TIDMIOM
RNS Number : 4730C
Iomart Group PLC
13 June 2023
13 June 2023
iomart Group plc
("iomart" or the "Group" or the "Company")
Final Results
Strong increase in revenue and positive M&A activity
iomart (AIM: IOM), the cloud computing company, is pleased to
report its final results for the year ended 31 March 2023
(FY2023).
FINANCIAL HIGHLIGHTS
FY2023 FY2022 Change
Revenue GBP115.6m GBP103.0m +12%
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% of recurring revenue(1) 92% 93% -1pp
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Adjusted EBITDA(2) GBP36.2m GBP38.0m -5%
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Adjusted profit before tax(3) GBP14.8m GBP17.1m -13%
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Profit before tax GBP8.5m GBP12.2m -30%
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Adjusted diluted EPS(4) 10.9p 12.0p -9%
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Basic EPS 6.4p 8.6p -26%
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Cash generation from operations GBP33.8m GBP37.9m -11%
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Proposed final dividend per share 3.5p 3.6p -3%
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-- Sales pipeline improvement noted in H1 converting into stronger order booking levels in H2
-- Revenue increased by 12% YoY to GBP115.6m, a record level for
the Group, reflecting a combination of improved customer renewal
levels, organic revenue growth within core cloud managed services,
inflationary pricing adjustments (primarily for data centre energy
usage), together with the acquisition of Concepta on 15 August
2022
-- Concepta provided GBP6.2m of revenue, a positive profit
contribution, and is performing well, strengthening the Group's
indirect routes to market, and extending its products, skills and
capabilities
-- Reduction in adjusted EBITDA(2) and adjusted profit before
tax(3) reflects revenue mix, together with investment in upskilling
employees' capabilities, appropriate wage increases and cost of
living support. Interest expense is GBP0.9m higher year-on-year
-- Profitability margins reflect the changes in revenue mix and
the impact of inflationary price adjustments with adjusted EBITDA
margin and adjusted profit before tax margin at 31.3% (2022: 36.9%)
and 12.8% (2022: 16.6%) respectively
-- Statutory profit before tax reduced to GBP8.5m from GBP12.2m
includes consistent adjusted items, the largest being non-cash
amortisation charges on acquired intangibles of GBP3.9m (2022:
GBP4.0m) plus a current year GBP0.8m non-recurring cost associated
with the interpretation of the six-month Energy Bill Relief
Scheme
-- Cash conversion ratio(6) is strong at 94% (2022: 100%)
-- Year-end net debt(5) of GBP39.8m (2022: GBP41.3m),
comfortable at 1.1 times annualised EBITDA(5) (2022: 1:1 times)
OPERATIONAL HIGHLIGHTS
-- iomart's robust customer arrangements have ensured that
wholesale energy price rises were appropriately passed to the
customer base in the year. The energy markets appear less volatile
in the new financial year and the Company has a proactive hedging
strategy in place
-- New regional sales leadership team reshaped the sales
structure in H1, with order bookings accelerating in H2
-- Product management team continued to support solution
portfolio development, including refinement of data security and
managed Microsoft Azure offerings, plus the launch of a new
multi-tenant cloud platform
-- Launched a full learning management system internally to
support skills development programmes
-- Lucy Dimes appointed as new Independent Chair of the Board
and, subsequent to the year-end, two new Independent Non-Executive
Directors, Annette Nabavi and Adrian Chamberlain were appointed.
All bring a wealth of industry experience
-- Subsequent to the year-end, the acquisition of Extrinsica
Global, announced on 5 June 2023, provides a large step forward in
the Group's capabilities to support existing and new customers in
their use of Microsoft's Azure cloud platform
OUTLOOK
-- The first two months of the new financial year are in line
with internal expectations, reporting revenues ahead of the
equivalent prior period, with a mix of organic and acquisitive
growth
-- The two recent acquisitions have expanded the Group's
capabilities and routes to market, making the solution portfolio
relevant to a wider audience
-- Strategic steps and the momentum achieved in the second half
of the last financial year underpins the Board's confidence in the
outlook for the long-term prospects for the Group
STATUTORY EQUIVALENTS
A full reconciliation between adjusted and statutory profit
before tax is contained within this statement. The largest item is
the consistent add back of the non-cash amortisation of acquired
intangible assets of GBP3.9m (2022: GBP4.0m). The largest variance,
year on year, is a GBP0.8m exceptional non-recurring cost recorded
within cost of sales associated with the interpretation of the
six-month government Energy Bill Relief Scheme.
Reece Donovan, CEO commented,
"This has been another busy year at iomart for the full team.
Together, we have generated good momentum across both the
commercial and operational areas. A higher level of M&A
activity has also been pleasing to see, with two acquisitions
having been completed in the last ten months.
These acquisitions have expanded our capabilities and routes to
market, making our solution portfolio relevant to a wider audience.
The increase in the effectiveness of our sales activities, the
operational improvements made, the resilience of our business model
and our clear focus on execution gives us a stronger foundation on
which to accelerate organic growth whilst making selective
acquisitions."
(1) Recurring revenue, as disclosed in note 3, is the revenue
that repeats either under long-term contractual arrangement or on a
rolling basis by predictable customer habit. % of recurring revenue
is defined as recurring revenue (as disclosed in note 3) / revenue
(as disclosed in the consolidated statement of comprehensive
income)
(2) Throughout this statement adjusted EBITDA, as disclosed in
the consolidated statement of comprehensive income, is earnings
before interest, tax, depreciation and amortisation (EBITDA) before
share based payment charges, acquisition costs and exceptional
non-recurring costs. Throughout this statement acquisition costs
are defined as acquisition related costs and non-recurring
acquisition integration costs
(3) Throughout this statement adjusted profit before tax, as
disclosed on page 13, is profit before tax, amortisation charges on
acquired intangible assets, share based payment charges,
acquisition costs, accelerated write-off of arrangement fee on bank
facility and exceptional non-recurring costs
(4) Throughout this statement adjusted diluted earnings per
share, as disclosed in note 7, is earnings per share before
amortisation charges on acquired intangible assets, share based
payment charges, acquisition costs, accelerated write off of
arrangement fee on bank facility and exceptional non-recurring
costs and the taxation effect of these / weighted average number of
ordinary shares - diluted (as disclosed in note 7)
(5) Net debt being outstanding bank loans, lease liabilities
less cash and cash equivalents (as disclosed on page 15).
Annualised EBITDA is the last 12 months of EBITDA for the year
ended 31 March 2023
(6) Cash conversion is calculated as cash flow from operations,
as disclosed in the consolidated statement of cash flows, divided
by adjusted EBITDA defined above
This full year results announcement contains forward-looking
statements, which have been made by the Directors in good faith
based on the information available to them up to the time of the
approval of this report and such information should be treated with
caution due to the inherent uncertainties, including both economic
and business risk factors, underlying such forward-looking
information.
For further information:
iomart Group plc Tel: 0141 931 6400
Reece Donovan, Chief Executive Officer
Scott Cunningham, Chief Financial Officer
Investec Bank PLC (Nominated Adviser and Tel: 020 7597 4000
Broker)
Patrick Robb, Virginia Bull, Nick Prowting
Alma PR Tel: 020 3405 0205
Caroline Forde, Hilary Buchanan, Joe Pederzolli
About iomart Group plc
iomart Group plc (AIM: IOM) is a cloud computing and IT managed
services business providing hybrid cloud infrastructure, network
connectivity, security, and digital workplace capability. Our
mission is simple: to make our customers unstoppable by enabling
them to connect, secure and scale anywhere, anytime. From our
portfolio of data centres we own and operate across the UK to
connected sites around the world, our 470-strong team can design
and deploy the right cloud solution for our customers.
For further information about the Group, please visit www.iomart.com
CHAIR'S STATEMENT
In my first period as Chair, I am delighted to report on a year
in which we have delivered a number of strategically important
milestones, seen a return to organic revenue growth within cloud
managed services and achieved financial results in line with market
expectations (4) . We have reported record revenue in the year of
GBP115.6m and continued to deliver high levels of profitability and
cash generation.
It is clear to me that the market and iomart's position within
it provide the platform to scale the business as a leading provider
of secure hybrid cloud services. During the last 12 months, we have
made good progress against this aim with strong momentum in order
bookings, and a return of customer renewal levels to long-term
average rates, providing a more solid base of recurring revenues.
Behind the scenes, we have refreshed our full sales team under the
guidance of the new sales leadership, simplified our internal
service organisation and processes, and extended a number of our
managed service offerings. We have successfully navigated the
significant challenges in the energy market by ensuring additional
costs have been appropriately passed through to the customer base.
We also recommenced our M&A activities with the acquisition of
Concepta Capital Limited ("Concepta") in August 2022, and
subsequent to the year end, on 2 June 2023, we successfully
completed the acquisition of Extrinsica Global Limited
("Extrinsica"), a Microsoft managed service provider.
Our iomart team are at the heart of these successes and I would
like to thank them all for their hard work and commitment during
the year. One of the strengths of the Group is the quality of its
fantastic workforce. Investing in the workforce and their further
development and support is one of the central tenets of our
strategy.
After invaluable service to iomart, we have seen three of our
Non-Executive Directors step down, with Ian Steele (previous Chair)
standing down at the AGM, Andrew Taylor leaving the Board in
December 2022, and Richard Masters notifying us of his intent to
step down at the forthcoming AGM in September 2023. On behalf of
everyone connected with the Group, I wish to thank them all for
their valuable contribution to the development of iomart. We
announced two new Independent Non-Executive Director appointments
in May 2023. Annette Nabavi who joined the Board on 25 May 2023 and
Adrian Chamberlain who joined the Board on 1 June 2023. Annette and
Adrian bring different but very relevant skills and experience to
the Board, and will be extremely valuable in helping guide the
execution of our growth strategy.
During the year, we paid an interim dividend of 1.94p per share
to shareholders in January 2023. In addition, the Board is now
proposing to pay a final dividend of 3.50p per share taking the
total for the year to 5.44p being at the maximum pay-out ratio
under our stated dividend policy of paying up to 50% of adjusted
diluted earnings per share. We believe this is appropriate given
our funding position, robust business model and strength of our
balance sheet. Subject to shareholder approval this proposed final
dividend would be payable on 8 September 2023 to shareholders on
the register at close on 18 August 2023.
The progress we have already seen in the delivery of our
strategy and the continued solid financial performance gives me and
the Board confidence in a bright future for iomart.
Lucy Dimes
Non-Executive Chair
13 June 2023
CHIEF EXECUTIVE OFFICER'S REPORT
Introduction
I am encouraged by the progress we have made during the year and
pleased to be reporting financial results in line with market
expectations (4) , delivering revenue of GBP115.6m (2022:
GBP103.0m), adjusted EBITDA(1) of GBP36.2m (2022: GBP38.0m),
adjusted profit before tax(2) of GBP14.8m (2022: GBP17.1m) and a
statutory profit before tax of GBP8.5m (2022: GBP12.2m) . We
continue to benefit from the highly recurring nature of our
business model, with 92% (2022: 93%) of revenue in the year
recurring(3) .
The revenue of GBP115.6m is a record level for the Group and is
a combination of a return to long-term historic customer renewal
levels with organic revenue growth within our core cloud managed
services offering, and inflationary pricing adjustments, primarily
for data centre energy usage, plus the successful completion of the
acquisition of Concepta in August 2022. The Group's adjusted EBITDA
reflects both the revenue mix effect in the year, together with
investment in upskilling our employees' capabilities, alongside
appropriate wage increases and cost of living support. EBITDA
margin percentage of 31.3% (2022: 36.9%) in the year was heavily
impacted by the pass through of much increased energy costs and to
a lesser extent the lower margin business within the Concepta
acquisition, primarily from their reselling activities. The
increase in the UK interest rates has pushed the Group's interest
expense up by GBP0.9m year on year but the Group's cash generation
continued to be strong, with the year-end net debt standing at
GBP39.8m (2022: GBP41.3 million). This represents a comfortable net
debt to adjusted EBITDA ratio of 1.1 times (2022: 1.1 times).
I am pleased by how we navigated through the unexpected
challenges in the energy markets, which resulted in a GBP7m
increase in the Group's electricity costs. iomart's robust business
model and customer arrangements have ensured this additional energy
cost has been appropriately passed through to the customer base.
While electricity costs remain high, the energy markets appear less
volatile as we enter the new financial year. We have a proactive
hedging strategy in place for the next two years and expect this
matter to be less of a distraction for our team and customers than
we have experienced in the last 12 months.
At iomart, momentum and pace are important aspects for success.
Following growth in our sales pipeline, we saw this translate to
improved order booking levels in the second half of the year, with
the last quarter order bookings being the highest quarter in the
last two years. Year on year we have seen double digit order
bookings growth within the cloud managed services area, which along
with healthy customer renewal levels, provides a solid foundation
for growth for the new financial year. The two acquisitions
completed within a ten-month period fully support our drive to
broaden our service offerings across the full hybrid cloud
spectrum.
Strategy
Our strategic growth plan is focussed on three main
activities:
-- Protect and expand the existing base of run rate revenue and
EBITDA which is underpinned by our existing core private cloud
infrastructure and services;
-- New services focused on four new service areas - hybrid
cloud, cybersecurity, the future digital workplace and secure
connectivity ensuring a complete suite of solutions and services to
deliver a comprehensive secure hybrid cloud offering; and
-- Complementary acquisitions - to expand the customer base and to acquire new skillsets
We have made good progress on all aspects of our strategic
growth plan, and start the third year of this plan in an improved
position as noted in each of the areas detailed below:
Sales & Marketing
In February 2022, we strengthened our commercial leadership with
the appointment of our new Chief Sales Officer. Under his
leadership, we have changed the structure of our sales organisation
to underpin our growth strategy, and over the last 12 months
replaced a large element of the team. We have made incremental
investments in these changes but all within an agreed cost
envelope. We completed most of this in the first half of the year
and so we start the new financial year with a well-inducted and
skilled team, with momentum and confidence building as order
bookings increased during the second half.
We continue to believe that our existing large customer base
represents a fertile sales ground for the Group and the continued
broadening of our solutions offering increases our relevance to a
wider pool of new customers.
New services
Our product team continue to evolve and develop new solution
offerings. These are targeted at both new customers, and upselling
and cross-selling to our existing customers. Activity in the last
12 months has included:
-- Continued refinement of our Managed Microsoft Azure offering
launched in prior year. Even though we targeted M&A to
accelerate this area of the business, it was also important that we
built some element of our own capabilities and strengthened our
Microsoft relationship. We have continued to see steady growth in
this area with wins from both existing and new customers.
Extrinsica, our recent Microsoft Azure acquisition, will take the
lead on adding significant engineering capability and expertise on
Azure infrastructure design, deployment and management for our
customers.
-- In March 2022, we announced a new security partnership with
cyber security specialists, e2e-assure, to deliver proactive 24/7
security operations centre services. The move into the security
market has been a long-standing ambition of iomart and is a key
part of the growth strategy. We now have five customers taking this
service and they provide a strong reference base for further
customer wins. Globally, cyber-attacks are on the rise and we now
have a highly credible offering for customers to address this
everyday threat. We will continue to look to expand this cyber
portfolio, with a strong focus on Microsoft via internal
developments, additional partnerships and potential M&A.
-- During the year, we launched an enhanced, multi-tenanted
cloud platform with the latest technology from VMware. This
refreshes our virtual cloud offering with the latest cloud
functionality, control and scalability. We are one of the few
managed service providers globally to successfully implement this
leading edge vendor technology. We see private cloud remaining as a
core element of any hybrid cloud offering and we are leading the
way on this.
All of these new products are designed with a 24/7 service
capability, as it is the service support we offer our customers and
our deep technical expertise which remains at the heart of our
hybrid offering.
People and Systems
We have invested in a Learning Management System ("LMS") which
supports our skills development programmes and employee engagement.
This is an important step, as we strongly believe a continuous
learning culture will underpin our future success. In a period of
skills shortages, we believe, attracting, developing and retaining
our talent is critical.
In the second half, we changed the structure of our executive
management team with the role of COO split between a Chief Customer
Officer ("CCO") and a Chief Technology Officer ("CTO"). As well as
bringing focus, it also provides greater bandwidth on execution. We
were able to promote internally for the CCO role and are pleased to
have recruited externally an experienced CTO for the Group who
joined us in late May 2023.
Enhancing the tooling and systems in the business is an
evergreen task, allowing especially our customer facing staff to
work efficiently and respond well to customer requests. We replaced
our telephone system with a Teams based service in the year, and we
continued to consolidate asset platforms and simplify our
reporting. The working environment for our staff is also important
and we have recently committed to a 10-year lease for a new Glasgow
office. This will see us move from our existing premises into a
Grade A office in the city centre enhancing the working environment
for existing staff whilst also being positive for recruitment. This
was achieved without any significant cost increase.
M&A
As in the past and as reconfirmed in our strategy communications
we plan to use selective M&A to augment our organic growth. It
was pleasing to see a high level of activity in this area with the
acquisition of Concepta in August 2022, and subsequent to the
year-end, on 2 June 2023, we successfully completed the acquisition
of Extrinsica, a Microsoft Azure managed service provider. We will
maintain our structured and disciplined approach to M&A and
remain active in evaluation of potential targets.
Market
Macroeconomic headlines such as double-digit inflation, rising
debt costs, and a cost-of-living crisis, coupled with geo-political
uncertainties, form a challenging backdrop for many of our
customers and their planned spending levels. However, we do have
the benefit of a very wide and varied customer base with no
significant sector or single customer concentration, which provides
some natural portfolio protection. While iomart will not be immune
to this economic backdrop, the requirement for organisations to be
supported on their hybrid cloud journey will continue to grow for
the foreseeable future. Providing excellent customer service and
deep technical expertise, related to the cloud infrastructure that
is managing mission critical applications for our customers, also
supports our view of sustainable growth over the medium term.
The concept of "Cloud" computing is now globally recognised
across all market segments. The "public cloud" giants such as
Amazon, Microsoft and Google have vastly contributed to this
general awareness and consequently have seen high growth globally
as many organisations look for Cloud infrastructure and
capabilities. The reality of the situation is that a vast majority
of the world's IT infrastructure is complex and untidy in nature
which means hybrid cloud models will remain a key market feature
for many use cases and many years to come. Even if businesses want
to use Public Cloud infrastructure fully, many lack the detailed
know-how, skills and resources required to manage all the elements.
iomart is well positioned to meet this demand given our
long-established capability in designing and running private
clouds, supporting on-premise solutions, and with the recent
acquisition of Extrinsica adding skills and capabilities for public
cloud provisioning and ongoing management.
With the insatiable growth in data across all industries, the
demand for the three core building blocks of compute power, storage
and connectivity continues to rise. Organisations are increasingly
outsourcing these requirements to experts, who can help them
navigate a constantly evolving and complex technical landscape,
providing high levels of reliability, customer support,
flexibility, and technical know-how. These requirements
increasingly come with greater security and compliance needs,
particularly around data storage, protection, and transit.
No two organisations are the same, and therefore the cloud
solution mix in the future will be unique and reflect the needs of
an organisation at that time, especially for those organisations
that are running established applications that are not public cloud
compatible. Many customers are looking for a single point of
accountability for all their cloud needs and iomart is well
positioned to provide this service going forward, particularly for
medium to large enterprises.
Commitment to ESG and sustainability
iomart believes that integrating environmental, social and
governance ("ESG") considerations across our business enables us to
accelerate our customers' success whilst looking after the
environment and society.
Environmental
Last year, we worked on establishing carbon reduction targets
and identifying ways to reduce further our overall emissions as we
work towards achieving carbon neutrality. This concluded with an
alignment with the UK Government targets and a commitment to
achieve Net Zero by 2050, or earlier, if possible. We commenced
purchasing Renewable Energy Guarantees of Origin ("REGO") certified
renewable electricity across our UK data centre estate in 2021,
which significantly reduces our carbon emissions. As this has been
in place for the whole of the financial year, this takes a
significant step towards our commitment to Net Zero. We continue to
look at ways to increase the energy efficiency across our UK data
centre estate, and have therefore have accelerated upgrades to our
battery power systems.
Social
We have undertaken a number of initiatives for our own staff
wellbeing and engagement including:
-- Winter cost of living allowance payments made to staff at a total cost of around GBP0.4m
-- Launch of a learning management system '"iosmart" to support
a learning culture and our skills development programmes
-- Manager fundamental training completed by all managers, and
completion of a leadership development programme across the
Group
-- UK Wide HR Roadshows held to enhance employee engagement
We have also implemented a number of external facing
initiatives, the key activities being:
-- Continuing to partner with local charities that align with
our brand focus and employees' interests, such as SmartSTEMs and
Scotland's Empowering Women to Lead Cyber Security and Digital
Transformation leadership programmes
-- Partnered with Generation, a charity that supports IT
education to employment of people from disadvantaged socioeconomic
backgrounds
-- Sponsorship of Scotland IS digital technology awards
Governance
In August 2022, we saw the appointment of Lucy Dimes, our new
Chair. In addition, in May 2023 we announced we would be appointing
two new Independent Non-Executive Directors who bring significant
sector experience to the Board to support and guide our growth
strategy.
After the appointment of an external third party to lead an
outsourced internal audit function, there has been an appropriate
full year's worth of engagement, which has been well received by
the business. In February 2023, we announced the appointment of
Investec as the Company's Nominated Adviser replacing the incumbent
who had been in place since our IPO.
Acquisitions
On 15 August 2022, we successfully completed and announced the
first acquisition under our refreshed strategy, acquiring Concepta,
a holding company for the ORIIUM and Pavilion IT brands, for an
initial cash consideration of GBP10.8m with the potential of a
further GBP4.0m contingent earn-out payment based on profitability
for the 12-months ending 30 June 2023. It is expected, based on the
current forecast that this maximum earn-out will be paid in July
2023. We also repaid GBP1.5m of bank debt acquired on completion.
The Concepta Group consists of two brands:
-- ORIIUM, established in 2007, is a channel-only organisation
working with value added resellers and managed service providers to
deliver best in class data and application management solutions to
end users. With this acquisition, iomart gained an independent
wholesale operation that understands the UK IT channel deeply, and
has built trust through long-standing strategic partner
relationships. Data management is a core element of the Group's
hybrid cloud proposition, and ORIIUM materially strengthens
iomart's indirect sales channel capabilities, while extending the
Group's product and technical skills and capabilities, with an
additional 45 technical engineers who joined the Group.
-- Pavilion IT, a business established for over 30 years, which
also includes the 2021 acquisition of P2 Technologies, a business
focused on the legal & accounting professional services sector
which added customer vertical specialisation. This brand has a
strong direct sales organisation with over 250 customers under one
unified operational delivery team offering a range of hybrid and
cloud infrastructure technology solutions plus professional
services and on-going customer support arrangements.
As announced on 5 June 2023, subsequent to our year-end, we
completed the acquisition of Extrinsica, for an initial
consideration of GBP4.0m, with a potential further GBP0.3m in cash
payable on the achievement of certain key customer targets during
the calendar year. Of the initial consideration, GBP2m was
satisfied by the issue of 1,562,500 new ordinary shares in iomart,
which under the terms of the Sale and Purchase Agreement are
subject to a 12 month "lock in" provision and based on a fixed
share price of GBP1.28, being the volume weighted average price for
the 90 days prior to completion. The balance of GBP2.0m was paid in
cash. We also repaid GBP3.7m of debt acquired on completion. A
further GBP4.0m to GBP7.0m of contingent earn-out payments is
included in the share purchase agreement based on the profitability
for the 12 months ending 31 March 2024. Of any earn-out payment
that becomes due, GBP1.0m will be satisfied by the issue of iomart
shares (the number of shares to be issued will be based on the same
share price as the initial consideration). The amount of contingent
consideration payable, based on management's forecast, recognised
at the date of the Acquisition, is expected to be GBP4.0m.
Extrinsica is a Microsoft Azure Cloud solution services provider
with offerings including managed Azure Cloud, Azure solution design
and implementation services, support & optimisation services
and licencing. The company was incorporated in 2010 as a Cloud
services provider to micro businesses. It was in 2017 that its
current business model was established when it was invited by
Microsoft to become one of the first 25 Microsoft Azure CSP
partners worldwide. It is now solely Azure public Cloud-focused.
This a cquisition provides iomart with deep Microsoft Azure
expertise, a highly capable team of 33 based in the UK, strong
customer references and a shared value and vision for how the
Microsoft Practice in iomart should be shaped to support
acceleration of growth. Prior to our acquisition, Extrinsica
generated revenues of GBP7.4m, being year on year growth of c.40%,
and EBITDA of GBP0.1m (unaudited).
Operational Review
While all of our activities involve the provision of services
from common infrastructure, we are organised into two operating
segments, Cloud Services (GBP103.9m revenue) and Easyspace
(GBP11.7m revenue).
Cloud Services
Within our Cloud Services division, we have three core offerings
that recognise the differing complexity of the solutions designed
and the level of ongoing managed services we provide being: iomart
cloud managed services, self-managed infrastructure and
non-recurring revenue. This means we can supply products and
services across the full cloud spectrum and do so using shared
resources and common platforms across the Group.
-- iomart cloud managed services : GBP64.1m revenue (2022:
GBP55.7m): provides fully managed, complex bespoke designs,
resulting in resilient solutions involving differing
infrastructures. This has a wide range of offering across the full
cloud spectrum from simpler colocation data centre services to a
full 24/7 managed service complemented by our back-up and disaster
recovery offering. Over the long-term we anticipate this will be
the highest growth area for iomart, supported by the market drivers
described above. This is the part of the business on which new
product service launches are focused because we believe provision
of managed service is what organisations are looking for to support
their business objectives and that we are well placed to offer.
-- Self-managed infrastructure : GBP30.4m revenue (2022:
GBP28.4m): provides dedicated, physical, self-service servers to
customers. We deliver many thousands of physical servers for our
customers using highly automated systems and processes which we
continue to develop and improve. Our own regional data centre
estate and fibre network positions us well to offer such
infrastructure as a service. It is generally recognised that this
activity is a lower growth area within the cloud market but
continues to offer a cost competitive solution for many customer
use cases and for those who have retained their own IT skills.
-- Non-recurring revenue : GBP9.4m (2022: GBP7.1m): relates
primarily to on-premise equipment and software reselling via our
Cristie Data and Pavilion IT brands, as well as consultancy
projects. By their nature this activity is lower margin but we
believe it to be relevant to our ability to offer support to our
existing customer base and new customer wins. It is often these
non-recurring activities that provide an interesting initial
introduction to the wider Group and evolve customers into a higher
level of recurring services.
During the year ended 31 March 2023, Cloud Services revenues
increased by GBP12.7m (14%) to GBP103.9m (2022: GBP91.2m). This
included GBP6.2m of revenue for the 7.5 months of trading from the
Concepta acquisition completed on the 15 August 2022, split 50/50
between recurring and non-recurring revenue.
Our recurring revenue saw the largest increase being GBP10.4m to
GBP94.5m (2022: GBP84.1m), with the largest area being from our
core cloud managed services. This is a combination of a return to
long-term historic customer renewal levels, inflationary pricing
adjustments, primarily for data centre energy usage, plus the
successful completion of the acquisition of Concepta. The data
centre sector has had to navigate the significant challenges in the
energy markets and during the year the Group's electricity costs
increased by approximately GBP7 million. iomart's robust business
model and customer arrangements have ensured this additional energy
cost has been appropriately passed through to the customer
base.
Non-recurring revenues increased by GBP2.3m (31%) to GBP9.4m
(2022: GBP7.1m) which include GBP3.1m of non-recurring revenue from
the Concepta acquisition in August 2022, primarily the Pavilion IT
brand. The underlying reduction in non-recurring revenue was
GBP0.8m all of which arose in the first half of the year. The
economic situation in some of our customer base has slowed down
hardware refresh activity, but we are reviewing our specific
product proposition to ensure it avoids the more commoditised
areas, matches our deeper skills, for example in data management,
and at the same time create a greater likelihood that such
customers would, over time, move to iomart's core recurring
services.
Cloud Services EBITDA (before share based payments, acquisition
costs, central group overheads and non-recurring exceptionals) was
GBP35.3m being 34.0% of cloud services revenue (2022: GBP36.6m
(40.2% of cloud services revenue)). The reduction of GBP1.3m in
Cloud Services EBITDA is a combination of many moving parts,
including timing and pass through nature of costs associated with
the inflationary environment, additional investment in upskilling
our employees' capabilities, alongside appropriate wage increases
and cost of living support, and the lower EBIDTA margin which also
comes with lower CAPEX needs of some of our new offerings in
comparison to the self-managed infrastructure-only deals of earlier
years.
Easyspace
The global domain name and mass market hosting sector continues
to grow, supported by the increasing importance of an internet
presence and ecommerce for all areas of the economy, including the
small and micro business community represented within our Easyspace
division. This sector is increasingly dominated by a smaller number
of large global operators and we recognised a long time ago that
the marketing spends required to compete for new business in this
specific area was not the best use of iomart's resources. The
Easyspace segment has performed well during the year, delivering
revenues and EBITDA (before share based payments, acquisition costs
and central group overheads) of GBP11.7m (2022: GBP11.8m) and
GBP5.6m (2022: GBP5.7m), respectively.
Infrastructure investment and energy pricing
Our UK-owned infrastructure is an important aspect of the
delivery of our recurring revenue services and a critical
differentiator in the market, allowing more of the value-add to be
retained by iomart. We have a well-maintained data centre estate as
this is core to ensuring a resilient service.
The data centre sector has had to navigate the significant
challenges in the energy markets and during the year the Group's
electricity costs increased by approximately GBP7 million. iomart's
robust business model and customer arrangements have ensured this
additional energy cost has been appropriately passed through to the
customer base. While electricity costs remain high, the energy
markets appear less volatile as we enter the new financial year. We
have a proactive hedging strategy in place for the next two years
and expect this matter to be less of a distraction for our team and
customers going forward.
During the year we re-contracted our core UK fibre network. This
refreshes the resilient network that securely connects our data
centres, with the implementation to be undertaken during the course
of 2023. We had already commenced the upgrade to our
uninterruptible power systems ("UPS") in our core data centres last
year. However, given the increase in energy costs we have
accelerated this as the new systems offer improved energy
efficiencies. Towards the end of the year, we closed our Dunsfold
data centre, which had been included in the Memset acquisition of
2020. This was one of our smaller regional UK data centres. Our two
largest data centres in Maidenhead and central London account for
around half of our UK capacity. We will continue to look for areas
to consolidate over the medium to longer term without affecting any
customer needs.
Current trading and outlook
Current trading in the first two months of the new financial
year are in line with internal expectations, reporting revenues
ahead of the equivalent prior period, with a mix of organic and
acquisitive growth.
While iomart will not be immune to any potential economic
volatility in the UK and beyond, the requirement for organisations
to be supported on their hybrid cloud journey will continue to grow
for the foreseeable future. We support customers with their cloud
infrastructure needs, around often mission critical applications,
and the increasing complexity of the technical landscape will
continue to see customers look for partners who can provide the
solutions, capabilities, expertise and experience across the entire
cloud ecosystem.
The two recent acquisitions have expanded our capabilities and
routes to market, making our solution portfolio more relevant to a
wider audience. The increase in the effectiveness of our sales
activities, operational improvements made, and our clear focus on
execution gives us a stronger foundation to accelerate growth.
These factors and the momentum achieved in the second half of the
last financial year underpins the Board's confidence in the outlook
for the long-term prospects for the Group.
Reece Donovan
Chief Executive Officer
13 June 2023
Definition of alternative performance measures:
(1) Throughout these financial statements adjusted EBITDA
(disclosed in the consolidated statement of comprehensive income)
is earnings before interest, tax, depreciation and amortisation
(EBITDA) before share-based payment charges, acquisition costs and
exceptional non-recurring costs. Throughout these financial
statements acquisition costs are defined as acquisition related
costs and non-recurring acquisition integration costs
(2) Throughout these financial statements adjusted profit before
tax (disclosed on page 11) is profit before tax, amortisation
charges on acquired intangible assets, share-based payment charges,
acquisition costs, accelerated write off of arrangement fee on bank
facility and exceptional non-recurring costs
(3) Recurring revenue is the revenue that repeats either under
long-term contractual arrangement or on a rolling basis by
predictable customer habit. % of recurring revenue is defined as
Recurring Revenue (as disclosed in note 3) / Revenue (as disclosed
in the consolidated statement of comprehensive income)
(4) Market expectations based on known sell-side analyst
estimates for the full year ended 31 March 2023, established in or
around 11 October 2022
CHIEF FINANCIAL OFFICER'S REPORT
Financial Review
Key Performance Indicators
2023 2022
----------------------------------------------- ---------- ----------
Revenue GBP115.6m GBP103.0m
% of recurring revenue (1) 92% 93%
Gross profit % (2) 55.0% 59.5%
Adjusted EBITDA (3) GBP36.2m GBP38.0m
Adjusted EBITDA margin % (4) 31.3% 36.9%
Adjusted profit before tax (5) GBP14.8m GBP17.1m
Adjusted profit before tax margin % (6) 12.8% 16.6%
Profit before tax GBP8.5m GBP12.2m
Profit before tax margin % (7) 7.4% 11.8%
Basic earnings per share 6.4p 8.6p
Adjusted earnings per share (diluted) (8) 10.9p 12.0p
Cash flow from operations / Adjusted EBITDA %
(9) 94% 100%
Net debt / Adjusted EBITDA leverage ratio
(10) 1.1 1.1
------------------------------------------------- ---------- ----------
See page 16 for definition of alternative performance
measures
Revenue
Overall revenue from our operations increased by 12% to
GBP115.6m (2022: GBP103.0m).
We saw a consistent share of recurring revenue at 92% (2022:
93%) compared to prior years . We remain focussed on retaining our
recurring revenue business model with the combination of multi-year
contracts and payments in advance providing us with good revenue
visibility.
Cloud Services
The following is the disaggregation of Cloud Services revenues
of GBP103.9m (2022: GBP91.2m):
2023 2022
Disaggregation of Cloud Services revenue GBP'000 GBP'000
------------------------------------------ --------- ---------
Cloud managed services 64,115 55,745
Self-managed infrastructure 30,444 28,363
Non-recurring revenue 9,359 7,128
103,918 91,236
------------------------------------------ --------- ---------
Cloud managed services (recurring revenue)
The recurring revenue within cloud managed services increased
strongly by GBP8.4m or 15% to GBP64.1m (2022: GBP55.7m). This was
driven by return to organic growth aided by customer renewal levels
returning to long-term historic averages, the Concepta acquisition
(mainly the ORIIUM brand) contributing GBP3.1m and our managed
service customers taking around half of the additional pricing
adjustments for the energy cost increase given their services are
underpinned by data centre services and availability. The customers
within the self-managed infrastructure area received the balance of
the energy pricing adjustments.
Self-managed infrastructure (recurring revenue)
The self-managed infrastructure revenue of GBP30.4m (2022:
GBP28.4m) increased by GBP2.1m. This is a combination of a
reduction in the number of our long tail of smaller customers, more
than offset by energy price rises passed onto customers, which are
more energy intensive within this area, plus higher new order
bookings from an internal sales team established to retain
dedicated focus on this area. We will continue to allocate
resources to ensure we provide this customer base with resilient,
cost effective and increasingly automated solutions.
Non-recurring revenue
Non-recurring revenue of GBP9.4m (2022: GBP7.1m) relates
primarily to on premise product and licence reselling plus
consultancy projects. Often these non-recurring activities provide
an interesting initial introduction to the wider iomart Group and
customers evolve into a higher level of recurring services. The
Concepta acquisition in August 2022 included the Pavilion IT brand,
which primarily undertakes similar reselling and professional
services activity. This added GBP3.1m of non-recurring revenue post
acquisition, meaning excluding acquisition impact, the underlying
reduction in non-recurring revenue was GBP0.8m that arose in the
first half of the year. The economic situation in some of our
customer base has slowed down hardware refresh activity.
Easyspace
Our Easyspace segment has performed well over the year with
revenues remaining broadly consistent at GBP11.7m (2022: GBP11.8m).
The domain name and web hosting business is an area in which we do
not invest heavily but it was pleasing to see a solid performance
with high level of renewals from our base of c.60,000 customers.
The activity remains highly profitable and cash generative.
Business model
Our business model in both segments generally involves the
provision of cloud and managed hosting services from our data
centres, delivering the computing power, storage, and network
capability our customers require for the operation of their own
businesses. We have invested in an estate of data centres, an
extensive fibre network and for each customer the servers, routers,
firewalls and other assets that are necessary to create the IT
infrastructure they require. These resources, along with the
associated staff, are shared across most of our revenue streams.
Customers pay us for the provision of that infrastructure, with the
potential to add 3(rd) party technology and various degrees of a
managed services wrapper.
Larger customers tend to have multi-year contracts for complex
cloud solutions, which are invoiced and paid on a monthly basis.
Many of our smaller customers pay in advance for the provision of
services which results in a substantial sum of deferred revenue,
which is then recognised over the period of the service provision.
A significant proportion of our revenue is therefore recurring and
the combination of multi-year contracts and payment in advance
provides us with strong revenue visibility.
Gross Profit
Gross profit in the year, which is calculated by deducting from
revenue variable cost of sales such as power, software licences,
connectivity charges, domain costs, public cloud costs, sales
commission, the relatively fixed costs of operating our data
centres plus, for non-recurring revenue, the cost of hardware and
software sold, increased by GBP2.3m to GBP63.6m (2022: GBP61.3m).
In percentage terms, gross margin (2) is down on prior year at
55.0% (2022: 59.5%) being heavily impacted by the pass through of
energy costs and to a lesser extent lower margin within the
Concepta acquisition, primarily from their reselling activities. In
addition as expected given the scope of the service, we typically
see lower gross margin levels on some of the new business won
compared to margins from some of the self-managed infrastructure
only deals of earlier years.
Adjusted EBITDA (3)
The Group's adjusted EBITDA reduced by GBP1.8m to GBP36.2m
(2022: GBP38.0m) which in adjusted EBITDA margin (4) terms
translates to 31.3% (2022: 36.9%). The administration expense
(before depreciation, amortisation, share based payment charges,
acquisition costs and exceptional non-recurring costs) of GBP27.4m
(2022: GBP23.3m) is GBP4.1m higher than the previous year
comparative. However, this includes GBP1.9m of administrative
expenses from the Concepta acquisition meaning the underlying
increase in administrative expenses is limited to GBP2.2m or 9%. Of
this increase our annual salary award, staff winter cost of living
allowance payment and national insurance levy accounts for around
half. Year on year average headcount levels were broadly flat
although iomart is employing a higher skilled workforce.
The Cloud Services segment saw a 3.6% reduction in adjusted
EBITDA to GBP35.3m (2022: GBP36.6m). In percentage terms the Cloud
Services margin decreased to 34.0% (2022: 40.2%) for the reasons
noted earlier. The Easyspace segment's adjusted EBITDA was GBP5.6m
(2022: GBP5.7m) reflecting the stable revenue performance in the
year, which in percentage terms was again stable at 48.1% (2022:
48.2%).
Group overheads increased by GBP0.5m in the year to GBP4.8m
(2022: GBP4.3m). These are costs which are not allocated to
segments, including the cost of the Board, the running costs of the
headquarters in Glasgow, Group marketing, human resource, finance
and design functions and legal and professional fees for the
year.
Adjusted profit before tax (5)
The depreciation charge of GBP15.9m (2022: GBP16.3m) fell by
GBP0.4m in the year and as a percentage of recurring revenue is
15.0% (2022: 17.0%), driven by the profile and drivers of the
higher recurring revenue in the year.
The charge for amortisation of intangibles, excluding
amortisation of intangible assets resulting from acquisitions
("amortisation of acquired intangible assets"), of GBP2.6m (2022:
GBP2.6m) is consistent year on year.
Finance costs of GBP2.9m (2022: GBP2.1m) has increased year on
year due to the higher SONIA interest rate. Our revolving credit
facility has a borrowing cost at the Group's current leverage
levels of 180 basis points over SONIA.
After deducting the charges for depreciation, amortisation
(excluding the charges for the amortisation of acquired intangible
assets), exceptional non-recurring costs and finance costs from the
adjusted EBITDA, the Group's adjusted profit before tax reduced to
GBP14.8m (2022: GBP17.1m), representing an adjusted profit before
tax margin (6) of 12.8% (2022: 16.6%).
Profit before tax
The measure of adjusted profit before tax is an alternative
profit measure which is commonly used to analyse the performance of
companies particularly where M&A activity forms a significant
part of their activities.
A reconciliation of adjusted profit before tax to reported
profit before tax is shown below:
Reconciliation of adjusted profit before 2023 2022
tax to profit before tax GBP'000 GBP'000
Adjusted profit before tax (5) 14,820 17,109
Less: Amortisation of acquired intangible
assets (3,880) (4,044)
Less: Acquisition costs (922) (315)
Less: Share-based payments (696) (480)
Less: Accelerated write off of arrangement
fee on bank facility - (102)
Less: Cost of sales - exceptional non-recurring
costs (820) -
Profit before tax 8,502 12,168
--------------------------------------------------- --------- ---------
The adjusting items in the current year are:
-- charges for the amortisation of acquired intangible assets of GBP3.9m (2022: GBP4.0m);
-- acquisition costs of GBP0.9m (2022: GBP0.3m) which includes a
mainly non-cash charge of GBP0.6m in respect of the closure of our
Memset Dunsfold data centre;
-- share-based payment charges of GBP0.7m (2022: GBP0.5m) driven
by a higher number of options lapsing in the prior year driving a
lower charge; and
-- exceptional non-recurring costs of sales of GBP0.8m which is explained below.
On 1 October 2022, iomart entered into a new three-year
electricity utility supply agreement, a new hedging arrangement and
participated in the Energy Bill Relief Scheme ("EBRS"). All of this
was undertaken in conjunction with our long established energy
consultant and broker. Around November 2022, we instigated an
energy price increase across the bulk of our customer base. The
basis of this price increase was the cost information we received
from our energy consultant and broker. However, in March 2023 our
energy consultant and broker identified an error in the previously
advised fixed commodity charge due to a wrong interpretation by
them of when the EBRS discount is applied within the charging
regime. This meant that rather than a timing aspect only, there was
a GBP0.8m cost impact for the 6 months to 31 March 2023. Given the
timing of this notification from our energy consultant and broker
we are not in a position to recover such sums from our customer
base via our contractual mechanisms. We believe if we had been
aware of this item we would have successfully passed this onto
customers in the November 2022 exercise. As the error relates to
interpretation of the EBRS then the matter does not affect
financial planning for the period from April 2023 onwards. On this
basis, we believe the item is exceptional and non-recurring in
nature and requires to be drawn out separately to ensure a more
meaningful understanding of the financial performance in the
year.
After deducting these items from the adjusted profit before tax,
the reported profit before tax was GBP8.5m (2022: GBP12.2m). In
percentage terms the profit before tax margin (7) was a decrease to
7.4% (2022: 11.8%) driven by the exceptional non-recurring costs
and acquisition costs in the year and the impact of the lower
trading result in the year.
Taxation
The tax charge for the year is GBP1.5m (2022: GBP2.8m). The tax
charge for the year is made up of a corporation tax charge of
GBP0.9m (2022: GBP1.1m) with a deferred tax charge of GBP0.6m
(2022: GBP1.7m). The effective rate of tax for the year is 18%
(2022: 23%). The future increase to a 25% UK corporation tax rate
was applied to deferred tax balances in the prior year driving a
higher effective tax rate in the prior year. The decrease in the
effective tax rate for the year is a function of the greater impact
from the tax accounting on share based payments in the prior year
offset partially by the positive effect of the higher "super
deduction" available for capital investments in the current year.
Given iomart is very much a UK business then the UK headline
corporate tax is still considered a reasonable recurring effective
tax rate for underlying profits. Further explanation of the tax
charge for the year is given in note 4.
Profit for the year
After deducting the tax charge for the year from the profit
before tax the Group has recorded a profit for the year of GBP7.0m
(2022: GBP9.4m).
Earnings per share
The calculation of both adjusted earnings per share and basic
earnings per share is included at note 7.
Basic earnings per share from continuing operations was 6.4p
(2022: 8.6p), a reduction of 25.6%.
Adjusted diluted earnings per share (8) , based on profit for
the year attributed to ordinary shareholders before amortisation
charges of acquired intangible assets, acquisition costs,
share-based payment charges, exceptional non-recurring costs, and
the tax effect of these items was 10.9p (2022: 12.0p), a reduction
of 9.2%.
The measure of adjusted diluted earnings per share as described
above is a non-statutory measure which is commonly used to analyse
the performance of companies particularly where M&A activity
forms a significant part of their activities.
Dividends
Our dividend policy, which has been in place for several years
now, is based on the profitability of the business in the period
measured with reference to the adjusted diluted earnings per share
we deliver in a financial year. For the last few years we have been
paying dividends at the maximum level allowed by our stated policy.
The current policy is a maximum pay-out policy of 50% of adjusted
diluted earnings per share. The Directors are proposing a final
dividend of 3.50p (2022: 3.60p) which is at maximum level set by
the dividend policy which we believe is fully appropriate given the
recurring revenue nature of the Group, the level of operating cash
which we deliver and the low level of indebtedness within the
Group. As a result, along with the interim dividend of 1.94p (2022:
2.42p), which was paid in January 2023, the total dividend for the
year is 5.44p (2022: 6.02p), a reduction reflecting the movement in
the adjusted diluted earnings per share.
Cash flow and net debt
Net cash flows from operating activities
The Group continued to generate high levels of operating cash
over the year. Cash flow from operations was GBP33.8m (2022:
GBP37.9m) which represents a 94% conversion (9) of adjusted EBITDA
(2022: 100%). The metric in the current year is somewhat distorted
by the cash element of the non-recurring adjusting items of around
GBP0.8m which if excluded from cash flow from operations would
result in a conversion ratio of 96%.
Cash payments for corporation tax in the year were limited
(2022: GBP2.5m), due to overpayments from prior years which could
be offset against our quarterly instalments and we received a tax
refund resulting in a small tax inflow of GBP48,000, resulting in
net cash flow from operating activities in the year of GBP33.9m
(2022: GBP35.4m).
Cash flow from investing activities
Our strategy is to continue to reinvest some of the strong
operating cash flow we generate back into the business both in the
form of internal investments into our UK infrastructure but also in
the continuation of our disciplined acquisition strategy. The Group
invested a total of GBP21.2m (2022: GBP10.2m) during the year. In
the current year, we paid equity consideration on the Concepta
acquisition, paid associated professional services fees that
combined with the cash acquired, results in a GBP10.3m net outflow.
There were no payments made concerning M&A activity in the
prior year.
The Group continues to invest in property, plant and equipment
through expenditure on data centres and on equipment required to
provide managed services to both its existing and new customers. As
a result, the Group spent GBP8.9m (2022: GBP9.5m) on assets. Most
of the expenditure in the year was on operational items such as
servers and storage to support customer deployments.
Expenditure was also incurred on development costs of GBP1.9m
(2022: GBP1.4m) and on intangible assets of GBP0.1m (2022:
GBP0.1m).
Cash flow from financing activities
In the current year, loan drawdowns of GBP10.4m (2022: GBPnil)
were made from the revolving credit facility to support the initial
equity consideration for the Concepta acquisition. We also repaid
GBP1.5m of bank debt acquired from Concepta at completion.
Bank loan repayments of GBP10m (2022: GBP18.8m) were made in the
year resulting in a closing drawn bank loan of GBP34.4m (2022:
GBP34.0m). Cash received in the year from issue of shares was only
GBP5k (2022: GBP4k). We also made dividend payments of GBP6.1m
(2022: GBP7.6m); paid finance costs of GBP2.2m (2022: GBP2.1m)
which included GBP0.2m of arrangement fees associated with the
extension options taken within the bank facility and made lease
repayments of GBP4.9.m (2022: GBP4.4m).
Net cash flow
As a consequence of the above component elements and especially
the payments associated with the acquisition in the year, our
overall cash position was an outflow of GBP1.5m (2022: GBP7.7m
outflow) which resulted in cash and cash equivalent balances at the
end of the year of GBP13.8m (2022: GBP15.3m).
Net Debt
The net debt position of the Group at the end of the year was
GBP39.8m (2022: GBP41.3m) as shown below. The net debt position
represents a multiple of 1.1 times (10) our adjusted EBITDA (2022:
1.1 times) which we believe is a comfortable level of debt to carry
given the recurring revenue business model and strong cash
generation in the business.
2023 2022
GBP'000 GBP'000
Bank revolver loan 34,400 34,000
Lease liabilities 19,180 22,623
Less: cash and cash equivalents (13,818) (15,332)
Net Debt 39,762 41,291
----------------------------------- --------- ----------
The Group has access to a GBP100m Revolving Credit Facility
("RCF") provided by a banking group consisting of HSBC, Royal Bank
of Scotland, Bank of Ireland and Clydesdale Bank, that now matures
on 30 June 2026 (2022: 30 June 2025), which also benefits from a
GBP50m Accordion Facility. On 17 November 2022, the lenders
approved the Group enactment of the extension option. The RCF has a
borrowing cost at the Group's current leverage levels of 180 basis
points over SONIA.
The decrease in the lease liability to GBP19.2m (2022: GBP22.6m)
reflects expected payments on property arrangements and that there
were no material revisions to existing leases.
Financial position
The strength of our business model, with high recurring revenue,
low customer concentration across wide sectors and a positive cash
cycle is well established and creates a very strong financial
position. The Group continues to generate substantial amounts of
operating cash. The generation of that cash flow, together with the
committed bank loan facility for acquisitions, capital expenditure
and general business purposes, means that the Group has the
liquidity it requires to continue its growth through both organic
and acquisitive means.
Scott Cunningham
Chief Financial Officer
13 June 2023
Definition of alternative performance measures:
(1) Recurring revenue is the revenue that repeats either under
long-term contractual arrangement or on a rolling basis by
predictable customer habit. % of recurring revenue is defined as
Recurring Revenue (as disclosed in note 3) / Revenue (as disclosed
in the consolidated statement of comprehensive income)
(2) Gross profit margin % is defined as Gross Profit / Revenue
as a % (both as disclosed in the consolidated statement of
comprehensive income)
(3) Adjusted EBITDA (as disclosed in the consolidated statement
of comprehensive income) is earnings before interest, tax,
depreciation and amortisation (EBITDA) before share-based payment
charges, acquisition costs and exceptional non-recurring costs.
Throughout these financial statements acquisition costs are defined
as acquisition related costs and non-recurring acquisition
integration costs
(4) Adjusted EBITDA margin % is defined as adjusted EBITDA (as
disclosed in the consolidated statement of comprehensive income) /
Revenue (as disclosed in the consolidated statement of
comprehensive income) as a %
(5) Adjusted profit before tax (as disclosed on page 11) is
profit before tax, amortisation charges on acquired intangible
assets, share-based payment charges, acquisition costs, accelerated
write off of arrangements fee on bank facility and exceptional
non-recurring costs.
(6) Adjusted profit before tax margin % is defined as adjusted
profit before tax (as disclosed on page 11) / Revenue (as disclosed
in the consolidated statement of comprehensive income) as a %
(7) Profit before tax margin % is defined as Profit before Tax /
Revenue (both as disclosed in the consolidated statement of
comprehensive income) as a %
(8) Adjusted diluted earnings per share is earnings before
amortisation charges on acquired intangible assets, share-based
payment charges, acquisition costs, accelerated write off of
arrangement fee on bank facility and exceptional non-recurring
costs and the tax impact of adjusted items /weighted average number
of ordinary shares - diluted (as disclosed in note 7)
(9) Cash flow from operations / Adjusted EBITDA % is defined as
cash flow from operations (as disclosed in the consolidated
statement of cash flows) / Adjusted EBITDA (as disclosed in the
consolidated statement of comprehensive income) as a %
(10) Net debt / Adjusted EBIDTA level ratio is defined as Net
Debt (as disclosed on page 15) / Adjusted EBITDA (as disclosed in
the consolidated statement of comprehensive income)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEARED 31 MARCH 2023
2023 2022
Note GBP'000 GBP'000
Revenue 3 115,638 103,018
Cost of sales (52,080) (41,712)
--------- ---------
Gross profit 63,558 61,306
Administrative expenses (52,141) (47,076)
Operating profit 11,417 14,230
Analysed as:
Earnings before interest, tax, depreciation,
amortisation, acquisition costs,
share-based payments and exceptional
non-recurring costs 36,161 38,009
Share-based payments (696) (480)
Acquisition costs (922) (315)
Cost of sales- exceptional non-recurring (820) -
costs
Depreciation 9 (15,861) (16,296)
Amortisation - acquired intangible
assets 8 (3,880) (4,044)
Amortisation - other intangible assets 8 (2,565) (2,644)
Finance costs (2,915) (2,062)
--------- ---------
Profit before taxation 8,502 12,168
Taxation 4 (1,507) (2,772)
--------- ---------
Profit for the year attributable
to equity holders of the parent 6,995 9,396
Other comprehensive income
Amounts which may be reclassified
to profit or loss
Currency translation differences 60 30
------------------------------------------------ ----- --------- ---------
Other comprehensive income for the
year 60 30
------------------------------------------------ ----- --------- ---------
Total comprehensive income for the
year attributable to equity holders
of the parent 7,055 9,426
Basic and diluted earnings per share
Basic earnings per share 7 6.4p 8.6p
Diluted earnings per share 7 6.2p 8.4p
------------------------------------------------ ----- --------- ---------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2023
2023 2022
Note GBP'000 GBP'000
------------------------------- ----- --------- ---------
ASSETS
Non-current assets
Intangible assets - goodwill 8 99,950 86,479
Intangible assets - other 8 12,981 12,852
Trade and other receivables 177 531
Property, plant and equipment 9 64,959 70,893
178,067 170,755
Current assets
Cash and cash equivalents 13,818 15,332
Trade and other receivables 25,804 20,592
Current tax asset 987 1,658
40,609 37,582
Total assets 218,676 208,337
LIABILITIES
Non-current liabilities
Trade and other payables (2,666) (2,643)
Non-current borrowings 10 (50,203) (53,063)
Provisions (2,755) (2,438)
Deferred tax 5 (3,221) (1,510)
(58,845) (59,654)
Current liabilities
Contingent consideration due (4,000) -
on acquisitions
Trade and other payables (31,898) (26,232)
Current borrowings 10 (3,377) (3,560)
(39,275) (29,792)
Total liabilities (98,120) (89,446)
Net assets 120,556 118,891
-------------------------------- ----- --------- ---------
EQUITY
Share capital 1,106 1,101
Own shares (70) (70)
Capital redemption reserve 1,200 1,200
Share premium 22,495 22,495
Merger reserve 4,983 4,983
Foreign currency translation
reserve 46 (14)
Retained earnings 90,796 89,196
Total equity 120,556 118,891
-------------------------------- ----- --------- ---------
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARED 31 MARCH 2023
2023 2022
Note GBP'000 GBP'000
Profit before taxation 8,502 12,168
Finance costs - net 2,915 2,062
Depreciation 9 16,492 16,296
Amortisation 8 6,445 6,688
Share-based payments 696 480
Gain on disposal of property - (338)
Movement in trade receivables (3,256) 3,257 3,257
Movement in trade payables 2,045 (2,702)
----------------------------------------------- ------ ---------- -------------
Cash flow from operations 33,839 37,911
Taxation received/(paid) 48 (2,455)
Net cash flow from operating
activities 33,887 35,456
Cash flow from investing activities
Purchase of property, plant and
equipment 9 (8,918) (9,492)
Proceeds received from disposal of property,
plant and equipment - 700
Development costs 8 (1,887) (1,352)
Purchase of intangible assets 8 (44) (91)
Payment for current period acquisitions
net of cash acquired (10,307) -
Net cash used in investing activities (21,156) (10,235)
Cash flow from financing activities
Issue of shares 5 4
Drawdown of bank loans 10,400 -
Payments under lease liabilities 11 (4,902) (4,410)
Repayment of bank loans (10,000) (18,840)
Repayment of debt acquired on
acquisition (1,508) -
Finance costs paid (1,900) (1,100)
Refinancing costs paid (249) (990)
Dividends paid (6,091) (7,591)
Net cash used in financing activities (14,245) (32,927)
Net decrease in cash and cash equivalents (1,514) (7,706)
Cash and cash equivalents at the
beginning of the year 15,332 23,038
---------------------------------------------- ------ ---------- -------------
Cash and cash equivalents at the end of
the year 13,818 15,332
----------------------------------------------- ------ ---------- -------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEARED 31 MARCH 2023
Foreign
Own currency Capital Share
Share shares translation redemption premium Merger Retained
capital EBT reserve reserve account reserve earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- --------- -------- ------------ ------------ --------- --------- ---------- --------
Balance at 1
April 2021 1,097 (70) (44) 1,200 22,495 4,983 86,911 116,572
Profit for the
year - - - - - - 9,396 9,396
Currency translation
differences - - 30 - - - - 30
--------------------- --- --------- -------- ------------ ------------ --------- --------- ---------- --------
Total comprehensive
income - - 30 - - - 9,396 9,426
--------------------- --- --------- -------- ------------ ------------ --------- --------- ---------- --------
Dividends - final
(paid) - - - - - - (4,931) (4,931)
Dividends - interim
(paid) - - - - - - (2,660) (2,660)
Share-based payments - - - - - - 480 480
Issue of share
capital 4 - - - - - - 4
--------------------- ---
Total transactions
with owners 4 - - - - - (7,111) (7,107)
--------------------- --- --------- -------- ------------ ------------ --------- --------- ---------- --------
Balance at 31
March 2022 1,101 (70) (14) 1,200 22,495 4,983 89,196 118,891
--------------------- --- --------- -------- ------------ ------------ --------- --------- ---------- --------
Profit for the
year - - - - - - 6,995 6,995
Currency translation
differences - - 60 - - - - 60
--------------------- --- --------- -------- ------------ ------------ --------- --------- ---------- --------
Total comprehensive
income - - 60 - - - 6,995 7,055
--------------------- --- --------- -------- ------------ ------------ --------- --------- ---------- --------
Dividends - final
(paid) - - - - - - (3,957) (3,957)
Dividends - interim
(paid) - - - - - - (2,134) (2,134)
Share-based payments - - - - - - 696 696
Issue of share
capital 5 - - - - - - 5
--------------------- ---
Total transactions
with owners 5 - - - - - (5,395) (5,390)
--------------------- --- --------- -------- ------------ ------------ --------- --------- ---------- --------
Balance at 31
March 2023 1,106 (70) 46 1,200 22,495 4,983 90,796 120,556
--------------------- --- --------- -------- ------------ ------------ --------- --------- ---------- --------
NOTES TO THE FINANCIAL INFORMATION
YEARED 31 MARCH 2023
1. GENERAL INFORMATION
iomart Group plc is a public listed company listed on the
Alternative Investment Market ("AIM"), incorporated and domiciled
in the United Kingdom and registered in Scotland under the
Companies Act 2006. The address of the registered office is Lister
Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow,
G20 0SP.
2. ACCOUNTING POLICIES
Basis of preparation
The financial information set out in the announcement does not
constitute the Group's statutory accounts for the years ended 31
March 2023 and 31 March 2022 within the meaning of section 434 of
the Companies Act 2006. The financial information for the year
ended 31 March 2022 is derived from the statutory accounts for that
year which have been delivered to the Registrar of Companies. The
financial information for the year ended 31 March 2023 is derived
from the statutory accounts for that year which were approved by
the Directors on 13 June 2023. The statutory accounts for the year
ended 31 March 2023 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditors
reported on those accounts; their report was unqualified and did
not contain a statement under Section 498(2) or (3) of the
Companies Act 2006.
The Group's financial statements have been prepared in
accordance accordance with applicable law and UK-adopted
international accounting standards.
The Group's financial statements have been prepared on the
historical cost basis.
Adoption of new and revised Standards - Amendments to IFRS that
are mandatorily effective for the current year
There are no new accounting policies applied in the year ended
31 March 2023 which have had a material effect on these accounts.
In addition, the Directors do not consider that the adoption of new
and revised standards and interpretations issued by the IASB in
2021 has had any material impact on the financial statements of the
Group.
3. sEGMENTAL ANALYSIS
The Chief Operating Decision-Maker has been identified as the
Chief Executive Officer ("CEO") of the Company. The Group has two
operating segments and the CEO reviews the Group's internal
reporting which recognises these two segments in order to assess
performance and to allocate resources. The Group has determined its
reportable segments are also its operating segments based on these
reports.
The Group currently has two operating and reportable segments
being Easyspace and Cloud Services.
-- Easyspace - this segment provides a range of shared hosting
and domain registration services to micro and SME companies.
-- Cloud Services - this segment provides managed cloud
computing facilities and services, through a network of owned data
centres, to the larger SME and corporate markets. The segment uses
several routes to market including iomart Cloud, Infrastructure as
a Service (IaaS), Rapidswitch, Cristie Data, Sonassi, LDeX,
Bytemark, Memset, ORIIUM, Pavilion IT and P2.
Information regarding the operation of the reportable segments
is included below. The CEO assesses the performance of the
operating segments based on revenue and a measure of earnings
before interest, tax, depreciation and amortisation (EBITDA) before
any allocation of Group overheads, charges for share-based
payments, costs associated with acquisitions, any gain or loss on
revaluation of contingent consideration and material non-recurring
items. This segment EBITDA is used to measure performance as the
CEO believes that such information is the most relevant in
evaluating the results of the segment.
The Group's EBITDA for the year has been calculated after
deducting Group overheads from the EBITDA of the two segments as
reported internally. Group overheads include the cost of the Board,
all the costs of running the premises in Glasgow, the Group
marketing, human resource, finance and design functions and legal
and professional fees.
The segment information is prepared using accounting policies
consistent with those of the Group as a whole.
The assets and liabilities of the Group are not reviewed by the
Chief Operating Decision-Maker on a segment basis. Therefore none
of the Group's assets and liabilities are segmental assets and
liabilities and are all unallocated for segmental disclosure
purposes. For that reason the Group has not disclosed details of
segmental assets and liabilities.
All segments are continuing operations. No customer accounts for
10% or more of external revenues. Inter-segment transactions are
accounted for using an arms-length commercial basis.
Operating Segments
Revenue by Operating Segment
2023 2022
GBP'000 GBP'000
---------------- -------- --------
Easyspace 11,720 11,782
Cloud Services 103,918 91,236
-------- --------
115,638 103,018
----------------- -------- --------
Cloud Services revenue can be further disaggregated as
follows:
2023 2022
GBP'000 GBP'000
----------------------------- -------- --------
Cloud managed services 64,115 55,745
Self-managed infrastructure 30,444 28,363
Non-recurring revenue 9,359 7,128
103,918 91,236
------------------------------ -------- --------
The nature of these three offerings are explained within the
Chief Executive Officer report on page 9.
Recurring and Non-recurring Revenue
The amount of recurring and non-recurring revenue recognised
during the year can be summarised as follows:
2023 2022
GBP'000 GBP'000
------------------------------- -------- --------
Recurring -
over time 106,279 95,890
Non-recurring - point in time 9,359 7,128
-------- --------
115,638 103,018
-------------------------------- -------- --------
Geographical Information
In presenting the consolidated information on a geographical
basis, revenue is based on the geographical location of customers.
There is no single country where revenues are individually material
other than the United Kingdom. The United Kingdom is the place of
domicile of the parent company, iomart Group plc.
Analysis of Revenue by Destination
2023 2022
GBP'000 GBP'000
------------------------- -------- --------
United Kingdom 99,961 88,692
Rest of the
World 15,677 14,326
-------- --------
Revenue from operations 115,638 103,018
-------------------------- -------- --------
Profit by Operating Segment
2023 2022
Depreciation, Depreciation,
amortisation, amortisation,
acquisition acquisition
costs, share-based costs, share-based
payments payments
and exceptional and exceptional
Adjusted non-recurring Operating Adjusted non-recurring Operating
EBITDA costs profit/(loss) EBITDA costs profit/(loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- --------- -------------------- --------------- --------- -------------------- ---------------
Easyspace 5,638 (690) 4,948 5,674 (665) 5,009
Cloud Services 35,331 (22,436) 12,895 36,641 (22,319) 14,322
Group overheads (4,808) - (4,808) (4,306) - (4,306)
Acquisition
costs - (922) (922) - (315) (315)
Share-based
payments - (696) (696) - (480) (480)
----------------- --------- -------------------- --------------- --------- -------------------- ---------------
36,161 (24,744) 11,417 38,009 (23,779) 14,230
Group interest
and tax (4,422) (4,834)
--------- -------------------- --------------- --------- -------------------- ---------------
Profit for
the year 6,995 9,396
----------------- --------- -------------------- --------------- --------- -------------------- ---------------
Group overheads, acquisition costs, share-based payments,
interest and tax are not allocated to segments.
4. TAXATION
2023 2022
GBP'000 GBP'000
------------------------------------------ -------- ---------
Corporation Tax:
Tax charge for the year (935) (1,333)
Adjustment relating to prior years - 209
------------------------------------------- -------- ---------
Total current taxation charge (935) (1,124)
Deferred Tax:
Origination and reversal of temporary
differences (597) (1,517)
Adjustment relating to prior years 36 (137)
Effect of different statutory tax rates
of overseas jurisdictions (11) (4)
Effect of changes in tax rates - 10
------------------------------------------- -------- ---------
Total deferred taxation charge (572) (1,648)
Total taxation charge (1,507) (2,772)
------------------------------------------- -------- ---------
The differences between the total taxation charge shown above
and the amount calculated by applying the standard rate of UK
corporation tax to the profit before tax are as follows:
2023 2022
GBP'000 GBP'000
------------------------------------------------------ --------- ---------
Profit before tax 8,502 12,168
------------------------------------------------------- --------- ---------
Tax charge @ 19% (2022: 19%) 1,615 2,312
Expenses disallowed for tax purposes and
non-taxable income 28 4
Adjustments in current tax relating to prior
years - (209)
Tax effect of different statutory tax rates
of overseas jurisdictions 11 4
Movement in tax relating to changes in tax
rates 95 (10)
Tax effect of share-based remuneration 253 833
Effect of super-deduction (505) (377)
Movement in deferred tax related to development
costs - 72
Movement in deferred tax related to property, plant
and equipment 46 6
Movement in deferred tax relating to prior
years (36) 137
------------------------------------------------------- --------- ---------
Total taxation charge for the year 1,507 2,772
------------------------------------------------------- --------- ---------
The weighted average applicable tax rate for the year ended 31
March 2023 was 19% (2022: 19%). The effective rate of tax for the
year, based on the taxation charge for the year as a percentage of
the profit before tax is 18% (2022: 23%). The effective rate of tax
has decreased due to the impact of the deferred tax rate change in
the prior year and the movement in the tax effect of share-based
remuneration largely driven by the movement in the share price in
the prior year. This has been offset by the effect of
super-deduction in the current year driving a higher credit
recognised in the consolidated statement of comprehensive
income.
Deferred tax assets and liabilities at 31 March 2023 have been
calculated based on the rate of 25% enacted at the balance sheet
date (2022: 25%).
5. DEFERRED TAX
The Group recognised deferred tax assets/(liabilities) as
follows:
2023 2022
GBP'000 GBP'000
------------------------------------------------- -------- --------
Share-based remuneration 638 884
Capital allowances temporary
differences (319) 843
Deferred tax on acquired assets with no capital
allowances - (19)
Deferred tax on development costs (648) (542)
Deferred tax on customer relationships (2,762) (2,499)
Deferred tax on intangible
software (130) (177)
---------------------------------------------------- -------- --------
Deferred tax liability (3,221) (1,510)
---------------------------------------------------- -------- --------
At the year end, the Group had no unused tax losses (2022:
GBPnil) available for offset against future profits.
Deferred
Capital tax on
allowances acquired
Share-based temporary Development assets Customer Intangible
remuneration differences costs with no relationships software Tax Total
GBP'000 GBP'000 GBP'000 capital GBP'000 GBP'000 Losses GBP'000
allowances GBP'000
GBP'000
-------------------- ------------- ------------ ------------ ---------- -------------- ----------- -------- --------
Balance at 1 April
2021 1,332 1,363 - (40) (2,356) (161) - 138
Credited/(charged)
to statement of
comprehensive
income (869) (947) (542) 34 635 35 - (1,654)
Effect of different
tax rates of
overseas
jurisdictions - - - - (4) - - (4)
Effect of changes
in tax rates 421 427 - (13) (774) (51) - 10
Balance at 31
March 2022 884 843 (542) (19) (2,499) (177) - (1,510)
Acquired on
acquisition
of subsidiary
(note 6) - (133) - - (1,074) - 68 (1,139)
Movement relating
to prior year - 36 - - - - - 36
(Charged)/credited
to statement of
comprehensive
income (246) (1,065) (106) 19 822 47 (68) (597)
Effect of different
tax rates of
overseas
jurisdictions - - - - (11) - - (11)
Balance at 31
March 2023 638 (319) (648) - (2,762) (130) - (3,221)
-------------------- ------------- ------------ ------------ ---------- -------------- ----------- -------- --------
The movement in the deferred tax account during the year
was:
The deferred tax asset in relation to share-based remuneration
arises from the anticipated future tax relief on the exercise of
share options.
The deferred tax on capital allowances temporary differences
arises mainly from plant and equipment in the Cloud Services
segment where the tax written down value varies from the net book
value.
The deferred tax on development costs arose from development
expenditure on which tax relief was received in advance of the
amortisation charge.
The deferred tax on acquired assets arises from data centre
equipment acquired through the acquisition of iomart Datacentres
Limited on which depreciation is charged but on which there are no
capital allowances available.
The deferred tax on customer relationships and intangible
software arises from permanent differences on acquired intangible
assets.
Deferred tax on tax losses arose on acquisition in the year and
has been utilised in the current year.
6. ACQUISITIONS
Concepta Capital Limited
On 15 August 2022, the Group acquired the entire issued share
capital of Concepta Capital Limited ("Concepta"). Concepta is
principally a holding company which owns 100% of the issued share
capital of Oriium Consulting Limited ("ORIIUM"), PAV I.T. Services
Limited ("Pavilion IT"), P2 Technologies Limited ("P2") Datanics
Limited ("Datanics") and Add3 Limited ("Add3").
ORIIUM is a channel only IT service provider specialising in
data management solutions, and Pavilion IT is a provider of cloud
and hybrid infrastructure solutions and support services.
During the current year, the Group incurred GBP236,000 of third
party acquisition related costs in respect of this acquisition.
These expenses are included in administrative expenses in the
Group's consolidated statement of comprehensive income and in cash
flow from investing activities for the year ended 31 March
2023.
The following table summarises the consideration to acquire
Concepta, the amounts of identified assets acquired, and
liabilities assumed at the acquisition date.
GBP'000
----------------------------------------------------------- ----------
Recognised amounts of net assets acquired and liabilities
assumed:
Cash and cash equivalents 1,017
Trade and other receivables 1,603
Property, plant and equipment 1,203
Intangible assets 4,621
Borrowings (1,742)
Trade and other payables (4,323)
Corporation tax asset 77
Deferred tax liability (1,139)
----------------------------------------------------------- ----------
Identifiable net assets 1,317
Goodwill 13,471
----------------------------------------------------------- ----------
Total consideration 14,788
----------------------------------------------------------- ----------
Satisfied by:
Cash - paid on acquisition 10,788
Contingent consideration - payable 4,000
Total consideration to be transferred 14,788
----------------------------------------------------------- ----------
The acquisition of Concepta was completed using a "completion
accounts" mechanism, on a no cash, no debt, and normalised working
capital basis. An initial payment of GBP10,548,000 was made at
completion. At the date of acquisition, Concepta had bank debt of
GBP1,508,000 which was taken on by iomart and settled as part of
the completion process.
In line with the share purchase agreement (SPA), the total
consideration payable was adjusted based on the level of cash, debt
and working capital shown in the agreed set of accounts (the
Completion Accounts) made up to 31 July 2022. Following agreement
of the Completion Accounts an additional payment of GBP240,000 was
paid to the former shareholders of Concepta.
The SPA included a provision requiring the Company to pay the
former shareholders of Concepta an additional amount contingent on
the level of profitability delivered by Concepta in the twelve
months ended 30 June 2023 ("the earn-out payment").
The potential undiscounted amount of the earn-out payment that
the Company could be required to pay is between GBPnil and
GBP4,000,000. The amount of contingent consideration payable, which
was recognised as of the acquisition date, was GBP4,000,000. The
level of profitability for the earn-out payment was estimated
taking into account. Under the Sale and Purchase Agreement, the
earn-out range from GBPnil to GBP4million consideration is
represented by a narrow EBITDA range of GBP300,000. This means for
each GBP1 of additional EBITDA above a target EBITDA, then GBP13.33
consideration is earned. This means the forecasted estimate is
sensitive to small variances.
The goodwill arising on the acquisition of Concepta is
attributable to the premium payable for a pre-existing, well
positioned business and the specialised, industry specific
knowledge, including the indirect channel, of the management and
staff, together with the benefits to the Group in merging the
business with its existing infrastructure and the anticipated
future revenue synergies from the combination. The goodwill is not
expected to be deductible for tax purposes.
The trading names "ORIIUM", "Pavilion IT" and "P2" are not
actively advertised or promoted. The Concepta group's standard
terms and conditions restrict the ability of the Concepta Group to
sell, distribute or lease any personal information it holds on
customers. As a consequence, there is no significant value in
either the trade name/brand or customer lists acquired at the
acquisition date and therefore no value has been attributed to
either intangible asset.
Included in intangible assets is the fair value included in
respect of the acquired customer relationships intangible asset of
GBP4,462,000. To estimate the fair value of the customer
relationships intangible asset, a discounted cash flow method,
specifically the income approach, was used with reference to the
directors' estimates of the level of revenue, which will be
generated from them. A pre-tax discount rate of 13.06% was used for
the valuation. Customer relationships are being amortised over an
estimated useful life of 8 years.
The Concepta group earned revenue of GBP6,188,000 and generated
profits, before allocation of group overheads, share based payments
and tax, of GBP858,000 in the period since acquisition.
If the Concepta group had been part of the iomart group from 1
April 2022, revenue earned would have been GBP9,955,000 and profit
after tax of GBP1,175,000 for the year ended 31 March 2023.
7. EARNINGS PER 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, after deducting
any own shares held in Treasury and held by the Employee Benefit
Trust. 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, after deducting any own shares, and adjusting for the
dilutive potential ordinary shares relating to share options.
2023 2022
GBP'000 GBP'000
-------------------------------------------- --------- ---------
Profit for the financial year and
basic earnings attributed to ordinary
shareholders 6,995 9,396
--------------------------------------------- --------- ---------
No No
Weighted average number of ordinary
shares: 000 000
Called up, allotted and fully paid
at start of year 110,065 109,671
Own shares held by Employee Benefit
Trust (141) (141)
Issued share capital in the year 170 181
Weighted average number of ordinary
shares - basic 110,094 109,711
Dilutive impact of share options 2,575 2,210
Weighted average number of ordinary shares
- diluted 112,669 111,921
---------------------------------------------- --------- ---------
Basic earnings per share 6.4 p 8.6 p
Diluted earnings per share 6.2 p 8.4 p
---------------------------------------------- --------- ---------
Adjusted earnings per share 2023 2022
GBP'000 GBP'000
------------------------------------------- -------- --------
Profit for the financial year and
basic earnings attributed to ordinary
shareholders 6,995 9,396
Amortisation of acquired intangible
assets 3,880 4,044
Acquisition costs 922 315
Cost of sales - exceptional non-recurring
costs 820 -
Share-based payments 696 480
Accelerated write off of arrangement fee
on bank facility - 102
Tax impact of adjusted items (1,025) (879)
Adjusted profit for the financial
year and adjusted earnings attributed
to ordinary shareholders 12,288 13,458
-------------------------------------------- -------- --------
Adjusted basic earnings per share 11.2 p 12.2 p
Adjusted diluted earnings per share 10.9 p 12.0 p
---------------------------------------------- -------- --------
8. INTANGIBLE ASSETS
Acquired Domain
Goodwill Development customer Beneficial names
costs relationships Software contracts & IP addresses Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
Cost
At 1 April 2021 86,479 11,904 57,263 10,827 86 336 166,895
Additions - - - 91 - - 91
Currency
translation
differences - - 36 27 - - 63
Development
cost
capitalised - 1,352 - - - - 1,352
At 31 March
2022 86,479 13,256 57,299 10,945 86 336 168,401
Acquired on
acquisition
of subsidiary
(note 6) 13,471 159 4,462 - - - 18,092
Additions - - - 44 - - 44
Currency
translation
differences - - 48 39 - - 87
Development
cost
capitalised - 1,887 - - - - 1,887
At 31 March
2023 99,950 15,302 61,809 11,028 86 336 188,511
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
Accumulated
amortisation:
At 1 April 2021 - (9,819) (45,316) (6,829) (62) (289) (62,315)
Charge for the
year - (1,347) (4,044) (1,282) (7) (8) (6,688)
Currency
translation
differences - - (36) (31) - - (67)
At 31 March
2022 - (11,166) (49,396) (8,142) (69) (297) (69,070)
Charge for the
year - (1,434) (3,880) (1,116) (8) (7) (6,445)
Currency
translation
differences - - (49) (16) - - (65)
At 31 March
2023 - (12,600) (53,325) (9,274) (77) (304) (75,580)
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
Carrying
amount:
At 31 March
2023 99,950 2,702 8,484 1,754 9 32 112,931
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
At 31 March
2022 86,479 2,090 7,903 2,803 17 39 99,331
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
Of the total additions in the year of GBP44,000 (2022:
GBP91,000), no amounts related to leases under IFRS 16 (note 11)
(2022: GBPnil). There were no amounts included in trade payables at
the year end (2022: GBPnil). Consequently, the consolidated
statement of cash flows discloses a figure of GBP44,000 (2022:
GBP91,000) as the cash outflow in respect of the purchase of
intangible asset in the year.
All amortisation and impairment charges are included in the
depreciation, amortisation and impairment of non-financial assets
classification, which is disclosed as administrative expenses in
the statement of comprehensive income.
Included within customer relationships are the following
significant net book values: GBP3.8m in relation to the acquisition
of Concepta Capital Limited with a remaining useful life of 7
years, GBP0.9m in relation to the acquisitions of Memset Limited
with a remaining useful life of 5 years, the managed private cloud
business of ServerChoice Limited of GBP0.5m with a useful life of 5
years, Bytemark Limited with a net book value of GBP0.3m and LDeX
Group Limited of GBP0.9 both with a remaining useful life of 4
years, Sonassi Limited of GBP1.3m, Dediserve Limited of GBP0.3m,
SimpleServers Limited of GBP0.2m all three with a remaining useful
life of 3 years.
During the year, goodwill was reviewed for impairment in
accordance with IAS 36 "Impairment of Assets". No impairment
charges (2022: GBPnil) arose as a result of this review. For this
review goodwill was allocated to individual Cash Generating Units
(CGU) on the basis of the Group's operations.
The carrying value of goodwill by each CGU is as follows:
Cash Generating 2023 2022
Units (CGU) GBP'000 GBP'000
Easyspace 23,315 23,315
Cloud Services 76,635 63,164
99,950 86,479
----------------- --------- ---------
The recoverable amount of a CGU is determined based on
value-in-use calculations. These calculations use pre-tax cash flow
projections based on financial budgets approved by the Board
covering a five year period. These projections are the result of
detailed planning and assume similar levels of organic growth as
the Group has experienced in the previous years.
The growth rates and margins used to extrapolate estimated
future performance continue to be based on past growth performance
adjusted downwards to take into account the additional risk due to
the passage of time. The growth rate does not exceed the long-term
average growth rate for the business in which the CGU operates. The
growth rates used to estimate future performance beyond the periods
covered by the annual and strategic planning processes do not
exceed the long-term average growth rates for similar products.
In determining the value-in-use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset.
Management continue to apply the judgement that there are two
distinct CGUs within the Group, namely Cloud Services and Easyspace
which have been derived with due consideration to IAS 36. The
assumptions used for the CGU included within the impairment reviews
are as follows:
Easyspace Cloud Services
31 March 31 March 31 March 31 March
2023 2022 2023 2022
Discount rate 14.3% 14.4% 14.3% 14.4%
Future perpetuity
rate 0.0% 0.0% 2.5% 2.5%
Initial period for which cash flows
are estimated (years) 5 5 5 5
---------------------------------------- --------- --------- --------- ---------
Based on an analysis of the impairment calculation's
sensitivities to changes in key parameters (growth rate, discount
rate and pre-tax cash flow projections) there was no reasonably
possible scenario where the CGU's recoverable amount would fall
below its carrying amount.
9. PROPERTY, PLANT AND EQUIPMENT
Leasehold Data
Freehold property centre Computer Office Motor
property and improve-ments equipment equipment equipment vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ------------ ------------------- ----------- ----------- ----------- ---------- ----------
Cost:
At 1 April 2021 8,731 38,694 28,079 108,223 2,811 23 186,561
Additions in
the year - 1,834 2,890 5,907 43 - 10,674
Disposals in
the year (495) (203) (445) (20) (14) - (1,177)
Currency
translation
differences - 99 - 158 - - 257
At 31 March
2022 8,236 40,424 30,524 114,268 2,840 23 196,315
Acquired on
acquisition
of subsidiary
(note 6) - 300 872 1 30 - 1,203
Additions in
the year - 969 1,849 6,591 116 23 9,548
Disposals in
the year - (309) (1,402) - - - (1,711)
Currency
translation
differences - 132 - 378 - - 510
At 31 March
2023 8,236 41,516 31,843 121,238 2,986 46 205,865
-------------------- ------------ ------------------- ----------- ----------- ----------- ---------- ----------
Accumulated
depreciation:
At 1 April 2021 (937) (11,675) (17,223) (77,547) (2,150) (17) (109,549)
Charge for the
year (255) (4,481) (1,263) (10,101) (190) (6) (16,296)
Disposals in
the year 138 - 445 20 - - 603
Currency
translation
differences - (58) - (122) - - (180)
At 31 March
2022 (1,054) (16,214) (18,041) (87,750) (2,340) (23) (125,422)
Charge for the
year (241) (4,663) (2,072) (9,333) (180) (3) (16,492)
Disposals in
the year - - 1,402 - - - 1,402
Currency
translation
differences - (74) - (320) - - (394)
-------------------- ------------ ------------------- ----------- ----------- ----------- ---------- ----------
At 31 March
2023 (1,295) (20,951) (18,711) (97,403) (2,520) (26) (140,906)
-------------------- ------------ ------------------- ----------- ----------- ----------- ---------- ----------
Carrying amount:
At 31 March
2023 6,941 20,565 13,132 23,835 466 20 64,959
At 31 March
2022 7,182 24,210 12,483 26,518 500 - 70,893
-------------------- ------------ ------------------- ----------- ----------- ----------- ---------- ----------
Depreciation charge in the current year is comprised of
GBP15,861,000 as disclosed in the statement of comprehensive income
and GBP631,000 of accelerated depreciation in respect of the
closure of a data centre in the year, disclosed in non-recurring
acquisition integration costs.
During the year there were additions of GBP70,000 (2022:
GBP249,000) in respect of reinstatement provisions and additions of
GBP666,000 (2022: GBP1,491,000) in respect of leases under IFRS 16
(note 11). Of the total remaining additions in the year of
GBP8,812,000 (2022: GBP8,934,000), GBP314,000 (2022: GBP420,000)
was included in trade payables as unpaid invoices at the year end
resulting in a net decrease of GBP106,000 (2022: net decrease of
GBP558,000) in trade payables. Consequently, the consolidated
statement of cash flows discloses a figure of GBP8,918,000 (2022:
GBP9,492,000) as the cash outflow in respect of property, plant and
equipment additions in the year.
Note 11 provides the movements in the year relating to IFRS 16
right-of-use assets as included in the above table.
10. BORROWINGS
2023 2022
GBP'000 GBP'000
------------------------------- -------- --------
Current:
Lease liabilities (note 11) (3,377) (3,560)
Current borrowings (3,377) (3,560)
Non-current:
Lease liabilities (note 11) (15,803) (19,063)
Bank loans (34,400) (34,000)
Total non-current borrowings (50,203) (53,063)
Total borrowings (53,580) (56,623)
---------------------------------- -------- --------
The carrying amount of borrowings approximates to their fair
value.
Details of the Group's lease liabilities are included in note
11.
At the start of the year there was GBP34.0m (2022: GBP52.8m)
outstanding on the multi option revolving credit facility and
drawdowns of GBP10.4m (2022: GBPnil) were made from the facility
during the year. Repayments totalling GBP10m (2022: GBP18.8m) were
made in the year resulting in a balance outstanding at the end of
the year of GBP34.4m (2022: GBP34.0m).
At the year end, the Group has access to a GBP100m multi option
revolving credit facility that matures on 30 June 2026, which also
benefits from a GBP50m Accordion Facility. On 17 November 2022, the
Group enacted the extension option which was approved by the
lenders. The directors are of the opinion that the Group can
operate within the current facility and comply with its banking
covenants. The RCF has a borrowing cost at the Group's current
leverage levels of 1.8% margin over SONIA. The revolving credit
facility incurs a non-utilisation fee of 35% of the 1.8% margin.
The effective interest rate for the multi option revolving credit
facility in the current year was 4.26% (2022: 1.78%).
The RCF and the Accordion Facility (if exercised) provide the
Group with additional liquidity which will be used for general
business purposes and to fund investments, in accordance with the
Group's five-year strategic plan.
Given the terms of the revolving credit facility and the ability
for any drawdowns made to be extended beyond 31 March 2023 at the
discretion of the Group, the total amount outstanding has been
classified as non-current.
The obligations under the multi option revolving credit facility
are repayable as follows:
2023 2022
Capital Interest Total Capital Interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------- -------- -------- -------- -------- --------
Due within one year - (540) (540) - (192) (192)
Due within two to five years (34,400) - (34,400) (34,000) - (34,000)
------------------------------ -------- -------- -------- -------- -------- --------
(34,400) - (34,940) (34,000) (192) (34,192)
------------------------------ -------- -------- -------- -------- -------- --------
The Directors estimate that the fair value of the Group's
borrowing is not significantly different to the carrying value.
Cash and
Analysis of change in net cash equivalents Bank Lease Total Total
debt GBP'000 loans liabilities liabilities net debt
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------------------ --------- ------------ ------------- ---------
At 1 April 2021 23,038 (52,791) (24,867) (77,658) (54,620)
Additions to lease liabilities - - (1,491) (1,491) (1,491)
Disposals from lease liabilities - - 179 179 179
Settlement of commitment
fee on loan - (49) - (49) (49)
Repayment of bank loans - 18,840 - 18,840 18,840
Currency translation - - (49) (49) (49)
Cash and cash equivalent
cash inflow (7,706) - - - (7,706)
Lease liabilities cash outflow - - 3,605 3,605 3,605
----------------------------------- ------------------ --------- ------------ ------------- ---------
At 31 March 2022 15,332 (34,000) (22,623) (56,623) (41,291)
Acquired on acquisition
of subsidiary - - (235) (235) (235)
Additions to lease liabilities - - (666) (666) (666)
Disposals from lease liabilities - - 449 449 449
Drawdown of bank loans - (10,400) - (10,400) (10,400)
Repayment of bank loans - 10,000 - 10,000 10,000
Currency translation - - (33) (33) (33)
Cash and cash equivalent
cash outflow (1,514) - - - (1,514)
Lease liabilities cash outflow - - 3,928 3,928 3,928
-------------
At 31 March 2023 13,818 (34,400) (19,180) (53,580) (39,762)
----------------------------------- ------------------ --------- ------------ ------------- ---------
11. LEASES
The Group leases assets including buildings, fibre contracts,
colocation and software contracts. Information about leases for
which the Group is a lessee is presented below:
Right-of-use assets
Leasehold Data centre
Property equipment Software Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- --- --------- ----------- ---------- --------
Balance at 1 April 2022 18,187 2,809 665 21,661
Acquired on acquisition of subsidiary 123 112 - 235
Additions 269 397 - 666
Disposals (309) - - (309)
Currency translation differences 7 30 - 37
Depreciation (2,150) (1,535) - (3,685)
Amortisation - - (285) (285)
Balance at 31 March 2023 16,127 1,813 380 18,320
------------------------------------------------ --------- ----------- ---------- --------
The right-of-use assets in relation to leasehold property and
data centre equipment are disclosed as non-current assets and are
disclosed within property, plant and equipment (note 9). The
right-of-use assets in relation to software are disclosed as
non-current assets and are disclosed within intangibles (note
8).
Lease liabilities
Lease liabilities are presented in the balance sheet within
borrowings as follows:
2023 2022
GBP'000 GBP'000
-------------------------------- ---------- --------- -------- --------- ---------
Current:
Lease liabilities (note 10) (3,377) (3,560)
Non-current:
Lease liabilities (note 10) (15,803) (19,063)
Total lease liabilities (19,180) (22,623)
----------------------------------------------------------------- --------- ---------
The maturity analysis of undiscounted lease liabilities are shown
in the table below: 2023 2022
GBP'000 GBP'000
-------------------------------- -------- --------
Amounts payable under leases:
Within one year (3,880) (4,127)
Between two to five years (8,239) (10,244)
After more than five years (9,780) (11,585)
(21,899) (25,956)
Add: unearned interest 2,719 3,333
----------------------------------- -------- --------
Total lease liabilities (19,180) (22,623)
----------------------------------- -------- --------
The Group has elected not to recognise a lease liability for
short-term leases (leases with an expected term of 12 months or
less) or for leases of low value assets. Payments made under such
leases are expensed on a straight line basis. During the year, in
relation to leases under IFRS 16, the Group recognised the
following amounts in the consolidated statement of comprehensive
income:
2023 2022
GBP'000 GBP'000
----------------------------------------- -------- --------
Short-term and low value lease expense (1,750) (1,784)
Depreciation charge (3,685) (3,433)
Amortisation charge (285) (285)
Interest expense (586) (646)
(6,306) (6,148)
----------------------------------------- -------- --------
Amounts recognised in the consolidated statement of cash
flows:
2023 2022
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Amounts payable under leases:
Short-term and low value lease expense (1,750) (1,784)
Payments under lease liabilities within cash flows
from financing activities (4,902) (4,410)
(6,652) (6,194)
----------------------------------------------------- -------- --------
12. POST BALANCE SHEET EVENTS
As announced on 5 June 2023, we acquired the entire issued share
capital of Extrinsica Global Holdings Limited, the holding company
of Extrinsica Global Limited (together "Extrinsica"). Extrinsica is
a Microsoft Azure Cloud solution services provider with offerings
including managed Azure Cloud, Azure solution design and
implementation services, support & optimisation services and
licencing.
The initial consideration for the acquisition is GBP4.0m, with a
potential further GBP0.3m in cash payable on the achievement of
certain key customer targets during the calendar year. Of the
initial consideration, GBP2m will be satisfied by the issue of
1,562,500 new ordinary shares in iomart, which under the terms of
the sale and purchase agreement are subject to a twelve month "lock
in" provision and based on a fixed share price of GBP1.28, being
the volume weighted average price for the 90 days prior to
completion. The balance of GBP2.0m will be paid in cash. iomart
will also repay GBP3.7m of debt acquired on completion.
The acquisition also includes a further GBP4.0m to GBP7.0m of
contingent earn-out payments which are calculated based on
Extrinsica's profitability for the 12 months ending 31 March 2024.
Of any earn-out payment that becomes due, GBP1.0m will be satisfied
by the issue of iomart shares (the number of shares to be issued
will be based on the same share price as the initial
consideration). The amount of contingent consideration payable,
based on management's forecast, recognised at the date of the
acquisition, is expected to be GBP4.0m.
Due to the proximity of the acquisition date to the financial
statements being authorised for issue, IFRS 3 disclosures are not
audited or presented.
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END
FR EAFKAFEKDEAA
(END) Dow Jones Newswires
June 13, 2023 02:00 ET (06:00 GMT)
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