assets Trade and other receivables |
|
4,357 |
5,468 |
5,020 |
|
Cash and cash equivalents |
|
613 |
473 |
274 |
|
|
|
4,970 |
5,941 |
5,294 |
|
Total assets |
|
15,264 |
18,006 |
16,769 |
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
|
3,100 |
4,740 |
4,389 |
|
Contract liabilities |
|
845 |
924 |
676 |
|
Borrowings |
5 |
4,025 |
210 |
259 |
|
|
|
7,970 |
5,874 |
5,324 |
|
Non-current liabilities |
|
|
|
|
|
Trade and other payables |
|
- |
174 |
- |
|
Borrowings |
5 |
964 |
4,371 |
4,561 |
|
Convertible loan notes |
6 |
- |
149 |
- |
|
Provisions |
|
406 |
266 |
301 |
|
|
|
1,370 |
4,960 |
4,862 |
|
Total liabilities |
|
9,340 |
10,834 |
10,186 |
|
Net assets |
|
5,924 |
7,172 |
6,583 |
|
Equity attributable to equity holders of the parent |
||||
|
Share capital |
|
12,611 |
12,610 |
12,610 |
|
Share premium |
|
52,957 |
52,865 |
52,865 |
|
Equity reserves |
|
58 |
58 |
58 |
|
Share-based payment reserves |
|
187 |
- |
11 |
|
Retained earnings |
|
(59,889) |
(58,361) |
(58,961) |
|
Total equity |
|
5,924 |
7,172 |
6,583 |
Consolidated Statement of Changes in Equity
|
|
Share capital (a) |
Share premium (b) |
Equity Reserve (c) |
Share-based payment reserve (d) |
Retained earnings (e) |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
At 31 December 2022 (Audited) |
12,586 |
50,754 |
58 |
- |
(57,425) |
5,973 |
|
Total comprehensive income for the period |
|
|
|
|
|
|
|
Shares issued for the acquisition of Allvotec and in lieu of bonus to an employee |
24 |
2,111 |
- |
- |
- |
2,315 |
|
Loss for the financial year and total comprehensive income |
- |
- |
- |
- |
(936) |
(936) |
|
At 30 June 2023 (unaudited) |
12,610 |
52,865 |
58 |
- |
(58,361) |
7,172 |
|
Total comprehensive income for the period |
|
|
|
|
|
|
|
Loss for the financial year and total comprehensive income |
- |
- |
- |
- |
(600) |
(600) |
|
Transactions with owners recorded directly in equity |
|
|
|
|
|
|
|
Share-based payments charge |
- |
- |
- |
11 |
- |
(11) |
|
At 31 December 2023 (Audited) |
12,610 |
52,865 |
58 |
11 |
(58,961) |
6,583 |
|
At 1 January 2024 |
12,610 |
52,865 |
58 |
11 |
(58,961) |
6,583 |
|
Total comprehensive income for the period |
|
|
|
|
|
|
|
Shares issued in lieu of bonus to an employee |
1 |
92 |
- |
- |
- |
93 |
|
Loss for the financial year and total comprehensive income |
- |
- |
- |
- |
(928) |
(928) |
|
Transactions with owners recorded directly in equity |
|
|
|
|
|
|
|
Share-based payments charge |
- |
- |
- |
176 |
- |
176 |
|
At 30 June 2024 (unaudited) |
12,611 |
52,957 |
58 |
187 |
(59,889) |
5,924 |
(a) Share capital represents the nominal value of equity shares and deferred shares
(b) Share premium represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue
(c) The equity reserve consists of the equity component of convertible loan notes that were issued as part of the fundraising in August 2018 less the equity component of instruments converted or settled. The fair value of the equity component of convertible loan notes issued is the residual value after deduction of the fair value of the debt component of the instrument from the face value of the loan note.
(d) Share-based payments reserve represents the accumulated costs of the share options in issue
(e) Retained earnings represents retained profits and accumulated losses
Consolidated Cash Flow Statement
|
|
Unaudited Six months ended 30 June 2024 |
Unaudited Six months ended 30 June 2023 |
Audited Year ended 31 December 2023 |
|
|
£000 |
£000 |
£000 |
|
Cash flows from operating activities |
|
|
|
|
Loss from continuing operations |
(991) |
(653) |
(1,772) |
|
Loss from discontinuing operations |
- |
9 |
9 |
|
Total loss before tax for the period |
(991) |
(653) |
(1,763) |
|
Adjustments for: |
|
|
|
|
Depreciation of property, plant and equipment |
176 |
145 |
312 |
|
Amortisation of intangible assets |
1,140 |
1,032 |
2,187 |
|
Fair value loss on deferred consideration |
- |
67 |
- |
|
Net financial costs |
280 |
256 |
556 |
|
Share based payments |
176 |
- |
11 |
|
Loss on disposal of fixed assets |
- |
1 |
- |
|
Decrease / (increase) in trade and other receivables |
663 |
(1,806) |
(1,359) |
|
(Decrease) / increase in trade and other payables and contract liabilities |
(129) |
1,161 |
658 |
|
Increase in provisions |
106 |
21 |
56 |
|
Net cash flows generated from operating activities |
1,421 |
233 |
658 |
|
Cash flow from investing activities |
|
|
|
|
Acquisition of property, plant and equipment |
(20) |
(40) |
(75) |
|
Net cash used in investing activities |
(20) |
(40) |
(75) |
|
Cash flows from financing activities |
|
|
|
|
Interest received |
13 |
9 |
19 |
|
Interest paid |
(41) |
(39) |
(84) |
|
Supplier finance repaid |
(900) |
- |
(281) |
|
Convertible loan notes repaid |
- |
- |
(152) |
|
Repayment of lease liabilities |
(134) |
(105) |
(225) |
|
Net cash absorbed by financing activities |
(1,062) |
(135) |
(723) |
|
Net increase/ (decrease) in cash and cash equivalents |
339 |
58 |
(140) |
|
Cash and cash equivalents at beginning of period |
274 |
414 |
414 |
|
Cash and cash equivalents at end of period |
613 |
472 |
274 |
|
Cash and cash equivalents comprise: |
|
|
|
|
Cash at bank |
613 |
472 |
274 |
Notes to the half-yearly financial information
1. Basis of preparation
This condensed consolidated interim financial information for the six-month period ended 30 June 2024 therefore does not comply with all the requirements of IAS 34, 'Interim Financial Reporting' as adopted by the United Kingdom. The consolidated interim financial information should be read in conjunction with the annual financial statements of the Company as at and for the year ended 31 December 2023, which were prepared in accordance with IFRS as adopted by the United Kingdom.
This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2023 were approved by the Board of Directors on 9 May 2024 and delivered to the Registrar of Companies. The report of the auditor was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
Accounting policies
While the financial information included has been prepared in accordance with the recognition and measurement criteria of IFRS, as adopted by the United Kingdom, these financial statements do not contain sufficient information to comply with IFRSs. The accounting policies adopted in the interim financial statements are consistent with those adopted in the financial statements for the year ended 31 December 2023.
Non-underlying items
It is the policy of the Group to identify certain costs, which are material either because of their size or nature, separately on the face of the Income Statement in order that the underlying profitability of the business can be clearly understood. These costs are identified as non-underlying items, and comprise:
a) Professional fees incurred in sourcing and completing acquisitions and disposals including legal expenses
b) Professional fees incurred in restructuring and refinancing acquisitions
c) Integration costs which are incurred by the Group when integrating one trading business into another, including rebranding of acquired businesses
d) Redundancy costs, including employment related costs of staff made redundant up to the date of their leaving as a consequence of integration
e) Property costs such as lease termination penalties and vacant property provisions and third-party advisor fee
For further details, please refer to note 3.
Going concern
The condensed consolidated interim financial information has been prepared on a going concern basis.
The Directors have produced detailed trading and cashflow forecasts. In reaching their conclusion on the going concern basis of accounting, the Directors note and rely on the improved trading performance, the positive cash generation that the business is now experiencing and the current signed order book. A reverse stress test of the model has been run to determine at what level of shortfall in revenues the Group would run out of cash. Given the committed orders already obtained and the visibility of future revenues, the directors do not consider it likely that revenues could drop to such an extent that the Group would run out of cash.
They have also considered the impact of any delayed customer payments and have developed plans to mitigate any such delays to ensure that the group can continue to settle its liabilities as they fall due and operate as a going concern. The directors therefore have an expectation that the Group and Company have adequate resources available to them to continue in operational existence for the foreseeable basis. For this reason, the Directors consider that the adoption of the going concern basis is appropriate.
2. Segment reporting
The Group has only one operating segment, the Manage Business.
3. Non-underlying costs
In accordance with the Group's policy in respect of non-underlying costs, the following charges were incurred for the period in relation to continuing operations:
|
|
Unaudited Six months ended 30 June 2024 |
Unaudited Six months ended 30 June 2023 |
Audited Year ended 31 December 2023 |
|
|
£000 |
£000 |
£000 |
|
Allvotec acquisition expense |
- |
144 |
242 |
|
Due diligence on potential acquisitions in the period |
- |
25 |
25 |
|
Aborted acquisition costs |
101 |
- |
- |
|
Employee share option plan set-up expense |
- |
- |
49 |
|
One-off legal fees |
- |
- |
9 |
|
Rebranding as Tialis from IDE Group |
- |
33 |
35 |
|
Restructuring and reorganisation costs |
54 |
153 |
353 |
|
|
155 |
355 |
713 |
Restructuring and reorganisation costs in the period relate to costs incurred on the restructure of the Group, predominantly redundancy costs. Other integration costs relate to the costs incurred in integrating the Allvotec acquisition. The redundancy costs include employment related costs of staff made redundant because of restructuring post the Allvotec acquisition.
The legal and rebranding expenses were non-recurring expenses incurred during the year.
4. Earnings per share from continuing operations
The calculation of basic and diluted loss per share is based on results from continuing operations attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the year. The weighted average number of shares for the purpose of calculating the basic and diluted measures in the reporting periods is the same. This is because the outstanding options would have the effect of reducing the loss per ordinary share and therefore would be anti-dilutive under the terms of IAS 33. Basic and diluted unaudited loss per share from continuing operations are calculated as follows:
|
|
Unaudited Six months ended 30 June 2024 £000 |
Unaudited Six months ended 30 June 2023 £000 |
Audited Year ended 31 December 2023 £000 |
|
Loss for the period after taxation |
(928) |
(945) |
(1,545) |
|
Weighted average number of shares |
24,246,744 |
520,408,748 |
23,973,027 |
|
Diluted weighted average number of shares |
24,246,744 |
520,408,748 |
23,973,027 |
|
Basic loss per share (pence) |
(3.82) p |
(0.18) p |
(6.45) p |
|
Diluted loss per share (pence) |
(3.82) p |
(0.18) p |
(6.45) p |
5. Borrowings
|
|
Unaudited Six months ended 30 June 2024 £000 |
Unaudited Six months ended 30 June 2023 £000 |
Audited Year ended 31 December 2023 £000 |
|
Non-Current |
|
|
|
|
Lease liabilities |
477 |
660 |
596 |
|
Loan Notes |
487 |
3,711 |
3,965 |
|
|
964 |
4,371 |
4,561 |
|
|
|
|
|
|
Current |
|
|
|
|
Lease liabilities |
295 |
210 |
259 |
|
Loan Notes |
3,730 |
- |
- |
|
|
4,025 |
210 |
259 |
The carrying value is not materially different to the fair value of these liabilities.
In January 2019 the Company issued £5.3 million of secured loan notes with a six-year term and a 12% coupon which is compounded, rolled up and payable at the end of the term ("Loan Notes"). In February and March 2019, a further £4.7 million in total of secured Loan Notes were issued. The Loan Notes carry an arrangement fee of 2.5 per cent., payable at the end of the term, and an exit fee of 2.5 per cent, also payable at the end of the term. The security comprises a debenture over all the assets of the Group.
In December 2019 the Company issued an additional £1.5 million of Loan Notes (with the same terms as those issued in the first quarter of the year).
The Loan Notes are held at amortised cost using the effective interest rate method. The effective interest rate for the Loan Notes has been calculated to be 18%.
The Company issued a further loan note ("Loan Note 2025") net of expenses for proceeds of £1m on 1 December 2021. The terms of the loan were that the rate of interest is 1.5% per month if repaid by 31 January 2022, 2.5% per month if repaid by 28 February 2022 and 3% per month if repaid by 31 March 2022. If not repaid by 31 March 2022 the amount due at that date including fees (£1.1875m) is then subject to interest at 20.4% per annum compound. The maturity date is 23 December 2025. The Loan Note 2025 was included in the 2 November 2022 conversion. On 2 November 2022 the members meeting at the Annual General Meeting, and then at the General Meeting that followed, voted to convert £25.5 million of loan notes (including fees and interest) into share capital.
6. Convertible Loan Notes
|
|
Unaudited Six months ended 30 June 2024 £000 |
Unaudited Six months ended 30 June 2023 £000 |
Audited Year ended 31 December 2023 £000 |
|
Balance at the beginning of the period |
- |
143 |
143 |
|
Interest unwound |
- |
6 |
9 |
|
Loan repaid August 2023 |
- |
- |
(152) |
|
Balance at the end of the period |
- |
149 |
- |
The Group had issued £2.55 million of unsecured loan notes, which had a term of 5 years and a zero per cent coupon ("CLNs").
On 21 August 2023 the CLNs were repaid.
7. Related Party Transactions
MXC has provided an unsecured convertible loan for £300,000, which has an annual compound interest rate of 15%. The Company expects to repay the loan by the 31 March 2025, MXC also has the option to convert the Loan to ordinary shares.
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