Final Results

Iomart Group PLC 17 May 2006 IOMART GROUP PLC Final results for the year ended 31 March 2006 Highlights â€¢ Turnover Â£24.3m up by 46% (2005 - Â£16.6m) â€¢ Operating profit pre-amortisation Â£5.0m up by 120% (2005 - Â£2.3m) â€¢ Fully diluted underlying earnings per share pre-amortisation 6.4p up by 88% (2005 - 3.4p) â€¢ Dividend proposed of 3p per share up by 140% (2005 - 1.25p) â€¢ 240,000 customer numbers grown 20% â€¢ Financial director appointed Contact: Nick Kuenssberg Non-executive Chairman 07860 635191 Angus MacSween Chief Executive Officer 0141 931 6400 REPORT AND FINANCIAL STATEMENTS 2006 CHAIRMAN'S STATEMENT The year 2005/06 has seen further significant progress by your company with substantial growth in sales revenue and profits on the back of an improving operational base. Total revenue increased by 46% to Â£24.3m (2005 - Â£16.6m) with gross profit margins averaging 82%, operating profit pre-amortisation increased by 120% to Â£5.0m (2005 - Â£2.3m) and fully diluted underlying earnings per share, excluding the charge for amortisation and the deferred tax charge/credit relating to tax losses, increased by 88% to 6.4p (2005 - 3.4p). This overall improvement was fuelled by excellent performances in the web services sector which serviced 478,000 domain names and 240,000 customers. Ufindus, with its web and directory service, opened a new sales office in Chorley and continued to generate organic growth with over 46,000 businesses. Easyspace, the web-based domain name and hosting business, continued to justify the acquisition in 2004 with very good figures. Netintelligence, the security enterprise business, fell short of expectations but has now been converted to a hosted model for marketing to the SME sector as well. We remain convinced that this end-point security product will satisfy the requirements of the SME market in the short term and the ISP sector in the medium term and will therefore continue to support it with additional resource. Your board has proposed a 140% increase in dividend to 3p per share (2005 - 1.25p) payable on 30 September 2006 to shareholders on the register at 25 August 2006 in line with our progressive dividend policy. Your board also confirms that it is the company's intention to introduce a scrip dividend scheme to enable shareholders to elect to receive new ordinary shares of 1p each in the capital of the company instead of cash dividends payable by the company. A circular containing full details of the proposed scheme is being sent to shareholders along with this annual report. Shareholder approval for the introduction of the scrip dividend scheme will be sought at the forthcoming annual general meeting (AGM) of the company, notice of which is included at the end of this report. We are pleased to announce the appointment of Richard Logan, aged 49, BA, CA as finance director and look forward to his contribution. On your behalf I recognise the commitment shown by Angus MacSween and his executive team and all the staff of the company and look forward to another year of significant progress. Nick Kuenssberg Non-executive chairman 16 May 2006 REPORT AND FINANCIAL STATEMENTS 2006 CHIEF EXECUTIVE OFFICER'S REPORT The past year has been one of continuing progress on all fronts. Revenues have risen by 46% and operating profit pre-amortisation has increased by 120%. UfindUs, our directory service where we provide a web and directory presence to the small and micro business sector, has continued to be our main driver of growth. The growing penetration of broadband into the UK market means more and more people are using the web to source local products and services. UfindUs is gaining users with over 2 million searches per month being carried out on the directory and an additional 2 million visits per month direct to our customers websites. More and more of our customers are extolling the amount of business that being on UfindUs brings them. We are also seeing a growing source of revenue from improving and deepening our existing 46,000 customers' web presence with over 4,000 of them now taking advantage of our web design services. Easyspace Limited is our web based domain name and hosting business. This is a marketing led business which attracts existing and new customers to its web site for a self-serve range of web products. Easyspace has had a good year following a period of integration and is now recognised as one of the UK's leading hosting companies. We provide services to 194,000 customers and continue to lead with new products and services, such as dedicated servers, hosted mail and security. Netintelligence has continued to make progress although more slowly than anticipated. We have recently launched our new version which has a full suite of functionality in a very simple to use, simple to deploy and simple to manage hosted format. There is a growing acceptance that as the world goes mobile there is a requirement to defend security at the end point, be it a desktop in a home office or a laptop in a coffee shop. The ISP community has been slow to adopt security products while they remain focussed on broadband land-grab at any price, and we have refocused on the SME market via our proven direct sales model. The fact that we can demonstrate the product live with potential customers is increasing the number of trials significantly. We remain convinced that, with the right sales teams in place and appropriate marketing support, Netintelligence sales will grow significantly. Our business models require further fine tuning and investment in systems, marketing and co-location facilities and we will develop additional innovative strategies to increase average annual revenue and total customer numbers. We will focus on the sustainability of your company as well as consider opportunities for organic growth, acquisition and partnership in the growing and consolidating web-services sector. Results Turnover for the year of Â£24.3m is 46% higher than last year and gross margin at 82% overall is consistent with our expectations. Administrative expenses were Â£15.5m against Â£11.3m last year. The current year's figure includes a full year's charge for the Blackpool sales office opened last year, costs of larger premises in both Glasgow and Lancaster and the new Chorley sales office opened during the year, together with a full year's charge for amortisation of the goodwill arising on the acquisition of Easyspace Limited. In addition marketing expenditure, including a new television advertising campaign, was increased significantly to promote the Ufindus directory. A total of Â£0.6m of capital expenditure was incurred during the year, as the group continued the programme of replacement of older more expensive equipment and additional servers to support the increased levels of business during the year, together with the costs of equipping the new Chorley sales office. Group pre-tax trading profit excluding amortisation was Â£5.0m compared with Â£2.3m in the previous year, a rise of over 120%. Operating profit was Â£4.4m (2005 - Â£1.8m) and the profit for the year before taxation was Â£4.2m (2005 - Â£1.7m). There is no liability to corporation tax on the results for the year and research and development tax credits totalling Â£0.1m are due to be refunded. A charge of Â£0.3m has been made for deferred tax reflecting the reduction in the amount of tax losses available within one of the subsidiary companies for offset against future expected taxable profits. This has resulted in a profit after taxation for the year of Â£4.0m (2005 - Â£3.1m after a tax credit of Â£1.7m). Basic earnings per share for the year were 5.2p compared to 4.4p per share for the previous year and fully diluted earnings per share were 5.0p. Fully diluted underlying earnings per share, excluding the charge for amortisation and the deferred tax charge/credit relating to tax losses, were 6.4p (2005 - 3.4p). The directors have proposed a dividend for the year of 3p per share payable on 30 September 2006 to shareholders on the register at 25 August 2006 in line with our progressive dividend policy. The dividend will be payable in cash or as a scrip dividend. The price of each new ordinary share will be calculated based on the average of the middle market quotation of an ordinary share on the market on which the ordinary shares are listed or quoted on each of the first five consecutive dealing days on which the relevant shares are quoted 'ex' the relevant dividend. Cash and borrowings Cash balances at 31 March 2006 were Â£1.3m. Borrowings under finance leases amounted to Â£0.1m, bank loans totalled Â£2.2m and overdrafts totalled Â£1.3m. The group had no other significant debt outstanding. Trade debtors at Â£4.3m (2005 - Â£1.9m) increased disproportionately as a result of both increased sales and delayed receipts from credit card processing following the introduction of chip and pin technology, which impacted on the group's collection of recurring payments. The directors do not consider this to be an ongoing issue and measures have been put in place to address this situation. Financial instruments The group's financial instruments comprise cash and liquid resources, bank loans and finance leases together with 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. The group's borrowings at 31 March 2006 comprise a bank loan and overdrafts of Â£3.5m and finance leases totalling Â£0.1m. The interest rate payable on the bank loan and overdrafts is 2.5% above the base rate of Bank of Scotland plc. The interest rate at 31 March 2006 was 7.25% and the average interest rate since the loan was drawn was 7.25%. The interest rate on the finance leases is fixed for the term of the lease at 8.0%. 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 resources to fund the current business plans. International Financial Reporting Standards The AIM Rules require all AIM companies to adopt International Accounting Standards (IAS) for financial years commencing on or after 1 January 2007 and allow for early adoption. The board propose to adopt IAS from 1 April 2007. The company has established a project team to plan for and achieve a smooth transition to IFRS. The project team is looking at all implementation aspects, including changes to accounting policies, systems impacts and the wider business issues that may arise from such a fundamental change and we expect that the group will be fully prepared for the transition. Prospects Our three lines of business are all in markets that are real, growing and changing. They also share a technical infrastructure which provides efficiencies and synergies. We own our intellectual property in each line of business and all have high gross margins. All our pricing is now on a recurring revenue model providing increasing visibility of future revenues. We look forward to continuing the growth in each of these businesses and will consider opportunities to enhance shareholder value in each of these lines of business through organic growth, acquisition and partnership. Angus MacSween Chief executive officer 16 May 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNT Year ended 31 March 2006 31 March Restated 31 March 2006 2005 Â£'000 Â£'000 TURNOVER 24,306 16,603 Cost of sales (4,361) (3,513) ------------ ----------- Gross profit 19,945 13,090 ------------ ----------- Administrative expenses (15,547) (11,176) Restructuring expenses - (113) ------------ ----------- Total administrative expenses (15,547) (11,289) ------------ ----------- OPERATING PROFIT 4,398 1,801 Net interest (214) (77) ------------ ----------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 4,184 1,724 Tax (charge)/credit on profit on ordinary activities (170) 1,415 ------------ ----------- PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION FOR THE YEAR 4,014 3,139 Equity minority interests - (11) ------------ ----------- PROFIT FOR THE FINANCIAL YEAR 4,014 3,128 ============ =========== Earnings per ordinary share (pence) Basic 5.2p 4.4p Diluted 5.0p 4.3p There have been no recognised gains and losses attributable to the shareholders other than the profit for the current financial year and preceding financial year and, accordingly, no statement of total recognised gains and losses is shown. CONSOLIDATED BALANCE SHEET 31 March 2006 2006 Restated 2005 Â£'000 Â£'000 FIXED ASSETS Intangible assets 13,470 14,289 Tangible assets 918 885 ------------ ----------- 14,388 15,174 ------------ ----------- CURRENT ASSETS Debtors 10,614 5,256 Deferred tax asset 945 1,200 Cash at bank and in hand 1,279 2,033 ------------ ----------- 12,838 8,489 ------------ ----------- CREDITORS: amounts falling due (7,167) (5,933) within one year ------------ ----------- NET CURRENT ASSETS 5,671 2,556 ------------ ----------- TOTAL ASSETS LESS CURRENT LIABILITIES 20,059 17,730 CREDITORS: amounts falling due after more than one (1,373) (2,201) year ------------ ----------- NET ASSETS 18,686 15,529 ============ =========== CAPITAL AND RESERVES Called up share capital 773 767 Capital redemption reserve 1,200 1,200 Share premium account 6,203 6,108 Profit and loss account 10,510 7,454 ------------ ----------- TOTAL EQUITY SHAREHOLDERS' FUNDS 18,686 15,529 ============ =========== CONSOLIDATED CASH FLOW STATEMENT Year ended 31 March 2006 31 March Restated 31 March 2006 2005 Â£'000 Â£'000 Net cash inflow from operating activities 362 1,057 Returns on investments and servicing of finance (214) (94) Taxation 123 4 Capital expenditure and financial investment (478) (765) Acquisitions and disposals (34) (4,103) Equity dividends paid (958) - ------------ ----------- Cash outflow before financing (1,199) (3,901) Financing (875) 2,909 ------------ ----------- Decrease in cash in the year (2,074) (992) ============ =========== Decrease in cash in the year (2,074) (992) Cash inflows/(outflows) from debt and lease financing 976 (2,846) ------------ ----------- Change in net (debt) from cash flows (1,098) (3,838) Opening net (debt)/funds (1,104) 2,734 Inception of finance leases (76) - ------------ ----------- Closing net (debt) (2,278) (1,104) ============ =========== NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2005 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 2006 or the year ended 31 March 2005 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 2005 have been delivered to the Registrar of Companies. The statutory financial statements for the year ended 31 March 2006 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. 2. ACCOUNTING POLICIES The financial statements are prepared in accordance with applicable United Kingdom accounting standards. Changes in 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 2005 apart from the adoption of the following Financial Reporting Standards: FRS 21 'Events After the Balance Sheet Date' The adoption of FRS 21 has resulted in a change in accounting policy in respect of proposed equity dividends. If the company declares dividends to the holders of equity instruments after the balance sheet date, the company does not recognise those dividends as a liability at the balance sheet date. Previously where these equity dividends were proposed after the balance sheet date but before authorisation of the financial statements they were recorded as liabilities at the balance sheet date. The aggregate amount of equity dividends proposed before approval of the financial statements, which have not been shown as liabilities at the balance sheet date, are disclosed in the notes to the financial statements. FRS 22 'Earnings per Share' FRS 22 has been adopted and there has been no impact on the calculation of earnings per share. FRS 25 'Financial Instruments -Presentation The adoption of the presentation requirements of FRS 25 has had no impact on the financial statements. 3. SEGMENTAL ANALYSIS The analysis of turnover by destination is as follows: Year ended Restated 31 March 2006 Year ended Â£'000 31 March 2005 Â£'000 Geographical analysis United Kingdom 23,529 16,245 European Union 214 126 USA 337 140 Other 226 92 ----------- ----------- 24,306 16,603 =========== =========== The analysis of profit before tax and net assets by geographical segment has not been disclosed as over 95% of the group's activities are undertaken in the UK. 4. OPERATING PROFIT Year Restated Year ended 31 March ended 31 March 2006 2005 Â£'000 Â£'000 Operating profit is after charging/(crediting) Depreciation of tangible fixed assets: Owned assets 513 405 Leased assets 8 7 Amortisation of intangible fixed assets 819 547 Rentals under operating leases Land and buildings 491 256 Plant and machinery 258 437 Amortised deferred grant income (48) (60) Auditors' remuneration - company audit fees 16 12 - group audit fees 20 19 - taxation 13 11 - corporate finance transactions 2 - - interim review 3 11 - preparation of financial statements of subsidiaries - 19 - advice re share schemes 4 - - advice re risk management assessment 5 - =========== =========== 5. DIVIDENDS ON SHARES CLASSED AS EQUITY Year Restated Year ended 31 March ended 31 March 2006 2005 Â£'000 Â£'000 Paid during the year Equity dividends on ordinary shares 958 - =========== =========== Proposed after the year end (not recognised as a liability) Equity dividends on ordinary shares 2,318 958 =========== =========== 6. PRIOR YEAR ADJUSTMENT As disclosed in the accounting polices section, a new accounting standard, which impacted on the financial results was adopted in the year. The financial effect of this has been detailed below. FRS 21 In the prior year dividends of Â£958,000 were proposed and these were disclosed in the profit and loss account for the prior year. In the comparative figures these are now no longer disclosed on the face of the profit and loss account but disclosed as an appropriation of profit in a note to the financial statements. In respect of the year under review dividends of Â£2,318,000 were proposed after the balance sheet date. Under the previous accounting policy these would have been shown as a liability and deducted from the profit for the year. Under the new accounting policy these are not accrued and are disclosed only in a note to the financial statements. 7. TAX ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES Year ended Restated 31 March 2006 Year ended Â£'000 31 March 2005 Â£'000 Research and development tax credit 85 141 Tax credit - 74 Deferred tax (charge)/credit (255) 1,200 ----------- ----------- (170) 1,415 =========== =========== The group has a deferred tax asset which has been recognised in respect of tax losses within one of the subsidiary companies, which has generated taxable profits and is expected to continue to do so. The differences between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax is as follows: Restated Year ended Year ended 31 March 2006 31 March 2005 Â£'000 Â£'000 Profit on ordinary activities before tax 4,184 1,724 =========== =========== Tax charge @ 30% 1,255 517 Non qualifying depreciation - 7 Disallowed expenditure 152 87 Deferred tax movement - 658 Movement in short term timing differences (11) 14 Consolidation adjustments - 2 Utilisation of tax losses (1,098) (2,291) Rate differences 44 124 Capital allowances in excess of depreciation (15) (53) Statutory deductions on exercise of share options (157) (480) ----------- ----------- 170 (1,415) =========== =========== There is no charge to corporation tax in the year due to the availability of losses. Unrelieved losses of Â£8.0 million (2005 - Â£12.1 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 The group had recognised deferred tax assets and potential unrecognised deferred tax assets as follows: Restated Year ended Year ended 31 March 2006 31 March 2005 Recognised Unrecognised Recognised Unrecognised Â£'000 Â£'000 Â£'000 Â£'000 Tax losses carried forward 945 1,555 1,200 2,430 ========= ========= ========= ========= 8. EARNINGS 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. Fully diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the total of the weighted average number of ordinary shares in issue during the year and the dilutive potential ordinary shares relating to share options. Underlying earnings are calculated by adding back the charge for amortisation of goodwill to the earnings attributable to ordinary shareholders and adjusting for the deferred tax charge/credit relating to the recognition of tax losses. Year ended Restated 31 March 2006 Year ended Â£'000 31 March 2005 Â£'000 Profit for the financial period and basic earnings attributed to ordinary shareholders 4,014 3,128 Amortisation 819 547 Deferred tax charge/(credit) 255 (1,200) ----------- ----------- Underlying earnings 5,088 2,475 =========== =========== No No 000 000 Weighted average number of ordinary shares: For basic earnings per share 76,933 70,318 Exercise of share options 3,155 3,067 ----------- ----------- For diluted earnings per share 80,088 73,385 =========== =========== Basic earnings per share 5.2p 4.4p =========== =========== Fully diluted earnings per share 5.0p 4.3p =========== =========== Basic underlying earnings per share 6.6p 3.5p =========== =========== Fully diluted underlying earnings per share 6.4p 3.4p =========== =========== 9. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT Restated Year ended Year ended 31 March 2006 31 March 2005 Â£'000 Â£'000 Returns on investments and servicing of finance Other interest receivable 29 65 Bank overdraft and other borrowings (241) (142) Finance leases and hire purchase contracts (2) (17) ----------- ----------- (214) (94) =========== =========== Taxation Research and development tax credits received 123 - Corporation tax refund - 4 ----------- ----------- 123 4 =========== =========== Capital expenditure and financial investment Payments to acquire tangible fixed assets (478) (765) =========== =========== Acquisitions Purchase of subsidiary undertakings - (5,852) Professional fees in connection with acquisitions - (182) Payment of deferred consideration (34) (117) Net cash acquired with subsidiaries - 2,048 ----------- ----------- (34) (4,103) =========== =========== Equity dividends paid Dividend paid on ordinary shares (958) - =========== =========== Financing Issue of ordinary shares 101 327 Professional fees in connection with share exchanges - (236) Expenses of capital reduction - (28) Bank loan - 3,465 Repayment of bank loan (863) (429) Capital element of finance lease rentals (113) (190) ----------- ----------- (875) 2,909 =========== =========== 10 ANALYSIS OF CHANGE IN NET (DEBT) Restated Inception of Cash flow At 31 March At 31 March finance lease 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 2,033 - (754) 1,279 Bank overdrafts - - (1,320) (1,320) Bank loan (3,036) - 863 (2,173) Finance leases and hire purchase (101) (76) 113 (64) --------- --------- --------- --------- Net (debt) (1,104) (76) (1,098) (2,278) ========= ========= ========= ========= This information is provided by RNS The company news service from the London Stock Exchange

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