Final Results

Iomart Group PLC 19 May 2004 IOMART GROUP PLC PRELIMINARY RESULTS FOR THE 12 MONTHS ENDED 31 MARCH 2004 Financial highlights â€¢ turnover at Â£7.36m, up 236% on previous year, with annualised revenues now c. Â£12m â€¢ loss after tax and minority interest reduced to Â£0.66m (1.1p per share v 3.5p per share for 2002/03) â€¢ net cash outflow restricted to Â£1.02m after acquisitions and placing of 5.4m shares â€¢ cash balances of Â£3.02m on hand Operational highlights â€¢ new version (V 4) of NetIntelligence launched in an increasingly aware market â€¢ organic web-services business growth continues enhanced by acquisitions â€¢ successful acquisition and integration of both NicNames and Internetters â€¢ 38,000 webservices customers growing at c.1,000 per month (7,000 at 31.3.03) Prospects â€¢ NetIntelligence positioning endorsed by market though long corporate sales cycle â€¢ webservices business profitability now established â€¢ planned reduction of share premium account to facilitate future dividend payments Contact: Angus MacSween, chief executive officer 0141 931 7025 Nick Kuenssberg, chairman 0141 931 7025 07860 635 191 CHAIRMAN'S STATEMENT The business year 2003/04 has been demanding but rewarding. The results with break-even achieved during the second-half and monthly profitability established by the end of the year demonstrate the effectiveness of the team and the robustness of the twin-track business model. The NetIntelligence suite of enterprise security and content management products has been enhanced and we are in discussion with a number of large corporates for extensive deployment. We remain convinced that the product suite based on individual devices rather than ring-fenced servers is increasingly relevant but the sales cycle within such organisations is long. The webservices business has performed well. The two small acquisitions of NicNames in August 2003 and Internetters in January 2004 have both been well managed and have exceeded expectations. We currently have some 38,000 customers with monthly additions in excess of 1,000 with further potential through both organic growth and further acquisitions. The fundraising in July 2003 through a placing of 5.4 million shares at 15p was well received and it has been gratifying to see both existing and new institutional shareholders' continued support. We believe that this confidence can be maintained. As we indicated at the time of our interim results we intend to seek shareholder approval at our Annual General Meeting in June to reduce the share premium account under Section 135 of the Companies Act 1985. This reduction will offset accumulated losses and thus allow the company to commence the payment of dividends as and when appropriate. Nick Kuenssberg Chairman CHIEF EXECUTIVE OFFICER'S REPORT 2004 was iomart's first full year of trading without significant structural changes going on within the business. This has allowed management to focus solely on trading activities and the resultant organic growth in revenues reflects the lack of distractions and the hard work put in by all the staff within the group. With revenues up from Â£2.2m to Â£7.4m and losses reduced from Â£1.9m to Â£0.7m, we are confident that we have a sound and scalable business model with high margin leading edge products in growing markets. Our webservices business, selling website and search engine products to the small and micro business community continues to grow strongly with more than 1,000 net new customers per month. We acquired two webservices companies during the year, Web Genie Internet Limited (NicNames) in July and Internetters Limited in January. Both are performing ahead of forecast at both revenue and contribution level. This gives us a total of 38,000 customers at year end against 7,000 last year. NetIntelligence, our security software product continues to attract more and more attention in the marketplace, from competitors, analysts, commentators and potential customers alike. We have just launched version 4 of the software which adds new functionality around personal firewall and antivirus, further improving our total solution for end point security in the large and increasingly mobile non-fixed networks arising today. We continue to make progress in penetrating the corporate market, although sales cycles are still longer than we would like. Customer wins in the year include Companies House, Scottish Water, Orange, Axa Investment Managers, Bovis Lendlease. We have developed a modular approach to selling components of the product which allows more flexible selling and alignment with existing budgets within large organisations. This also allows us to address the SME market, and we plan to establish a new office and launch a direct telesales operation selling email filter, webfilter and antivirus into this market, exploiting our proven telesales record. Results Turnover for the year of Â£7.36 million is made up of Â£6.59 million from ongoing operations, network security and webservices (co-location, hosting, domain names and mail), and Â£0.77 million from acquisitions. This represents over 200% growth in revenues on a like for like basis, the bulk of which has come from our direct sales operation in webservices. Gross margin at 78% overall is consistent with our forecasts. Administrative expenses (excluding restructuring expenses) were Â£6.56m against Â£3.81m last year with the increase primarily made up of the costs of more direct sales staff. In addition, restructuring costs of Â£0.04 million (2003 - Â£0.47 million) were incurred, all of which relates to the transfer of the business of NicNames from their previous base in Aldershot to Glasgow. During the year our web hosting telesales operation in Barrow moved to larger premises and we opened a new telesales office at our existing premises in Glasgow. A total of Â£0.44 million of capital expenditure was incurred during the year, mainly in respect of the new telesales operations, replacement of older more expensive equipment and additional servers to support the increased levels of business during the year. The group operating loss was Â£0.83 million compared with a total of Â£2.40 million for the previous year. Bank interest receivable amounted to Â£0.11 million. Interest payable on finance leases, net of provisions, was Â£0.01 million. The loss for the year before taxation was Â£0.72 million. There is no liability to corporation tax on the results for the year and research and development tax credits totalling Â£0.12 million are due to be refunded to the group, resulting in a loss after taxation for the year of Â£0.60 million (2003 - Â£1.89 million). Minority interests in the profit of iomart Internet Limited amounted to Â£0.06 million (2003 - Credit of Â£0.02 million), giving a loss for the financial year of Â£0.66 million. The loss per share for the year was 1.1p compared to 3.5p for the year ended 31 March 2003. Cash and borrowings Cash balances at 31 March 2004 were Â£3.02 million. Borrowings under finance leases amounted to Â£0.29 million. The group had no other debt outstanding. Financial instruments The group's financial instruments comprise cash and liquid resources and various items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to provide finance for the group's operations. The main risk to the group is interest rate risk arising from floating rate interest rates. All transactions of the holding company and the UK subsidiaries are in UK sterling and the group does not use derivative instruments. Financial Position The group's financial position remains strong with sufficient cash reserves to fund the current business plan and take the group through to profitability. Prospects Webservices continues to grow strongly and we believe the direct sales model gives us a significant advantage against our competitors who have to drive potential customers to their websites. There is still a very large population of the small business community who are uncomfortable going on-line to purchase web services. The recurring revenue element within the model is a powerful driver of growth going forward. We will continue to look at potential acquisitions as they arise, if valuations are sensible, and have proven we can integrate successfully to maximise value from them. With the launch of version 4 of NetIntelligence we now believe we have taken a further lead in functionality around end point security. With our abilities in telesales and the growing requirements of small business in this area we are confident we can capture market share at the low end. The corporate world is beginning to wake up to the challenges addressed by NetIntelligence and we expect the groundwork done over the last 18 months to begin to pay off in the coming year. We look forward to another year of strong growth, building on last year's second half performance. Angus MacSween Chief executive officer CONSOLIDATED PROFIT AND LOSS ACCOUNT Year ended 31 March 2004 Year ended 31 March 31 March 2004 2003 Â£'000 Â£'000 TURNOVER Acquisitions 771 - Continuing operations 6,592 2,174 -------- -------- 7,363 2,174 Discontinued operations - 18 -------- -------- Total turnover 7,363 2,192 Cost of sales (1,589) (312) -------- -------- Gross profit 5,774 1,880 -------- -------- Administrative expenses (6,560) (3,809) Restructuring expenses (43) (466) -------- -------- Total administrative expenses (6,603) (4,275) -------- -------- OPERATING PROFIT/(LOSS) Acquisitions 109 - Continuing operations (938) (2,395) -------- -------- (829) (2,395) Discontinued operations - - -------- -------- Operating loss (829) (2,395) Net interest 109 171 -------- -------- LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (720) (2,224) Tax credit on loss on ordinary activities 123 334 -------- -------- LOSS ON ORDINARY ACTIVITIES AFTER TAXATION FOR THE YEAR (597) (1,890) Equity minority interests (59) 18 -------- -------- LOSS FOR THE FINANCIAL YEAR (656) (1,872) ======== ======== Loss per ordinary share (pence) Basic and diluted (1.1p) (3.5p) There have been no recognised gains and losses attributable to the shareholders other than the loss for the current financial year and preceding financial period and, accordingly, no statement of total recognised gains and losses is shown. CONSOLIDATED BALANCE SHEET 31 March 2004 2004 2003 Â£'000 Â£'000 FIXED ASSETS Intangible assets 748 13 Tangible assets 517 376 -------- -------- 1,265 389 -------- -------- CURRENT ASSETS Debtors 2,145 793 Cash at bank and in hand 3,025 4,042 -------- -------- 5,170 4,835 CREDITORS: amounts falling due within one year (2,070) (1,170) -------- -------- NET CURRENT ASSETS 3,100 3,665 -------- -------- TOTAL ASSETS LESS CURRENT LIABILITIES 4,365 4,054 CREDITORS: amounts falling due after more than one year (220) (292) EQUITY MINORITY INTERESTS (129) 30 -------- -------- NET ASSETS 4,016 3,792 ======== ======== CAPITAL AND RESERVES Called up share capital 598 538 Capital redemption reserve 1,200 1,200 Share premium account 19,907 19,087 Profit and loss account (17,689) (17,033) -------- -------- TOTAL EQUITY SHAREHOLDERS' FUNDS 4,016 3,792 ======== ======== CONSOLIDATED CASH FLOW STATEMENT Year ended 31 March 2004 Year ended 31 March 31 March 2004 2003 Â£'000 Â£'000 Net cash outflow from operating activities (1,311) (1,822) Returns on investments and servicing of finance 75 171 Taxation 334 - Capital expenditure and financial investment (442) (92) Acquisitions and disposals (403) - -------- -------- Cash outflow before financing (1,747) (1,743) Financing 730 (734) -------- -------- Decrease in cash in the year (1,017) (2,477) ======== ======== Reconciliation of net cash flow to movement in net funds Decrease in cash in the year (1,017) (2,477) Cash outflows from debt and lease financing 250 734 -------- -------- Change in net funds from cash flows (767) (1,743) Opening net funds 3,501 5,244 -------- -------- Closing net funds 2,734 3,501 ======== ======== NOTES TO THE ACCOUNTS Year ended 31 March 2004 1. BASIS OF PREPARATION The financial information set out above does not constitute the company's statutory financial statements for the year ended 31 March 2004 or the year ended 31 March 2003 but is derived from those financial statements. Those financial statements have been reported on by the Company's auditors. The report of the auditors was unqualified and did not contain a statement under S.237 (2) or (3) Companies Act 1985. The statutory financial statements for the year ended 31 March 2003 have been delivered to the Registrar of Companies. The statutory financial statements for the year ended 31 March 2004 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. 2. ACCOUNTING POLICIES The financial statements have been prepared on the basis of the accounting policies set out in the Group's statutory financial statements for the year ended 31 March 2003. 3. ANALYSES OF OPERATIONS Continuing Acquisitions Total Continuing Dis-continued Total year year year year year year ended 31 ended 31 ended 31 ended 31 ended 31 ended 31 March March March March March March 2004 2004 2004 2003 2003 2003 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Turnover 6,592 771 7,363 2,174 18 2,192 Cost of sales (1,398) (191) (1,589) (303) (9) (312) -------- -------- -------- -------- -------- ------- Gross profit 5,194 580 5,774 1,871 9 1,880 -------- -------- -------- -------- -------- ------- Administrative expenses (6,132) (428) (6,560) (3,800) (9) (3,809) Restructuring expenses - (43) (43) (466) - (466) -------- -------- -------- -------- -------- ------- Total administrative expenses (6,132) (471) (6,603) (4,266) (9) (4,275) -------- -------- -------- -------- -------- ------- Operating profit/(loss) (938) 109 (829) (2,395) - (2,395) ======== ======== ======== ======== ======== ======= Turnover from continuing operations comprises revenue from network security and webservices, excluding VAT. 4. OPERATING LOSS Year Year ended 31 ended 31 March March 2004 2003 Â£'000 Â£'000 Operating loss is after charging/ (crediting) Depreciation of tangible fixed assets: Owned assets 293 214 Leased assets 27 283 Impairment write down of tangible fixed assets - 230 Amortisation of intangible fixed assets 59 118 Impairment write down of intangible - 148 assets Rentals under operating leases 293 261 Amortised deferred grant income (5) - Auditors' remuneration - company audit fees 11 10 - group audit fees 19 26 - other services 24 34 ======== ======== The discount rate used in assessing the fixed asset write down in 2003 was 8.4%. 5. TAX ON LOSS ON ORDINARY ACTIVITIES Year Year ended 31 ended 31 March March 2004 2003 Â£'000 Â£'000 Research and development tax credit 123 334 ======== ======== The differences between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the loss before tax is as follows. Year Year ended 31 ended 31 March March 2004 2003 Â£'000 Â£'000 Loss on ordinary activities before tax (720) (2,224) ======== ======== Tax credit @ 30% (216) (667) Non qualifying depreciation 24 47 Disallowed expenditure 4 84 Deferred tax movement not provided 108 382 Movement in short term timing differences (2) (47) Consolidation adjustments (18) 2 Rate differences 31 40 Prior year adjustments - (175) Capital allowances in excess of depreciation 10 - Statutory deductions on exercise of share options (64) - -------- -------- (123) (334) ======== ======== 5. TAX ON LOSS ON ORDINARY ACTIVITIES (CONTINUED) There is no tax charge in the year due to the availability of losses. Unrelieved losses of Â£13.8 million (31 March 2003 - Â£13.0 million) are carried forward and are available to reduce the tax liability in respect of suitable future trading profits. Research and development tax credits have been claimed in respect of expenditure incurred on the development of the group's NetIntelligence software. These credits are at the rate of 16% of the amount of expenditure allowed as a deduction from taxable income, which is 150% of the development expenditure incurred. Deferred tax A deferred tax asset has not been recognised in respect of losses carried forward as there is insufficient evidence that the asset will be recovered. The amount of the asset not recognised is approximately Â£4.5 million. The asset would be recovered if suitable taxable profits were to be generated in the future. 6. LOSS PER ORDINARY SHARE Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. FRS 14 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. For a loss making company with outstanding share options, net loss per share would only be increased by the exercise of out-of-the-money options. Since it seems inappropriate to assume that option holders would act irrationally and there are no other diluting future share issues, diluted EPS has not been presented. Year Year ended 31 ended 31 March March 2004 2003 Â£'000 Â£'000 Loss for the financial period and basic earnings attributed to ordinary shareholders (656) (1,872) ======== ======== No No '000 '000 Weighted average number of ordinary shares 57,649 53,796 ======== ======== Loss per share (1.1p) (3.5p) ======== ======== 7. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES Year Year ended 31 ended 31 March March 2004 2003 Â£'000 Â£'000 Operating loss (829) (2,395) Depreciation 320 497 Amortisation of intangible assets 59 118 Write down of tangible fixed - 230 assets Write down of intangible fixed - 148 assets (Increase)/decrease in debtors (1,429) 468 Increase/(decrease) in creditors 568 (888) -------- -------- Net cash outflow from operating activities (1,311) (1,822) ======== ======== 8. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT Year Year ended 31 ended 31 March March 2004 2003 Â£'000 Â£'000 Returns on investments and servicing of finance Other interest receivable 112 204 Bank overdraft and other - (1) borrowings Finance leases and hire purchase contracts (37) (32) -------- -------- 75 171 ======== ======== Taxation Research and development tax credits received 334 - ======== ======== Capital expenditure and financial investment Payments to acquire tangible fixed assets (444) (92) Proceeds of disposal of fixed assets 2 - -------- -------- (442) (92) ======== ======== Acquisitions Purchase of subsidiary undertakings (576) - Net cash acquired with subsidiaries 173 - -------- -------- (403) - ======== ======== Financing Issue of ordinary shares 880 - Issue of shares to minority interest 100 - Capital element of finance lease rentals and hire purchase (250) (734) contract -------- -------- payments 730 (734) ======== ======== 9. ANALYSIS OF CHANGE IN NET FUNDS At 31 Cash At 31 March flow March 2003 2004 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 4,042 (1,017) 3,025 Finance leases and hire purchase (541) 250 (291) ------- ------- -------- Net funds 3,501 (767) 2,734 ======= ======= ======== 10. PURCHASE OF SUBSIDIARY UNDERTAKINGS Web Genie Internet Limited Internetters Limited Total Net Fair value Fair Net Fair value Fair Fair book adjustments value book adjustments value value value value Net assets acquired: Tangible fixed assets 49 (32) 17 2 - 2 19 Debtors 46 (6) 40 99 (11) 88 128 Cash at bank and in hand 169 - 169 4 - 4 173 Creditors (246) - (246) (32) (106) (138) (384) ------ ------ ------ ------ ------ ------ ------ 18 (38) (20) 73 (117) (44) (64) ====== ====== ====== ====== Goodwill 477 317 794 ------ ------ ------ 457 273 730 Satisfied by: Cash 346 230 576 Deferred consideration 111 43 154 ------ ------ ------ 457 273 730 ====== ====== ====== Web Genie Internet Limited The fair value of the net assets acquired has been revised from Â£18,000 to net liabilities of Â£20,000. This is principally due to the write down of fixed assets. The deferred consideration is unconditional and is payable in equal monthly instalments with the final payment due in July 2005. Internetters Limited The fair value of the net assets acquired has been revised from Â£73,000 to net liabilities of Â£44,000. This is due to additional provisions against debtors, provisions for expenses and a provision for deferred revenue in accordance with the group's accounting policy. The deferred consideration includes an element which was conditional on the performance of the company from the date of acquisition to 30 April 2004. This conditional element has now been agreed and the revised total payable is included in the amount shown above. The total deferred consideration was paid during April and May 2004. 10. PURCHASE OF SUBSIDIARY UNDERTAKINGS (CONTINUED) Summarised profit and loss accounts for each of the companies acquired for the period prior to acquisition and the previous accounting period are set out below: Web Genie Internet Limited Internetters Limited Year Period Year Period ended ended ended ended 30 31 May 24 July 30 June January 2003 2003 2003 2004 Â£'000 Â£'000 Â£'000 Â£'000 Turnover 856 106 771 363 ========= ========= ========= ========= Operating profit/(loss) (26) 17 6 7 Net Interest 2 - - - --------- --------- --------- --------- Profit/(loss) for the financial period (24) 17 6 7 ========= ========= ========= ========= There were no recognised gains and losses other than the loss for the financial period. During the year Web Genie Internet Limited utilised Â£36,000 of the group's operating cash flows and contributed Â£1,000 in respect of returns on investments and servicing of finance, and Internetters Limited contributed Â£53,000 towards the group's operating cash flows and Â£1,000 in respect of returns on investments and servicing of finance. 11. ANNUAL GENERAL MEETING The 2004 annual general meeting of the company will be held at Fleming Pavilion, Todd Campus, West of Scotland Science Park, Glasgow G20 0XA on 24 June 2004 at 12 noon. This information is provided by RNS The company news service from the London Stock Exchange

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