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ESSENSYS PLC
Interim / Quarterly Report • Apr 30, 2024
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Interim / Quarterly Report
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National Storage Mechanism | Additional information 
RNS Number : 4906M
essensys PLC
30 April 2024
30 April 2024
essensys plc
("essensys", the "Company" or the "Group")
Half year results
essensys plc (AIM:ESYS), the leading global provider of software and technology to the flexible workspace industry, announces its unaudited results for the six months ended 31 January 2024 ("H1 24"). All information relates to this period, unless otherwise specified.
Financial summary:
| £m unless otherwise stated | Six months to January 2024 |
Six months to January 2023 |
Change |
| Revenue | 11.7 | 12.9 | -9% |
| Recurring revenue1 | 10.2 | 10.6 | -4% |
| Non-recurring revenue1 | 1.5 | 2.3 | -35% |
| Run Rate Annual Recurring Revenue (ARR)1 | 20.1 | 21.0 | -4% |
| Revenue at constant currency2 | 12.2 | 12.9 | -5% |
| Recurring revenue at constant currency | 10.6 | 10.6 | - |
| Run rate ARR at constant currency | 20.5 | 21.0 | -2% |
| Statutory loss before tax | (2.8) | (7.7) | 61% |
| Adjusted EBITDA3 | (0.5) | (4.2) | 88% |
| Loss per share (pence) | (4.14)p | (11.89)p | |
| Net Cash | 3.5 | 12.6 |
Financial Highlights
· On track to deliver run-rate positive adjusted EBITDA from Q1 FY25 and cash generation in FY25
· Significant improvement in Adjusted EBITDA loss; expect to be loss-making for FY24 overall
· £8m of annualised cost savings delivered reflecting ongoing focus on operational efficiency
· Group revenue down 5% at constant currency reflecting lower level of non-recurring revenue
· Non-recurring revenue down 35% reflecting continued pressure on customer capex budgets
· Recurring revenues flat at constant currency as new strategic customer ARR offset by non-strategic losses and lower occupancy-based marketplace revenues
· Recurring revenue now 87% of total, up from 82%
· Company remains debt free with net cash of £3.5m at period end
Strategic Highlights
· Two milestone expansion MSAs signed with existing customers (£1.5m minimum contracted ARR by September 2025)
· Strategic customers4 now 81% of Group revenue, up from 77%
· Six new strategic customers signed in period including two blue-chip global landlords
· Strategic customer Net Revenue Retention 103%, total customer Net Revenue Retention 95%
· 99% of all customers now upgraded to essensys Platform
· Launch of essensys Platform Intelligence Engine
Current trading and outlook
· Largest customer moving to dual-vendor solution resulting in the loss of up to 90 US sites that are due to renew in September 2024. Expected to result in up to £2m reduction of essensys Cloud ARR and £1m Connect software ARR
· Two major expansion contracts signed with strategic customers expected to deliver minimum of £1.5m ARR by September 2025
· Macro conditions continue to curb customer spend, particularly on non-recurring capex items
· Gross margin progression expected as buyer behaviour drives increased demand for our pure-play SaaS product essensys Platform with demand drivers decreasing for essensys Cloud
· Continuing improvement in operating margins as we focus on simplification and operational efficiency
· Sales pipeline underpinned by strategic customers' expansion plans and new customer opportunities
· ARR contracted but not yet live as of 31 January 2024 £1.5m
· Whilst recurring revenue continues to track in line with management expectations full year revenue will be below market expectations due to lower than expected non-recurring revenue as customer capex budget pressures persist
Board changes
As part of the streamlining and simplification of our organisation Elizabeth Sandler and Alexandra Notay will be stepping down from the Board effective 30 June 2024, having served their four-year terms. I would like to thank them both for their energy and contributions during their time with the Company.
Mark Furness, Chief Executive Officer of essensys, said:
"Whilst the persistent challenges posed by global economic uncertainty and the headwinds faced by the global office sector have continued to impact our operating environment we remain committed to the execution of our long-term strategy.
Although the expected reduction in revenues from our largest customer is disappointing we remain fully committed to our long-term relationship. We continue to see new site growth in Europe where the customer has upgraded from our legacy Connect product to essensys Platform.
Our focus on strategic customers continues to deliver results and I'm particularly pleased to see this translate into the signing of two significant contract expansions in the period. The first is with one of the world's largest privately owned commercial real estate companies and the second with an Australian listed REIT. The significant expansion opportunity that exists within such strategic customers provides a strong foundation for our future growth ambitions.
We have delivered £8m of annualised cost savings and continue to identify further operational efficiencies. We are on track to return to run-rate positive Adjusted EBITDA from Q1 FY25 and net cash generation in FY25 and we remain confident in the long-term structural growth opportunity in the flexible workspace market."
Notes
1. See CFO Review below for description and breakdown
2. Current period revenue and/or costs translated into GBP using the average exchange rate for the comparative prior period
3. Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, exceptional costs and other non-trading items such as share option charges
4. Strategic customers are those customers who have potential for at least $1m ARR
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 | +44 (0)20 3727 1000 |
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. The essensys Platform has been designed and developed to help solve the complex operational challenges faced by landlords and flexible workspace operators as they grow and scale their operations. It helps our customers to deliver a simple, secure and scalable proposition, respond to changing occupier demands, 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.
Chief Executive Officer's Report
Platform for sustainable growth
One of the most significant highlights of this reporting period is the progress we have made to streamline our operations and reduce our cash burn. As well as delivering over £8m in annualised cost savings, creating a clear path to profitability and cash generation, the move from a regional to a centralised operating model has delivered a number of operational benefits. As a leaner, more focussed business we have been able to invest more time and effort into our relationships with strategic clients (large multi-site landlords and flexible workspace operators). This helps us better align our offerings with their evolving needs.
The expected downsizing of our largest customer would see a up to £3m reduction in ARR for that account. The sites impacted are all based in the US and were due for renewal in September of this year. The majority of this ARR (£2m) is attached to our lower margin product essensys Cloud (c.35% gross margin before data centre costs) whilst £1m of this ARR comes from our legacy software product, Connect. Notwithstanding this we continue to see new essensys Platform sites signed with this customer in Europe. It should be noted that this is the last US customer that is using our legacy product Connect, which is currently in the process of being retired.
We continue to see improvements in the quality of our customer base with strategic customers now accounting for 81% of our revenues, up from 77% this time last year. Accordingly, the majority of new sites now come from strategic customers, with 95% of new site additions coming from this group in the period. Net Revenue Retention of 103% within our strategic customer cohort versus 95% across our whole customer base reflects our prioritising of strategic customers and the underlying expansion opportunity that they provide notwithstanding market challenges that currently persist.
Our Land, Expand and Grow strategy continues to guide our go-to-market efforts. We added six new strategic customers in the period, including two blue-chip landlords with global portfolios.
In the first half of 2024 we also signed two major expansion contracts with existing customers. Both required us to work closely with them to develop a strategic plan that ensured our product roadmap aligned with their long-term goals. The first of these portfolio MSAs (Master Service Agreement) is with one of the world's largest privately-owned commercial real estate companies. Headquartered in the US and with a large global portfolio this customer is contracted to deliver a minimum of US$1m ARR by September 2025 with the total expansion opportunity being significantly larger. The second is a with an Australian listed REIT which is rolling out essensys Platform across its existing portfolio as part of a five-year contract and is expected to reach a run-rate of US$1m ARR by July 2025.
A result of our focus on higher-value strategic customers is that we continue to see a higher level of churn in the long tail of non-strategic clients. These smaller customers, which now represent 19% of overall revenues, are largely 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.
Market conditions
Over the last four years the Group has had to adapt to the challenges posed by global economic uncertainty and major headwinds in the office sector. In a world of hybrid and flexible working companies of all sizes are still trying to find the optimal working patterns and workspace solutions which support flexibility and productivity. This uncertainty continues to impact the commercial office market as landlords try to balance near-term tenant demand and long-term structural shifts with short-term pressure on occupancy and cashflows.
The global office market has become increasingly bifurcated, with premium amenity rich buildings delivering high occupancy rates and premium rents whilst older offices with limited amenities and functionality are becoming functionally obsolete. The reality is that there is an excess of dated, functionally obsolete office buildings and an undersupply of offices that satisfy tenants changing needs1. We believe that this long-term structural shift translates into an enduring growth opportunity for essensys and our products as landlords update their assets to meet tenant needs.
Tenant demand for more flexible, amenity rich office buildings and workspaces is clear but the cost of this transition for landlords is significant. The current challenges presented by high interest rates and global macro uncertainty continue to put pressure on capital expenditure and development budgets. Therefore, the speed with which landlords are able to respond to these changing requirements has been limited. For essensys this has resulted in elongated sales cycles and slower than anticipated roll-out of our solutions. We are also seeing this translate into downward price pressure on set-up and capex items (non-recurring revenue) and our private network solution essensys Cloud, where a traditional internet connection can, for some customers, be an appropriate alternative solution.
We expect the lower level of non-recurring revenues (-35%) recorded in the first half to persist until the macroeconomic outlook improves and pressure on customer capex budgets ease.
Notwithstanding current market challenges we believe that our focus on strategic customers will deliver significant long-term benefits to the Group. Whilst procurement processes are comprehensive and sales cycles long the value of these enterprise level customers is clear. The benefits include significant account expansion opportunity, lower cost up-sell and cross-sell and a more efficient customer support structure.
Product innovation and proposition evolution
Our investment into essensys Platform to deliver a fully converged Access, Intelligence and Experience solution for our customers continues to be a key priority for our business. Our Product & Development team represents 30% of our total headcount which we believe demonstrates our commitment to delivering compelling differentiated solutions for our customers. The recently announced launch of essensys Platform Intelligence Engine is one such example and is an exciting new addition to our product line-up.
essensys Platform : Intelligence Engine
In its 2023-2024 Global Workplace & Occupancy Insights report CBRE notes that the occupancy metric that matters most is utilisation rate. Contracted occupancy has historically been a key performance measure for landlords and workspace operators but since the pandemic it is office utilisation rates that are increasingly being looked to as a predictor of performance and future returns. With global average office utilisation of 35%, a 45% decrease from the pre-pandemic global average of 64%, landlords and workspace providers are needing to adapt their offerings to ensure increased occupier utilisation.
According to the same report 96% of office utilisation data is gleaned from the single data source of security badge swipes.
Additional single source datasets from reservation/booking systems, Wi-Fi, visual observation and sensors are also sometimes used. CBRE's report notes that plans to increase the use of Wi-Fi/network data and sensors indicate a need for more detailed, higher-quality data to support portfolio optimisation and workplace experience goals.
Not only is space utilisation a critical measure but in the digital age we believe the quality of the in-building digital experience (DX) is also crucial. The challenge for multi-tenant buildings with shared workspaces and amenities is that not only do you need frictionless access to the spaces and services but you also need a seamless digital experience, so WiFi and internet performance become key data points too.
Using space utilisation and DX as the foundations for Intelligence Engine we have developed a solution that provides customers with deep insights that can help understand how their spaces are actually used and experienced. We also believe that as essensys Platform converges disparate systems and traditionally unconnected data sources (eg Wi-Fi/network, bookings, access control, IoT sensors) we are able provide the high-fidelity and high-resolution insights that the commercial real estate industry is seeking.
essensys Cloud
We previously announced a decoupling of our global private network (essensys Cloud) from essensys Platform. The key driver being the reduction of the requirement for future, capex intensive, data centre expansion and to remove the need for essensys Platform and essensys Cloud to be bundled together. This provided lower barriers to entry for our customers as they could use existing telecoms and internet access solutions and it also offered a solution in geographies where essensys Cloud was not available. essensys Cloud is currently delivered via our data centre network across the US, UK, Australia, Hong Kong and Singapore. Following the decoupling it is increasingly evident that the value of our private network and therefore essensys Cloud is limited to only a small number of customers with specific requirements.
As we now offer essensys Platform, essensys Cloud and Operate (our billing platform solution) as independent products we have been able to fully assess the relative performance of each product both commercially and from a product market fit perspective. The result of this is that it is clear essensys Platform is the primary driver of customer demand with both essensys Cloud and Operate increasingly being relevant to only a small proportion of strategic customers. We expect this to result in a fundamental change to our revenue mix over the coming years as essensys Cloud and Operate revenues reduce as percentage of total ARR as essensys Platform revenues increase.
The impact of this will be the improvement in gross margins due to the relative margin profiles of essensys Platform and essensys Cloud. To illustrate this essensys Cloud currently delivers a recurring gross margin of under 40% with associated data centre lease costs then reported below Adjusted EBITDA in accordance with IFRS 16, whilst essensys Platform delivers a gross margin in excess of 90%
essensys Platform : Smart Access
We have continued to make progress with the development of our embedded access control and IoT hardware solution that we currently refer to as Smart Access. Smart Access leverages the ubiquity of smartphone wallets to create a seamless tap-book-open experience for occupiers. The solution converges access control, space bookings and an IoT sensor gateway to provide a powerful answer to the problem of managing real-time access and control of space in today's dynamic and flex-enabled world. The hub's embedded IoT gateway will also enable the collection of real-time sensor data further improving the quality of insights Intelligence Engine can provide. As previously announced both hardware elements (reader and hub) are now fully FCC and CE certified and we expect to be ready for an initial production run early in FY25.
Current trading and outlook
We continue to take a long-term approach to investment into our pure-play SaaS offering, essensys Platform, and this is now translating into increased interest from our target customers. Our product development efforts are focussed on solving the key operational challenges of large multi-site landlords and flexible workspace operators whilst reducing time-to-value and adoption costs of our solutions. We expect margins to improve materially over time as essensys Platform revenues increase as an overall proportion of our recurring revenues and lower margin essensys Cloud revenues decrease.
As we focus on reducing barriers to entry and simplify the customer onboarding journey for essensys Platform, we expect lower future demand for the hardware supply and installation services we offer. Over time we expect a reduction in these lower margin non-recurring revenues (for example Wi-Fi and networking equipment and essensys Cloud installations) and so whilst customer capex budgets remain under pressure we see the reduction to these onboarding costs as a positive enabler of future customer adoption.
The structural long-term growth drivers in the flexible workspace industry remain intact, despite a challenging macro backdrop in which sales cycles and capital deployment decisions are taking longer. This is reflected by signing six new strategic customers in FY24 to date and two significant expansions for existing customers. Our continued success with strategic customers underpins our confidence in our long-term growth plans.
We remain debt-free and have a net cash position of £3.5m at the half year end. essensys is now a leaner organisation and has an appropriate operational structure to support our customers and deliver our long-term growth strategy. As a result of our action on cost and momentum for our focus on strategic customers, we are on track to return to run-rate positive Adjusted EBITDA from Q1 FY25 and net cash generation in FY25.
Source 1: Brookfield - "The Misunderstood US Office Market"
Chief Financial Officer's Report
The unaudited financial results included in this announcement cover the Group's consolidated activities for the six months ended 31 January 2024. The comparatives for the previous six months were for the Group's consolidated activities for the six months ended 31 January 2023.
Financial Key Performance Indicators
| £'m unless otherwise stated | Six months to January 2024 |
Six months to January 2023 |
Change |
| Group Total Revenue | 11.7 | 12.9 | -9% |
| North America | 6.8 | 8.1 | -16% |
| UK & Europe | 4.4 | 4.5 | -2% |
| APAC | 0.5 | 0.3 | 67% |
| Recurring Revenue[1] | 10.2 | 10.6 | -4% |
| North America | 6.2 | 6.4 | -3% |
| UK & Europe | 3.7 | 4.0 | -8% |
| APAC | 0.3 | 0.2 | 50% |
| Recurring Revenue %age of Total | 87.2% | 82.2% | |
| Run Rate Annual Recurring Revenue 1 | 20.1 | 21.0 | -4% |
| Recurring Revenue at constant currency | 10.6 | 10.6 | - |
| North America | 6.6 | 6.4 | 3% |
| UK & Europe | 3.7 | 4.0 | -8% |
| APAC | 0.3 | 0.2 | 50% |
| Run rate ARR | 20.5 | 21.0 | -2% |
| Non-recurring revenue | 1.5 | 2.3 | -35% |
| Gross Profit | 7.0 | 7.3 | -4% |
| Gross Profit percentage | 59.8% | 56.8% | |
| Recurring Revenue margin %age | 64.2% | 61.0% | |
| Statutory loss before tax | (2.8) | (7.7) | |
| Adjusted EBITDA[2] | (0.5) | (4.2) | |
| Cash | 3.5 | 12.6 |
Note 1: See Revenue section for explanation
Note 2: See Adjusted EBITDA explanation
Revenue
Group total revenue decreased by 9% to £11.7m in H1 24 (H1 23 £12.9m), primarily due to lower non-recurring revenue in a capital-constrained market environment and a negative impact from the movement in the US dollar.
Recurring revenue comprises income invoiced for services that are repeatable and are consumed and delivered on a monthly basis over the term of a customer contract. Run Rate Annual Recurring Revenue (Run Rate ARR) is an annualisation of the recurring revenue for the month identified (January 2024); this is used by management as an indication of the annual value of the recurring revenue for that month and to monitor long term revenue growth of the business.
Recurring revenue decreased by 4% compared to H1 23 (flat at constant currency). North America underlying dollar denominated recurring revenue grew by 3% but the strengthening of the US dollar compared with H1 23 meant that reported recurring revenue decreased by 3% in the period. The US has seen a net decline of 5 sites since the FY23 year end, primarily due to the loss of a single 5-site customer. UK & Europe recurring revenue declined by 8% year on year, a slowdown of previously reported declines of 12% in H1 23 and 11% in FY23. We have seen a return to net site growth in this region with closing site numbers up 9 on FY23 year end. APAC growth continued with 4 new sites live in the period.
Run Rate ARR decreased by 4% year on year, with £0.5m of the £0.9m decline driven by adverse movements in the US dollar to GBP rate. At constant currency, ARR decreased by 2%, driven by the expected continuing decline in variable Marketplace revenues (£0.8m) and a small decline in Operate revenues (£0.2m), partially offset by the net increase in contracted revenues from essensys Platform sites with new and existing customers. Run Rate ARR at H1 24 is flat to the FY23 year end position.
Non-recurring revenue comprises set up and installation costs and is recognised when a site is live. Non-recurring revenue reduced by 35% compared to H1 23, reflecting challenging market conditions.
Gross margins
Gross profit decreased by 4% in the period but overall gross margins increased from 56.8% to 59.8% as a result of a higher proportion of recurring revenue, up from 82.2% to 87.2% of total revenue, and a focus on efficiencies in cost of sales, which improved recurring gross margin from 61.0% to 64.2%.
Administrative expenses and other operating income and expense
Excluding exceptional costs and non-cash items of depreciation, amortisation, impairment and share option charges, administrative expenses decreased by £3.9m (34%) compared to the prior period. This reduction was driven by the Group reorganisation which began at the end of H1 23 and completed at the start of FY24. The Group will therefore continue to benefit from the year on year saving in costs through H2 24.
The Group generated £0.1m of other operating income in H1 24 for specific one-off bespoke product activity with a large US customer which does not fall into the definition of revenue and is therefore reported as other income.
Statutory loss for the half year
The Group incurred a £2.8m statutory loss before tax for the half year to January 2023 (H1 23: loss of £7.7m), with the improvement year on year due to the global restructuring during H2 23, which more than offset the reduction in gross profit.
Adjusted EBITDA
As previously reported, adjusted results are presented to provide a more comparable indication of the Group's core business performance by removing the impact of share-based payment expenses, exceptional costs (where material and non-recurring), and other, non-trading, items that are reported separately. Adjusted results exclude adjusting items as set out in the consolidated statement of comprehensive income and as below, with further details given in the notes to the unaudited interim financial information below, where applicable. In addition, the Group also measures and presents performance in relation to various other non-GAAP measures, such as recurring revenue, run-rate annual recurring revenue and revenue growth as shown and defined above.
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 on an ongoing basis.
Adjusted EBITDA (being EBITDA prior to share based payment expenses, impairment charges and exceptional items) is calculated as follows:
| £'m | H1 FY24 | H1 FY23 |
| Operating (loss) | (2.8) | (7.7) |
| Add back: | ||
| Depreciation & Amortisation | 2.1 | 2.3 |
| Impairment charge | - | 0.6 |
| EBITDA | (0.7) | (4.8) |
| Add back: | ||
| Share Option Charge | 0.2 | 0.1 |
| Exceptional costs | - | 0.5 |
| Adjusted EBITDA | (0.5) | (4.2) |
The Adjusted EBITDA loss of £0.5m for the half year was £3.7m lower than H1 23 due to the impact of the Group reorganisation and continued focus on profitability and cash.
Taxation
The Group recognised a £0.2m tax credit in the period in respect of R&D activities.
Cash
Cash at the half year end was £3.5m. The Group continues to maintain sufficient cash reserves to fund its working capital requirements and its return to cash generating operations. The Group has no debt and has an undrawn £2m loan facility committed until 31 July 2025.
In light of the continued impacts of global macroeconomic uncertainty, the Board has considered a number of different scenarios regarding trading and financial performance over the balance of this financial year and into FY25 and beyond and is confident that, in the event of a significant long-term downturn, the Group will have sufficient cash resources.
Working capital movements
The Group had a £2.3m negative working capital impact during H1 24 (H1 23: £3.3m negative), of which £1m related to the final payment of exceptional restructuring costs recognised in FY23. The Group has seasonal working capital fluctuations as a result of the timing of sales and delivery activity in the second half of each financial year and payment of operating costs such as audit and other compliance during the first half of each financial year.
Leasehold payments
The Group's leasehold payments relate to its offices in London and New York and its data centres in each region.
Capitalised Software Development costs
The Group continues to invest in product development in the UK. 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 half year the Group capitalised £1.1m in respect of software development (H123: £1.8m).
Capital Expenditure
The Group has had no significant capital expenditure in H1 24. Capital expenditure of £0.5m in H1 23 related to the final payments for data centres established in the APAC region.
Going concern disclosure
The Group closed the half year with a £3.5m cash balance and access to a committed £2m loan facility that covers the period to 31 July 2025 and which remains undrawn. The directors have reviewed trading and liquidity forecasts for the Group, as well as continuing to monitor the effects of macro-economic risks on the business.
The Group continues to model its base case and downside scenarios, including mitigations, consistently with the basis used for the annual financial statements for the year ended 31 July 2023. Under the scenarios assessed, the Group would remain within the headroom provided by its cash and committed facility for at least the next 12 months.
The Group made significant progress in reducing its operational cost base through H2 23 and has continued to take action to reduce cost further in the current financial year which will bring additional future benefit. This has included office cost, headcount and third party services and is included in the base case forecast for the Group. Also included is the expected reduction in revenue and margin from our largest customer as described above. Offsetting this future reduction is revenue from two customer expansion contracts, both signed in this financial year, which provide for a minimum of £1.5m of annual recurring revenue and a significant level of non-recurring revenues by September 2025.
Additional sensitivities applied to the forecast include lower levels of new sales bookings, higher churn and lower achievement of planned cost savings.
Based on the analysis described above, the Group has sufficient liquidity headroom through the forecast period. The directors therefore have reasonable expectation that the Group has the financial resources to enable it to continue in operational existence beyond 30 April 2025. Accordingly, the directors conclude it to be appropriate that the interim condensed consolidated financial statements be prepared on a going concern basis.
Sarah Harvey
Chief Financial Officer
30 April 2024
UNAUDITED INTERIM FINANCIAL INFORMATION OF ESSENSYS PLC GROUP
Consolidated statement of comprehensive income
| Note | Six months ended 31 January 2024 £'000 (unaudited) |
Six months ended 31 January 2023 £'000 (unaudited) |
|
|---|---|---|---|
| Revenue | 3 | 11,733 | 12,909 |
| Cost of sales | (4,736) | (5,580) | |
| Gross profit | 6,997 | 7,329 | |
| Administrative expenses | (9,917) | (15,041) | |
| Other operating income | 102 | - | |
| Operating loss | (2,818) | (7,712) | |
| Operating loss analysed by: | |||
| Operating loss before share based payments and exceptional items | (2,577) | (7,054) | |
| Share based payment expenses | (241) | (137) | |
| Exceptional restructuring costs | - | (521) | |
| Finance income | 21 | 127 | |
| Finance expense | (38) | (67) | |
| Loss before taxation | (2,835) | (7,652) | |
| Taxation | 156 | - | |
| Loss for the period | (2,679) | (7,652) | |
| Other comprehensive loss | |||
| Exchange differences arising on translation of foreign operations | (254) | (518) | |
| Total comprehensive loss for the period | (2,933) | (8,170) |
Loss per share
| Basic and diluted loss per share | 4 | (4.14p) | (11.89p) |
UNAUDITED INTERIM FINANCIAL INFORMATION OF ESSENSYS PLC GROUP
Consolidated statement of financial position
| Note | As at 31 January 2024 £'000 (unaudited) |
As at 31 July 2023 £'000 (audited) |
|
|---|---|---|---|
| --- | --- | --- | --- |
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | 5 | 9,936 | 10,059 |
| Property, plant and equipment | 6 | 1,149 | 1.577 |
| Right of use assets | 7 | 1,093 | 1,140 |
| 12,178 | 12,776 | ||
| Current assets | |||
| Inventories | 2,332 | 2,260 | |
| Trade and other receivables | 5,499 | 4,617 | |
| Cash at bank and in hand | 10 | 3,462 | 7,862 |
| 11,293 | 14,739 | ||
| TOTAL ASSETS | 23,471 | 27,515 | |
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Shareholders' equity | |||
| Called up share capital | 8 | 162 | 162 |
| Share premium | 51,660 | 51,660 | |
| Share based payment reserve | 3,629 | 3,382 | |
| Merger reserve | 28 | 28 | |
| Retained earnings | (37,585) | (34,652) | |
| Total equity | 17,894 | 20,580 | |
| Non-current liabilities | |||
| Lease liabilities | 9 | - | 307 |
| Total non- current liabilities | - | 307 | |
| Current liabilities | |||
| Trade and other payables | 3,412 | 4,762 | |
| Contract liabilities | 3 | 881 | 420 |
| Lease liabilities | 9 | 1,284 | 1,264 |
| Current taxes | - | 182 | |
| 5,577 | 6,628 | ||
| TOTAL LIABILITIES | 5,577 | 6,935 | |
| TOTAL EQUITY AND LIABILITIES | 23,471 | 27,515 |
UNAUDITED INTERIM FINANCIAL INFORMATION OF ESSENSYS PLC GROUP
Consolidated statement of changes in equity
| Share capital £'000 |
Share premium £'000 |
Share based payment reserve £'000 |
Merger Reserve £'000 |
Retained earnings £'000 |
Total £'000 |
|
| Balance at 1 August 2023 (audited) | 162 | 51,660 | 3,382 | 28 | (34,652) | 20,580 |
| Comprehensive Income | ||||||
| Loss for the period | - | - | - | - | (2,679) | (2,679) |
| Currency translation differences | - | - | 6 | - | (254) | (248) |
| Total comprehensive loss | - | - | 6 | - | (2,933) | (2,927) |
| Transactions with owners | ||||||
| Currency translation differences | - | - | - | - | - | - |
| Share based payment expense | - | - | 241 | - | - | 241 |
| Balance at 31 January 2024 (unaudited) | 162 | 51,660 | 3,629 | 28 | (37,585) | 17,894 |
| Balance at 1 August 2022 | 161 | 51,660 | 2,811 | 28 | (18,700) | 35,960 |
| Comprehensive Income | ||||||
| Loss for the period | - | - | - | - | (7,652) | (7,652) |
| Currency translation differences | - | - | (3) | - | (518) | (521) |
| Total comprehensive loss | - | - | (3) | - | (8,170) | (8,173) |
| Currency translation differences | - | - | - | - | - | - |
| Share based payment expense | - | - | 137 | - | - | 137 |
| Balance at 31 January 2023 (unaudited) | 161 | 51,660 | 2,945 | 28 | (26,870) | 27,924 |
UNAUDITED INTERIM FINANCIAL INFORMATION OF ESSENSYS PLC GROUP
Consolidated cash flow statements
| Six months ended 31 January 2024 £'000 (unaudited) |
Six months ended 31 January 2023 £'000 (unaudited) |
||
| Cash flows from operating activities | |||
| Loss before taxation | (2,835) | (7,652) | |
| Adjustments for non-cash/non-operating items: | |||
| Amortisation of intangible assets | 1,175 | 1,056 | |
| Depreciation of property, plant and equipment | 436 | 628 | |
| Impairment of property, plant and equipment | - | 305 | |
| Amortisation of right-of-use assets | 513 | 602 | |
| Impairment of right-of-use assets | - | 303 | |
| Share based payment expense | 241 | 137 | |
| Finance income | (21) | (127) | |
| Finance expense | 38 | 67 | |
| (453) | (4,681) | ||
| Changes in working capital: | |||
| Increase in inventory | (73) | (538) | |
| Increase in trade and other receivables | (1,057) | (529) | |
| Decrease in trade and other payables | (1,126) | (2,277) | |
| Cash used by operations | (2,709) | (8,025) | |
| Taxation received | 25 | - | |
| Net cash used from operating activities | (2,684) | (8,025) | |
| Cash flows from investing activities | |||
| Purchase of intangible assets | (1,052) | (1,840) | |
| Purchase of property, plant and equipment | - | (486) | |
| Interest received | 21 | 127 | |
| Net cash used in investing activities | (1,031) | (2,199) | |
| Cash flows from financing activities | |||
| Repayment of lease liabilities | (761) | (779) | |
| Interest on lease liabilities | (30) | (67) | |
| Net cash used in financing activities | (791) | (846) | |
| Net decrease in cash and cash equivalents | (4,506) | (11,070) | |
| Cash and cash equivalents beginning of period | 7,862 | 24,122 | |
| Effects of foreign exchange rate changes | 106 | (451) | |
| Cash and cash equivalents at end of period | 3,462 | 12,601 | |
UNAUDITED INTERIM FINANCIAL INFORMATION OF ESSENSYS PLC GROUP
Notes to the unaudited interim financial information
1. Basis of preparation
The unaudited condensed interim financial information, which has been neither audited nor reviewed by the auditor, presents the consolidated financial results of essensys plc and its wholly owned subsidiaries (together, "essensys plc Group" or "the Group") for the six-month period to 31 January 2024. The annual financial statements of the Group are prepared in accordance with the UK adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting. This financial information does not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the Annual Report for the year ended 31 July 2023. The financial information for the half year ended 31 January 2024 does not constitute statutory accounts within the meaning of Section 434 (3) of the Companies Act 2006 and both periods are unaudited.
The comparative financial information presented herein for the year ended 31 July 2023 does not constitute full statutory accounts for that period. The statutory Annual Report and Financial Statements for the year ended 31 July 2023 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 31 July 2023 was 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.
The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2023 annual financial statements, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2023 and will be adopted in the 2024 financial statements. There were no new standards impacting the Group that will be adopted in the annual financial statements for the year ended 31 July 2024.
essensys plc is the Group's ultimate parent company. It is a public listed company and is domiciled in the United Kingdom. The address of its registered office and principal place of business is Aldgate Tower 7th Floor, 2 Leman Street, London E1 8FA. essensys plc's shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange.
2. Going Concern
The consolidated financial information has been prepared on a going concern basis. In reaching their assessment, the directors have considered a period extending to the end of July 2026. As well as modelling the realisation of the sales pipeline, these forecasts also cover scenarios and sensitivities in order for the Board to satisfy itself that the Group remains within its current cash facilities. At 31 January 2024 the Group had cash reserves of £3.5m and no debt. The Group also has a £2m undrawn loan facility in place until 31 July 2025 to provide additional headroom.
The Board's sensitivity modelling shows that the Group can remain within its cash facilities in the event that revenue decreases significantly. 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 conserve cash. 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 aligns with its revenue and cash resources. The Board is mindful of general levels of inflation and cost increases that may impact the business. The Group is confident that its capability to adjust its future investment plans and reduce its cost base will sufficiently mitigate any impact from cost inflation.
The Group made significant progress in reducing its operational cost base through H2 23 and has continued to take action to reduce cost further in the current financial year which will bring additional future benefit from the start of FY25. This has included office cost, headcount and third party services and is included in the base case forecast for the Group. Also included is the expected reduction in revenue and margin from our largest customer as described above. Offsetting this future reduction is revenue from two customer expansion contracts, both signed in this financial year, which provide for a minimum of £1.5m of annual recurring revenue and a significant level of non-recurring revenues by September 2025.
Additional sensitivities applied to the forecast include lower levels of new sales bookings, higher churn and lower achievement of planned cost savings.
Based on the sensitised cash flow forecasts prepared, the directors are confident that any funding needs required by the business will be sufficiently covered by its current cash facilities.
As a consequence, 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 release of these interim financial statements. Accordingly, they continue to adopt the going concern basis in preparing the interim financial statements.
3. Segmental reporting
The Group has one single business reportable 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 segments and three geographical segments, as detailed in the tables below.
The Group generates revenue from the following activities:
- Establishing services at customer sites (e.g. providing and managing installation services, equipment and providing training on software and services)
- Recurring monthly fees for using the Group's platforms
- Revenue from usage of on demand services such as internet and telephone usage and other, on demand, variable services.
- Other ad-hoc services
The Group has one single business reportable segment which is the provision of software and technology platforms that manage their critical infrastructure and business processes, primarily to the flexible workspace industry.
The Group has two main revenue streams, the essensys Platform/Connect and Operate. Given that support for both revenue streams is provided in such a way as to make cost and therefore operating performance impractical, the two revenue streams are combined into a single reportable segment. The essensys plc Group's revenue per revenue stream is as follows:
The Group operates in three main geographic areas, North America; the United Kingdom & Europe; and Asia Pacific region. The Group's revenue per geographical area is as follows:
| Six months ended 31 January 2024 unaudited £'000 |
Six months ended 31 January 2023 unaudited £'000 |
|
|---|---|---|
| North America | 6,861 | 8,063 |
| United Kingdom & Europe | 4,368 | 4,501 |
| Asia Pacific | 504 | 345 |
| 11,733 | 12,909 |
The Group has two main revenue streams, the essensys Platform/Connect and Operate. The Group's revenue per revenue stream is as follows:
| Six months ended 31 January 2024 unaudited £'000 |
Six months ended 31 January 2023 unaudited £'000 |
|
|---|---|---|
| Connect/essensys Platform - software enabled infrastructure platform | 10,997 | 12,029 |
| Operate - workspace management software | 736 | 880 |
| 11,733 | 12,909 |
Group revenue disaggregated between revenue recognised 'at a point in time' and 'over time' is as follows:
| Six months ended 31 January 2024 unaudited £'000 |
Six months ended 31 January 2023 unaudited £'000 |
|
|---|---|---|
| Revenue recognised at a point in time | 1,561 | 2,281 |
| Revenue recognised over time | 10,172 | 10,628 |
| 11,733 | 12,909 |
Revenue from customers greater than 10% in each reporting period is as follows:
| Six months ended 31 January 2024 unaudited £'000 |
Six months ended 31 January 2023 unaudited £'000 |
|
|---|---|---|
| --- | --- | --- |
| Customer 1 | 2,994 | 3,565 |
Contract assets and liabilities
Contract asset movements were as follows:
| Unaudited | £000 |
| At 1 August 2023 | 468 |
| Transfers in the period from contract assets to trade receivables | (175) |
| Excess of revenue recognised over cash (or rights to cash) being recognised during the period | 87 |
| Capitalised commission cost released as contract obligations fulfilled | (44) |
| Commission costs capitalised on contracts | 257 |
| At 31 January 2024 | 593 |
| Audited | £000 |
| At 1 August 2022 | 887 |
| Transfers in the period from contract assets to trade receivables | (544) |
| Excess of revenue recognised over cash (or rights to cash) being recognised during the period | 175 |
| Capital asset contract contributions capitalised | 57 |
| Capital asset contract contributions released as contract obligations are fulfilled | (58) |
| Capitalised commission cost released as contract obligations fulfilled | (210) |
| Commission costs capitalised on contracts | 161 |
| At 31 July 2023 | 468 |
Contract liability movements were as follows:
| Unaudited | £000 |
| At 1 August 2023 | 420 |
| Amounts included in contract liabilities that were recognised as revenue during the period | (420) |
| Cash received and receivables in advance of performance and not recognised as revenue during the period | 881 |
| At 31 January 2024 | 881 |
| Audited | £000 |
| At 1 August 2022 | 815 |
| Amounts included in contract liabilities that were recognised as revenue during the period | (815) |
| Cash received and receivables in advance of performance and not recognised as revenue during the period | 420 |
| At 31 July 2023 | 420 |
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.
4. Loss per share
The loss per share has been calculated using the loss for the period and the weighted average number of ordinary shares outstanding during the period, as follows:
| Six months ended 31 January 2024 unaudited £'000 |
Six months ended 31 January 2023 unaudited £'000 |
|
|---|---|---|
| --- | --- | --- |
| Loss for the period attributable to equity holders of essensys Group | (2,679) | (7,652) |
| Weighted average number of ordinary shares | 64,676,575 | 64,385,219 |
| Loss per share | (4.14p) | (11.89p) |
As the Group is loss making in both periods presented, the share options over ordinary shares have an anti-dilutive effect and therefore no dilutive loss per share is disclosed.
5. Intangible assets
| Unaudited | Assets in course | Customer | Internal software | |||
| of construction | relationships | development | Software | Goodwill | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Cost | ||||||
| At 1 August 2023 | 622 | 335 | 16,552 | 280 | 1,263 | 19,052 |
| Additions | 127 | - | 925 | - | - | 1,052 |
| At 31 January 2024 | 749 | 335 | 17,477 | 280 | 1,263 | 20,104 |
| Amortisation | ||||||
| At 1 August 2023 | - | 335 | 7,981 | 280 | 397 | 8,993 |
| Charge for year | - | - | 1,175 | - | - | 1,175 |
| At 31 January 2024 | - | 335 | 9,156 | 280 | 397 | 10,168 |
| Net book value | ||||||
| At 31 January 2024 | 749 | - | 8,321 | - | 866 | 9,936 |
| At 31 July 2023 | 622 | - | 8,571 | - | 866 | 10,059 |
| Audited | Assets in course | Customer | Internal software | |||
| of construction | relationships | development | Software | Goodwill | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Cost | ||||||
| At 1 August 2022 | 215 | 335 | 13,116 | 280 | 1,263 | 15,209 |
| Additions | 407 | - | 3,436 | - | - | 3,843 |
| 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 |
6. Property, plant and equipment
| Unaudited | Fixtures and fittings | Computer equipment | Leasehold improvements | Total | |
| £000 | £000 | £000 | £000 | ||
| Cost | |||||
| At 1 August 2023 | 240 | 10,594 | 750 | 11,584 | |
| Exchange adjustments | - | 57 | - | 57 | |
| At 31 January 2024 | 240 | 10,651 | 750 | 11,641 | |
| Depreciation | |||||
| At 1 August 2023 | 215 | 9,100 | 692 | 10,007 | |
| Charge for year | 5 | 424 | 7 | 436 | |
| Exchange adjustments | - | 49 | - | 49 | |
| At 31 January 2024 | 220 | 9,573 | 699 | 10,492 | |
| Net book value | |||||
| At 31 January 2024 | 20 | 1,078 | 51 | 1,149 | |
| At 31 July 2023 | 25 | 1,494 | 58 | 1,577 | |
| Audited | Fixtures and fittings | Computer equipment | Leasehold improvements | Total | |
| £000 | £000 | £000 | £000 | ||
| 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 | |
In the prior period, as a result of the FY2023 reorganisation that centralised the Group's APAC operations in Sydney, Australia and the evolution of the 'capital light' strategy, Management reviewed the carrying value of assets within the APAC region and impaired those assets where the carrying value was in excess of their recoverable value resulting in an impairment of £313,000 and as such the impairment charge was been booked in that period.
7. Right of use assets
| Unaudited | Leasehold | Computer | ||||
| property | equipment | Total | ||||
| £000 | £000 | £000 | ||||
| Cost | ||||||
| At 1 August 2023 | 7,214 | 162 | 7,376 | |||
| Lease remeasurement | 465 | - | 465 | |||
| Exchange adjustments | 24 | - | 24 | |||
| At 31 January 2024 | 7,703 | 162 | 7,865 | |||
| Depreciation | ||||||
| At 1 August 2023 | 6,074 | 162 | 6,236 | |||
| Charge for year | 513 | - | 513 | |||
| Exchange adjustments | 23 | - | 23 | |||
| At 31 January 2024 | 6,610 | 162 | 6,772 | |||
| Net book value | ||||||
| At 31 January 2024 | 1,093 | - | 1,093 | |||
| At 31 July 2023 | 1,140 | - | 1,140 | |||
| Audited | Leasehold | Computer | ||||
| property | equipment | Total | ||||
| £000 | £000 | £000 | ||||
| Cost | ||||||
| At 1 August 2022 | 7,049 | 162 | 7,211 | |||
| Additions | 198 | - | 198 | |||
| Lease remeasurement | 95 | - | 98 | |||
| Exchange adjustments | (128) | (128) | ||||
| At 31 July 2023 | 7,214 | 162 | 7,376 | |||
| Depreciation | ||||||
| At 1 August 2022 | 4,567 | 162 | 4,279 | |||
| 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 | |||
In the prior period, as a result of the reorganisation that centralised the Group's APAC operations in Sydney, Australia and the evolution of the 'capital light' strategy, Management reviewed the carrying value of the right of use assets within the APAC region and impaired those assets where the carrying value was in excess of their recoverable value resulting in an impairment of £274,000 and as such the impairment charge was been booked in that period.
8. Called up share capital
| As at 31 January 2024 unaudited No. |
As at 31 July 2023 audited No. |
|
|---|---|---|
| Allotted, called up and fully paid | ||
| 0.25p ordinary shares | 64,649,260 | 64,385,219 |
| 31 January 2024 unaudited £'000 |
31 July 2023 audited £'000 |
|
| Allotted, called up and fully paid | ||
| 0.25p ordinary shares | 162 | 162 |
9. Lease liabilities
| Unaudited | Leasehold | |||||
| Property | Total | |||||
| £000 | £000 | |||||
| At 1 August 2023 | 1,571 | 1,571 | ||||
| Interest expense | 30 | 30 | ||||
| Effect of modifying lease term | 465 | 465 | ||||
| Lease payments | (791) | (791) | ||||
| Foreign exchange movements | 9 | 9 | ||||
| At 31 January 2024 | 1,284 | 1,284 | ||||
| Analysis by current and non-current: | ||||||
| Unaudited | ||||||
| Leasehold | ||||||
| property | Total | |||||
| £000 | £000 | |||||
| Due within a year | 1,284 | 1,284 | ||||
| Due in more than one year | - | - | ||||
| 1,284 | 1,284 | |||||
| Audited | Leasehold | |||||
| property | Total | |||||
| £000 | £000 | |||||
| At 1 August 2022 | 3,128 | 3,128 | ||||
| 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 | ||||
| Analysis by current and non-current: | ||||||
| Audited | ||||||
| Leasehold | ||||||
| property | Total | |||||
| £000 | £000 | |||||
| Due within a year | 1,264 | 1,264 | ||||
| Due in more than one year | 307 | 307 | ||||
| 1,571 | 1,571 | |||||
10. Financial instruments
Financial assets
Financial assets measured at amortised cost comprise trade receivables, other receivables, accrued income and cash, as follows:
| As at 31 January 2024 unaudited £'000 |
As at 31 July 2023 audited £'000 |
|
| Cash and cash equivalents | 3,462 | 7,862 |
| Trade and other receivables | 4,037 | 3,495 |
| 7,499 | 11,357 |
Financial liabilities
Financial liabilities measured at amortised cost comprise trade payables, accruals, other payables and lease liabilities, as follows:
| As at 31 January 2024 unaudited £'000 |
As at 31 July 2023 audited £'000 |
|
|---|---|---|
| Trade and other payables | 3,218 | 4,233 |
| Lease liabilities | 1,284 | 1,571 |
| 4,502 | 5,804 |
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 |
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. There has been no change to the credit risk in the period.
(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.
(ii) Interest rate risk
The Group's interest rate exposure arises mainly from the interest-bearing borrowings. All the Group's facilities were floating rates excluding interest from leases, which exposed the group to cash flow risk. As at 31 January 2024 there are no loans outstanding. 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.
11. Post balance sheet events
No post balance sheet events to report.
[1] See Revenue section for explanation
[2] See Adjusted EBITDA explanation
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IR EAPLNAAALEFA