Tialis Essential IT : Annual Financial Report 2023

Tialis Essential IT PLC

Annual report and financial statements

Registered number SC368538 Year ended 31 December 2023

Contents

Directors and Advisers	3
Company Profile and Summary	4
Chairman's Statement	5
Strategic Report	9
Directors' Report	13
Remuneration Committee Report	17
Corporate Governance Statement	19
Statement of Directors' Responsibilities	25
Report of the Audit Committee	26
Independent Auditor's Report	28
Consolidated Statement of Comprehensive Income	33
Statements of Financial Position	34
Statements of Changes in Equity	35
Statements of Cash Flows	37
Notes to the Consolidated Financial Statements	39

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Tialis Essential IT PLC

Annual report and financial statements

Year ended 31 December 2023

Directors and Advisers

Directors

Andy Parker (Executive Chairman)

Ian Smith (Executive Director)

Nicolas Bedford (Non-Executive Director)

Matthew Riley (Non-Executive Director)

Company Secretary

Delgany Corporate Services Limited

Registered Office

24 Dublin Street

Edinburgh EH1 3PP

Company Number SC368538

Nominated Adviser and Broker

Cavendish Capital Markets Limited (formerly finnCap Limited) 1 Bartholomew Close

London EC1A 7BL

Solicitors

DAC Beachcroft LLP

25 Walbrook London EC4N 8AF

Auditor

Barnes Roffe LLP

Charles Lake House

Claire Causeway

Crossways Business Park

Dartford

DA2 6QA

Share Registrar

Computershare Investor Services plc 44 North St. Andrew Street Edinburgh EH2 1HJ

Principal Banker

RBS NatWest plc

250 Bishopsgate London EC2M 4AA

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Tialis Essential IT PLC

Annual report and financial statements

Year ended 31 December 2023

Company Profile

The principal activities of Tialis Essential IT PLC are the provision of end-to-end solutions to enterprise scale end-customers, public and private, concentrating on end-user device management and on-site support solutions.

The country of incorporation is Scotland; the Company's registered number is SC368538 and the Company is limited by shares. The main country of operation is the United Kingdom.

Further information on the Company can be found at www.tialis.com.

Business summary

• Tialis Essential IT PLC ('Tialis') is a UK based managed services provider delivering outsourced IT services as a strategic technology partner primarily on behalf of system integrators. After a series of acquisitions and divestments, the group is now wholly focused on Tialis Essential IT Manage Limited ('Manage') (formerly IDE Group Manage Limited).
• Within its portfolio of services, Tialis specialises in activities including the storage, build, configuration, and shipping of all end-user devices as well as the provision of on-site support engineers, tech bars, server maintenance and fully managed project deployments.
• Its support services have been developed to support clients with all IT requirements, to either complement an existing in- house IT team or act as a fully dedicated IT team on its customers' behalf.
• Revenues from continuing operations were 54% higher in 2023 at £22.4 million (2022: £14.5 million), gross margins
• • 
    decreased by 5% to 30% (2022: 35%) due to the additional engineering contracts acquired through Allvotec. Adjusted
    EBITDA* remained steady at £2.0 million (2022: £2.0 million).
  • Adjustments are as followed; Non underlying items, depreciation, amortisation, impairment, share-based payments, fair value profit on deferred consideration.

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Tialis Essential IT PLC

Annual report and financial statements

Year ended 31 December 2023

Chairman's Statement

I am delighted to report the growth that Tialis has achieved in 2023, demonstrated by our growth in revenue of by 54% to £22.4 million (2022: £14.5 million). These results are based on developing long-term relationships with third-party system integrators and supply contracts typically with 3-5-year terms. Therefore, as we experience further growth, we are generating a strong annuity income stream, with a strong pipeline of prospects.

We have had a strong start to 2024 with eight new end-user customer contract awards, including four new channel partners, giving us a multiyear current pipeline (new business and contract renewals) of £20.1 million, allowing us strong visibility over future growth.

Following the Groups reorganisation and series of acquisitions and divestments in recent years we now have a strong base to support a period of sustained growth and we are exploring organic and further acquisitive methods to accelerate this development.

This year we welcomed Nicolas Bedford and Matthew Riley as Non-Executive Directors to Board. Their experience and input have been invaluable and we welcome their advice and support as we continue to deliver on our strategic ambitions.

Highlights in the year include:

• 54% growth in revenue to £22.4 million (2022: £14.5 million)
• The successful asset purchase & integration of the Allvotec business
• Improved payment terms on all resource-based contracts
• Renewals & extensions in the following sectors: nuclear industry, UK utilities, government/public sector, global entertainment company, international health-care corporation, investment management company
• New business awards in the following sectors: printing solutions market leader, UK utilities, consumer health-care corporation, government/public sector, international vehicle rental, workplace and facility management, postal service and courier company, international multi-sourcing service integration
• Award of ISO 14001 together with Award of Gold Ecovadis status and developing a new carbon neutral lifecyle solution
• Successful renewals ISO 9001, ISO 20000-1 & ISO 27001 certifications
• Cyber Essentials & Cyber Essentials Plus re-award
• Significant D&B score improvement
• Rebranding of company and new website
• Part of a consortium that has won a significant preferred supplier agreement with the government/public sector
• New partnership agreements signed with six new major partners, and two further partners who have expressed interest in signing agreements.
• Strong start to 2024 with numerous new end-user customer contract awards expected, including four new channel partners, gives us a multi-year current pipeline of £20.1 million, giving us strong visibility over future growth.

People

Employee numbers within the Manage business increased by 48% within the year following the Allvotec acquisition and the company taking on more onsite managed service contracts.

The management team has made continued progress in simplifying the structure of the business and aligning services better to support our clients. The board would like to recognise and thank its employees who have worked hard to deliver excellent client service and retain existing key clients.

Strategy

We intend to continue with our organic initiatives that continue to demonstrate positive growth, including the expansion of our partner network and we are also exploring expansion into Europe. After four long years of restructuring the Group is considering growth through acquisition and would consider synergistic targets that would expand and deepen our service offerings.

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Tialis Essential IT PLC

Annual report and financial statements

Year ended 31 December 2023

Chairman's Statement (continued)

We are also exploring additional complementary solutions that can be added to our current services portfolio, which would increase our offering to customers in the end user device market. In addition to this, we are also looking at marketing strategies to increase our brand awareness to the direct market, which can deliver quicker turnaround on RFP wins and therefore faster in year revenue recognition. The transformation of traditional on-site support maintenance solutions, to our Lifecycle services is also key, as it improves our margins, reduces costs for our customers and has less risk of margin erosion than traditional people-based services.

We also recognise the importance placed on sustainability and plan to continue to improve on our ESG targets and our offering of carbon neutral solutions to our customers.

Current trading and outlook

Trading in the current financial year remains in line with Board expectations. Our multi-year pipeline (new business and contract renewals) stands at £20.1 million and continues to grow, giving us strong visibility over future growth.

Our expectation for the year is that 85% of revenue will come from existing contracts with the remainder through new business wins. This, together with a buoyant pipeline, gives us great confidence in another positive year of strong growth for the Group.

The key objective for 2024 is to increase the focus and utilisation of our lifecycle facility which provides much greater efficiencies for our end-user customer, higher levels of customer satisfaction, together with better margins. Initiatives are underway with our most significant partner to see an increase in this area. Adding six new partners to our partner portfolio provides the company with further opportunities, and we continue to target new partners to expand our channel reach.

Tialis has carved out a unique niche as a provider of support services and contract engineering resources to large BPO operators. The lifecycle solution it has developed is widely admired and is gaining traction quickly both among the new partners and existing end-user customers and is a real differentiator for the company.

Financial Review

Results

Revenue for the full year at £22.4 million (2022: £14.5 million), and we have seen gross profit margin fall by 5%, from 35% to 30% as expected, due to the additional engineering contracts acquired through Allvotec. Resulting gross profit has increased year-on-year to £6.7 million (2022 continuing operations: £5.1 million). Adjusted EBITDA* remained at £2.0 million (2022: Adjusted EBITDA of £2.0 million). The net loss after tax for the year from is £1.5 million (2022: loss £0.4 million), after £2.2 million amortisation and impairment expense (2022: £1.2 million amortisation and £0.9 million gain on conversion of the secured loan notes).

• Adjustments are as followed; Non underlying items, depreciation, amortisation, impairment, share-based payments, fair value profit on deferred consideration

Non-underlying items

Non-underlying items relating to restructuring and reorganisation amount to £0.7 million in the year (2022: £0.4 million).

Finance costs

After incurring net finance charges of £0.6 million relating to interest and arrangement fees for loan notes, leases and bank debt (2022: £2.3 million), the loss before tax is £1.8 million (2022: loss of £1.3 million).

Taxation

The utilisation of tax losses and the benefit of the increase in the rate of corporation tax on the deferred tax asset has resulted in a tax credit for the year of £0.2 million (2022: tax credit £0.8 million).

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Tialis Essential IT PLC

Annual report and financial statements

Year ended 31 December 2023

Chairman's Statement (continued)

Loss on continuing operations

Whilst the underlying trading performance of Manage shows significant positive EBITDA, group costs, finance costs and amortisation charges on the software licences result in a loss after tax for the year of £1.5 million (2022: £0.6 million), which equates to a basic loss per share of 6.45 pence (2022: loss per share of 0.10 pence).

Statement of Financial Position

Non-current assets

The Group has property, plant and equipment of £0.9 million (2022: £1.1 million) all of which are subject to depreciation as per

the policies set out in the accompanying financial statements. During the year there were additions of £0.2 million (2022: £0.5 million additions).

Further, intangible assets of customer contracts and related relationships are £7.1 million (2022: £7.1 million) and are subject to amortisation as per the policies set out in the accompanying financial statements.

Trade and other receivables

Trade and other receivables have increased to £5.0 million from £3.7 million.

Trade and other payables

Trade and other payables amounted to £4.4 million (2022: £4.5 million), including trade payables of £2.4 million (2022: £2.7

million) taxation and social security of £1.0 million (2022: £0.8 million) and accruals of £0.9 million (2022: £1.0 million).

Contract liabilities arise from customers being invoiced in advance of services delivered, in accordance with individual contractual terms, at the balance sheet date this amounted to £0.7 million (2022: £0.1 million). Contract liabilities have increased in 2023 as a result of the Allvotec acquisition.

Cashflow and net debt

Net cash generated from operating activities during the year was £0.7 million (2022 £1.5 million generated). Our Manage business continues to be cash generative and has developed excellent relationships with key strategic partners. The Group invested £0.08 million (2022: £0.2 million) in fixed assets. There were no new loans in 2023 (2022: £nil), but repayment of lease liabilities consumed £0.2 million (2022: £0.3 million) of cash. The result is that as at 31 December 2023 there were no bank borrowings or overdraft debt and the cash balance was £0.3 million (2022: £0.4 million).

Borrowings

As at 31 December 2023, the convertible loan notes liability in the balance sheet was £nil (2022: £130,437) as these were repaid

in August 2023, and the secured loan notes liability was £3,964,663 (£2022: £3,489,991).

Donations to charities

There were no donations to charities in the year (2022: £33).

Going concern

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.

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Tialis Essential IT PLC

Annual report and financial statements

Year ended 31 December 2023

Chairman's Statement (continued)

The directors therefore have an expectation that the Group and Company have adequate resources available to them to continue in operational existence for a period of at least 12 months from the date of approval of these financial statements. Accordingly, the Group and Company continue to adopt the going concern basis in preparing these consolidated financial statements.

Financing and dividend

The Directors do not propose a dividend in respect of the current financial year (2022: £nil).

Andy Parker

Executive Chairman

9 May 2024

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Tialis Essential IT PLC

Annual report and financial statements

Year ended 31 December 2023

Strategic Report

Review of the Business

A detailed review of the business is set out in the Chairman's Statement and the Financial Review. The year under review was a positive one for the business with both continuing revenues and gross margin remaining consistent year-on-year and adjusted EBITDA* remaining positive, although the Group reported a post-tax loss due to finance costs, impairments and restructuring. Future developments and current trading and prospects are set out in the Chairman's Statement and the Financial Review. These reports together with the Corporate Governance Statement are incorporated into this Strategic Report by reference and should be read as part of this report. The Group's strategy is focused on maximising value for stakeholders by increasing revenues and profits by upselling to our current customer base as well as by bringing new customers on board.

At 31 December 2023, the Board comprised four Directors (2022: two) all of which were male. At 31 December 2023 the Group

had 290 employees including Directors (2022: 196) of which 245 were male (2022:164) and 45 were females (2022:36).

• Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, impairment charges, non-underlying items,loss on disposal of fixed assets and share-based payments.

Principal Risks and Uncertainties

Identifying, evaluating, and managing the principal risks and uncertainties facing the Group is an integral part of the way the Group does business. There are policies and procedures in place throughout the operations, embedded within our management structure and as part of our normal operating processes.

The Board reviews the principal risks on a bi-annual basis. The risks have been amended following the sale of the Connect business with the resultant Group being greatly simplified. The impact, measures in place and tactics to mitigate risks are assessed on a regular basis. The risk categories, set out below, have been identified by the Board as those currently considered to potentially have the most material impact on the Group's future performance. In addition to these risks, note 23 contains details of financial risks.

Customer concentration

The Group has a significant revenue concentration with a single Partner (83%). This is mitigated as there are a number of end customers, all with different agreements and contract end dates. The Group has traded with the Partner for over 20 years and has long standing relationships. The Group is also focused on reducing this concentration and is working on several opportunities to achieve this.

Market and Economic Conditions

Market and economic conditions are recognised as one of the principal risks in the current trading environment. Risk is mitigated by the monitoring of trading conditions and changes in government legislation, the development of action plans to address specific legislative changes and the constant search for ways to achieve new efficiencies in the business without impacting service levels.

The Board does not believe the current macro-economic outlook has changed the Group's prospects given the large proportion of the end-customers being in the public sector. The Group has also undertaken stress testing of the detailed trading forecasts and cashflows taking into account inflation and interest rate increases. The Board does not consider that these will change the outlook at present. In relation to interest rates increases, the Group's debt is at a fixed rate.

Reliance on Key Personnel and Management

The success of the Group is dependent on the services of key management and operating personnel. The Directors believe that the Group's future success will be largely dependent on its ability to retain and attract highly skilled and qualified personnel and to train and manage its employee base. During the year, the restructuring programme continued which resulted in more members of staff being made redundant and other members of staff moving into new roles. For those who remain there are several employee benefits and active communication is encouraged within the business to mitigate the risk of losing skilled and qualified individuals. Furthermore, there is an apprenticeship scheme which the Group believes will assist in training and retaining younger individuals going forward.

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