Final Results

IDE Group Holdings Plc

("IDE", the "Group" or the "Company")

Audited Results for the Year Ended 31 December 2020

IDE, the mid-market network, cloud and IT Managed Services provider, announces its audited results for the year ended 31 December 2020.

The Annual Report and Accounts for the year ended 31 December 2020 will shortly be available on the Company's website at www.idegroup.com.

Copies of the Annual Report and Accounts are being posted to shareholders shortly.

Business summary

· While revenues declined in 2020 to £24.1 million from £28.2 million in 2019, gross margins have increased to 24.0% (2019: 22.8%) reflecting continued strong performance of our Manage business more than offsetting continued margin pressure in our Connect business. Adjusted EBITDA** declined to £0.5 million from £1.1 million in 2019. Losses on ordinary activities before taxation amount to £21.6 million (2019: £10.9 million).

· While 2020 saw reductions in both revenues and Adjusted EBITDA, the Group results reflect the consolidated position across two core businesses which operate in very distinct sectors. Our Connect business operates in the very congested market for networking and connectivity and experiences continued pressures on both revenues and margins. Our Manage business on the other hand operates very successfully within the managed services arena and has demonstrated continued revenue and margin growth with strong momentum.

· We have made an excellent start to 2021 within our Manage business, demonstrating significant growth in revenues and profitability. These results are based on developing long-term relationships with third-party system integrators and supply contracts typically with 3-5 year terms. Therefore, as we experience further growth we are generating a strong annuity income stream. With a pipeline of prospects within our Manage operations we can look forward to continued strong financial performance. Our Connect business is returning modest profits before the allocation of overheads.

· Given that the Group results reflect the very different levels of performance across two distinct business sectors we have commenced a full review of our operations. This review is focussed on growing momentum within our managed services business while we decide how best to return value to our shareholders in the networking and connectivity arena, which may or may not include the divestment of the Connect business. This review is ongoing and is a priority for the Board and management team.

· We have made key leadership appointments in 2020 and 2021 and have an experienced senior management team in place. The Group remains debt-free other than to key shareholders.

We have built a strong base to support a period of sustained growth and we are exploring organic and acquisitive methods to accelerate this development.

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

Chairman's Statement

2020 was an important year in the ongoing rationalisation of our trading businesses and we have continued the good work from 2019 in positioning the Group for a period of sustained growth which is now bearing fruit in 2021.

One key activity that we continued to focus on in 2020 and into the current year is the delineation between the core service-offerings across our Manage and Connect businesses. Our Manage business encompasses service lines broadly covering field and site engineering, projects and lifecycle, network monitoring and service desk support. Our Connect business services are broadly networking and connectivity, cloud and hosting, and voice/telephony.

During 2020 we continued to realign customer relationships more clearly associating them with the respective Manage or Connect offerings and allowing us to focus sales and marketing activity within the management team, and to allow a clear understanding of the shared overheads across the two businesses. This process has allowed us to target our sales activity and to improve management focus.

Manage

We appointed a new Managing Director of the Connect business in June 2020 (see also below) allowing our existing senior team to focus on developing our successful Manage business, with strong relationships being built with key customers. This has greatly benefitted the group's performance as we win significant long-term contracts in our Manage business, giving us excellent visibility of income in that business and strong performance moving into 2021. Our relationship with third-party system integrators has continued to develop on the excellent grounding already put in place, and we have seen further growth in opportunities both in service provision and project work through this channel particularly into the public sector. We are delivering IT services into a growing number of government departments and blue-chip institutional clients.

Securing and developing our partnership channels has proven to be a successful model with new customer wins in both the public and private sectors. We can look forward with great confidence to continued success in this area.

2020 saw revenues fall to £11.5 million (2019: £14.7 million). This was largely due to some cyclical variability in our supplies to system integrators (at somewhat less than £1m) and the novation of contracts to our Connect business. The division has seen strong improvement in gross profit margins to 39% (2019: 31% and 2018: 21%) and a continued reduction in overheads. The sum of these moved adjusted EBITDA to a profit in 2020 of £2.1 million (2019: profit of £1.1 million).

This significant improvement in financial performance, shows that this division is successfully being right-sized, further consolidation of field engineering is underway, and that continued profitable growth will be achieved in 2021.

Connect

In June we brought a new Managing Director on-board to develop and grow our Connect business, together with a small managed services business called Nimoveri Limited which we acquired as part of that onboarding. We began a comprehensive review of the Connect business in 2019 after declines in revenue and complexities in its operations and in 2020 we have continued a rationalisation programme, concentrating our sales efforts and building a management team around him to drive the business forward. We have continued to concentrate our network and datacentre offerings wherever possible and have built stronger relationships with our customers. As I reported in my last Statement, this is a significant project which will take time to conclude, but we are confident that it is providing the foundations for growth of our datacentre, cloud and connectivity business.

Revenues in Connect were down year-on-year at £13.1 million (2019: £14.6 million) despite the novation of contracts from Manage valued at £1.7m, and we were disappointed to lose more cloud customers. The net result was a deterioration in gross margins to 8.5% (2019: 13%). There has been an increase in overheads level to £5.9 million from £4.5 million. The resulting adjusted EBITDA deteriorated to a loss of £0.8 million (2019: profit £0.7 million).

Our objectives in 2021 are to further reduce costs through datacentre and network consolidation and leverage these savings into more competitive pricing to generate new, and extend existing, business opportunities.

Given the prospects for the Connect business we have again reviewed the carrying value of goodwill, trademarks and customer relationships, contracts and other assets relating to that part of our business which results in an impairment charge of £14.0m in 2020 (2019: £3.0m). These impairment charges now mean that we are only carrying a small amount of goodwill resulting from the acquisition of Nimoveri of £0.2m. Our detailed forecasts for the Connect business demonstrate modest profitability at trading EBITDA (that is before the allocation of group central overheads) and thus allow us to concentrate on the continued progression of the business without the burden of carried intangible assets.

COVID-19

The unprecedented circumstances surrounding the COVID-19 pandemic continue to provide an uncertain economic landscape and increased risk aversion in financial markets. Whilst it is difficult to predict accurately the potential long-term consequences, we remain vigilant and, in common with all businesses, are closely monitoring the situation. The wellbeing of staff and the customers with whom they interact continues to be our overriding priority. We have instituted measures to ensure that our people can work safely and, in most cases, remotely, ensuring the continuity of the business. To date there has been no material effect on the business of the new working practices dictated by a much-changed business and social landscape. As we at last begin to enter into a post-pandemic business landscape we are confident that we have developed robust business practices to provide a solid grounding for sustained growth across our business.

Results

Revenue fell by 14.5% across the Group to £24.1 million for the full year (2019: £28.2 million), but significantly we have seen gross profit margin growth to 24%, (2019: 23%). Resulting gross profit has fallen year-on-year to 5.8 million (2019: £6.4 million).

The significant work undertaken to reduce the Group costs underpins the improvement in gross margins, but with reduced revenues and an increase in overheads (excluding non-underlying costs, impairment, amortisation and depreciation) by some 5% to £5.5 million (2019: £5.3 million) has resulted in Adjusted EBITDA falling to £0.5 million (2019: profit of £1.1 million). We received £0.38 million under the Covid Job Retention Scheme.

The net loss for the year from continuing operations is £18.5 million (2019: loss £8.5 million), after a £17.2 million amortisation and impairment charge (2019: £6.3 million against goodwill and acquired intangible assets).

The Group continues to improve its cash generation and has maintained strong working capital management.

People

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

Having been greatly encouraged by the opportunities identified in the partnership channel and lifecycle businesses, and strong direct customers the Board has outlined a strategy to provide better alignment between our operating businesses, customer needs and driving competitive advantage as we widen the client base to which we offer the full portfolio of our services.

Additionally, changes to our internal operating model will assure consistent quality in our relationship and account management whilst maintaining our strength in financial management.

Our aim is to drive further operating margin improvement and deliver consistent growth in earnings in the medium and long-term.

Financing and dividend

Given the losses from continuing operations the Board is not proposing to declare a dividend at this time but will keep this policy under review.

Current trading and outlook

Trading in the current financial year remains buoyant in our key Manage business with current financial performance significantly ahead of our 2020 results and reflecting the excellent business relationships that we have developed with third-party system integrators. We have also consolidated that business within our existing premises in Dartford in April 2021 from which we can deliver first-class business logistics and support to our field and site engineering, projects and lifecycle, network monitoring and service desk support functions. Our Connect business continues to demonstrate the benefits of the rationalisation programme we commenced in previous years and we can now expect that business at trading EBITDA level to show modest growth in what is a very congested business sector.

Overall, despite the operating losses in our overall group in 2020, in the current year we are now seeing the real benefits of focussing our business strategy on profitable partnership channels and consolidating our group offering across the Manage and Connect operations and we can look to the future with confidence and expect to generate positive operating cashflow for the first time in several years.

We will now undertake a full strategic review of the ongoing operations of the Group with the following objectives:

· Consider how best to capitalise on the excellent progress we are experiencing in our Manage business with a view to build on that progress and consolidate our position within the sector, strengthening further our relationships with partner channels, to build this business organically and to assess market opportunities for acquisitive growth.

· Review our position in the networking and connectivity, cloud and hosting, and voice/telephony sectors serviced by our Connect business. Operational changes have given some promise of a slow recovery in this congested arena, and we will now decide how best that business can contribute to the future success of our combined Group

Andy Parker

Non-Executive Chairman

21 July 2021

Financial Review

The Group reported total revenues for the year to 31 December 2020 of £24.1 million, down from £28.2 million in 2019 and gross profit of £5.8 million (2019: £6.4 million). This shows an improvement year-on-year from 22.8% in 2019 to 24.0% in 2020 which is encouraging and reflects strong gross margin growth in the Manage business more than offsetting a deterioration in the Connect business.

The Group uses Adjusted EBITDA which is a non-GAAP measure of performance as it believes this more accurately reflects the underlying performance of the business. This is one of the key operational performance measures monitored by the Board. Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, impairment charges, exceptional items, loss on disposal of fixed assets and share-based payments.

The adjusted EBITDA for the year to 31 December 2020 was a profit of £0.5 million (2019: profit of £1.1 million).

A detailed review of the business is set out in the Chairman's Statement and this Financial Review. Included in these reviews are comments on the key performance indicators that are used by the Board on a monthly basis to monitor and assess the performance of the business. These indicators include the level of revenue, gross profit and Adjusted EBITDA together with net debt.

Manage

There was a decrease in revenues to £11.5 million (2019: £14.7 million).

For the year we have seen an improvement in gross profit margins to 39% (2019: 31%), as a result of the services mix and operational efficiencies, and a reduction in overheads to £5.1 million (2019: £7.1 million), which is the result of reduced headcount, costs moving to Connect alongside novated contracts in 2019, and continued stringent cost saving initiatives.

Adjusted EBITDA attributable to Manage has moved to £2.1 million (2019: profit of £1.1 million).

Connect

Revenues in Connect fell to £13.1 million (2019: £14.6 million). This reflects additional revenues from Manage contracts novated offset by further customer losses. Gross margins fell to 8.5% (2019:13%). Overheads increased to £6.0 million (2019: £4.5 million), and an impairment charge against assets of £14.0 million (2019: £3 million) was incurred following an annual impairment review.

Adjusted EBITDA attributable to Connect has declined to a loss of £0.8 million (2019: profit £0.7 million).

Exceptional items

Non-underlying items, relating to restructuring and reorganisation amount to £0.5 million in the year (2019: £0.6 million).

Finance costs

After incurring net finance costs of £1.8 million relating to interest and arrangement fees for loan notes, leases and bank debt (2019: £1.8 million), the loss before tax is £21.6 million (2019: loss of £10.9 million)

Taxation

The utilisation of tax losses and a deferred tax credit arising on the amortisation and impairment of intangible assets, together with impairment of PPE of £0.6 million has resulted in a tax credit for the year of £3.1 million (2018: £2.4 million)

The Group therefore reported a loss after tax from continuing operations of £18.5 million (2019: loss of £8.5 million), which equates to a basic loss per share of 4.61 pence (2019: loss per share of 2.12 pence).

Statement of Financial Position

Non-current assets

The Group has property, plant and equipment of £1.2 million (2019: £9.7 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 £0.1m including assets acquired on acquisition (2019: £3.1 million additions, £2.9 million of this is in relation to the IFRS16 transition). Assets amounting to £5.6 million were written down as part of the impairment review of the Connect business.

We invested in operating system licences at the year end in an amount of £2.25 million. These licences will assist with our client operations and are payable in three tranches at the end of 2021, 2022 and 2023 respectively. The licences are capitalised as intangible assets at the present value of the payments, which are included within trade payables at the year end.

Further, intangible assets of goodwill, trademarks, capitalised technology and customer contracts are £11.4 million (2019: £21.1 million) and are subject to amortisation as per the policies set out in the accompanying financial statements. There was an impairment charge of £8.5m against goodwill and customer relationships in 2020 relating to the recoverability against future cashflows from IDE Group Connect (2019: £3 million). Details are shown in note 14.

Trade and other receivables

Trade and other receivables have fallen, reflecting revenue reductions in comparison to the previous year at £5.4 million (2019: £7.6 million) including trade receivables of £4.1 million (2019: £5.4 million) after a credit loss provision of £0.5 million (2019 £0.6 million). Whilst the overall reduction in trade receivables can be attributed to the fall in year-on-year revenues, there have been reductions resulting from improved customer payments and an improvement in the aged profile resulting in lower credit loss provisions.

Trade and other payables

Trade and other payables amounted to £10.1 million (2019: £7.6 million), including trade payables of £7.2 million (2019: £5.6 million) taxation and social security of £1.5 million (2019: £0.2 million) and accruals of £1.2 million (2019: £1.3 million).

The increase in taxation and social security has arisen largely from deferral of liabilities provided as part of Government Covid support.

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 £1.4 million (2019: £1.9 million), the decrease reflects the reduction in overall revenues as well as the mix of customers' contractual obligations for payment.

Cashflow and net debt

Net cash generated from operating activities during the year was £2.1 million (2019 £0.04m), reflecting positive underlying performance and careful management of working capital. Cashflow suffered due to customer losses in our Connect business, but our Manage business continues to do very well and has developed excellent relationships with key strategic partners. The Group invested £0.1 million (2019: £0.2 million) in fixed assets and invested £0.1 million in the acquisition of Nimoveri. There were no new borrowings (2019: £6.7 million net), but repayment of lease liabilities consumed £1.9 million (2019: £2.6 million) of cash. The net result is that as at 31 December 2020 there were no bank borrowings or overdraft debt and the cash balance was £0.7 million (2019: £0.7 million).

Dividend 

The Directors do not propose a dividend in respect of the current financial year (2019: £nil).

Update and outlook for 2021

Set out within the Chairman's Statement are details of the current trading performance of our two trading businesses. Trading in the first 7 months of 2021 has been particularly strong in our Manage business, including very positive further contract wins from Atos IT Services UK Limited, while our Connect business continues to suffer in the congested networking and connectivity sector. We are carrying out a review of our operations and the Board is confident of the Group's future prospects.

Going concern

The Directors have produced detailed trading forecasts and cashflows which have been discussed with the Group's major shareholder who is represented on the Board. In reaching their conclusion on the going concern assumption, the Directors note and rely on the letter of support provided by MXC Capital Limited, in which they confirm they will continue to provide such financial support needed for continued operations for a period not less than one year from the date of approval of these financial statements. The Directors, having made the necessary inquiries, have satisfied themselves of MXC Capital's ability to provide such finance if necessary. The directors therefore have an expectation that the Group has adequate resources available to it to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements.

Strategic Report

Review of the Business

A detailed review of the business is set out in the Chairman's Statement and the Financial Review. The year under review was another challenging one for the business with overall revenues declining year-on-year, however gross margin improved and adjusted EBITDA* remained positive. Future developments and current trading and prospects are set out in the Chairman's Statement and the Financial Review. These reports together with the Corporate Governance Statement are incorporated into this Strategic Report by reference and should be read as part of this report. The Group's strategy is focused on maximising value for stakeholders by increasing revenues and profits by upselling to our current customer base as well as by bringing new customers on board.

At 31 December 2020, the Board comprised 3 Directors (2019:3) all of which were male. At 31 December 2020 the Group had 221 employees including Directors (2019: 262) of which 173 were male (2019:202) and 48 were females (2019:60).

* Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, impairment charges, exceptional 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 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 25 contains details of financial risks.

COVID-19

The COVID-19 pandemic has caused ongoing significant disruption to the UK economy and the financial impact to the Group continues to be difficult to quantify. During the lock-down periods the Group has seen some reduction in user support desk activities, which were mitigated by furloughing staff through the Job Retention Scheme. However, data centre and connectivity business have remained at expected levels, and we continue to see a significant increase in lifecycle services as certain customers ramped up deployment of equipment to facilitate their own staff working remotely,

We believe that demand for centralised managed services, cloud, user support desk, mobile working & collaboration, and over-arching business continuity solutions will provide good opportunities during the current situation. The Board continues to monitor the situation and act to mitigate any financial impact which may arise.

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.

Exit of UK from European Union

The UK left the European Union on 31 January 2020. As the Group operations are very-much UK-centric, the Group has not had to make significant changes or incur significant disruption following Brexit.

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 risk, 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.

Infrastructure Failure

The Directors believe that one of the key differentiators the Group offers is that its services are provided over its own controlled and managed infrastructure, such as its own networks and data centre. Whilst this provides customers with comfort over the resilience and reliability, the Group is also exposed to risks of infrastructure failure. A critical element of the Group's operating methodologies and procedures is to mitigate such risks through the careful construction, maintenance and management of its infrastructure. All networks and the data centre have fully resilient fail-over procedures with regular testing of back-up and recovery plans.

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

The Board is mindful of the duties of Directors under S.172 of the Companies Act 2006. The Directors 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 members. In doing so, they each have regard to a range of matters when making decisions for the long-term success of the Company.

The Directors are committed to developing and maintaining a governance framework that is appropriate to the business and supports effective decision making coupled with robust oversight of risks and internal controls.

The main methods used by the Board to perform their duties and ensure decisions are made with section 172 factors in mind are:

· Monthly board meetings

· Board papers that address stakeholder requirements, for example financial overview, strategic decisions, investor relations, rolling agenda points and consistent minute taking

· Consideration of risks facing the business.

Examples of decisions made by the board during the year include the Group's continuing response to Covid-19, the acquisition of Nimoveri, restructuring programmes, and customer servicing, and these decisions involved consideration of all our stakeholders.

Standards of business conduct

The Board's policy is to behave responsibly, ethically and fairly at all times towards shareholders and other external stakeholders, in line with our Company values, and to ensure that our management teams operate the business in a responsible and fair manner and to the highest standards of business conduct and good governance.

The impact our business decisions will have on our stakeholders is central to our strategic thinking as well as our statutory duty under section 172 of the Companies Act 2006.

We have set out below our key groups of stakeholders.

Investors and shareholders

We place considerable importance on the maintenance of regular and open dialogue with our investors and shareholders. Our goal is to deliver returns to them through a return to profitable and sustainable development with efficient use of capital.

Engagement with Employees

In the face of the COVID-19 pandemic, we took early measures to protect employees and successfully executed a transition to remote working across all of its operations. Following careful engagement with employees, the team co-operated fully and adapted their way of working to provide uninterrupted service and support to customers throughout this challenging period.

During the period, the Company faced many challenges including a programme of cost rationalisation as a result of a downturn in certain service lines in part due to the COVID-19 pandemic. Employees were supported throughout this process and management focused on internal performance management and development to ensure employees have clear objectives and an understanding of their contribution to our overall business success and goals.

We strive to create a diverse and inclusive working environment where every employee feels welcome and can do their best work. We believe in the benefits of diversity and the importance of bringing a wide range of skills, experience and perspectives into our business. The Directors continually work with senior management to promote our values and to monitor attitudes and behaviours to ensure that they are consistent with our culture.

Engagement with suppliers, customers and others in a business relationship with the Company:

Suppliers

As a business dependent on suppliers and partners to deliver services for all of our stakeholders, we strive to manage these relationships as closely as possible to ensure they meet our standards. The Company is committed to ensuring the highest standards and quality across our operations and require both our suppliers and partners to operate to the same high standards.

Customers

Our goal is to deliver best-in-class service for all of our customers and to provide seamless service acting as the outsourced provider of services to our customers and their staff. The provision of high-quality service to customers throughout the COVID-19 pandemic remains a priority for the Group and IDE's employees were able to provide uninterrupted service and support to customers.

Society and Environment

We believe our technology and products will benefit and advance society as a whole.

The Group acknowledges its responsibilities for environmental matters and where practicable adopts environmentally sound policies in its working practices, such as recycling paper and packaging waste and using specialist recyclers of scrap telecommunications and IT equipment. A major consideration when replacing company vehicles is their impact on the environment.

We make use of in-house collaboration tools to reduce the need for travel to meetings and operates flexible working practices where possible, reducing the environmental impact of commuting. Positive experience of an increase in these activities during the COVID-19 pandemic suggests these will continue at a higher level after the end of the pandemic.

Strategy

The market for network, cloud and IT managed services in the United Kingdom is highly fragmented and is served by a broad spectrum of businesses from global telecommunication companies through hardware and software providers, system integrators and a range of independent managed service providers of varying sizes through to companies providing individual elements of the IT managed services spectrum. The market is growing, driven by the continued move towards off-premise solutions and mobile access to secure services.

The Group positions itself in the market as being able to combine the benefits of its network and data centre with a flexible and technically skilled workforce able to deliver and support critical services and solutions in a highly secure environment. The Group seeks to differentiate itself in three distinct ways:

· Innovation - innovation in the design and delivery of services;

· Reliability - the right technical skills organised in the right way, to give predictable high quality results; and

· Value - service offerings that are designed to offer value for money to mid-market customers.

Through these differentiators, the Group aims to attract new customers and to deepen and broaden the relationship with existing customers. The Board's strategy for growth comprises:

· Ongoing investment in expanding and enhancing our own infrastructure so that we can provide our customers with the very highest level of security and service;

· Maximise revenue from our wide ranging customer base through high levels of service and a varied product and service set; and

· Efficient use of our scale and resources to explore and invest in new technologies so that our customers can benefit from the high levels of innovation across the whole industry.

We will also consider acquisition opportunities within the sector which would offer synergies and complementary or additive products and services. Our acquisition criteria are strict and mean that we would only consider buying a business whose operating model is similar to our own, would increase earnings, have high recurring revenues and would not over-leverage the Group.

Despite the continued challenges we met in 2020, the Board believes that the Group's position between the very large system integrators and network operators and the smaller competitors that may lack delivery structure, reputation, reliability and financial strength remains a very compelling one.

We have strong and reliable infrastructure and have developed a delivery model that provides assurance and certainty for customers. This underlying platform is the core strength of the Group and we will continue to consider augmenting underlying organic growth in the Manage business in 2021 with acquisitions to leverage this platform, should there be a compelling strategic and financial case.

On behalf of the Board

Ian Smith

Executive Director

21 July 2021

24 Dublin Street

Edinburgh EH1 3PP

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2020

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

The notes are an integral part of these financial statements.

Statements of Financial Position

As at 31 December 2020

The notes are an integral part of these financial statements. The Company made a loss of £4.3 million in the year ended 31 December 2020 (2019: £21.7 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 21 July 2020 and were signed on its behalf by:

Ian Smith

Executive Director Company registered number: SC368538

Statements of Changes in Equity

for the year ended 31 December 2020

(a) Share capital represents the nominal value of equity 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) Retained earnings represents retained profits and accumulated losses

(e) 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

(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) Retained earnings represents retained profits and accumulated losses 

Statements of Cash Flows

for the year ended 31 December 2020

Group

* A balance of £1.8m has not been included in the additions of intangible assets as the invoice was outstanding at year end. This has been deducted from the movement in trade and other payables.

Company

Notes to the Consolidated Financial Statements

1. Accounting policies

IDE Group Holdings plc ("IDE 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 above audited financial information does not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. The above figures for the year ended 31 December 2020 have been extracted from the Group's financial statements which have been reported on by the Group's auditors and received an audit opinion which was unqualified and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying their report or a statement under section 498(2) or section 498(3) of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2019 have been lodged with the Registrar of Companies.

These financial statements received an audit report which was unqualified and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying their report or a statement under section 498(2) or section 498(3) of the Companies Act 2006. The financial statements for the year ended 31 December 2020 will be dispatched to the shareholders and filed with the Registrar of Companies. The preliminary announcement was approved by the Board and authorised for issue on 21 July 2021.

Going concern

The Directors have produced detailed trading forecasts and cashflows which have been discussed with the Group's major shareholder who is represented on the Board. In reaching their conclusion on the going concern assumption, the directors note and rely on the letter of support provided by MXC Capital Limited, in which they confirm to continue to provide such financial support needed for continued operations for a period not less than one year from the date of approval of these financial statements. The Directors having made the necessary inquiries, have satisfied themselves of MXC Capital's ability to provide such finance if necessary. The Directors therefore have an expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The group is now also investigating the possibility of alternative working capital funding sources which if available will further support working capital as our client activity increases. Accordingly, the Group continues to adopt the going concern basis in preparing its 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 and 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 identified, fixed asset investments are impaired accordingly.

1.4 Intangible assets

Goodwill

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.

Other intangible assets arising from business combinations

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 5 - 13 years

· Trademarks 5 years

· Software and licensing 8 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.

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.

Computer software includes software purchased from third party vendors used in conjunction with related hardware, rather than on a stand-alone basis, and is therefore treated as tangible.

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

· Computer software 3 - 5 years

· 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.

Right-of-use assets

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, net of outstanding bank overdrafts.

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 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.

1.15 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.

1.16 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.

1.17 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.

1.18 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.

1.19 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.

Recurring revenue

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.

Project revenue

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.

1.20 Government Grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Where applicable, government grants are offset against the expenditure to which they relate.

1.21 Exceptional 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 Exceptional costs, 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 fees

1.22 Cost of Sales

Cost of sales include costs which are directly attributable to the supply of goods and services, including salary costs of all employees whose roles are directly related to the provision of services.

1.23 Operating profit or loss

The operating profit or loss is identified in the income statement and represents the profit or loss on continuing activities before finance income, finance costs and taxation.

1.24 Alternative performance measure

The group uses an alternative measure in the Income Statement, being Adjusted EBITDA, defined as earnings before interest, tax, depreciation, amortisation, impairment charges, exceptional items, loss on disposal of fixed assets and share-based payments.

1.25 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.

1.26 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 three operating segments: IDE Group Manage, IDE Group Connect and Nimoveri Limited which was acquired during the current year. IDE Group Manage and Nimoveri Limited consists of IT Managed services and IDE Group Connect consists of connectivity, cloud and colocation services. The Board assess the performance of the operating segments based on profitability and EBITDA. An analysis of revenue and gross profit of both segments is described under their respective headings in the financial review. Information provided to the Executive Board is measured in a manner consistent with that in the Financial Statements.

1.27 Application of new IFRSs and interpretations

a) New standards, interpretations and amendments effective from 1 January 2020

New standards adopted in the annual financial statements for the year ended 31 December 2020 but which have not had a significant effect on the Group are:

· IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Definition of Material)

· IFRS 3 Business Combinations (Amendment - Definition of Business)

· Conceptual Framework for Financial Reporting (Revised)

· COVID-19 Related Rent Concessions (Amendment to IFRS16)

b) New standards, interpretations and amendments not yet effective

A number of standards, amendments to standards and interpretations have been issued by the IASB and are effective in future accounting periods which the Group has decided not to adopt early. The following amendment is effective for the period beginning 1 January 2021:

· Interest Rate Benchmark Reform (Amendments to IFRS9, IAS 39, IFRS 7 and IFRS16

The following amendments are effective for the period beginning 1 January 2022:

· Onerous Contract - Cost of fulfilling a Contract (Amendments to IAS 37)

· Property, plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

· Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS1, IFRS 9, IFRS 16 and IAS 41)

· References to Conceptual Framework (Amendments to IFRS 3)

The Group is assessing the impact of these new standards and amendments but does not expect that they will have a material impact on the Group

1.28 Critical accounting estimates and judgements

Estimates

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:

Estimated impairment of goodwill and intangibles - the Group tests whether goodwill and any non-amortised intangible assets have suffered any impairment, in accordance with the accounting policy stated in 1.5 above. The Group also tests at the year end whether other intangible assets which are amortised have suffered any impairment. The value-in-use calculations contain a number of significant estimates and assumptions including future sales, margins and appropriate discount rates. See note 14 in the financial statements for an analysis of goodwill and CGUs.

Estimation of probability of loss on recoverability of intercompany loans - Where full recoverability of an intercompany loan is not certain, an estimate is determined as to the probability of recoverability. This considers the probability of default, loss arising under any default, and the exposure upon any default

Judgements

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 exceptional costs - 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 1.20 above and are appropriately clarified.

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 11 to the financial statements.

2. Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Maker ("CODM"). The CODM has been identified as the Executive Board. The Executive Board is responsible for resource allocation and assessing the performance of the operating segments. The operating segments are defined by distinctly separate product offerings or markets. The CODM assesses the performance of the operating segments based on a measure of revenue and gross profit. The CODM does not review the segmental assets and liabilities on a disaggregated basis and therefore this information has not been provided

The following table presents revenue and gross profit in respect of the Group's continuing operating segments for the year ended 31 December 2020. Certain contract novations took place in 2020 between our Manage and Connect businesses with an annualised contract value of £1.7m.

Nimoveri has been presented separately in the above table as it is a hybrid business which does not fit easily into either of the other two segments, and in order to provide details of the results since acquisition.

The Group had one customer who accounted for 29% of revenue from continuing operations during the year (2019: 27%). This revenue is attributed fully to the IDE Group Manage segment.

3. Revenue

Disaggregation of revenue

The disaggregation of revenue from contracts with customers is as follows:

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 change in contract assets and liabilities is a result of a reduction in revenue in the year ended 31 December 2020. In the year, contract liabilities of £1,926k were recognised in revenue.

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 Other operating income

Other operating income comprises government grants receivable.

5 Expenses by nature

6 Auditor's remuneration

7 Exceptional costs

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

Restructuring and reorganisation costs in the year ended 31 December 2020 and the year ended 31 December 2019 relate to costs incurred on the restructure of the Group, predominantly redundancy costs, of which £445k are staff related as disclosed in note 10 (2019: £327k).

Other exceptional costs in the year ended 31 December 2019 relate mainly to costs associated with a break in at the Dartford facility.

8 Acquisition and discontinued operations

On 1 June 2020, the Group completed the acquisition of 100% of the issued share capital of Nimoveri Holdings Limited and its subsidiary, a small cloud and IT services business, for a total consideration of £200,000; £100,000 paid in cash on completion and the issue of £100,000 0% loan notes by IDE Group Limited, a Group company (the "Nimoveri Loan Notes"). The Nimoveri Loan Notes are secured over the assets of Nimoveri Holdings Limited and redeemable on 31 December 2021.

The following table summarises the consideration and the fair value of the assets acquired:

Acquisition related costs of £1k have been charged to administrative expenses in the Consolidated Income Statement.

There was no credit loss provision in respect of trade and other receivables.

The revenue included in the Consolidated Income Statement since 1 June 2020 contributed by Nimoveri was £269k, and profit before tax of £29k.

If Nimoveri had been consolidated from 1 January 2020 the Consolidated Statement of Income would show pro-forma revenue of £24.3m and profit before tax of £21.6m.

Discontinued operations

On 12 October 2018, the Company sold the entire issued share capital of 365 ITMS Limited and its subsidiaries to PTCA Newco Limited., Further losses of £0.2m were identified in 2019 on contracts novated as part of the disposal.

9 Finance costs

10 Employee benefits expense

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

At 31 December 2020, the Group employed 237 staff, including Directors (2019: 262).

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 4 employees during 2020 (2019: 3).

For Directors who held office during the year, emoluments for the year ended 31 December 2020 were as follows:

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

2. Directors' emoluments to Max Royde and Sebastian White were paid to Kestrel Partners LLP

Social security costs in respect of Directors' emoluments were £10k (2019: £19.5k). Pension contributions were made to a defined contribution scheme for previous Directors. No current director participates in any Company pension scheme.

None of the Directors made any gains on the exercise of share options in 2020 or 2019.

11 Taxation