Interim Results
Iomart Group PLC
28 November 2007
28th November 2007
Iomart Group plc
Interim Results Announcement
iomart Group plc ('iomart'), the datacentre operating and web hosting business,
presents its consolidated interim results for the six month period ended 30
September 2007.
FINANCIAL HIGHLIGHTS
• Group operating loss of £0.4m (H1 FY07 profit £0.16m) after investment in
datacentre business acquired at end of FY 07
• iomart's existing businesses, which exclude the datacentre operation,
deliver substantially improved performance:
• Operating profit increase to £1.2m (H1 FY07: £0.2m)
• Increase in operating cash contribution to £1.7m (H1 FY07: outflow
£0.03m)
• Beneficial ownership of 99.8% of datacentre operation achieved
OPERATIONAL HIGHLIGHTS
• Improved operational efficiency, strengthened management and streamlined
existing businesses
• Senior management team in place to build datacentre business
• London datacentre fully operational
Nick Kuenssberg, Chairman, commented:
'It is gratifying that management's efforts to improve the established iomart
businesses have been rewarded. An experienced and capable management team has
been recruited to develop the datacentre business and I am delighted that the
London datacentre is now fully operational.
Beneficial ownership of 99.8% of the datacentre operation has now been achieved
which means we will acquire the datacentre business for a maximum total
consideration of £9.6m.
As advised previously this is an appropriate time to review the composition of
the Board and I am pleased to advise that we have made good progress on the
appointment of a non-executive director and expect to make an announcement in
the near future.'
Angus MacSween, CEO added,
'I am pleased to report that we have succeeded in increasing the profitability
of iomart's established businesses during the period and I am confident that
further progress will be made in the second half of the year. We are seeing
considerable and growing interest in both our datacentre services and our
complex hosting capability - particularly from our target market of blue-chip
enterprises seeking long term solutions. These will form the core of our future
revenue streams, providing high margin earnings with good visibility.'
For further information:
Iomart Group plc
Angus MacSween Tel: 0141 931 6400
Nick Kuenssberg Tel: 07860635191
KBC Peel Hunt Tel: 020 7418 8900
Oliver Scott
Richard Kauffer
ICIS Limited Tel: 020 7651 8688
Tom Moriarty
Bob Huxford
Chief Executive's Statement
During the past six months iomart has successfully developed Ufindus and
Easyspace and substantially reduced losses in Netintelligence thereby improving
operating margin and profitability of the existing businesses while restricting
revenues to a certain extent in the short term. We have identified a number of
growth opportunities in these businesses as well as scope to implement further
operational efficiencies.
While the datacentre business is still in start-up mode we are pleased with the
initial interest from our target market of large-scale enterprises seeking
long-term contracts, albeit that these have taken longer to close than
originally planned. Given the current pricing environment we anticipate that
margins will continue to improve and we look forward to taking advantage of this
trend in 2008. The operating losses incurred during the period were as a
result of the initial development of the datacentre business.
Financials
Group Financials
6 months ended 30 September 2007 6 months
ended 30
September
2006
Existing Datacentres Combined Existing
Businesses Group Businesses
£'000 £'000 £'000 £'000
Revenue 9,558 73 9,631 10,855
Gross profit 7,812 (1,036) 6,776 8,356
Operating (loss)/profit 1,159 (1,555) (396) 168
Cash flow from operations 1,737 (2,748) (1,011) (32)
Total revenue for the 6 months declined to £9.6m from £10.9m in the same period
last year, a decrease of 11%. This resulted from the deliberate strategy to
improve the profitability of the Ufindus business which saw a cut in direct
sales headcount and focus on improved operational efficiencies. This strategy
has been successful because, although revenues were depressed, operating profits
have improved.
Gross profit for the period was £6.8m (H1 FY07 £8.4m) and gross margin was 70%
(H1 FY07 77%) the reduction in which is entirely due to the gross loss of the
datacentre operation, with the existing businesses having delivered an increase
in gross margin in percentage terms. An operating loss of £0.4m was recorded for
the period (H1 FY07 operating profit of £0.2m) but the decline can be wholly
attributed to the operating and administrative expenses associated with the
datacentre business acquired at the close of FY 2007.
The continued recognition of a deferred tax asset in respect of Ufindus tax
losses has provided a tax credit of £0.27m (H1 FY £0.29m). The net loss for the
period is therefore £0.16m (H1 FY07 profit of £0.3m).
There was an operating cash outflow in the period of £1.01m (H1 FY07 outflow of
£0.03m) caused by the expenditure associated with the datacentre business. Net
debt at the end of September was £0.62m (HI FY07 £4.54m).
Like- for-Like Financials
Excluding the effects of the datacentre acquisition at the end of FY 2007, the
performance of the existing businesses was encouraging. Revenue was £9.6m (H1
FY07 £10.9m) but there was a substantial improvement in both our gross margin to
82% (HI FY07 77%) and operating profit to £1.2m (H1 FY07 £0.2m) resulting from
actions taken in Ufindus, Easyspace and Netintelligence.
These existing businesses are now cash positive with an operating cash
contribution of £1.7m against an outflow of £0.03m in the comparable period.
This confirms that these operations are stable and healthy, providing a solid
foundation on which to support the expansion of the new datacentre business.
Business Divisions
Ufindus
The last 6 months has been a period of stabilisation and refinement for Ufindus,
our online directory and web search optimisation business. Having taken action
to increase profitability by streamlining the sales function the number of
direct sales staff is considerably lower than in H1 FY07. Therefore, although
revenues are down, the business is now more profitable in absolute and relative
terms and has improved its cash generation. Ufindus has also achieved the
objective of becoming more self-sufficient in terms of operational management.
Having established a more robust and profitable platform for Ufindus we now
anticipate additional revenue growth through both new sales and improved
customer retention.
Easyspace
Easyspace continued to provide solid profit and cash generation during the
period. The senior management team has recently been strengthened allowing us
to accelerate new initiatives and to take advantage of the current strong demand
for hosting services.
iomart Datacentres
Market Opportunity
iomart sees positive market dynamics within the datacentre space, as echoed by
numerous market commentators. A recent industry report revealed that global
demand for datacentre space grew by some 12.5% in the past year against an
increase in available space of only 4.2% and market commentators at this year's
Data Centres Europe conference predict that this pattern will be sustained for
some years to come. The market reaction to the Telecity IPO in October provided
a general confirmation of our views. With demand outstripping supply, prices for
datacentre space are inevitably increasing.
This increasing market demand, coupled with iomart's ability to offer the
complete set of components in the hosting arena from dedicated servers through
to complex managed hosting solutions and co-location space, means that the Group
is well positioned to win high-value contracts with large organisations
requiring significant amounts of rack space. Contracts of this kind, usually
long-term, attract a premium price while offering numerous up-selling
opportunities.
Progress
The main focus of the management team has been to make the datacentres fully
operational and able to deliver according to the highest industry standards. The
London datacentre is now fully operational and work has begun on the Nottingham
and Leicester datacentres.
We have continued to win contracts for the provision of managed hosting with
annual values of up to £0.5m at good rack rates albeit for low volumes of racks.
In addition we are presently pursuing prospects for the datacentre business in
line with the Company's planned rack rate targets through sales teams on the
ground in London and Glasgow, two telemarketing companies and a disciplined
database marketing campaign targeting companies and organisations that we
believe will require outsourced datacentre and hosting solutions in the months
and years ahead.
The actual sale of our datacentre space has been slower then first expected due
to the need to recruit an operational team and this has been exacerbated by
contracts often being tender-led and part of an overall sales process that can
last up to 12 months prior to being finalised. Encouragingly, the team is now
performing well and has built a pipeline of new business which is growing
month-on-month and is, after a relatively short period, showing considerable
potential. However, the overall result of these delays is that we anticipate
the ramp-up in datacentre revenues will occur 6-9 months later than our original
expectations, although in the current year this will be offset by lower costs.
The datacentre operation has significantly increased its profile as a prominent
player within the datacentre market, capable of offering a full end-to-end
service. As a result of these developments, combined with encouraging market
conditions, iomart is very positive regarding the long term prospects for its
datacentre business.
Outlook
We are encouraged by the progress that has been made in our web services
division and believe that we can build on the significant improvements made
during the first six months of the year.
Since the end of the period the Group has continued to trade in line with
expectations and we anticipate this to continue for the rest of the year.
In terms of the longer term opportunity, there is undoubtedly strong demand for
both our datacentre services and our complex hosting capability - particularly
from our target market of blue-chip enterprises seeking long term solutions.
Whilst our pipeline contains several opportunities for large hosting contracts,
the rate and timing of these contract wins is difficult to predict.
We believe that our strategy of becoming a leader in managed complex hosting,
leveraging our own national infrastructure and experience will create a business
with strong revenue streams, providing high margin earnings and good visibility.
Consolidated Interim Income Statement
Six months ended 30 September 2007
6 months ended Year ended
Unaudited Unaudited Audited
30.9.07 30.9.06 31.3.07
Continuing Note £'000 £'000 £'000
Revenue 9,631 10,855 21,086
Cost of sales (2,855) (2,499) (4,686)
Gross profit 6,776 8.356 16,400
Administrative expenses (7,172) (8,188) (15,835)
Operating (loss)/profit (396) 168 565
Finance income 86 3 11
Finance costs (125) (141) (358)
(Loss)/profit before taxation (435) 30 218
Taxation 270 292 1,962
(Loss)/profit for the year attributable to equity (165) 322 2,180
holders of the company
Basic and diluted earnings per share
Basic 2 (0.17)p 0.42p 2.78p
Diluted 2 (0.17)p 0.41p 2.72p
Consolidated Interim Balance Sheet
As at 30 September 2007
6 months ended Year ended
Unaudited Unaudited Audited
30.09.2007 30.09.2006 31.03.2007
Note £'000 £'000 £'000
ASSETS
Non-current assets
Intangible assets - goodwill 14,475 14,289 14,475
Intangible assets - development costs 407 184 310
Intangible assets - software 37 35 39
Deferred tax asset (non-current element) 1,660 - 1,137
Deposits 884 - -
Property, plant and equipment 10,447 1,191 10,615
27,910 15,699 26,576
Current assets
Trade and other receivables 3 3,367 2,748 2,989
Deferred tax asset (current element) 595 207 848
Amount due from share placing - - 10,466
Cash and cash equivalents 588 - -
4,550 2,955 14,303
Total assets 32,460 18,654 40,879
LIABILITIES
Non-current liabilities
Minority interest payable (4,800) - (4,800)
Non-current borrowings (158) (1,130) (649)
(4,958) (1,130) (5,449)
Current liabilities
Cash and cash equivalents - (2,486) (3,152)
Trade and other payables (4,412) (4,385) (4,336)
Current income tax liabilities - (19) -
Current borrowings (1,051) (926) (1,032)
Amount due in relation to acquisition - - (4,800)
(5,463) (7,816) (13,320)
Total liabilities (10,421) (8,946) (18,769)
Net assets 22,039 9,708 22,110
EQUITY
Share capital 994 793 994
Capital Redemption reserve 1,200 1,200 1,200
Share premium 17,541 7,270 17,541
Profit and loss reserve 2,304 445 2,375
Total equity 22,039 9,708 22,110
The comparative figures for the financial year ended 31 March 2007 are an
extract of the company's statutory financial statements for that financial year
under IFRS. Those financial statements have been reported on by the company's
auditors and delivered to the Registrar of Companies. The report of the
independent auditors was unqualified and did not contain a statement under
section 237 (2) or (3) of the Companies Act 1985. This report was approved by
the board of directors on 27 November 2007.
Consolidated Interim Cash Flow Statement
Six months ended 30 September 2007
6 months ended Year ended
30.9.07 30.9.06 31.3.07
tc 'Consolidated cash flow statement' /f £'000 £'000 £'000
Contents
Operating (loss) / profit (396) 168 565
Depreciation 382 277 653
Amortisation 94 44 113
Share based payments 94 81 153
Recognition of deferred grants (12) (25) (48)
Movement in deposits (884) - -
Movement in trade receivables (378) (132) (631)
Movement in trade payables 89 (445) (562)
Cash flow from operations (1,011) (32) 243
Research and development tax credit - - 142
received
Corporation tax paid - (150) (160)
Net cash flow from operating activities (1,011) (182) 225
Cash flow from investing activities
Purchase of property, plant and (168) (289) (463)
equipment
Capitalisation of development costs (181) (100) (282)
Purchase of intangible assets - (9) (12) (29)
software
Payment for acquisition of subsidiary (4,800) - -
Net cash used in investing activities (5,158) (401) (774)
Cash flow from financing activities
Issue of shares - 37 43
Repayment of finance leases (80) (44) (109)
Repayment of borrowings (438) (433) (865)
Receipt of cash from share placing 10,466 - -
Dividends - (1,284) (1,284)
Interest received 86 3 11
Interest paid (125) (141) (358)
Net cash from/(used in) financing 9,909 (1,862) (2,562)
activities
Net increase/(decrease) in cash and cash equivalents 3,740 (2,445) (3,111)
Debt at the beginning of the period (3,152) (41) (41)
Cash equivalents/(debt) at the end of the period 588 (2,486) (3,152)
Consolidated Interim Statement of Changes in Equity
Six months ended 30 September 2007
Share Share Share Profit Total
capital capital premium and loss
redemption account account
reserve
£'000 £'000 £'000 £'000 £'000
Balance at 1 April 2006 773 1,200 6,203 2,376 10,552
Scrip dividend 15 - 1,035 (1,050) -
Dividends paid - - - (1,284) (1,284)
Share based payments - - - 81 81
Shares issued for share option 5 - 32 - 37
redemption
Profit in the period - - - 322 322
Balance at 30 September 2006 793 1,200 7,270 445 9,708
Share based payments - - - 72 72
Shares issued for share option 1 - 5 - 6
redemption
Issue of new shares for 200 - 10,266 - 10,466
acquisition
Profit in the period - - - 1,858 1,858
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
Share based payments - - - 94 94
Loss in the period - - - (165) (165)
Balance at 30 September 2007 994 1,200 17,541 2,304 22,039
Notes to the Interim Financial Information
Six months ended 30 September 2007
1. Accounting policies
The interim financial information does not constitute statutory financial
statements for the purpose of section 240 of the Companies Act 1985. The figures
for the year ended 31 March 2007 have been extracted from the Group Financial
Statements for that year. Those financial statements have been delivered to the
Registrar of Companies and included an independent auditors' report, which was
unqualified.
The interim financial information has been prepared using the same accounting
policies and estimation techniques as will be adopted in the Group financial
statements for the year ending 31 March 2008. The Group financial statements for
the year ended 31 March 2007 were prepared under International Financial
Reporting Standards. These interim financial statements have been prepared on a
consistent basis and format; however IAS 34 'Interim Financial Reporting' has
not been applied in full.
The Group financial statements for the year ended 31 March 2007 were prepared in
accordance with International Financial Reporting Standards (IFRS) and the
comparative figures for the 6 months ended 30 September 2006 within this
statement have been restated in accordance with IFRS.
2. Earnings per share
The calculations of earnings per share are based on the following results and
numbers of shares:
6 months ended Year ended
30.9.07 30.9.06 31.3.07
£'000 £'000 £'000
(Loss)/profit for the financial period and basic (165) 322 2,180
earnings attributed to ordinary shareholders
000 000 000
Weighted average number of ordinary shares:
For basic earnings per share 99,436 77,513 78,558
Exercise of share options - 1,768 1,683
For diluted earnings per share 99,436 79,281 80,241
Basic earnings per share (0.17)p 0.42p 2.78p
Fully diluted earnings per share (0.17)p 0.41p 2.72p
For the 6 months ended 30 September 2007 there was no dilutive effect from the
potential exercise of options due to the group being loss-making.
3. Trade and other receivables
6 months ended Year ended
30.9.07 30.9.06 31.3.07
£'000 £'000 £'000
Trade receivables (net) 1,859 1,375 2,086
Other receivables 234 435 38
Prepayments and accrued income 1,274 938 813
Trade and other receivables 3,367 2,748 2,989
Notes to the Interim Financial Information
Six months ended 30 September 2007
4. Analysis of change in net debt
Cash at
bank and in Bank Bank Finance Net
hand overdrafts loan leases debt
£'000 £'000 £'000 £'000 £'000
At 1 April 2006 1,279 (1,320) (2,173) (64) (2,278)
Inception of finance leases - - - (296) (296)
Cash flow (526) (1,922) 438 44 (1,966)
At 30 September 2006 753 (3,242) (1,735) (316) (4,540)
Inception of finance leases - - - (122) (122)
Cash flow 246 (909) 427 65 (171)
At 31 March 2007 999 (4,151) (1,308) (373) (4,833)
Cash at
bank and in Bank Bank Finance Net
hand overdrafts loan leases debt
£'000 £'000 £'000 £'000 £'000
At 1 April 2007 999 (4,151) (1,308) (373) (4,833)
Inception of finance leases - - - (46) (46)
Cash flow (411) 4,151 438 78 4,256
At 30 September 2007 588 - (870) (341) (623)
5. Availability of interim reports
Interim reports will be sent to all shareholders on 11 December 2007. Copies of
the interim report will be available for collection from the offices of KBC Peel
Hunt Ltd, 111 Old Broad Street, London, EC2N 1PH, for a period of 1 month from
the date of despatch and in accordance with Rule 20 of the AIM Rules, available
from the Company's website at www.iomartgroup.com.
INDEPENDENT REVIEW REPORT TO IOMART GROUP PLC
Introduction
We have been engaged by the company to review the financial information in the
half-yearly financial report for the six months ended 30 September 2007 which
comprises the condensed consolidated interim income statement, condensed
consolidated interim balance sheet, condensed consolidated interim statement of
changes in equity and the condensed consolidated interim cash flow statement and
the related notes 1 to 5 set out on pages 5 to 11. We have read the other
information contained in the half yearly financial report which comprises only
the interim results announcement and the chief executive's statement and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the financial information.
This report is made solely to the company in accordance with guidance contained
in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information
performed by the Independent Auditor of the Entity'. Our review work has been
undertaken so that we might state to the company those matters we are required
to state to them in a review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our review work, for this report, or for the
conclusion we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The AIM rules of the London Stock Exchange require that the
accounting policies and presentation applied to the interim figures are
consistent with those which will be adopted in the annual accounts having regard
to the accounting standards applicable for such accounts.
As disclosed in Note 1, the interim financial statements of the group are
prepared in accordance with the accounting policies which will be adopted in the
financial statements for the year ending 31 March 2008.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the financial
information in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
INDEPENDENT REVIEW REPORT TO IOMART GROUP PLC
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the financial information in the half-yearly financial report for the six
months ended 30 September 2007 is not prepared, in all material respects, in
accordance with the basis of accounting described in Note 1.
GRANT THORNTON UK LLP
REGISTERED AUDITOR
CHARTERED ACCOUNTANTS
Glasgow
27 November 2007
Notes: The maintenance and integrity of the iomart Group plc website is the
responsibility of the directors: the interim review does not involve
consideration of these matters and, accordingly, the company's reporting
accountants accept no responsibility for any changes that may have occurred to
the interim report since it was initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of
interim report differs from legislation in other jurisdictions.
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