Final Results

RNS Number : 0594A
Iomart Group PLC
29 July 2008
 

IOMART GROUP PLC

('iomart' or the 'Company')


Final Results for the year ended 31 March 2008


iomart, the managed hosting company, is pleased to report its preliminary results for the year ended 31 March 2008. 


Financial Highlights


  • Over £3 million spent on operating costs on start up datacentre operation with limited impact on profitability

    • EBITDA £1.0m (2007: £1.3m)

  • Operating cashflow of £0.5m (2007: £0.2m)

  • Managed Hosting (incorporating Easyspace and Hosting divisions) revenues increased by 17% to £7.7m (2007: £6.6m)

    • iomart's largest ever contract to date for a total of £6.75m over 5 years with BT signed late in the year

    • Improved future revenue visibility

  • £20m cash sale of Ufindus to BT post year end


Operational Highlights

  • In first year of datacentre operation Hosting division added approximately 50 corporate managed hosting customers  

  • Easyspace division now supports over 210,000 SME customers

  • New sales operation established during the year for corporate managed hosting division


Angus MacSween, Chief Executive Officer commented, 'This has been a transformational year with the successful sale of Ufindus this month for £20m and the development of our complex managed hosting business using our own network of carrier neutral datacentres. We are now well positioned to address our chosen market with the firepower to make strategic acquisitions in combination with our organic growth.'



For further information: 


iomart Group plc                                     Tel. 0141 931 6400

Angus MacSween, Chief Executive             

Ian Ritchie, Non-executive Chairman            


KBC Peel Hunt                                        Tel. 020 7418 8900

Oliver Scott

Richard Kauffer 


ICIS                                                        Tel. 020 7651 8688

Tom Moriarty 

Bob Huxford


  CHAIRMAN'S STATEMENT


I am delighted to present my first report as Chairman of iomart Group. It is not too much of an exaggeration to say that this has been a pivotal year in the development of the Group, which has seen us establish ourselves as providers of complex managed hosting and colocation services to the SME and corporate market in the UK through our owned network of carrier neutral datacentres. 


Over the year we set ourselves some objectives in order to ensure that the Group was best positioned to take advantage of opportunities within a changing market. I am pleased to report that our management has achieved these objectives and the Group now finds itself in a much stronger position than at this time last year. As a result of the acquisition of our datacentres last year and the recent disposal of Ufindus our management has successfully built an asset backed business with substantial cash resources whilst having taken steps to eliminate the losses from non-performing assets.  

  

We now have a very clear strategy and a solid basis from which to grow the Group and thereby increase shareholder returns in the medium and long term. With their wealth of experience in web hosting and managed services, our management is well positioned to deliver on our strategic goals.


During the year I took over the role of Chairman of the Group from Nick Kuenssberg. For eight years Nick had provided the Group with first class commitment and service and both personally and on behalf of everyone connected with the Group I want to thank him for everything he has contributed to the development of iomart over that period. Mark Hallam and Stuart Forrest also left the Board and subsequently, with the disposal of Ufindus, ceased to be employees of the Group. Both contributed greatly to the successful development of Ufindus and thoroughly deserve the gratitude of everyone connected with iomart for their sterling efforts. 


Finally, I would like to thank our employees for their hard work and commitment over the last year and our Board for their strong strategic leadership of the business. I believe we can look to the future with confidence.


Ian Ritchie 

Chairman

28 July 2008

  CHIEF EXECUTIVE'S REVIEW

Introduction


We have continued to pursue the strategy laid out last year of focusing on building a managed hosting business owning its own carrier neutral datacentre capacity to allow the delivery of the full set of vertical components from domain names through space power and bandwidth to complex application hosting.


Since the year end we have completed the sale of Ufindus to BT for a total cash consideration of £20m which not only enables us to concentrate solely on the development of the managed services business but also provides us with the capital to acquire additional assets in this area when appropriate.  


Managed Hosting


Our overall managed hosting revenues grew from £6.6m to £7.7m, a 17% increase in the year. This is composed of two elements: Easyspace, which services the SME market, had revenues of £6.3m, and our fledgling datacentre-owning Hosting arm which trades as iomart Hosting serving the needs of the corporate market, had revenues of £1.4m in our start up year of datacentre operation.


Over the years we have developed a portfolio of managed services for SMEs as part of the Easyspace brand. We now have over 210,000 customers to whom we sell domain name services, web hosting, dedicated and virtual servers and other web based services. During the year we have seen good growth in our virtual server and dedicated server offerings and our growing recognition as experts in virtualisation is attracting opportunities. We now have accreditation with the major providers of virtualisation software and this will allow us to build, deploy and maintain customer platforms with a much higher level of complexity and increase the range of managed services that we provide. 


With the addition of our own datacentres, all of which are fully operational, we are now able to leverage this expertise at the enterprise level through the provision of a range of services from the straightforward provision of space and power to the more complex managed hosting solutions.


In February 2008 after successfully passing a thorough diligence process, thereby fully verifying our quality and capability, we won a major contract with BT worth £6.75m over 5 years giving us an anchor tenant for our London datacentre.


Complex managed hosting solutions is the target market for the Group going forward and fundamental to achieving the maximum return on the investment we have made in our datacentres. The demand for managed services remains strong. Typically rack rates for managed services are around 10x that of providing just space and power and it is for this reason that we are focused on securing long term managed services contracts rather than filling the datacentres with low value space and power contracts. 

 

Netintelligence


As 'sofware as a service' ('SaaS') begins to hit the mainstream of service and software delivery, we are delighted to report that Netintelligence, our SaaS based internet security product, contributed £0.3m of operating profit to the Group largely through controlling costs. This year we intend to bring the established and robust delivery platforms developed by Netintelligence closer to the mainstream hosting business and begin to add hosting and other new services through the same seamless delivery system. We are attracting resellers who see the requirement to deliver services in this way to their customers.

  Ufindus


Following the year end we successfully sold our online directory business, Ufindus to BT for a total cash consideration of £20m. We improved the profitability of Ufindus through the year and firmly established its presence in that market. However it was, and remains, our view that unlocking the shareholder value in Ufindus and reinvesting it in our core business was in the best interests of the Group and shareholders in the medium and long term. We are delighted that the UK's largest telecommunications organisation has recognised the value we have created in Ufindus and look forward to seeing it prosper under BT's ownership. I would like to add my personal thanks to Mark Hallam and Stuart Forrest for their commitment and effort over the years, and wish them well in their futures with BT.


Financials


After the acquisition of our datacentres at the very end of the last financial year our plan this year was to absorb the considerable costs of establishing a datacentre operation without affecting our overall Group profitability. Despite having incurred planned operating expenditure in the first year of ownership of our datacentres in excess of £3m there has been a limited impact on our overall profitability.


What has been particularly pleasing has been the revenue growth in both Easyspace (9%) which has been achieved through a combination of additional dedicated resources and greater focus and our Hosting operation (63%) which includes the impact of the first year of operation of our datacentres. Through a combination of a reduction in direct sales headcount and other operational efficiencies, the underlying level of profitability of the Ufindus operation was substantially improved at the expense of revenue growth in the short term. 


EBITDA for the year was £1.0m (2007: £1.3m) which includes the planned operating expenditure incurred in the first year of operation of our datacentres within our Hosting division. All of our other operating divisions, namely Easyspace, Netintelligence and Ufindus, showed strong EBITDA growth collectively delivering EBITDA profits of £5.0m compared to £2.7m in 2007. In particular, as we committed at the end of the last financial year, we have taken steps to ensure Netintelligence made an EBITDA profit compared to the substantial EBITDA loss in 2007.


Despite the cost of establishing our datacentre operation our operating cashflow improved over last year with £0.5m generated from operating activities this year compared to £0.2m in 2007. A great deal of effort has gone into improved working capital management and it is very pleasing to see the positive effect this has had.


At the end of the financial year our net overall borrowings were £0.1m compared to £4.8m at the end of the last financial year. This of course, also includes the cash effect of our share issue at the very start of this financial year to finance the acquisition of our datacentres.


Current trading and outlook


We are now well positioned to address our chosen market and a combination of the defensive qualities of managed hosting provision alongside revenue visibility related to multi-year contracts give us confidence in our long term prospects.


We intend to use the proceeds of the sale of Ufindus to acquire hosting businesses which can add revenues, customers and skills while benefitting from cost efficiencies within the Group.


We look forward with clarity and confidence.


Angus MacSween

Chief Executive Officer

28 July 2008

  CONSOLIDATED INCOME STATEMENT

Year ended 31 March 2008


Continuing 



Note

2008

 £'000

2007

 £'000

Revenue



2

20,049 

21,086 







Cost of sales




(5,501)

(4,686)

 






Gross profit




14,548 

16,400 







 Administrative expenses




(14,672)

(15,835)







Operating (loss)/profit



2

(124)

565 







Analysed as:






Earnings before interest, tax, depreciation and amortisation



2

964 

1,331

Depreciation




(817)

(653)

Amortisation




(271)

(113)







Finance income




73 

11 

Finance costs




(124)

(358)







(Loss)/profit before taxation




(175)

218







Taxation



4

528 

1,962 







Profit for the year from continuing operations



2

353 

2,180 

Basic and diluted earnings per share






Basic



6

0.35p

2.78p

Diluted



6

0.35p

2.72p

  CONSOLIDATED BALANCE SHEET

As at 31 March 2008






2008

Restated

2007




Note

£'000

£'000

ASSETS






Non-current assets






Intangible assets - goodwill




18,525 

18,525

Intangible assets - development costs




669 

310 

Intangible assets - software




51 

39 

Deferred tax asset



5

826 

170

Lease deposit




884 

-

Property, plant and equipment




8,310 

8,380 

 

 


 

29,265 

27,424 

Current assets






Cash and cash equivalents




743 

-

Trade and other receivables




3,121 

2,989 

Amount due from share placing




10,466 

 

 


 

3,864 

13,455 





 


Total assets




33,129

40,879 






 

LIABILITIES

 


 



Non-current liabilities






Deferred consideration




(4,800)

(4,800)

Borrowings




(187)

(649)

 

 


 

(4,987)

(5,449)







Current liabilities






Cash and cash equivalents




-

(3,152)

Trade and other payables




(4,789)

(4,336)

Borrowings




(672)

(1,032)

Amount due in relation to acquisition




-

(4,800)

 

 


 

(5,461)

(13,320)





 


Total liabilities




(10,448)

(18,769)





 


Net assets



2

22,681

22,110 







EQUITY






Share capital




994 

994 

Capital redemption reserve




1,200 

1,200 

Share premium




17,541 

17,541 

Retained earnings




2,946 

2,375 

 Total equity

 


 

22,681 

22,110



  CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 March 2008






2008

£'000

2007

£'000







Operating (loss)/profit




(124)

565

Depreciation




817 

653 

Amortisation




271 

113 

Share based payments




143 

153

Recognition of deferred grants




 (24)

(48)

Movement in deposits




 (884)

-

Movement in trade receivables




 (152)

(631)

Movement in trade payables




477 

(562)

Cash flow from operations




524 

243 

Research and development tax credit received 




142 

Corporation tax paid




 -

(160) 

Net cash flow from operating activities




524

225 







Cash flow from investing activities






Purchase of property, plant and equipment




 (520)

(463)

Capitalisation of development costs




 (606)

(282)

Purchase of intangible assets - software




 (36)

(29)

Payment for acquisition of business




 (4,800)

-

Net cash used in investing activities




 (5,962)

(774)







Cash flow from financing activities






Issue of shares




-

43 

Repayment of finance leases




 (206)

(109)

Repayment of borrowings




 (876)

(865)

Receipt of cash from share placing




10,466 

-

Dividends




-

(1,284)

Interest received




73

11 

Interest paid




(124) 

(358)

Net cash from/(used) in financing activities




9,333

(2,562)






 

Net increase / (decrease) in cash and cash equivalents



3,895

(3,111)





Cash and cash equivalents at the beginning of the year



(3,152)

(41) 





Cash and cash equivalents at the end of the year


743

(3,152)






  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 March 2008





Share capital

Capital redemption reserve

Share premium account

Retained earnings

Total




£'000

£'000

£'000

£'000

£'000









Changes in equity








Balance at 1 April 2006



773

1,200

6,203

2,376

10,552

Profit in the period



-

-

-

2,180

2,180

Scrip dividend



15

-

1,035

(1,050)

-

Dividends paid



-

-

-

(1,284)

(1,284)

Share based payments 



-

-

-

153

153

Shares issued for share option redemption (net of expenses)



6

-

37

-

43

Issue of new shares for acquisition



200

-

10,266

-

10,466









Balance at 31 March 2007



994

1,200

17,541

2,375

22,110









Balance at 1 April 2007



994

1,200

17,541

2,375

22,110

Profit in the period



-

-

-

353

353 

Share based payments 



-

-

-

143 

143 

Deferred tax on share based remuneration



-

-

-

75

75




-

-

-

571

571

Balance at 31 March 2008



994 

1,200 

17,541 

2,946 

22,681 




  NOTES TO THE FINANCIAL STATEMENTS

Year ended 31 March 2008


1. The financial information set out above does not constitute the statutory accounts for the years ended 31 March 2008 and 31 March 2007. Statutory accounts for 2007 have been delivered to the Registrar of Companies and those for 2008 will be delivered following the Company's Annual General Meeting.  The auditors have reported on these accounts, their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985.


The Group made an acquisition in the prior year. The allocation of fair values to the tangible and intangible assets, and liabilities affects goodwill, and the assignment of that to the cash generating unit, recognised in respect of this acquisition. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. It should be noted that the fair values placed on the assets acquired were provisional and the omission of this term on the prior year financial statements was an oversight. Adjustments to fair values are on the basis of the initial recognition being provisional and the comparative figures for 2007 have been restated as a result of these adjustments to the fair values

 

2. SEGMENTAL ANALYSIS


As at 31 March 2008 the Group is primarily organised into four main business segments, which are detailed below. During the year the Hosting division when added to the datacentre operations acquired in the prior year grew substantially, and as such is now split out as a separate segment, where previously it was included in Easyspace.


- Netintelligence - provides 'software as a service' products for a range of internet control and security services

- Easyspace - a range of managed web hosting services and domain name registration services.

- Hosting - provision of datacentre and managed hosting services.

- Ufindus - an internet business directory, providing a web marketing presence to the business community.


There are no other services provided by the Group which would constitute a separately disclosable segment.


Primary Reporting Segment - Business


Assets and Liabilities by Primary Segment


2008

 2007 (restated)


Total Assets

Liabilities

Net Assets (Liabilities)

 Total Assets 

 Liabilities 

Net Assets (Liabilities)


£000's

£000's

£000's

 £000's 

 £000's 

£000's

Netintelligence

931 

(5,408)

(4,477)

468 

(5,427)

(4,959)

Easyspace

21,018 

(1,908)

19,110 

19,278 

(1,927)

17,351 

Hosting

12,636 

(10,201)

2,435 

9,906 

(4,818)

5,088 

Ufindus

7,712 

(2,914)

4,798 

7,650 

(4,992)

2,658 


42,297 

(20,431)

21,866 

37,302 

(17,164)

20,138 

Group assets

 

 

815 

 

 

1,972 


 

 

22,681 

 

 

22,110 

The assets and liabilities of each business segment are derived using the same classifications as management reporting, including gross inter-segment balances, but net of inter-segment dividends paid. 


Non-current assets acquired in the period by Primary Segment


2008

 2007 (restated)


 Tangible non-current assets acquired in period 

 Intangible non-current assets acquired in period 

 Total 

 Tangible non-current assets acquired in period 

 Intangible non-current assets acquired in period 

 Total 


£000's

£000's

£000's

 £000's 

 £000's 

£000's

Netintelligence

27 

259 

286 

82 

29 

111 

Easyspace

53 

-

53 

-

Hosting

567 

569 

7,319 

2,421 

9,740 

Ufindus

133 

381 

514 

799 

282 

1,081 


780 

642 

1,422 

8,200 

2,732 

10,932 


Revenue by Primary Segment


2008

 2007


External

Internal

Total

External

Internal

Total


£000's

£000's

£000's

 £000's 

 £000's 

£000's

Netintelligence

448 

380 

828 

382 

520 

902 

Easyspace

6,320 

  -  

6,320 

5,779 

-

5,779 

Hosting

1,349 

144 

1,493 

830 

-

830 

Ufindus

11,932 

11,932 

14,095 

 -

14,095 


20,049 

524 

20,573 

21,086 

520 

21,606 


Profit by Primary Segment


2008

 2007


EBITDA

Depreciation & amortisation

Operating profit 

EBITDA

Depreciation & amortisation

Operating profit


£000's

£000's

£000's

 £000's 

 £000's 

£000's

Netintelligence

403 

(140)

263 

(918)

(101)

(1,019)

Easyspace

1,996 

(18)

1,978 

1,601 

(42)

1,559 

Hosting

(2,134)

(519)

(2,653)

410 

(24)

386 

Ufindus

2,552 

(411)

2,141 

2,056 

(599)

1,457 

Group overheads

(1,853)

(1,853)

(1,818)

(1,818)


964 

(1,088)

(124)

1,331 

(766)

565 

Group interest and tax

 

 

477 

 

 

1,615 

Profit for the year

 

 

353 

 

 

2,180 

Group overheads, interest and tax are not allocated to segments.


  3. OPERATING COSTS


Included within operating costs from continuing operations are the following items:

 



 2008

 2007 

 



 £'000 

 £'000 






Staff cost excluding development costs capitalised and research and development costs written off the income statement 



10,249

11,815

Depreciation of property plant and equipment





 - Owned assets



611

568

 - Leased assets



206

85

Property, plant and equipment hire





 - Land and buildings



1,406

586

 - Plant and machinery



53

192

Amortisation of intangible assets



271

113

R&D written to income statement



92

367

Marketing and sales



768

1,197

Infrastructure



448

348

Provision for doubtful debts



553

475

Premises and office 



2,171

1,447


Included within other expenses are fees paid to the Group's auditors, an analysis of which is provided below:

Auditors' remuneration

 


2008

£'000

2007

£'000

- Fees payable for the audit of the consolidation and the parent company accounts



21

18

- Fees payable for audit of subsidiaries, pursuant to legislation



28

26

- Tax compliance fees



11

  8 

- Corporate finance and advisory transactions



14

  25




74

  77 



  4. TAXATION





2008

£'000

2007

£'000






Research and development tax credit write-off



(53)

-

Tax charge for the current year



(53)

-

Deferred tax credit



581

1,985

Under provision in prior year



-

(23)




528

1,962


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 (loss)/profit before tax is as follows:





2008

£'000

2007

£'000






(Loss)/profit before tax



(175)

218






Tax (credit)/charge @ 30%



(53)

66






Expenses not deductible for tax purposes



16

1

Research and development tax credit write-off



53

-

Tax effect of share based remuneration



(88)

(127)

Movement in other deferred tax not recognised



26

(1,640)

Movement in short term temporary differences



-

(23)

Consolidation adjustments



(8)

(15)

Utilisation of tax losses



(473)

(255)

Depreciation in excess of capital allowances 



(1)

8

Prior year adjustment



-

23






Tax credit for the current year



(528)

(1,962)


The weighted average applicable tax rate for the year ended 31 March 2008 was 30% (2007: 30%).

 

5. Deferred tax

The Group had recognised deferred tax assets, liabilities and potential unrecognised deferred tax assets as follows:


2008

2007 (restated)


Recognised £'000

Unrecognised £'000

Recognised £'000

Unrecognised £'000






Tax losses carried forward

2,384

2,192

1,985

1,755

Share based remuneration

205

-

-

-

Deferred tax on acquired assets with no capital allowances

(1,763)

-

(1,815)

-

Deferred tax

826

2,192

170

1,755


The movement in the deferred tax account during the year was: 




2008

£'000

Restated

2007

£'000





Balance brought forward


170

-

Income statement movement arising during the year


581

170

Retained earnings movement during the year


75

-

Balance carried forward




826

170


The deferred tax asset in relation to tax losses carried forward arises from the unutilised tax losses of the hosting company. This trade was transferred from the Ufindus Limited subsidiary to iomart Hosting Limited on 1 February 2008. The deferred tax asset has been recognised in line with future projections of the hosting trade over a three year period. The basis of these projections are:

-   The consistent success of the sales teams in generating new business

-   Expectations about the retention of customers

-   Continued success in achieving a particular product mix and maintaining price yield

Based on the current profitability of the hosting company, an assessment of projections and the expectations of sustainable profits in future years, a deferred tax asset in relation to the utilisation of these losses is recognised in line with IAS 12, 'Income Taxes'.

The deferred tax asset in relation to share based remuneration arises from the anticipated future tax relief on the exercise of share options. In accordance with IAS 12, 'Income Taxes', £75,000 of the total deferred tax asset of £205,000 has been recognised directly in equity since this represents the excess of the estimated future tax deduction over the cumulative share based payment expense to date


The deferred tax on acquired assets arises from the datacentre equipment acquired through the acquisition of Ezee DSL Limited on which depreciation is charged but on which there are no capital allowances available.


  6. 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.  





2008

£'000

2007

£'000

Profit for the financial period and basic earnings attributed to ordinary shareholders



353

2,180 











No

No





000

000

Weighted average number of ordinary shares:





For basic earnings per share



99,458 

78,558 

Exercise of share options




1,759 

1,683 

For diluted earnings per share




101,217 

80,241 






Basic earnings per share    



0.35p

2.78p

Fully diluted earnings per share


0.35p

2.72p

 

7. analysis of change in net debt





2007

£'000

Inception of finance lease

£'000



Cash flow

£'000

2008

£'000







Cash at bank and in hand


999 

-

106 

1,105 

Bank overdrafts


(4,151)

-

3,789 

(362)

Bank loan


(1,308)

-

876 

(432)

Finance leases and hire purchase


(373)

(260) 

206

(427)



 

 

 

 

Net debt


(4,833)

(260)  

4,977 

(116)


8. The Annual Report and Accounts for 2008 will be posted to shareholders on 5 September 2008 and will also be available free of charge on request from the Company's registered office; Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP

 


9. The Annual General Meeting of the Company will be held at 2.30pm on 29 September 2008 at the Company's registered office. 

 






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