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. [phone]

Angus MacSween, Chief Executive             

Ian Ritchie, Non-executive Chairman            

KBC Peel Hunt                                        Tel. [phone]

Oliver Scott

Richard Kauffer 

ICIS                                                        Tel. [phone]

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	2	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. 

 

END

 

 

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