Final Results
Iomart Group PLC
17 May 2006
IOMART GROUP PLC
Final results for the year ended 31 March 2006
Highlights
• Turnover £24.3m up by 46% (2005 - £16.6m)
• Operating profit pre-amortisation £5.0m up by 120% (2005 - £2.3m)
• Fully diluted underlying earnings per share pre-amortisation 6.4p up by
88% (2005 - 3.4p)
• Dividend proposed of 3p per share up by 140% (2005 - 1.25p)
• 240,000 customer numbers grown 20%
• 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 £24.3m (2005 - £16.6m) with gross profit
margins averaging 82%, operating profit pre-amortisation increased by 120% to
£5.0m (2005 - £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 £24.3m is 46% higher than last year and gross margin at
82% overall is consistent with our expectations.
Administrative expenses were £15.5m against £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 £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 £5.0m compared with
£2.3m in the previous year, a rise of over 120%.
Operating profit was £4.4m (2005 - £1.8m) and the profit for the year before
taxation was £4.2m (2005 - £1.7m). There is no liability to corporation tax on
the results for the year and research and development tax credits totalling
£0.1m are due to be refunded. A charge of £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 £4.0m (2005 - £3.1m
after a tax credit of £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 £1.3m. Borrowings under finance leases
amounted to £0.1m, bank loans totalled £2.2m and overdrafts totalled £1.3m. The
group had no other significant debt outstanding.
Trade debtors at £4.3m (2005 - £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 £3.5m and finance leases totalling £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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 31 March 2005
£'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
£'000 £'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
£'000 £'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 £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 £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
£'000 31 March 2005
£'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
£'000 £'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 £8.0 million (2005 - £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
£'000 £'000 £'000 £'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
£'000 31 March 2005
£'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
£'000 £'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 £'000 £'000 £'000
£'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)
========= ========= ========= =========
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