The directors present the strategic report for the year ended 31 July 2024.
Result for the year
The result for the year reflects three key areas:
Significant corporate activity leading to the Company's acquisition by the newly formed iStorage Holdings Limited, the Group’s acquisition of Interactive Media Corp (“IMC”) in the US shortly after the year end and the purchase of iStorage Holdings Limited by the CAST Group at the end of October 2024;
The preparation and launch of a new product set, meeting the requirements of the recently introduced FIPS 140-3 Level 3 accreditation standard; and
An easing in the level of commercial spending by customers as they sought to adjust to a period of higher inflation.
These activities required significant management focus from a small senior team. At the same time, operational activities have been streamlined and strengthened in preparation for the Company’s new role at the centre of the broader group.
Against that backdrop, the Company’s revenues were £654k lower than the prior year at £10.62m. Margins held steady at just over 52%.
The corporate activity saw a £107k increase in legal, professional and consulting spend over the prior period with overhead increases seen in areas such as bank and payments charges and computing costs offsetting reductions in expenditure on marketing activities, R&D costs and headcount costs.
Overall operating profitability and cash generation remained strong with operating profit margin of 16.1% against 18.3% in the prior year and closing cash up by over £1.5m reflecting both the post tax profit of £1.3m and a reduction in trading working capital (which excludes tax liabilities and intra-group items) of £584k and together with the investment in new equipment and the quarterly corporation tax payments.
The tax charge increased from 16.5% of pre-tax profits to 25% reflecting the change in the rate of corporation tax from April 2023 meaning the whole of the current period’s profits are taxed at the increased rate.
The Company and the Group face a range of normal commercial and technological risks.
The key risks, their impact on the Company and the main mitigating actions taken are:
Matter of Concern | Potential Impact on the Company | Mitigating actions |
Technological and certification changes | Products may become out of date or not be capable of meeting incoming certification standards. | The Company maintains ongoing R&D activity and actively interacts with standard setting bodies to ensure visibility of upcoming changes and input into the standard setting processes. The Company combines developing its own IPR with licencing of key items where that is more effective. Management aims to submit products early into any new certification processes. |
Supply chain | The current geopolitical and global economic environment is impacting on the availability of components while customers continue to expect stock to be on hand. | The Company has taken the opportunity of natural changes within its supply chain to evaluate supplier options. Where practical, the Company looks to build long-term relationships while also mitigating against the risks identified. Increased inventory levels have also been maintained both in-house and at distributors to optimise delivery times to customers. |
Exchange rates | Both components and sales may be denominated in currencies other than sterling. Volatility in exchange rates can therefore have a material impact on both sales levels and margins. | Management monitors exchange rates and maintains cash balances in multiple currencies to provide a natural hedge against movements. Additional hedging through currency contracts is considered when necessary. |
Integration of IMC and integration into CAST | The acquisition of IMC was made to complement and expand the core business of the Company with the aim of contributing to the success of the Group and its stakeholders.
Similarly, the acquisition of the Group by CAST looks to provide a deeper platform financially, commercially and technologically to support the growth of the Company and the Group.
However, there is a risk that integration processes may fail to fully achieve these objectives. | Robust due diligence was undertaken ahead of the acquisition involving specialist external advisors as well as senior members of the management team.
Operations are being integrated with early cross-supply of product and close co-operation between local management teams.
Back office functions will be migrating to share service approaches within the iStorage Group. |
Competition in our markets | The Company operates in a competitive market environment and the development of products matched to evolving customer needs is key to success. | The Company monitors competitor offerings, IPR registrations and market intelligence to ensure that its own portfolio and R&D programmes and pricing are matched to customer needs without infringing the rights of others.
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Management utilises key performance measures set out above focusing on:
Revenue levels
Gross margin achieved
Overall operational profitability
Cash generation and operational working capital deployed
The Result for the Year section above comments on each of these items.
Revenue and profitability by product grouping are also closely monitored as are specific stock levels given the recent history of global supply constraints for certain components and devices.
Strategy and future outlook
The geopolitical implications of the conflicts in Ukraine and the Middle East together with increasing levels of cyber-crime have brought an enhanced focus on the need for safeguarding data whether at rest, in transit or in use.
iStorage Holdings Limited, the Company’s immediate holding company, was set up to bring together the existing capabilities of the Company in physical secured devices with the remote management expertise of IMC as well as adding in additional product offerings from IMC’s portfolio such as duplicators and self-encrypting drives. The iStorage Group is focused on growing both top line revenues and aligning its end to end operations to optimise working capital deployment and allow it to continue to invest in the technology needed to address and combat the expanding threats to data the modern world presents.
The acquisition also gives the Group significant trading activities in Europe and the US with a network of distributor and reseller relationships unmatched in the space.
Integration of the two businesses is currently ongoing with territory-appropriate product offerings from each operating unit already available to local distribution partners.
Together with the launch of its latest FIPS140-3 level 3 product sets, the Company has already seen significant interest from customers in the expanded range that the combination with IMC brings.
The Group will retain its focus on its key technological and client segments while exploring the opportunities that are becoming visible in related areas such as cloud storage and international project/data collaboration.
The purchase of the Group as the first member of the CAST Group in the final quarter of 2024 provides a further strengthening of the commercial and financial platform for the Group’s development. CAST has been founded by the private equity house Systematic Growth to become the leader in the safeguarding of data in all its states. CAST’s intention is to acquire additional businesses in neighbouring segments of the data safeguarding space which has the potential to give the Company access to additional expertise, IPR and relationships. The iStorage Group will continue to be run as an autonomous group within the broader CAST Group with access to CAST’s network and capabilities.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 July 2024.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The auditor, Arnold Hill & Co LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
This report has been prepared in accordance with the provisions applicable to companies entitled to the medium-sized companies exemption.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our
opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
Detection of fraud and breaches of laws and regulations
To identify risks of material misstatement due to fraud, we considered events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to do so. Our approach included:
using analytical procedures to identify unusual relationships;
reading minutes of company meetings
discussing company policies and procedures on fraud detection and prevention with directors, and
enquiring about any knowledge of actual, alleged or suspected fraud.
We communicated identified fraud risks throughout our team and remained alert to any indications of fraud
throughout the audit.
To identify risks of material misstatement due to non-compliance with laws and regulations, our approach was as
follows:
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, and through discussion with the directors and other management (as required by auditing standards), and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations;
We considered the legal and regulatory frameworks directly applicable to the financial statements reporting framework (FRS 102 and the Companies Act 2006) and the relevant tax compliance regulations;
We considered the nature of the industry, the control environment and business performance, including the key drivers for management's remuneration.
We communicated identified laws and regulations throughout our team and remained alert to any indications of
non-compliance throughout the audit.
Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. We also performed procedures to address the risk of management override of controls and the risk of fraudulent revenue recognition, in particular the risks that revenue is recorded in the wrong period and that management may be in a position to make inappropriate accounting entries. Our procedures included: testing manual journals; reviewing the financial statement disclosures and testing to supporting documentation; performing analytical procedures; and enquiries of management, and were designed to provide reasonable assurance that the financial statements were free from fraud or error.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. The risk is also greater regarding nondetection of fraud rather than error, as fraud may involve intentional concealment, forgery, collusion, omission or misrepresentation. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's member in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's member those matters we are required to state to the member in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's member, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
IStorage Limited is a private company limited by shares incorporated in England and Wales. The registered office is Sixth Floor, Capital Tower, 91 Waterloo Road, London, SE1 8RT.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The average monthly number of persons (including directors) employed by the company during the year was:
Details of the company's subsidiaries at 31 July 2024 are as follows:
Other debtors includes £105,728 of costs incurred in the acquisition of Interactive Media Corp prior to the incorporation of iStorage Holdings Limited. These costs are expected to be recovered from iStorage Holdings Limited.
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases in respect of land and buildings, vehicles and equipment, which fall due as follows:
iStorage Holdings Limited, a new holding company, was incorporated after the reporting date. iStorage Limited was acquired by iStorage Holdings Limited by way of share for share exchange on 20 September 2024.
On 29 October 2024 iStorage Holdings Limited was itself acquired by SG IM Holding Limited (UK), which is owned by Swedish holding company CAST MC AB, which in turn is controlled by SG CAST Topco AB.