IDE : Unaudited Interm Results

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

Unaudited Interim Results

IDE Group Holdings plc, the mid-market network, cloud and IT managed services provider, today announces its unaudited results for the six months ended 30 June 2018.

Summary

• •Revenue of £28.7 million (H1 2017: £29.6 million)

• •Adjusted EBITDA* loss of £7.0 million (H1 2017: profit of £2.4 million), following review of,inter alia, onerous contracts, capitalised staff costs and classification of exceptional items

• •Net debt as at 30 June 2018 of £11.3 million (31 December 2017: £9.7 million), following £2.0 million loan note issue on 29 May 2018

Post Period End

• •Fundraising of £5.55 million completed in August 2018, comprising of an equity raise of £3.75 million and the issue of £1.8 million of new convertible loan notes

• •Existing £2.0 million loan notes repaid by way of £1.25 million equity issue and £0.75 million issue of new convertible loan notes

* before net finance costs, tax, depreciation, impairment charges, amortisation, exceptional items and share based payment charges

IDE Group Holdings Plc

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Bill Dobbie, Interim Non-Executive Chairman Ian Smith, Executive Director

finnCap Limited

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Nominated Adviser and Broker

Corporate finance: Jonny Franklin-Adams/ Scott Mathieson/ Hannah Boros ECM: Tim Redfern/ Richard Chambers

MXC Capital Markets LLPFinancial Adviser Charlotte Stranner

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Interim Review

As the only Executive Director of the Company, having joined the Board in May 2018, I have taken the responsibility of providing some form of commentary to explain the results for the first half of the current year.

At the time of reporting the Final Results for the year ended 31 December 2017, it was noted by the then Chairman that profitability in 2018 was expected to be significantly lower than in 2017 but was expected to improve steadily throughout 2018 following implementation of the strategic and operational review. This is far from the case as the results show.

Given the obvious severe financial pressures facing the Company, following publication of the Final Results, the Company raised £2.0 million by way of loan notes in May 2018. This raise was supported by Bill Dobbie, MXC Capital Limited("MXC"), the largest shareholder and investment vehicle which I represent, and Kestrel Partners LLP, the other largest shareholder. It was at this time that I joined the Board and Julian Phipps, then FD, stood down. MXC CapitalMarkets LLP, MXC's corporate finance business, had previously acted as financial adviser to IDE, but resigned in July2017 having been informed by the Directors at that time that neither they nor certain of theCompany's other shareholderswanted MXC to be involved.

Furtherinvestigation into the state of the Company's financesled to an additional fundraising of £5.55 million which completed in August 2018. The combination of these two fundraisings has allowed the Company to continue restructuring with the aim of right sizing the business to enable the Company to trade profitably.

As part of the strategic and operational review we have reversed the little integration that had been initiated by the previous management and as such the Group has now been split back into the three component parts which comprised the original acquisitions made by the Company, namely, Selection Services, C4L and 365 ITMS. There was a considerable lack of clarity around the trading performance of the Group and in doing this we have been able to identify the activities which generate cash and those which are loss-making.

In terms of the results for the six months to 30 June 2018, having been a director of numerous companies over the years, I can safely say these are the worst set of results I have ever had to provide commentary for and there is nothing positive to point to. As can be seen from the numbers reported, we have seen fit to provide for numerous onerous contracts, revisit the capitalisation of staff costs and classification of exceptional items and adjust goodwill on the balance sheet to reflect theBoard's assessment of thevalue of the acquired businesses, resulting in significant losses for shareholders.

I strongly believe that the strategy pursued by previous management, if allowed to continue, would have seen the Company become insolvent. For example, many onerous contracts were signed that created little or no value to the Company, including a single outsourced service contract that is costing the company more than £1.0 million a year and which has only generated net cost savings of £50,000. This contract, alongside others, was signed without due processor compliance with the Company's authority limits.The Company has sought legal advice in respect of this contract and we are currently considering our options in this respect.

Furthermore, generally when completing a "Buy and Build", which was IDE's stated strategy, synergies are part andparcel of the business case. One would reasonably expect that as a result of putting together the three companies that now comprise the Group, there would be a smaller number of staff than would have existed across the three companies at the time of acquisition. I can tell you that this is clearly not the case: at the time of the acquisitions there were a combined 440 members of staff across all three companies and as at 31 December 2017 the Group had 550 members of staff, an increase of over 100 heads for which there was little or no incremental revenue gain. This number has since been reduced to under 400.

I could provide many more such examples but the scale of the adjustments which have been made to the Adjusted EBITDA* profit of £0.25 million which the Group management accounts showed as at 30 June 2018 (as announced at the time of the trading update in July) to reflect what we believe is the true position of the Group speak for themselves. These adjustments have resulted in an Adjusted EBITDA* loss of £7.0 million.

Most importantly as shareholders you will want to know what is being done to support the Company and recover the value which has been lost. As detailed above, a further £7.55 million has been raised from existing shareholders to support the restructure and establish a profitable, cash generating platform from which to go forward. MXC invested a total of £3.2 million. I would like to thank the other shareholders who supported the fundraisings either by way of equity or loans, without which it is doubtful that there would have been an interim report to write.

Splitting the Group back into the component parts has for the first time allowed us to identify where all the additional headcount has gone, where the onerous contracts reside and to establish separate P&L's and balance sheets, whichwe believe will provide the Company with options going forward and I expect to report more on this shortly. We are currently in advanced discussions regarding the sale of one or more of these component parts. I am confident that with the actions we are taking, we will be able to recover shareholder value despite the dreadful starting position when I joined the Company in May of this year.

I would like to thank the many members of staff, who, despite the incredible pressure they have found themselves under, have behaved impeccably and in many cases have gone above and beyond to support the Company and service customers in the most difficult of circumstances. It is also comforting that the service delivered by the Group wasdescribed as "exceptional" by the Company's largest customer; this is the first time in my career service delivery levels have been described as such.

Furthermore, in an era where it is common for banks to be given a hard time I am delighted to report that NatWest (partof The Royal Bank of Scotland plc), the Company's bankers, have been remarkably supportive and consistent throughoutthese difficult times. Thank you to all at NatWest.

In summary, during the last four months we have worked fast and hard to get to the Group to stable position. The coming months will see further change in order to create a profitable trading Company for shareholders and I look forward to updating the market to this effect.

Ian Smith

Executive Director

Financial Review

Revenue for the six months to 30 June 2018 was £28.7 million (H1 2017: £29.6 million), with a full six months of revenue from IDE Group Collaboration Limited (formerly 365 ITMS Limited) compared with only 3 months in the comparative period. The decrease in revenue can be primarily attributed to a fall in lifecycle project revenues and reductions in certain key customer contracts.

At an Adjusted EBITDA* level the Group incurred a loss of £7.0 million (H1 2017: profit of £2.4 million). A thorough review of onerous contracts, the capitalisation of staff costs in previous periods and the classification of exceptional items resulted in the Group recognising various provisions and reallocating certain costs, most notably:

• •previously capitalised staff costs of £1.3 million have been reclassified to cost of sales with the associated depreciation reversed;

• •provisions totalling £5.66 million have been recognised in relation to onerous supply contracts and empty properties, including £2.24 million in relation to the outsourced supply contract referred to in the Interim Review above; and

• •£0.14 million of costs have been reclassified as not exceptional.

Exceptional costs (post the reclassification above) amounted to £1.0 million (H1 2017: £0.44 million) and related predominantly to redundancy costs as a result of the reduction in headcount referred to in the Interim Review.

Impairment charges totalling £27.5 million (H1 2017: £nil) have been recognised in relation to goodwill and intangible assets resulting from the acquisitions of Selection Services and 365 ITMS to reflect what the Directors believe are the true and current values of these businesses. These significant charges have been the major contributor towards the loss before tax of £39.4 million (H1 2017: £1.6 million).

Loss per share was 19.48p (H1 2017: 0.66p).

The Group's cash outflow from operating activities in the period was £1.6 million (H1 2017: £0.5 million) comprising the Adjusted EBITDA* loss of £7.0 million (H1 2017: profit of £2.4 million) and operating working capital movements of £6.2 million (H1 2017: £(0.4) million), primarily relating to an increase in provisions as described above.

The net debt balance at 30 June 2018 was £11.3 million (31 December 2017: £9.7 million), including £2 million of loan notes issued in May 2018. Net debt as at 26 September 2018 was £10.3 million, including £2.55 million of convertible loan notes issued in August. The £2 million loan notes issued in May 2018 were repaid in August by a combination of new convertible loan notes (included in the £2.55 million above) and equity.

* before net finance costs, tax, depreciation, impairment charges, amortisation, exceptional items and share based payment charges.

Consolidated Statement of Comprehensive Income

Note

Unaudited	Unaudited	Audited
Six months	Six months ended	Year
ended	ended
30 June	2017	31 December
2018	£000	2017
£000	£000
Revenue	2	28,681	29,592	64,951
Cost of sales	3	(26,735)	(18,313)	(40,993)
Gross profit	1,946	11,279	23,958
Administrative expenses	(13,546)	(12,730)	(27,119)
Impairment charge on goodwill	(27,525)	-	(9,339)
Operating loss	(39,125)	(1,451)	(12,500)
Analysed as:
Adjusted EBITDA*	(6,995)	2,433	5,393
Exceptional items	4	(994)	(447)	(1,567)
Depreciation of property, plant and equipment	(1,278)	(1,426)	(3,158)
Amortisation of intangible assets	(2,121)	(1,955)	(3,602)
Impairment of goodwill & intangibles	(27,525)	-	(9,339)
Loss on disposal of fixed assets	(155)	-	(112)
Charges for share based payments	(57)	(57)	(115)
Net financial costs	(287)	(149)	(341)
(Loss)/profit before taxation	(39,412)	(1,601)	(12,841)
Income tax	303	306	1,600
Loss for the period from continuing operations
attributable to owners of the parent company
	(39,109)	(1,295)	(11,241)
Loss for the period after taxation	(39,109)	(1,295)	(11,241)
Other comprehensive income:
Items that are or may be classified subsequently to
profit or loss:
Foreign exchange translation differences-equity
accounted investments	(2)	2	3
Loss for the period and total comprehensive
income attributable to equity holders of the parent
	(39,111)	(1,293)	(11,238)
Basic and diluted loss per share	5
Basic (pence per share)	(19.48p)	(0.66p)	(5.67p)
Diluted (pence per share)	(19.48p)	(0.66p)	(5.67p)

30 June

* Earnings from continuing operations before interest, tax, depreciation, amortisation, impairment charges, share based payments and exceptional costs

Consolidated Statement of Financial Position

Unaudited	Unaudited	Audited
30 June	30 June	31 December
2018	2017	2017
£000	£000	£000
Non-current assets
Intangible assets	10,309	26,164	26,308
Goodwill	14,997	37,432	29,042
Property, plant and equipment	11,470	13,441	13,044
Financial and other assets	63	88	89
36,839	77,126	68,483
Current assets
Trade and other receivables	12,000	15,611	15,177
Stock	354	-	366
Cash and cash equivalents	3,833	336	1,106
16,187	15,947	16,649
Total assets	53,026	93,073	85,132
Current liabilities
Bank overdraft	4,850	767	2,604
Trade and other payables	13,770	12,204	15,429
Deferred income	6,571	7,393	6,405
Taxation	10	-	-
Finance lease obligations	234	507	291
Provisions	2,510	1,684	1,157
27,945	22,555	25,886
Non-current liabilities
Deferred income	-	-	341
Borrowings	9,500	8,175	7,402
Finance lease obligations	594	297	518
Deferred tax liabilities	4,812	6,199	5,115
Provisions	3,936	666	577
18,842	15,337	13,953
Total liabilities	46,787	37,892	39,839
Net assets	6,239	55,181	45,293
Equity attributable to equity holders of the parent
Called up share capital	5,018	5,018	5,018
Share premium account	35,439	35,439	35,439
Other reserves	(129)	(128)	(127)
Retained earnings	(34,089)	14,852	4,963
Total equity	6,239	55,181	45,293