Sysgroup Regulatory News (SYS)

6 November 2017

SysGroup plc

("SysGroup" or the "Company" or the "Group")

Trading Update

SysGroup PLC (AIM: SYS), the managed IT services and cloud hosting provider, provides the following trading update for the six months ended 30 September 2017 (H1 FY 2018, the "Period")

Group trading performance

During the Period the Board has focused on executing the continued transformation of the business to managed IT services and cloud hosting ("Managed Services"). The Board has pursued this strategy due to its belief that Managed Services offers the highest growth opportunity and the potential for increased margins and longer-term contracts providing greater revenue visibility. The Board has further underpinned this strategy with the investment in, and addition of, both a seasoned Managed Services Group Sales Director and a Group Marketing Director. Both of these hires where made towards the back end of H1 FY 2018, and the Board is already starting to see a positive impact.

As part of the transition process the Group has actively engaged with its customers, educating them on the benefits of Managed Services and the concept of moving from a CAPEX to an OPEX model. The Group has seen increased traction, growing order inflows in recent months and the sales pipeline, as at 31 October 2017, has grown to £3.91m (FY 2016: £2.19m).

This shift in focus has had a consequential impact on revenue, as revenues generated for Managed Serviced contracts are recognised over the duration of the contract, rather than upfront. During the Period the Group has delivered revenues of £3.92m (H1 FY 2017: £2.68m1) and Adjusted EBITDA of £0.14m (H1 FY 2017: £0.23m1).

Full Year Outlook

Due to the shift in the Group's revenue base the Board expects revenue and profitability to be significantly weighted to the second half of FY 2018. However, the transition to, and growth of, orders in higher margin Managed Services has not been sufficiently rapid to deliver the required gross margins year to date. Given the nature of Managed Services revenues, and the longer sales cycles that are typically experienced, it will be difficult to claw back the margin under-performance of the first half. The Board therefore expects that EBITDA and Adjusted PBT for the full year, prior to the contribution from the recently acquired Rockford IT Ltd, will be significantly below market expectations.

(1) Based on continuing operations, excluding the contribution from the Group's SME Mass Market Division sold in July 2016

(2) Adjusted EBITDA, which is referred to throughout this announcement, is earnings before interest, taxation, depreciation, acquisition and integration costs, fair value adjustments and share based payments.

(3) Adjusted PBT is profit before taxation after adding back share based payments, amortisation on acquired intangibles and exceptional costs

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation.

About SysGroup

SysGroup is a leading provider of Cloud Hosting, Managed Services and expert IT Consultancy. The Group delivers solutions that ensure clients understand and benefit from industry-leading technologies and advanced hosting capabilities. The SysGroup team focuses on a customer's strategic and operational requirements - enabling them to free up resources, grow their core business and avoid the distractions and complexity of delivering IT services.

The Group has offices in Liverpool, Coventry, Telford, London and East Sussex.

For more information, visit http://www.sysgroup.com