Final Results

Iomart Group PLC 18 May 2005 IOMART GROUP PLC Final results for the year ended 31 March 2005 Financial highlights â€¢ turnover of Â£16.6m (2004 - Â£7.4m) with annualised sales running at Â£20m â€¢ operating profits of Â£1.8m compared to loss of Â£0.8m â€¢ basic underlying earnings per share, before deferred tax credit, of 2.7p (2004 - loss per share 1.1p) â€¢ maiden dividend of 1.25p recommended â€¢ deferred tax asset increases post tax profit to Â£3.1m and shareholders' funds to Â£14.6m Operational highlights â€¢ successful integration of Easyspace acquisition â€¢ web-services business with 200,000 customers â€¢ launch of UfindUs directory and TV consumer advertising â€¢ Netintelligence contract with BT Wholesale Contact: Nick Kuenssberg Non-executive Chairman 07860 635191 Angus MacSween Chief Executive Officer 0141 931 6400 REPORT AND FINANCIAL STATEMENTS 2005 CHAIRMAN'S STATEMENT The year 2004/05 has seen your company make real progress in revenue and profit terms, establishing a solid platform for the start of a dividend flow, for future growth and proving the robust nature of its business model. The group has achieved substantial revenue growth from Â£7.4m to Â£16.6m including an 87% increase in continuing operations; current revenues are running at c Â£20m on an annualised basis. Arising from the ongoing success of the web services business and the successful integration of the September 2004 acquisition of Easyspace which continues to perform up to expectations, the group has achieved an operating profit of Â£1.8m compared with operating losses of Â£0.8m in the previous year. Cashflow has held up well with an outflow restricted to Â£1.0m after the Â£12.2m paid for Easyspace, partly funded by a Â£6.2m share exchange and the cash balances of Â£2m acquired. The utilisation of tax losses on current and forecast profits restricts the tax charge and creates a deferred tax asset of Â£1.2m that is recognised in accordance with generally accepted accounting practice. This increases post tax profit to Â£3.1m and shareholders' funds to Â£14.6m. Following shareholder approval at the 2004 annual general meeting and court approval in January 2005 the share premium of the company has been substantially reduced facilitating the elimination of accumulated losses. Taking into account the profit achieved in the second half of the year and the prospects for the current year the board is delighted to recommend a maiden dividend of 1.25p per share payable on 22 July 2005 to shareholders on the register at 24 June 2005. It was believed appropriate after six years with the original firm of auditors to reconsider the relationship. It was decided to put the audit and tax services out to tender, a process that was completed by end January 2005 in time for the final audit of the accounts for 2004/05. The audit committee decided that Grant Thornton UK LLP offered the best fit of service, understanding and value and the board is recommending their reappointment to the members. Similarly five years after coming to the stock exchange, it was appropriate to review the board structure. Your board is recommending the appointment of two of the senior executives of the group, Stuart Forrest and Mark Hallam, this to be effected at the annual general meeting. At the same time Bill Dobbie will be retiring and we would like to thank him for his commitment, inspiration and support as founder, executive and non executive director of the company. The board is recruiting a new non executive director with relevant experience and anticipates making an early announcement. I would take the opportunity to acknowledge the drive and imagination demonstrated by Angus MacSween, his colleagues and all staff during this challenging year and to thank them in the full confidence that this will be sustained and the results further enhanced. Nick Kuenssberg Non-executive chairman 17 May 2005 REPORT AND FINANCIAL STATEMENTS 2005 CHIEF EXECUTIVE OFFICER'S REPORT The past year has seen good progress on all fronts. We have almost doubled our like for like sales, successfully integrated a significant acquisition and strengthened the positioning of our Netintelligence product set. We have extended our webservices business further through the launch of our own proprietary UK local directory/search product, UfindUs, which we intend to invest in to create both brand recognition and value. The web services business is now split into two parts. â€¢ UfindUs which is our own directory service where we provide a web and directory presence to the small and micro business community using our direct telesales force. We have four sales offices in Lancaster, Barrow, Blackpool and Glasgow and in total we employ over 200 direct sales staff. â€¢ Easyspace Limited is the web based domain name and hosting business acquired last autumn which has c.142,000 customers run from our new head office in Glasgow (following the closure of the West Byfleet office) and with a small but effective support office in Bangkok, Thailand. This is a marketing led business which attracts existing and new customers to its web site for a self serve range of web products. Your board is excited at the launch of the UfindUs localised directory which should build significant shareholder value in the future. We have worked hard to improve the product offering and customer service in Easyspace and continue to effect cost savings identified at acquisition. We are also steadily winning more complex hosting customers as we gain the confidence of larger organisations across the UK. The Netintelligence product suite for security and content management has been developed further to address home, SME and corporates. The most significant development has been to establish Netintelligence as a hosted service for these three market segments. We have also improved our mailfilter hosted service and we are launching a mailfilter appliance in the first quarter. This means we have effectively moved away from a perpetual license model to a recurring revenue service model in line with our other lines of business. We have also changed to focus on delivering through a small number of active and motivated resellers. We are very pleased to have established a very close contractual working relationship with BT Wholesale who are targeting the UK broadband market where they provide over five million connections in the UK. BT have signed 5 contracts with smaller ISPs and negotiations are underway with a number of others including several of the top 10. The SME version of the hosted service launches at the end of May and there is considerable interest from a number of ISPs for this higher value product. Results Turnover for the year of Â£16.6m is made up of Â£13.8m from ongoing operations, network security and webservices (co-location, hosting, domain names and mail), and Â£2.8m from acquisitions. This represents over 87% growth in revenues on a like for like basis, the bulk of which has come from our direct sales operation in webservices. Gross margin at 78.8% overall is consistent with our expectations. Administrative expenses (excluding restructuring expenses) were Â£11.3m against Â£6.6m last year the increase being primarily the costs of additional direct sales staff. Restructuring costs of Â£0.1m (2004 - Â£0.04m) were incurred, the majority of which relates to the transfer of the business of Easyspace from their previous base in West Byfleet to Glasgow. During the year we opened another new telesales office in Blackpool and in April of this year the Lancaster sales office moved to larger premises. A total of Â£0.8m of capital expenditure was incurred during the year, mainly in respect of the new telesales operation, replacement of older more expensive equipment and additional servers to support the increased levels of business during the year. The group operating profit was Â£1.8m compared with a loss of Â£0.8m in the previous year. The profit for the year before taxation was 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 deferred tax asset of Â£1.2m has been recognised in the consolidated accounts in respect of tax losses within one of the subsidiary companies in the expectation that the subsidiary will generate taxable profits in the near future. This has resulted in a profit after taxation for the year of Â£3.1m (2004 - loss Â£0.6m). Minority interests in the profit of iomart Internet Limited, prior to the acquisition of the minority interest amounted to Â£0.01m, giving a post tax profit for the financial year of Â£3.1m. Basic earnings per share for the year were 4.4p compared to a 1.1p loss per share for the previous year and fully diluted earnings per share were 4.3p. Basic underlying earnings per share, excluding the deferred tax credit, were 2.7p. The directors have proposed a maiden dividend for the year of 1.25p per share. Cash and borrowings Cash balances at 31 March 2005 were Â£2.0m. Borrowings under finance leases amounted to Â£0.1 m and bank loans totalled Â£3.0m. The group had no other significant debt outstanding. 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 2005 comprise a bank loan of Â£3.0m and finance leases totalling Â£0.1m. The interest rate payable on the bank loan is 2.5% above the base rate of Bank of Scotland plc. The interest rate at 31 March 2005 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 and is between 8.83% and 9.25%. 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 plan. Prospects Our business model gives us a powerful platform for the future. With the launch of UfindUs as a branded directory we believe our strong organic growth will continue. We are committing to a significant marketing budget to achieve the brand awareness we need and our 200 direct telesales staff facilitate a high level of penetration into the SME business community. The recurring revenue element within the model remains a powerful driver of growth going forward. Netintelligence has continued to evolve and is now being taken to market by a growing number of partners, particularly BT who have put significant dedicated resource into this joint opportunity. The potential in the Telco market is very large and not constrained geographically. We look forward to another year of continuing growth. Angus MacSween Chief executive officer 17 May 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT Year ended 31 March 2005 Year ended 31 March 31 March 2005 2004 Â£'000 Â£'000 TURNOVER Acquisitions 2,828 771 Continuing operations 13,775 6,592 ---------- --------- Total turnover 16,603 7,363 Cost of sales (3,513) (1,589) ---------- --------- Gross profit 13,090 5,774 ---------- --------- Administrative expenses (11,176) (6,560) Restructuring expenses (113) (43) ---------- --------- Total administrative expenses (11,289) (6,603) ---------- --------- OPERATING PROFIT/(LOSS) Acquisitions 664 109 Continuing operations 1,137 (938) ---------- --------- Operating profit/(loss) 1,801 (829) Net interest (77) 109 ---------- --------- PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION 1,724 (720) Tax credit on profit/(loss) on ordinary activities 1,415 123 ---------- --------- PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER TAXATION FOR THE YEAR 3,139 (597) Equity minority interests (11) (59) ---------- --------- PROFIT/(LOSS) FOR THE FINANCIAL YEAR 3,128 (656) Proposed dividend 958 - ---------- --------- RETAINED PROFIT/(LOSS) FOR THE FINANCIAL YEAR TRANSFERRED TO/(FROM) RESERVES 2,170 (656) ========== ========= Earnings/(loss) per ordinary share (pence) Basic 4.4p (1.1p) Diluted 4.3p Underlying earnings/(loss) per ordinary share (pence) Basic 2.7p (1.1p) Diluted 2.6p There have been no recognised gains and losses attributable to the shareholders other than the profit/(loss) for the current financial year and preceding financial year and, accordingly, no statement of total recognised gains and losses is shown. CONSOLIDATED BALANCE SHEET 2005 2004 Â£'000 Â£'000 FIXED ASSETS Intangible assets 14,289 748 Tangible assets 885 517 ---------- --------- 15,174 1,265 ---------- --------- CURRENT ASSETS Debtors 5,256 2,145 Deferred tax asset 1,200 - Cash at bank and in hand 2,033 3,025 ---------- --------- 8,489 5,170 ---------- --------- CREDITORS: amounts falling due (6,891) (2,070) within one year ---------- --------- NET CURRENT ASSETS 1,598 3,100 ---------- --------- TOTAL ASSETS LESS CURRENT LIABILITIES 16,772 4,365 CREDITORS: amounts falling due after more than one year (2,201) (220) EQUITY MINORITY INTERESTS - (129) ---------- --------- NET ASSETS 14,571 4,016 ========== ========= CAPITAL AND RESERVES Called up share capital 767 598 Capital redemption reserve 1,200 1,200 Share premium account 6,108 19,907 Profit and loss account 6,496 (17,689) ---------- --------- TOTAL EQUITY SHAREHOLDERS' FUNDS 14,571 4,016 ========== ========= 31 March 2005 Year ended 31 March 31 March 2005 2004 Â£'000 Â£'000 Net cash inflow/(outflow) from operating activities 1,057 (1,311) Returns on investments and servicing of finance (94) 75 Taxation 4 334 Capital expenditure and financial investment (765) (442) Acquisitions and disposals (4,103) (403) ---------- --------- Cash outflow before financing (3,901) (1,747) Financing 2,909 730 ---------- --------- Decrease in cash in the year (992) (1,017) ========== ========= Reconciliation of net cash flow to movement in net (debt)/ funds Decrease in cash in the year (992) (1,017) Cash (inflows)/outflows from debt and lease financing (2,846) 250 ---------- --------- Change in net (debt)/funds from cash flows (3,838) (767) Opening net funds 2,734 3,501 ---------- --------- Closing net (debt)/funds (1,104) 2,734 ========== ========= CONSOLIDATED CASH FLOW STATEMENT Year ended 31 March 2005 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 2005 or the year ended 31 March 2004 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 2004 have been delivered to the Registrar of Companies. The statutory financial statements for the year ended 31 March 2005 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. 2. ACCOUNTING POLICIES The financial statements have been prepared on the basis of the accounting policies set out in the Group's statutory financial statements for the year ended 31 March 2004. 3. SEGMENTAL ANALYSIS The analysis of turnover by destination is as follows: Year ended Year ended 31 March 2005 31 March 2004 Â£'000 Â£'000 Geographical analysis United Kingdom 16,245 7,363 European Union 126 - USA 140 - Other 92 - ----------- ----------- 16,603 7,363 =========== =========== The analysis of profit before tax and net assets by geographical segment has not been disclosed as the group's operations comprise one activity. NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 MARCH 2005 4. ANALYSES OF OPERATIONS Continuing Acquisitions Total Continuing Acquisitions Total Year Year Year Year Year Year Ended 31 ended 31 ended 31 ended 31 ended 31 ended 31 March March March March March March 2005 2005 2005 2004 2004 2004 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Turnover 13,775 2,828 16,603 6,592 771 7,363 Cost of (2,657) (856) (3,513) (1,398) (191) (1,589) sales -------- -------- -------- -------- -------- -------- Gross profit 11,118 1,972 13,090 5,194 580 5,774 -------- -------- -------- -------- -------- -------- Administrative expenses (9,949) (1,227) (11,176) (6,132) (428) (6,560) Restructuring expenses (32) (81) (113) - (43) (43) -------- -------- -------- -------- -------- -------- Total administrative expenses (9,981) (1,308) (11,289) (6,132) (471) (6,603) -------- -------- -------- -------- -------- -------- Operating profit/(loss) 1,137 664 1,801 (938) 109 (829) ======== ======== ======== ======== ======== ======== Turnover from continuing operations comprises revenue from network security and webservices, excluding VAT. 5. OPERATING PROFIT/(LOSS) Year ended Year ended 31 March 2005 31 March 2004 Â£'000 Â£'000 Operating profit/(loss) is after charging/ (crediting) Depreciation of tangible fixed assets: Owned assets 405 293 Leased assets 7 27 Amortisation of intangible fixed assets 547 59 Rentals under operating leases Land and buildings 256 165 Plant and machinery 437 128 Amortised deferred grant income (60) (5) Auditors' remuneration - company audit fees 12 11 - group audit fees 19 19 - other services 30 24 ============= ============= In addition to the above, fees of Â£25,000 were charged by the former auditors in connection with the acquisition of Easyspace Limited. 6. TAX ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES Year ended Year ended 31 March 2005 31 March 2004 Â£'000 Â£'000 Research and development tax credit 141 123 Tax credit 74 - Deferred tax credit 1,200 - ------------- ------------- 1,415 123 ============= ============= A deferred tax asset has been recognised in the consolidated accounts in respect of tax losses within one of the subsidiary companies in the expectation that the subsidiary will generate taxable profits in the near future. 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/ (loss) before tax is as follows. Year ended Year ended 31 March 2005 31 March 2004 Â£'000 Â£'000 Profit/(loss) on ordinary activities before tax 1,724 (720) ------------- ------------- Tax charge/(credit) @ 30% 517 (216) Non qualifying depreciation 7 24 Disallowed expenditure 87 4 Deferred tax movement not provided 658 108 Movement in short term timing differences 14 (2) Consolidation adjustments 2 (18) Utilisation of tax losses (2,291) - Rate differences 124 31 Capital allowances in excess of depreciation (53) 10 Statutory deductions on exercise of share options (480) (64) ------------- ------------- (1,415) (123) ============= ============= There is no tax charge in the year due to the availability of losses. Unrelieved losses of Â£12.1 million (2004 - Â£13.8 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. 7. TAX ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES (CONTINUED) Deferred tax The group had recognised deferred tax assets and potential unrecognised deferred tax assets as follows: Year ended 31 March Year ended 31 March 2005 2004 Recognised Unrecognised Recognised Unrecognised Â£'000 Â£'000 Â£'000 Â£'000 Tax losses carried forward 1,200 2,430 - 4,500 ======== ========= ======== ========= 8. EARNINGS/(LOSS) PER ORDINARY SHARE Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. FRS 14 requires presentation of diluted EPS to reflect all outstanding share options where their future exercise would decrease net profit or increase net loss per share. For a loss making company with outstanding share options, net loss per share would only be increased by the exercise of out-of-the-money options. Since it seems inappropriate to assume that option holders would act irrationally and there were no other diluting future share issues, diluted EPS has not been presented for the year ended 31 March 2004. Year ended Year ended 31 March 2005 31 March 2004 Â£'000 Â£'000 Profit/(loss) for the financial period and basic earnings attributed to ordinary shareholders 3,128 (656) Less deferred tax credit (1,200) - ------------- ------------- Underlying earnings/(loss) 1,928 (656) ============= ============= No No 000 000 Weighted average number of ordinary shares: For basic earnings/(loss) per share 70,318 57,649 ============= Exercise of share options 3,067 ------------- For diluted earnings per share 73,385 ============= Basic earnings/(loss) per share 4.4p (1.1p) ============= ============= Fully diluted earnings per share 4.3p ============= Basic underlying earnings/(loss) per share 2.7p (1.1p) ============= ============= Fully diluted underlying earnings per share 2.6p ============= 9. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT Year Year ended 31 March ended 31 March 2005 2004 Â£'000 Â£'000 Returns on investments and servicing of finance Other interest receivable 65 112 Bank overdraft and other borrowings (142) - Finance leases and hire purchase contracts (17) (37) ------------- ------------- (94) 75 ============= ============= Taxation Research and development tax credits received - 334 Corporation tax refund 4 - ------------- ------------- 4 334 ============= ============= Capital expenditure and financial investment Payments to acquire tangible fixed assets (765) (444) Proceeds of disposal of fixed assets - 2 ------------- ------------- (765) (442) ============= ============= Acquisitions Purchase of subsidiary undertakings (note 27) (5,852) (576) Professional fees in connection with acquisitions (182) - Payment of deferred consideration (117) - Net cash acquired with subsidiaries 2,048 173 ------------- ------------- (4,103) (403) ============= ============= Financing Issue of ordinary shares 327 880 Issue of shares to minority interest - 100 Professional fees in connection with share exchanges (236) - Expenses of capital reduction (28) - Bank loan 3,465 - Repayment of bank loan (429) - Capital element of finance lease rentals (190) (250) ------------- ------------- 2,909 730 ============= ============= 10 ANALYSIS OF CHANGE IN NET FUNDS/(DEBT) At 31 March Cash flow At 31 March 2004 2005 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 3,025 (992) 2,033 Bank loan - (3,036) (3,036) Finance leases and hire purchase (291) 190 (101) ----------- ---------- ----------- Net funds/(debt) 2,734 (3,838) (1,104) =========== ========== =========== 11. PURCHASE OF SUBSIDIARY UNDERTAKINGS On 9 September 2004 the company acquired the whole of the issued capital of Easyspace Limited, being 100% of its nominal share capital, for a consideration of Â£12,150,000 satisfied by the issue of 11,574,075 ordinary shares at 54p per share, Â£5,750,000 in cash and professional fees in connection with the acquisition of Â£150,000. Goodwill arising on acquisition has been capitalised. The purchase has been accounted for by the acquisition method of accounting. On 19 April 2004 the company acquired 100,000 ordinary shares of Â£1 in Ufindus Limited, being the remaining 25% of the nominal share capital, for a consideration of Â£2,206,000 satisfied by the issue of 3,200,000 ordinary shares at 64.75p per share, Â£102,000 in cash and professional fees in connection with the acquisition of Â£32,000. Goodwill arising on acquisition has been capitalised. The purchase has been accounted for by the acquisition method of accounting. Ufindus Limited Easyspace Limited Total Net book Fair value Fair Net book Fair value Fair Fair value adjustments value value adjustments value value Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Net assets acquired: Goodwill 88 - 88 - - - 88 Tangible fixed 17 - 17 15 - 15 32 assets Investment 186 - 186 30 (30) - 186 Debtors 493 - 493 262 (44) 218 711 Cash at bank and in hand 101 - 101 2,048 - 2,048 2,149 Creditors (745) - (745) (2,153) - (2,153) (2,898) ------- -------- ------- ------- -------- ------- ------- 140 - 140 202 (74) 128 268 ======= ======== ======= ======== Goodwill 2,066 12,022 14,088 ------- ------- ------- 2,206 12,150 14,356 ======= ======= ======= Satisfied by: Cash 102 5,750 5,852 Shares issued 2,072 6,250 8,322 Professional fees 32 150 182 ------- ------- 2,206 12,150 14,356 ======= ======= ======= Easyspace Limited The fair value of the net assets acquired has been considered and an adjustment from Â£202,000 to Â£128,000 has been made. This is due to the write off of the company's investment and of debtors not considered recoverable. Ufindus Limited No fair value adjustments were deemed to be necessary on the purchase of the remaining minority interest in Ufindus Limited. The summarised profit and loss account of Easyspace Limited for the period prior to acquisition and the previous accounting period are set out below: Easyspace Limited Year ended Period from 1 January 2004 31 December 2003 to 8 September 2004 Â£'000 Â£'000 Turnover 4,961 3,568 =============== =============== Operating profit 1,801 1,194 Net interest 30 31 --------------- --------------- Profit for the financial period 1,831 1,225 =============== =============== There were no recognised gains and losses other than the profit for the financial period. During the year Easyspace Limited contributed Â£697,000 to the group's operating cash flows, Â£4,000 in respect of corporation tax refunds and Â£22,000 in respect of returns on investments and servicing of finance and utilised Â£42,000 in respect of capital expenditure. This information is provided by RNS The company news service from the London Stock Exchange SXFLLSEFE

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