Interim Results
Iomart Group PLC
16 November 2006
iomart Group plc
Interim Results Announcement @ 30.9.06
iomart Group plc ('iomart'), the Glasgow based software and web-services
business, presents its consolidated interim results for the six month period
ended 30 September 2006.
Highlights:
• Total turnover at £13.9m up by 26.7%
• NetIntelligence sales orders growing rapidly and now running at c.£200k
per month
• Gross Margin maintained at 82%
• Operating profit at £1.6m up 13.7%
• Pre-tax profit at £1.5m up 11.7%
• Basic earnings per share unchanged at 1.75p (fully diluted up 1.2% at 1.71p)
Nick Kuenssberg, chairman, commented 'These results show continuing substantial
revenue growth. Sales in the first half at both Ufindus and Easyspace have
contributed as planned. The new business model for NetIntelligence, sold through
an outbound sales process via telephone and web as a 'Software as a Service'
(SaaS) product, has now gained real momentum and gives us confidence for the
future.
In the coming months, we plan to invest further in promoting the growth of
NetIntelligence, underpinning Ufindus processes and generating additional
Easyspace revenue.
Profit growth in the period has been restricted by an increased bad debt
provision arising from weaknesses in business processes in Ufindus which are now
being rectified. The EPS effect of an increased bad debt provision is expected
to be offset by a reduced tax charge arising from the improving NetIntelligence
performance.
Since the end of the period, the Group has been cash positive and our
expectations are for a good second half of the year with a growing contribution
from NetIntelligence and improving cash generation.
Chief Executive Officer's review
Netintelligence, which is a pure 'Software as a Service' (SaaS) product,
delivering end point security and control is now performing well. Following a
reorganisation of our sales operation in the Spring and the foundation of our
direct telesales team in June sales orders have grown quickly giving us
confidence that Netintelligence, which has a relatively fixed cost base, will
produce significant future profits. Where we previously had a very lumpy revenue
stream in Netintelligence, we are now seeing consistent month on month growth,
with a significant deferred revenue line giving good visibility of future
earnings.
Monthly orders which continue to grow rapidly are now running at around £200k
per month. We have recently concluded deals with BT to provide services to the
customers of its wholesale managed broadband service, The Carphone Warehouse and
launched a home security version of the product in the US under the brand name
Safekeeper.
Alongside Easyspace and UfindUs this will give us three operations contributing
to the profitability of the group, all with good prospects and all sharing an
overall infrastructure built round our strategy of delivering web based
services, also known as 'in the cloud' services or 'SaaS' from secure and
resilient data centres. It is our ambition to become leading players in the
'SaaS' market as we believe the next few years will see a continuing massive
shift towards hosted services generally.
Easyspace, which provides website hosting and domains remains a key contributor
to our profitability, and we intend to invest further in growing this area by
enhancing and adding to the services we provide. We now have a better
understanding of our customers and their needs and our customer retention is
continually improving. We are seeing demand for more complex hosting services
and have established additional datacentre capacity to meet these needs.
Ufindus, which has grown quickly over the last two years, continues to gain
market share in the web directory sector. We are now generating over 6 million
searches and visits to customer websites per month, providing a substantial
number of business opportunities to our customers. We believe UfindUs has become
one of the UK's most used internet business directories, this being achieved
with very modest marketing spend. However, that fast customer growth, alongside
changes such as chip and pin and new regulation around credit card collections,
has outstripped the business infrastructure leading to issues around debt and
collections which in turn has required us to increase our bad debt provision in
the period thereby adversely affecting our operating profit margin. We have
taken steps to establish more robust systems and processes and are well down the
road to establishing the infrastructure we need. In addition we have engineered
a substantial shift to direct debit as the main method of payment for new
customers.
Financials
Turnover on continuing operations for the period was £13.88m, up from £10.95m,
which represents an increase of 27% over the corresponding period last year.
Gross profit margins have been maintained at 82%.
Administrative expenses of £9.74m (restated previous year £7.58m) include a
provision for bad debts of £0.93m (£0.37m) and a charge of £0.07m (£0.08m) for
share based payments following the adoption of FRS 20. Since this charge in
respect of share based payments is matched by an equal and opposite adjustment
to profit and loss reserves our balance sheet reserves are unaltered as a result
of complying with the standard.
The operating profit for the period was £1.64m (restated previous year £1.44m).
Due to the improved performance of Netintelligence we are now required to create
a deferred tax asset arising out of previously accumulated tax losses, the
effect of which has been to reduce the tax charge for the period by £0.2m.
Consequently the net profit was £1.36m (£1.34m) and fully diluted earnings per
share were 1.71p compared to 1.69p.
Cash balances at 30 September were £0.75m and net debt was £4.54m.
Prospects
We believe that our overall strategic positioning of providing web based
services 'in the cloud' has left all three of our lines of business ideally
positioned to take full advantage of the continuing growth opportunities that
undoubtedly exist.
In particular we believe our perseverance with NetIntelligence is proving to be
fully justified. The opportunities that exist for our current product are many
including the enormous potential in the US market into which we have already
taken our first exploratory steps.
The EPS effect of an increased bad debt provision is expected to be offset by a
reduced tax charge arising from the improving NetIntelligence performance.
Since the end of the period, the Group has been cash positive and our
expectations are for a good second half of the year with a growing contribution
from NetIntelligence and improving cash generation.
Angus MacSween
Chief Executive Officer
15 November 2006
Consolidated Profit and Loss Account
Six months ended 30 September 2006
6 months ended Year ended
30.9.06 30.9.05 31.3.06
Restated Restated
Unaudited Unaudited Audited
Notes £ 000 £ 000 £ 000
TURNOVER
Continuing operations 13,876 10,952 24,306
Cost of sales (2,499) (1,928) (4,361)
--------- -------- --------
GROSS PROFIT 11,377 9,024 19,945
Administrative expenses (restated
amounts) 2 (9,737) (7,581) (15,707)
--------- -------- --------
OPERATING PROFIT 1,640 1,443 4,238
Net interest (138) (104) (214)
--------- -------- --------
PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION 1,502 1,339 4,024
Taxation (142) - (170)
--------- -------- --------
PROFIT FOR THE FINANCIAL PERIOD 1,360 1,339 3,854
========= ======== ========
Earnings per ordinary share (pence) 3
Basic 1.75p 1.75p 5.02p
Fully diluted 1.71p 1.69p 4.82p
There have been no recognised gains or losses attributable to the shareholders
other than the profit for the current financial period and the preceding
financial periods and accordingly, no statement of total recognised gains and
losses is shown.
Consolidated Balance Sheet
As at 30 September 2006
30.9.06 30.9.05 31.3.06
Restated Restated
Unaudited Unaudited Audited
Notes £ 000 £ 000 £ 000
FIXED ASSETS
Intangible assets 13,061 13,879 13,470
Tangible assets 1,226 905 918
-------- -------- --------
14,287 14,784 14,388
-------- -------- --------
CURRENT ASSETS
Debtors 4 12,689 7,564 10,614
Deferred tax asset 718 1,200 945
Cash at bank and in hand 753 1,390 1,279
-------- -------- --------
14,160 10,154 12,838
CREDITORS: amounts falling due within one
year (8,448) (6,998) (7,167)
-------- -------- --------
NET CURRENT ASSETS 5,712 3,156 5,671
-------- -------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES 19,999 17,940 20,059
CREDITORS: amounts falling due after more
than one year (1,131) (1,885) (1,373)
-------- -------- --------
18,868 16,055 18,686
======== ======== ========
CAPITAL AND RESERVES
Called up share capital 793 770 773
Capital redemption reserve 1,200 1,200 1,200
Share premium account 7,270 6,172 6,203
Profit and loss account 9,605 7,913 10,510
-------- -------- --------
TOTAL EQUITY SHAREHOLDERS' FUNDS 18,868 16,055 18,686
======== ======== ========
The comparative figures for the financial year ended 31 March 2006 are an
extract of the company's statutory accounts for that financial year restated to
reflect the adoption of FRS 20. Those accounts have been reported on by the
company's auditors and delivered to the Registrar of Companies. The report of
the auditors was unqualified and did not contain a statement under section 237
(2) or (3) of the Companies Act 1985.
This report was approved by the board of directors on 15 November 2006.
Consolidated Cash Flow Statement
Six months ended 30 September 2006
6 months ended Year ended
30.9.06 30.9.05 31.3.06
Restated Restated
Unaudited Unaudited Audited
Notes £ 000 £ 000 £ 000
Net cash (outflow)/inflow from
operating activities 5 (154) 274 362
--------- -------- --------
Returns on investments and servicing of finance
Bank interest received 3 14 29
Bank and other loan interest paid (134) (118) (241)
Finance lease and hire purchase interest paid (7) (2) (2)
--------- -------- --------
Net cash outflow from returns on
investments and servicing of finance (138) (106) (214)
--------- -------- --------
Taxation (150) 123 123
--------- -------- --------
Capital expenditure
Payments to acquire tangible fixed assets (301) (275) (478)
Proceeds of disposal of fixed assets 23 - -
--------- -------- --------
(278) (275) (478)
--------- -------- --------
Acquisitions and disposals
Payment of deferred consideration - (28) (34)
--------- -------- --------
Equity dividends paid (1,282) (958) (958)
--------- -------- --------
Cash outflow before financing (2,002) (970) (1,199)
--------- -------- --------
Financing
Issue of ordinary shares 36 67 101
Repayment of bank loan (438) (438) (863)
Capital element of finance lease rentals (44) (99) (113)
--------- -------- --------
Net cash outflow from financing (446) (470) (875)
--------- -------- --------
Decrease in cash in the period (2,448) (1,440) (2,074)
========= ======== ========
Reconciliation of net cash flow to movement in net debt
Decrease in cash in period (2,448) (1,440) (2,074)
Cash outflows from debt and lease financing 482 537 976
-------- -------- --------
Change in net funds from cash flows (1,966) (903) (1,098)
Opening net debt (2,278) (1,104) (1,104)
Inception of finance leases (296) - (76)
-------- -------- --------
Closing net debt (4,540) (2,007) (2,278)
======== ======== ========
Notes to the Accounts
Six months ended 30 September 2006
1. Accounting policies
The interim financial information does not constitute statutory accounts for the
purpose of section 240 of the Companies Act 1985. The figures for the year ended
31 March 2006 have, except as stated below, been extracted from the Group
accounts for that year. Those financial statements have been delivered to the
Registrar of Companies and included an auditors' report, which was unqualified.
The interim financial information has been prepared using the same accounting
policies and estimation techniques as set out in the Group accounts for the year
ended 31 March 2006, except as stated below.
During the period the company adopted FRS 20 'Share Based Payments' which
applies to AIM listed companies for accounting periods commencing on or after 1
January 2006.
Under FRS 20, the fair value of options granted is recognised as an employee
expense with a corresponding increase in equity. The fair value is measured at
grant date and spread over the period during which the employees become
unconditionally entitled to the options. The fair value of the options granted
has been measured using an option pricing model taking into account the terms
and conditions upon which the options were granted. The amount recognised as an
expense is adjusted to reflect the actual number of share options expected to
vest. This has resulted in prior year adjustments to the previously reported
figures for the six months ended 30 September 2005 and for the year ended 31
March 2006, details of which are given in Note 2. The charge in respect of the
share based payments is matched by an equal and opposite adjustment to profit
and loss reserves, thereby having no net impact on the Group's closing reserves.
2. Share based payments
The effect of the adoption of FRS 20 has been to increase administrative
expenses and thereby reduce profits for each financial period, including prior
year adjustments, as follows:
6 months ended Year ended
30.9.06 30.9.05 31.3.06
Restated Restated
Unaudited Unaudited Audited
£ 000 £ 000 £ 000
Charge for share based payments 68 78 160
========= ======== =========
3. Earnings per share
The calculations of earnings per share are based on the following profits and
numbers of shares:
6 months ended Year ended
30.9.06 30.9.05 31.3.06
Restated Restated
Unaudited Unaudited Audited
£ 000 £ 000 £ 000
Profit for the financial
period 1,360 1,339 3,854
========= ======== =========
Number of Number of Number of
shares shares shares
000 000 000
Weighted average number of shares:
For basic earnings per share 77,513 76,727 76,933
Exercise of share options 1,768 2,654 3,155
--------- -------- ---------
For diluted earnings per share 79,281 79,381 80,088
========= ======== =========
Notes to the Accounts
Six months ended 30 September 2006
4. Debtors
6 months ended Year ended
30.9.06 30.9.05 31.3.06
Restated Restated
Unaudited Unaudited Audited
£ 000 £ 000 £ 000
Trade debtors 4,609 2,648 4,344
Amounts due on deferred payment terms 6,707 4,068 5,421
Other debtors 1,373 848 849
--------- -------- ---------
12,689 7,564 10,614
========= ======== =========
5. Reconciliation of operating profit to net cash inflow from operating activities
6 months ended Year ended
30.9.06 30.9.05 31.3.06
Restated Restated
Unaudited Unaudited Audited
£ 000 £ 000 £ 000
Operating profit 1,640 1,443 4,238
Share based payments 68 78 160
Depreciation 289 255 521
Amortisation of intangible assets 409 410 819
Gain on disposal of fixed assets (23) - -
Increase in debtors (1,990) (2,432) (5,396)
(Decrease)/increase in creditors (547) 520 20
--------- -------- ---------
Net cash (outflow)/inflow from operating activities (154) 274 362
========= ======== =========
6. Analysis of change in net debt
At 31.3.06 Inception of
finance leases Cash flow At 30.9.06
£ 000 £ 000 £ 000 £ 000
Cash at bank and in hand 1,279 - (526) 753
Bank overdrafts (1,320) - (1,922) (3,242)
Bank loan (2,173) - 438 (1,735)
Finance leases (64) (296) 44 (316)
-------- --------- -------- ---------
Net debt (2,278) (296) (1,966) (4,540)
======== ========= ======== =========
7. Availability of interim reports
Interim reports will be sent to all shareholders on 1 December 2006. Copies of
the interim report will be available for collection from the offices of KBC Peel
Hunt Ltd, 62 Threadneedle Street, London, EC2R 8HP, for a period of 1 month from
the date of despatch.
INDEPENDENT REVIEW REPORT TO IOMART GROUP PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2006 which comprises the consolidated profit
and loss account, the consolidated balance sheet, the consolidated cash flow
statement, the reconciliation of net cash flow to movement in net funds and
related notes 1 to 7. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information. Our responsibilities do
not extend to any other information.
This report is made solely to the company in accordance with guidance contained
in APB Bulletin 1999/4 'Review of Interim Financial Information'. Our review
work has been undertaken so that we might state to the company those matters we
are required to state to them in a review report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this report, or for
the conclusion we have formed.
Directors' responsibilities
The interim report including the financial information contained therein is the
responsibility of, and has been approved by, the directors. The directors are
also responsible for ensuring that the accounting policies and presentation
applied to the interim figures should be consistent with those applied in
preparing the preceding annual accounts except where any changes, and the
reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of Interim Financial Information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of management and applying analytical procedures to the financial information
and underlying financial data and, based thereon, assessing whether the
accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Standards of Auditing (UK & Ireland) and therefore provides a
lower level of assurance than an audit. Accordingly, we do not express an audit
opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2006.
Grant Thornton UK LLP
Chartered Accountants
Glasgow
15 November 2006
Notes: A review does not provide assurance on the maintenance and integrity of
the Group's website, including controls used to achieve this, and in particular
on whether any changes may have occurred to the financial information since
first published. These matters are the responsibility of the directors but no
control procedures can provide absolute assurance in this area.
Legislation in the United Kingdom governing the preparation and dissemination of
financial information differs from legislation in other jurisdictions.
This information is provided by RNS
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