REG - Iomart Group PLC - Final Results
13/06/2023 07:00
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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 £115.6m £103.0m +12%
% of recurring revenue(1) 92% 93% -1pp
Adjusted EBITDA(2) £36.2m £38.0m -5%
Adjusted profit before tax(3) £14.8m £17.1m -13%
Profit before tax £8.5m £12.2m -30%
Adjusted diluted EPS(4) 10.9p 12.0p -9%
Basic EPS 6.4p 8.6p -26%
Cash generation from operations £33.8m £37.9m -11%
Proposed final dividend per share 3.5p 3.6p -3%
· Sales pipeline improvement noted in H1 converting into stronger
order booking levels in H2
· Revenue increased by 12% YoY to £115.6m, 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 £6.2m 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 £0.9m 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 £8.5m from £12.2m
includes consistent adjusted items, the largest being non-cash amortisation
charges on acquired intangibles of £3.9m (2022: £4.0m) plus a current year
£0.8m 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 £39.8m (2022: £41.3m), 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 £3.9m (2022:
£4.0m). The largest variance, year on year, is a £0.8m 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
(http://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 £115.6m 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 £115.6m (2022: £103.0m), adjusted EBITDA(1) of £36.2m (2022:
£38.0m), adjusted profit before tax(2) of £14.8m (2022: £17.1m) and a
statutory profit before tax of £8.5m (2022: £12.2m). 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 £115.6m 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 £0.9m year on year but the Group's cash generation
continued to be strong, with the year-end net debt standing at £39.8m (2022:
£41.3 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 £7m 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 £0.4m
· 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 £10.8m with the potential of a further £4.0m 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 £1.5m 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 £4.0m, with a
potential further £0.3m in cash payable on the achievement of certain key
customer targets during the calendar year. Of the initial consideration, £2m
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 £1.28, being the
volume weighted average price for the 90 days prior to completion. The balance
of £2.0m was paid in cash. We also repaid £3.7m of debt acquired on
completion. A further £4.0m to £7.0m 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, £1.0m
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 £4.0m.
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 acquisition 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 £7.4m, being year on year
growth of c.40%, and EBITDA of £0.1m (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
(£103.9m revenue) and Easyspace (£11.7m 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: £64.1m revenue (2022: £55.7m):
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: £30.4m revenue (2022: £28.4m):
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: £9.4m (2022: £7.1m): 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
£12.7m (14%) to £103.9m (2022: £91.2m). This included £6.2m 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 £10.4m to £94.5m (2022:
£84.1m), 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 £7 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 £2.3m (31%) to £9.4m (2022: £7.1m)
which include £3.1m of non-recurring revenue from the Concepta acquisition in
August 2022, primarily the Pavilion IT brand. The underlying reduction in
non-recurring revenue was £0.8m 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 £35.3m being 34.0% of
cloud services revenue (2022: £36.6m (40.2% of cloud services revenue)). The
reduction of £1.3m 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 £11.7m (2022: £11.8m) and £5.6m (2022: £5.7m), 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 £7 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 £115.6m £103.0m
% of recurring revenue(1) 92% 93%
Gross profit %(2) 55.0% 59.5%
Adjusted EBITDA(3) £36.2m £38.0m
Adjusted EBITDA margin %(4) 31.3% 36.9%
Adjusted profit before tax(5) £14.8m £17.1m
Adjusted profit before tax margin %(6) 12.8% 16.6%
Profit before tax £8.5m £12.2m
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 £115.6m (2022:
£103.0m).
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 £103.9m
(2022: £91.2m):
Disaggregation of Cloud Services revenue 2023 2022
£'000 £'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
£8.4m or 15% to £64.1m (2022: £55.7m). 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 £3.1m 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 £30.4m (2022: £28.4m) increased
by £2.1m. 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 £9.4m (2022: £7.1m) 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 £3.1m of non-recurring revenue post acquisition, meaning
excluding acquisition impact, the underlying reduction in non-recurring
revenue was £0.8m 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 £11.7m (2022: £11.8m). 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 £2.3m to £63.6m (2022: £61.3m). 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 £1.8m to £36.2m (2022: £38.0m) 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 £27.4m
(2022: £23.3m) is £4.1m higher than the previous year comparative.
However, this includes £1.9m of administrative expenses from the Concepta
acquisition meaning the underlying increase in administrative expenses is
limited to £2.2m 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 £35.3m
(2022: £36.6m). 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 £5.6m (2022: £5.7m) 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 £0.5m in the year to £4.8m (2022: £4.3m).
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 £15.9m (2022: £16.3m) fell by £0.4m 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 £2.6m (2022: £2.6m) is consistent year on year.
Finance costs of £2.9m (2022: £2.1m) 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 £14.8m (2022: £17.1m), 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 tax to profit before tax 2023 2022
£'000 £'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
£3.9m (2022: £4.0m);
· acquisition costs of £0.9m (2022: £0.3m) which includes a
mainly non-cash charge of £0.6m in respect of the closure of our Memset
Dunsfold data centre;
· share-based payment charges of £0.7m (2022: £0.5m) driven by a
higher number of options lapsing in the prior year driving a lower charge; and
· exceptional non-recurring costs of sales of £0.8m 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 £0.8m 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 £8.5m (2022: £12.2m). 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 £1.5m (2022: £2.8m). The tax charge for the
year is made up of a corporation tax charge of £0.9m (2022: £1.1m) with a
deferred tax charge of £0.6m (2022: £1.7m). 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 £7.0m (2022: £9.4m).
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 £33.8m (2022: £37.9m) 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 £0.8m 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: £2.5m), 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
£48,000, resulting in net cash flow from operating activities in the year of
£33.9m (2022: £35.4m).
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 £21.2m (2022: £10.2m)
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 £10.3m 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
£8.9m (2022: £9.5m) 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 £1.9m (2022: £1.4m)
and on intangible assets of £0.1m (2022: £0.1m).
Cash flow from financing activities
In the current year, loan drawdowns of £10.4m (2022: £nil) were made from
the revolving credit facility to support the initial equity consideration for
the Concepta acquisition. We also repaid £1.5m of bank debt acquired from
Concepta at completion.
Bank loan repayments of £10m (2022: £18.8m) were made in the year resulting
in a closing drawn bank loan of £34.4m (2022: £34.0m). Cash received in the
year from issue of shares was only £5k (2022: £4k). We also made dividend
payments of £6.1m (2022: £7.6m); paid finance costs of £2.2m (2022: £2.1m)
which included £0.2m of arrangement fees associated with the extension
options taken within the bank facility and made lease repayments of £4.9.m
(2022: £4.4m).
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 £1.5m (2022: £7.7m outflow) which resulted in cash and cash
equivalent balances at the end of the year of £13.8m (2022: £15.3m).
Net Debt
The net debt position of the Group at the end of the year was £39.8m (2022:
£41.3m) 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
£'000 2022
£'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 £100m 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 £50m 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 £19.2m (2022: £22.6m) 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
YEAR ENDED 31 MARCH 2023
Note 2023 2022
£'000 £'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, 36,161 38,009
share-based payments and exceptional non-recurring costs
Share-based payments (696) (480)
Acquisition costs (922) (315)
Cost of sales- exceptional non-recurring costs (820) -
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 7,055 9,426
parent
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 £'000 £'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 on acquisitions (4,000) -
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
YEAR ENDED 31 MARCH 2023
2023 2022
Note £'000 £'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
YEAR ENDED 31 MARCH 2023
Foreign currency translation reserve
Own shares EBT Capital redemption reserve Share premium account
Share capital Merger reserve Retained earnings
Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'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
YEAR ENDED 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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'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
Adjusted EBITDA Depreciation, amortisation, acquisition costs, share-based payments and Operating profit/(loss) Adjusted EBITDA Depreciation, amortisation, acquisition costs, share-based payments and Operating profit/(loss)
exceptional non-recurring costs exceptional non-recurring costs
£'000 £'000 £'000 £'000 £'000 £'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
£'000 £'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
£'000 £'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
£'000 £'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: £nil) available
for offset against future profits.
Deferred tax on acquired assets with no capital allowances
Capital allowances temporary differences £'000
£'000
Share-based remuneration Development costs Customer relationships Intangible software
£'000 £'000 £'000 £'000 Tax Losses Total
£'000 £'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 £236,000 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.
£'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 £10,548,000 was made at completion. At the date of
acquisition, Concepta had bank debt of £1,508,000 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 £240,000 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 £nil and £4,000,000. The amount of
contingent consideration payable, which was recognised as of the acquisition
date, was £4,000,000. 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 £nil to £4million consideration is represented by a
narrow EBITDA range of £300,000. This means for each £1 of additional EBITDA
above a target EBITDA, then £13.33 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 £4,462,000. 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 £6,188,000 and generated profits, before
allocation of group overheads, share based payments and tax, of £858,000 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 £9,955,000 and profit after tax of £1,175,000
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
£'000 £'000
Profit for the financial year and basic earnings attributed to ordinary 6,995 9,396
shareholders
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
£'000 £'000
Profit for the financial year and basic earnings attributed to ordinary 6,995 9,396
shareholders
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 12,288 13,458
ordinary shareholders
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 customer relationships Software Domain names & IP addresses Total
Goodwill Development costs Beneficial contracts
£'000 £'000 £'000 £'000 £'000 £'000 £'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 £44,000 (2022: £91,000), no amounts
related to leases under IFRS 16 (note 11) (2022: £nil). There were no
amounts included in trade payables at the year end (2022: £nil).
Consequently, the consolidated statement of cash flows discloses a figure of
£44,000 (2022: £91,000) 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: £3.8m in relation to the acquisition of Concepta Capital Limited with
a remaining useful life of 7 years, £0.9m 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 £0.5m with a useful life of 5
years, Bytemark Limited with a net book value of £0.3m and LDeX Group Limited
of £0.9 both with a remaining useful life of 4 years, Sonassi Limited of
£1.3m, Dediserve Limited of £0.3m, SimpleServers Limited of £0.2m 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: £nil) 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 Units (CGU) 2023 2022
£'000 £'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 2023 31 March 2022 31 March 2023 31 March 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
Freehold property Leasehold property and improve-ments Data centre equipment Computer equipment Office equipment Motor vehicles Total
£'000 £'000 £'000 £'000 £'000 £'000 £'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 £15,861,000 as
disclosed in the statement of comprehensive income and £631,000 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 £70,000 (2022: £249,000) in respect
of reinstatement provisions and additions of £666,000 (2022: £1,491,000) in
respect of leases under IFRS 16 (note 11). Of the total remaining additions
in the year of £8,812,000 (2022: £8,934,000), £314,000 (2022: £420,000)
was included in trade payables as unpaid invoices at the year end resulting in
a net decrease of £106,000 (2022: net decrease of £558,000) in trade
payables. Consequently, the consolidated statement of cash flows discloses a
figure of £8,918,000 (2022: £9,492,000) 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
£'000 £'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 £34.0m (2022: £52.8m) outstanding on the
multi option revolving credit facility and drawdowns of £10.4m (2022: £nil)
were made from the facility during the year. Repayments totalling £10m (2022:
£18.8m) were made in the year resulting in a balance outstanding at the end
of the year of £34.4m (2022: £34.0m).
At the year end, the Group has access to a £100m multi option revolving
credit facility that matures on 30 June 2026, which also benefits from a £50m
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
£'000 £'000 £'000 £'000 £'000 £'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.
Lease liabilities Total net debt
Cash and cash equivalents £'000 £'000
Analysis of change in net debt £'000 Bank Total liabilities
loans £'000
£'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 Property Data centre equipment Total
£'000 £'000 £'000
Software
£'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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'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 (4,902) (4,410)
activities
(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 £4.0m, with a potential
further £0.3m in cash payable on the achievement of certain key customer
targets during the calendar year. Of the initial consideration, £2m 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 £1.28, being the
volume weighted average price for the 90 days prior to completion. The balance
of £2.0m will be paid in cash. iomart will also repay £3.7m of debt acquired
on completion.
The acquisition also includes a further £4.0m to £7.0m 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,
£1.0m 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 £4.0m.
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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