Outsourcery Plc - Initial Public Offering (IPO)

May 28, 2013 | Publisher: edocr | Category: Finance |  | Collection: Migrated Docs | Views: 9 | Likes: 1

Investec Bank plc PLACING AND ADMISSION TO AIM NOMINATED ADVISER AND BROKER 228582 Tiger Cover Spread 6mm.indd 1-3 22/05/2013 11:45 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to the contents of this document or as to what action you should take you should consult your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 (“FSMA”) who specialises in advising on the acquisition of shares and other securities. This document comprises an admission document prepared in accordance with the AIM Rules. Application will be made for the Ordinary Shares issued and to be issued pursuant to the Placing to be admitted to trading on AIM. It is expected that Admission will become effective and that trading in the Ordinary Shares on AIM will commence at 8.00 a.m. on 24 May 2013. The Ordinary Shares are not dealt on any other recognised investment exchange and it is emphasised that no application has been, or is being, made for the Ordinary Shares to be admitted to any such exchange. This document is not an approved prospectus for the purposes of section 85 of FSMA, has not been prepared in accordance with the Prospectus Rules published by the Financial Conduct Authority (“FCA”) and a copy of it has not been, and will not be, delivered to the UK Listing Authority in accordance with the Prospectus Rules or delivered to or approved by any other authority which could be a competent authority for the purposes of the Prospectus Directive. AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to be attached than to larger or more established companies. AIM securities are not admitted to the Official List of the UK Listing Authority. A prospective investor should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with an independent financial adviser. Each AIM company is required pursuant to the AIM Rules to have a nominated adviser. The nominated adviser is required to make a declaration to the London Stock Exchange on admission in the form set out in Schedule Two to the AIM Rules for Nominated Advisers. The London Stock Exchange has not itself examined or approved the contents of this document. You should be aware that an investment in the Company involves a high degree of risk. While the whole of this document should be read, the attention of the prospective investors is also drawn in particular to Part II (Risk Factors) of this document which sets out certain risk factors relating to any investment in the Ordinary Shares. All statements regarding the Group’s business, financial position and prospects should be viewed in light of these risk factors. OUTSOURCERY PLC (Incorporated and registered in England and Wales under the Companies Act 2006 with registered number 08368966) Placing of 11,542,642 Ordinary Shares at 110 pence per Ordinary Share and Admission to trading on AIM NOMINATED ADVISER AND BROKER Investec Bank plc The Company and the Directors, whose names appear on page 4 of this document, accept responsibility both individually and collectively for the information contained in this document. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. All of the Directors accept individual and collective responsibility for compliance with the AIM Rules. Upon Admission the Placing Shares will, following allotment, rank pari passu in all respects with the Ordinary Shares including the right to receive all dividends and other distributions declared, made or paid on the Ordinary Shares after Admission. This document does not constitute an offer to sell or a solicitation or offer to buy or subscribe for Ordinary Shares unless permitted by applicable law and regulation. This document is not for distribution in the Prohibited Territories. The Ordinary Shares have not been and will not be registered under the United States Securities Act of 1933 (as amended) or under the securities legislation of the Prohibited Territories or in any country, territory or possession where to do so would contravene local securities laws or regulations and the Ordinary Shares may not be offered or sold directly or indirectly within the Prohibited Territories or to, or for the account of, or benefit of, any person within the Prohibited Territories. The distribution of this document in jurisdictions other than the United Kingdom may be restricted by law and therefore any person into whose possession this document comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws in any such jurisdictions. Investec, which is authorised by the Prudential Regulation Authority and regulated in the United Kingdom by the Prudential Regulatory Authority and the Financial Conduct Authority, is acting as nominated adviser and broker to the Company in connection with the Placing and Admission and will not be providing advice to any other person in relation to the Placing and Admission or any other transaction or arrangement referred to in this document. Its responsibilities as the Company’s nominated adviser under the AIM Rules for Nominated Advisers are owed solely to the London Stock Exchange and are not under the AIM Rules for Nominated Advisers owed to the Company or to any Director or to any other person in respect of his or her decision to acquire Ordinary Shares in reliance on any part of this document. No representation or warranty, express or implied, is made by Investec as to any of the contents of this document (without limiting the statutory rights of any person to whom this document is issued). Investec will not be offering advice and will not otherwise be responsible to anyone other than the Company for providing the protections afforded to customers of Investec or for providing advice in relation to the contents of this document or any other matter. No liability is accepted by Investec for the accuracy of any information or opinions contained in, or for the omission of any material information from, this document, for which the Company and the Directors are solely responsible. Copies of this document are available free of charge to the public during normal business hours on any week day (excluding Saturdays, Sundays and public holidays) at the offices of Investec and shall remain available for at least one month after Admission. Copies of this document will also be available for download at the Company’s website at www.outsourcery.co.uk. CONTENTS Page EXPECTED TIMETABLE OF PRINCIPAL EVENTS 3 PLACING STATISTICS 3 DIRECTORS, THE PROPOSED DIRECTOR, SECRETARY AND ADVISERS 4 KEY INFORMATION 5 DEFINITIONS 6 GLOSSARY OF TECHNICAL TERMS 10 IMPORTANT INFORMATION 12 PART I INFORMATION ON THE GROUP 13 PART II RISK FACTORS 31 PART III FINANCIAL INFORMATION 40 SECTION A – ACCOUNTANTS’ REPORT ON THE GROUP 40 SECTION B – FINANCIAL INFORMATION ON THE GROUP 42 PART IV ADDITIONAL INFORMATION 71 2 EXPECTED TIMETABLE OF PRINCIPAL EVENTS Publication of this document 22 May 2013 Admission and dealings in the Ordinary Shares to commence on AIM 24 May 2013 Expected date for CREST accounts to be credited 24 May 2013 Despatch of definitive share certificates in respect of the Placing Shares to be held in certificated form 7 June 2013 Notes: Each of the dates in the above timetable is subject to change without further notice. References to all times are to London time. PLACING STATISTICS Placing price per Placing Share 110p Number of New Shares to be issued by the Company 10,000,000 Number of Sale Shares to be sold pursuant to the Placing 1,542,642 Total number of Placing Shares 11,542,642 Number of Ordinary Shares in issue on Admission 30,831,458 Percentage of the Enlarged Share Capital represented by the Placing Shares 37% Estimated gross proceeds of the Placing receivable by the Company £11.0 million Estimated net proceeds of the Placing receivable by the Company £10.0 million Market capitalisation, upon Admission, of the Company at the Placing Price £33.9 million ISIN GBOOB9G9LV10 SEDOL B9G9LV1 3 DIRECTORS, PROPOSED DIRECTOR, SECRETARY AND ADVISERS Directors: Kenneth Aphunezi Olisa OBE (Non-Executive Chairman) Simon Russell Newton (Co-Chief Executive Officer) Jonathan Piers Daniel Linney (Co-Chief Executive Officer) Andrew Michael Burton (Non-Executive Director) Proposed Director:* Jane Suzanne Hall (Non-Executive Director) Company Secretary: Simon Russell Newton (FCA, FCSI) Registered Office: 10 Whitfield Street London W1T 2RE Head Office: 1 The Avenue Spinningfields Manchester M3 3AP Nominated Adviser and Broker: Investec Bank plc 2 Gresham Street London EC2V 7QP Reporting Accountants and Grant Thornton UK LLP Auditors to the Company: 4 Hardman Square Spinningfields Manchester M3 3EB Legal Advisers to the Company: Squire Sanders (UK) LLP Trinity Court 16 John Dalton Street Manchester M60 8HS Legal Advisers to the Travers Smith LLP Nominated Adviser: 10 Snow Hill London EC1A 2AL Registrar: Capita Registrars Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Company website: www.outsourcery.co.uk * The Proposed Director will be appointed as a Director effective upon Admission 4 KEY INFORMATION The following summary should be read in conjunction with the full text of this document from which it is derived: ● Outsourcery is one of few independent pure-play1 Cloud Service Providers 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 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 its many other partners to deliver Cloud Services to their end-customers. ● The Group has won a number of notable customer contracts directly, including Cloud-based deployments for Pearson plc and London Business School. ● 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 the Company being selected as a Finalist for the Microsoft Server Platform Partner 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. ● 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. ● 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. ● The Group’s principal strategy is to seek to both stimulate and activate its existing partner network, as well as adding further partners to that network, to offer and deploy the Group���s Cloud Services to their end-customer base. ● The business was founded in 2007 by its co-CEOs, Piers Linney and Simon Newton, and has a strong and independent board, led by Ken Olisa OBE (Non-Executive Chairman), which has substantial technology, growth company, financial and public markets experience. ● As the Group’s revenues scale up, its current loss-making position will narrow towards profitability. The funds from the Placing will enable the Group to further consolidate its market leadership position and benefit from a range of competitive advantages as it exploits the significant market opportunity and grows its recurring revenue base. ● The Placing comprises the Company raising funds of £10.0 million (net of expenses) to fund it through to cash flow break-even. The attention of prospective investors is drawn to the information contained in the rest of this document and, in particular, to the risk factors in Part II. 5 1 See Part IV, paragraph 10.3 in relation to the disposal of the Group’s O2 mobile business. DEFINITIONS The following words and expressions shall have the following meanings in this document unless the context otherwise requires: “2006 Act” the Companies Act 2006, as amended; “Admission” the admission of the Ordinary Shares to trading on AIM and such admission becoming effective in accordance with Rule 6 of the AIM Rules; “AIM” a market operated by the London Stock Exchange; “AIM Rules” the AIM Rules for Companies published by the London Stock Exchange and those other rules of the London Stock Exchange which govern the admission of securities to trading on, and the regulation of, AIM; “AIM Rules for Nominated Advisers” the AIM Rules for Nominated Advisers setting out the eligibility, ongoing obligations and certain disciplinary matters in relation to nominated advisers published by the London Stock Exchange; “ARR” annualised recurring revenue; “Articles” the articles of association of the Company adopted on 16 May 2013, conditional on Admission; “Audit Committee” the audit committee of the Board; “Board” or “Directors” the board of directors of the Company, whose names are set out on page 4 of this document which shall include the Proposed Director unless the context states otherwise; “Business Day” a day other than a Saturday, Sunday or other day when banks in the City of London, England are not generally open for business; “certificated” or “certificated form” is the description of a share or other security which is not in uncertificated form (that is not in CREST); “Company” or “Outsourcery” Outsourcery plc; “CREST” the relevant system (as defined in the Uncertificated Securities Regulations) in respect of which Euroclear UK & Ireland is the operator (as defined in the Uncertificated Securities Regulations) in accordance with which securities may be held or transferred in uncertificated form; “EIS” Enterprise Investment Scheme under the provisions of Part 5 of the Income Tax Act 2007; “EMI Options” options granted as enterprise management incentive options pursuant to the provisions of Schedule 5 to ITEPA; “Enlarged Share Capital” the Ordinary Shares in the capital of the Company following completion of the Placing and the Loan Stock Conversion; “Etive” Etive Capital Limited; “EU” or “European Union” has the meaning given to it in Article 299(1) of the Establishing the European Economic Community Treaty as amended by, among others, the Treaty on European Unity (the Maastricht Treaty), the Treaty of Amsterdam and the Treaty of Lisbon; “Euroclear UK & Ireland” Euroclear UK & Ireland Limited; 6 “Existing Ordinary Shares” the existing A ordinary shares, B ordinary shares and C ordinary shares of £1.00 each in the capital of the Company in issue as at the date of this document; “Existing Share Capital” together the Existing Ordinary Shares; “FCA” the Financial Conduct Authority of the United Kingdom; “FSMA” the Financial Services and Markets Act 2000, as amended; “Group” the Company and its subsidiaries; “HMRC” Her Majesty’s Revenue & Customs; “IFRS” International Financial Reporting Standards, as adopted for use in the European Union; “Investec” Investec Bank plc, nominated adviser and broker to the Company; “Investment Company Act” the United States Investment Company Act of 1940, as amended; “ITEPA” Income Tax (Earnings and Pensions) Act 2003; “Legacy Business” the mobile voice and data reseller business as described in paragraph 2 of Part I of this document; “London Stock Exchange” London Stock Exchange plc; “LTIP” the Outsourcery Long Term Incentive Plan; “Loan Stock Conversion” the capitalisation of the loan stock instruments as described in paragraph 3.5 of Part IV of this document; “Lock-In Agreement” the lock-in agreement entered into between Etive, Investec and the Company, further details of which can be found in paragraph 17.2 of Part IV of this document; “MRR” monthly recurring revenue; “New Shares” new Ordinary Shares to be issued by the Company pursuant to the Placing; “Nominations Committee” the nominations committee of the Board; “Official List” the Official List of the UK Listing Authority; ���Operational Risk Management the operational risk management committee of the Board; Committee” “Ordinary Shares” ordinary shares of 1p each in the capital of the Company; “Placees” subscribers for the Placing Shares, as procured by Investec on behalf of the Company pursuant to the Placing Agreement; “Placing” the conditional placing of the Placing Shares at the Placing Price pursuant to the Placing Agreement; “Placing Agreement” placing agreement entered into with the Company, the Directors, Precision Lending, David Burke, Simon Howitt, Tara Linney, Heather Newton and Investec relating to the Placing, further details of which can be found in paragraph 17.1 of Part IV of this document; 7 “Placing Price” 110p per Ordinary Share issued pursuant to the Placing; “Placing Shares” the New Shares and the Sale Shares; “PRA” the Prudential Regulation Authority; “Precision Lending” or “Boost” Precision Lending Fund I FCPR (represented by its management company, Boost & Co SAS); “Prohibited Territories” United States, Canada, Australia, South Africa, the Republic of Ireland, Japan and any other jurisdiction where the distribution of this document or the offer of Ordinary Shares (or any transaction contemplated thereby and any activity carried out in connection therewith) would breach applicable law; “Proposed Director” Jane Suzanne Hall, whose appointment as a director of the Company will be effective on Admission; “Prospectus Directive” the Prospectus Directive (2003/71/EC); “Prospectus Rules” the prospectus rules of the UK Listing Authority made in accordance with section 73A of FSMA as amended from time to time brought into effect on 1 July 2005 pursuant to Commission Regulation (EC) No. 809/2004 and the Prospectus Regulations 2005 (SI 2005/1433); “QCA Guidelines” the Corporate Governance Guidelines for AIM companies published by the Quoted Companies Alliance, as amended from time to time; “Remuneration Committee” the remuneration committee of the Board; “Sale Shares” the Ordinary Shares to be sold by the Selling Shareholders pursuant to the Placing; “Securities Act” the United States Securities Act of 1933, as amended; “Selling Shareholders” those Shareholders who have agreed to sell certain Sale Shares and whose details as set out in paragraph 5 of Part IV of this document; “Shareholders” holders of Ordinary Shares; “Share Option Plan” the Outsourcery Share Option Plan; “Share Plans” the Share Option Plan and the LTIP; “Takeover Code” the City Code on Takeovers and Mergers (as amended from time to time); “UK Listing Authority” the FCA acting in its capacity as the competent authority for the purposes of Part VI of FSMA; “uncertificated” or a share or shares recorded on the register of members as being held in “in uncertificated form” uncertificated form in CREST, entitlement to which, by virtue of the Uncertificated Securities Regulations, may be transferred by means of CREST; “Uncertificated Securities Regulations” the Uncertificated Securities Regulations 2001 (SI/2001/3755); “United Kingdom” or “UK” the United Kingdom of Great Britain and Northern Ireland; “£”, “pounds”, “p” or “pence” pounds sterling, the legal currency of the United Kingdom; 8 “United States” or “US” the United States of America, its territories and possessions, any state in the United States, the District of Columbia and other areas subject to its jurisdiction; “VCT” a Venture Capital Trust as defined in Part 6 of the Income Tax Act 2007; “VCT Scheme” Venture Capital Trust Scheme under the provisions of Part 6 of the Income Tax Act 2007. 9 GLOSSARY OF TECHNICAL TERMS “API” Application Programming Interfaces; “Approved Partner” has the meaning given to it under the heading “Approved Partner” on page 21; “APS” Application Packaging Standards; “BYOD” Bring Your Own Device; “CESG” Communications Electronic Security Group; “CIF” UK Cloud Industry Forum; “CLAS” the CESG listed adviser scheme which provides a pool of private sector consultants approved by CESG; ���Cloud” an internet-based platform which uses computer technology stored on third-party servers rather than on an end-user’s computer or server. End-users access applications through an internet-enabled device with the software and user’s data stored on servers at a remote location; “Cloud Services” the delivery of on-demand and flexible IT and communications services and applications and the provision of the IT infrastructure and environments required to develop and run IT and communication services and applications; “Cloud Service Business” the Group’s business of providing Cloud Services; “CRM” Customer Relationship Management; “CSP” or “Cloud Service Provider” is a provider of Cloud Services; “Enterprise” the category of customers as more particularly described on page 20; “IaaS” Infrastructure-as-a-Service whereby a technology platform is available but no operating system is installed or managed; “ICT” Information and Communications Technology; “IL2” Impact Level 2; “IL3” Impact Level 3; “ISO” International Organisation for Standardisation; “Legacy Business” the mobile voice and data reseller businesses formerly known as Genesis Communications and Thus Mobile; “Lync” Microsoft Lync Server; “NOC” Network Operations Centre; “MRR” Monthly Recurring Revenue; “O-Cloud” the Group’s Cloud platform, a combination of hardware, software, networking, management tools and telecommunications infrastructure which is housed in a Tier 3 Datacentre; 10 “PaaS” Platform-as-a-Service whereby the technology platform is available and the operating system is provided, but the Company does not support the applications used by the end-customer. These remain the responsibility of the customer; “PBX” Private Branch Exchange; “Premier Partner” has the meaning given to it under the heading “Premier Partner” on page 21; “PSTN” public switched telephone network; “Reseller” a white label reseller of one or more of the Company’s services; “SaaS” Software-as-a-Service allows access to multi-tenanted (or shared/hosted) software applications which are provisioned as and when they are required; “SI” a system integrator; “SLA” Service Level Agreement, used to define the service levels that have been agreed by a business on the basis that technology can fail, defining the acceptable level of failure before the business is dramatically affected; “SMEs” Small and Medium-Sized Enterprises (being businesses with no more than 250 employees); “Standard Partner” has the meaning given to it under the heading “Standard Partner” on page 21; “Strategic Partner” has the meaning given to it under the heading “Strategic Partner” on page 21; “Tier 3 Datacentre” a datacentre composed of multiple active power and cooling distribution paths but only one path active, has redundant components and is concurrently maintainable providing 99.982 per cent. availability; “UC&C” Unified Communications and Collaboration; ���VAR” Value Added Reseller; “VoIP” Voice over Internet Protocol. 11 IMPORTANT INFORMATION FORWARD-LOOKING STATEMENTS All statements, other than statements of historical facts, included in this document, including, without limitation, those regarding the Company’s financial position, business strategy, plans and objectives of management for future operations or statements relating to expectations in relation to dividends or any statements preceded by, followed by or that include the words “targets”, “believes”, “expects”, “aims”, “intends”, “plans”, “will”, “may”, “anticipates”, “would”, “could” or similar expressions or the negative thereof, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company’s control that could cause the actual results, performance, achievements of or dividends paid by the Company to be materially different from actual results, performance or achievements, or dividend payments expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s net asset value, present and future business strategies and income flows and the environment in which the Company will operate in the future. These forward-looking statements speak only as of the date of this document. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto, any new information or any change in events, conditions or circumstances on which any such statements are based, unless required to do so by law or any appropriate regulatory authority. MARKET AND FINANCIAL INFORMATION The data, statistics and information and other statements in this document regarding the markets in which the Group operates, or the Group’s position therein, are based on the Group’s records or are taken or derived from statistical data and information derived from the sources described in this document. In relation to these sources, such information has been accurately reproduced from the published information, and, so far as the Directors are aware and are able to ascertain from the information provided by the suppliers of these sources, no facts have been omitted which would render such information inaccurate or misleading. Unless otherwise indicated, financial information in this document, including the Group’s audited consolidated financial statements for the period ended 31 December 2011 and year ended 31 December 2012, and the notes to those financial statements, has been prepared in accordance with International Financial Reporting Standards. Various figures and percentages in tables in this document have been rounded and accordingly may not total. Certain financial data has also been rounded. As a result of this rounding, the totals of data presented in this document may vary slightly from the actual arithmetical totals of such data. All times referred to in this document are, unless otherwise stated, references to London time. 12 PART I INFORMATION ON THE GROUP 1. OVERVIEW Outsourcery is one of few independent pure-play1 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 third-party enterprise grade datacentre. The Directors estimate that the Group has invested approximately £30 million to date in developing its business and the O-Cloud platform. The Directors believe that the Company has established itself as the leading independent CSP in the UK, demonstrated in part, by its recognition 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 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 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 Board will, immediately following Admission, consist of two Executive Directors (Piers Linney and Simon Newton) and three Non-Executive Directors (Ken Olisa, Andy Burton and Jane Hall) who between them have substantial technology, growth company, financial and public markets experience. 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 13 1 See Part IV, paragraph 10.3 in relation to the disposal of the Group’s O2 mobile business. 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, Servelogic Limited, 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) 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 14 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” 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; 15 ● 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 BYOD 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 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 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. 16 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 services 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 integration 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. 17 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 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

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