Interim Results
Iomart Group PLC
27 February 2002
iomart interim results
Six months ended 31 December 2001
iomart confirms new course
* January disposal of broadband business completes withdrawal from telecoms
* NetIntelligence as lead product in enterprise security market
* restructured company provides focus and dedicated team
* reduced loss of £3.26 million on revenue of £2.43 million
* current cash balances in excess of £7m with significantly reduced cash burn
Today iomart announced their results for the six months period to 31 December
2001, having extended the accounting period to 31 March 2002. Total revenues
were £2.43 million which generated a loss before tax of £3.26 million.
In January the company sold the low margin broadband business to Centrica which
generated cash, reduced staffing levels, eliminated property and asset
obligations and provided clarity of focus.
This focus is on NetIntelligence, a leading product in the enterprise security
market, integrating the IPR from the acquisition of Actis Technology in June
2001 with the email management systems already in place added to the knowhow
derived from the acquisition of Canbox in Germany in September 2001. Backed by
the high margin web-hosting and co-location business, this software activity
will provide more profitable results than those of the demanding
telecommunications market.
Current cash balances are in excess of £7 million which, allied to the
significant reduction in cash burn and higher margin revenues, provides
confidence for the future.
Chairman Nick Kuenssberg commented: 'Our exit from the retail and broadband
telecommunications markets has given us a clear focus on high gross margin
products aimed at the enterprise security market, where we see serious growth
potential.'
Enquiries:
Angus MacSween, Chief Executive Officer 0141 931 7000
Chief Executive Officer's Review 2001
2001 was a year of transformation for iomart. We began the year as a fully
integrated telecommunications company, with all the associated infrastructure
and costs, in a climate where the outlook for telcos was bleak.
In line with our revised strategy of moving iomart toward non regulated, high
margin growth business areas we disposed of our dial up ISP Madasafish in May
2001 for £3 million cash. We retained and continued to grow our ADSL business
and, in becoming number three in the UK market, performed well against our
competitors.
However ADSL is a relatively low margin business, as we are obliged to resell
BT's ADSL product set; no competitive network has been established in the UK as
the government and regulator failed to create a competitive environment. BT
therefore controls and dominates the ADSL market not only at a wholesale level
but also at the retail level. OFTEL has permitted anti-competitive practices to
continue allowing BT Openworld to take a dominant market share while generating
huge losses in contrast to BT Wholesale reaping the benefit of high wholesale
pricing. Given this ongoing situation and the uncertainty of forecasting when
significant UK demand would emerge, the board decided to dispose of the ADSL
business in September 2001.
As announced, this disposal was finalised on 7 January 2002 for £2 million cash
with the transfer of the business, its assets, 42 staff and the obligations of
our Stornoway support centre to Centrica Plc. iomart continues to provide email,
webhosting and other services to Centrica in contracts valued at £489,000 over
the next 12 months. The gain on sale of our ADSL business will be reflected in
the full period results to 31 March 2002.
As part of our attempts to grow a significant messaging business, iomart
acquired a German business, CANBOX in September 2001. This brought a revenue
stream primarily in webmail and unified messaging, providing both services to a
variety of portals in Germany and intellectual property, which reduced our third
party licensing costs.
However, the email outsourcing market that we and others predicted would grow
has not developed in line with expectations. With the dominance of MSExchange
in the SME sector and the collapse in demand for webmail services via portals
and websites, we have found it difficult to grow our revenue streams in line
with our plan. Email is still perceived to be a 'free' service with companies
such as Yahoo and MSN still providing it at nil cost. It is interesting that
individuals are prepared to pay 10p to send a 20 character mobile text message
yet expect to send a 1 gigabyte business critical email for nothing. This will
inevitably change but in the meantime both our UK business and our German
subsidiary have struggled to grow or retain customers and revenues as a
consequence of the demise of many ISP/Portals who used the CANBOX and Thinkmail
products. Our German subsidiary currently employs 25 staff and we are working
with them to employ our joint IPR to best effect. We retain strong capabilities
in this area and we continue to seek larger opportunities to make use of our
powerful and scaleable platforms.
In the second half of 2001 our contract with Virgin to provide websites to small
businesses came to an end as Virgin withdrew from the market, which is evidenced
by the decrease in continuing business turnover.
In July 2001 iomart acquired the assets of Actis Technology Ltd, primarily its
NetIntelligence software, and 19 staff in line with establishing our own IPR and
software products.
NetIntelligence is a discreet network monitoring tool that enables an
organisation to 'intelligently manage its network'. Alongside filters and
blockers, NetIntelligence addresses what many organisations have found to their
cost i.e. these security products do not always protect against network abuse.
Executives may believe that appropriate steps have been taken to ensure network
integrity e.g. the deployment of a firewall. However the growth of secure
tunneling, anonymisers and other methods of bringing information into, and
taking information from an organization creates a situation when these so-called
'perimeter' defences do not provide 100% security. Overall, 'insider' security
incidents occur far more frequently than 'external' incidents. NetIntelligence
constantly scans the content of a network, and responds to any inappropriate
activity, in a wide range of categories, which could pose a threat to the
organisation.
Our experience and skills in email management are now being added to the
NetIntelligence product set to include email content filtering and virus
scanning. This new product set firmly positions us in the Enterprise Security
Market which is showing strong growth as organisations focus on security, risk
and asset management and legal and regulatory compliance.
With the release of version 2:2 of NetIntelligence in February 2002 we are
beginning to see increased sales and the quality of our sales pipeline is
improving dramatically. NetIntelligence is attracting significantly more sales
interest than our email offerings have. As NetIntelligence is more relevant to
large organisations we are focusing our sales efforts there. The sales cycle
for these prospects can be long but we have the necessary time and resources to
deliver these larger sales during 2002. iomart in the UK now has 52 staff with
the bulk of them dedicated to the development and sales of NetIntelligence.
Financial
We are currently reporting the second six month period of the year 2001. However
we decided to extend the accounting reference date to 31 March 2002 to ensure
that the company's restructuring is fully catered for and the new platform
properly developed as announced on 8 January 2002. We believe that we will be
better positioned from this point of view by the end of the current quarter and
we will be reporting again at that point.
Turnover for the six months ended 31 December 2001 was £2.43 million (+19%) and
for the twelve months was £5.13 million (+43%). Turnover for the six months
split by product shows £0.36 million from the consumer ISP business, £1.29
million from ADSL, £0.31 million from easybuild websites and £0.47 from
NetIntelligence, messaging and hosting. The consumer business was sold on 10 May
2001; however under transitional arrangements with the new owners, iomart
continued to operate the service until August 2001.
The gross profit margin for the period was 41% (56%), reflecting the increased
proportion of turnover generated during the period by the low margin ADSL
services. On continuing operations the gross profit margin was 69%.
Total administrative expenses were £4.43 million, compared to £6.34 million in
the first half of the year.
The operating loss for the six months was £3.36 million and for the twelve
months was £8.67 million. The loss before tax for the period was £3.26 million
(6.1p per share).
Cash balances at 31 December 2001 amounted to £6.14 million.
Prospects
We have now sold two businesses in the last 12 months for a total of £5m cash
and reduced the cost base significantly in the process. We have reduced our
staff numbers throughout the organisation in the UK from 156 last January to 52
today. We have repositioned the company in the enterprise security market with
our Netintelligence product set. Gross margins are higher as the IPR resides
with us in all our current products. We retain significant infrastructure in
email and hosting where we will continue to work to achieve a return on
investment. Our challenge now is to capture a meaningful slice of our chosen
market and the management team is focused on doing that. With current cash
balances in excess of £7 million and a significantly reduced cash burn, we are
confident that we are well placed to deliver successfully over the coming year.
Angus MacSween
Chief Executive Officer
26 February 2002
Consolidated Profit and Loss Account
Six months ended 31 December 2001
6 months ended Year ended
31 December 31 December 31 December 31 December
2001 2000 2001 2000
£ 000 £ 000 £ 000 £ 000
TURNOVER
Continuing operations 640 796 1,464 1,389
Acquisitions 132 - 132 -
Discontinued 1,660 1,255 3,534 2,192
Total turnover 2,432 2,051 5,130 3,581
Cost of sales (1,441) (908) (3,230) (1,424)
GROSS PROFIT
Continuing operations 442 426 982 642
Acquisitions 88 - 88 -
Discontinued 461 717 830 1,515
Gross profit 991 1,143 1,900 2,157
Administrative expenses (4,298) (4,938) (9,642) (7,663)
Restructuring expenses (130) - (1,128) -
Total administrative expenses (4,428) (4,938) (10,770) (7,663)
Other operating income 79 49 203 219
Net operating expenses (4,349) (4,889) (10,567) (7,444)
OPERATING LOSS
Continuing operations (1,698) (2,040) (4,673) (2,942)
Acquisitions (689) - (689) -
Discontinued (971) (1,706) (3,305) (2,345)
Group operating loss (3,358) (3,746) (8,667) (5,287)
Profit on disposal of Madasafish - - 1,829 -
LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST (3,358) (3,746) (6,838) (5,287)
Net interest 96 391 296 185
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (3,262) (3,355) (6,542) (5,102)
Tax on loss on ordinary activities - - - -
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION FOR THE (3,262) (3,355) (6,542) (5,102)
PERIOD
Loss per ordinary share (pence)
Basic (6.1p) (6.2p) (12.2p) (10.9p)
The results for the year ended 31 December 2001 and for the 6 month periods
ended 31 December 2001 and 31 December 2000 have not been audited. A copy of the
statutory accounts for the year ended 31 December 2000 has been delivered to the
Registrar of Companies. The auditors' report on those accounts was not
qualified.
Consolidated Balance Sheet
31 December 2001
31 December 31 December
2001 2000
£ 000 £ 000
FIXED ASSETS
Intangible assets 872 1,174
Tangible assets 2,616 3,960
3,488 5,134
CURRENT ASSETS
Debtors 1,820 1,792
Cash at bank and in hand 6,136 12,026
7,956 13,818
CREDITORS: amounts falling due within one year (3,247) (3,772)
NET CURRENT ASSETS 4,709 10,046
TOTAL ASSETS LESS CURRENT LIABILITIES 8,197 15,180
CREDITORS: amounts falling due after more than one year (686) (1,620)
PROVISIONS FOR LIABILITIES AND CHARGES (498) -
7,013 13,560
CAPITAL AND RESERVES
Called up share capital 538 538
Capital redemption reserve 1,200 1,200
Share premium account 19,087 19,087
Profit and loss account (13,812) (7,265)
TOTAL EQUITY SHAREHOLDERS' FUNDS 7,013 13,560
The results for the year ended 31 December 2001 have not been audited. A copy of
the statutory accounts for the year ended 31 December 2000 has been delivered to
the Registrar of Companies. The auditors' report on those accounts was not
qualified.
Consolidated Cash Flow Statement
Six months ended 31 December 2001
6 months ended Year ended
31 December 31 December 31 December 31 December
2001 2000 2001 2000
£ 000 £ 000 £ 000 £ 000
Net cash outflow from operating activities (3,391) (3,470) (6,544) (4,681)
Returns on investments and servicing of finance
Bank interest received 199 452 518 667
Charge on early redemption of loan - - - (333)
Bank and other loan interest paid (1) 20 (3) (13)
Finance lease and hire purchase interest paid (102) (81) (219) (136)
Net cash inflow from returns on
investments and servicing of finance 96 391 296 185
Capital expenditure
Payments to acquire tangible fixed assets (46) (465) (730) (695)
Receipts from sales of fixed assets 127 - 127 -
Payments to acquire intangible fixed assets (49) (511) (56) (511)
Net cash inflow/(outflow) from capital expenditure 32 (976) (659) (1,206)
Net proceeds of disposal of Madasafish - - 2,960 -
Acquisitions (764) 5 (764) 5
Net cash (outflow)/inflow from acquisitions
and disposals (764) 5 2,196 5
Cash outflow before financing (4,027) (4,050) (4,711) (5,697)
Financing
Issue of ordinary shares - - - 20,073
Expenses of share issue - - - (748)
Repayment of loans - - - (1,000)
Repayment of hire purchase and finance leases (714) (808) (1,179) (1,077)
Net cash (outflow)/inflow from financing (714) (808) (1,179) 17,248
(Decrease)/increase in cash in the period (4,741) (4,858) (5,890) 11,551
Statement of Total Recognised Gains and Losses
6 months ended Year ended
31 December 31 December 31 December 31 December
2001 2000 2001 2000
£ 000 £ 000 £ 000 £ 000
Loss for the financial period (3,262) (3,355) (6,542) (5,102)
Currency translation differences
on foreign currency net investments (5) - (5) -
Total recognised gains and losses (3,267) (3,355) (6,547) (5,102)
Notes to the Accounts
Six months ended 31 December 2001
1. Accounting policies
The interim results have been prepared using accounting policies consistent with
those set out in the group financial statements for the year ended 31 December
2000, except for the adoption of FRS 18 and FRS 19, which will be mandatory at
31 March 2002 and have been implemented in this period. In accordance with FRS
18 the directors have continued to adopt the most appropriate accounting
policies for the business.
2. Diluted EPS
Diluted EPS is not presented in respect of outstanding share options since none
of the options are dilutive.
3. Reconciliation of operating loss to net cash outflow from operating
activities
6 months ended Year ended
31 December 31 December 31 December 31 December
2001 2000 2001 2000
£ 000 £ 000 £ 000 £ 000
Operating loss (3,358) (3,746) (8,667) (5,287)
Depreciation 513 519 1,311 826
Amortisation of intangible assets 195 151 471 219
Write down of fixed assets on restructuring 49 - 235 -
Loss on sale of fixed assets - 24 - 24
Exchange differences 13 - 13 -
(Increase)/decrease in debtors (53) (791) 18 (1,283)
(Decrease)/increase in creditors (703) 373 (423) 820
(Decrease)/increase in provisions for liabilities
and charges (47) - 498 -
Net cash outflow from operating activities (3,391) (3,470) (6,544) (4,681)
4. Reconciliation of net cash flow to movement in net funds
(Decrease)/increase in cash in period (4,741) (4,858) (5,890) 11,551
Cash outflows from debt and lease financing 714 808 1,179 2,077
Change in net funds from cash flows (4,027) (4,050) (4,711) 13,628
New hire purchase and finance leases - (2,525) - (2,723)
Hire purchase acquired with subsidiary - (42) - (42)
Opening net funds/(debt) 8,714 16,015 9,398 (1,465)
Closing net funds 4,687 9,398 4,687 9,398
5. Analysis of change in net funds
At Other At
30 June Cash non-cash 31 December
2001 flow changes 2001
£ 000 £ 000 £ 000 £ 000
Cash at bank and in hand 10,877 (4,741) - 6,136
Finance leases and hire purchase (2,163) 714 - (1,449)
Net funds 8,714 (4,027) - 4,687
6. Copies of announcement
A copy of this announcement will be available for collection from the offices of
Peel Hunt plc, 62 Threadneedle Street, London, EC2R 8HP, for a period of one
month from the date of this announcement.
INDEPENDENT REVIEW REPORT TO IOMART GROUP PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 December 2001 which comprises the profit and loss
account, the balance sheet, the cash flow statement, the statement of total
gains and losses and related notes 1 to 6. We have read the other information
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are also responsible for ensuring that the accounting polices and presentation
applied to the interim figures are consistent with those applied in preparing
the preceding annual accounts except where any changes, and the reasons for
them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 December 2001.
Deloitte & Touche
Chartered Accountants
Lomond House
9 George Square
Glasgow
G2 1QQ
26 February 2002
Notes: A review does not provide assurance on the maintenance and integrity of
the website, including controls used to achieve this, and in particular on
whether any changes may have occurred to the financial information since first
published. These matters are the responsibility of the directors but no control
procedures can provide absolute assurance in this area.
Legislation in the United Kingdom governing the preparation and dissemination of
financial information differs from legislation in other jurisdictions.
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