TIDMIOM
RNS Number : 8495Q
Iomart Group PLC
24 June 2020
24 June 2020
iomart Group plc
("iomart" or the "Group" or the "Company")
Final Results
Increased organic growth and continued resilience
iomart (AIM:IOM), the cloud computing company, is pleased to
report its consolidated final results for the year ended 31 March
2020.
FINANCIAL HIGHLIGHTS
2020 2019 Change
Revenue GBP112.6m GBP103.7m +9%
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Adjusted EBITDA(1) GBP43.5m GBP42.2m +3%
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Adjusted profit before tax(2) GBP22.8m GBP25.5m -11%
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Profit before tax GBP16.8m GBP16.2m +4%
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Adjusted diluted eps(3) 16.3p 18.6p -12%
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Basic eps 12.5p 11.9p +5%
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Proposed final dividend per share 3.93p 5.01p -22%
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-- Revenue up by 9% to GBP112.6m, with the majority of the
growth derived organically in the year
-- Adjusted EBITDA(1) benefitted by GBP3.0m from transition to IFRS 16 'Leases'
-- Adjusted profit before tax(2) and adjusted earnings per
share(3) reflects over GBP1m annualised investment in sales engine
and broader mix of revenue
-- Cash generated from operations in the year of GBP41.3m (2019:
GBP39.1m before exceptional items) which retains the consistently
strong profit-to-cash conversion ratio (95% conversion of adjusted
EBITDA) (2019: 93%)
-- Year-end cash position of GBP15.5m (2019: GBP10.1m) with net
debt of GBP57.6m (GBP37.3m pre the adoption of IFRS 16) (2019:
GBP39.2m), at a comfortable level of 1.3 times EBITDA (4)
OPERATIONAL HIGHLIGHTS
-- Cloud Services organic growth rate increased to 6% in the year (2019: 2%)
-- Increased investment in sales engine has led to several
multi-million pound, multi-year contracts being secured, adding to
future revenue visibility
-- Continued market leading profitability and low customer attrition
-- Acquisitions of ServerChoice in February 2020 and Memset
Limited in March 2020, provide good quality customer base, with
integration already underway
-- Appointment of Reece Donovan as Chief Operating Officer to
prepare Group for next stage of growth
CURRENT TRADING AND OUTLOOK
-- Robust business model and strength of offering is providing
resilience during Covid-19 lockdown
-- The Group has traded in line with management expectations in
the first two months of the new financial year, consistent with the
Group's high recurring revenue business model
-- Group current cash balances remain at a similar level to the year end
-- Business development continues, with good discussions with
both new and existing customers, although timing of new projects is
likely to be more uncertain for the remainder of this calendar
year
Statutory Equivalents
A full reconciliation between adjusted and statutory profit
before tax is contained within this statement. The largest variance
year on year within the adjustments relates to the GBP1.9m
reduction in contingent consideration on the 2018 LDeX acquisition
which translates to a gain within the consolidated statement of
comprehensive income. In the prior year a similar accounting entry
was recorded for the 2017 Sonassi acquisition but in that situation
it was a loss of GBP1.4m on the finalisation of the earn-out final
payment which was higher than previously expected.
Angus MacSween, CEO commented,
"This is the twelfth consecutive year of growth since the
transition of the business to cloud services in 2008 with the
acquisition of our first data centres. Since that time, revenues
and profits have grown considerably, with revenue reaching
GBP112.6m, through the combination of continued organic growth and
acquisitions.
"As we look forward to the next stage of growth, we do so with
our teams all working remotely and the world around us considerably
changed due to the global impact of Covid-19. Our focus must be
first and foremost on the well being of our people, all of whom
have risen to the challenge fantastically, for which I and the
Board are extremely grateful.
"Together we have built a strong, resilient business, providing
mission critical infrastructure to a wide spread of customers
across diverse industries. This resilience will serve us well as we
progress through the months ahead. The switch to remote working
across the world has only accelerated the move to the cloud which
we believe will be a growth driver for our business over the longer
term.
"Our high levels of recurring revenues, breadth of customer
base, industry leading profit margins and strong cash generation,
mean we are confident iomart is well positioned to withstand the
current challenges and deliver long-term growth."
(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
gain/(loss) on the revaluation of contingent consideration.
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 in the Chief Financial Officer's report) is profit
before tax, amortisation charges on acquired intangible assets,
share-based payment charges, acquisition costs, accelerated write
off of arrangement fees on bank facility and gain/(loss) on
revaluation of contingent consideration.
(3) Throughout these financial statements adjusted diluted
earnings per share (disclosed in note 6) is earnings per share
before amortisation charges on acquired intangible assets,
share-based payment charges, acquisition costs, accelerated write
off of arrangement fees on bank facility and gain/(loss) on
revaluation of contingent consideration.
(4) EBITDA is earnings before interest, tax, depreciation and amortisation.
This 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
Angus MacSween, Chief Executive Officer
Scott Cunningham, Chief Financial
Officer
Peel Hunt LLP (Nominated Adviser and Tel: 020 7418
Broker) 8900
Edward Knight
Edward Allsop
Nick Prowting
Alma PR Tel: 020 3405
0212
Caroline Forde
Helena Bogle
About iomart Group plc
For over 20 years iomart Group plc (AIM: IOM) has been helping
growing organisations to maximise the flexibility, cost
effectiveness and scalability of the cloud. From data centres we
own and operate in the U.K., and from connected facilities across
the globe, we deliver 24/7 storage and protection for data across
the most complex of cloud and legacy infrastructures. Our team of
over 400 dedicated staff work with our customers at the strategy
stage through to delivery and ongoing management, to implement the
secure cloud solutions that deliver to their business requirements.
For further information about the Group, please visit
www.iomart.com
CHAIRMAN'S STATEMENT
I am pleased to report that iomart (the "Group") has delivered
another year of revenue growth, strong profitability and cash
generation, in line with expectations. Due to the timing of the
year end, the Group experienced minimal impact on trading in the
year from the effects of Covid-19.
As we publish this report, Covid-19 continues to impact people
and economies around the world. In times such as these, our purpose
as a Board comes into clear focus: to ensure all employees are safe
and supported; to ensure that the business continues to operate to
the highest standards for the benefit of all stakeholders; and to
protect and enhance the long-term future of the business. I am
pleased to report that during these challenging times, this has
indeed been the case. Having implemented remote working across our
sites from early March 2020, the Group has continued to operate to
its customary high standards, ensuring 100% uptime and high levels
of customer support while continuing to develop prospects for
future growth. The teams have responded positively to the changes
asked of them, and I and the Board wish to thank them for their
increased efforts in what have been challenging times for all.
iomart is a well-funded, well-managed, profitable and
cash-generative business with high levels of recurring revenue. The
cash position at year end had increased to GBP15.5m, up from
GBP10.1m at the prior year end, demonstrating the financial
strength of the business. The management team has run reasonable
downside scenario tests and is confident we have the resources to
withstand a significant economic downturn. We will continue to be
vigilant in terms of monitoring business levels and the Group's
cash position, however with greater than 85% of the Group's revenue
recurring in nature, a wide customer base across multiple industry
sectors and our offering delivering mission critical
infrastructure, the Board is confident iomart is in a strong and
robust position to address any future broader economic
concerns.
During the year we paid an interim dividend of 2.60p per share
which was paid to shareholders in January. In addition, the Board
is now proposing to pay a final dividend of 3.93p per share. With
this final dividend payment, the total for the year will be 6.53p,
equivalent to the maximum pay-out ratio under our current policy of
40% of adjusted diluted earnings per share. We are aware of the
focus from the wider community on dividend payments in the current
economic situation, but believe that, given our funding position,
our decision not to apply for the government's furlough scheme, our
robust business model and our focus on being as fair and supportive
as we can be to all stakeholders during the recent unprecedented
events, including employees, customers and suppliers, we should
recognise the support from our shareholders by continuing our
dividend policy.
On 30 March 2020, we were delighted to welcome Reece Donovan to
the Board as Chief Operating Officer. Reece has significant
experience in the technology and telecommunication industries, with
a demonstrable track record of achievement in roles both in the UK
and internationally. Given the growth of the business and our plans
for the future it was important to strengthen our executive team
and we welcome Reece to the Group.
The progress we have made this year and the continued strong
financial performance is a result of a great deal of hard work by
our executives and staff and I thank them all on behalf of the
Board and the shareholders for their efforts over the year.
Ian Steele
Non-Executive Chairman
24 June 2020
CHIEF EXECUTIVE OFFICER'S REPORT
Introduction
This is the twelfth consecutive year of growth since the
transition of the business to cloud services in 2008 with the
acquisition of our first data centres. Since that time, revenues
and profits have grown considerably, reaching GBP112.6m (2019:
GBP103.7m), an increase of 9% on the prior year through the
combination of continued organic growth and the impact of
acquisitions.
A key point of focus in the last 18 months has been the refresh
of our sales and marketing operations to ensure we have the right
mix of skills, processes and tools to deliver the next stage of
growth. We have been encouraged by the early signs of success,
securing several multi-million pound contracts in the year, which
add to our long-term visibility of revenues. While adjusted EBITDA
margins have naturally reduced as a result of this investment and
the specific mix of revenues in the current year, we retain market
leading adjusted EBITDA margins of above 38%, strong cash
generation and high levels of customer retention. Our statutory
profit before tax increased by 4% to GBP16.8m.
Covid-19
In the three months since the response to the Covid-19 pandemic
was initiated in the UK, there has been limited impact on iomart's
trading. We take great comfort from the resilience of our business
model, especially the diversity and limited concentration of our
customer base. We are not significantly exposed to industries that
are suffering the worst effects. The level of customer churn across
all segments of the business has been low, renewal levels high and
cash collection in line with our typical profile. However, we
remain vigilant to the economic impact the ongoing situation may
create, particularly on the SME segment of the market.
Our priority has been the wellbeing and health of our staff and
our teams have responded fantastically to the changes placed upon
them. iomart has always had the technological capability to enable
home working and implemented this mode of operation with no
disruption from 9 March, while mission critical on-site roles, such
as in data centres, have been manned in compliance with social
distancing rules. As a result, our business has continued to
operate 24/7 as near to normal as possible. Each of our data
centres remains operational to high standards of security and
resilience and all customer support has been maintained.
We have increased the monitoring of cash flow, and cash
management has been strong. We have not applied for any support
from the government's furlough scheme, preferring instead to
continue to pay the salaries of the small number of the team whose
roles are not currently required, while encouraging them to offer
their time to the support of their communities.
Market and Strategy
We operate in a dynamic market with new products and solutions
being developed at an ever-increasing pace. We are focussed on
ensuring our product portfolio remains relevant to support
customers in the journey to cloud based solutions, be that of a
public, private, hybrid nature or indeed "on premise", as a
substantial number of organisations still continue to acquire
elements of what they need in this way.
The growth in data requirements sees no slow down, with the
number of users, devices, content rich data and applications
increasing demand for computer power, storage and connectivity.
Development around such areas as machine learning, internet of
things and big data will ensure this is a long-term trend. The
complexity of hosting environments is putting pressure on
resourcing and capabilities of in-house IT teams, driving
outsourcing demand. The market for cloud computing solutions which
we identified in 2007 presents us with as much opportunity now as
it did then and our strategy is well positioned to deliver
continued success. The current situation around Covid-19 may see
the acceleration in the adoption of digital transformation and
remote working, both of which are likely to be long-term drivers to
the Cloud.
Overall, our market continues to grow strongly. As has been well
documented, a large part of this growth is dominated by the
'hyper-scalers', primarily Amazon, Microsoft and Google. These
organisations are now established parts of the landscape and what
has been shown, especially given the trend to multiple cloud
architectures, is that there is plenty of space for organisations
like iomart and the hyper-scalers to coexist. We strongly believe
our differentiation is that we provide advice, help, great customer
service and flexibility. In addition, for organisations with a
stable baseload of computer power, iomart's bespoke cloud solutions
can compete head to head on full life costs. The untidy nature of
the vast majority of the world's legacy IT infrastructure provides
us with the reassurance that there will always be customers who are
looking for a trusted advisor in this space.
We have already established a strong position as a leading
provider of managed cloud computing services which has customer
relationships and excellence in service at the heart of the
business. We plan to build on this position by focussing on:
-- Growing our managed cloud services by excelling in customer
service and ensuring innovation in our customer offering continues
to match the needs of the market;
-- Growing our self-managed infrastructure brands by
differentiating with products, solutions and support which add
value and help solve business problems;
-- Retaining our presence in the mass consumer domain name and
web hosting market via selective marketing and dynamic pricing;
-- Building a high performance team supported by best in class systems, processes and tools;
-- Continued optimisation of our data centre estate with cost
efficiency achieved via asset planning, procurement and
automation;
-- Ensuring robust and resilient infrastructure, connectivity and security at all times; and
-- Continuation of our disciplined acquisition strategy, with
earning enhancing deal valuations and clear integration to the
existing business.
Acquisitions
We again augmented our overall growth during the year through
the acquisition of:
-- The managed private cloud division of privately owned
ServerChoice Limited ("ServerChoice") on 28 February 2020, seeing
the transfer of around 30 customers, some equipment and a small
number of staff into our core managed Cloud Services business;
and
-- Memset Limited ("Memset") on 12 March 2020. Memset is a
well-established business providing dedicated and virtualised
private cloud infrastructure to around 2,000 customers from a team
and data centre based in Dunsfold, Surrey.
The timing of these acquisitions means they had no material
impact on revenue and profit in the year ended 31 March 2020 and
planning for integration is already underway as we enter the new
financial year. Strict criteria continue to be applied to any
potential acquisition target, ensuring they enhance our overall
strategy and are accretive to the financial strength of the Group.
We expect M&A activity will continue as an important growth
driver for the Group in what remains a highly fragmented
market.
Operational Review
While all of our activities involve the provision of services
from common infrastructure, we are organised into two operating
segments, Cloud Services (GBP99.8m revenue) and Easyspace (GBP12.8m
revenue).
Cloud Services
Revenues in this segment have grown by 10% to GBP99.8m (2019:
GBP90.6m). While the full year contribution from the prior year
acquisitions was a positive factor, it was pleasing to see organic
growth being the largest element of our overall growth in the
current year. Revenue growth in the Cloud Services segment,
excluding the impact of acquisitions, was 6% (2019: 2%). The Cloud
Services adjusted EBITDA (before share-based payments, acquisition
costs and central group overheads) was GBP42.3m being 42.4% of
revenue (2019: GBP40.4m being 44.6% of revenue), or GBP39.3m on a
like-for-like basis, excluding the impact of IFRS 16 'Leases'. We
continue to expect Cloud Services to be the driver of revenue and
profit growth for the Group going forward.
Within our Cloud Services division, we have three core
offerings, recognising the differing complexity of the solutions
designed and the level of ongoing managed services we provide. This
means we are able to supply products and services across the full
cloud spectrum and do so using shared resources and common
platforms across the Group:
-- iomart Cloud Services: provides fully managed, complex
bespoke designs, resulting in resilient solutions involving
private, public and hybrid cloud infrastructure. This can range
from the provision of managed online backup and disaster recovery
solutions, through to an entity's entire online live presence where
all revenue generated by the entity's activities are transacted
through the cloud infrastructure we provide, delivered with the
reassurance of a full 24/7 management service.
-- Infrastructure as a Service (IaaS): delivers dedicated,
physical, self-service servers to customers. We provide many
thousands of physical servers for our customers using highly
automated systems and processes which we continue to develop and
improve. Over the last few years we have been a consolidator of the
UK market within this area, via our M&A activity, including for
example our most recent acquisition of Memset. In a considered
manner, ensuring minimum disruption to the customer experience, we
continue to consolidate legacy brands.
-- Cristie Data: supplies computer equipment to customers'
premises along with associated support services. The continued
revenue growth of this brand, including a higher mix of recurring
business, confirms the move to the consumption of computing power
in the cloud by established organisations is happening over a long
period and establishing relationships at this early stage has
allowed us to support customers as they start the journey to the
cloud.
The improvement in the revenue in the current year benefited
from a strong performance by Cristie Data. The provision of IaaS
saw some reductions in revenue primarily from the smaller
customers, which while not material to the overall net revenue
growth achieved, is high margin business. We achieved improved
momentum in new business wins within the Cloud Services division,
where the highest level of management effort and investment has
been in the last year. Two large enterprise wins were achieved in
the year which are both around GBP1m of annual recurring revenue.
These were great examples of the full utilisation of our capability
and service to support the move from fragmented on-premise IT
infrastructure into a scalable, resilient and secure private cloud
environment needed to support global operations.
We believe controlling our own infrastructure is important to
delivering high quality, secure and robust solutions to customers.
In June 2020, subsequent to the year end, we extended our London
data centre property lease to June 2035. Following this, we plan to
upgrade the main cooling and the electrical systems on the site
over the coming 18 months, improving resilience but also adding to
our energy efficiency.
Easyspace
The Easyspace segment which provides a range of products to the
micro and SME markets including domain names, shared, dedicated and
virtual servers and email services, saw a small reduction in
revenue in the year to GBP12.8m (2019: GBP13.1m). To grow Easyspace
significantly would mean competing in a more commoditised market
with the need for a high marketing budget. As a result, our target
for Easyspace is to retain our existing presence in the UK market
via selective marketing and responding to market conditions with
dynamic pricing. As in the past, Easyspace delivered strong
profitability with an adjusted EBITDA (before share-based payments,
acquisition costs and central group overheads) of GBP5.6m being
44.2% of revenue (2019: GBP6.2m being 47.1% of revenue). The
business benefits from use of the Group infrastructure meaning this
profitability translates to strong cash flow for the Group.
Current trading and outlook
The first two months of the new financial year have performed in
line with our expectations, consistent with our high recurring
revenue business model. As evidenced by our robustness during the
Covid-19 period, our current cash balances remain at a similar
level to the year end. Business development continues, with good
discussions with both new and existing customers, although timing
of new projects is likely to be more uncertain for the remainder of
this calendar year.
While visibility of sales pipeline conversion remains less
clear, we believe the medium-term impact of the social distancing
measures implemented across the world will prompt the acceleration
in the adoption of digital transformation and remote working, both
of which are long-term drivers to the cloud. Our high levels of
recurring revenues, breadth of customer base, industry leading
profit margins and strong cash generation, mean we are confident
iomart is well positioned to withstand the current challenges and
deliver long-term growth.
Angus MacSween
Chief Executive Officer
24 June 2020
CHIEF FINANCIAL OFFICER'S REPORT
Financial Review
Key Performance Indicators
2020 2019
Revenue GBP112.6m GBP103.7m
Gross Profit % 60.8% 64.4%
Adjusted EBITDA GBP43.5m GBP42.2m
Adjusted EBITDA margin % 38.6% 40.7%
Adjusted profit before tax GBP22.8m GBP25.5m
Adjusted profit before tax margin % 20.2% 24.6%
Profit before tax GBP16.8m GBP16.2m
Profit before tax margin % 14.9% 15.6%
Basic earnings per share 12.5p 11.9p
Adjusted earnings per share (diluted) 16.3p 18.6p
Cash flow from operating activities before exceptional
costs / Adjusted EBITDA % 95% 93%
Net debt / Adjusted EBITDA leverage ratio 1.3 0.9
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Revenue
Revenue for the year grew by 9% to GBP112.6m (2019: GBP103.7m)
through the combination of continued organic growth and the full
year impact of acquisitions made in the prior year.
Our Cloud Services segment grew revenues by 10% to GBP99.8m
(2019: GBP90.6m), 6% excluding the impact of acquisitions (2019:
2%). A full year contribution from Bytemark and LDeX, acquired in
August 2018 and late December 2018, respectively, contributed to
the overall growth rate. The timing of our latest two acquisitions,
completed in February and March 2020 means they made no material
impact to the trading results in the year. The segment benefited
from a strong performance by our hardware reseller brand, Cristie
Data, with revenue from our higher margin Infrastructure as a
Service offerings being slightly down. We achieved improved
momentum in new business wins within the managed cloud services,
where the highest level of management effort and investment has
been in the last year, with the majority of revenue from these
multi-year contracts being recognised in future years, increasing
our monthly run-rate of revenue.
Our Easyspace segment has performed in line with expectations
over the year with revenues reducing only slightly to GBP12.8m
(2019: GBP13.1m).
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 etc that are necessary to create the IT infrastructure
they require. Customers pay us for the provision of that
infrastructure, with the potential to add 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 very large proportion of our revenue is therefore recurring and
the combination of multi-year contracts and payment in advance
provides us with excellent revenue visibility.
Gross Profit
Gross profit in the year, which is calculated by deducting from
revenue variable cost of sales such as domain costs, public cloud
costs, the cost of hardware and software sold, power, sales
commission and the relatively fixed costs of operating our data
centres, increased by 3% to GBP68.5m (2019: GBP66.7m). In
percentage terms, gross margin has reduced to 60.8% (2019: 64.4%)
due primarily to two factors. Sales by Cristie Data are typically
lower gross margin given the inclusion of the reselling element of
their solutions, plus some of the larger managed cloud solutions
recently signed have initial contribution levels lower than the
smaller infrastructure only deals from the past, although we
anticipate their gross profit margin will increase over time. We
have not seen any significant individual price change in any of the
components of the purchased cost base in the 12 months.
Gross profit within our Easyspace segment reduced slightly from
the previous year due to the specific bundle of packages sold to
hosting customers in the year.
Adjusted EBITDA
Our adjusted EBITDA performance in the year reflects the
increased investments we have made in the organisation to provide
us with the right platform for accelerated future growth, plus the
impact of the revenue mix described above. While our adjusted
EBITDA margin has decreased to 38.6%, we retain market leading
margins and are confident this level is now sustainable, striking
the right balance between investment in the organisation to better
align the business with higher growth areas of the market and high
levels of profit generation.
Adjusted EBITDA for the year was GBP43.5m (2019: GBP42.2m) an
increase of 3% which in EBITDA margin terms translates to 38.6%
(2019: 40.7%). The adoption of IFRS 16 'Leases' ("IFRS 16"), which
reclassifies previous operating lease rentals to a depreciation and
interest charge, has a benefit of GBP3.0m in the year to the
adjusted EBITDA metric. The previously flagged investment in our
commercial operation, combined with the overhead base of the prior
year acquisitions, resulted in a GBP3.4m increase in our
administrative expenses versus the prior year. This, along with the
broader mix of revenue, has reduced our underlying EBITDA
generation in the year.
Adjusted EBITDA in the Cloud Services segment was GBP42.3m
(2019: GBP40.4m), an increase of 5%. This reported result includes
the impact from the adoption of IFRS 16, the specific mix of
business and our investment into our commercial operations
previously mentioned which are all solely applicable to the Cloud
Services segment. We do not anticipate any more significant
increases in investments into the overheads moving forward as the
reorganisation of our commercial operation is complete. These
factors mean that in percentage terms, the full year adjusted
EBITDA margin in the Cloud Services segment has decreased to 42.4%
(2019: 44.6%).
The Easyspace segment's adjusted EBITDA was GBP5.6m (2019:
GBP6.2m) reflecting the impact of slightly lower revenue this year
plus some reduction in gross margin due to specific products sold.
In percentage terms the adjusted EBITDA margin is reduced to 44.2%
(2019: 47.1%).
Group overheads remained stable at GBP4.4m (2019: GBP4.4m).
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
Excluding the impact of additional depreciation of GBP2.9m
following the adoption of IFRS 16, depreciation charges have
remained broadly consistent with prior year at GBP15.6m (2019:
GBP13.1m). There were no material project type investments made in
the year with most of the CAPEX spend being on operational items
such as servers and storage to support customer deployments and
growth.
The charge for amortisation of intangibles, excluding
amortisation of intangible assets resulting from acquisitions
("amortisation of acquired intangible assets"), of GBP2.9m (2019:
GBP2.5m) has increased as a result of an increase in the level of
software investment.
Finance costs of GBP2.2m (2019: GBP1.2m), has increased
primarily due to the adoption of IFRS 16, which reclassifies
previous operating lease rentals to a depreciation and interest
charge. The new interest charge created by this was GBP0.6m.
After deducting the charges for depreciation, amortisation
(excluding the charges for the amortisation of acquired intangible
assets) and finance costs (excluding the accelerated write off of
arrangement fees on bank facility) from the adjusted EBITDA, the
Group's adjusted profit before tax reduced by 11% to GBP22.8m
(2019: GBP25.5m), representing an adjusted profit before tax margin
of 20.2% (2019: 24.6%).
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 2020 2019
tax to profit before tax GBP'000 GBP'000
Adjusted profit before tax 22,768 25,524
Less: Amortisation of acquired intangible
assets (6,159) (6,492)
Less: Acquisition costs (438) (351)
Less: Share-based payments (1,243) (1,008)
Add/(Less): Gain/(loss) on revaluation
of contingent consideration 1,856 (1,394)
Less: Accelerated write off of arrangement
fees on bank facility - (63)
Profit before tax 16,784 16,216
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The adjusting items are: charges for the amortisation of
acquired intangible assets of GBP6.2m (2019: GBP6.5m) which is the
net impact of the acquisitions made in the year and the specific
amortisation profile of items from acquisitions made in previous
years; acquisition costs of GBP0.4m (2019: GBP0.4m) as a result of
professional fees associated with acquisitions made and share-based
payment charges of GBP1.2m (2019: GBP1.0m) an increase due to the
issue of additional share options.
In addition, the adjusting items also include a gain on the
revaluation of contingent consideration of GBP1.9m (2019: GBP1.4m
net loss). The current year gain relates to the reduction in the
earn-out payment on the LDeX acquisition. This contingent payment
relates to the EBITDA achieved during the 12 months to 31 December
2019 for which a multiple of six is applied. As a result, the
reduction represents a GBP0.3m EBITDA variance to previous
forecasts. In prior year, the final payment due on the Sonassi
acquisition was GBP1.8m higher than the previous estimate. The
structure of the Sonassi earn-out arrangement, with a high multiple
factor under a ratchet mechanism, meant that a modest change in
profitability within a certain range resulted in a substantial
change in the amount due under the earn-out terms. The brand's
performance exceeded management expectations in the final months of
the earn-out period to July 2018. Offsetting this loss in prior
year was a gain of GBP0.4m on the revaluation of the Bytemark
contingent consideration with settlement paid in full.
In the prior year comparatives there was one additional
adjustment: non-cash accelerated write off of previously
capitalised arrangements fees of GBP0.1m following the Group
entering into a new banking facility on 6 June 2018.
After deducting these items from the adjusted profit before tax;
the reported profit before tax was GBP16.8m (2019: GBP16.2m) an
increase of 4%. In percentage terms the profit before tax margin
was a slight reduction to 14.9% (2019: 15.6%) with favourable
movement on the gain/(loss) on contingent consideration offsetting
trading result reductions.
Taxation
The tax charge for the year is GBP3.1m (2019: GBP3.3m). The tax
charge for the year is made up of a corporation tax charge of
GBP3.6m (2019: GBP5.0m) with a deferred tax credit of GBP0.5m
(2019: GBP1.7m). The effective rate of tax for the year is 18.7%
(2019: 20.6%). The movement in the year is heavily influenced by
three main factors being: the swing in the tax charge in the
current year from the non-taxable gain on revaluation of contingent
consideration compared to the non-taxable deductible loss in prior
year, tax effect from share-based remuneration and adjustments in
the current year tax relating to prior period. We believe 19%,
being the UK headline corporation tax rate, is 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 from total
operations of GBP13.7m (2019: GBP12.9m) an increase of 6%.
Earnings per share
The calculation of both adjusted earnings per share and basic
earnings per share is included at note 6.
Basic earnings per share from continuing operations was 12.5p
(2019: 11.9p), an increase of 5%.
Adjusted diluted earnings per share, based on profit for the
year attributed to ordinary shareholders before amortisation
charges of acquired intangible assets, acquisition costs,
share-based payment charges, the gain/(loss) on the revaluation of
contingent consideration, accelerated write off of arrangement fees
on the bank facility, and the tax effect of these items was 16.3p
(2019: 18.6p), a reduction of 12%.
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.
Acquisitions
On 28 February 2020, iomart acquired the managed private cloud
division of privately owned ServerChoice Limited, for an initial
consideration of GBP2.0m after a deduction of GBP0.1m for working
capital, with a further maximum consideration of GBP0.9m. The
initial payment was funded from a drawdown from the Company's
revolving credit facility. The contingent consideration will be
based on achievement of certain monthly recurring revenue targets
in June 2020 and September 2020. Based on estimates of the
probabilities of various levels of revenue, we expect the amount to
be paid in respect of the final contingent consideration due will
be GBP0.8m (note 12). The business purchase agreement saw the
transfer of around 30 customers, GBP0.3m of fixed assets and a
small number of staff based in Stevenage into our core managed
cloud services business.
On 12 March 2020, iomart completed the acquisition of Memset
Limited for an initial consideration of GBP2.7m, with a further
maximum consideration of GBP1.0m. This initial payment included a
deduction of GBP0.6m to settle the adjustments required to the
locked box accounts in respect of the cash, debt and working
capital position. The initial payment was funded from a drawdown
from the Company's revolving credit facility. The contingent
consideration will be based on achievement of certain monthly
recurring revenue targets in December 2020. Based on estimates of
the probabilities of various levels of revenue, we expect the
amount to be paid in respect of the final contingent consideration
due will be GBP0.5m (note 12). Memset is a well-established
business based in Dunsfold, Surrey providing dedicated and
virtualised private cloud infrastructure to around 2,000
customers.
Dividends
Our dividend policy, which has been in place for several years
now, is based on the profitability of the business in the period.
We have committed to a pay-out policy of up to 40% of the adjusted
diluted earnings per share we deliver in a financial year.
This year we paid an interim dividend of 2.60p (2019: 2.45p)
which was paid in January 2020. We have now proposed a final
dividend payment of 3.93p per share (2019: 5.01p) which would
result in a total dividend for the year of 6.53p (2019: 7.46p)
representing a pay-out ratio of 40% of the adjusted diluted
earnings per share for the year. The Board has taken the decision
to pay a final dividend to shareholders as a result of the
recurring revenue nature of the Group, the level of operating cash
which we now deliver and the low level of indebtedness within the
Group. Should the impact of Covid-19 increase in the year ahead,
the Board will keep the level of future dividend payment under
review. However, it should be noted the Group has not, to date,
utilised any of the government furlough schemes and therefore
believes that there is no impediment in this respect to paying a
dividend to shareholders.
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 GBP41.3m (2019:
GBP39.1m before exceptional non-recurring costs) which represents a
95% conversion of adjusted EBITDA (2019: 93%). This strong level of
cash flow conversion has been a constant feature over the years,
recognising the strength of our business model and cash cycle. The
adoption of IFRS 16, which reclassifies previous operating lease
rental payments to lease repayments and interest represents a
reclassification from net cash flows from operating activities of
GBP3.0m to net cash flows from financing activities.
Payments of taxation in the year remained reasonably stable at
GBP4.7m (2019: GBP5.4m) and results in a net cash flow from
operating activities in the year of GBP36.6m (2019: GBP31.4m after
paying GBP2.3m of non-recurring software licence fees).
Cash flow from investing activities
Given our strong position, in a growing market, we continue to
invest large sums on investing activities split between both
internal investments into our global infrastructure but also in the
continuation of our disciplined acquisition strategy. The Group
invested a total of GBP21.2m (2019: GBP35.3m) during the 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 GBP14.7m (2019: GBP10.4m) on assets, net
of related lease drawdowns, trade creditor movements and non-cash
reinstatement provisions. This is broadly similar to last year
after recognising the Maidenhead freehold purchase in December 2018
for GBP5.4m (excluding GBP0.3m of fees and taxes). We remain
focused on increased automation and asset planning within the
infrastructure estate with the aim of ensuring cost and utilisation
efficiency.
Expenditure was also incurred on development costs of GBP1.4m
(2019: GBP1.4m) and on intangible assets of GBP1.1m (2019:
GBP1.1m).
In line with our strategy of accelerating our growth by
acquisition the Group spent GBP4.2m (2019: GBP12.0m), net of cash
acquired, in relation to the acquisitions of the managed private
cloud division of privately owned ServerChoice Limited and Memset
Limited, as described above. In the current year, the Group did not
incur any expenditure in respect of contingent consideration due on
previous acquisitions (2019: GBP4.7m).
Cash flow from financing activities
Drawdowns of GBP6.2m (2019: GBP25.9m) were made from the
revolving credit facility in the year to fund the purchase of the
acquisitions. Bank loan repayments of GBP2.0m (2019: GBP12.2m) were
made in the year. We received GBP0.6m (2019: GBP0.3m) from the
issue of shares as a result of the exercise of options by
employees. We also made dividend payments of GBP8.3m (2019:
GBP8.0m); paid finance costs of GBP1.7m (2019: GBP1.1m); and made
lease repayments of GBP4.7m (2019: GBP0.5m). The adoption of IFRS
16, which reclassifies previous operating lease rentals appearing
within cash flow from operations to repayment of lease liabilities
and additional finance costs paid is the reason for the increase in
these related cash outflows within financing activities.
Net cash flow
As a consequence, our overall cash generated during the year was
GBP5.4m (2019: GBP0.6m) which resulted in cash and cash equivalent
balances at the end of the year of GBP15.5m (2019: GBP10.1m).
Net Debt
The net debt position of the Group at the end of the period was
GBP57.6m (2019: GBP39.2m) as shown below, of which nearly GBP20m is
as a result of the adoption of IFRS 16. This represents a multiple
of 1.3 times our annual adjusted EBITDA which we believe is a
comfortable level of debt to carry given the recurring revenue
business model and strong cash generation in the business. The
level of net debt has increased purely as the result of the
introduction of GBP20.3m of lease liability on the adoption of IFRS
16 (note 11).
2020 2019
GBP'000 GBP'000
Bank revolver loan 52,791 48,536
Lease liabilities 20,347 777
Less: cash and cash equivalents (15,497) (10,069)
Net Debt 57,641 39,244
----------------------------------- --------- ----------
The banking facility, which provides an GBP80m revolving credit
facility, matures in September 2022.
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, even in the current challenging environment caused by the
Covid-19 virus. 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
24 June 2020
Definition of alternative profit measures:
Gross profit margin % is defined as Gross Profit / Revenue as a
% (both as disclosed in the consolidated statement of comprehensive
income)
Adjusted EBITDA margin % is defined as adjusted EBITDA (as
defined earlier) / Revenue (as disclosed in the consolidated
statement of comprehensive income) as a %
Adjusted PBT margin % is defined as adjusted PBT (as defined
earlier) / Revenue (as disclosed in the consolidated statement of
comprehensive income) as a %
Profit before tax margin % is defined as Profit before Tax /
Revenue (both as disclosed in the consolidated statement of
comprehensive income) as a %
Cash flow from operating activities before exceptional costs /
Adjusted EBITDA % is defined as cash flow from operating activities
before exceptional costs (as disclosed in the consolidated
statement of cash flows) / Adjusted EBITDA (as defined earlier) as
a %
Net debt / Adjusted EBIDTA level ratio is defined as Net Debt
(as disclosed in the Chief Financial Officer's report) / Adjusted
EBITDA (as defined earlier)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEARED 31 MARCH 2020
2020 2019
Note GBP'000 GBP'000
Revenue 112,581 103,709
Cost of sales (44,093) (36,965)
--------- ---------
Gross profit 68,488 66,744
Administrative expenses (51,387) (47,952)
Operating profit 17,101 18,792
Analysed as:
Earnings before interest, tax, depreciation,
amortisation, acquisition costs and
share-based payments 43,510 42,232
Share-based payments (1,243) (1,008)
Acquisition costs (438) (351)
Depreciation 9 (15,635) (13,091)
Amortisation - acquired intangible
assets 8 (6,159) (6,492)
Amortisation - other intangible assets 8 (2,934) (2,498)
Gain/(loss) on revaluation of contingent
consideration 1,856 (1,394)
Finance income 39 21
Finance costs (2,212) (1,203)
--------- ---------
Profit before taxation 16,784 16,216
Taxation 4 (3,135) (3,339)
--------- ---------
Profit for the year attributable
to equity holders of the parent 13,649 12,877
Other comprehensive income
Amounts which may be reclassified
to profit or loss
Currency translation differences 98 (8)
------------------------------------------------ ----- --------- ---------
Other comprehensive income for the
year 98 (8)
------------------------------------------------ ----- --------- ---------
Total comprehensive income for the
year attributable to equity holders
of the parent 13,747 12,869
Basic and diluted earnings per share
Basic earnings per share 6 12.5p 11.9p
Diluted earnings per share 6 12.2p 11.6p
------------------------------------------------ ----- --------- ---------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2020
2020 2019
Note GBP'000 GBP'000
------------------------------- ----- ---------- ---------
ASSETS
Non-current assets
Intangible assets - goodwill 8 86,479 85,382
Intangible assets - other 8 24,631 25,211
Trade and other receivables 2,760 2,520
Property, plant and equipment 9 72,344 47,045
186,214 160,158
Current assets
Cash and cash equivalents 15,497 10,069
Trade and other receivables 23,237 20,794
38,734 30,863
Total assets 224,948 191,021
LIABILITIES
Non-current liabilities
Trade and other payables (2,283) -
Non-current borrowings 10 (70,109) (48,957)
Provisions (1,956) (1,115)
Deferred tax 5 (1,146) (939)
(75,494) (51,011)
Current liabilities
Contingent consideration due
on acquisitions 12 (2,480) (3,009)
Trade and other payables (31,948) (30,933)
Current tax liabilities (3) (1,315)
Current borrowings 10 (3,029) (356)
(37,460) (35,613)
Total liabilities (112,954) (86,624)
Net assets 111,994 104,397
-------------------------------- ----- ---------- ---------
EQUITY
Share capital 1,092 1,085
Own shares (70) (70)
Capital redemption reserve 1,200 1,200
Share premium 22,147 21,518
Merger reserve 4,983 4,983
Foreign currency translation
reserve 50 (48)
Retained earnings 82,592 75,729
-------------------------------- ----- ---------- ---------
Total equity 111,994 104,397
-------------------------------- ----- ---------- ---------
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARED 31 MARCH 2020
2020 2019
Note GBP'000 GBP'000
Profit before taxation 16,784 16,216
(Gain)/loss on revaluation of
contingent consideration (1,856) 1,394
Finance costs - net 2,173 1,182
Depreciation 9 15,635 13,091
Amortisation 8 9,093 8,990
Share-based payments 1,243 1,008
Movement in trade receivables (1,107) (1,226)
Movement in trade payables (627) (1,563)
-------------------------------------------- ------ ---------------- ------------------
Cash flow from operations (before payment
of exceptional non-recurring cost) 41,338 39,092
Payment of exceptional non-recurring
cost - (2,312)
-------------------------------------------- ------ ---------------- ------------------
Cash flow from operations 41,338 36,780
Taxation paid (4,719) (5,353)
Net cash flow from operating activities 36,619 31,427
Cash flow from investing activities
Purchase of property, plant and
equipment 9 (14,688) (10,383)
Purchase of Maidenhead freehold 9 - (5,729)
Development costs 8 (1,405) (1,412)
Purchase of intangible assets 8 (1,065) (1,107)
Payments for current period acquisitions
net of cash acquired (4,156) (11,970)
Contingent consideration paid - (4,688)
Finance income received 39 21
Net cash used in investing activities (21,275) (35,268)
Cash flow from financing activities
Issue of shares 636 292
Drawdown of bank loans 6,150 25,860
Repayment of lease liabilities 11 (4,686) (471)
Repayment of bank loans (2,000) (12,200)
Finance costs paid (1,734) (1,075)
Dividends paid (8,282) (7,991)
Net cash (used in)/generated from
financing activities (9,916) 4,415
Net increase in cash and cash equivalents 5,428 574
Cash and cash equivalents at the
beginning of the year 10,069 9,495
------------------------------------------- ------ ---------------- ------------------
Cash and cash equivalents at the end of
the year 15,497 10,069
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEARED 31 MARCH 2020
Foreign
Own currency Capital Share
Share shares translation redemption premium Merger Retained
capital EBT reserve reserve account reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ---------- --------- ------------ ------------- ---------- ---------- ----------- --------
Balance at 1
April
2018 1,080 (70) (40) 1,200 21,231 4,983 70,088 98,472
Profit for the
year - - - - - - 12,877 12,877
Currency
translation
differences - - (8) - - - - (8)
---------------- ---------- --------- ------------ ------------- ---------- ---------- ----------- --------
Total
comprehensive
income - (8) - - - 12,877 12,869
---------------- ---------- --------- ------------ ------------- ---------- ---------- ----------- --------
Dividends -
final
(paid) - - - - - - (5,336) (5,336)
Dividends -
interim
(paid) - - - - - - (2,655) (2,655)
Share-based
payments - - - - - - 1,008 1,008
Deferred tax on
share-based
payments - - - - - - (253) (253)
Issue of share
capital 5 - - - 287 - - 292
----------------
Total
transactions
with owners 5 - - - 287 - (7,236) (6,944)
---------------- ---------- --------- ------------ ------------- ---------- ---------- ----------- --------
Balance at 31
March 2019 1,085 (70) (48) 1,200 21,518 4,983 75,729 104,397
---------------- ---------- --------- ------------ ------------- ---------- ---------- ----------- --------
Profit for the
year - - - - - - 13,649 13,649
Currency
translation
differences - - 98 - - - - 98
---------------- ---------- --------- ------------ ------------- ---------- ---------- ----------- --------
Total
comprehensive
income - - 98 - - - 13,649 13,747
---------------- ---------- --------- ------------ ------------- ---------- ---------- ----------- --------
Dividends -
final
(paid) - - - - - - (5,448) (5,448)
Dividends -
interim
(paid) - - - - - - (2,834) (2,834)
Share-based
payments - - - - - - 1,243 1,243
Deferred tax on
share-based
payments - - - - - - 253 253
Issue of share
capital 7 - - - 629 - - 636
----------------
Total
transactions
with owners 7 - - - 629 - (6,786) (6,150)
---------------- ---------- --------- ------------ ------------- ---------- ---------- ----------- --------
Balance at 31
March 2020 1,092 (70) 50 1,200 22,147 4,983 82,592 111,994
---------------- ---------- --------- ------------ ------------- ---------- ---------- ----------- --------
NOTES TO THE FINANCIAL INFORMATION
YEARED 31 MARCH 2020
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 2020 and 31 March 2019 within the meaning of section 434 of
the Companies Act 2006. The financial information for the year
ended 31 March 2019 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 2020 is derived
from the statutory accounts for that year which were approved by
the directors on 24 June 2020. The statutory accounts for the year
ended 31 March 2020 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 with the International Financial Reporting Standards
(IFRS) as adopted by the European Union (EU) and the Companies Act
2006 applicable to companies reporting under IFRS.
The Group's financial statements have been prepared under the
historical cost convention.
Adoption of new and revised Standards - Amendments to IFRS that
are mandatorily effective for the current year
In the current year, the Group has applied a number of
amendments to IFRSs issued by the International Accounting
Standards Board (IASB) that are mandatorily effective in the
current year.
IFRS 16 - Leases
In the current year, the Group has applied IFRS 16 that is
effective for annual periods that begin on or after 1 January 2019.
The date of initial application of IFRS 16 for the Group is 1 April
2019. IFRS 16 introduces significant changes to lessee accounting
by removing the distinction between operating and finance leases,
requiring the recognition of a right-of-use asset and a lease
liability at the commencement of all contracts that are, or contain
a lease, except for short-term leases (defined as leases with a
lease term of 12 months or less) and leases of low value (below
GBP5,000).
Approach to transition
The Group has applied IFRS 16 using the modified retrospective
adoption method, with no restatement of prior year comparatives,
and has recognised leases on balance sheet as at 1 April 2019. From
1 April 2019, the Group recognises a right-of-use asset and
corresponding lease liability on the balance sheet with respect of
all lease arrangements in which it is a lessee, except for
short-term leases and low value leases. At this date, the Group has
elected to measure the right-of-use assets to an amount equal to
the lease liability.
For contracts in place at the date of transition, the Group has
elected to apply the definition of a lease from IAS 17 and IFRIC 4
and has not applied IFRS 16 to arrangements that were previously
not identified as leases under IAS 17 and IFRIC 4.
The Group has elected not to include initial direct costs in the
measurement of the right-of-use asset for operating leases in
existence at the date of transition.
Instead of performing an impairment review on the right-of-use
assets for operating leases in existence at the date of transition,
the Group has relied on its historic assessment as to whether
leases were onerous immediately before the date of initial
application of IFRS 16.
On transition, for leases previously accounted for as operating
leases with a remaining lease term of less than 12 months and for
leases of low-value assets, the Group has applied the optional
exemptions to not recognise the right-of-use assets but to account
for the lease expense on a straight line basis over the remaining
lease term.
On transition to IFRS 16 the weighted average incremental
borrowing rate applied to lease liabilities recognised under IFRS
16 was 2.85%.
Judgements applied in the adoption of IFRS 16 include
determining the lease term for those leases with termination or
extension options and determining an incremental borrowing rate
where the rate implicit in a lease could not be readily determined.
The directors do not consider that there have been material
judgements made.
Full details of lease liabilities are set out in note 11.
The following is a reconciliation of total operating lease
commitments at 31 March 2019 to the lease liabilities recognised at
1 April 2019:
GBP'000
-------------------------------------------------------- -------
Total operating lease commitments disclosed at 31
March 2019 21,610
Discounted using the lessee's incremental borrowing
rate at the date of initial application (3,126)
Less: low value and short-term leases recognised
on a straight line basis as expense (1,516)
Add: adjustments as a result of a different treatment
of extension and termination options * 3,453
Total lease liability recognised under IFRS 16 at
1 April 2019 (note 11) 20,421
----------------------------------------------------------- -------
* On adoption of IFRS 16, lease extension options have been
extended beyond the non-cancellable period under IAS 17 and rental
payments increased on a significant property lease following a rent
review in the current period .
Leases - Accounting policy applicable from 1 April 2019
following the adoption of IFRS 16
For any new contracts entered into on or after 1 April 2019, the
Group will consider whether a contract is, or contains a lease. A
lease is defined as a contract, or part of a contract, that conveys
the right to use of an asset (the underlying asset) for a period of
time in exchange for consideration. To apply this definition the
Group assesses whether the contract meets three key evaluations
which are whether the contract contains an identified asset, which
is either explicitly identified in the contract or implicitly
specified by being identified at the time the asset is made
available to the Group; the Group has the right to obtain
substantially all of the economic benefits from use of the
identified asset throughout the period of use, considering its
rights within the defined scope of the contract; and the Group has
the right to direct the use of the identified asset throughout the
period of use.
Measurement and recognition of leases as a lessee
At the lease commencement date, the Group recognises a
right-of-use asset and a lease liability on the balance sheet. The
right-of-use asset is measured at cost, which is made up of the
initial measurement of the lease liability measured at the present
value of future lease payments, any initial direct costs incurred
by the Group, an estimate of any costs to dismantle and remove the
asset at the end of the lease, and any lease payments made in
advance of the lease commencement date (net of any incentives
received).
The Group depreciates the right-of-use assets on a straight-line
basis from the lease commencement date to the earlier of the end of
the useful life of the right-of-use asset or the end of the lease
term. The Group assesses the right-of-use asset for impairment
under IAS 36 'Impairment of Assets' where such indicators
exist.
The lease liability is initially measured at the present value
of lease payments that are not paid at the commencement date,
discounted using the rate implicit in the lease. If this rate
cannot readily be determined, the Group applies an incremental
borrowing rate. The lease liability is subsequently measured by
increasing the carrying amount to reflect interest on the lease
liability and by reducing the liability by payments made. The Group
re-measures the lease liability (and adjusts the related
right--of--use asset) whenever the lease term has changed or a
lease contract is modified and the modification is not accounted
for as a separate lease.
Lease payments included in the measurement of the lease
liability can be made up of fixed payments, variable payments based
on an index or rate, amounts expected to be payable under a
residual guarantee and payments arising from options reasonably
certain to be exercised. Subsequent to initial measurement, the
liability will be reduced for payments made and increased for
interest. It is re-measured to reflect any reassessment or
modification, or if there are changes in fixed payments. When the
lease liability is re-measured, the corresponding adjustment is
reflected in the right-of-use asset, or profit and loss if the
right-of-use asset is already reduced to zero.
The Group has elected to account for short-term leases and
leases of low-value assets using the practical expedients. Instead
of recognising a right-of-use asset and lease liability, the
payments in relation to these are recognised as an expense in
profit or loss on a straight line basis over the lease term.
Under IFRS 16, the Group recognises depreciation of the
right-of-use asset and interest on lease liabilities in the
consolidated statement of comprehensive income over the period of
the lease. On the balance sheet, right-of-use assets have been
included in property, plant and equipment and software and lease
liabilities have been included in borrowings due within one year
and after more than one year.
Under IFRS 16, the Group also separates the total amount of cash
paid into a principal portion (presented within financing
activities) and interest (presented within financing activities) in
the consolidated statement of cash flows. In the prior year,
operating rental costs were presented within operating
activities.
In accordance with IAS 17 Leases, the economic ownership of a
leased asset is deemed to have been transferred to the Group (the
lessee) if the Group bears substantially all the risks and rewards
related to the ownership of the leased asset. The related asset is
recognised at the time of inception of the lease at the fair value
of the leased asset or, if lower, the present value of the minimum
lease payments plus incidental payments, if any, to be borne by the
lessee. A corresponding amount is recognised as a lease liability.
The interest element of leasing payments represents a constant
proportion of the capital balance outstanding and is charged to
profit or loss (finance costs) over the period of the lease.
All other leases are regarded as operating leases and the
payments made under them are charged to profit or loss on a
straight line basis over the lease term. Lease incentives are
spread over the term of the lease.
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 which 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), SystemsUp, Cristie Data, Sonassi, LDeX, Bytemark
plus Memset which was acquired in the year.
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 and 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
2020 2019
GBP'000 GBP'000
---------------- -------- --------
Easyspace 12,792 13,113
Cloud Services 99,789 90,596
-------- --------
112,581 103,709
----------------- -------- --------
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
2020 2019
GBP'000 GBP'000
------------------------- -------- --------
United Kingdom 95,333 86,246
Rest of the
World 17,248 17,463
-------- --------
Revenue from operations 112,581 103,709
-------------------------- -------- --------
Profit by Operating Segment
2020 2019
Depreciation, Depreciation,
amortisation, amortisation,
acquisition acquisition
costs and costs and
Adjusted share-based Operating Adjusted share-based Operating
EBITDA payments profit/(loss) EBITDA payments profit/(loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- --------- --------------- --------------- --------- --------------- ---------------
Easyspace 5,649 (1,459) 4,190 6,182 (1,595) 4,587
Cloud Services 42,307 (23,269) 19,038 40,447 (20,486) 19,961
Group overheads (4,446) - (4,446) (4,397) - (4,397)
Acquisition
costs - (438) (438) - (351) (351)
Share-based
payments - (1,243) (1,243) - (1,008) (1,008)
----------------- --------- --------------- --------------- --------- --------------- ---------------
43,510 (26,409) 17,101 42,232 (23,440) 18,792
Gain/(loss)
on revaluation
of contingent
consideration 1,856 (1,394)
Group interest
and tax (5,308) (4,521)
--------- --------------- --------------- --------- --------------- ---------------
Profit for the
year 13,649 12,877
----------------- --------- --------------- --------------- --------- --------------- ---------------
Group overheads, acquisition costs, share-based payments,
interest and tax are not allocated to segments.
4. TAXATION
2020 2019
GBP'000 GBP'000
------------------------------------------ -------- --------
Corporation Tax:
Tax charge for the year (3,976) (4,920)
Adjustment relating to prior years 357 (119)
------------------------------------------- -------- --------
Total current taxation charge (3,619) (5,039)
Deferred Tax:
Origination and reversal of temporary
differences 367 1,661
Adjustment relating to prior years 266 24
Effect of different statutory tax rates
of overseas jurisdictions (13) (8)
Effect of changes in tax rates (136) 23
------------------------------------------- -------- --------
Total deferred taxation credit 484 1,700
Total taxation charge (3,135) (3,339)
------------------------------------------- -------- --------
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:
2020 2019
GBP'000 GBP'000
------------------------------------------------- --------- ---------
Profit before tax 16,784 16,216
-------------------------------------------------- --------- ---------
Tax charge @ 19% (2019: 19%) 3,189 3,081
Expenses disallowed for tax purposes 20 76
Tax effect of net (loss)/gain on revaluation
of contingent consideration (353) 265
Adjustments in current tax relating to prior
years (357) 119
Tax effect of different statutory tax rates
of overseas jurisdictions 6 22
Movement in deferred tax relating to changes
in tax rates 136 (23)
Tax effect of share-based remuneration 651 (192)
Movement in unprovided deferred tax related
to development costs 40 11
Movement in unprovided deferred tax related to
property, plant and equipment 69 4
Movement in deferred tax relating to prior
years (266) (24)
Total taxation charge for the year 3,135 3,339
-------------------------------------------------- --------- ---------
The weighted average applicable tax rate for the year ended 31
March 2020 was 19% (2019: 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 18.7% (2019: 20.6%). The net decrease of
1.9% of the effective tax rate for the year is largely due to the
following:
-- the decrease in the tax effect as a result of a net gain on
revaluation of contingent consideration in the year (2019: net
loss) and the movement relating to adjustments in current tax
relating to prior years;
-- the increase in the tax effect of share-based remuneration as
a result of the decrease in the year end share price from 2019 to
2020; and
-- the impact of the increase in the deferred tax rate from 17% to 19%.
A UK corporation tax rate of 19% has been applied based on the
rate substantively enacted at the balance sheet date. Deferred tax
assets and liabilities at 31 March 2020 have been calculated based
on the rate of 19% enacted at the balance sheet date.
5. DEFERRED TAX
The Group recognised deferred tax assets and liabilities as
follows:
2020 2019
GBP'000 GBP'000
------------------------------------------------- -------- --------
Share-based remuneration 1,069 1,378
Capital allowances temporary
differences 1,364 1,632
Deferred tax on development
costs - (422)
Deferred tax on acquired assets with no capital
allowances (88) (157)
Deferred tax on customer relationships (3,298) (3,173)
Deferred tax on intangible
software (193) (197)
---------------------------------------------------- -------- --------
Deferred tax liability (1,146) (939)
---------------------------------------------------- -------- --------
At the year end, the Group had no unused tax losses (2019:
GBPnil) available for offset against future profits.
The movement in the deferred tax account during the year
was:
Deferred
Capital tax on
allowances acquired
Share-based temporary Development assets Customer Intangible
remuneration differences costs with no relationships software Total
GBP'000 GBP'000 GBP'000 capital GBP'000 GBP'000 GBP'000
allowances
GBP'000
------------------- ------------- ------------- ------------- ----------- -------------- ------------ ---------
Balance at 1 April (1,319
2018 1,588 1,455 (329) (235) (3,581) (217) )
Acquired on
acquisition
of subsidiaries - (226) - - (841) - (1,067)
Credited to equity (253) - - - - - (253)
Credited/(charged)
to statement of
comprehensive
income 43 394 (108) 87 1,249 20 1,685
Effect of different
tax rates of
overseas
jurisdictions - - - - (8) - (8)
Effect of changes
in tax rates - 9 15 (9) 8 - 23
Balance at 31 (939
March 2019 1,378 1,632 (422) (157) (3,173) (197) )
Acquired on
acquisition
of subsidiaries - (82) - - (875) - (957)
Charged to equity 253 - - - - - 253
Credited/(charged)
to statement of
comprehensive
income (724) (373) 472 87 1,131 27 620
Effect of different
tax rates of
overseas
jurisdictions - 7 - - 6 - 13
Effect of changes
in tax rates 162 180 (50) (18) (387) (23) (136)
Balance at 31 (1,146
March 2020 1,069 1,364 - (88) (3,298) (193) )
------------------- ------------- ------------- ------------- ----------- -------------- ------------ ---------
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 arises from development
expenditure on which tax relief is 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.
6. 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.
Total operations
2020 2019
GBP'000 GBP'000
------------------------------------------------ ---------- ----------
Profit for the financial year and basic
earnings attributed to ordinary shareholders 13,649 12,877
------------------------------------------------ ---------- ----------
Weighted average number of ordinary No No
shares: 000 000
Called up, allotted and fully paid at
start of year 108,510 107,990
Own shares held by Employee Benefit
Trust (141) (141)
Issued share capital in the year 436 396
------------------------------------------------
Weighted average number of ordinary
shares - basic 108,805 108,245
Dilutive impact of share options 2,861 2,909
Weighted average number of ordinary
shares -diluted 111,666 111,154
------------------------------------------------ ---------- ----------
Basic earnings per share 12.5 11.9
p p
Diluted earnings per share 12.2 11.6
p p
------------------------------------------------- ---------- ----------
2020 2019
Adjusted earnings per share GBP'000 GBP'000
------------------------------------------------ --------- ---------
Profit for the financial year and basic
earnings attributed to ordinary shareholders 13,649 12,877
- Amortisation of acquired intangible
assets 6,159 6,492
- Acquisition costs 438 351
- Share-based payments 1,243 1,008
- Net (gain)/loss on revaluation of
contingent consideration (1,856) 1,394
- Accelerated write off of arrangement
fees on bank facility - 63
- Tax impact of adjusted items (1,406) (1,462)
------------------------------------------------- --------- ---------
Adjusted profit for the financial
year and adjusted earnings attributed
to ordinary shareholders 18,227 20,723
------------------------------------------------ --------- ---------
Adjusted basic earnings per share 16.8 19.1
p p
Adjusted diluted earnings per share 16.3 18.6
p p
------------------------------------------------- --------- ---------
7. ACQUISITIONS
On 12 March 2020, the Company acquired the entire share capital
of Memset Limited, and on 28 February 2020, iomart Hosting Limited,
a 100% owned subsidiary of the Company, acquired the net assets of
the managed private cloud business formerly operated by
ServerChoice Limited. Total cash paid on acquisitions, net of cash
acquired, in the year ended 31 March 2020 was GBP4.2m.
Memset Limited
The Group acquired 100% of the issued share capital of Memset
Limited ("Memset") on 12 March 2020.
Memset provides a range of cloud VPS and dedicated servers to
around 2,000 customers from its data centre in Dunsfold, Surrey and
a third party data centre in Reading.
The acquisition is in line with the Group's strategy to grow its
operations, both organically and by acquisition, and provides the
Group with additional data centre space.
During the current year, the Group incurred GBP172,000 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 for the year
ended 31 March 2020.
The following table summarises the consideration to acquire
Memset, and the amounts of identified assets acquired and
liabilities assumed at the acquisition date, which are
provisional.
Book Fair value Final
value adjustments fair
GBP'000 GBP'000 value
GBP'000
------------------------------------------- --------- ------------- ---------
Recognised amounts of net assets acquired
and liabilities assumed:
Cash and cash equivalents 547 - 547
Trade and other receivables 740 - 740
Property, plant and equipment 2,894 - 2,894
Intangible assets 56 2,308 2,364
Trade and other payables (1,427) - (1,427)
Current borrowings (1,088) - (1,088)
Borrowings due after more than 1 year (628) - (628)
Deferred tax liability (82) (438) (520)
------------------------------------------- --------- ------------- ---------
Identifiable net assets 1,012 1,870 2,882
Goodwill 331
------------------------------------------- --------- ------------- ---------
Total consideration 3,213
------------------------------------------- --------- ------------- ---------
Satisfied by:
Cash - paid on acquisition 2,713
Contingent consideration - payable 500
Total consideration transferred 3,213
------------------------------------------- --------- ------------- ---------
The acquisition of Memset was completed using a "locked box"
mechanism, on a no cash, no debt, and normalised working capital
basis. An initial payment of GBP2,713,000 was made at completion.
This initial payment included a deduction of GBP587,000 to settle
the adjustments required to the locked box accounts in respect of
the cash, debt and working capital position at the locked box
date.
The share purchase agreement included a provision requiring the
Company to pay the former shareholders of Memset an additional
amount contingent on the level of a particular portion of the
monthly recurring revenue ("MRR") in December 2020 ("the Deferred
Payment").
The potential undiscounted amount of the Deferred Payment that
the Company could be required to pay is between GBPnil and
GBP1,000,000. The amount of contingent consideration payable, which
was recognised as of the acquisition date, was GBP500,000. The
level of the relevant MRR was estimated by considering different
scenarios based on the current level of the MRR, historic
performance, known and agreed changes to the current level, and
forecasts. In addition to the minimum and maximum, those scenarios
reviewed had a range of outcomes for the amount of the Deferred
Payment of GBP320,000 to GBP700,000. A weighted average, based on
management estimates of the probability of the achievement of the
various levels of MRR, was then calculated to give the expected
outcome of the amount of the Deferred Payment of GBP500,000.
The goodwill arising on the acquisition of Memset is
attributable to the premium payable for a pre-existing,
well-positioned business and the specialised, industry specific
knowledge of the management and staff, together with the benefits
to the Group in merging the business with its existing
infrastructure and the anticipated future operating synergies from
the combination. The goodwill is not expected to be deductible for
tax purposes.
The name "Memset" is not actively advertised or promoted. The
standard Memset contracts restrict the ability of Memset to sell,
distribute or lease any personal information it holds on customers
unless the customer's permission is given. 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.
The fair value of the financial assets acquired includes trade
receivables with a fair value of GBP740,000. The gross amount due
under contracts is GBP740,000 all of which is expected to be
collectable.
The fair value included in respect of the acquired customer
relationships intangible asset is GBP2,308,000.
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 11.9% was used for the valuation.
Customer relationships are being amortised over an estimated useful
life of 8 years.
Memset earned revenue of GBP282,000 and generated profits,
before allocation of group overheads, share-based payments and tax,
of GBP25,000 in the period since acquisition.
Net assets of the managed private cloud business formerly
operated by ServerChoice Limited
On 28 February 2020, the Group acquired the net assets of the
managed private cloud business formerly operated by ServerChoice
Limited ("the ServerChoice assets"). The acquisition of the net
assets and the transfer of employees engaged in the business,
together satisfy the criteria for the definition of a business
under IFRS 3 and the acquisition has therefore been treated as a
business combination.
The acquisition is in line with the Group's strategy to grow its
operations both organically and by acquisition and provides an
additional high quality customer base.
During the current year, the Group incurred GBP35,000 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 for the year
ended 31 March 2020.
The following table summarises the consideration to acquire the
business, and the amounts of identified assets acquired and
liabilities assumed at the acquisition date, which are
provisional.
Book Fair value Final
value adjustments fair
GBP'000 GBP'000 value
GBP'000
------------------------------------------- --------- ------------- ---------
Recognised amounts of net assets acquired
and liabilities assumed:
Property, plant and equipment 297 - 297
Intangible assets - 2,302 2,302
Trade and other payables (111) - (111)
Deferred tax liability - (437) (437)
------------------------------------------- --------- ------------- ---------
Identifiable net assets 186 1,865 2,051
Goodwill 766
------------------------------------------- --------- ------------- ---------
Total consideration 2,817
------------------------------------------- --------- ------------- ---------
Satisfied by:
Cash - paid on acquisition 1,990
Contingent consideration - payable 827
Total consideration transferred 2,817
------------------------------------------- --------- ------------- ---------
The business purchase agreement ("BPA") included provisions
requiring the Group to pay to ServerChoice Limited two additional
contingent amounts. These are based on the level of the total
monthly recurring revenue ("MRR") invoiced to specific customers in
June 2020 and September 2020, together the "Deferred Payments".
The potential undiscounted amounts of the Deferred Payments are
between GBPnil and GBP887,000. The amount of contingent
consideration payable, which was recognised as of the acquisition
date, was GBP827,000. The levels of the relevant MRR, expected to
be invoiced in June 2020 and September 2020, were estimated by
considering different scenarios based on the current level of the
MRR, historic performance, known and agreed changes to the current
level, and forecasts.
In addition to the minimum of GBPnil and the maximum of
GBP887,000, those scenarios reviewed for the Deferred Consideration
had a range of outcomes for the Deferred Payment of GBP425,000 to
GBP830,000. A weighted average, based on management estimates of
the probability of the achievement of the various levels of MRR,
was then calculated to give the expected outcome of the amount of
the Deferred Payment of GBP827,000.
The goodwill arising on the acquisition of the former
ServerChoice managed private cloud business is attributable
principally to the benefits to the Group in merging the business
with its existing infrastructure and the anticipated future
operating synergies from the combination. The goodwill is not
expected to be deductible for tax purposes.
Apart from the goodwill, the only intangible asset acquired is
the customer relationships, which have been fair valued at
GBP2,302,000.
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 13.0% was used for the valuation.
Customer relationships are being amortised over an estimated useful
life of 8 years.
The acquired managed private cloud business earned revenue of
GBP139,000 and generated profits, before allocation of group
overheads, share-based payments and tax, of GBP67,000 in the period
since acquisition.
Pro-forma full year information
The following summary presents the Group as if the businesses
acquired during the year had been acquired on 1 April 2019. The
amounts include the results of the acquired business, depreciation
and amortisation of the acquired property, plant and equipment plus
a post-tax amount of GBP691,000 in respect of the amortisation of
intangible assets recognised on acquisition. The amounts do not
include any possible synergies from the acquisition. The
information is provided for illustrative purposes only and does not
necessarily reflect the actual results that would have occurred,
nor is it necessarily indicative of the future results of combined
companies.
Pro-forma year
ended 31 March
2020
------------------------------- -----------------
GBP'000
------------------------------- ----------------
Revenue 119,497
Profit after tax for the year 13,779
-------------------------------- ----------------
8. INTANGIBLE ASSETS
Acquired Domain
Goodwill Development Customer Beneficial names
costs relationships Software contracts & IP addresses Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
Cost
At 1 April 2018 75,837 7,781 47,999 6,943 86 280 138,926
Additions - - - 1,082 - - 1,082
Currency
translation
differences - - (13) - - - (13)
Acquired on
acquisition
of
subsidiaries 9,545 - 4,780 14 - - 14,339
Development
cost
capitalised - 1,412 - - - - 1,412
At 31 March
2019 85,382 9,193 52,766 8,039 86 280 155,746
Additions - - - 2,490 - - 2,490
Currency
translation
differences - - 38 (33) - - 5
Acquired on
acquisition
of
subsidiaries 1,097 - 4,610 - - 56 5,763
Disposals - - - (173) - - (173)
Development
cost
capitalised - 1,405 - - - - 1,405
At 31 March
2020 86,479 10,598 57,414 10,323 86 336 165,236
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
Accumulated
amortisation:
At 1 April 2018 - (5,424) (27,303) (3,115) (41) (280) (36,163)
Charge for the
year - (1,442) (6,492) (1,049) (7) - (8,990)
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
At 31 March
2019 - (6,866) (33,795) (4,164) (48) (280) (45,153)
Charge for the
year - (1,507) (6,159) (1,420) (7) - (9,093)
Currency
translation
differences - - - (53) - - (53)
Disposals - - - 173 - - 173
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
At 31 March
2020 - (8,373) (39,954) (5,464) (55) (280) (54,126)
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
Carrying
amount:
At 31 March
2020 86,479 2,225 17,460 4,859 31 56 111,110
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
At 31 March
2019 85,382 2,327 18,971 3,875 38 - 110,593
---------------- ----------- -------------- --------------- ---------- ------------- ---------------- ---------
Of the total additions in the year of GBP2,490,000 (2019:
GBP1,082,000), GBP1,425,000 was included within lease liabilities
within borrowings (2019: GBPnil). There were no amounts included in
trade payables at the year end (2019: GBPnil). Consequently, the
consolidated statement of cash flows discloses a figure of
GBP1,065,000 (2019: GBP1,107,000) as the cash outflow in respect of
intangible asset additions 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.
As disclosed in note 11, on 1 April 2019, the Group adopted IFRS
16. At 31 March 2020, a total of GBP1.4m is recognised within
additions to software for appropriate lease transactions in the
current year with a corresponding amortisation charge of
GBP0.2m.
Included within customer relationships are the following
significant items: customer relationships in relation to the
acquisitions of Memset Limited of GBP2.3m with a useful life of 8
years, the managed private cloud business of ServerChoice Limited
of GBP2.3m with a useful life of 8 years, Bytemark Limited with a
net book value of GBP0.9m and LDeX Group Limited of GBP2.7m both
with a remaining useful life of 7 years. Sonassi Limited with a net
book value of GBP3.6m and a remaining useful life of 6 years,
Dediserve Limited with a net book value of GBP1.4m and a remaining
useful of 6 years, Simple Servers Limited with a net book value of
GBP0.7m and a remaining useful life of 6 years, Backup Technology
with a net book value of GBP0.8m and a remaining useful life of 2
years and United Hosting with a net book value of GBP1.4m and a
remaining useful life of 4 years.
During the year, goodwill was reviewed for impairment in
accordance with IAS 36 "Impairment of Assets". No impairment
charges (2019: GBPnil) arose as a result of this review. For this
review goodwill was allocated to individual Cash Generating Units
(CGU) on the basis of the Group's operations. The goodwill acquired
in the year on all acquisitions has been allocated to the Cloud
Services CGU as this is the CGU expected to benefit from the
business combination.
The carrying value of goodwill by each CGU is as follows:
Cash Generating 2020 2019
Units (CGU) GBP'000 GBP'000
Easyspace 23,315 23,315
Cloud Services 63,164 62,067
86,479 85,382
----------------- --------- ---------
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 three 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. As outlined
previously, management remain confident in sustaining such levels
of growth despite the current situation surrounding Covid-19. The
impact of the pandemic has been considered in great detail when
finalising these projections and they are perceived to be a
reliable basis upon which to base our impairment testing.
The growth rates and margins used to extrapolate estimated
future performance in the two years after the initial approved
three year period 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. These segments 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
------------------------------------- ---------- ---------------
Discount rate 13.1% 12.5%
Future perpetuity rate 0.0% 2.0%
Initial period for which cash flows
are estimated (years) 5 5
--------------------------------------- ---------- ---------------
Based on an analysis of the impairment calculation's
sensitivities to changes in key parameters (growth rate, discount
rate and pre-tax cash flow projections) there was no reasonably
possible scenario where the CGU's recoverable amount would fall
below its carrying amount.
9. PROPERTY, PLANT AND EQUIPMENT
Leasehold
Freehold property Data centre Computer Office Motor
property and improve-ments equipment equipment equipment vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ---------- ------------------- ------------ ----------- ----------- ---------- ---------
Cost:
At 1 April 2018 2,062 8,540 22,680 70,043 2,398 31 105,754
Additions in
the year 5,729 33 775 9,256 38 - 15,831
Acquisition
of subsidiaries 1,131 - - 2,376 567 - 4,074
Disposals in
the year - (630) - (67) (83) - (780)
Currency
translation
differences (12) - 2 3 - - (7)
At 31 March
2019 8,910 7,943 23,457 81,611 2,920 31 124,872
Additions in
the year - 21,287 1,482 14,847 57 11 37,684
Acquisition
of subsidiaries - 457 1,192 1,540 - 2 3,191
Disposals in
the year - (16) (18) (622) (206) (21) (883)
Currency
translation
differences - - - 216 - - 216
At 31 March
2020 8,910 29,671 26,113 97,592 2,771 23 165,080
-------------------- ---------- ------------------- ------------ ----------- ----------- ---------- ---------
Accumulated
depreciation:
At 1 April 2018 (306) (3,138) (11,755) (48,123) (1,725) (21) (65,068)
Charge for the
year (112) (570) (1,880) (10,317) (209) (3) (13,091)
Disposals in
the year - 198 - 67 83 - 348
Currency
translation
differences - - - 1 (17) - (16)
At 31 March
2019 (418) (3,510) (13,635) (58,372) (1,868) (24) (77,827)
Charge for the
year (279) (3,610) (1,853) (9,625) (262) (6) (15,635)
Disposals in
the year - 16 18 622 206 21 883
Currency
translation
differences - - - (157) - - (157)
-------------------- ---------- ------------------- ------------ ----------- ----------- ---------- ---------
At 31 March
2020 (697) (7,104) (15,470) (67,532) (1,924) (9) (92,736)
-------------------- ---------- ------------------- ------------ ----------- ----------- ---------- ---------
Carrying amount:
At 31 March
2020 8,213 22,567 10,643 30,060 847 14 72,344
At 31 March
2019 8,492 4,433 9,822 23,239 1,052 7 47,045
-------------------- ---------- ------------------- ------------ ----------- ----------- ---------- ---------
Of the total additions in the year of GBP37,684,000,
GBP20,421,000 relates to right-of-use assets brought on the balance
at 1 April 2019 on transition to IFRS 16 (note 11). In addition,
during the year there were additions of GBP824,000 in respect of
reinstatement provisions and a further GBP119,000 in respect of
leases (note 11). Of the total remaining additions in the year of
GBP16,320,000 (2019: GBP15,831,000), GBP3,185,000 (2019:
GBP1,553,000) was included in trade payables as unpaid invoices at
the year end resulting in a net increase of GBP1,632,000 (2019: net
decrease of GBP293,000) in trade payables. Consequently, the
consolidated statement of cash flows discloses a figure of
GBP14,688,000 (2019: GBP16,112,000) as the cash outflow in respect
of property, plant and equipment additions in the year.
As disclosed in note 11, on 1 April 2019, the Group adopted IFRS
16 and recognised a right-of-use asset of GBP20.4m. At 31 March
2020, a total of GBP20.2m is recognised within additions to
leasehold property and improvements in relation to the initial
recognition along with subsequent additions in relation to IFRS 16,
with a corresponding depreciation charge of GBP2.7m. In addition, a
further GBP1.2m is recognised within additions to data centre
equipment with a corresponding depreciation charge of GBP0.5m.
10. BORROWINGS
2020 2019
GBP'000 GBP'000
------------------------------- -------- --------
Current:
Lease liabilities (note 11) (3,029) (356)
Current borrowings (3,029) (356)
Non-current:
Lease liabilities (note 11) (17,318) (421)
Bank loans (52,791) (48,536)
Total non-current borrowings (70,109) (48,957)
Total borrowings (73,138) (49,313)
---------------------------------- -------- --------
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 GBP48.5m (2019: GBP35.2m)
outstanding on the multi option revolving credit facility and
drawdowns of GBP6.2m (2019: GBP25.9m) were made from the facility
during the year. Repayments totalling GBP2.0m (2019: GBP12.2m) were
made resulting in a balance outstanding at the end of the year of
GBP52.8m (2019: GBP48.5m).
The multi option revolving credit facility of GBP80m is able to
be used by the Group to finance acquisitions, capital expenditure,
general business purposes (up to a maximum of GBP8m each year) and
for the issue of guarantees, bonds or indemnities. As at 31 March
2020, the facility is available until September 2022 at which point
any advances made under the multi option revolving credit facility
become immediately repayable. Each drawdown 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. Interest is charged on this
loan at an annual rate determined by the sum of the multi option
revolving credit facility margin, LIBOR and the lender's mandatory
costs. The multi option revolving credit facility margin is fixed
at 1.5% (2019: 1.5%) per annum and a non-utilisation fee of 40%
(2019: 40%) of the multi option revolving credit facility margin is
due on any undrawn portion of the full GBP80m multi option
revolving credit facility. The effective interest rate for multi
option revolving credit facility in the current year was 2.17%
(2019: 2.44%).
Given the terms of the revolving credit facility and the ability
for any drawdowns made to be extended beyond 31 March 2021 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:
2020 2019
Capital Interest Total Capital Interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------- -------- -------- -------- -------- --------
Due within one year - (465) (465) - - -
Due within two to five years (52,791) - (52,791) (48,536) (192) (48,728)
------------------------------ -------- -------- -------- -------- -------- --------
(52,791) (465) (53,256) (48,536) (192) (48,728)
------------------------------ -------- -------- -------- -------- -------- --------
The directors estimate that the fair value of the Group's
borrowing is not significantly different to the carrying value. The
capital element of the bank loans is GBP52,791,000 (2019:
GBP48,536,000), in the prior year this figure differs from the net
amount drawn down of GBP48,641,000 due to an effective interest
rate adjustment.
Cash and
Analysis of change in net cash equivalents Bank Total liabilities Total net
cash/(debt) GBP'000 loans Lease liabilities GBP'000 cash/(debt)
GBP'000 GBP'000 GBP'000
--------------------------------- ------------------ --------- ----------------- ------------------- ------------
At 1 April 2018 9,495 (35,239) (830) (36,069) (26,574)
Repayment of bank loans - 12,200 - 12,200 12,200
New bank loans - (25,860) (25,860) (25,860)
Impact of effective interest
rate - 363 - 363 363
Acquired on acquisition
of subsidiary 841 - (430) (430) 411
Currency translation
differences - - 12 12 12
Cash and cash equivalent
cash outflow (267) - - - (267)
Lease liabilities cash outflow - - 471 471 471
--------------------------------- ------------------ --------- ----------------- ------------------- ------------
At 31 March 2019 10,069 (48,536) (777) (49,313) (39,244)
Lease liabilities on transition
to IFRS 16 - (20,421) (20,421) (20,421)
Additions to lease liabilities - - (1,544) (1,544) (1,544)
Repayment of bank loans - 2,000 - 2,000 2,000
New bank loans - (6,150) - (6,150) (6,150)
Impact of effective interest
rate - (105) - (105) (105)
Acquired on acquisition
of subsidiaries - - (1,705) (1,705) (1,705)
Cash and cash equivalent
cash inflow 5,428 - - - 5,428
Lease liabilities cash outflow - - 4,100 4,100 4,100
-------------------
At 31 March 2020 15,497 (52,791) (20,347) (73,138) (57,641)
--------------------------------- ------------------ --------- ----------------- ------------------- ------------
11. LEASES
The Group leases assets including buildings, fibre contracts,
colocation and software contracts. Information about leases for
which the Group is a lessee is presented below:
Right-of-use assets Leasehold Data centre
Property equipment Software Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- --------- ----------- ---------- --------
Balance at 31 March 2019* - 509 - 509
Adjustment on transition to IFRS
16 19,748 673 - 20,421
Balance at 1 April 2019 after
adoption of IFRS 16 19,748 1,182 - 20,930
Additions 47 72 1,425 1,544
Acquired on acquisition of subsidiary 457 - - 457
Depreciation (2,758) (466) - (3,224)
Amortisation - - (190) (190)
Balance at 31 March 2020 17,494 788 1,235 19,517
------------------------------------------ --------- ----------- ---------- --------
*net book value of leased assets under IAS 17 as at 31 March
2019
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 at 31 March 2020
(note 9). The right-of-use assets in relation to software are
disclosed as non-current assets and are disclosed within
intangibles at 31 March 2020 (note 8).
Lease liabilities
Lease liabilities are presented in the balance sheet within
borrowings as follows:
2020 2019*
GBP'000 GBP'000
-------------------------- -------- --------
Current:
Lease liabilities (3,029) (356)
Non-current:
Lease liabilities (17,318) (421)
Total lease liabilities (20,347) (777)
----------------------------- -------- --------
*lease liabilities under IAS 17
The maturity analysis of undiscounted lease liabilities are shown
in the table below: 2020 2019*
GBP'000 GBP'000
-------------------------------- -------- --------
Amounts payable under leases:
Within one year (3,536) (356)
Between two to five years (9,823) (421)
After more than five years (9,709) -
(23,068) (777)
Add: unearned interest 2,721 -
----------------------------------- -------- --------
Total lease liabilities (20,347) (777)
----------------------------------- -------- --------
*lease liabilities under IAS 17
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 ended
31 March 2020, in relation to leases under IFRS 16, the Group
recognised the following amounts in the consolidated statement of
comprehensive income:
Year ended
31 March
2020
GBP'000
--------------------------------- ----------
Short-term and low value lease
expense (1,662)
Depreciation charge (3,224)
Amortisation charge (190)
Interest expense (649)
(5,725)
---------------------------------- ----------
Amounts recognised in the consolidated statement of cash
flows:
Year ended
31 March
2020
GBP'000
--------------------------------------------------- ----------
Short-term and low value lease
expense (1,662)
Repayment of lease liabilities within cash flows
from financing activities (4,686)
(6,348)
---------------------------------------------------- ----------
Included in repayment of lease liabilities within cash flows
from financing activities is a repayment of GBP1.0m in relation to
the settlement of lease liabilities on the acquisition of Memset
Limited.
12. CONTINGENT CONSIDERATION
2020 2019
GBP'000 GBP'000
----------------------------------------------- --- -------- --------
Contingent consideration due on acquisitions
within one year:
* LDeX Group Limited (1,153) (3,009)
* Memset Limited (500) -
* ServerChoice Limited (827) -
Total contingent consideration due on
acquisitions (2,480) (3,009)
------------------------------------------------ -------- --------
The final consideration due on LDeX Group Limited, agreed with
the previous shareholder and paid subsequent to the year end, is
GBP1,153,000. This has resulted in gain on revaluation of
contingent consideration of GBP1,856,000 recorded in the
consolidated statement of comprehensive income.
Contingent consideration for Memset Limited and ServerChoice
Limited are based on the directors' best estimate of payments due
at 31 March 2020. Details of the range of possible outcomes are
disclosed in note 7.
13. POST BALANCE SHEET EVENT
On 23 June 2020, the lease of our London data centre was
extended by a further 5 years to June 2035. As part of this
extension, GBP2.3m of total lease deposits will be returned to the
Group post year end.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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