Admission of Outsourcery Plc to trading on AIM

May 28, 2013 | Publisher: edocr | Category: Finance |  | Collection: Migrated Docs | Views: 2 | Likes: 1

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES OF AMERICA, CANADA, JAPAN, THE REPUBLIC OF IRELAND, THE REPUBLIC OF SOUTH AFRICA, AUSTRALIA OR NEW ZEALAND THIS ANNOUNCEMENT IS NOT A PROSPECTUS OR ADMISSION DOCUMENT AND DOES NOT CONSTITUTE AN OFFER TO SUBSCRIBE FOR OR PURCHASE ANY SECURITIES. 22 May 2013 Outsourcery plc Admission to trading on AIM Outsourcery plc (“Outsourcery” or the “Company”), the pure-play provider of Cloud-based IT and communications services (“ICT”), is to be admitted to AIM with a market capitalisation of £34.6 million. A Placing, arranged by Investec Investment Bank (“Investec”) with institutional and other investors, has raised approximately £13 million, before expenses. Trading in Outsourcery shares is expected to start on Friday 24 May 2013. The business  Outsourcery is one of few independent pure-play Cloud Service Providers (“CSPs”) and is establishing market leadership in the UK  Outsourcery is positioned to take advantage of the systemic market shift in the provisioning of ICT from an “on-premise” or “managed service” deployment model to a Cloud-based model  Outsourcery provides a wide range of Cloud-based IT and communications services via its network of partners to both larger enterprises and SMEs. Outsourcery has secured commercial relationships with companies such as Vodafone, Virgin Media Business, BT, HP and Atos to enable these and over two hundred smaller partners to deliver Cloud Services to their end-customers  The Group has won a number of notable direct customer contracts, including Pearson plc and London Business School  Outsourcery works closely with its partner network to deploy its Cloud Services to their end-customer base Admission details  Outsourcery will have a market capitalisation, at the placing price of 110p per share, of £34.6 million on Admission  Placing of 11,542,642 Ordinary Shares at 110p per share to raise: o £11.0 million, before expenses, to fund the Group to cash flow break-even o £1.7 million, before expenses, representing the realisation of capitalised loans  Dealings are expected to commence on AIM at 8.00am, Friday 24 May 2013. (Ticker symbol: OUT)  Investec is acting as Nominated Adviser and Broker and acted as sole book-runner on the Placing Key strengths  Outsourcery’s Cloud Services are deployed on its proprietary O-Cloud platform. The Directors estimate that the Group has invested approximately £30 million to date in developing its business and the O-Cloud platform  Outsourcery’s O-Cloud platform led to the Company being selected as a Finalist for the Microsoft Service Platform of the Year Award 2013, recognising the Company as one of the top three Microsoft-based Cloud platform service providers globally and the leader in the UK  Outsourcery has established itself as the UK’s leading independent CSP, as demonstrated by its recognition as Microsoft’s global Hosting Partner of the Year 2010, Microsoft’s global Dynamics Partner of the Year 2010, acting as a UK launch partner for Microsoft Lync and Windows Server in 2012 and by the commercial relationships it has built  Outsourcery’s near-term growth will be assisted by its focus on Microsoft technology through Microsoft’s significant market share (95% of desktops worldwide), its “ground-breaking” Lync product, and its commitment to transition to the delivery of its applications from the cloud through partners such as Outsourcery  Outsourcery’s O-Cloud platform can also be used by customers for the deployment of a broad range of software applications which are not limited to Microsoft. Outsourcery is well positioned to deliver a wide range, if not all, of an organisation’s IT and unified communications requirements through the Cloud  Outsourcery’s business model is focused on subscription-based customer contracts, providing a growing base of recurring revenues, leveraging its a stable overhead cost base and low ongoing requirement for capital expenditure Piers Linney, Outsourcery’s Co-CEO, said: “We have invested in and developed a world-leading and enterprise-grade platform for growth which was recognised earlier this week when Outsourcery was selected as one of three finalists for Microsoft’s worldwide Server Platform Partner of the Year 2013 award. “We aim to exploit the opportunities we are seeing at this exciting time in our development and see this fundraising as a great endorsement of our business model, technology platform and growth prospects. The funds will enable us to continue to grow rapidly, support the development of our portfolio of unique products and provide the financial resources to help us scale our business and our leading market position.” Terms used in this announcement have the same meanings as those defined in the Admission Document. Enquiries: Outsourcery +44 (0)330 313 0077 Piers Linney, Co-CEO Simon Newton, Co-CEO Investec +44 (0) 20 7597 5100 Andrew Pinder/Patrick Robb Dominic Emery/Carlton Nelson College Hill +44 (0) 20 7457 2020 Adrian Duffield/Rozi Morris NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE IN THE UNITED STATES, CANADA, THE REPUBLIC OF IRELAND, THE REPUBLIC OF SOUTH AFRICA, JAPAN OR AUSTRALIA, OR THEIR RESPECTIVE TERRITORIES OR POSSESSIONS OUTSOURCERY PLC Admission to trading on AIM and Placing of Ordinary Shares Information on the group 1. Overview Outsourcery (the “Company”) is one of few independent pure-play Cloud Service Providers (“CSPs”) and is establishing market leadership in the UK. The business was founded in 2007 by its co-CEOs, Piers Linney and Simon Newton. Outsourcery is positioned to take advantage of the systemic market shift in the provisioning of ICT from an “on-premise” or “managed service” deployment model to a Cloud-based model. The adoption of the Cloud is driven by a wide range of factors including a reduction in the total cost of ownership, operational agility, productivity and scalability. The Company today provides a wide range of Cloud-based services via its network of partners to both larger enterprises and SMEs. These services are deployed on its proprietary O-Cloud platform, a combination of software, hardware and networking which is housed in a th ird-party enterprise grade datacentre. The Directors estimate that approximately £30 million has been invested to date in developing its business. The Directors believe that the Company has established itself as the leading independent CSP in the UK, demonstrated in part, by its recognition as a one of three finalists in Microsoft’s global Server Platform Partner of the Year 2013, being recognised as Microsoft’s global Hosting Partner of the Year 2010 and a Finalist for Microsoft’s Server Platform Partner of the Year Award 2013, acting as a UK launch partner for Microsoft Lync and Windows Server 2012 and by the commercial relationships it has with companies such as Vodafone, Virgin Media Business , BT, HP and Atos. Outsourcery enables these partners to deliver Cloud Services and thereby satisfy their end-customer requirements. The Directors believe that one of the key factors contributing to the success of Outsourcery is the ability of the Company to blend its know-how and skills from the different industry domains of IT and telecommunications. Unlike many IT and telecommunications market participants, Outsourcery is not hindered by the constraints of a legacy business model which would need to be transitioned as the Cloud market further develops. The Company’s near-term growth is believed by the Directors to be partly assisted by its focus on Microsoft technology. Microsoft’s significant market share (95 per cent. of desktops and 74 per cent. of new server shipments worldwide), its “ground-breaking” Lync unified communications and collaboration (“UC&C”) product, its annual $9 billion investment in research and development and its commitment to transition to the delivery of its applications from the Cloud through partners such as Outsourcery, as well as its own platforms should, the Directors believe, materially assist the Company in growing its revenue base. Microsoft’s decision in 2012 to enable its existing customers to activate their on-premise licences in the Cloud (rather than having to purchase new licences) has further stimulated the transition of applications delivery to the Cloud. Whilst the Company has experienced significant growth to date through the Cloud delivery of Microsoft applications (including UC&C applications, email, CRM, and document management), its O- Cloud platform can also be used by customers for the deployment of a broader range of software applications which whilst running on a Windows operating system do not need to be limited to Microsoft. The Directors believe that the Company is well positioned to deliver a wide range, if not all, of an organisation’s ICT requirements. Outsourcery’s business model is predicated on securing subscription-based customer contracts in order to provide a growing base of recurring revenues and to leverage what is a stable overhead cost base and a low ongoing requirement for capital expenditure. Outsourcery’s recurring revenue model is complemented by upfront professional services and consulting revenue which is then typically repeatable as end-customers seek further customisation and integration over time. The Company’s existing management and shareholders have invested to develop a highly credible and scalable business with a comprehensive Cloud-based ICT offering and the ability to engage with end-customers and partners of any size. Outsourcery’s growth to date has been constrained by access to sufficient capital. The funds from the Placing will assist the Company in further consolidating its market leadership position and to benefit from a range of competitive advantages as the business continues to exploit the significant market opportunity. As the Company’s revenues scale up, the current loss-making position will narrow towards profitability. 2. History and background The current activities of the Group originated from an acquisition in September 2007 of a small application hosting business by a business-to-business mobile voice and data reseller (the “Legacy Business”) controlled by co-CEOs Piers Linney and Simon Newton. The Legacy Business was subsequently sold through two transactions during 2011 for a total of £15 million, generating a significant return for its shareholders. The majority of these proceeds were then reinvested in the development of the Cloud Services Business. 2.1 Origins of the business Piers Linney and Simon Newton acquired the business and assets of Genesis Communications, a business-to-business mobile voice and data reseller with over 200 employees, from DSG International plc in April 2007. In September of the same year the Legacy Business acquired an early stage Microsoft application hosting company, to enable it to enter the hosting market and subsequently a more robust infrastructure was installed in a wholly-owned datacentre in Leicester. In 2008, Piers Linney and Simon Newton took charge of operations in order to focus the business on the hosted IT and communications market opportunity which they saw developing. In 2009, the Legacy Business acquired both a small professional services business to add Microsoft Dynamics CRM expertise as well as the Thus Mobile mobile voice and data reseller business from Cable & Wireless, which had over 80 employees based in Sheffield. Piers Linney and Simon Newton undertook a restructuring and integration of the two mobile businesses, achieving significant cost synergies and revenues of over £43 million. It was at this time that steps were taken to segregate Outsourcery’s Cloud Services Business from the Legacy Business. During the early years of its development from 2007 to 2011 the Cloud Services Business was focused on direct sales of email, CRM, collaboration, document management solutions and the integration of an early Microsoft messaging product with traditional hosted telephony. During this time, the mobile business generated a total positive cash flow of over £10 million which was principally reinvested to fund the continued development of the Cloud Services Business. Outsourcery has principally been financed by its co-founders, high net worth individuals and third- party debt finance as well as internal cash flows. 2.2 Focus on the Cloud Whilst Outsourcery’s current activities existed in an early form in the Legacy Business, Piers Linney and Simon Newton believed that the developing Cloud opportunity required greater focus and investment, as well as new systems, processes and appropriately experienced executive management. They also believed that the ability to develop the business into a CSP would be significantly hindered by the Legacy Business’ infrastructure and culture. As a result, the decision was taken to sell the Legacy Business and retain the Cloud Services Business. Having launched its first generation Cloud Services platform in 2008, a second generation Cloud platform was built during 2011 and 2012 (the O-Cloud), leveraging the experience and know-how that had been developed over the previous years. The O-Cloud is a single, highly scalable platform which enables the delivery of converged IT and communications. The creation of the O-Cloud has also enabled the Company to offer additional services and provide access to private Cloud solutions. The O-Cloud is discussed further in paragraph 4.2. During 2011 and 2012 the executive management team was strengthened through the recruitment of individuals with backgrounds in hosting, Microsoft technologies and telecommunications in order to continue the development of Outsourcery’s Cloud Services Business and improve its skills and capabilities. The development of the O-Cloud coincided with the launch by Microsoft of its UC&C application (Lync Server) and enabled Outsourcery to be early to market with, in the Directors’ opinion, a revolutionary Cloud-based service that integrates Lync with traditional telephony capabilities. This ability to unify separate IT and communications infrastructures into a single integrated offering comprising IT, voice and video removes the duplication of costs and the need for a separate PBX. This combination of capabilities delivered from the O-Cloud has proved to be attractive to end- customers because it avoids the further cost and complexity of deploying, managing and supporting such converged solutions on-premise or as a managed service in a third-party datacentre. The delivery of this service from the O-Cloud is a key driver for the development of the Group’s partnerships with large telecommunications companies seeking to satisfy their end - customer demand for such capabilities. 2.3 Current position In order to increase scale and benefit from the Group’s operational leverage, the focus is now on establishing and developing its partnerships with a number of telecommunications, system integrators and IT companies. The Group has been selected by Vodafone (including the former Cable & Wireless), Virgin Media Business, BT, Atos and HP to provide Cloud Services to their end- customers. In addition, the Group continues to develop partnerships with a number of smaller IT and communication companies which are typically focused on particular geographic regions of the UK. The Company has won a number of notable customer contracts directly, including Cloud-based deployments of UC&C (including Lync and email) for Pearson plc, a FTSE 100 company and the world’s leading learning company. This is an expected roll-out of the Group’s capabilities to over 5,000 users. In addition, the Group was recently awarded a contract by London Business School for the Cloud-based deployment of its UC&C capabilities (including a dedicated deployment of Lync integrated with Microsoft Office 365) to its employees, enrolled students and alumni, expected to total over 3,000 users. The Group’s market leadership position has been established in part as a result of the substantial investment made in its personnel. As at 31 December 2012, the Group employed 123 full time equivalent personnel across its three offices: Manchester, Leicester and London. This comprised 45 in sales, consultancy, marketing and products, 76 in service delivery, operations and administration and two in executive management. Following the sale of the Legacy Business, a small mobile distribution business remained but as a consequence of the Group’s focus on Cloud Services, the decision was taken by the Group towards the end of 2012 to divest itself of this business and its associated assets. The Board is currently in negotiations with a potential purchaser and expects to have concluded the sale of this business shortly after Admission. 3. The market The internet has transformed the consumer technology experience and the Directors believe that the corporate IT and communications markets are poised to experience a similar revolution. The Directors believe that Cloud adoption is accelerating as businesses of all sizes become aware of, and embrace the benefits of, Cloud-based ICT solutions and that with the convergence of IT and communications, the ICT market faces a prolonged period of systemic change and disruption. Outsourcery is positioned to take advantage of this systemic shift in the deployment of ICT solutions from “on-premise”, “co-located” and “managed service” deployments of customer specific hardware and software to the delivery of integrated ICT services from the Cloud. 3.1 Growth drivers The Directors believe that there are a number of factors which are driving companies to adopt Cloud Services:  Companies benefit from converting capital expenditure into a variable operational cost where shared Cloud Services are purchased on a subscription-based price plan;  High availability of affordable high bandwidth connectivity for companies has ensured Cloud Services can be effectively delivered and at an attractive cost;  Economic and competitive pressure to improve organisational agility and time to market by reducing background IT tasks and enabling focus on value added capabilities and technologies where the skill may not exist in house;  Companies are able to increase employee productivity through the ability of employees to access information and communicate from any device anywhere in the world, including Cloud Services enabling effective home and remote working;  Cloud Services reduce the pressures otherwise experienced by companies from shortening technology refresh cycles and the resulting need to invest more frequently in order to remain competitive;  The delivery of Cloud Services on a monthly subscription basis enables companies to benefit from improved operational flexibility and scalability as they are able dynamically to alter their ICT usage to satisfy the needs of their business;  Companies are able to reduce or even eliminate the burden of owning, managing, maintaining, integrating and upgrading increasingly sophisticated and often disparate and unconnected deployments of technology and telecommunications equipment;  Companies can benefit from a reduction in the overall total cost of ownership of ICT;  Cloud Services are meeting the complex range of security and management issues created as companies begin to adopt bring-your-own-device policies, whereby employees are free to select which device they wish to use at work;  Microsoft’s decision in 2012 to allow companies to migrate their qualifying on-premise software licences to third-party Cloud providers has avoided the need for them to incur the additional cost of purchasing new licences for the Cloud deployment of Microsoft applications; and  Following previously successful deployments of Cloud Services, a greater confidence has now been instilled in the market that Cloud Services can robustly and reliably satisfy a company’s ICT requirements. The Directors believe that an example of the disruption which is now being caused by the provision of ICT services from the Cloud is the gradual replacement of the desktop phone by feature -rich standalone video conferencing and internal collaboration portals and applications that run on a variety of devices (such as smartphones, tablets, PCs, game consoles and smart televisions). As a consequence, the Directors believe that voice communication over traditional networks, the reliance of traditional telecommunications businesses on revenues from “minutes” and the sale of separate and proprietary physical and hosted PBX systems will eventually be superseded by application subscriptions and the delivery of such services from the Cloud. The delivery by Outsourcery from the Cloud of the Microsoft Lync product is an example of such services in a next generation UC&C application that is able to provide a wider range of features that seamlessly integrate into other applications. 3.2 Market size Outsourcery delivers line of business applications as well as voice and data communication applications from the Cloud. These new converged applications allow the Company to address both the IT and communications markets. According to forecasts from research firm IDC, the amount of Cloud-deployed software will grow at almost five times the rate of on-premise software and by 2015 about 24 per cent. of new business software globally will be capable of being deployed in the Cloud. According to forecasts from research firm Edge Strategies, 90 per cent. of UK businesses will adopt Cloud Services within three years and research by CIF predicts that 76 per cent. of current UK companies using existing Cloud Services will increase their expenditure within 12 months. 4. The business 4.1 Services Outsourcery offers a range of services from the O-Cloud which are provided to its partners and end- customers on a subscription basis and are generally billed monthly. Outsourcery’s Cloud Services can be delivered to businesses of any size and the Group can support end-customers ranging from fewer than five employees to those with tens of thousands. Depending upon the size and complexity of customer requirements, these subscription-based revenues may be preceded by professional services revenues to help end-customers transition to the use of Cloud Services. Professional services projects ranging from a few days to many weeks are a precursor to securing recurring revenue, particularly in the case of larger deployments. Outsourcery’s capabilities in this area are an important competitive differentiator and reflects the know-how developed within the Group over the last six years. The Group offers a range of Cloud Services utilising third-party software as well as its own innovative solutions, such as the integration of Polycom video-conferencing with its Cloud-delivered Lync offering. All Cloud Services are provided using the computing, storage, networking and traditional public switched telephone network (“PSTN”) voice capabilities and connectivity resources of the O-Cloud. The Group is therefore able to satisfy a breadth of infrastructure requirements from its end-customers whilst retaining the ability to increase the scale of its business. Partners and end-customers can manage Outsourcery’s Cloud Services through a single portal, which provides access to provisioning, billing and a control panel, and which results in a low - cost support model. The Directors intend to continue to develop the portal in order to increase automation and to further empower the Group’s partners to self-serve. The Group delivers its Cloud Services in the following ways: Software-as-a-Service (“SaaS”) Partners and end-customers can access multi-tenanted (or shared) software applications, which are provisioned as and when they are required. This is commonly referred to as Software-as-a-Service (“SaaS”). These applications are deployed on the O-Cloud in a way that allows many end-customers from different organisations to access their own data on these applications securely. These servi ces are typically billed on a per-user-per-month basis. The use of the O-Cloud allows end-customers to access their applications from a number of devices including smartphones, tablets and PCs. Whilst the Group delivers a number of Microsoft collaboration, communication and business applications on a SaaS basis (such as Lync, email, CRM and document management), it also delivers certain non-Microsoft third-party applications such as Mimecast (for archiving and email security). In addition to the delivery of the multi-tenanted Microsoft software applications, the Group can deliver dedicated instances of these applications from the O-Cloud for those end-customers who have specific requirements, such as large deployments that require specialist in tegration with on-premise systems, or those customers who are able to port their existing Microsoft licences to the Cloud. Outsourcery provides SLAs for these Microsoft applications whether delivered on a multi-tenanted or dedicated basis. These dedicated applications are typically billed based on the computing resource required each month. Platform-as-a-Service (“PaaS”) For those end-customers that wish to deploy their own software applications in the Cloud, the Group provides access to the computing and storage capacity of the O-Cloud, together with an SLA to ensure the platform is available, and a Windows-based operating system. In such a situation the ownership and support of the application itself remains the responsibility of the end-customer. This is commonly known as Platform-as-a-Service and differs from Infrastructure-as-a-Service (“IaaS”), which typically relates to basic computing resource with no operating system installed or managed. PaaS is usually provided in the form of virtual servers and networking and is billed based on the O- Cloud computing resource required each month. This allows the customer to benefit from more effective resource planning and cost flexibility. 4.2 The O-Cloud The O-Cloud is a high availability, highly scalable platform based on modular physical infrastructure called ‘pods’ which contain, amongst other things, networking, server and virtualisation software. The O-Cloud sits within the Group’s own carrier-grade, highly resilient voice and video IP network, which peers with a number of carriers to provide direct connectivity to the traditional (PSTN) voice network. The O-Cloud also has back-up services and geographical redundancy capabilities which have been built into the platform design. In addition, end-customers can specify an increased level of resilience, including solutions that are replicated in real time across two or more datacentres. The O-Cloud is hosted in a Tier 3 Datacentre owned by Telecity Group Plc. Outsourcery’s wholly- owned datacentre in Leicester provides a geographically redundant backup and replication service where it is required. The O-Cloud has been the subject of significant due diligence by large partners and end- customers. The O-Cloud is increasingly being integrated with the self-service portal to empower partners and end-customers to deploy and manage their own services and networking. The O-Cloud comprises, inter alia, the following technologies:  Parallels Automation: This is a solution for delivering Cloud Services automation including provisioning, billing and customer self-service capabilities. It is modular and therefore extendable which allows the Group to add or remove individual Cloud Services to meet changing requirements. Its extensive API support enables Outsourcery’s developers to create the Group’s own proprietary Application Packaging Standards, which provides a basis for innovation and continued differentiation;  Windows Server 2012: Outsourcery is able to utilise Windows Server 2012 to provide high- density, cost-effective virtual machines for test and development workloads as well as processor and memory intensive production environments to run mission critical applications on the O-Cloud. This latest release of Windows Server allows for virtual machines with up to 64 processor cores and 1 terrabyte of random access memory, enabling them to cope with demanding back office workloads;  Windows Hyper-V and System Centre 2012: All O-Cloud servers are virtualised using Microsoft Hyper-V and monitored and managed using the Microsoft System Centre tool set;  O-Cloud “Pods”: These are modular racks of predetermined capacity containing Hewlett Packard high density blade servers, high performance storage solutions and networking hardware, together creating a scalable, flexible and resilient foundation for the O-Cloud;  Proprietary Network: Outsourcery has its own purpose built enterprise-grade voice and data networks. Outsourcery has utilised technologies from Cisco, Juniper and Hewlett Packard to create a, low latency national network dispersed over five geographical locations. Outsourcery’s voice network is OFCOM regulated with multiple national and international PSTN break-out points, ensuring reliability, quality and “least cost” routing options. The Directors believe that the O-Cloud’s proprietary integrated systems and purpose built voice and data networks, combined with the know-how the business has developed over the last six years around converged and Cloud-based ICT, constitutes strong intellectual property and a significant barrier to market entry for the Company’s potential competitors. The Directors believe that the Group can easily extend and replicate the O-Cloud globally through deployment in suitable datacentres, with management from the Group’s NOC in the UK. 4.3 Accreditations The Group has undertaken a range of International Organisation for Standardisation (ISO) accreditations to ensure that its partners and their end-customers can be confident in the quality of the Group’s platform and processes. The Group has the following ISO accreditations:  ISO 27001 – Information Security Management  ISO 9001 – Quality Management  ISO 14001 – Environmental Management Further, the Group is currently working on obtaining ISO 22301 (Business Continuity Management) and certification by the UK Cloud industry Forum, of which the Group was a founding member. The Group has also undertaken the necessary work with CLAS consultants to be able to offer IL2 accredited services to the public sector. The Directors are in discussions with a number of large partners about the business case for deploying an IL3 compliant platform for central government or other end-customers requiring a higher level of security. This would be a replica of the O-Cloud in an even more secure compliance and support environment. The Directors only intend to progress this once a clear business case is developed. The adoption of Cloud-based services by the public sector is, in the view of the Directors, a potentially material revenue opportunity. 4.4 Financial model The Group benefits from an attractive financial model, the key attributes of which are:  Contracted recurring revenue: A key attribute of the Group’s financial model is that end- customers contract with the Group or its partners for the delivery of Cloud Services on a monthly recurring revenue basis (“MRR”) over a term of typically one to five years. This offers flexibility to end-customers to enable them to convert their ICT costs into variable operational expenditure in line with their business requirements. The contracted nature of the services provides the Group with a high degree of long-term revenue visibility. The Group’s Cloud Services are typically priced on a monthly basis based on either the number of applications and users at the customer (���per-user-per-month���) or on a computing resources usage basis.  Repeatable professional services revenue: This relates to professional services and consulting revenue which is typically required for customisation, design, migration and transition to the Cloud and is a precursor to MRR. Although such revenue is not contractually recurring revenue, it typically is repeatable as end-customers seek further customisation and integration over time.  High operational gearing: The Directors believe that the Group will become highly profitable and cash generative as the Group benefits from revenue growth combined with its high level of operational gearing. Having completed the initial investment phase, the Directors expect the Group will be able to deliver significant increases in MRR from a stable overhead cost. The overheads in the business predominately relate to staff costs (78 per cent. of operating expenditure for the financial year ended 31 December 2012) and these are believed by the Directors to be largely sufficient for the foreseeable future as they can support a substantially larger business. This operational leverage is enhanced by the Group’s partner - centric sales model which ensures that costs do not scale in a linear manner with increased revenue.  Low capital expenditure requirement: The Group’s capital expenditure was £0.24 million for the year ended 31 December 2012. The Directors believe that the cash flow impact of future capital expenditure will not vary significantly in the foreseeable future and that the current infrastructure is also sufficient to support a substantially larger business. 4.5 Key performance indicators The Group intends to provide Key Performance Indicators (“KPIs”) in order to reflect its financial performance on an ongoing basis. It is envisaged that these KPIs will be made available at both the interim and preliminary results of the Group. The Directors believe that the following KPIs provide a useful insight into the financial performance of the Group:  Monthly Recurring Revenue: This KPI measures the price paid each month by end-customers for services contracted on an ongoing basis (excluding one-off installation and other non-recurring revenues). At 31 December 2012, MRR stood at £0.26 million;  Annualised Recurring Revenue (“ARR”): This is MRR at a certain date multiplied by twelve. At 31 December 2012, ARR stood at £3.1 million;  Non-recurring revenue: This relates to professional services and consulting revenue and is typically a precursor to MRR. Although such revenue is not contractually-recurring revenue, it typically is repeatable as end-customers seek further customisation and integration over time. In the year ended 31 December 2012, non-recurring revenue stood at £0.7 million;  End-customer concentration: This KPI shows the amount of MRR generated from a specified number of end-customers at a certain date. As at 31 December 2012 the top 10 end- customers represented 23 per cent. of MRR. 4.6 End-Customers and Customer Engagement End-Customers The Group provides services for businesses of all sizes, ranging from small consultancies with fewer than five employees to FTSE 100 enterprises and mid-market end-customers with thousands of employees based across the UK and overseas. This is possible due to the scalability and flexibility of the O-Cloud and increasing levels of automation and customer self-service. The go-to-market strategy varies depending on the type and size of end-customer. The Group divides its business into two customer categories:  Enterprise (including Public Sector): Enterprise customers range from corporates to multinationals with thousands of employees based in offices around the world. Although the Group has been successful in winning several Enterprise procurement processes, Enterprise end-customers are targeted principally through large telecommunications companies, VARs and SI partners as they tend to have longer -standing relationships and the resources and expertise to engage in lengthy procurement processes. The Group provides such partners with a Cloud deployment option offering their end- customers higher returns on investment, faster deployment and generally reduced project implementation risk.  SME: SMEs as a group account for the majority of the ICT market spend and range from sole traders to companies with hundreds of employees. ICT services to SMEs are typically provided by local or regional IT and communications suppliers that also offer support and maintenance. The traditional model of selling hardware and software combined with professional or integration services together with a support and maintenance contract is being disrupted by the availability of Cloud-based services. However, local relationships and support from “trusted advisers” will be important for the foreseeable future and a key pillar of the Group’s partner-centric strategy is to empower such IT and telecommunications suppliers to enable them to provide their clients with a broad range of Cloud Services. The Group’s aim is to become the partner of choice for local IT and communications equipment and support providers. Increasing demand from SMEs for Cloud-based services should require these local or regional suppliers to add Cloud-based services to their offerings. The addition of these new Cloud-based services to their offerings often requires these suppliers to leverage the Group’s specialist partner teams across sales, marketing and support. Following an initial period of focus on securing partners with Enterprise end-customers, in April 2013 Outsourcery launched a number of services specifically tailored for SME end-customers. Customer Engagement Whilst able to deliver Cloud Services to a limited number of customers directly, the Group focuses on its partnership model across both the Enterprise and SME customer segments. The Group’s partners can choose to engage in a number of ways and there are different tiers based on the type of partner, size of opportunity, resource commitment and complexity of service requirements. There are three types of partner engagement models:  Introducer: Partner introduces opportunities to the Group to contract direct with the end- customer, provide services, billing and support in return for a limited on-going commission;  Adviser: Partner leads the sales process and maintains the customer relationship. The Group provides services, billing and some or all of the support to the end-customer;  Reseller: White label partnering solution where the Group provides services and billing data for the reseller’s billing system as well as 2nd or 3rd line technical support. The end-customer may have no visibility of the Group as the CSP. It is possible for the same partner to engage with the Group in different ways, depending upon the type of service being provided. For example, a partner with an IT-related business may choose to be a Reseller of O-Cloud PaaS, but choose to be an introducer for Lync services. This flexible engagement model reduces barriers to partner engagement. The Group provides its Cloud Services to its partners by utilising a self-service portal which enables Adviser and Reseller partners to provision services directly from the O-Cloud. The portal also provides information that will assist partners in selling Cloud Services to their customers, such as a training academy, price guides, marketing collateral (branded and white label) and service information. The portal can also be used to raise and service customer requests. The portal will be further developed to increase automation and provide a wider range of business solutions to partners. The Group segments its partners based on the size of the end-customer opportunity and the resource commitment required by both the partner and the Group. Although the Group has over 300 partners, many are small and have enrolled through the portal to allow access to Cloud Services should their SME end-customers request it. The Directors believe that demand is building from larger end-customers and their incumbent suppliers, including many of the Group’s Strategic Partners and Premier Partners, and that this will in due course spread to smaller partners. The Company segments its partners as follows:  Strategic Partners: These partners are typically large enterprises and have well-established and large customer bases of their own. A detailed joint business plan with revenue targets is agreed with such partners. Strategic Partners commit significant resource to the partnership and the Group expects each to generate at least £1 million of ARR (or approximately £85,000 of MRR) within one year of launch. Strategic Partners are account managed by a team that covers both the account and the support and technical aspects of the relationship. The Company does not expect to have more than ten active Strategic Partners within the medium-term and currently has four signed, two expected to sign within a month of Admission and others in advanced discussions. Strategic Partners include BT, Atos, Logica and HP and are expected to include Vodafone and Virgin Media Business who are expected to sign shortly following Admission as their contracts are at a very advanced stage. The Directors believe that the Group’s market leadership position is evidenced by the Group being selected to provide Cloud-based services to these Strategic Partners and their end-customers.  Premier Partners: The Group will classify as a Premier Partner any partner which it expects to generate at least £0.25 million of ARR (or approximately £20,000 of MRR) within one year of launch. Premier Partners may not have an existing sizeable customer base and will typically have end-customers that are medium sized businesses or public sector related clients. Premier Partners are likely to sell a mix of multi-tenant and dedicated solutions. The Group currently has 47 Premier Partners. Premier Partners are assigned a field-based account manager whose job it is to develop a joint business plan with the partner with the intention that the partner may become a Strategic Partner over time.  Approved Partners: The Group aims to drive volume through its Approved Partners, engaging with them primarily through the Group’s self-service automated portal. The Group’s “In Partnership with Outsourcery” channel programme aims to identify and promote the more active Approved Partners. Approved Partners can access telephone account management and full support for a small monthly fee, which helps identify those partners that are the most committed. This fee is waived once the partner has built a threshold run-rate of new monthly recurring revenue. Approved Partners are more likely to sell multi-tenanted services where the price includes the application licensing as well as the infrastructure and support costs. Such services can be provisioned automatically and the Group will continue to improve the portal over time to allow even more complex virtual servers or private Cloud solutions to be deployed from standardised templates. The Group currently has 33 Approved Partners.  Standard Partners: A Standard Partner is able to sign up with the Group online and will receive an on-boarding call and access to the Group’s portal along with some training materials. The relationship is designed to be low-touch to allow thousands of partners to engage and start selling Cloud Services with little up-front investment from either party. Those that decide to commit resource to selling Cloud Services are expected to become Approved Partners in due course due to the enhanced support they would receive. The Group has over 221 signed Standard Partners. The Directors expect traction amongst Approved Partners and Standard Partners to develop during the course of 2013 and 2014 as awareness of Cloud-based ICT grows amongst SMEs. The Directors aim to build a consistent and growing run rate of new recurring revenue from the more automated Approved Partner and Standard Partner base. This would provide a steady and growing stream of new MRR over time. 5. Strategy Whilst the Group will seek to further develop the size of its UK partner network in order to deliver Cloud Services to both Enterprise and SME end-customers, its principal focus will be on the stimulation and activation of its existing partner network to offer and deploy the Group’s Cloud Services to their end-customer base, thereby driving MRR growth. The Group will seek to scale both the number of end-customers utilising the O-Cloud as well as those subscribing to Outsourcery-delivered applications. The Group will also expand the number of applications it supports and will continue to innovate its Cloud-based services offering. The Directors believe that there are further opportunities to automate the Company’s operations and deliver further efficiencies. The market leading position of the Group as an independent CSP in the UK, one of the most developed Cloud markets, positions the Company well to expand internationally. The Directors expect that such expansion would initially be driven by the demand of existing end -customers. Any investment for such international expansion is currently expected by the Directors to be relatively low given the need for limited physical infrastructure and the ability to manage further deployments of the O-Cloud remotely from the UK. The Group will selectively consider acquisitions which can enhance its current services and/or develop its customer base. 6. Key strengths The Directors believe that the Group has the following key strengths:  Significant growth opportunity The Group is exposed to the systemic market shift in the provisioning of ICT from an “on - premise”, “co-located” or “managed service” to a Cloud-based model. The revenue secured to date is a small proportion of the expected addressable market for the delivery of business applications and voice and data communication applications from the Cloud.  A differentiated offering Outsourcery is one of few independent pure-play Cloud Service Providers and benefits from not being hindered by the constraints of a legacy business model. The Group delivers a range of services from its proprietary O-Cloud platform and is establishing market leadership in the UK. The Group delivers its Cloud Services to both Enterprises and SMEs.  Blue chip customers and partners The Group has been selected by some of the world’s best known ICT companies (such as Vodafone, Virgin Media Business, BT, HP and Atos) for the delivery of Cloud Services to their end-customers. The Group has also been directly contracted by a number of notable and well regarded customers for the delivery of Cloud Services (such as BBC, Pearson plc and London Business School).  Attractive financial model Outsourcery operates a subscription based financial model which provides a sustainable, predictable and recurring revenue stream with high visibility over the Group’s future revenue streams. Outsourcery is able to leverage a stable overhead cost base and a low ongoing requirement for capital expenditure.  Strength and depth of management team Outsourcery has a strong executive management team with significant know-how and experience in both the IT and communications industries. The Board has substantial technology, growth company, financial and public markets experience. 7. Current trading and prospects The Directors believe that Outsourcery is an exciting business providing a substantial opportunity based around the delivery of Cloud Services and that it is making significant progress. The market continues rapidly to expand and considerable interest cont inues to be shown in the services provided by the Group. Although the Group will remain loss making in the near term until it can scale its revenues to exceed its monthly fixed costs, the Group is trading in-line with the Board’s current expectations and the Board is confident about the prospects for the Group. 8. Summary financial information The financial information set out in the table below has been extracted from the historical financial information of the Group which has been included in the admission document. 14 months ended 31 December 2011 £’000 Year ended 31 December 2012 £’000 Abbreviated Income Statement Revenue 2,514 3,639 Gross profit 915 1,311 Operating loss (7,137) (8,766) EBITDA (6,081) (7,626) PAT (7,247) (10,012) Abbreviated Cash Flow Statement Net cash used in operating activities (3,694) (7,235) Net cash flow from investing activities 753 1,258 Net cash flow from financing activities 3,018 6,140 Net increase in cash and cash equivalents 77 163 Abbreviated Balance Sheet Net liabilities (739) (7,718) 9. Directors Immediately following Admission, the Board will comprise the following Directors: Piers Linney: Co-Founder and Co-CEO (42) Piers qualified as a solicitor with SJ Berwin in 1997 before working at a number investment banks including Barclays de Zoete Wedd and Credit Suisse First Boston, latterly where he specialised in M&A and LBOs. Piers left investment banking in 2000 to start, amongst other things, an internet business. After a Chief Executive role at a venture capital and corporate finance boutique, he became a partner at an alternative investment fund, providing structured debt and equity finance to

Admission to trading on AIM.pdf

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