Final Results

RNS Number : 8998M

Iomart Group PLC

02 June 2010

 



iOMART GROUP PLC

("iomart" or the "Group")

Final Results for the year ended 31 March 2010

iomart (AIM:IOM), the managed hosting and cloud computing services company, is pleased to report its consolidated final results for the year ended 31 March 2010.

Financial Highlights

·     Adjusted * EBITDA of £3.1m (2009: loss of £0.3m)

·     Revenue growth of 55% to £18.3m (2009: £11.8m)

·     Cashflow from operations of £3.9m (2009: £0.3m)

·     Earnings per share from continuing operations of 2.12p (2009: negative earnings per share of 1.95p)

·     Dividend up 33% to 0.4p per share (2009: 0.3p per share)

·     Initial acquisition facility of £10m provided by Lloyds Banking Group

Operational Highlights

·     Robust demand in internet usage and cloud computing ensuring high visibility of recurring revenues

·     Inflexion point reached such that future sales will contribute high levels of profitability

·     iomart Hosting customer base more than doubled in size since March 2009

·     Rapidswitch integrated into Group and operations completely migrated into own datacentre in Maidenhead

Angus MacSween, Chief Executive Officer commented,

"We are now more established, with more recognition of our presence in the market and with a growing reputation for excellent service. We are also in a fragmented and fast growing market where more and more companies are looking to outsource their web facing infrastructure to a trusted supplier. We intend to be leaders in that market.

We look forward to another exciting year of delivering significant growth and profitability."

For further information:

iomart Group plc                                                       Tel. [phone]

Angus MacSween, Chief Executive                           

Richard Logan, Finance Director                  

KBC Peel Hunt                                                         Tel. [phone]

Richard Kauffer

Daniel Harris

ICIS                                                                             Tel. [phone]

Tom Moriarty

Caroline Evans-Jones

* Throughout this statement adjusted EBITDA for March 2010 is earnings before interest, tax, depreciation and amortisation (EBITDA) before share based payment charges and gain on reduction of deferred consideration and for March 2009 is EBITDA before share based payment charges.

CHAIRMAN'S STATEMENT

Once again I am delighted to report that iomart has enjoyed another very successful year. Focussing on our core strategic goal of becoming one of the UK's leading managed hosting operators with owned datacentres has undoubtedly driven that success.

The highlight of the year is our move into profitability especially in the face of particularly demanding economic conditions. This has been achieved following two years of investment in establishing our managed hosting operation. The move into profitability has been achieved by both continued organic growth and through the successful acquisition and integration of Rapidswitch during the year. 

We remain keen to grow the company through further acquisitions and were delighted to secure a facility from our bank to finance future growth.

The success which has been achieved over the year is completely due to the dedication and commitment of the senior management team and all employees of the Group. On behalf of the Board and all shareholders I am pleased to have this opportunity to acknowledge the contribution they have all made to our achievements this year.

I indicated in my statement last year, when I advised of the re-introduction of a dividend payment, that your Board intended, depending on the underlying profitability and cash generation of the Group, to continue to pay dividends going forward. Due to our success during the year we have already declared an interim dividend of 0.4p per share which was paid to shareholders on 1 April 2010. The Board intends to continue to reward shareholders with an increasing dividend stream as profitability and liquidity grows.

Each year since I became Chairman of the Group, I have been in the fortunate position of advising you, in my statement, of the excellent progress which we have made over the year under review. Likewise, each year, as I have considered our future prospects, I have advised you of the confidence we have felt regarding our continued success. This year I can once again assure you that we are convinced that we will deliver another strong performance in the year to come.

Ian Ritchie

Chairman
1 June 2010

CHIEF EXECUTIVE'S REVIEW

Introduction

We continue to deliver on the strategic goal of becoming one of the UK's leading managed hosting Groups and I am delighted to report an excellent year of trading for the Group.  Revenues have grown 55% to £18.3m and we have moved through the inflexion point from losses into profitability. Accordingly, the Group's adjusted EBITDA went from a loss of £0.3m in 2009 to a profit of £3.1m in 2010. In addition we were significantly cash generative producing cashflow from operations of £3.9m in the year.

The acquisition of our own datacentre capacity at the end of March 2007 exposed the Group to a planned period of losses as we absorbed the high level of fixed costs of the datacentres whilst taking up the challenge of growing revenues from a zero base. As a consequence we have recorded adjusted EBITDA losses in the past two years whilst making excellent progress in establishing our managed hosting operation. We have always retained a very strong belief that the ownership of our own datacentre capacity is an essential element in delivering on our strategic goal. This short period of loss making was necessary as we laid the foundations for a highly profitable managed hosting business.

A feature of this model is the contracted nature of the services provided giving excellent forward visibility of revenues and profits.

Easyspace, which services the micro and SME market through its website has continued to provide the Group with strong levels of profits and cash generation and has helped underpin our ability to grow our managed hosting operation in the way we had planned.

The acquisition of Rapidswitch in May has helped accelerate our move into profitability. We are very happy with the performance of the business since acquisition and it has now been fully integrated into our Hosting segment enhancing our ability to provide a spectrum of managed hosting services to any size of company.

We continue to look for opportunities to acquire companies that will enhance our position in the managed hosting market and we are pleased to announce an initial acquisition facility of £10m with our bank, Lloyds Banking Group. At a time when the lack of availability of debt finance is a constant topic of debate in the corporate world it shows the belief that the bank has in both our business model and our ability to continue to grow successfully.

Operational Review

Whilst all our activities involve the provision of managed hosting services we are organised into two segments.

Hosting

Our Hosting segment provides managed hosting services to a wide range of SME and corporate customers. This includes the provision of complex hosting solutions to the corporate market through iomart Hosting; dedicated server hosting services to the SME market through Rapidswitch and cloud security services to the large corporate and education sector through Netintelligence.

iomart Hosting has been the driver of most of the organic growth. We have won over 300 new orders in the period almost half of which were from new customers and the balance were additional orders from existing customers. We are very pleased that our customers continue to show confidence in our provision of services in this way and we believe that additional orders from existing customers will form an important part of our future growth provided we maintain the level of service that we currently offer.

The introduction of our cloud product offerings during the year have been well received and has helped maintain our leading technological position in the marketplace. We have a highly experienced and innovative technology team, and we are currently testing or using all the flavours of virtualisation technologies to develop 'private clouds' for mission critical applications which we provide under our 100% uptime guarantee. Using our multiple datacentres we can provide an enviable level of resilience and backup/disaster recovery.

Rapidswitch has continued to grow revenues at a similar rate in absolute terms under the ownership of the Group as it did before being acquired. One of the major tasks in the period since acquisition was to move all servers from a rented datacentre facility to our own datacentre in Maidenhead. This major project was successfully achieved whilst continuing to deliver revenue growth and has resulted in the Group being free from any external datacentre rental costs going forward. We also continued with the fit out of the Maidenhead datacentre adding a further 3,500 square feet of new space during the year.

Netintelligence has focussed on the education market over the period. After a successful trial period at the start of the year, our "Software as a Service" internet security product was chosen by all of the suppliers to be part of the UK government's Universal Home Access (UHA) laptop provision programme towards the end of the year.

Our revenues in the Hosting segment have grown from £4.6m at the last year end to £11.0m for this year, an overall increase of £6.4m (139%) which has led to a substantial increase in profitability.

Easyspace

Our Easyspace segment, which serves the micro and SME market with a range of products including domain names, shared hosting and dedicated and virtual servers has performed well. We have continued to drive operational efficiencies over the year as we seek to increase the profitability of Easyspace. Despite a very competitive marketplace and an exposure to a strengthening US Dollar as a result of these efficiencies we have managed to improve the overall profitability of this segment.

Easyspace revenues for the year were £7.4m an increase of 2% over the previous year whilst the adjusted EBITDA profit margin has increased from 30% to 35%.

Financials

Trading Results

Revenues for the year of £18.3m (2009: £11.8m) have grown by 55% with both of our operating segments having contributed to this growth.

The Hosting segment grew revenues to £11.0m (2009: £4.6m) which is an increase of 139%. This, of course, includes the contribution from Rapidswitch which was acquired in May 2009. The growth in the Hosting segment revenues over the previous year excluding the impact of Rapidswitch was 37%.

Easyspace grew revenues by 2% to £7.4m (2009: £7.2m) in challenging market conditions.

Our gross margin, which is calculated by deducting variable cost of sales such as domain costs and sales commission and the relatively fixed costs of operating our datacentres from revenue, was £10.5m (2009: £6.1m). This substantial increase in gross margin was as a direct result of higher revenues in the Hosting segment.  In percentage terms the gross margin improved to 57% (2009: 52%). Despite a continued exposure to a stronger US Dollar, Easyspace has maintained its gross margin percentage over the year through the introduction of selective price increases. Hosting continues to show an improved gross margin percentage as it generates additional sales revenues whilst its fixed costs of operation remain unchanged. The inclusion of Rapidswitch within the Hosting segment has also helped to improve the gross margin over the year in both absolute and percentage terms.

The Group's adjusted EBITDA for the year of £3.1m (2009: adjusted EBITDA loss of £0.3m) showed a very significant improvement over last year. Both of our segments have helped to deliver this expected improvement.

Our Hosting segment's adjusted EBITDA was £2.8m (2009: adjusted EBITDA loss of £0.2m). This significant improvement is a direct result of the generation of sufficient sales revenues to cover the fixed cost base which was in place when our datacentre operations were established. New sales in the year have therefore contributed at a high margin level to the adjusted EBITDA for the period. We have also continued to invest in our Hosting operation through increases in both sales and technical staff headcount and marketing expenditure thereby increasing overhead expenditure.  The Rapidswitch operation which was acquired in the year and which was integrated into the Hosting segment during the year also contributed significantly to the improvement in adjusted EBITDA performance.

Easyspace improved its adjusted EBITDA to £2.6m (2009: £2.2m) and most encouragingly in a competitive market environment also achieved a substantial improvement in its adjusted EBITDA margin to 35% from 30%. This margin improvement has been achieved through operational efficiencies predominantly in the areas of staffing and marketing.

Group overheads, which are not allocated to segments, includes the cost of the Board, all the running  costs of the premises in Glasgow, Group marketing, human resource, finance and design functions and legal and professional fees for the year of £2.2m has reduced from £2.3m in 2009.

Depreciation charges of £1.8m (2009: £1.0m) have increased as we acquire equipment to provide hosting services to our customers and also as a result of the acquisition of Rapidswitch. The charge for amortisation of intangibles of £0.5m (2009: £0.1m) has increased as a consequence of the acquisition of Rapidswitch which has resulted in the recognition of additional intangible assets. The charge for share based payments in the year of £0.4m (2009: £0.2m) has increased as a result of the issue of additional share options.

As a consequence of the reduction in the amount due for the deferred consideration, details of which are given in Note 9, on the acquisition of Ezee DSL Limited through which we acquired our datacentres an exceptional gain of £1.0m, offset by associated costs of £0.1m, has been credited to the Income Statement in the year.

Net finance income was nil (2009: £0.4m receipt) and has reduced from the level last year due to the reduction in cash balances, the reduction in interest rates and the use of finance leases to fund the acquisition of equipment for customers.

As a result the profit for the year before tax was £1.3m (2009: loss of £1.2m).

The taxation credit for the year of £0.8m (2009: taxation charge of £0.7m) relates to the recognition of a deferred tax asset in respect of accumulated tax losses which the Group now expects to use up quicker than previously expected.

The profit for the year from continuing operations after taxation was £2.1m (2009: loss of £1.9m).

Earnings Per Share

Basic earnings per share from continuing operations was 2.12p (2009: negative earnings per share of 1.95p).

Acquisition

In May 2009 the company acquired Rapidswitch Limited for a total consideration of £5.5m, including £0.2m of costs related to the acquisition. Full details of this acquisition are given in note 5.

Cash flow and net cash

The Group enjoyed strong operating cash generation over the year resulting in a cash flow from continuing operations of £3.9m (2009: £0.3m). The improvement over the prior year was a direct consequence of the improved adjusted EBITDA recorded in the year. After deducting a tax payment of £0.2m relating to the operations of Rapidswitch the net cashflow from operating activities was £3.7m (2009: £0.8m).

Over the year, in total, the Group spent £11.0m (2009: £13.0m receipt) in investing activities. The biggest single element of this was the acquisition of Rapidswitch which cost £5.5m, including related costs. In addition, £2.9m was spent in the part settlement of the deferred consideration, together with related costs, due on the acquisition of Ezee DSL Limited. We also invested £2.3m (2009: £1.5m), net of related finance lease drawdown, in the purchase of property plant and equipment primarily in acquiring the equipment to provide services to our Hosting customers and also in the fit out of additional datacentre space. Expenditure was incurred on development costs £0.3m (2009: £0.2m), purchase of intangible software assets £0.1m (2009: nil). There were two items related to the acquisition of Rapidswitch including the repayment of borrowings of £0.2m and the cash balance acquired of £0.2m. Finally, we received £0.2m of interest on our deposits over the year.

Our financing activities absorbed £0.9m of cash (2009: £1.3m). This included sums spent on repayment of borrowings and finance leases and dividends.

As a consequence, our overall cash expenditure over the year was £8.2m (2009: £13.2m receipt) which resulted in cash and cash equivalent balances at the end of the year of £5.7m (2009: £13.9m). After recognising finance lease obligations of £1.3m (2009: £0.2m) net cash at the end of the period was £4.4m (2009: £13.7m).

Subsequent to the year-end we have secured a £10m facility with our bankers for the purposes of funding acquisitions and capital expenditure.

Financial Position

Having generated a cash flow from operations of £3.9m we are now generating significant amounts of operating cash which will be available to fund the continuing need to invest in capital expenditure for the equipment required to provide services for new managed hosting customers. With the net cash balance at the end of the year and the availability of the new bank facility we are very well funded to continue our growth through both organic and acquisitive means.

Current Trading and Outlook

We are now more established, with more recognition of our presence in the market and with a growing reputation for excellent service. We are also in a fragmented and fast growing market where more and more companies are looking to outsource their web facing infrastructure to a trusted supplier. We intend to be leaders in that market.

We are deploying leading edge cloud services to our customers and using a range of virtualisation technologies to deliver high availability services to organisations who expect 100% uptime.

We look forward to another exciting year of delivering significant growth and profitability.

Angus MacSween

Chief Executive Officer

1 June 2010

CONSOLIDATED INCOME STATEMENT

Year ended 31 March 2010

CONTINUING OPERATIONS			Note	2010  £'000	2009  £'000
Revenue			2	18,327	11,797
Cost of sales				(7,830)	(5,718)
Gross profit				10,497	6,079
Administrative expenses				(10,119)	(7,728)
Operating profit/(loss)				378	(1,649)
Analysed as:
Earnings before interest, tax, depreciation, amortisation, share based payments and gain on reduction of deferred consideration				3,112	(318)
Share based payments				(379)	(231)
Depreciation				(1,846)	(959)
Amortisation				(509)	(141)
Gain on reduction of deferred consideration on business combination			9	1,000	-
Associated costs on gain on reduction of deferred consideration			9	(135)	-
Finance income				77	497
Finance costs				(66)	(49)
Profit/(loss) before taxation				1,254	(1,201)
Taxation			3	816	(731)
Profit/(loss) for the year from continuing operations				2,070	(1,932)
DISCONTINUED OPERATIONS
Profit for the year from discontinued operations				-	516
Profit on disposal of discontinued operations				-	12,598
Net result from discontinued operations				-	13,114
TOTAL OPERATIONS
Profit  for the year from total operations attributable to equity holders of the parent				2,070	11,182
Basic and diluted earnings per share
Continuing operations
Basic			6	2.12 p	(1.95)p
Diluted			6	2.12 p	(1.95)p
Total operations
Basic			6	2.12 p	11.27p
Diluted			6	2.12 p	11.17p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 March 2010

				2010  £'000	2009  £'000
Profit for the year from total operations				2,070	11,182
Total comprehensive income for the year				2,070	11,182
Attributable to equity holders of the parent				2,070	11,182

CONSOLIDATED BALANCE SHEET

As at 31 March 2010

				2010	2009
		Note		£'000	£'000
ASSETS
Non-current assets
Intangible assets - goodwill				20,723	16,550
Intangible assets - other				1,008	363
Deferred tax asset		4		604	20
Lease deposit				1,216	884
Deferred consideration receivable on disposal				-	1,000
Property, plant and equipment				12,276	8,672
				35,827	27,489
Current assets
Cash and cash equivalents		7		5,715	13,910
Deferred consideration receivable on disposal				914	-
Trade and other receivables				2,937	2,184
				9,566	16,094
Total assets				45,393	43,583
LIABILITIES
Non-current liabilities
Non-current borrowings		8		(834)	(54)
				(834)	(54)
Current liabilities
Deferred consideration due on acquisition		9		(1,000)	(4,800)
Trade and other payables				(7,489)	(5,190)
Current borrowings		8		(480)	(148)
				(8,969)	(10,138)
Total liabilities				(9,803)	(10,192)
Net assets				35,590	33,391
EQUITY
Share capital		10		1,028	1,002
Own shares				(2,464)	(678)
Capital redemption reserve				1,200	1,200
Share premium				19,514	17,583
Retained earnings				16,312	14,284
Total equity				35,590	33,391

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 March 2010

			Note	2010 £'000	2009 £'000
Profit/(loss) before taxation				1,254	(1,201)
Gain on reduction of deferred consideration - net			9	(865)	-
Finance income - net				(11)	(448)
Depreciation				1,846	959
Amortisation				509	141
Share based payments				379	231
Movement in deposits				(332)	-
Movement in trade receivables				(63)	(453)
Movement in trade payables				1,169	1,087
Cash flow from operations				3,886	316
Taxation paid				(164)	-
Cash generated from discontinued operations				-	463
Net cash flow from operating activities				3,722	779
Cash flow from investing activities
Purchase of property, plant and equipment				(2,341)	(1,519)
Capitalisation of development costs				(281)	(238)
Purchase of  intangible assets - software				(69)	(10)
Purchase of  intangible assets - domain names				-	(31)
Payment for acquisition of business			5	(5,458)	-
Repayment of borrowings on acquisition of business			5	(226)	-
Deferred consideration paid on prior period acquisition			9	(2,935)	-
Receipt from disposal of discontinued operation				-	15,235
Net cash acquired with subsidiary undertaking			5	155	-
Interest received				172	389
Investing activities of discontinued operation				-	(99)
Net cash (used in)/from investing activities				(10,983)	13,727
Cash flow from financing activities
Issue of shares			10	41	50
Repayment of finance leases				(396)	(210)
Repayment of borrowings				(222)	(432)
Purchase of own shares				-	(678)
Interest paid				(66)	(49)
Dividends paid				(291)	-
Financing activities of discontinued operation				-	(20)
Net cash used in financing activities				(934)	(1,339)
Net (decrease)/increase in cash and cash equivalents				(8,195)	13,167
Cash and cash equivalents at the beginning of the year				13,910	743
Cash and cash equivalents at the end of the year			7	5,715	13,910

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 March 2010

Changes in equity		Share capital	Own shares JSOP	Own shares treasury	Capital redemption reserve	Share premium account	Retained earnings	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2008		994	-	-	1,200	17,541	2,946	22,681
Share based payments		-	-	-	-	-	231	231
Deferred tax on share based payments		-	-	-	-	-	(75)	(75)
Acquisition of own shares		-	-	(678)	-	-	-	(678)
Issue of shares for option redemption		8	-	-	-	42	-	50
Profit in the period		-	-	-	-	-	11,182	11,182
Balance at 31 March 2009		1,002	-	(678)	1,200	17,583	14,284	33,391
Dividends - final (paid)		-	-	-	-	-	(291)	(291)
Share based payments		-	-	-	-	-	379	379
Issue of own shares for option redemption		-	-	171	-	-	(130)	41
Issue of own shares to Joint Share Ownership Plan		-	-	507	-	712	-	1,219
Issue of new shares to Joint Share Ownership Plan		26	(2,464)	-	-	1,219	-	(1,219)
Profit in the period		-	-	-	-	-	2,070	2,070
Balance at 31 March 2010		1,028	(2,464)	-	1,200	19,514	16,312	35,590

NOTES TO THE FINAL RESULTS

Year ended 31 March 2010

1.       BASIS OF PREPARATION

The financial information set out above does not constitute the statutory accounts for the years ended 31 March 2010 and 31 March 2009. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the company's Annual General Meeting.  The auditors have reported on these accounts, their reports were unqualified and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

2.       SEGMENTAL ANALYSIS

The chief operating decision-maker has been identified as the Chief Executive Officer ("CEO") of the Company. The CEO reviews the Group's internal reporting in order to assess performance and to allocate resources. The Company has determined its operating segments based on these reports.

The Group currently has two reportable segments.

·     Easyspace - this segment provides a range of share hosting and domain registration services to micro and SME companies.

·     Hosting - this segment provides managed hosting facilities and services, through a network of owned datacentres, to the larger SME and corporate markets. The segment uses several routes to market and provides managed hosting services through iomart Hosting, Rapidswitch and Netintelligence. Rapidswitch Limited was acquired in the early part of the year and was fully integrated into the Hosting segment during the year.

Information regarding the operation of the reportable segments is included below. The CEO assess the performance of the operating segments based on revenue and a measure of Earnings before Interest, Depreciation and Amortisation (EBITDA) before any allocation of Group overheads or charges for share based payments. 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. In previous years certain Group overheads were allocated at the year end to segments for segmental reporting purposes. We have therefore presented the prior year comparative figures onto a basis consistent with the current year with no allocation of Group overheads. Whilst this means that the level of Group overheads reported in the segmental analysis comparative figures has increased from that reported last year likewise the level of EBITDA profitability of the two segments has also increased by the same amount and the overall Group EBITDA profitability has been unaffected. The 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. The Group has adopted early the amendment to IFRS 8 Operating Segments as detailed in the 'Improvements to IFRS' issued in April 2009.  This amendment states that if segmental assets and liabilities are not presented to the Chief Operating Decision Maker then the Group need not disclose these in the financial statements. On this basis the Group has not disclosed details of segmental assets and liabilities.

All segments are continuing operations. No customer accounts for more than 10% of external revenues. Inter-segment transactions are accounted for using an arms-length commercial basis.

Operating Segments

Revenue by Operating Segment

	2010			2009
	External	Internal	Total	External	Internal	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Easyspace	7,363	-	7,363	7,224	-	7,224
Hosting	10,964	717	11,681	4,573	572	5,145
Continuing operations	18,327	717	19,044	11,797	572	12,369
Discontinued operations	-	-	-	3,321	-	3,321
	18,327	717	19,044	15,118	572	15,690

Geographical Information

In presenting the consolidated information on a geographical basis, revenue is based on the geographical location of customers. The United Kingdom is the place of domicile of the parent company, iomart Group plc. All of the Group's revenue originates from the United Kingdom. No individual country other than the United Kingdom contributes a material amount of revenue therefore revenue from outside the United Kingdom has been shown as from Rest of the World.

Analysis of Revenue by Destination

					2010	2009
					£'000	£'000
United Kingdom					17,142	11,173
Rest of the World					1,185	624
Revenue from continuing operations					18,327	11,797

Profit by Operating Segment

	2010			2009
	EBITDA before share based payments	Share based payments, depreciation & amortisation	Operating profit/(loss)	EBITDA before share based payments	Share based payments, depreciation & amortisation	Operating profit/(loss)
	£'000	£'000	£'000	£'000	£'000	£'000
Easyspace	2,579	(35)	2,544	2,203	(38)	2,165
Hosting	2,763	(2,320)	443	(242)	(1,062)	(1,304)
Group overheads	(2,230)	-	(2,230)	(2,279)	-	(2,279)
Share based payments	-	(379)	(379)	-	(231)	(231)
	3,112	(2,734)	378	(318)	(1,331)	(1,649)
Net gain on business combination			865			-
Group interest and tax			827			(283)
Total continuing	3,112	(2,734)	2,070	(318)	(1,331)	(1,932)
Gain on disposal	-	-	-	12,598	-	12,598
Discontinued operations	-	-	-	615	(99)	516
Profit for the year	3,112	(2,734)	2,070	12,895	(1,430)	11,182

Group overheads, share based payments, interest and tax are not allocated to segments.

3.       TAXATION

				2010 £'000	2009 £'000
Tax charge for the year				(12)	-
Adjustment relating to prior year				20	-
Deferred tax credit/(charge)				808	(731)
Taxation				816	(731)

The Group has a deferred tax asset which has been recognised in respect of tax losses within one of the subsidiary companies, which has generated taxable profits and is expected to continue to do so.

The differences between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax is as follows:

				2010 £'000	2009 £'000
Profit before tax				1,254	11,913
Tax charge @ 28% (2009 - 28%)				351	3,336
Expenses not deductible for tax purposes				23	25
Prior year adjustment				(20)	-
Effect of research and development tax reliefs				(44)	(36)
Tax effect of share based remuneration				50	24
Non-taxable gain on reduction of deferred consideration on business combination				(242)	-
Effect of intangible asset tax reliefs				(24)	-
Movement in unprovided deferred tax related to fixed assets				(99)	(12)
Movement in unprovided deferred tax relating to other timing differences				(8)	5
Gain on disposal of subsidiary undertaking not subject to corporation tax				-	(3,527)
Non-taxable income on discontinued operations				-	(77)
Movement in unprovided deferred tax related to losses				-	199
(Increase)/reduction in tax losses recognised				(803)	794
Taxation (credit)/charge for the year				(816)	731

The weighted average applicable tax rate for the year ended 31 March 2010 was 28% (2009: 28%).

4.       Deferred tax

The Group had recognised deferred tax assets and liabilities as follows:

	2010		2009
	Deferred tax Recognised £'000	Deferred tax Unrecognised £'000	Deferred tax Recognised £'000	Deferred tax Unrecognised £'000
Tax losses carried forward	2,187	2,427	1,590	3,270
Share based remuneration	72	-	79	-
Deferred tax on acquired assets with no capital allowances	(1,504)	-	(1,649)	-
Deferred tax on customer relationships	(151)	-	-	-
Deferred tax	604	2,427	20	3,270

At the balance sheet date, the Group has unused tax losses of £16.5m (2009: £17.4m) available for offset against future profits. A deferred tax asset has been recognised in respect of £7.8m (2009: 5.7m) of such losses. No deferred tax asset has been recognised in respect of the remaining £8.7m (2009: £11.7m) since it is unlikely that these losses will be used in the foreseeable future.

The movement in the deferred tax account during the year was:

	Tax losses carried forward £'000	Share based remuneration £'000	Deferred tax on acquired assets with no capital allowances £'000	Customer relationships £'000	Total £'000
Opening balance	1,590	79	(1,649)	-	20
Acquired on acquisition of subsidiary	-	-	-	(224)	(224)
Credited/(charged) to income statement	597	(7)	145	73	808
Closing balance	2,187	72	(1,504)	(151)	604

The deferred tax asset in relation to tax losses carried forward arises from the unutilised tax losses of the hosting trade. The deferred tax asset has been recognised in line with future projections of the hosting company over a three year period. The basis of these projections are:

·     The consistent success of the sales teams in generating new business

·     Expectations about the retention of customers

·     Continued success in achieving a particular product mix and maintaining price yield

Based on the current profitability of the hosting company, an assessment of projections and the expectations of sustainable profits in future years, a deferred tax asset in relation to the utilisation of these losses is recognised in line with 'IAS12 Income Taxes'.

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 acquired assets arises from the datacentre equipment acquired through the acquisition of Ezee DSL Limited on which depreciation is charged but on which there are no capital allowances available.

The deferred tax on customer relationships arises from the intangible asset recognised on the acquisition of Rapidswitch Limited on 11 May 2010 which is being amortised over an estimated useful life of 5 years and on which there are no capital allowances or other tax deductions available.

 

 

5.       ACQUISITION

The Group acquired 100% of the issued share capital of Rapidswitch Limited on 11 May 2009.  This transaction has been accounted for by the purchase method of accounting. The book and final fair values of the company were as follows:

	Book value £'000	Fair value adjustments £'000	Final Fair value £'000
Intangible assets	51	753	804
Property, plant and equipment	2,226	-	2,226
Trade and other receivables	785	-	785
Cash and cash equivalents	155	-	155
Trade and other payables	(1,526)	(62)	(1,588)
Deferred taxation	-	(224)	(224)
Other loans	(226)	-	(226)
Finance leases	(425)	-	(425)
Bank loan	(222)	-	(222)
Net assets	818	467	1,285
Goodwill			4,173
Total consideration			5,458
Satisfied by:
Cash			5,458
Net cash outflow arising on acquisition
Cash consideration			5,458
Cash and cash equivalents acquired			(155)
			5,303

The goodwill arising on the acquisition of Rapidswitch Limited is attributable to the specialised, industry specific knowledge of the management and staff, the benefits to the Group in merging the business with our existing infrastructure and the anticipated future operating synergies from the combination.

Fair value adjustments resulting in a net increase in net assets of £467,000 were made on acquisition. The goodwill of £47,000 within the company was written off, a provision of £58,000 was made for contracted lease payments for datacentre space in excess of the company's ongoing requirements and £4,000 was provided for a pre-acquisition trade creditor. An intangible asset in respect of existing customer relationships has been recognised at its fair value of £800,000 and a related deferred tax liability of £224,000.

To estimate the fair value of the customer relationships, 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 post-tax discount rate of 12% was used for the valuation. Customer relationships are being amortised over an estimated useful life of 5 years.

Rapidswitch acquires new customers by maintaining its position on internet search engines and as a consequence no value has been attributed to the brand name.

As part of the investment agreement, other loans owed by Rapidswitch Limited of £226,000 were repaid on the date of acquisition.

The Rapidswitch business contributed £4,694,000 of revenue and £994,000 of profit before tax to the Group for the period between the acquisition date and the balance sheet date.

If the acquisition of the Rapidswitch business had been completed on the first day of the financial period, it would have contributed £5,235,000 of revenue and £1,059,000 of profit before tax to the Group. 

6.       EARNINGS per ordinary share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, after deducting any own shares (treasury and JSOP).  Fully diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the total of the weighted average number of ordinary shares in issue during the year and the dilutive potential ordinary shares relating to share options. 

Continuing operations				2010 £'000	2009 £'000
Profit/(loss) from continuing operations for the financial year and basic earnings attributed to ordinary shareholders				2,070	(1,932)
				No	No
				000	000
Weighted average number of ordinary shares:
For basic earnings per share				97,577	99,183
Exercise of share options				230	-
For diluted earnings per share				97,807	99,183
Basic earnings per share				2.12 p	(1.95)p
Fully diluted earnings per share				2.12 p	(1.95)p

 

Discontinued operations				2010 £'000	2009 £'000
Profit from discontinued operations for the financial year and basic earnings attributed to ordinary shareholders				-	516
Profit on disposal of discontinued operations				-	12,598
Total profit from discontinued operations				-	13,114
				No	No
				000	000
Weighted average number of ordinary shares:
For basic earnings per share				-	99,183
Exercise of share options				-	902
For diluted earnings per share				-	100,085
Basic earnings per share				- p	13.22p
Fully diluted earnings per share				- p	13.10p

Total operations				2010 £'000	2009 £'000
Profit for the financial year and basic earnings attributed to ordinary shareholders				2,070	11,182
				No	No
				000	000
Weighted average number of ordinary shares:
For basic earnings per share				97,577	99,183
Exercise of share options				230	902
For diluted earnings per share				97,807	100,085
Basic earnings per share				2.12 p	11.27p
Fully diluted earnings per share				2.12 p	11.17p

For periods where the Group made a loss, there was no dilutive effect from the potential exercise of options.

7.       cash and cash equivalents

				2010 £'000	2009 £'000
Cash at bank and on hand				5,715	13,910
Cash and cash equivalents				5,715	13,910

8.       borrowings

				2010 £'000	2009 £'000
Current:
Obligations under finance leases				(480)	(148)
Current borrowings				(480)	(148)
Non-current:
Obligations under finance leases				(834)	(54)
Total non-current borrowings				(834)	(54)
Total borrowings				(1,314)	(202)

9.       DEFERRED CONSIDERATION

				2010 £'000	2009 £'000
Deferred consideration due on acquisition				(1,000)	(4,800)
Total deferred consideration due on acquisition				(1,000)	(4,800)

During the year the original deferred consideration due of £4,800,000 on the acquisition of Ezee DSL Limited was subject to a renegotiation with the vendor. As a result of that the total amount due was reduced to £3,800,000 and the Group returned certain assets to the vendor which had been fair valued to nil in the balance sheet at the time of the acquisition. The reduction in deferred consideration of £1,000,000 has been treated as a gain on reduction of deferred consideration on business combination in the income statement. Costs of £135,000 were incurred in respect of the renegotiation with the vendor. These costs have also been shown separately in the income statement.

Of the total revised deferred consideration of £3,800,000, £2,800,000 was paid together with £135,000 of associated costs during the year and the remaining balance of £1,000,000 is due to be paid on 27 August 2010. As part of the settlement with the vendor, the single share in Ezee DSL Limited, representing 0.2% of its issued share capital, which had been held by the vendor, was transferred to iomart Group plc, through the completion of a signed stock transfer form which has been placed in escrow and will be released on payment of the remaining balance. The vendor has undertaken to vote and otherwise exercise any and all rights in respect of the single share as directed by iomart Group plc and to waive any and all dividends or other distributions made or declared in respect of the single share whilst it is held in escrow.

10.     SHARE CAPITAL

			Ordinary shares of 1p each
			Number of shares	£'000
Authorised
At 31 March 2008, 2009, and 2010			200,000,000	2,000
Called up, allotted and fully paid
At 31 March 2008			99,439,302	994
Exercise of options			800,000	8
At 31 March 2009			100,239,302	1,002
Issued to Employee Benefit Trust			2,513,297	26
At 31 March 2010			102,752,599	1,028

During the year the company issued 2,513,297 ordinary shares of 1p each to the iomart Group plc Employee Benefit Trust in relation to the Joint Share Ownership Plan ("JSOP") (2009: nil), for which a net total of £1,244,000 was received. In the previous year, the company issued 800,000 ordinary shares of 1p each in respect of the exercise of share options by employees for which a net total of £50,000 was received.

At 31 March 2009 the company held 3,294,547 shares in treasury, which were accounted for in the Own Shares reserve and had a nominal value of £32,945 and a market value of £1,070,728. This represented 3.4% of the issued share capital as at 31 March 2009 excluding treasury shares. During the year the company issued 830,660 shares from treasury, with a nominal value of £8,307, in respect of the exercise of share options, for which a net total of £41,533 was received, by employees and 2,463,887 shares from treasury to the iomart Group plc Employee Benefit Trust in relation to the JSOP. At 31 March 2010 no shares were held in treasury.

Due to the issue of new ordinary shares and the issue of shares held in treasury at 31 March 2010 the company held 4,977,184 shares (2009: nil) in the iomart Group plc Employee Benefit Trust in relation to the JSOP which are accounted for in the JSOP reserve and have a nominal value of £49,772 (2009: £nil).

During the year the company set up a Joint Share Ownership Plan ("JSOP") to provide incentives to directors and employees. At 31 March 2010, 4,977,184 shares were held in the JSOP all with an initial participation price of 49.5p which was the mid-market value of the shares at the start of trading on the day they were issued.

The JSOP shares are held jointly between employees and the iomart Group plc Employee Benefit Trust. Under the terms of the JSOP rules employees are eligible to receive the excess of any disposal proceeds received for the JSOP shares over the participation price. The participation price is subject to a 3% per annum escalation until the JSOP shares are sold. The JSOP shares do not carry dividend or voting rights whilst they are jointly held by the employee and the iomart Group plc Employee Benefit Trust.

Under the rules of the scheme should the market price of a vested JSOP share exceed the participation price the employee has the option to convert the value of any such excess into a number of wholly owned shares within the JSOP. If an employee exercises this right then the wholly owned shares subsequently held within the JSOP by the employee shall be eligible for both dividend and voting rights.

The share capital of iomart Group plc consists of ordinary shares with a par value of 1p. All shares, excluding the shares held by the iomart Group plc Employee Benefit Trust and in the prior year the treasury shares, are equally eligible to receive dividends and represent one vote at the shareholders' meetings of iomart Group plc. All shares issued at 31 March 2010 are fully paid.

11. ANNUAL REPORT AND ACCOUNTS

The Annual Report and Accounts for 2010 will be posted to shareholders on 29 June 2010 and will also be available free of charge on request from the company's registered office; Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP and on the Group's web-site at www.iomart.com.

12. ANNUAL GENERAL MEETING

The Annual General Meeting of the company will be held at 2.30pm on 23 August 2010 at the company's registered office.

 

END

 

 

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