Interim Results

29 September 2015

Outsourcery plc

("Outsourcery" or the "Group")

Interim Results for the six months ended 30 June 2015

Outsourcery plc (AIM: OUT), a leading Cloud Service Provider ("CSP") focused on the provision of unified communications solutions, based on Microsoft Skype for Business, and Infrastructure-as-a-Service for commercial and public sector organisations, announces its interim results for the six months ended 30 June 2015.

Financial Metrics

*Adjusted EBITDA is defined as earnings before finance costs, tax, depreciation and amortisation, restructuring costs, employee share based payment costs and listing fees and is considered by the Directors to be a key measure of financial performance.

**Adjusted (loss) from continuing operations is defined as earnings before restructuring costs, employee share based payment costs and listing fees.

***Adjusted (loss) per share has been disclosed to give a clear understanding of the Group's underlying trading performance.  It has been calculated using the underlying earnings figures above and the weighted average number of ordinary shares in issue.

Operational Highlights

· Business focus centred on clear, accessible growth opportunities

Ø Outsourcery continues to secure a strong market position as a fully converged provider of cloud solutions with high profile partners and reference end-customers

Ø Recurring revenue is increasing, and the Company is delivering against a large addressable market.

Ø Gross margin has increased steadily, now at 49% (1H 2014: 43%)

Ø Stepped up development of direct sales and marketing capability, taking greater control of pipeline and potential

Ø Focus on selected partners that have demonstrated a commitment to the sale of cloud services

· Refreshed and focused product strategy

Ø Established position as UK's leading provider of cloud-based Skype for Business (formerly branded as 'Lync') for mid-market, enterprise and public sector end-customers

Ø Defined infrastructure-as-a-Service ("IaaS") offering for commercial and public sectors including increasing automation

Ø Public sector Skype for Business and IaaS pipeline is developing with early wins secured

· Reviewed and clearly defined go-to-market strategy

Ø Focus on mid-market and enterprise end-customers requiring more complex enterprise and carrier-grade hybrid solutions not available from hyperscale IaaS and SaaS service providers

Ø Extending the network of partners committed to cloud transition with a pipeline of large partners

Ø Commenced development of a direct sales pipeline in commercial and public sectors

Ø Proven ability to add value, win and deploy solutions for mid-market and large enterprise

· Cost base controlled

Ø Administrative expenses of £4.7 million were in line with budget

· Steady progress on strategic partner pipeline development as demand rises for Skype for Business

Ø Vodafone pipeline growing and strategic alignment enhanced by Vodafone's financial support for Outsourcery (see Financial Review)

Ø Virgin Media Business pipeline in mid-market and public sector taking shape

Ken Olisa OBE, Non-Executive Chairman commented:

"It is pleasing to see revenue growing and losses narrowing. This has been achieved by a renewed focus of our go to market activities and a programme of cost reductions.

Our principal route to market - the third party channel - has continued to increase its effectiveness, albeit at a slower than ideal rate. As a result we have initiated some targeted direct sales activities which are showing early signs of bearing fruit. This ability to pivot our activities as circumstances demand is a testament to the entrepreneurial leadership of our Co-CEOS who, with the support of the Board, are committed to tackling the challenges of being a small and growing business one at a time."

Enquiries

About Outsourcery

Outsourcery is a leading Cloud Service Provider ("CSP") based in the UK focused on the delivery of cloud-based applications, infrastructure and unified communications solutions to business of all sizes via its partner and as direct customers in the mid-market. The Group focuses on Microsoft technologies due to the significant installed base and disruptive entry into new markets such as unified communications. Cloud computing represents a systemic evolution in the way that IT platforms, applications and communications ("ICT") solutions are provided in a more cost effective and efficient way. The ICT model is rapidly shifting from a physical technology purchase to the consumption of services with a specified uptime service level on a monthly subscription basis. Outsourcery has invested in its platform and capabilities to apply economies of scale to provide highly resilient and secure services to a range of end-customers from shared platforms in its UK datacentres.

Further, detailed information on the Group is available in the Investor Centre on the Outsourcery website:

(www.outsourcery.co.uk/investors)

Strategy Update

A sharper focus

Outsourcery continues to establish a market-leading position for the provision of cloud services based on Microsoft technologies for mid-market, enterprise and public sector end-customers seeking added value and hybrid solutions that large public cloud providers are unable to deliver.

Sharpening the Company's focus on Skype for Business and IaaS, and prioritising the market segments in which Outsourcery has a clear competitive advantage, has enabled the Company to maintain a stable cost base. Administrative expenses were under budget in the period, while sales and marketing expenses were directed towards the pipeline opportunities with greatest likelihood to convert.

Skype for Business

Skype for Business is Microsoft's next generation and enterprise-grade unified communications and collaboration service. Skype for Business is the latest version of the product formerly branded as 'Lync'. Skype for Business from Outsourcery combines instant messaging, presence and conferencing, collaboration with full enterprise voice and carrier-grade SLAs to replace PBX telephony, in one interface. It also allows users to communicate with the 300 million users of the consumer Skype product.

During the first half of the year, Outsourcery has focused its service offering on its core strengths of 'Skype for Business' with full enterprise and carrier-grade voice and Infrastructure-as-a-Service, which are also the largest market opportunities, to maximise growth potential. The Group continues to improve the automation of its IaaS offering to provide customers and partners with self-serve capabilities. Furthermore, the launch of the next version of Microsoft Lync Server, which has been rebranded as Skype for Business, has been an important development, which is driving demand for Microsoft unified communications and collaboration software. Outsourcery is establishing a market-leading position in the provision of cloud-based Skype for Business in terms of capability and referenceability and already counts two FTSE-100 companies as end-customers as well as a growing number of large enterprises and public sector organisations as direct customers.

Go-to-market strategy

The Company has also reshaped its go-to-market strategy during the period to reflect the current capability of the existing IT and communications channels by focusing resources on its large strategic partners and committed partners of all sizes. At the same time during the period, the Company had built out a direct sales organisation and commenced the development of a direct sales pipeline.

Outlook

Despite a slower than anticipated revenue build, the Group is well-positioned to benefit from the growing demand for cloud services and especially from mid-market, enterprise and public sector organisations that require services and support that the large public cloud providers are unable to provide. The Group is also creating a clear leadership position in the rapidly evolving market for the delivery of Skype for Business.

The first half of 2015 has been an important period for the Company to assess the opportunity and focus products and go-to-market strategies. The second half of the year will include further implementation of the changes made and the continued development of a direct sales pipeline. These measures should drive further growth in 2016 and beyond.

On 3 July, following the period end, Outsourcery entered into a debt facility with a key strategic partner, Vodafone. That facility has both given additional assurances to our pipeline customers, and underscored the Company's confidence in the second half. In addition, other partners are now experiencing growing demand and new partners that are committed to transitioning their businesses to the cloud are being on-boarded.

As such, the Board expects a run-rate to evolve during the second half to provide a steady baseline of growth alongside the closure of direct opportunities, including public sector end-customers.

Financial Review

In the first half of the year, the Group recorded revenue of £4.1 million (1H 2014: £3.4 million) and a gross margin of 49% (1H 2014: 43%).

Administrative expenses (excluding restructuring costs, employee share based payment costs and listing fees) of £4.7 million (1H 2014: £4.8 million) were in line with budget. Adjusted EBITDA showed a loss of £2.1 million (1H 2014: loss of £2.8 million).

The Group's underlying pre-tax loss was £3.3 million (1H 2014: loss of £3.8 million) and loss per share for the half year was 7.05p (1H 2014: loss of 10.33p).

Gross cash as at 30 June 2015 was £0.3 million (1H 2014: £1.3 million).

On 3 July the Group announced it had entered into an amortising term loan with Vodafone Group Services Limited ("Vodafone"). Under this agreement, Outsourcery was provided with a £4.0 million term loan for the 48 months ending June 2019. Interest will be charged monthly at an interest rate of 7.5% per annum and principal loan repayments will be spread equally over the 12 quarterly periods from year 2 onwards. As part of the facility, Vodafone have been granted a warrant over 3,000,000 new ordinary shares at 30p per share (a 25% premium to the previous day's closing price) exercisable between 42 and 54 months after drawdown of the facility and in certain other exceptional circumstances. The new term loan replaces Outsourcery's existing £1.4 million loan facility due to expire on 1 April 2017, and a £0.3 million mortgage facility provided by Barclays Bank. The remaining £2.3 million of the new facility can be used for general working capital purposes.

Additionally, Outsourcery has also agreed amended terms with Etive Capital Limited on its outstanding £1 million loan, extending the repayment from 22 May 2016 to 31 December 2017. The £1 million note (currently non-interest bearing) will attract interest after 22 May 2016 at 10% per annum payable quarterly in arrears.

As a result of these new debt facilities, Outsourcery will benefit from:

-- a reduced weighted average cost of capital;

-- additional working capital to support the Group's requirements; and

-- further alignment with a major strategic partner, Vodafone.

 Consolidated income statement

For the six months ended 30 June 2015

*EBITDA is defined as earnings before finance costs, tax, depreciation and amortisation, reorganisation costs, employee share based payment costs and fees associated with listing and is considered by the Directors to be a key measure of financial performance

Consolidated statement of comprehensive income

For the six months ended 30 June 2015

Consolidated statement of changes in equity

For the six months ended 30 June 2015

Consolidated statement of financial position

As at 30 June 2015

Consolidated statement of cash flows

For the six months ended 30 June 2015

Notes to the interim report

1. General information

Outsourcery plc (AIM: OUT; "Outsourcery"; the "Company"; together with its subsidiary undertakings, the "Group"), is a leading provider of cloud-based IT and unified communications services. Outsourcery plc is the Group's ultimate parent company.  The Company is incorporated in England and Wales and domiciled within the United Kingdom. The address of the Company's registered office is 10 Whitfield Street, London W1T 2RE. The address of the Group's head office is 1 The Avenue, Spinningfields, Manchester M3 3AP. The Company's shares are listed on the Alternative Investment Market of the London Stock Exchange.

Outsoucery's consolidated financial statements are presented in Pounds Sterling (£), which is also the functional currency of the parent company.

These consolidated interim financial statements were approved for issue by the Board of Directors on 24 September 2015.

2. Basis of preparation

The Group's interim consolidated unaudited financial statements are for the six months ended 30 June 2015 and have been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards ("IFRS"). They have not been prepared in accordance with IA34 'Interim Financial Reporting'. These statements have not been reviewed or audited by the Group's auditors.

The figures for 31 December 2014 are an abridged version of the Group's full financial statements (subject to first time adoption of International Financial Reporting Standards) and together with other financial information contained in this interim report which is unaudited, do not constitute statutory financial statements of the Group as defined in Section 434 of the Companies Act 2006. Statutory financial statements for the year ended 31 December 2014 have been filed with the Registrar of Companies for England and Wales and have been reported on by the Group's auditors. The report of the auditors was unqualified and did not contain a statement under section 498 (2) or Section 498 (3) of the Companies Act 2006.

These interim consolidated unaudited financial statements have been prepared in accordance with the accounting policies set out in the Group's full audited financial statements for the year ended 31 December 2014. The accounting policies have been applied consistently throughout the Group.

Going concern

The Directors believe that the Group is well placed to manage its business risks successfully. The Directors have also prepared cash flow forecasts for the period until December 2016. As part of the preparation of these forecasts, the Directors have estimated the likely conversion of potential future business. Based on these forecasts, the Directors have confirmed that there are sufficient cash reserves to fund the business for the period under review. After reviewing these forecasts, consideration of the Group's cash resources and other appropriate enquiries, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the interim statements.

3. Business segments

The Group's Executive Board is considered to be the Chief Operating Decision Maker ("CODM").

For management purposes, the Group's Executive Board focuses on the following operating segments and financial information provided to CODM is under the same measurement basis as the Group financial statements.

Cloud

This operating segment is managed separately by the Group's CODM and operating decisions are made on the basis of the operating results.

Revenue for each of the periods shown is all derived in the United Kingdom. Any administrative staff expense costs incurred in the consulting and mobile operations would be negligible. All consultancy staff related costs are included in the segment cost of sales charges for the six months ended 30 June 2015, six months ended 30 June 2014 and twelve months ended 31 December 2014.

Operating segment information for each of the periods above is as follows:

6 months ended 30 June 2015

6 months ended 30 June 2014

12 months ended 31 December 2014

4. Share Capital

5. (Loss) / earnings per share

*Underlying losses per share has been disclosed to give a clear understanding of the Group's underlying trading performance. It has been calculated using the underlying earnings figures above and the weighted average number of ordinary shares above.

6. Analysis of borrowings

Notes to the analysis of borrowings

1. The Boost loan stock bore interest at 14%. This loan has an original tenure to March 2016.

2. The property mortgage bore interest at 10%. This loan has an original tenure to July 2015.

3. The Etive loan stock bears no interest and is shown at its present value. This loan stock has an original tenure to 24 May 2016.