Final Results and Notice of AGM

Tialis Essential IT Plc

("Tialis" or the "Company")

Audited Results for the Year Ended 31 December 2024 and Notice of AGM

Tialis, the mid-market IT Managed Services provider, is pleased to announce its audited results for the year ended 31 December 2024.

Highlights in the year include:

· Significant year on year increase in positive cash generation.

· Tialis entered into a $4m Revolving Credit Facility (RCF) with Santander during the year.

· New business awards with net new partners of £2.5m annual value in 2024.

· New business awards of £15m TCV to date in 2025.

· A strong current sales pipeline of £8m annual value with a record number of 16 different partners, allowing for good visibility over future growth.

· Looking forward, revenue for 2025 is expected to be made up of 46% contracted revenue, 28% anticipated contract extensions, and 26% new business.

The Annual Report and Accounts for the year ended 31 December 2024 will shortly be available on the Company's website at www.tialis.com.

Copies of the Annual Report and Accounts will be posted to shareholders by shortly along with the notice of AGM which will be held at 10.00am on 20 June 2025 at the offices of Cavendish, 1 Bartholomew Close, London EC1A 7BL.

For more information, contact:

Executive Director's Statement

I am delighted to report that Tialis has achieved a third consecutive year of Adjusted EBITDA¹ of £2m, driven by the continued development of long-term relationships with third-party system integrators and favourable supply contracts typically with 3 to 5 year terms. We are generating a strong annuity income stream, with a strong pipeline of prospects.

To date Tialis has confirmation of new business, preferred partner and contract extensions totalling approximately £17.8m, marking an excellent start to 2025. Encouragingly a sizeable proportion of the customer wins are 5 year contracts, with multi-million-pound contracts for our lifecycle division.

Leveraging on the continued success of the Allvotec acquisition in 2023, during the year 2024, Tialis was able to agree renewals and extensions of the existing contracts, increasing the deferred and contingent consideration estimate to £1.055 million. Once agreed, this will be paid in shares issued in Tialis Essential IT PLC, at an effective price of 89.2 pence per ordinary share. This increase of £971,243 is shown as a fair value adjustment on the face of the Statement of Comprehensive Income.

Highlights in the year include:

· Significant year on year increase in positive cash generation

· Tialis entered into a £4m Revolving Credit Facility ("RCF") with Santander during the year. The RCF carries an interest rate of SONIA + 3.75 per cent, with a term of 3 years. The RCF was used for early repayment of the loan notes totalling £4.2m which were due for repayment in January and December 2025.

· New business awards with net new partners of £2.5m annual value in 2024

· New business awards of £15m TCV to date in 2025

· A strong current sales pipeline of £8m annual value with a record number of 16 different partners, allowing for good visibility over future growth

· Successful renewals ISO 9001, ISO 14001, ISO 20000-1 & ISO 27001 certifications

· Cyber Essentials & Cyber Essentials Plus re-award

· Silver EcoVadis status awarded for sustainability performance

· Looking forward, revenue for 2025 is expected to be made up of 46% contracted revenue, 28% anticipated contract extensions, and 26% new business

The board is committed to growing Tialis both from M&A activities and organic sales, and we collectively intend the Group to become a cash generating vehicle and will look to implement a progressive dividend policy in the future. The recent acquisition of shares from an existing institution is testament to our commitment, which only adds to the substantial shareholding between Daisy Intermediate Holdings Limited / Matthew Riley and MXC Capital Limited / Ian Smith. Despite recent proposed changes to the IHT legislation we believe that trading AIM equities retain their IHT attractiveness.

As announced on 9 April 2025, the Company created a new subsidiary to house its consultancy operations. Led by Andy Mills and Ian Smith, AI Auxesis Limited (the "Subsidiary"), will be redefining the future of business growth by combining practical strategic consulting with investment. We will partner with early-stage organisations and visionary founders to accelerate innovation, scale intelligent solutions, and unlock long-term value. Our dual approach gives us a unique edge, bridging the gap between investment and execution. We work closely with companies in AI and automation to identify transformative opportunities, offering tailored guidance backed by real capital support. Whether streamlining operations, deploying intelligent systems, or scaling cutting-edge startups, we bring both the expertise and the resources to drive meaningful impact.

¹ Adjustments are as followed; Non underlying items, depreciation, amortisation, impairment, share-based payments, fair value loss / profit on deferred consideration

The creation of the Subsidiary required an upfront investment of £250,000 that has been used to fund its first consulting project has started generating revenue. This investment was 50% funded by the Company and the remaining 50% funded by direct contributions of £62,500 made into the Subsidiary by both Ian Smith, Executive Director of the Company, and Andy Mills, in exchange for 25% of the shares each in the Subsidiary. As non-corporate shareholders, both Ian and Andy are entitled to a 10% per shareholder uncapped profit share on any capital gain in the underlying investment in the Subsidiary (the "Profit Share"). The Company contributed £125,000 to the Subsidiary. In order to meet this contribution to the Subsidiary, the Company conducted a direct subscription in the Company's ordinary shares at 60 pence per share, being the mid-market closing price on 8 April 2025 (the "Subscription Shares"). This was then passed on to the Subsidiary. In total the Company issued 208,333 Subscription Shares for cash for a total of approximately £125,000 (the "Subscription"). The subscribers to this fundraise were Ian Smith and Andy Mills in equal proportion to each other at 50% each in return for their respective 25% holdings in the Subsidiary. 

Board changes

On 10 September 2024, Andy Parker stepped down from the Board and his role as Executive Chairman and Nicolas Bedford, previously a Non-Executive Director, was appointed Non-Executive Chairman. Nicolas Bedford subsequently stepped down from the Board on 1 December 2024 following his decision to retire from corporate work. The Group's Chief Financial Officer, Nicola Chown, was appointed as Director on 16 September 2024.

The Board comprises two executive directors and one non-executive director. It will announce the appointment of a new chairman in due course. I welcome the appointment of Nicola and would like to thank both Andy and Nick for their contribution and commitment to the Company during their tenures.

People

Employee numbers have remained broadly consistent year on year.

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. The Group is considering growth through acquisition and would consider synergistic targets that would expand and deepen our service offerings.

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 Request For Proposal (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. Please find more details in the Strategic Report under the Environmental Policies.

Current trading and outlook

Trading in the current financial year remains in line with Board expectations. Our in-year pipeline for 2025 stands at £8 million annual value with a broad range of customers and continues to grow, giving us strong visibility over future growth.

Our expectation for the year is that approximately 74% 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 2025 will be to continue 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 three 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 Business Process Outsourcers (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 was £20.8 million (2023: £22.4 million). Gross profit margin fell by 1%, from 30% to 29% due to the reduction in one-off lifecycle projects in 2024. Resulting gross profit has decreased year-on-year to £6.0 million (2023: £6.7 million). Adjusted EBITDA¹ remained at £2.0 million (2023: Adjusted EBITDA of £2.0 million). The net loss after tax for the year from was £3.2 million (2023: loss £1.5 million), after £2.2 million amortisation and impairment expense and fair value loss on deferred and contingent consideration (2023: £2.2 million amortisation and impairment expense and fair value profit on deferred and contingent consideration)

¹ Adjustments are as followed; Non underlying items, depreciation, amortisation, impairment, share-based payments, fair value loss / profit on deferred consideration

Non-underlying items

Non-underlying items relating to on-going restructuring and reorganisation amount to £0.7 million in the year (2023: £0.7 million).

Finance costs

After incurring net finance charges of £0.4 million relating to interest and arrangement fees for loan notes, leases and bank debt (2023: £0.6 million), the loss before tax is £3.3 million (2023: loss of £1.8 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 £0.1 million (2023: tax credit £0.2 million).

Loss on continuing operations

Whilst the underlying trading performance of Manage shows significant positive EBITDA, group costs, finance costs and amortisation charges result in a loss after tax for the year of £3.2 million (2023: £1.5 million), which equates to a basic loss per share of 13.11 pence (2023: loss per share of 6.45 pence).

Statement of Financial Position

Non-current assets

The Group has property, plant and equipment of £0.7 million (2023: £0.9 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 (2023: £0.2 million additions).

Further, intangible assets of customer contracts and related relationships are £4.8 million (2023: £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 decreased to £4.3 million from £5.0 million.

Trade and other payables

Trade and other payables amounted to £4.1 million (2023: £4.4 million), including trade payables of £1.3 million (2023: £2.4 million), taxation and social security of £1.2 million (2023: £1.0 million) and accruals of £0.6 million (2023: £0.9 million).

The deferred and contingent consideration of £1.05 million (2023: £0.08 million) is included in other payables.

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 £0.8 million (2023: £0.7 million).

Cashflow and net debt

Net cash generated from operating activities during the year was £1.9 million (2023: £0.7 million). Our Manage business continues to be cash generative and has developed excellent relationships with key strategic partners. The Group invested £0.02 million (2023: £0.08 million) in fixed assets.

During the year, the secured loan notes, which were due for repayment in January and December 2025, were settled early through the drawdown of the new RCF along with a new unsecured convertible loan note with MXC of £0.3m. The unsecured loan note carries an interest rate of 15% and is for a term of 3 years 3 months.

There were no new loans in 2023.

 The repayment of lease liabilities consumed £0.3 million (2023: £0.2 million) of cash.

The result is that as at 31 December 2024 there are bank borrowings of £4.0 million, being the drawdown of the RCF, and a cash balance of £0.9 million (2023: there were no bank borrowings and the cash balance was £0.3 million).

Borrowings

As at 31 December 2024, the bank borrowings liability in the balance sheet was £4.0 million and the unsecured convertible loan note liability was £0.3 million. There were no secured loan notes liabilities as there were repaid in September 2024. 

Donations to charities

There were donations to charities of £1,982 in the year (2023: £nil).

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.

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 (2023: £nil).

Ian Smith

Executive Director

9 May 2025

Strategic Report

Review of the Business

A detailed review of the business is set out in the Executive Director'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 EBITDA¹ remaining positive, although the Group reported a post-tax loss due to finance costs, impairments, fair value loss / profit on deferred consideration and restructuring. Future developments and current trading and prospects are set out in the Executive Director'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 2024, the Board comprised three Directors (2023: four) two of whom are male and one female. At 31 December 2024 the Group had 268 employees including Directors (2023: 290) of which 245 were male (2023: 245) and 44 were female (2023: 45).

¹ 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 (81%) (2023: 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.

Competition

The Group operates in a highly competitive marketplace and while the Directors believe the Group enjoys certain strengths and advantages in competing for business, some competitors are much larger with considerable scale. The Group monitors competitors' activity and constantly reviews its own services and prices to ensure a competitive position in the market is maintained.

Technology

The market for our services is in a state of constant innovation and change. We devote significant resource to the development of new service lines, ensuring new technologies can be incorporated and integrated with the Group's core services. The nature of the Group's services means that they are exposed to a range of technological risks, such as viruses, hacking and an ever-changing spectrum of security risk. We maintain constant pro-active vigilance against such risks and the Group maintains membership of some of the highest levels of security accreditation as part of the service it offers its customers.

s.172(1) Companies Act 2006: Statement of Directors' Duties to Stakeholders

Promoting the success of the Company

The Directors are aware of their duty under section 172(1) of the Companies Act 2006 to act in the way which they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole and, in doing so, to have regard (amongst other matters) to:

· The likely consequences of any decision in the long term;

· The interests of the Company's employees;

· The need to foster the Company's business relationships with suppliers, customers and others;

· The impact of the Company's operations on the community and the environment;

· The desirability of the Company maintaining a reputation for high standards of business conduct; and

· The need to act fairly between members of the Company.

The Board recognises that the long-term success of the Company requires positive interaction with its stakeholders. Positive engagement with stakeholders will enable our stakeholders to better understand the activities, needs and challenges of the business and enable the Board to better understand and address relevant stakeholder views which will assist the Board in its decision making and to discharge its duties under Section 172 of the Companies Act 2006.

Our Commitment

The Company is committed to operating with an inclusive, transparent, and respectful culture and places particular emphasis on operating to the highest ethical and environmental standards.

The Directors take personal ownership of the policies and maintenance of the necessary exacting standards of business conduct throughout the organisation and for delivering these corporate and social responsibilities.

Stakeholder Engagement

Recruitment and employee management are undertaken in line with the Company Employment Policy which has committed to a working environment with equal opportunities for all, without discrimination and regardless of sex, sexual orientation, age, race, ethnicity, nationality, religion, or disability.

We are committed to being an equal opportunities employer and oppose all forms of unlawful discrimination. We believe that staff members should be treated on their merits and that employment-related decisions should be based on objective job-related criteria such as aptitude and skills. For these reasons, all staff members, and particularly managers with responsibility for employment-related decisions, must comply with the practices described below:

• recruitment;• pay and benefits;• promotion and training;• disciplinary, performance improvement and redundancy procedures.

As part of the induction of all employees and on a recurring annual basis, all employees have to complete a mandatory set of training courses, one of which is on equality, diversity and inclusion in both the workplace and local communities.

We conduct a gender pay analysis annually and the report is published on the Company's website.

Tialis seeks to attract and retain staff by acting as a responsible employer. The health, safety and well-being of employees is important to the Company. All employees have access and are encouraged to use the Employee Assistance Program with a 24-hour helpline.

Furthermore, the Company has committed to continuous development schemes and will support employees to attain the best for themselves and the Company through personal assessment, training and mentoring.

Externally, Tialis has established long-term partnerships that complement its in-house expertise and has built a network of specialised partners within the industry and beyond.

The Directors have committed to promoting a company culture that treats everyone fairly and with respect and this commitment extends to all principal stakeholders including shareholders, employees, consultants, suppliers, customers, and the communities where it is active.

All Directors are encouraged to act in a way they consider, in good faith, to be most likely to promote the success of the Company for the benefit of its shareholders. In doing so, they each have regard to a range of matters when making decisions for the long-term success of the Company.

Health and Safety

Tialis Group cares profoundly about the health and safety of our employees, customers and the communities who could be affected by our activities and aims to protect them from any foreseeable hazard or danger arising from our activities. To this end in 2024 the Company completed a series of safety related studies and reviews, including electrical and gas, quantified risk assessments and layer of protection analysis using external experts to review the product risk and the application on our Dartford site. In all instances the findings of the safety risk assessments have demonstrated that the risk arising from the Tialis Group's activities is well within acceptable tolerable risk levels. In 2025 the Company will revisit these assessments to identify any changes that have been introduced which may represent new or variants of risk.

We have a Health and safety policy and as mentioned above all employees have to complete a mandatory set of training courses, which include several health and safety courses, including manual handling, mental health awareness, stress awareness, bullying and harassment, display screen set-up and a general health and safety course. 

The Directors recognise that the key to successful health and safety management requires an effective policy, organisation, and arrangements which reflect the commitment of senior management. The executive management team implement the Company's health and safety policy and ensure that the Company Health and Safety (HSE) management system and safety standards are all maintained, monitored, and improved where necessary.

The Company's activities at its Dartford site were delivered HSE incident free in 2024. 

Environment Policies

The Company's Environmental Policy recognises the importance of our technology from a global challenge perspective. The Company will regularly evaluate the environmental impact of its activities, products, and services, taking all actions necessary to continually improve the Company's and its products' environmental performance.

The Company is proud to have been awarded ISO 14001.

Tialis Group has a Carbon Reduction Strategy which is published on the company website. We at Tialis Group are committed to reducing our impact on the environment in order to help safeguard our planet for future generations. We have committed to a well-below 2 degrees Celsius trajectory and to maintaining our scope 1 and scope 2 greenhouse gas emissions at a level 30% lower than in our base year of 2018. We have invested in an environmental management system certified to ISO 14001 to ensure that we can monitor and manage our activities to meet our targets.

In addition to committing to maintaining our scope 1 and 2 emissions at 30% less than they were in 2018, we will also work to reduce our overall greenhouse gas emissions (scopes 1, 2 and 3) by 2.5% every year from a 2021 baseline. We have engaged with Science Based Targets (SBTi) to validate our 30% reduction target. SBTi has confirmed that our target of a 30% reduction from 2018 has been accepted and will be published on their website. They have undertaken due diligence on the 2018 information we provided and verified its accuracy. As the work we have done in the last few years has helped us achieve the 30% target already, we will now ensure that we maintain this lower level.

As mentioned above all employees have to complete a mandatory set of training courses, which include an environmental awareness course.

Strategy

The Group's purpose is to build value for the investors and shareholders through the development of innovative service offerings designed to reduce business IT costs and increase efficiencies for our partners and customers.

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. The Group is considering growth through acquisition and would consider synergistic targets that would expand and deepen our service offerings.

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.

On behalf of the Board

Ian Smith

Executive Director

9 May 2025

24 Dublin Street Edinburgh EH1 3PP

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

The notes are an integral part of these financial statements.

The notes to these accounts are an integral part of these financial statements. The Company made a loss of £2.1 million in the year ended 31 December 2024 (2023: Loss £1.4 million) and in accordance with s408 of the Companies Act 2006 has not presented a company statement of comprehensive income. These financial statements were approved by the Board of Directors on 9 May 2025 and were signed on its behalf by:

Ian Smith

Executive Director Company registered number: SC368538

Statements of Changes in Equity

(a) Share capital represents the nominal value of equity shares and deferred shares

(b) Share premium represents the excess over nominal value of the fair value of consideration received for equity shares net of expenses of the share issue

(c) The equity reserve consists of the equity component of convertible loan notes that were issued as part of the fundraising in August 2018 less the equity component of instruments converted or settled

The fair value of the equity component of convertible loan notes issued is the residual value after deduction of the fair value of the debt component of the instrument from the face value of the loan note

(d) Share based payments reserve represents the accumulated cost of the share options in issue

(e) Retained earnings represents retained profits and accumulated losses

(f) On consolidation, the balance sheets of the Group's foreign subsidiaries are translated into sterling at the rates of exchange ruling at the balance sheet date. Exchange gains or losses arising from the consolidation of these foreign subsidiaries are recognised in the foreign currency translation reserve.

(a) Share capital represents the nominal value of equity shares and deferred shares

(b) Share premium represents the excess over nominal value of the fair value of consideration received for equity shares net of expenses of the share issue

(c) The equity reserve consists of the equity component of convertible loan notes that were issued as part of the fundraising in August 2018 less the equity component of instruments converted or settled

The fair value of the equity component of convertible loan notes issued is the residual value after deduction of the fair value of the debt component of the instrument from the face value of the loan note

(d) Share based payments reserve represents the accumulated cost of the share options in issue.

(e) Retained earnings represents retained profits and accumulated losses

Statements of Cash Flows

Notes to the Consolidated Financial Statements

1 Accounting policies

Tialis Essential IT PLC ("Tialis Group") is a company incorporated in Scotland, domiciled in the United Kingdom and limited by shares which are publicly traded on AIM, the market of that name operated by the London Stock Exchange. The registered office is 24 Dublin Street, Edinburgh EH1 3PP and the principal place of business is in the United Kingdom.

The principal activity of the Group is the provision of network, cloud and IT managed services.

The principal accounting policies, which have been applied consistently in the preparation of these consolidated and parent company financial statements throughout the year and all by subsidiary companies are set out below.

1.1 Basis of preparation

The consolidated and parent company financial statements of Tialis Group have been prepared on the going concern basis and in accordance with UK-adopted International Accounting Standards. The consolidated financial statements have been prepared under the historical cost convention. The Company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the parent Company's Income Statement.

The accounting framework requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 1.26 in the accounting policies. The financial statements are prepared in GBP (being the functional currency of the Group) and rounded to the nearest £1,000.

The Directors have produced detailed trading and cashflow forecasts. In reaching their conclusion on the going concern basis of accounting, the Directors note and rely on the improved trading performance, the positive cash generation that the business is now experiencing and the current signed order book. A reverse stress test of the model has been run to determine at what level of shortfall in revenues the Group would run out of cash. Given the committed orders already obtained and the visibility of future revenues, the directors do not consider it likely that revenues could drop to such an extent that the Group would run out of cash. They have also considered the impact of any delayed customer payments and have developed plans to mitigate any such delays to ensure that the group can continue to settle its liabilities as they fall due and operate as a going concern. The directors therefore have an expectation that the Group and Company have adequate resources available to them to continue in operational existence for 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.

1.2 Basis of consolidation

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the total of the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of the acquiree's identifiable net assets.

Acquisition related costs are expensed as incurred.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with policies adopted by the Group.

1.3 Investments

Investments in subsidiaries are held at cost less accumulated impairment losses. A formal assessment of the recoverability of the investment values is undertaken on an annual basis by the Directors. Where indicators of impairment are identified, fixed asset investments are impaired accordingly.

1.4 Intangible assets

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of any non- controlling interest over the fair value of the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the income statement as a bargain purchase.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

For the purposes of impairment testing, goodwill acquired in a business combination is allocated to a cash generating unit.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. Any impairment is recognised immediately as an expense and is not subsequently reversed.

Intangible assets that meet the criteria to be separately recognised as part of a business combination are carried at cost (which is equal to their fair value at the date of acquisition) less accumulated amortisation and impairment losses. An intangible asset acquired as part of a business combination is recognised outside of goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Intangible assets acquired in this manner include trademarks and customer contracts. They are amortised over their estimated useful lives on a straight-line basis as follows:

· Customer contracts and related relationships 2-13 years

· Trademarks 5 years

Impairment and amortisation charges are included within the administrative expenses line in the income statement.

Technology development

Expenditure on internally developed technology is capitalised if it can be demonstrated that:

- it is technically feasible to develop the technology for it to be used or sold

- adequate resources are available to complete the development

- there is an intention to complete and for the Group to use or sell the technology

- use or sale of the asset will generate future economic benefits, and

- expenditure on the project can be measured reliably.

Capitalised development costs are amortised over the periods the Group expects to benefit from using or selling the assets developed. The amortisation expense is included within the administrative expenses line in the income statement. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the consolidated income statement as incurred.

Software and licensing

Separately acquired software and licenses are shown at historical cost less accumulated amortisation and impairment losses.

They are amortised over their estimated useful lives on a straight-line basis as follows:

· Software and licensing 8 years

1.5 Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. The cost includes the original price of the asset and the cost attributable to bringing the asset to its current working condition for its intended use.

Depreciation, down to residual value, is calculated on a straight-line basis over the estimated useful life of the asset, which is reviewed on an annual basis, as follows:

· Leasehold property Over remaining lease term

· Network infrastructure 3 - 10 years

· Equipment, fixtures and fittings 3 - 5 years

An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is de-recognised.

A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.

Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities.

1.6 Impairment of assets

Goodwill is not subject to amortisation and is reviewed for impairment annually or more frequently if events or changes in circumstances indicate the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of the cash generating units expected to benefit from the business combination's synergies. Impairment is determined by assessing the recoverable amount of each cash generating unit to which the goodwill relates. When the recoverable amount of the cash generating unit is less than the carrying amount, including goodwill, an impairment loss is recognised.

Other intangible assets and property, plant and equipment are subject to amortisation and depreciation and are reviewed for impairment whenever events or changes in circumstances indicate the carrying values may not be recoverable. If any such indication exists and where the carrying value exceeds the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount.

The recoverable amount of intangible assets and property, plant and equipment is the greater of the fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined by the cash generating unit to which the asset belongs. Fair value less costs to sell is, where known, based on actual sales price net of costs incurred in completing the disposal. Non-financial assets, other than goodwill, that were impaired in previous periods are reviewed annually to assess whether the impairment is still relevant.

1.7 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from proceeds.

1.8 Leases

A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred.

Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down.

1.9 Provisions

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a risk-free rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

1.10 Current and deferred income tax

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided for on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, with the following exceptions:

· where the temporary difference arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination that at the time of the transaction neither affects accounting nor taxable profit or loss;

· in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and

· deferred income tax assets are recognised only to the extent that it is probable that taxable profits will be available against which deductible temporary differences carried forward tax credits or tax losses can be utilised.

1.11  Trade and other receivables

Trade receivables, which principally represent amounts due from customers, are recognised at amortised cost as they meet the IFRS 9 classification test of being held to collect, and the cash flow characteristics represent solely payments of principal and interest.

The Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customers with different credit risk profiles and current and forecast trading conditions.

Trade receivables are written-off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the company. The Group's trade and other receivables are non-interest bearing.

1.12  Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above.

1.13 Foreign currencies

The presentational currency of the Group is Pound Sterling (£) and the Group conducts the majority of its business in Sterling. Transactions in foreign currencies are initially recorded in the presentational currency by applying the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the presentational currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement.

1.14 Pensions

The Group operates a defined contribution scheme. Pension costs are charged directly to the income statement in the period to which they relate on an accruals basis. The Group has no further payment obligations once contributions have been made.

The Group also operates two individual defined benefit plans, as a result of two employees who were TUPE'd into the Group. These are closed to any other employees. A defined benefit plan defines the pension benefit that the employee will receive on retirement, usually dependent upon several factors including age, length of service and remuneration. A defined benefit plan is a pension plan that is not a defined contribution plan.

The liability is recognised in the balance sheet in respect of the defined benefit plan is the present value of the defined benefit obligation at the reporting date less the fair value of the plan assets at the reporting date. If the defined benefit plan is in surplus an asset is only recognised if this is deemed recoverable.

The defined benefit obligation is calculated using the projected unit credit method. Annually the Group engages independent actuaries to calculate the obligation. The present value is determined by discounting the estimated future payments using market yields on high quality corporate bonds that are denominated in sterling and that have terms approximating the estimated period of the future payments ('discount rate').

The fair value of plan assets is measured in accordance with the FRS 102 fair value hierarchy and in accordance with the company's policy for similarly held assets. This includes the use of appropriate valuation techniques.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income. These amounts together with the return on plan assets, less amounts included in net interest, are disclosed in other comprehensive income.

The cost of the defined benefit plan, recognised in profit or loss as employee costs, except where included in the cost of an asset, comprises:

(a) the increase in pension benefit liability arising from employee service during the period; and

(b) the cost of plan introductions, benefit changes, curtailments and settlements.

The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is recognised in profit or loss as 'finance expense/ income'.

The company also contributes to group personal pension policies, such contributions being charged against profits when paid.

1.15 Accrual for employee benefits, including holiday pay

Provision is made for employee benefits, including holiday pay, to the extent of the liability as if all employees of the Group had left the business at its reporting date.

1.16 Financial assets and liabilities

The Group's financial assets and liabilities mainly comprise cash, borrowings, trade and other receivables and trade and other payables. These are accounted for in accordance with the relevant accounting policy note.

Trade and other payables are not interest bearing and are stated at their amortised cost.

Financial liabilities are classified as at fair value through the profit and loss when the financial liability is contingent consideration of an acquirer in a business combination.

1.17  Convertible loan notes

The component parts of convertible loans issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. At the date of issue, the fair value of the liability portion of convertible loan notes is determined using a market interest rate for a comparable loan note with no conversion option. This amount is recorded as a liability on an amortised cost basis using the effective interest method until the loan notes are redeemed or converted either during or at the end of the term of the convertible loan notes. The remainder of the carrying amount of the loan notes is allocated to the conversion option and shown within equity and is not subsequently remeasured. When the conversion option remains unexercised at the maturity date of the convertible note, the balance recognised in equity will be transferred to retained earnings. No gain or loss is recognised in the income statement upon conversion or expiration of the conversion options.

1.18  Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised in the finance cost line in the income statement.

1.19  Finance costs

Loans are carried at fair value on initial recognition, net of unamortised issue costs of debt. These costs are amortised over the loan term.

All other borrowing costs are recognised in the income statement on an accruals basis, using the effective rate method.

1.20  Revenue

Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group's activities. Revenue is shown net of Valued Added Tax, returns, rebates and discounts and after the elimination of sales within the Group.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits

will flow to the entity and when specific criteria have been met for each of the Group's activities as described below.

The largest portion of the Group's revenues relates to a number of network, cloud and IT managed services, which the Group offers to its customers. All of the revenue in this category is contracted and includes a full range of support, maintenance, subscription and service agreements. Revenue for these types of services is recognised as the services are provided on the basis that the customer simultaneously receives and consumes the benefits provided by the Group's performance of the services over the contract term. In terms of performance obligations, the customer can benefit from each service on its own and the Group's promise to transfer the service to the customer is separately identifiable from other promises in the contract. The transaction price for each service is allocated to each performance obligation. The costs incurred for these revenue streams typically match the revenue pattern. A contract liability is recognised when billing occurs ahead of revenue recognition. A contract asset is recognised when the revenue recognition criteria were met but in accordance with the underlying contract, the sales invoice has not been issued yet.

These project services include mainly installation and consultancy services. Performance obligations are met once the hours or days have been worked. Revenue is therefore recognised over time based on the hours or days worked at the agreed price per hour or day. The costs incurred for this revenue stream generally match the revenue pattern, as a significant portion of consultancy costs relate to staff costs, which are recognised as incurred. Consultancy services are generally provided on a time and material basis.

1.21  Non-underlying items

It is the policy of the Group to identify certain costs, which are material either because of their size or nature, separately on the face of the Income Statement in order that the underlying profitability of the business can be clearly understood. These costs are identified as non-underlying items, and comprise;

a) Professional fees incurred in sourcing and completing acquisitions and disposals including legal expenses

b) Professional fees incurred in restructuring and refinancing acquisitions

c) Integration costs which are incurred by the Group when integrating one trading business into another, including rebranding of acquired businesses

d) Redundancy costs, including employment related costs of staff made redundant up to the date of their leaving as a consequence of integration

e) Property costs such as lease termination penalties and vacant property provisions and third-party advisor fee

1.22  Discontinued operations

Cash flows and operations that relate to a major component of the business that has been disposed of or is classified as held for sale or distribution are shown separately from continuing operations.

1.23  Segmental reporting

The Chief Operating Decision Maker has been identified as the Executive Board. The Chief Operating Decision Maker reviews the Group's internal reporting in order to assess performance and allocate resources. For management reporting purposes and operationally, the continuing operations of the Group consist of Tialis IT Essential Manage Limited for this year and the prior year.

1.24 Standards and interpretations not yet applied by the Group

For the purposes of the preparation of these consolidated financial statements, the Group has applied all standards and interpretations that are effective for accounting periods beginning on or after 1 January 2024. There was no significant impact of new standards and interpretations adopted in the year.

No new standards, amendments or interpretations to existing standards that have been published and that are mandatory for the Group's accounting periods beginning on or after 1 January 2025, or later periods, have been adopted early. The new standards and interpretations are not expected to have any significant impact on the financial statements when applied.

1.25 Critical accounting estimates and judgements

The Group makes estimates and assumptions concerning the future, which by definition will seldom result in actual results that match the accounting estimate. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below:

 Recoverability of deferred tax asset -This includes estimates of the level of future profitability, and a judgement as to the likelihood of the group undergoing a restructure of its finances which would result in significant finance cost savings.

A change in the estimate of future profits would result in an equivalent change to the deferred tax asset recognised of 25% of the change in profits. There are no reasonably plausible scenarios which would result in the future profitability not being sufficient to enable full recovery of the tax losses in the assessment period.

Impairment of intercompany balances - The directors use estimates in assessing the level of impairment of intercompany balances at each period end, including the likely methods of recovery of the balances and future profitability of the underlying trade which would enable repayments to be made.

In the process of applying the Group's accounting policies, management makes various judgements which can significantly affect the amounts recognised in the financial statements. Critical judgements are considered to be:

Classification of non-underlying items - the Directors have exercised judgement when classifying certain costs arising during integration and strategic reorganisation projects. The Directors believe that these costs are all related to the types of costs described in 1.22 above and are appropriately classified.

Recoverability of deferred tax asset - the Directors have exercised judgement on the recoverability of tax losses attributable to future trading profits generated by the Group, and in doing so this has given rise to a deferred tax asset, details of which are shown in note 10 to the financial statements. The judgement involves assessing the extent to which trading losses can be offset against future profits.

Useful economic lives of tangible and intangible assets - The annual depreciation and amortisation charge for tangible and intangible assets are sensitive to changes in the estimated useful economic lives and residual values of the assets. The useful economic lives and residual values are re-assessed annually. They are amended when necessary to reflect current estimates, based on technological advancement, future investments, economic utilisation and the physical condition of the assets. The remaining useful economic life of the Allvotec contract lists and assets are considered a source of estimation uncertainty.

Deferred and Contingent Consideration - the Directors have exercised judgement on the costs that will arise for the deferred consideration and the valuation as shown in note 13 to the financial statements. At the year end, the deferred and contingent consideration amounted to £1.06m (31 December 2023: £0.08m). There are two elements of the contingent consideration. The first element of £0.66m is based on the financial results of the acquired contracts and is calculated by applying the terms of the Asset Purchase Agreement. The second element of £0.4m is calculated based on synergies achieved and are subject therefore to judgement. The Directors have reviewed the estimate and consider it to be adequate.

2 Segment reporting

The Group has only one operating segment, the Manage Business as defined in note 1.24.

3 Revenue

Disaggregation of revenue from contracts with customers is as follows:

The revenue from the largest customer was £18.7m (2022: £11.7 million) or 83% of total revenue (2022: 81%). No other customers account for more than 10% of revenue.

Contract balances

Contract assets predominantly relate to fulfilled obligations in respect of projects and managed services which are billed monthly and in arrears. At the point where completed work is invoiced, the contract asset is derecognised, and a corresponding receivable recognised. Contract liabilities relate to consideration received from customers in advance of work being completed.

The Group's standard payment terms are 30 days from the date of invoice. Refunds are only due in the exceptional circumstances where the Group does not meet the performance obligations set out in a contract. The majority of revenue for services is invoiced monthly, sometimes quarterly, in advance, and goods are invoiced on delivery.

Unsatisfied performance obligations

All contracts for the provision of services are for periods of one year or less or are billed based on resources utilised. As permitted under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

4 Expenses by nature

5 Auditor's remuneration

6 Non-underlying items

In accordance with the Group's policy in respect of non-underlying items, the following charges were incurred for the year in relation to continuing operations:

Restructuring and reorganisation costs in the year ended 31 December 2024 and the year ended 31 December 2023 relate to costs incurred on the restructure of the Group, predominantly redundancy costs, of which £0.4 million are staff related as disclosed in note 9 (2023: £0.4 million). The redundancy costs include employment related costs of staff made redundant because of restructuring. The legal expenses were non-recurring expenses incurred during the year.

7 Finance Income

8 Finance costs

9 Employee benefits expense

Staff costs for the year for the Group, including Directors, relating to continuing operations amounted to:

At 31 December 2024, the Group employed 283 staff, including Directors (2023: 284).

The average monthly number of persons employed by the Group during the year, including Directors, analysed by category, and relating to continuing operations, was as follows:

The Company employed an average of 5 employees during 2024 (2023: 5), which were the Non-Executive Director Nicolas Bedford and Matthew Riley and the Executive Directors Ian Smith and Andy Parker, and the Chief Financial Officer. Their remuneration is as shown below.

For Directors who held office during the year, emoluments for the year ended 31 December 2024 for the Group were as follows:

1. Directors' emoluments to Ian Smith were paid to MXC Advisory Limited, a subsidiary of MXC Capital Limited.

2. Andy Parker stepped down from his role as Executive Chairman on 10 September 2024.

3. Nicolas Bedford resigned 1 December 2024.

Social security costs in respect of Directors' emoluments were £46,792 (2023: £32,168). Pension contributions paid to Directors during the year were £23,560 (2023: £nil).

None of the Directors made any gains on the exercise of share options in 2024 or 2023.

10  Taxation