The purpose of the Placing is to fund the Company’s deployment of a CESG IL3-compliant platform, based on its existing O-Cloud, in order to access a new and significant opportunity for the Company’s cloud services which is being driven by UK Government policy and security compliance requirements.
In May 2013 the UK Government introduced a Public Cloud First Policy which means that Government departments are now mandated to consider cloud solutions as a preferred option in any IT procurement. It also wishes to see more flexible contracts and the involvement of UK SMEs in the delivery of these services. Such policies are designed to reduce reliance on the large systems integrators and IT services companies by reducing ‘lock-in’ and to materially reduce the costs of UK Central Government ICT as contracts are renewed. Outsourcery is able to provide a solution to each of these requirements due to its capabilities and status as a UK-based publicly listed company.
On 23 September 2013, Outsourcery announced plans to deploy a new platform, supported by Microsoft Corporation, to provide secure, cloud-based infrastructure services and applications to UK Central Government end-customers and commercial sector organisations with similar security requirements (“IL3 O-Cloud”). On 6 November 2013, Outsourcery announced that it would be partnering with Dell to design and deploy the compute, storage and networking infrastructure for the IL3 O-Cloud, with Dell as a strategic go-to-market partner and established provider of technology to UK Central Government.
Most UK Central Government departments require solutions to comply with the stringent CESG IL3 security level, which requires additional physical security and hosting within UK borders. Microsoft is providing support and technical consulting resource to Outsourcery and has chosen to work with Outsourcery because of its cloud credentials and because Microsoft’s existing public cloud platforms such as Office365 and Azure are not hosted within UK borders and therefore are unable to be IL3 compliant. By contrast, the data centres used by Outsourcery are all located within the UK.
The UK Government is already a significant consumer of Microsoft technologies. It is envisaged that IT solutions using these technologies will be transitioned to cloud deployments over time in an effort to reduce costs as larger managed services contracts expire. Kable research estimates that Microsoft licensing alone accounts for approximately 2% of public sector ICT spend of £16bn, equating to some £320 million. Accordingly, the Directors believe that the UK Government represents a large market for IL3 compliant Microsoft services. Government ICT contracts with an annual contract value of £3.7bn will have expired by the end of 2016, rising to £6.6bn by 2020.
Subject to CESG IL3 accreditation, Outsourcery is aiming for launch of the IL3 O-Cloud in Q3 2014 and will start marketing the IL3 O-Cloud in the first quarter of 2014, although Outsourcery is already working on contract opportunities with its existing strategic partners.
The net funds raised are expected to be utilised on the following basis:
•£1.0 million for setup costs such as platform design, build, security and accreditation;
•£2.5 million opex requirement to fund losses through to IL3 break-even which is expected to be during 2015 at approximately £2.5 million of IL3 revenue; and
•£0.5 million for contingency.