Sysgroup (LSE:SYS) — Interim results for the period ending 30 September 2020

0:02 Good afternoon, ladies and gentlemen, and welcome to the SYSGROUP Interim Results Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it is appropriate to do so. These will be available via Investor Meet company dashboard. Before we begin, we would like to submit the following poll. I'd like to remind you that this presentation is also being recorded. I'd now like to hand over to Adam Binks, CEO and Martin Orton, CFO of SYSGROUP. Good morning to you.

0:49 Thanks, Mark. Good morning, everybody, and thank you for joining SYSGROUP PLC's first investor meet company live webcast. Today, my intention is to take you through a history of the business, introduce you to SYSGROUP PLC, and then also provide an update on our trading for the period April 1 to September 30, which is h one of our FY twenty one year. So just to introduce myself and Martin, obviously, my name's Adam Binks. I'm the chief executive officer of SYSGROUP. I joined the company back in 2014 as the chief operating officer and lastly took over in 2018 as chief executive.

1:36 I've got a twenty year career in the the technology and telecoms and hosting sector. As I say, I've been with the business for the the last six and a half years through a fantastic journey of growth. And Martin Austen, who is our our CFO, joined us in July 2018 as chief financial officer. We brought Martin on from NCC Group where he was associate finance director with a great background in in m and a experience given the fact that SYSGROUP is is a buy and build company. Just to introduce you to the the wider leadership team within the business. So on the PLC board we've a gentleman called Michael Edelson, who's got fantastic experience in the PLC sector, been responsible for a number of AIM flotations.

2:30 Michael was the the chairman and responsible for the flotation of host Europe group, where he was chairman before he he joined as chairman of SYSGROUP PLC, which has gone on to be a a fantastic huge hosting company across Europe. We've also got Mark Quartermaine on our board of directors as a nonexecutive. Mark joined us back in late twenty seventeen. He was formerly chief executive of AIM listed alternative networks, which he led the disposal of to Daisy Group for for a 165,000,000. And we've also got Mike Fletcher who joined our board early in 2018. Mike's got a great m and a background, former managing director of GCA Altium and founding partner of Prytora Group, which is a boutique investment firm up in Manchester.

3:24 Mike joins us with a with a wealth of experience, as I say, in m and a and a real great addition to our board. Underneath the PLC board, we also have a very strong executive operational board, which consists of the c suite. Myself and Martin also sit on that board along with our chief sales officer, CTO, and chief marketing officer. And then underneath that, just to add to the structure, is our senior leadership team where we have our various department heads that lead the day to day operations of the business. So just to give you some background on on SYSGROUP. SYSGROUP was originally founded as a very different business. Did used to be Daily Internet PLC, which was a mass market web hosting provider that that grew to be the twelfth largest domain registrar in the in in Europe of Dot uk domains.

4:20 And when I joined back in 2014, I joined as part of a new management team that that was tasked with using the the PLC vehicle to transform the business into leading managed services provider, which is a journey that that we kind of embarked upon in in late twenty fifteen. So, you know, without boring you to death with with the history of everything that we've done, fast forward sort of five or six years, and we are now SYSGROUP PLC having made a number of strategic acquisitions to give us all of the building blocks that we needed to become a leading managed services provider. We now find ourselves with a business with a £19,000,000 foundation We have a our a very business. Business.

5:19 It's a 120 offices. Foundation And we're supporting 700 mid market customers, again, based across the country. I'm running a twenty four seven service team. And one of our key performance indicators that we love to talk to the city about is our solid 97% plus customer satisfaction. So in terms of barriers of entry to this kind of business, you know, there's lots of businesses out there that claim to be leading managed services providers. But what customers really look for when they they want to enter into a trusted partnership and a trusted relationship with an MSP It is vendor accreditations partnerships.

6:06 So you'll see from this slide down in the bottom right hand corner, our entire group has got some fantastic accreditations there. You know, we're Cyber Essentials, Cyber Essentials Plus, ISO 27,001. And probably the ones one that I'm most proud of is our PCI DSS accreditation. So we're we are one of a a few number of PCI level one merchant service providers certified by the the PCI standards council to be able to provide services to payment card gateway service providers in in Europe, which is fantastic for us, and and we do that for a number of customers. So as I say, to bring you up to date now, SYSGROUP is is an award winning managed service provider.

6:56 We lead with several service lines being managed IT services and cloud hosting as well as technical consultancy to businesses in The UK mid market. So very well placed to help businesses in the mid market with their digital transformation journeys. And just in terms of historical performance of SYSGROUP over the last three years since I've been in the driving seat as chief exec, You'll see from this slide that we've almost doubled revenue in the last couple of years with adjusted EBITDA and adjusted PBT tracking nicely in a nice upwards trend and the percentage of adjusted EBITDA to revenue growing nicely without the overhead base growing at a similar rate. So overhead percentage is now starting to come down as a percentage of revenue overall.

7:51 So we've got a great track record of making acquisitions, integrating them, and then continuing to grow those businesses as we take them forward. So in terms of SYSGROUP's strategy, our overall strategy and where we want to get to, our aspiration is to take this business to become a £100,000,000 market capitalization business. And how are we going to do that? So we're going to continue to execute on our buy and build strategy, which has proved to be very, very successful for us in the last couple of years and supplement that with with organic growth. But we put that message through our business and and keep our people on board primarily through the core values of the business, which you can you can see across the bottom of the slide deck there.

8:40 So we've got five very, very important values in our business, which we ask our people to operate to on a daily basis, and we want them to love what what they do. We want them to be bold and give us ideas and deliver on those ideas which help transform the marketplace in which we we operate in. And we think it's very, very, very important that people within our business own what they do. We want people to own their successes as well as their failures. You know, we don't get it right a 100% of the time, but it's very important to to own up to mistakes, recognize them, and then we work together as a team in order to to rectify those mistakes. But thankfully, we have way more successes than we do failures in this business. And if you put those three values together, in turn, that will delight the customer. Everything we do is about the customer. We want to delight customers. We want to hang on to those customers, and we wanna see long term value and long term relationships come out of those customer relationships.

9:42 And to achieve that, you know, we need to work smart and together, which again is something that we instill in the business on a daily basis. And we measure all of those things through the KPIs that you can see on the slide in terms of employee satisfaction, our revenue growth and our acquisitive growth, as well as customer satisfaction. So we're regularly communicating with customers, as I mentioned on an earlier slide, to measure customer satisfaction and ensure that we keep that above our target level, which I'm pleased to say it's consistently above 97%. So all of that together puts into our value proposition. You know, our value prop is all about our people and our services. SYSGROUP is a managed IT services business. It is people intensive without people, good quality people who are trained and qualified and experts in their chosen fields, know, we find it very, very difficult to be able to provide the services that we do to our customers.

10:45 But all of that together will help us with our vision to become the leading provider of managed IT services and cloud hosting to mid market businesses in The UK and will help us drive towards that 100,000,000 market capitalization over the next couple of years. So in terms of SYSGROUP's capabilities, as I've mentioned already, we've made a couple of acquisitions in in the last eighteen months. So we bought a business called SYSGROUP PLC in February last year, and we supplemented that acquisition with the acquisition of Hub Network Services later on in in 2019, in June 2019. And that has now given us a fantastic data center footprint where we build, develop, and deploy our hyperscale geo diverse cloud platforms.

11:38 And actually, the picture on the right is is not a stock image. That is one of the data halls where we occupy some rack space in the next generation data facility in Newport in South Wales, which is one of the largest data centers in Europe, and actually where Microsoft hosts the the Azure platform, which I'm sure many of you have heard about. And that gives us a real strategic advantage over other providers of cloud hosting services whilst you can connect into Microsoft platforms from from anywhere in the world. We can literally connect in with being in the same building, so it's a it's a cable within the same facility to plug us into Azure and allow that to complement the services for a hybrid solutions that we offer to our client base and really support what we call SYSGROUP, which is our our hyperscale platform.

12:29 So we've made some data center consolidation as we've made the acquisitions. The five facilities that you can see in the top right hand corner, being the one in Newport, two in London and two in Manchester, are the core facilities which we now concentrate on and have become the strategic way forward for us for the build of our hyperscale platform. And that's where we continue to deploy IT workloads for our customers moving forward, and that's all been driven through acquisitive growth. To supplement the the data center footprint, one of the most important things that we need is network connectivity. It's great if everybody puts all these fantastic IT workloads into the into the cloud and into the public cloud and into the trusted hands of managed IT service providers like SYSGROUP, but it all becomes very useless if you can't connect to it.

13:21 So once we acquired HNS last year, we embarked on an integration project of of all the different networks that we were operating. And this slide here is really designed to demonstrate how we can connect in at multiple levels via multiple different tier one service providers, and we can take the connectivity for our customers as close to the data center as possible and as close to their offices as practically possible. You know, without getting too technical, it reduces things like network latency and having to chart send data up and down the country before it reaches its destination. So our network footprint gives us a fantastic reach out to our target client base there and gives us the ability to be able to connect them up and have them accessing their IT workloads in our in our data center environments with with relative ease.

14:17 And then the product portfolio, the service portfolio that's now grown across the group has become extremely vast with the acquisitions that we've made over the last couple of years. So we break them down into seven core areas, which obviously you can see on the screen there right from cloud through to disaster recovery and backup and into managed IT and supplemented by professional services. And in each of those areas, we allow our customers to be able to choose from specific services or, you know, we really like it when they take all of the services. And some customers even take all of the or most of the services from each of the seven areas of our portfolio. So this this kind of demonstrates that we really are a true end to end managed services provider with the ability to deliver and meet the requirements of our our customer and our prospect base to deliver world class managed IT services for them.

15:21 In terms of SYSGROUP's go to market strategy, so you can see over on the left hand side there are our key verticals where we've got great demonstrated success and where we can show fantastic case studies of what we've done for for people in the past. Retail, financial services, insurance, legal, and manufacturing, We've got some great case studies and great client wins in those sectors. And our focus is primarily on The UK mid market. So the biggest opportunity for SYSGROUP exists in the mid market where we kinda see user range from around about 200 users to to to 650 users. That doesn't mean to say that that we're not prepared to play in the in the enterprise arena. Actually, you know, we we quite like to play in the enterprise arena, and we do have a number of enterprise customers that we service and we run some huge platforms for.

16:18 But the biggest opportunity for SYSGROUP exists within that UK market. That's where our sweet spot really, really sits. And in terms of the target roles and the focus of when we're prospecting new business, we're looking to deal at C suite level where we can, where we know that we can really be a strategic adviser and advise the c suites on how to make a difference to their own business through the use of technology and through through a partnership with with SYSGROUP to help take them on that digital transformation journey. And then how we access the market, there is a number of channels and routes that we use to access the market make ourselves known. So, obviously, we have a marketing function with our within our business. We have a demand generation function within our business, and we also task our salespeople with generating their own opportunities both from net new logo and the existing customer base. We also heavily rely on our vendor partnerships because, you know, we've invested heavily in there to become accredited with with a number of vendors, including Dell and WatchGuard and Fortinet.

17:29 And by working together, you know, the those vendors typically sell hardware on a one off basis, but the end customer wants that turning into a a recurring revenue solution, which is where SYSGROUP can really support and help turn what would be a one off sale for a vendor into recurring revenue for our business on a typically a three year terms contract. And just as a small example of a number of campaigns that we've got out in the market at the moment to demonstrate the currency is where we're really capitalizing or trying to capitalize on the COVID situation. And we've got a campaign out right now called lessons from lockdown, which is basically a reflection about our own business and some of our customers that have been willing to participate on the struggles that we found at the start of lockdown and how we've used technology to overcome those struggles.

18:23 There is still a huge opportunity out there to help convert a number of businesses from on premise IT workloads and bring those into the data center and the public cloud to make their lives easier and help them run their businesses more efficiently through the use of cloud based technologies. And just to follow on from that, you you'll see a number of logos there from some SYSGROUP clients that I'm sure you'll recognize with the likes of Admiral Insurance and GoCompare, AXA, SAVR, and Surechill, you know, a great range of customers that we've got in there providing lots of different services to those guys. So I'm going to come on to the half year now and reflect on the period in lockdown before I shortly hand over to Martin, who will take you through the numbers that we've delivered during h '1.

19:24 But I'll start with revenue. We've delivered revenue, 9,010,000 in the period. And whilst that's 3% down on the same period last year, where we delivered GBP 9,260,000, I must say, I'm extremely pleased with what we have delivered. Back in March, when COVID really hit and lockdown became apparent, I think it was unclear for a number of businesses and a number of people about what was actually going to happen. We couldn't really assess the impact of what would happen throughout the COVID lockdown period, but we we moved to home working very, very quickly. We've kept the teams motivated. And as I say, I'm delighted that we've demonstrated the resilience of our business, being underpinned by contracted recurring income and continue to support our customers, and that's reflected in the revenue number that we've reported.

20:22 And again, similarly with GBP 1,410,000 worth of adjusted EBITDA, which has largely come through from acquisition synergy. So we've got the full twelve months of SYSGROUP H and S in there now. The synergies from those acquisitions have really started to come through for us to produce more EBITDA on slightly lesser revenue. And again, as I've mentioned earlier on in the deck, customer satisfaction, we've managed to maintain our KPI of 97% or above, keeping our customers happy and supported and their services on and connected throughout the lockdown period. We announced, and some of you may have seen back at the full year in June, that we announced a program called Project Fusion within our business.

21:10 So being a company that's built up built up of a number of acquisitions, we've managed to accumulate a number of back office systems over the years, and it was time to get that all fused together into a single pane of glass to to to make visibility for our sales teams and our service teams and executive management to get a better snapshot of the business and really go and identify where the white space exists within our customer base. So I'm delighted to report to the market that phase one of that project is now complete, and phase one was the go live for our CRM system, our service desk system, our project delivery system, and our billing system. So that also means all customers from the acquired businesses are now being communicated with as SYSGROUP rather than the legacy SYSGROUP and H and S brands.

22:04 And, again, the integration integration in lockdown, I'll be honest, something I was very nervous about back in March. I've got a lot of integration experience as has Martin, but never never done it virtually. However, I think we've made a fantastic success with our teams of integrating the the service and the HNS business into the the wide assist group business on a virtual basis and actually found it somewhat easier than than a normal face to face integration with lots of different meetings across the country and trying to coordinate people being in the same place all at once. So, you know, I look forward to subsequent acquisitions where we use Microsoft Teams to integrate those businesses. And, again, another key highlight that I need to pull out is whilst COVID has been very, very difficult for for a number of businesses across a number of sectors, and with them, we sympathize.

22:59 For for our business, it's really demonstrated the the relevance and stability of SYSGROUP as a managed IT services provider. You know, second to the NHS, IT has been what has been required by many businesses to keep the wheels turning, and I'm pleased that SYSGROUP has managed to play its part in that and keep our customers active and trading online to support their own businesses. And the stability coming from our recurring revenue base, which in this period is around about 83% of the number, it really shows the contracted recurring income is so important to businesses in order to help them through what can be a very difficult period such as a global pandemic which is COVID nineteen.

23:48 So just in terms of our own response and resilience to COVID nineteen, I know many of you will be interested in how we've reacted to it. So back in March, we were very early to see the lockdown coming and obviously the room was coming out to governments of a national lockdown. So we decided to invoke our business continuity plan back on the March 13, if I remember correctly. We sent our our entire workforce home on the same day and got them settled for homework, which actually was a relatively relatively seamless process, which we did with ease. And the reason why we did that early ahead of the government's advice was, you know, we're an IT support company. We knew our customers were going to need us. Many of them wouldn't be prepared for home working. They'd be struggling to access systems remotely.

24:40 So we knew that our workload would increase in that first couple of weeks of lockdown, and we were right about that prediction with a 37 uptick in our normal service desk tickets in week one of lockdown. In terms of our exposure to what we call high risk sectors being leisure and hospitality, We're not sector focused in any way. Whilst we have target sectors that we like to work in, we have no real sector concentration. So we've got about 6% exposure to leisure and hospitality, which actually throughout this last seven or eight months, we've not really suffered any impact from. And we've come to some various support arrangements with those customers in order to help them out.

25:26 And Martin will give you the detail on that as we move through the finance slides later on, but no real impact or significant risk in terms of sector exposure to our business. We've had no requirement to utilize any of the government's back support schemes, so nobody in our business has been furloughed. We've taken no CBILS loans. We've had no requirement for bounce back loans or any other kind of assistance. The only one thing that we did take advantage of was the deferral of the q one back payment, which was around about £280,000 just whilst we we saw how the landscape kind of unfolded. We'd have been crazy not to have taken advantage of that, but our intention is to fully repay that money back to HMRC prior to the end of this financial year.

26:14 So we'll get that paid down before March finishes. In terms of cash, beyond the half year end number, we've continued to generate cash, and we've got a great cash balance sat at GBP 3,500,000 today, and we're in an overall net cash position, both on a pre and post IFRS 16 basis. So solid cash generation from this business. And again, Martin will give you more detail on that as we run through the finance slides. We've continued to pay all of our loan and lease liabilities as normal with no deferrals. So we've not gone into any special arrangements with anybody. Everything is completely BAU, and we've continued to pay those down. So there's nothing inflated in the balance sheet in that respect. And the bank is very, very happy with our position.

27:02 And as I mentioned already, revenue in the period is underpinned by more than 80% plus 83% recurring revenue, which just demonstrates the stability of the business and cash collection on that revenue has been fantastic. Where we did suffer and where the revenue dip came from was in our VAR business, our value added resell business. So in addition to all the fantastic monthly recurring revenue services that that I've told you about in the previous slides, we do have a bit a part of the business that makes up just under 20% where we do have to resell hardware to our clients, and that's part of being an end to end managed IT services provider.

27:51 The customers want to be able to buy from us the equipment that they need on their desks or the mobile devices that they need in order to access their systems that are hosted in our hyperscale data center platforms. So the discretionary spend on those kinds of things in q one of this financial year is where we saw the dip. However, I'm pleased to report that we're now starting to see a recovery in that business line out into H2. I don't think we'll fully catch you up for the full year, but we are starting to see a recovery, which is great news. So Martin, if you don't mind, I shall hand over to you to run through the finance slides. Yep. Thanks, Adam. So we just got a few slides just to run you through the financials, probably, obviously, for a half year results and and balance sheet and cash flow position.

28:45 I think when I go through these slides, I tend to always start off with a what I'll try to say is a sort of quick summary of of how I see it. It's not I'll probably describe it as, I think, resilient trading in in h one. So you probably heard from Adam already that we've we're we're slightly down on revenue, which is just 3% year or half year on half year. That is very much to do with the VaR revenue, which Adam just mentioned. So in q one, we obviously had effectively some market shock from COVID coming in. And I think quite understandably, a lot of companies were withholding their CapEx spend in that in that period. So we saw that in q one and kind of like for like q one to q one was 200 to 300 k down. So that's essentially what we've seen come through in in the full half year revenue number.

29:33 But really, what what else we have is profit and EPS growth, which we're really pleased to see and a very, very strong net cash position. And those are really fundamental things for this company and in terms of where we wanna be and and the growth forwards. So we'll see from the slide Adam had put up before and the one you've got in front of you, The EPS is growing, adjusted EPS is growing well. We expect that to continue to grow. Adjusted PBT similarly is on a growth trajectory. So despite this being an H1 COVID affected period, we're still able to demonstrate that growth. And in terms of net cash, I think that's been a really strong area of our business. I'll say a little bit more. We've got a slide on cash, and I'll talk more about that. But I think in terms of our performance in that area, particularly given the year we've had, I think it's very good and highlights the fact that this business and in fact, the business model is a generator of cash, which which is obviously good to see.

30:39 So this is the this slide is on the h one income statement. I'm sure many of you have seen this from our r and s already. So we've talked about revenue. Maybe I'll just jump to gross margin. So our our business model generally looks at a seventy five twenty five split of managed income, managed service income, and and bar. This half year, we've managed 83% managed services and 17% VAR, value added resell. That's unusual, and it's back to that q one position where we had that lower VAR revenue result. So we do expect the the revenue mix to return to or more closer to normal, if you like, by the end of the year. And obviously, Adam's just put some little caution on the catch up on bar. But essentially, we'd expect the full year to be around 78 to 80% managed services, 20 to 22% bar.

31:38 What what that does, it clearly has a a impact on the gross margin. So you will see that f y '20, we had a 57% gross margin. That is where we expect to be for the full year. Managed services typically runs at six mid sixties percent margin. BAR, which can typically be the equipment sales, is obviously a lower margin between 20 to 25%. So revenue mix would always have an impact, but we have pretty steady revenue mix, and we can forecast that fairly well. In terms of overheads, we again, my my my summary of where we are in overheads, I think, is in a very good position. We've worked hard to get our overhead in this group to be the the lean position where we need to be. When I say lean, not only in as much as we've got the platform of overhead. We've got the right number of people in the business. We've got the right level of spend going through to now support the the the revenue and in fact a bit more, and then to continue to invest going forward.

32:43 This has come through some acquisition synergies, and and acquisition synergies are typically as you'd expect in terms of people. We tend to find you you you grow the business and find that some some people you don't need following the acquisition. So that's a good position that we've achieved this year. We've had a a small impact as as you find every company has in the half year from travel cost being down as you'd expect. And there's a small impact again from the fact that we've done Project Fusion in half one, which have been a really good big thing for us to get up a unified set of systems together in this group. And and we just capitalize some of our costs only at a low level, though. But the driver of the the overhead production, which you can see there, is is synergies.

33:31 Just reiterate the point that no employee has been furloughed. So, again, sometimes you look at income statements and you're trying to figure out what are what are the odd things in there which you need to block out. But there's no furlough, no no grant income, no one off credits at all in that. So it's it's it's a nice clean income statement from that perspective. Exceptional items, just generally in terms of SYSGROUP, would typically be, as you'd imagine, professional fees when we make acquisitions, and it'll be cost of integration following acquisitions. You'll see this half year, it's it's very low at 36 k. So that that is predominantly for the closure of the Bristol office, which is a small office we had from a legacy acquisition, which we decided we didn't need anymore. We don't expect exceptional items to be popping up in any particular way in h two. So that's that's a good trail for the full year.

34:23 Share based payments have have come up. Obviously, we'll have shared option grants, which is a method of incentivizing our team. We'll continue to do that. And in terms of profit before tax, it's good to see we've we've obviously turned the p b t in half year, and again, we'd expect that to continue through to the the full year results. So in terms of the statement of position or or balance sheet as as probably most people recognize, It's a very straightforward balance sheet, and I think that's the first thing I'd say for people trying to look at our results, understand our results. It's it's pretty straightforward. It's simple. It's all about working capital. It's all about cash.

35:10 And and obviously, when we make acquisitions, you'll find intangible assets could work, get affected. The the biggest number change, I'll just jump to it straight away, is you'll see contingent consideration of a million pounds liability, which was there at half year last year and full year in March 20. That was the remaining earn out contingent consideration due to the vendors of Certus, which we bought in February 2019. The we are very pleased because Certus was an excellent acquisition for us. They achieved the full earn out potential. They hit their profit targets, and that amount was paid in h '1. So that's been paid out in cash in h one. You'll see that in the cash flow. The other sort of key drives of working capital, as you know, is obviously things like cash collections from customers and how we pay our suppliers.

36:04 I think just going back to how we felt back in April when when at the start of COVID, I'll certainly have the view, and I'm sure everyone else would have been that cash collections would be made more problematic. We may suffer customer defaults on payment. What's been interesting and and naturally pleasing for us to see is that our debt today has stayed constant throughout the period. It's not what I expected, but it but I guess it's a it's an element where you gotta look at what we provide and what SYSGROUP provides as critical infrastructure as IT services into customers. So in terms of payments in, we we'd always be judged pretty high up the queue to get paid. So that's been a a really good position for us.

36:51 One thing we did do back in April, I think we mentioned this in our June annual report, was that we had about 20 customers come to us very early on in the in the COVID difficulties asking for financial support. And we did Adam and I did have a a long conversation about that, and we both felt that we should do something to help other customers in terms of the community. So we looked at the the customers who came to us and of there's about five that I I kind of thought was was trying it on insofar as let's let's see what we can get away with. But there was actually 15 who we felt we got good relationships with, we should continue to support. So we extended payment terms for those customers, which they very much appreciated.

37:38 And they've all come out the other side. They're they're all completed and finished. And we've actually got good strong relationships with those customers, which is good to see. In terms of supply payments, we do a monthly payment run every month. We pay who needs to be paid. It inspires if it's due to be paid, we pay it. So there's no nothing around picking and choosing supplies. There's no cash stretch in the in the cash number at the end of the half year. It is what it is. And that's, again, a sort of measure of how we work here. You know, we value our relationships with suppliers, obviously, from how how they deliver to us, but also in terms of how we deal with them. So no change in in terms of how we're dealing and continue to deal. The the VAT payment Adam mentioned, that was precautionary insofar as at the time we felt, well, if it's on offer, we we might as well take it because it was that early in the in the COVID arena where we weren't sure how it turned out. But we will we intend to pay that likely January or February next year.

38:43 Bank loan, quarterly payments, all paid. No deferrals whatsoever. We've got good headroom in our covenants. We we meet them, and, actually, we have a very good relationship with our main banker, Santander. And then they continue to source with loan services as well. So just into cash and net cash, this is this is a strong position for us, and and, hopefully, you'll be able to see this from from numbers on this slide. So at the end of FY twenty, so this is March 2020, you can see that we're up 69 k net debt in the bottom right hand corner. That's moved to 1,200,000 net cash position at the half year. And that's post for those of you who do your accounting standards, that's post IFRS 16 where the property leases came onto the balance sheet, so post those liabilities.

39:38 Excluding the property liabilities, we're at 1,600,000 net cash, which is very strong position. So so how do we do this? Well, we we have a very good cash conversion rate. We traditionally set our targets 80 to 90%. We're starting to edge at the the higher end of that. And as you'll see here, we've got a cash conversion of a 115% in h one. That includes interest payments and tax payments. The cash conversion of 115 does include the tax the VAT to 80 k deferral, which is why we've we've shown the underlying. So if you remove that, the impact of the VAT, that's a 95% against 96% last year. So you can see it's a high cash conversion. The other point around this, of course, is that it tends to be a proven factor of quality of earnings.

40:27 So what we've got is is a high proof of our earnings are actually converting into cash, which you could see. You can see the the large number in the cash for the half year is the $9.75 k, which is the payment out for the SYSGROUP earn out consideration. There's no contingent consideration left to go or deferred consideration left to go. So balance sheet is has has got nothing left nothing left to go. There's been no further bank drawdowns, equity raises in the periods you can see. The the one other thing we have around us is we do have an unused 3,250,000 acquisition revolving credit facility of Santander. That's ready and available to go if we find the right acquisition acquisition target.

41:14 So combined with the the cash we're generating and and starting from our balance sheet and the acquisition RCF, we're in a pretty strong position to find suitable businesses and and bring them into the the SYSGROUP. So I think that summarize it for me. Adam, back to you. Thanks, Martin. Great update. Thank you. So, yeah, just to summarize before we move into a Q and A session what we've just been through in the slide deck. Again, I'll reiterate, revenue has been extremely stable, point zero one million for H1, given the macroeconomic climate in which we're trading and impacts from COVID-nineteen.

42:05 So both myself and the business are pleased with that result. Again, adjusted EBITDA being up 19%. I think that's another fantastic outcome for us in this period. And turning that EBITDA into cash with 95% underlying operational cash conversion. I think that's a really key metric that investors will be be watching in this kind of business. You know, I've seen plenty of of other companies out there who've got lots of EBITDA, but not the cash to back it up. I think that's really demonstrable of our of our business and and how solid it actually is. The acquisitions that we've that we've made, I'd make them again. They've been very, very successful for us. They've helped accelerate the journey to become the the £100,000,000 market cap business that that we want to be.

42:58 The the project free agent program and the completion of phase one, again, it's been another fantastic thing for us. In a short space of time, we brought brought three businesses together. We've got them operating under a a single pane of glass. We've got the visibility across the business. We can report on the customers. We can support the customers across multiple functions within the business all on a unified platform, which, again, it really, really helps us, and it will it will help us integrate future acquisitions with relative ease now that we've got that solid platform in place. And, again, the final thing that I have to draw attention to is is how the business has managed to prove itself as being so robust throughout the COVID-nineteen pandemic.

43:48 And that's demonstrated through revenue and the EBITDA delivery. We really are a relevant business. We are what is required by many, many businesses. And I think the opportunity moving forward into future periods as businesses start to stabilize themselves and we get into potentially a vaccine situation, people are really going to start to have digital transformation and outsourced IT services as a standing agenda item on the on the their board meetings. So, you know, SYSGROUP is a really, really relevant business, and I'm excited about what we've got to come. And that concludes the presentation.

44:33 So I'll hand back over to Mark. Thank you very much indeed, Adam, and thank you, Martin, also. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab. But just while the company take a few moments to review the investor questions that have been submitted today, I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A will be made available via your Investor Meet company dashboard. I'd also like to remind you that your feedback is important to the company. Immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order the company can better understand your views and expectations. That's about as long as I've got to give you to review some of these questions, Adam and Martin. But perhaps what I'll do is if I start off with the first question, and if I could ask you to look at the Q and A tab, and I guess just read the questions out. Obviously, no one can see anyone else's questions and give a response where it's appropriate to do so. The first question, just to make sure you're on the right page, great presentation. Thanks. What do you see as your greatest risk to executing on your strategy? And secondly, out of interest, what are you looking for in future acquisitions?

45:43 Yeah. Okay. Thanks, Mark. It's a it's a very good question. What what do we see in terms of risk? Obviously, there is risk in executing the strategy given the fact we're we're a buy and build business. We face competition from other acquirers, other trade acquirers, and also that from PE as well. You know, we continue to monitor and assess all the deals that happen that we don't necessarily get involved in, and we look for trends there to to make sure that we're we're relevant in terms of what we're trying to do. And we try to be very successful. And when we do find a business that we'd like to bring into the SYSGROUP portfolio, that we use all of our combined knowledge and efforts in order to attract the vendors to want to make a sale to SYSGROUP.

46:33 And I suppose in terms of answering the question about what we're looking for in respect of future acquisitions, the answer to that is very, very simple. Now we where we are where we are in our journey and a lot of the building blocks are in place. We're looking for more of the same. So it's all about adding scale to the business now and taking advantage of of what we've already got in in terms of the platforms and the robustness of the platforms that that we can add to them and we can grow them. So, you know, we're not immediately looking to to divest off into any other specific areas of industry. You know, I I mentioned early on in the slide deck, we've got a huge portfolio of services. We wanna bolster that and add more of the same to it. So, hopefully, that answers your question.

47:24 We've another question here. What were the main reasons for the low growth in managed services in h one given the recurring income nature of of contracts? Has SYS lost any contracts? Do you have the ability to put prices up, or is the downward pressure on pricing? I think there might be four questions in one, so I'll do my very, very best to to answer that. I might have to keep coming back to it. So, you know, we we forecasted growth in our managed services business in our AOP, in in a pre COVID world when when we put these things together, when we put these plans together. And, you know, I'm not afraid to say that the growth that we we anticipated hasn't come through, but people are reluctant to sign long term contracts at the moment. People are reluctant to commit their businesses into new spend.

48:25 They might be more than happy to to recommit to existing spend, but the market is cautious right now. However, I see that as a short term problem and not a long term problem. In respect if we lost any contracts, if you if you've read the r and s that we put out yesterday morning, you will see we've an ongoing strategy of exiting certain customer contracts. So it's very, very normal when you acquire a business, especially a smaller business to your own, that you will inherit what we call a tail of a base. So they tend to be smaller contracts. They contribute revenue. They're typically not profitable, and they take up a lot of time and resource within the business.

49:12 But, you know, they they were used to dealing with a much smaller business pre acquisition. So we have exited certain contracts through choice, which does have an impact on revenue. We've made that known to the market in the past. We call it acquisition attrition, but it actually makes sense for us to exit out of those contracts and focus on our sweet spot being The UK mid market. In respect of do we have the ability to increase our prices? Yes, we do. Do we increase our prices? Not necessarily given the the impact of COVID and whatnot. Is that the right thing to do at the moment? Probably not. We need to maintain solid customer relationships, and we need to to help where we can and do our bit. Although if we suffer cost increases ourselves, then we have the ability to pass that on through to customers, and and we will do.

50:12 And I think the final question in that question was, is there a downward pressure on pricing? I'm not seeing that. So I think the answer to that is no. We have another question. Have we hired or lost any key personnel in the first half? So at the start of the the pandemic, we implemented a global recruitment freeze across the business, and we we very quickly adapted that policy to become strategic hires only. The intention of the recruitment freeze in its entirety was in case our revenue fell off a cliff. As I said earlier, nobody knew what was going to happen. But as we saw, the cash collection remains solid and we didn't see a huge fall off in contracted income.

51:02 We continue to hire within the business, so we have continued to invest in people. And now we've lost no key personnel during the the first half of the year. What else have we got here? Given given the strong m and a resource on the board, can we expect further acquisitions in the near term? Would you consider a large transformational deal? So, yeah, absolutely. We've got some great m and a resource on our board, and that's by design rather than by chance. We are a buy and build company, and that is part of our stated strategy. So, absolutely, we'll be continuing to make acquisitions.

51:48 As and when we're going to make those acquisitions, that's not information that I can share. And in respect of whether we'd make a large transformational deal, I think I think you've seen the business make a large transformational deal, which was the SYSGROUP acquisition. So we're by no means frightened or intimidating by making large transformational deals and be more than happy to if the right opportunity presented itself. However, it's all about the right opportunity presents in itself. You know, there there's many businesses out there you'll see with track records of making acquisitions for making an acquisition safe. That doesn't form form part of our strategy, and you'll note that we we've not made an acquisition now for seventeen months, and that's because the right opportunities haven't presented themselves.

52:34 We've seen plenty of companies. We've seen plenty of IMs, but they've not been the right deals for SYSGROUP or the shareholders. So we've chosen not to not to execute on those deals. Adam, do want me to take the next one? I can do it pretty quickly. So I think Neil will be Yeah. Fine. Do you expect a further r and d tax credit in in the second half? And if so, what sort of amount? You probably forgive me if I don't give you guide on the amount, but the answer on the R and D tax credit in general is yes. We we are applying for the tax credits. We did one in f y twenty. We'll send it to doing one in f y twenty one. And if there's any other areas where we can do that, we we will be doing that. So in terms of I expect the question behind those words is is essentially how efficient is the tax number, and and it's as as efficient as it can be with us doing everything we we we can on tax in the right way.

53:32 K. Brilliant. Thanks for that, Martin. I think we've got time for for two more questions. We've got one in from from Andy at Liberum. Hi, Andy. Post COVID and and The UK return as The UK returns towards normal in h two next year, how do you think client requirements will change, if at all, and how does the that change your acquisition strategy? Are you now looking for anything different in in the target? Well, that's a brilliant question, Andy. So in in respect of client requirements, it's a difficult one to answer. Yes. I do expect them to change. I I expect those that have been reluctant to invest in technology or see technology as a cost or or the ability for remote working as a cost rather than an investment to change significantly.

54:24 So as businesses can return to to discretionary spending and invent investing back in IT, I I think the the the IT sector has has got their their hopes pinned on people wanting to invest in things that they might not necessarily have invested in in the past or, you know, homeworking is going to going to become a thing of the future. It's definitely a thing of now, but I think it's going to remain that way. So, you know, one of the things that I say to people, great people in interviews will always ask the question, what what's your home working policy? I think the question moving forward will be, what should come to the office policy? So businesses who want to attract great talent are going to have to enable their systems and their platforms to allow remote working, and that means putting more of the IT workload into the data center.

55:17 And in respect of will that change anything in our acquisition strategy, I I don't think it will. We'll be we'll be looking for businesses that have got customers that are focused on IT loads in the data center, and we'll definitely be diligencing further in respect of the quality of the customer bases. You know, I don't think right now we we'd go off and we'd make an acquisition of a business that was 60% in in leisure and hospitality given we've seen how easily that can be closed down by by UK government. I think that would add too much exposure to the business. But we'll we'll we'll definitely be looking into the targets for the the robust nature of the customer base. So hopefully, that answers your question, Andy.

56:04 One one final question. SYS has had a resilient performance. How have competitors fared? How has the competitive landscape changed in the year to date? So, absolutely, we've been keeping an eye on the competition, especially our our listed counterparts, and we've been watching their results come out. We'd actually like to think we've done slightly better than a couple of them. Listen. Our business is focused largely on recurring revenue. We're all about recurring income contracts. The the VAR part of our business that I explained earlier is a supplement to the managed services business. We don't transact with customers on a one off basis, I. E, a brand new customer that wants to buy 500 laptops.

56:50 We put 20 points on it, and we sell we sell them. We typically only transact that for our business with our managed services customers who need technology to access the platforms in the data center. So I think what what this period will really demonstrate is those businesses that claim to be true managed IT service providers and cloud hosting businesses. You know, it it will start to uncover the real quality of their income moving forward. And and, hopefully, SYSGROUP there has demonstrated and will continue to demonstrate the quality income that we've got in our business from real recurring revenue, from real managed IT services customers. And, hopefully, that's answered everybody's questions. Anything that we've not got to, we'll do our best to get back to you separately after this.

57:41 But that brings us to the end of today's session, and hopefully, everybody's enjoyed it. And thank you very much for logging on and listening to us. That's brilliant. Thank you very much indeed. And as you quite rightly say, obviously, any questions that come in post this point, obviously, we'll make available to you, to Adam and to Martin. Well, thank you very much once again indeed for updating investors as part of your roadshow. Could I please ask investors not to close the session as you'll now be automatically redirected for the opportunity to provide feedback? If you access this meeting from our website, then the feedback page will appear. If you access it via the link sent to by email, you'll simply be asked to log in to submit your feedback and would really encourage you to to give your feedback to the company. On behalf of the management team at SYSGROUP, we'd like to thank you very much indeed for attending today's presentation. That now concludes today's session, and good afternoon to you all.