REG - Iomart Group PLC - Half Year Results
05/12/2023 07:15
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RNS Number : 6418V Iomart Group PLC 05 December 2023
5 December 2023
iomart Group plc
("iomart" or the "Group" or the "Company")
Half Yearly Results
Continued momentum in the execution of its growth strategy
iomart (AIM: IOM), the cloud computing company, is pleased to report its
consolidated half yearly results for the six months ended 30 September 2023
(H1 2024).
FINANCIAL HIGHLIGHTS
H1 2024 H1 2023 Change
Revenue £62.0m £52.6m +18%
% of recurring revenue(1) 94% 94% -
Adjusted EBITDA(2) £18.6m £17.8m +5%
Adjusted profit before tax(3) £7.6m £7.4m +3%
Profit before tax £4.4m £4.9m -10%
Adjusted diluted EPS(4) 5.2p 5.2p -
Basic EPS 3.1p 3.5p -11%
Cash generation from operations £16.8m £14.5m +16%
Interim dividend per share 1.94p 1.94p -
· Revenue grew 18%, with strong levels of recurring revenues maintained (94%(1)
of Group revenues). The Concepta and Extrinsica acquisitions provided £6.0m
of additional revenue in the period
· Cloud managed services revenue, the largest component of the Group, increased
strongly, by 27% to £37.0m (H1 2023: £29.2m), from a combination of modest
organic growth, price adjustments from last year's energy cost increases, plus
approximately £4.3m contribution from the latest two acquisitions
· Group EBITDA margin performance of 30.0% is a reduction from H1 2023 of 33.8%
but it is slightly ahead of H2 2023 of 29.1%. This trend in margin performance
reflects the change in revenue mix and specific timing of inflationary price
adjustments during the last financial year
· Our energy hedging strategy is giving the Company and customers good cost
certainty
· £0.8m higher interest expense in the period, due to rise in bank interest
rates, means adjusted profit before tax in the period of £7.6m showed a more
modest 3% growth
· Cash conversion ratio(6) of 90% is higher than the prior period (H1 2023: 81%)
which had included the timing impact of some vendor payments overlapping
period ends
· Net debt of £48.0m (31 March 2023: £39.8m), comfortable at 1.3 times
annualised EBITDA(5)
OPERATIONAL HIGHLIGHTS
· Focus on sales and marketing resulted in improving order bookings and pipeline
development
· Acquisitions of Concepta and Extrinsica have enhanced the Group's routes to
market and depth of skills, improving iomart's overall customer proposition
· Acquisition of Accesspoint Technologies post period end, providing deep legal
industry expertise and a highly capable team with a strong reputation
· Appointment of experienced CTO, providing increased focus on our technical
platforms, product management, infrastructure and networks
· Move of head office to a modern city centre location in Glasgow, providing
greater ability for the retention and attraction of talented team members
· Committed to solar panel installation on our Maidenhead data centre which will
provide c.300kw peak power yield being around 15% of the total average site
power use
· Two new independent non-executive Directors appointed to the Board, bringing
relevant commercial and industry experience
OUTLOOK
· Ongoing sales channel and services initiatives combined with contributions
from recent acquisitions will allow our full year results to demonstrate
continued year on year momentum
· Current trading is in line with the Board's expectations
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. The largest
variance, period on period, is a £0.5m exceptional non-recurring charge
recorded within administration costs related to the change in CEO during the
month of September.
Lucy Dimes, CEO commented,
"I'm pleased to report on another period of progress at iomart. We continue to
build on our existing strong foundations as a well-established and trusted
service provider within the private cloud space, at the same time as extending
our service offering across the wider and higher growth hybrid cloud market.
We see great opportunity ahead. For the UK to thrive as an economic
powerhouse, its businesses will need to increase efficiency, operate at pace
and adapt - leveraging cloud, data and digital technologies. Our blend of both
IT and connectivity skills combined with our secure, scalable, resilient cloud
and network infrastructure uniquely positions us to support the ambitions of
our customer base, giving us confidence in our ability to participate
successfully in the growing cloud sector."
Notes:
(1) Recurring revenue, as disclosed in note 2, 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 2) / Revenue (as disclosed in the consolidated
statement of comprehensive income).
(2) Throughout this statement adjusted EBITDA, as disclosed in the
consolidated interim 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
7, is profit before tax, amortisation charges on acquired intangible assets,
share based payment charges, acquisition costs and exceptional non-recurring
costs.
(4) Throughout this statement adjusted diluted earnings per share, as
disclosed in note 3, is earnings per share before amortisation charges on
acquired intangible assets, share based payment charges, acquisition costs,
exceptional non-recurring costs and the taxation effect of these.
(5) Annualised EBITDA is the last 12 months of EBITDA for the period ended 30
September 2023.
(6) Cash conversion is calculated as cash flow from operations, as disclosed
in the consolidated interim statement of cash flows, divided by adjusted
EBITDA defined above. The 12-month basis aggregates the second half of the
year to 31 March 2023 and the current 6 month reported period on the same
basis of calculation.
This interim 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
Lucy Dimes, 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 Strategic Communications Tel: 020 3405 0205
Caroline Forde, Hilary Buchanan, Kinvara Verdon
About iomart Group plc
iomart Group plc (AIM: IOM) is a cloud computing and IT managed services
business providing hybrid cloud infrastructure, data management, protection
and cyber security services, 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 480-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/) .
Chief Executive's Statement
Introduction
I am pleased to be presenting our half year results for the first time as
iomart's CEO. We have continued to make positive progress against our strategy
to build on our existing strong foundations as a well-established and trusted
service provider within the private cloud space, at the same time as extending
our service offering across the wider and higher growth hybrid cloud market.
The results demonstrate an encouraging level of recurring revenues and
successful execution of our M&A strategy, delivering revenues up 18% on
the prior period to £62.0m, and an adjusted EBITDA of £18.6m. We achieved
continued strong cash flow, which even after £9.3m of M&A related cash
outflows, sees us close the period with a comfortable level of leverage with
net debt of £48.0m. The increase in interest rates means that the growth in
our profitability was held back somewhat due to the £0.8m higher interest
expense in the period. Our adjusted profit before tax in the period of £7.6m
was a modest 3% growth on the prior period.
The external environment for us was relatively more stable than in the year to
31 March 2023, primarily due to lower volatility in the wholesale energy
markets. Our business model over the last few years has been regularly
challenged, be that by Covid or the Energy Crisis, and we have consistently
proven the resilience of the team and business. It is this foundation which
gives us strong confidence on our ability to expand our offering around the
growing hybrid cloud market.
We were pleased to continue with M&A activity, in line with our strategic
plans, with the completion of the acquisition of Extrinsica Global Holdings
Limited ("Extrinsica") on 5 June 2023, extending the Group's products, skills
and capabilities within the Microsoft Azure environment.
Subsequent to the period end, on 4 December 2023, we completed our second
acquisition of the financial year, acquiring the entire issued share capital
of Accesspoint Group Holdings Limited ("Accesspoint"), the holding company of
Accesspoint Technologies Limited. Accesspoint provides a suite of managed and
hosted services, including infrastructure hosting, software licensing,
security management, business continuity services and communications
provisioning, focused solely on the legal sector.
Strategy
We see great opportunity ahead. For the UK to thrive as an economic
powerhouse, its businesses will need to increase efficiency, operate at pace
and be able to adapt in order to stay ahead of the pack leveraging cloud, data
and digital technologies both for their internal productivity, and as a means
to develop, launch and grow their offerings. We have the skills and
infrastructure to provide this. The continued huge growth in demand for cloud
computing is a persistent underlying growth driver, which we are focused on
harnessing through a clear strategy.
Our growth strategy is underpinned by our deep private cloud infrastructure
heritage and solid existing core business, which continues to operate in a
growth market, delivering market leading profitability and strong cash
generation. To accelerate our organic growth, our roadmap sees us focused on
extending our capabilities and skills into closely aligned product and
services areas. As well as being complementary to our existing experience,
skills and customer base these are also areas exposed to the higher growth of
the wider IT sector. The new services can be categorised into three broad
groupings of hybrid cloud, data management and security services plus, modern
workplace.
We were delighted to welcome David Gammie to the Group as CTO in the period
who brings a wealth of experience to the role. Following a successful career
for a number of large consultancy businesses, he spent time in CIO roles in
industry, with his most recent role leading the infrastructure and cloud
elements at a UK managed services provider.
We have a successful track record of sourcing complementary acquisitions and
we expect to continue to identify such acquisitions to expand the customer
base, to acquire new skillsets, and to extend our go-to-market channels. The
IT managed service sector remains highly fragmented and our strong balance
sheet and existing bank facilities puts us in a good position to supplement
our organic growth with a disciplined M&A programme.
The acquisition of Extrinsica on 5 June 2023 was a significant strategic step
providing iomart with deep Microsoft Azure expertise. While we had made some
good progress organically in this area, this acquisition accelerates our
capabilities and customer references within the Microsoft public cloud domain.
This ensures we can confidently offer both existing and new customers strong
skills and know-how across the three infrastructure delivery modes of
on-premise, private cloud or public cloud or, in what we see as the growing
trend in the market, a combination of the three in the form of hybrid cloud.
Market
With the insatiable growth in data requirements from across all industries,
the demand for the three core cloud building blocks of compute power, storage
and connectivity continues to expand. The concept of "Cloud" computing is now
globally recognised with the complexity of available options continuing to
grow. Within any digital transformation project, the management and security
of data is paramount, especially given the ever increasing security threat
landscape. Many 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 knowledge. Areas in which we excel.
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.
We are seeing that macroeconomic uncertainty is translating into greater
scrutiny by customers, which is generally resulting in extended decision
making timeframes. For iomart that has materialised in the period in some
lower non-recurring activity such as hardware refreshes or consultancy
projects and, while we have seen continued momentum in order levels from
existing customers, we have seen a slightly lower order level from new
customers as digital transformation projects continue to be delayed. Our
long-standing financial stability provides a point of differentiation in these
cautious times, giving comfort to potential customers.
Acquisitions
Extrinsica
We completed the acquisition of Extrinsica on 5 June 2023 for an initial
consideration of £4.0m, with a potential further £0.4m 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. 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 was included in the share purchase agreement
based on the profitability for the 12 months ending 31 March 2024. Given the
ongoing macroeconomic uncertainty impacting the timing of certain customer
projects, the Board does not currently expect that any additional earn-out
payment will be triggered. Prior to our acquisition, Extrinsica generated
revenues of £7.4m, being year on year growth of c.40%, and EBITDA of £0.1m
(unaudited).
Accesspoint
Subsequent to the period end, we completed the acquisition of Accesspoint on 4
December 2023. Based in North East London, Accesspoint is an IT hosting
partner focused on the UK legal industry since 2009. Accesspoint provides a
suite of managed and hosted services including infrastructure hosting,
software licensing, security management, business continuity services and
communications provisioning. The acquisition provides iomart with deep
industry expertise and a highly capable team with a strong reputation within
the legal sector. The addition of the new customer base when combined with
iomart's existing legal customers consolidates iomart's position in a key
sector.
The initial consideration of £4.5m was paid in cash on completion on a debt
and cash free basis, with a potential further £0.5m in cash payable on the
achievement of certain post-acquisition milestones. The acquisition also
includes up to a further £1.4m contingent earn-out payment based on the
profitability of Accesspoint for the 12 months ending 31 August 2024. The
initial consideration was financed through a combination of existing bank
facilities and cash on the Company's balance sheet. For the year ended 31
August 2023, Accesspoint generated revenues of £3.8m and adjusted EBITDA of
£0.8m (unaudited).
Board Changes
We were pleased to welcome two new independent non-executive Directors to the
Board in the period, Annette Nabavi on 25 May 2023 and Adrian Chamberlain on 1
June 2023. Adrian has been appointed as the senior independent Director.
Annette and Adrian both bring considerable experience in the technology
services sector. Following six years on the Board, Richard Masters,
non-executive Director did not stand for re-election and left the Board at the
AGM in September.
On 18 September 2023, after three years in role, Reece Donovan stepped down as
Chief Executive Officer and I replaced him, on a full time basis. The
Nomination Committee is undertaking a search for an independent Chair, with
the intention for the search to be completed by the Company's financial year
end announcement. Until that point I will continue to act as Chair.
The changes made to the Board during the period bring different and very
relevant commercial skills and experience to the Board, and will be extremely
valuable in helping guide and drive the execution of our growth strategy.
Operational Review*
Cloud Services
Cloud Services revenues increased by £9.5m (20%) to £55.8m (H1 2023:
£46.3m). This included £6.0m of additional revenue from the positive impact
of our M&A activities over the last 12 months. Cloud Services EBITDA
(before share-based payments, acquisition costs, exceptional items and central
group overheads) was £18.2m being 32.6% of cloud services revenue (H1 2023:
£17.0m (36.7% of cloud services revenue)). The increase of £1.2m in absolute
Cloud Services EBITDA is a combination of many moving parts, including the
contribution from owning Concepta for the full period. Margin performance of
32.6% in the current period is a reduction from H1 2023 of 36.7% but it is
slightly ahead of H2 2023 of 31.3%. This trend in margin performance reflects
the change in revenue mix and specific timing of inflationary price
adjustments during the last financial year. Energy costs in the first half are
£3.4m higher than the equivalent period last year. Given our energy hedging
strategy and the timing of energy cost increases during the prior year, the
second half will not experience such high energy cost base period on period
variances, nor the resulting impact on revenue.
The following is the disaggregation of Cloud Services revenues of £55.8m (H1
2023: £46.3m):
Disaggregation of Cloud Services revenue 6 months to 30 September 2023 6 months to 30 September 2022 Year to 31
£'000 £'000 March
(restated, note1) 2023
£'000
(restated, note 1)
Cloud managed services 37,022 29,220 64,115
Self-managed infrastructure 14,730 13,891 29,617
Non-recurring revenue 4,026 3,219 9,359
55,778 46,330 103,091
Cloud managed services (recurring revenue)
Cloud managed services includes the provision of fully managed, complex,
bespoke and resilient solutions involving private, public and hybrid cloud
infrastructure. We anticipate this will be the highest growth area for iomart
due to the market drivers described above.
Cloud managed services revenue increased strongly, by 27% to £37.0m (H1 2023:
£29.2m). This was a combination of modest organic growth, approximately
£4.3m contribution from the latest two acquisitions and the price adjustments
for last year's energy cost increases taking place. A significant number of
moving parts have arisen in the last 18 months within our pricing and renewal
profiles. The energy price adjustments are now, in some cases, over 12 months
ago, meaning they have become structurally consumed into our renewals or new
business pricing. This is also the case for our competitors.
Self-managed infrastructure (recurring revenue)
We have a large customer base, across a number of brands, the largest by far
being our Rapidswitch brand, who wish to source compute power and connectivity
mainly through the provision of dedicated servers and self-manage these
directly. 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 use cases and for
customers who have retained their own IT skills.
In the first half of this financial year, the self-managed infrastructure
revenue of £14.7m represented an increase of £0.8m in comparison to the
first half of last year. This is a combination of a reduction in the number of
our long tail of smaller customers, offset by the energy price rises passed
onto customers, plus encouragingly some higher new order bookings. We will
continue to allocate resources to ensure we provide this customer base with
resilient, cost effective and increasingly automated solutions.
Our UK owned infrastructure is an important part of the delivery of our
recurring revenue services, a differentiator in the market and allows more of
the value add to be retained by iomart. We have a well maintained data centre
estate and this is core to our resilient private cloud services in the UK. We
have 12 UK data centres, with Maidenhead and London Central being our two
larger sites accounting for around half of our capacity, with the other 10
spread across the regions offering infrastructure with close proximity to
customers. During the period, the larger areas of spend on our own
infrastructure included £1.4m upgrade to fibre network equipment, £0.6m
upgrade to our Nottingham data centre plus £0.8m investment to fully outfit
the new Glasgow office. The Board committed to the installation of solar
panels on our Maidenhead data centre which provides c.300kw of peak power
yield to the site being around 15% of the total average site power usage.
Installation will be completed in the second half. In the period we
successfully achieved the triannual recertification from our UKAS accredited
certification body which covered five ISO standards, notably 9001, 20000,
270001, 22301 and 14001.
Non-recurring revenue
Non-recurring revenue of £4.0m (H1 2023: £3.2m) relates primarily to on
premise product reselling via our Cristie Data and now the Pavilion IT brand,
plus consultancy projects. Often these non-recurring activities provide a
useful initial introduction to the wider iomart Group and evolve customers
into a higher level of recurring services. The Concepta acquisition in August
2022 included the Pavilion IT brand which is mainly involved in reselling
activity. With a full period of trading (as opposed to only 6 weeks) it added
£1.5m additional non-recurring revenue, meaning that, if you exclude the
acquisition, the underlying reduction in non-recurring revenue was £0.7m. We
have seen in the last 18 months that some of our customer base has slowed down
its hardware refresh activity. To address this changing market we have
recently decided to fully consolidate Cristie Data into iomart which will be
completed during the second half. Cristie Data's heritage is data management
which will be enhanced in a fully integrated operation and give a higher
probability of transitioning customers over time to iomart's core recurring
services.
Easyspace
The Easyspace segment has performed well during the period, delivering stable
revenues and improved EBITDA (before share based payments, acquisition costs
and central group overheads) of £6.3m (H1 2023: £6.2m) and £3.2m (H1 2023:
£3.1m), respectively.
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. A smaller number of large global
operators increasingly dominates this sector, 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. However, we do
ensure our customer base of around 60,000 customers are well served with a
good range of products and importantly a high level of customer service. This
level of attention is ensuring strong renewal rates by customers.
*During the period we moved the financial reporting of the brand Simple
Servers which has annual revenues of around £0.8m across c.800 customers into
this business unit, see note 1 for the financial impact of the
reclassification on the prior periods. This customer base was sourced from an
acquisition in 2017. The nature of the services provided and the profile of
the customer base are aligned better with the mass market hosting sector which
we address in the Easyspace division.
Financial Performance
Revenue
Overall revenue from our operations increased significantly by 18% to £62.0m
(H1 2023: £52.6m) with a consistent high level of recurring revenue at 94%
(H1 2023: 94%). 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. Our Cloud Services segment revenues
increased by 20% to £55.8m (H1 2023: £46.3m). Our Easyspace segment has
performed well over the period, with revenues for the first half stable at
£6.3m (H1 2023: £6.2m).
Gross Profit
The gross profit in the period improved to £34.5m (H1 2023: £31.2m) with the
gross profit as a percentage of revenue of 55.6%, as expected being a
reduction from prior period (H1 2023: 59.4% of revenue) but more consistent
with the second half of last year reflecting the heavy impact and specific
timing from pass through of energy costs and to a lesser extent the recent
corporate acquisitions. Our key vendor relationships have remained stable in
the period with general cost increases across most areas of our supply chain
due to the general inflationary environment. Our hedging strategy on energy
costs means we have seen stability in the costs and have a good level of
certainty in the medium term.
Adjusted EBITDA
The Group's adjusted EBITDA increased by 5% to £18.6m (H1 2023: £17.8m)
which in EBITDA margin terms translates to 30.0% (H1 2023: 33.8%). The lower
margin percentage versus the first half of last year was expected given the
timing of the energy cost impact and represents a slight improvement on the
level delivered in the second half of last year. Administration expenses
(before depreciation, amortisation, share based payment charges, acquisition
costs and exceptional non-recurring costs) of £15.9m are £2.5m higher than
the previous period due to the inclusion of staff plus overhead costs from the
Concepta and Extrinsica acquisitions. Outside of the acquisitions, we have
seen a period of relatively stable overall headcount numbers and other
overhead costs.
Cloud Services saw a 7% increase in its adjusted EBITDA to £18.2m (H1 2023:
£17.0m), giving a margin of 32.6% (H1 2023: 36.7%). Adjusted EBITDA for
Easyspace was consistent at £3.2m (H1 2023: £3.1m) and EBITDA margin at
50.6% (H1 2023: 50.4%).
Group overheads, which are not allocated to segments, include the cost of the
Board, all the running costs of the headquarters in Glasgow, and Group led
functions such as human resources, marketing, finance and design. Group
overheads saw an increase of £0.3m to £2.7m (H1 2023: £2.4m) driven by
staff related increases for central functions plus the move of our head office
to a modern city centre location in Glasgow, providing greater ability for the
retention and attraction of talented new team members.
Adjusted profit before tax
Depreciation charges of £7.7m (H1 2023: £8.0m) have decreased slightly in
absolute terms which also means it is down as a percentage of our recurring
revenue in the period to 13.3% (H1 2023: 16.2%). This reduction in
depreciation charge as a percentage of recurring revenue is a reflection of
recent acquisitions and also some of the mix of the business which is less
capital intensive, or in the case of Extrinsica, has no associated owned
infrastructure with Microsoft Azure public cloud being consumed in the
customer solution. The charge for the amortisation of intangible assets,
excluding amortisation of intangible assets resulting from acquisitions
("amortisation of acquired intangible assets"), has increased slightly to
£1.3m (H1 2023: £1.2m) due to the specific historic timing of investments
made.
Net finance costs have increased to £2.0m (H1 2023: £1.2m) reflecting the
increase in our borrowing cost from the rise in bank rates.
After deducting the charges for depreciation, amortisation, excluding the
amortisation of acquired intangible assets, and finance costs from the
adjusted EBITDA, the adjusted profit before tax for the period increased by
£0.2m to £7.6m (H1 2023: £7.4m) representing an adjusted profit before tax
margin of 12.2% (H1 2023: 14.1%). The overall profit benefit of £1.0m from
growth in the adjusted EBITDA and lower depreciation charge has been mainly
offset by the higher bank interest rates in the period.
Profit before tax
The measure of adjusted profit before tax is a non-statutory measure, which is
commonly used to analyse the performance of companies 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 6 months to 30 September 2023 6 months to 30 September 2022 Year to 31
£'000 £'000 March
2023
£'000
Adjusted profit before tax 7,581 7,360 14,820
Less: Share based payments (206) (418) (696)
Less: Amortisation of acquired intangible assets (1,982) (1,748) (3,880)
Less: Acquisition costs (538) (252) (922)
Less: Administrative costs - exceptional non-recurring costs (462) - -
Less: Cost of sales - exceptional non-recurring costs - - (820)
Profit before tax 4,393 4,942 8,502
The larger adjusting items in the current period are:
· non-cash charges for the amortisation of acquired intangible
assets of £2.0m (H1 2023: £1.7m). Acquired intangible assets have increased
by £0.3m due to the recent acquisitions and introduction of new intangible
assets around customer relationships;
· acquisition costs of £0.5m (H1 2023: £0.3m); and
· £0.5m exceptional non-recurring charge recorded within
administration costs related to the change in CEO during the month of
September.
After deducting the charges for share based payments, the amortisation of
acquired intangible assets, acquisition costs and exceptional non-recurring
costs, the reported profit before tax is £4.4m (H1 2023: £4.9m).
Taxation and profit for the period
There is a tax charge in the period of £1.0m (H1 2023: £1.1m), which
comprises a current taxation charge of £1.1m (H1 2023: £1.0m), and a
deferred taxation credit of £0.1m (H1 2023: charge of £0.1m). The headline
effective tax rate is 22.0% (H1 2023: 22.6%). The increase to a 25% UK
corporation tax rate, effective from 1 April 2023, has been applied to
corporation tax at 30 September 2023. The tax charge in the year is the net
result of the higher corporation tax rate, the positive effect of the "full
expensing relief" available for capital investments and lower taxable income.
After deducting the tax charge from the profit before tax, the Group has
recorded a profit for the period from total operations of £3.4m (H1 2023:
£3.8m).
Earnings per share
Adjusted diluted earnings per share, which is based on profit for the period
attributed to ordinary shareholders before share based payment charges,
amortisation of acquired intangible assets, acquisition costs and the tax
effect of these items, was 5.2p (H1 2023: 5.2p).
The measure of adjusted diluted earnings per share as described above is a
non-statutory measure that is commonly used to analyse the performance of
companies where M&A activity forms a significant part of their activities.
Basic earnings per share from continuing operations was 3.1p (H1 2023: 3.5p).
The calculation of both adjusted diluted earnings per share and basic earnings
per share is included at note 3.
Cash flow
The Group generated cash from operations in the period of £16.8m (H1 2023:
£14.5m) with an adjusted EBITDA conversion to cash ratio in the period of 90%
(H1 2023: 81%). The first half year typically has a lower conversion ratio and
in the prior period there was a small number of larger vendor payments which
overlapped the period end causing the ratio in this period to be below 90%.
Cash payments for corporation taxation in the period were £0.8m (H1 2023:
limited to only £6,000), resulting in net cash flow from operating activities
in the period of £16.0m (H1 2023: £14.5m).
Expenditure on investing activities of £12.8m (H1 2023: £13.8m) was incurred
in the period. £5.3m (H1 2023: £3.1m) was incurred on the acquisition of
property, plant and equipment, principally to provide specific services to our
customers and £1.4m to upgrade fibre network equipment. We incurred £0.9m
(H1 2023: £0.6m) in respect of development costs during the period. In early
June 2023 we paid the initial equity consideration on the Extrinsica
acquisition which combined with the cash acquired, resulted in a £1.2m net
cash outflow. In addition, in September 2023 we paid in cash the full value of
the £4.0m earn-out consideration on the Concepta acquisition. The prior
period included the initial equity consideration on the Concepta acquisition
plus professional fees which, combined with the cash acquired, resulted in a
£10.0m net outflow.
During the first half of the year, net cash used in financing activities was
£6.4m (H1 2023: £1.7m generated). All shares issued in the current period
under share options were issued at nominal value. In the current period we
made a £5.5m (H1 2023: £10.4m) drawdown on the revolving credit facility
solely to support the acquisition related payments. We repaid £3.7m of bank
debt acquired from Extrinsica on completion (H1 2023: £1.5m on Concepta
acquisition). In the current period we repaid £2.8m of lease liabilities (H1
2023: £2.5m), paid £1.4m (H1 2023: £0.7m) of finance charges and made a
dividend payment of £3.9m (H1 2023: £4.0m). As a result, cash and cash
equivalent balances at the end of the period were £10.7m (30 September 2023:
£17.8m).
Net Debt
The net debt position of the Group at the end of the period was £48.0m,
compared to £39.8m at 31 March 2023, with the increase driven by the payment
of the initial consideration (including repayment of debt acquired) for the
Extrinsica acquisition and the earn-out payment on the Concepta acquisition.
Our multiple of the last 12 months of adjusted EBITDA to net debt is 1.3 times
which remains a comfortable level of leverage.
The analysis of the net debt is shown below:
30 September 2023 30 September 2022 31 March
£'000 £'000 2023
£'000
Bank revolver loan 39,900 44,400 34,400
Lease liabilities 18,757 21,196 19,180
Less: cash and cash equivalents (10,673) (17,770) (13,818)
Net Debt 47,984 47,826 39,762
We have a £100m Revolving Credit Facility ("RCF") provided by a four-bank
group consisting of HSBC, Royal Bank of Scotland, Bank of Ireland and
Clydesdale Bank with a maturity date of 30 June 2026. The facility also
benefits from a £50m Accordion Facility. The RCF has a borrowing cost at the
Group's current leverage levels of 180 basis points over SONIA.
Dividend
We have a dividend policy where the maximum pay-out is 50% of adjusted diluted
earnings per share. Given the high recurring revenue nature of the Group,
the level of operating cash that we have delivered and comfortable level of
indebtedness within the Group, we have applied the maximum pay-out ratio in
our assessment of the appropriate level of interim dividend to be made.
Therefore, the Board has approved an interim dividend of 1.94p per share (H1
2023: 1.94p) payable on 26 January 2024 to shareholders on the register on 5
January 2024, with an ex-dividend date of 4 January 2024. This interim
dividend represents a pay-out ratio of 38% (H1 2023: 37%) of the adjusted
diluted earnings per share for the period.
Current trading and outlook
Ongoing initiatives to improve sales channel effectiveness and service
delivery will continue to be implemented, which along with the positive
contribution from our most recent acquisitions, will allow our full year
results to demonstrate continued year on year momentum. Current trading is in
line with the Board's expectations.
iomart continues to be very well positioned to support customers in their
digital transformation journeys including the complex multi-year process of
migrating to a modern multi-cloud based infrastructure and becoming data
driven businesses. Our blend of both IT and connectivity skills combined with
our secure, scalable, resilient cloud and network infrastructure uniquely
positions us to support the ambitions of our customer base. These factors
combined with our strong technology vendor partnerships, 20+ years' experience
and financial stability give us confidence that we will participate
successfully in the growing cloud sector.
Lucy Dimes
Chief Executive Officer
5 December 2023
Consolidated Interim Statement of Comprehensive Income
Six months ended 30 September 2023
Unaudited Unaudited Audited
6 months to 30 September 2023 6 months to 30 September 2022 Year to 31
£'000 £'000 March 2023
£'000
Revenue 62,037 52,557 115,638
Cost of sales (27,550) (21,355) (52,080)
Gross profit 34,487 31,202 63,558
Administrative expenses (28,068) (25,047) (52,141)
Operating profit 6,419 6,155 11,417
Analysed as:
Earnings before interest, tax, depreciation, amortisation, acquisition 18,598 17,794 36,161
costs, exceptional non-recurring costs and share based payments
Share based payments (206) (418) (696)
Acquisition costs 4 (538) (252) (922)
Administrative expenses - exceptional non-recurring costs 4 (462) - -
Cost of sales - exceptional non-recurring costs - - (820)
Depreciation 9 (7,713) (7,980) (15,861)
Amortisation - acquired intangible assets 8 (1,982) (1,748) (3,880)
Amortisation - other intangible assets 8 (1,278) (1,241) (2,565)
Finance costs 5 (2,026) (1,213) (2,915)
Profit before taxation 4,393 4,942 8,502
Taxation 6 (968) (1,119) (1,507)
Profit for the period/year 3,425 3,823 6,995
Other comprehensive income
Currency translation differences 11 166 60
Other comprehensive income for the period/year 11 166 60
Total comprehensive income for the period/year attributable to 3, 436 3,989 7,055
equity holders of the parent
Basic and diluted earnings per share
Basic earnings per share 3 3.1p 3.5p 6.4 p
Diluted earnings per share 3 3.0p 3.4p 6.2 p
Consolidated Interim Statement of Financial Position
As at 30 September 2023
Unaudited Unaudited Audited
30 September 30 September 2022 31 March 2023
2023 £'000 £'000
£'000
ASSETS
Non-current assets
Intangible assets - goodwill 8 104,293 99,710 99,950
Intangible assets - other 8 15,460 15,153 12,981
Trade and other receivables 111 597 177
Property, plant and equipment 9 65,833 67,790 64,959
185,697 183,250 178,067
Current assets
Cash and cash equivalents 10,673 17,770 13,818
Trade and other receivables 25,381 23,708 25,804
Current tax asset 704 789 987
36,758 42,267 40,609
Total assets 222,455 225,517 218,676
LIABILITIES
Non-current liabilities
Trade and other payables (3,330) (2,978) (2,666)
Non-current borrowings 11 (56,274) (62,030) (50,203)
Provisions for other liabilities and charges (2,946) (2,626) (2,755)
Deferred tax liability (3,936) (2,694) (3,221)
(66,486) (70,328) (58,845)
Current liabilities
Contingent consideration due on acquisitions 7 (360) (4,000) (4,000)
Trade and other payables (30,950) (28,282) (31,898)
Current borrowings 11 (2,383) (3,566) (3,377)
(33,693) (35,848) (39,275)
Total liabilities (100,179) (106,176) (98,120)
Net assets 122,276 119,341 120,556
EQUITY
Share capital 1,122 1,101 1,106
Own shares (70) (70) (70)
Capital redemption reserve 1,200 1,200 1,200
Share premium 22,495 22,495 22,495
Merger reserve 6,967 4,983 4,983
Foreign currency translation reserve 57 152 46
Retained earnings 90,505 89,480 90,796
Total equity 122,276 119,341 120,556
Consolidated Interim Statement of Cash Flows
Six months ended 30 September 2023
Unaudited Unaudited Audited
6 months to 30 September 2023 6 months to 30 September 2022 Year to 31 March 2023
£'000 £'000 £'000
Profit before tax 4,393 4,942 8,502
Finance costs - net 2,026 1,213 2,915
Depreciation 7,713 7,980 16,492
Amortisation 3,260 2,989 6,445
Share based payments 206 418 696
Professional fees on acquisition - 232 -
Movement in trade receivables 1,928 (1,579) (3,256)
Movement in trade payables (2,702) (1,722) 2,045
Cash flow from operations 16,824 14,473 33,839
Taxation paid (813) (6) 48
Net cash flow from operating activities 16,011 14,467 33,887
Cash flow from investing activities
Purchase of property, plant and equipment (5,346) (3,130) (8,918)
Development costs (860) (627) (1,887)
Purchase of intangible assets (1,358) (31) (44)
Payment for acquisition of subsidiary net of cash acquired (1,225) (9,963) (10,307)
Payment of contingent consideration (4,000) - -
Net cash used in investing activities (12,789) (13,751) (21,156)
Cash flow from financing activities
Issue of shares 16 - 5
Drawdown of bank loans 5,500 10,400 10,400
Repayment of bank loans - - (10,000)
Repayment of lease liabilities (2,792) (2,509) (4,902)
Repayment of debt acquired on acquisition (3,728) (1,508) (1,508)
Finance costs paid (1,441) (704) (1,900)
Refinancing costs paid - - (249)
Dividends paid (3,922) (3,957) (6,091)
Net cash (used in)/generated from financing activities (6,367) 1,722 (14,245)
Net (decrease)/increase in cash and cash equivalents (3,145) 2,438 (1,514)
Cash and cash equivalents at the beginning of the period 13,818 15,332 15,332
Cash and cash equivalents at the end of the period 10,673 17,770 13,818
Consolidated Interim Statement of Changes in Equity
Six months ended 30 September 2023
Foreign currency translation reserve
Capital redemption reserve Share premium account
Share capital Own Merger reserve Retained earnings
shares Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 April 2022 1,101 (70) 1,200 22,495 4,983 (14) 89,196 118,891
Profit in the period - - - - - - 3,823 3,823
Currency translation differences - - - - - 166 - 166
Total comprehensive income - - - - - 166 3,823 3,989
Dividends - - - - - - (3,957) (3,957)
Share based payments - - - - - - 418 418
Total transactions with owners - - - - - - (3,539) (3,539)
Balance at 30 September 2022 (unaudited) 1,101 (70) 1,200 22,495 4,983 152 89,480 119,341
Profit in the period - - - - - - 3,172 3,172
Currency translation differences - - - - - (106) - (106)
Total comprehensive income - - - - - (106) 3,172 3,066
Dividends - - - - - - (2,134) (2,134)
Share based payments - - - - - - 278 278
Issue of share capital 5 - - - - - - 5
Total transactions with owners 5 - - - - - (1,856) (1,851)
Balance at 31 March 2023 (audited) 1,106 (70) 1,200 22,495 4,983 46 90,796 120,556
Profit in the period - - - - - - 3,425 3,425
Currency translation differences - - - - - 11 - 11
Total comprehensive income - - - - - 11 3,425 3,436
Dividends - - - - - - (3,922) (3,922)
Share based payments - - - - - - 206 206
Issue of share capital 16 - - - 1,984 - - 2,000
Total transactions with owners 16 - - - 1,984 - (3,716) (1,716)
Balance at 30 September 2023 (unaudited) 1,122 (70) 1,200 22,495 6,967 57 90,505 122,276
Notes to the half yearly financial information
Six months ended 30 September 2023
1. Basis of preparation
The half yearly financial information does not constitute statutory financial
statements as defined in section 434 of the Companies Act 2006. The statutory
accounts for the year ended 31 March 2023 have been delivered to the Registrar
of Companies and included an independent auditor's report, which was
unqualified and did not contain a statement under section 493 of the Companies
Act 2006.
The half yearly financial information has been prepared using the same
accounting policies and estimation techniques as will be adopted in the Group
financial statements for the year ending 31 March 2024. The Group financial
statements for the year ended 31 March 2023 were prepared in accordance with
the international accounting standards in conformity with the requirements of
the Companies Act 2006. These half yearly financial statements have been
prepared on a consistent basis and format with the Group financial statements
for the year ended 31 March 2023. The provisions of IAS 34 'Interim Financial
Reporting' have not been applied in full.
Operating segments (note 2 only) - prior period reclassification
As noted in the Chief Executive's statement on page 6, during the period we
moved the financial reporting of the brand SimpleServers into the Easyspace
division as the nature of the services provided and the profile of the
customer base are aligned better with the mass market hosting sector which we
address in the Easyspace division. As a result, operating segment
disclosures in note 2 in H1 2023 and year to 31 March 2023 (FY23) have been
reclassified resulting in an increase in Easyspace revenue and adjusted EBITDA
with the opposite impact in Self-managed infrastructure in Cloud Services
(Revenue impact H1 2023: £436k, FY23: £864k, EBITDA impact H1 2023: £264k,
FY23: £535k).
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Chief
Executive's Statement.
At the period 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. The directors are of the opinion that the Group can
operate within the current facility and comply with its banking covenants.
At the end of the half year, the Group had net debt of £48.0m (H1 2023:
£47.8m). The Board is comfortable with the net debt position given the strong
cash generation and considerable financial resources of the Group, together
with long‐term contracts with a number of customers and suppliers across
different geographic areas and industries. As a consequence, the directors
believe that the Group is well placed to manage its business risks.
After making enquiries, the directors have a reasonable expectation that the
Group will be able to meet its financial obligations and has adequate
resources to continue in operational existence for the foreseeable future. For
this reason, they continue to adopt the going concern basis in preparing the
financial statements.
2. Operating segments
Revenue by Operating Segment
6 months to 30 September 6 months to 30 September 2022 Year to 31 March 2023
2023 (restated, (restated,
note 1) note 1)
£'000 £'000 £'000
Easyspace 6,259 6,228 12,548
Cloud Services 55,778 46,329 103,090
62,037 52,557 115,638
Cloud Services revenue during the period/year can be further disaggregated as
follows:
6 months to 30 September 6 months to 30 September 2022 Year to 31 March 2023
2023 (restated, (restated,
note 1) note 1)
£'000 £'000 £'000
Cloud managed services 37,022 29,220 64,115
Self-managed infrastructure 14,730 13,891 29,617
Non-recurring revenue 4,026 3,219 9,359
55,778 46,330 103,091
Geographical Information
In presenting the consolidated information on a geographical basis, revenue is
based on the geographical location of customers. The United Kingdom is the
place of domicile of the parent company, iomart Group plc. No individual
country other than the United Kingdom contributes a material amount of revenue
therefore revenue from outside the United Kingdom has been shown as from Rest
of the World.
Analysis of Revenue by Destination
6 months to 30 September 2023 6 months to 30 September Year to 31 March 2023
2022
£'000 £'000 £'000
United Kingdom 52,845 45,147 99,961
Rest of the World 9,192 7,410 15,677
62,037 52,557 115,638
Recurring and Non-Recurring Revenue
The amount of recurring and non-recurring revenue recognised during the year
can be summarised as follows:
6 months to 30 September 2023 6 months to 30 September Year to 31 March 2023
2022
£'000 £'000 £'000
Recurring - over time 58,011 49,338 106,279
Non-recurring - point in time 4,026 3,219 9,359
62,037 52,557 115,638
Profit by Operating Segment
6 months to 30 September 2023 6 months to 30 September 2022 Year to 31 March 2023
(restated, note 1) (restated, note 1)
EBITDA before share based payments, acquisition costs & Share based payments, acquisition costs, EBITDA before share based payments, acquisition costs & Share based payments, acquisition costs, exceptional non-recurring EBITDA before share based payments, acquisition costs & Share based payments, acquisition costs, exceptional non-recurring
exceptional exceptional-non recurring costs,
exceptional costs,
exceptional costs,
non-recurring costs depreciation & amortisation non-recurring costs depreciation & amortisation non-recurring costs depreciation & amortisation
Operating profit/(loss)
Operating profit/(loss) Operating profit/(loss)
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Easyspace 3,167 (301) 2,866 3,140 (184) 2,956 6,173 (698) 5,475
Cloud Services 18,167 (10,672) 7,495 17,012 (10,785) 6,227 34,796 (22,428) 12,368
Group overheads (2,736) - (2,736) (2,358) - (2,358) (4,808) - (4,808)
Administrative expenses - exceptional non-recurring costs - (462) (462)
Share based payments - (206) (206) - (418) (418) - (696) (696)
Acquisition costs - (538) (538) - (252) (252) - (922) (922)
Profit before tax and interest 18,598 (12,179) 6,419 17,794 (11,639) 6,155 36,161 (24,744) 11,417
Group interest and tax (2,994) (2,332) (4,422)
Profit for the period/year 3,425 3,823 6,995
Group overheads, share based payments, acquisition costs, interest and tax are
not allocated to segments.
3. 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 shares 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 adjusting for the
dilutive potential ordinary shares relating to share options. The calculations
of earnings per share are based on the following results:
6 months to 30 September 6 months to 30 September Year to 31 March 2023
2023 2022 £'000
£'000 £'000
Profit for the period/year and basic earnings attributed to ordinary 3,425 3,823 6,995
shareholders
No No No
Weighted average number of ordinary shares: 000 000 000
Called up, allotted and fully paid at start of period 110,422 110,065 110,065
Shares held by Employee Benefit Trust (141) (141) (141)
Issued share capital in the period 1,016 4 170
Weighted average number of ordinary shares - basic 111,297 109,928 110,094
Dilutive impact of share options 2,496 2,686 2,575
Weighted average number of ordinary shares - diluted 113,793 112,614 112,669
Basic earnings per share 3.1 p 3.5 p 6.4 p
Diluted earnings per share 3.0 p 3.4 p 6.2 p
iomart Group plc assess the performance of the Group by adjusting earnings per
share, calculated in accordance with IAS 33, to exclude certain non-trading
items. The calculation of the earnings per ordinary share on a basis which
excludes such items is based on the following adjusted earnings:
Adjusted earnings per share
6 months to 30 September 6 months to 30 Year to 31 March
2023 September 2023
£'000 2022 £'000
£'000
Profit for the period/year and basic earnings attributed to ordinary 3,425 3,823 6,995
shareholders
- Amortisation of acquired intangible assets 1,982 1,748 3,880
- Acquisition costs 538 252 922
- Administrative expenses - exceptional non-recurring costs 462 - -
- Share based payments 206 418 696
- Cost of sales - exceptional non-recurring costs - - 820
- Tax impact of adjusted items (716) (412) (1,025)
Adjusted profit for the period/year and adjusted basic earnings attributed to 5,897 5,829 12,288
ordinary shareholders
Adjusted basic earnings per share 5.3 p 5.3 p 11.2 p
Adjusted diluted earnings per share 5.2 p 5.2 p 10.9 p
4. Acquisition costs and administrative expenses -
exceptional non-recurring costs
6 months to 30 September 2023 6 months to 30 September Year to 31 March 2023
2022
£'000 £'000 £'000
Professional fees (307) (232) (236)
Non-recurring acquisition integration costs (231) (20) (686)
Acquisition costs (538) (252) (922)
6 months to 30 September 2023 6 months to 30 September Year to 31 March 2023
2022
£'000 £'000 £'000
Administrative expenses - exceptional non-recurring costs (462) - -
In the current period, the Group incurred £0.5m (H1 2023: £nil) of
administrative expenses - exceptional non-recurring costs in
relation to the change of CEO during September which we consider to be
material in nature and size.
5. Finance costs
6 months to 30 September 2023 6 months to 30 September Year to 31 March 2023
2022
£'000 £'000 £'000
Bank loans (1,588) (855) (2,216)
Lease finance costs (379) (304) (586)
Other interest charges (59) (54) (113)
(2,026) (1,213) (2,915)
6. Taxation
6 months to 30 September 2023 6 months to 30 September 2022 Year to 31
£'000 £'000 March
2023
£'000
Corporation Tax:
Tax charge for the period/year (1,104) (1,050) (935)
Total current taxation charge (1,104) (1,050) (935)
Deferred Tax:
Origination and reversal of temporary differences 136 (58) (597)
Adjustment relating to prior periods - - 36
Effect of different statutory tax rates of overseas jurisdictions - (11) (11)
Total deferred taxation credit/(charge) 136 (69) (572)
Total taxation charge for the period/year (968) (1,119) (1,507)
Deferred tax assets and liabilities at 30 September 2023 have been calculated
based on the rate enacted at the balance sheet date of 25% (H1 2023: 25%).
7. Acquisitions
Extrinsica Global Holdings Limited
On 5 June 2023, the Group acquired the entire issued share capital of
Extrinsica Global Holdings Limited ("Extrinsica"), the holding company of
Extrinsica Global Limited. 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.
During the current year, the Group incurred £307,000 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 period
ended 30 September 2023.
The following table summarises the consideration to acquire Extrinsica, 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 628
Trade and other receivables 1,439
Property, plant and equipment 44
Intangible assets 4,879
Borrowings (3,728)
Trade and other payables (2,326)
Deferred tax liability (851)
Identifiable net assets 85
Goodwill 4,343
Total consideration 4,428
Satisfied by:
Cash - paid on acquisition 1,853
Deferred consideration included in trade and other payables 215
Shares - issued on acquisition 2,000
Contingent consideration 360
Total consideration to be transferred 4,428
The acquisition of Extrinsica was completed using a "completion accounts"
mechanism, on a no cash, no debt, and normalised working capital basis.
The initial consideration for the acquisition was £4,028,000, with a
potential further £360,000 in cash payable on the achievement of certain key
customer targets during the year ended 31 March 2024, £180,000 of which has
since been settled on 12 October 2023 with the remaining balance due in early
2024. Of the initial consideration, £175,000 was deferred pending
finalisation of the completion accounts and £2,000,000 was satisfied by the
issue of 1,562,500 new ordinary shares in iomart Group plc, which under the
terms of the Sale and Purchase Agreement (SPA) 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. This has resulted
in an increase to share capital of £16,000 and an increase to the merger
reserve of £1,984,000.
At the date of acquisition, Extrinsica had bank debt of £3,728,000 which was
taken on by iomart and settled as part of the completion process.
In line with the 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 May 2023. Following agreement
of the Completion Accounts an additional payment of £40,000 was paid to the
former shareholders of Extrinsica on 12 October 2023, alongside the £175,000
deferred consideration mentioned above.
The SPA included a provision requiring the Company to pay the former
shareholders of Extrinsica a further £4,000,000 to £7,000,000 of contingent
earn-out payments which are calculated based on Extrinsica's profitability for
the 12 months ending 31 March 2024 ("the earn-out payment"). Of any earn-out
payment that becomes due, £1,000,000 will be satisfied by the issue of iomart
Group plc shares (the number of shares to be issued will be based on the same
share price as the initial consideration).
The potential undiscounted amount of the earn-out payment that the Company
could be required to pay is between £nil and £7,000,000. The amount of
contingent earn-out consideration payable, which is recognised as of 30
September 2023, is £nil. The level of profitability for the earn-out payment
was estimated taking into account actual performance to date and management's
estimates of profitability for the remaining months to March 2024.
The goodwill arising on the acquisition of Extrinsica is attributable to the
premium payable for a pre-existing, well positioned business specialising in
Microsoft's Azure cloud platform, 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 name "Extrinsica" is not actively advertised or promoted.
Extrinsca's standard terms and conditions restrict the ability of Extrinsica
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 £3,824,000. 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 14.11% was used for the valuation. Customer
relationships are being amortised over an estimated useful life of 8 years.
Extrinsica earned revenue of £2,691,000 and generated losses, before
allocation of group overheads, share based payments and tax, of £85,000 in
the period since acquisition.
If Extrinsca had been part of the iomart group from 1 April 2023, revenue
earned would have been £4,019,000 and loss after tax of £162,000 for the
period ended 30 September 2023.
8. Intangible assets
Goodwill Acquired customer relationships Development costs Software Acquired beneficial contract Domain names & IP addresses Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Cost:
At 1 April 2022 86,479 57,299 13,256 10,945 86 336 168,401
Acquired on acquisition of subsidiary 13,231 4,462 159 - - - 17,852
Additions in the period - - 627 31 - - 658
Currency translation differences - 137 - 105 - - 242
At 30 September 2022 99,710 61,898 14,042 11,081 86 336 187,153
Additions in the period 240 - 1,260 13 - - 1,513
Currency translation differences - (89) - (66) - - (155)
At 31 March 2023 99,950 61,809 15,302 11,028 86 336 188,511
Acquired on acquisition of subsidiary 4,343 3,823 1,055 - - - 9,221
Additions in the period - - 860 - - - 860
Currency translation differences - 11 - 9 - - 20
Disposals - - (112) - - - (112)
At 30 September 2023 104,293 65,643 17,105 11,037 86 336 198,500
Accumulated amortisation:
At 1 April 2022 - (49,396) (11,166) (8,142) (69) (297) (69,070)
Charge for the period - (1,748) (655) (578) (4) (4) (2,989)
Currency translation differences - (138) - (93) - - (231)
At 30 September 2022 - (51,282) (11,821) (8,813) (73) (301) (72,290)
Charge for the period - (2,132) (779) (538) (4) (3) (3,456)
Currency translation differences - 89 - 77 - - 166
At 31 March 2023 - (53,325) (12,600) (9,274) (77) (304) (75,580)
Charge for the period - (1,982) (777) (493) (4) (4) (3,260)
Currency translation differences - (11) - (8) - - (19)
Disposals - - 112 - - - 112
At 30 September 2023 - (55,318) (13,265) (9,775) (81) (308) (78,747)
Carrying amount:
104,293 10,325 3,840 1,262 5 28 119,753
At 30 September 2023
At 31 March 2023 99,950 8,484 2,702 1,754 9 32 112,931
At 30 September 2022 99,710 10,616 2,221 2,268 13 35 114,863
Note 12 provides the movements in the period relating to IFRS 16 right-of-use
assets included in the above table.
9. Property, plant and equipment
Freehold property Leasehold property and improve-ments Datacentre equipment Computer equipment Office equipment Motor vehicles Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Cost:
At 1 April 2022 8,236 40,424 30,524 114,268 2,840 23 196,315
Acquired on acquisition of subsidiary - 300 872 1 30 - 1,203
Additions in the period - 481 468 2,456 40 - 3,445
Currency translation differences - 350 - 861 - - 1,211
At 30 September 2022 8,236 41,555 31,864 117,586 2,910 23 202,174
Additions in the period - 488 1,381 4,135 76 23 6,103
Disposals in the period - (309) (1,402) - - - (1,711)
Currency translation differences - (218) - (483) - - (701)
At 31 March 2023 8,236 41,516 31,843 121,238 2,986 46 205,865
Acquired on acquisition of subsidiary - 6 - 31 7 - 44
Additions in the period - 3,466 1,580 3,715 202 43 9,006
Disposals in the period - (462) - - - (5) (467)
Currency translation differences - 28 - 22 - - 50
At 30 September 2023 8,236 44,554 33,423 125,006 3,195 84 214,498
Accumulated depreciation:
At 1 April 2022 (1,054) (16,214) (18,041) (87,750) (2,340) (23) (125,422)
Charge for the period (121) (2,252) (723) (4,796) (88) - (7,980)
Currency translation differences - (260) - (722) - - (982)
At 30 September 2022 (1,175) (18,726) (18,764) (93,268) (2,428) (23) (134,384)
Charge for the period (120) (2,411) (1,349) (4,537) (92) (3) (8,512)
Disposals in the period - - 1,402 - - - 1,402
Currency translation differences - 186 - 402 - - 588
At 31 March 2023 (1,295) (20,951) (18,711) (97,403) (2,520) (26) (140,906)
Charge for the period (119) (2,262) (797) (4,428) (102) (5) (7,713)
Disposals in the period - - - - - 5 5
Currency translation differences - (31) - (20) - - (51)
At 30 September 2023 (1,414) (23,244) (19,508) (101,851) (2,622) (26) (148,665)
Carrying amount:
At 30 September 2023 6,822 21,310 13,915 23,155 573 58 65,833
At 31 March 2023 6,941 20,565 13,132 23,835 466 20 64,959
At 30 September 2022 7,061 22,829 13,100 24,318 482 - 67,790
Note 12 provides the movements in the period relating to IFRS 16 right-of-use
assets included in the above table.
10. Analysis of change in net debt
Lease liabilities Total net debt
Cash and cash equivalents £'000 £'000
£'000 Bank
loans
£'000
At 1 April 2022 15,332 (34,000) (22,623) (41,291)
Acquired on acquisition of subsidiary - - (235) (235)
Additions to lease liabilities - - (269) (269)
New bank loans - (10,400) - (10,400)
Currency translation - - (104) (104)
Cash and cash equivalents cash inflow 2,438 - - 2,438
Lease liabilities cash outflow - - 2,035 2,035
At 30 September 2022 17,770 (44,400) (21,196) (47,826)
Additions to lease liabilities - - (397) (397)
Disposals from lease liabilities - - 449 449
Repayment of bank loans - 10,000 - 10,000
Currency translation - - 71 71
Cash and cash equivalents cash outflow (3,952) - - (3,952)
Lease liabilities cash outflow - - 1,893 1,893
At 31 March 2023 13,818 (34,400) (19,180) (39,762)
Additions to lease liabilities - - (2,197) (2,197)
Disposals from lease liabilities - - 476 476
New bank loans - (5,500) - (5,500)
Currency translation - - 16 16
Cash and cash equivalents cash outflow (3,145) - - (3,145)
Lease liabilities cash outflow - - 2,129 2,129
At 30 September 2023 10,673 (39,900) (18,756) (47,983)
11. Borrowings
30 30 31
September September March
2023 2022 2023
£'000 £'000 £'000
Current:
Lease liabilities (note 12) (2,383) (3,566) (3,377)
Total current borrowings (2,383) (3,566) (3,377)
Non-current:
Lease liabilities (note 12) (16,374) (17,630) (15,803)
Bank loans (39,900) (44,400) (34,400)
Total non-current borrowings (56,274) (62,030) (50,203)
Total borrowings (58,657) (65,596) (53,580)
At 30 September 2023, the Group has a £100m multi option revolving credit
facility which has a maturity date of 30 June 2026 and benefits from a £50m
Accordion facility. 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. Each draw down made under this facility can be for
either 3 or 6 months and can either be repaid or continued at the end of the
period. During the year, the Group made a drawdown of £5.5m (H1 2023:
£10.4m).
Details of the Group's lease liabilities are included in note 12.
12. 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 Datacentre Software Total
equipment
£'000 £'000 £'000 £'000
Cost at 1 April 2022 18,187 2,809 665 21,661
Acquired on acquisition of subsidiary 123 112 - 235
Additions - 269 - 269
Currency translation differences - 106 - 106
Depreciation charge (1,052) (740) - (1,792)
Amortisation charge - - (143) (143)
Net book value at 30 September 2022 17,258 2,556 522 20,336
Additions 269 128 - 397
Disposals (309) - - (309)
Currency translation differences 7 (76) - (69)
Depreciation charge (1,098) (795) - (1,893)
Amortisation charge - - (142) (142)
Net book value at 31 March 2023
16,127 1,813 380 18,320
Additions 2,197 - - 2,197
Disposals (462) - - (462)
Currency translation differences - (21) - (21)
(1,078) (725) - (1,803)
Depreciation charge
Amortisation charge - - (143) (143)
16,784 1,067 237 18,088
Net book value at 30 September 2023
The right-of-use assets in relation to leasehold property and datacentre
equipment are disclosed as non-current assets and are disclosed within
property, plant and equipment at 30 September 2023 (note 9). The right-of-use
assets in relation to software are disclosed as non-current assets and are
disclosed within intangibles at 30 September 2023 (note 8).
Lease liabilities
Lease liabilities for right-of-use assets are presented in the balance sheet
within borrowings as follows:
30 September 2023 30 September 31 March
2022 2023
£'000 £'000 £'000
(2,383) (3,566) (3,377)
Lease liabilities (current) (note 11)
Lease liabilities (non-current) (note 11) (16,374) (17,630) (15,803)
Total lease liabilities (18,757) (21,196) (19,180)
The maturity analysis of undiscounted lease liabilities is shown in the table
below:
30 September 30 September 31 March
2023 2022 2023
Amounts payable under leases: £'000 £'000 £'000
(2,661) (4,252) (3,880)
Within one year
Between two to five years (9,532) (9,330) (8,239)
After more than five years (10,935) (10,685) (9,780)
(23,128) (24,267) (21,899)
Add: unearned interest 4,371 3,071 2,719
Total lease liabilities (18,757) (21,196) (19,180)
13. Post balance sheet events
Subsequent to the period end, we completed the acquisition of Accesspoint on 4
December 2023. The initial consideration of £4.5m was paid in cash on
completion on a debt and cash free basis, with a potential further £0.5m in
cash payable on the achievement of certain post-acquisition milestones. The
acquisition also includes up to a further £1.4m contingent earn-out payment
based on the profitability of Accesspoint for the 12 months ending 31 August
2024. The initial consideration was financed through a combination of existing
bank facilities and cash on the Company's balance sheet.
14. Availability of half yearly reports
The Company's Interim Report for the six months ended 30 September 2023 will
shortly be available to view on the Company's website (www.iomart.com).
INDEPENDENT REVIEW REPORT TO iOMART GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2023 which comprises the Consolidated Interim Statement of
Comprehensive Income, the Consolidated Interim Statement of Financial
Position, the Consolidated Interim Statement of Cash Flows, the Consolidated
Interim Statement of Changes in Equity and related notes 1 to 14.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2023 is not prepared,
in all material respects, in accordance with the accounting policies the group
intends to use in preparing its next annual financial statements and the AIM
Rules of the London Stock Exchange.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report have been prepared in accordance with the
accounting policies the group intends to use in preparing its next annual
financial statements.
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the Directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the AIM rules of the London Stock Exchange.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditors' Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
Glasgow, United Kingdom
5 December 2023
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