14 June 2022

iomart Group plc

("iomart" or the "Group" or the "Company")

Final Results

 

Successful delivery of first year of strategic plan provides strengthened basis for future growth

 

iomart (AIM: IOM), the cloud computing company, is pleased to report its consolidated final results for the year ended 31 March 2022 (FY22).

 

FINANCIAL HIGHLIGHTS

 

	2022	2021	Change
Revenue	£103.0m	£111.9m	-8%
% of recurring revenue1	93%	90%	+3pp
Adjusted EBITDA2	£38.0m	£41.4m	-8%
Adjusted profit before tax3	£17.1m	£19.6m	-13%
Profit before tax	£12.2m	£12.5m	-2%
Adjusted diluted EPS4	12.0p	14.4p	-17%
Basic EPS	8.6p	9.3p	-8%
Cash generation from operations	£37.9m	£43.7m	-13%
Proposed final dividend per share	3.6p	4.5p	-20%

 

·      The Group continues to benefit from a robust business model delivering very strong levels of recurring revenues, amounting to 93%¹ of Group revenues

·      The reduction in Group revenue reflects lower non-recurring equipment and consultancy sales, along with lower customer renewal levels at the start of the year, which have since returned to normal levels

·      Margins remain stable with adjusted EBITDA² margin and adjusted profit before tax³ margin at 36.9% (2021: 37%) and 16.6% (2021: 17.5%), respectively.  Absolute profit reductions simply follow the revenue profile in the year

·      Strong cash generation from operations in the period of £37.9m with a consistent cash conversion⁶ of 100% (2021: 106%)

·      Year-end net debt⁵ reduced to £41.3m, comfortable at 1.1 times adjusted EBITDA

·      Successful refinancing with an increased £100m revolving bank facility from a new group of four leading banks, underpinning the Group's five-year growth strategy

 

OPERATIONAL HIGHLIGHTS

 

·      Launch of new brand and successful restructuring of the organisation to create a "one iomart" team

·      Established a new product team and launched new solutions targeting new and existing customers in areas of Digital Workplace, Secure Connectivity and Managed Microsoft Azure

·      New security alliance with cyber security specialists, e2e-assure, to deliver proactive 24/7 security operations centre services

·      Enhancements made to core operational and service-based systems and tools, with a primary focus on improved levels of customer service excellence

·      Strengthened commercial leadership with appointment of a new Chief Commercial Officer

·      M&A - positive progress in evaluating targeted opportunities to further extend the Group's technology, product capabilities and routes to market, while enhancing revenue, profitability and EPS

·      Continued delivery against our ESG programme

 

OUTLOOK

 

·      The first two months of the new financial year has seen performance in line with the Board's expectations, consistent with our high recurring revenue business model

·      Inflation in energy prices is being proactively managed via price increases to our customers while we are using hedging options to provide some certainty for customers and our own planning

·      The launch of the enhanced set of product offerings, coupled with a clearly defined brand and targeted go to market capability provide for a positive environment to deliver future growth

 

 

STATUTORY EQUIVALENTS

 

A full reconciliation between adjusted and statutory profit before tax is contained within this statement. The largest item is the consistent add back of the non-cash amortisation of acquired intangible assets. The largest variance, year on year, is a £1.5m lower amortisation of acquired intangible assets as the amortisation periods expire on certain historic acquisitions.

 

Reece Donovan, CEO commented,

 

"We have made good progress on all aspects of our strategic growth plan and start the second year of this plan in an improved position. With an expanded offering and strengthened team, as well as an established reputation within the UK's cloud computing market place, we have a strong platform from which to return to a growth phase of the business.

 

"We are mindful that the wider business environment continues to be challenging.  As iomart has shown in the past, during periods of uncertainty, we have a robust business model and strong financial position to manage such short-term pressures. This is especially the case as the market for cloud computing solutions continues to offer long term growth and our strategic actions taken, together with our M&A plans, puts us in a stronger position to benefit from this over the coming year and beyond."

 

¹ Recurring revenue is the revenue that repeats either under long-term contractual arrangement or on a rolling basis by predictable customer habit. % of recurring revenue is defined as recurring revenue (as disclosed in note 3) / revenue (as disclosed in the consolidated statement of comprehensive income)

² Throughout these financial statements adjusted EBITDA (as disclosed in the consolidated statement of comprehensive income) is earnings before interest, tax, depreciation and amortisation (EBITDA) before share-based payment charges, acquisition costs and gain on the revaluation of contingent consideration. Throughout these financial statements acquisition costs are defined as acquisition related costs and non-recurring acquisition integration costs.

³Throughout these financial statements adjusted profit before tax (as 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 fee on bank facility and gain on revaluation of contingent consideration.

⁴ Throughout these financial statements adjusted diluted earnings per share is earnings before amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs, accelerated write off of arrangement fee on bank facility, gain on revaluation of contingent consideration and the tax effect of adjusted items/weighted average number of ordinary shares - diluted (as disclosed in note 6). 

⁵ Net debt being outstanding bank loans, lease liabilities less cash and cash equivalents (as disclosed on page 13)

⁶ Cash conversion is calculated as cash generation from operations (as disclosed in the consolidated statement of cashflows) divided by adjusted EBITDA.

 

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
Reece Donovan, Chief Executive Officer
Scott Cunningham, Chief Financial Officer
Peel Hunt LLP (Nominated Adviser and Joint Broker)	Tel: 020 7418 8900
Edward Knight, Paul Gillam, James Smith
Investec Bank PLC (Joint Broker)	Tel: 020 7597 4000
Patrick Robb, Virginia Bull, Sebastian Lawrence
Alma PR	Tel: 020 3405 0205
Caroline Forde, Hilary Buchanan, Joe Pederzolli

 

About iomart Group plc

 

iomart Group plc (AIM: IOM) is a cloud computing and IT managed services business providing hybrid cloud infrastructure, network connectivity, security, and digital workplace capability. Our mission is simple: to make our customers unstoppable by enabling them to connect, secure and scale anywhere, anytime. From our portfolio of data centres we own and operate across the UK to connected sites around the world, our 400-strong team can design and deploy the right cloud solution for our customers.

 

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 a robust trading performance while executing on the first phase of its strategic growth plan.  Whilst experiencing some revenue reductions, mainly in the first half of the year, we continue to deliver high levels of profitability and cash generation with many of our key financial metrics remaining stable throughout the year.

 

The start of the year saw the Board embark on a refreshed growth strategy to achieve an ambitious vision. The central pillars of this plan include the concept of 'one iomart' and the expansion of our offering to cover a wider portfolio of  services to include hybrid cloud offerings. We are upscaling the business, we remain acquisitive and we remain ambitious. The full team are now very much focused on execution and it is pleasing to see good progress on the key milestones for the first year of the plan.

 

I would like to thank the iomart team for their hard work and commitment during the year. One of the strengths of the Group is the quality of its fantastic workforce. Investing in the workforce and their further development and support is one of the central tenets of our strategy.

 

I believe strongly that a culture of strong corporate governance is essential to our future growth. To enhance the balance and experience of the Board, we were delighted to announce in July the appointment of Andrew Taylor as a Non-Executive Director of the Company.  Andrew adds additional sector skills to support our growth plans. We have also made good progress in strengthening iomart's environmental, social and governance ("ESG") credentials, recently completing a carbon neutral roadmap which will support our efforts to reduce further our overall emissions as we work towards achieving carbon neutrality. This roadmap and other ESG activities are detailed later in this report.

 

During the year we paid an interim dividend of 2.42p per share which was paid to shareholders in January 2022.  In addition, the Board is now proposing to pay a final dividend of 3.60p per share taking the total for the year to 6.02p being at the maximum pay-out ratio under our stated dividend policy of paying up to 50% of adjusted diluted earnings per share. We believe this is appropriate given our funding position, robust business model, the low level of indebtedness within the Group and the fact we have not utilised any of the government furlough schemes during the Covid-19 pandemic.  Subject to shareholder approval this proposed final dividend would be payable on 2 September 2022 to shareholders on the register at close on 12 August 2022.

 

I was appointed to the Board of iomart in 2016 and took over as Chairman in August 2018.  It has been both a privilege and a pleasure to serve as iomart's Chairman. With iomart now well progressed on a clear path to growth, I have decided not to stand for re-election at the forthcoming Annual General Meeting and will leave the Board at that time.  I thank you for your support during my years on the Board.  The search for my successor is progressing and the Board aim is to announce that appointment by the time of the AGM. I look forward to hearing of the continued success of the Group in future years.

 

 

Ian Steele

Non-Executive Chairman

14 June 2022

 

 

 

CHIEF EXECUTIVE OFFICER'S REPORT

 

Introduction

 

I am encouraged by the progress we have made during the year and pleased to be reporting financial results in line with current market expectations, delivering revenue of £103.0m (2021: £111.9m), adjusted EBITDA⁽¹⁾ of £38.0m (2021: £41.4m) adjusted profit before tax⁽²⁾ of £17.1m (2021: £19.6m) and profit before tax of £12.2m (2021: £12.5m).  We continue to benefit from the highly recurring nature of our business model, with 93% of revenue in the year recurring and remain strongly cash-generative.

 

The 8% year on year reduction in revenue reflects lower non-recurring revenue and consultancy sales, along with the impact of lower customer renewals we experienced in the first half of the year which have subsequently returned to normal levels. Our profitability metrics have remained stable with adjusted EBITDA margins at 36.9% (2021: 37.0%) and adjusted profit before tax at 16.6% (2021: 17.5%) of group revenue meaning the absolute reductions simply follow the revenue profile in the year.  The net debt position of the Group at the end of the year was £41.3m (2021: £54.6m) being a reduction of £13.3m following strong cash generation in the year, including a 100% EBITDA to operating cash flow conversion ratio.

 

Our team has been very focused on the execution of our strategic plan achieving all the key objectives outlined at the start of the year. We have launched a number of new solutions, entered into an exciting alliance to accelerate our managed cyber security offering, reshaped the commercial team, and invested in our customer service tools, resources and people.

 

The successful refinancing of our revolving bank facility in December 2021 with four new banks underpins our five-year plan and M&A ambitions, and this ongoing support from top tier global financial institutions is a clear endorsement of our strategy.

 

After more than six years of first class commitment and service, the latter four years as Chairman, Ian Steele has decided not to stand for re-election at our forthcoming Annual General Meeting.  Both personally and on behalf of everyone connected with the Group, I want to thank him for his valuable contribution to the development of iomart over the years.

 

With an expanded offering and strengthened team, as well as an established reputation within the UK's cloud computing market place, we have a strong position from which to return to a growth phase of the business.

 

Strategy

 

At the start of the year we announced our vision to position iomart for the next phase of its growth as a recognised leading secure hybrid cloud business. We were bold by stating our aspiration to become a £200m revenue business within five years.  Underpinning this was a roadmap with a focus on three main activities:

 

·      New services and geographies - focused on four new service areas - hybrid cloud, security, the future digital workplace and connectivity;

·      Complementary acquisitions - to expand the customer base and to acquire new skillsets; and

·      Protect and expand the existing base of run rate revenue and EBITDA which is underpinned by our existing core private cloud infrastructure and services.

 

We have made good progress on all aspects of our strategic growth plan and start the second year of this plan in an improved position as noted in each of the areas detailed below.

 

Team and brand

 

We started the year with a focus on brand development, new product launches and restructuring the organisation to create a "one iomart" team.  Our new strapline "welcome to straightforward" encapsulates our mission to deliver a customer-focused service which makes the complicated world of secure hybrid cloud simple for our customers, gives them peace of mind, and allows them to focus on what's important to them.

 

Around "one iomart" we have included updates to our benefits package, formalised flexible working options and delivered a number of wellbeing, leadership, technical and management training programmes across the business and established a People Forum.

New services and partnerships

 

We have established a new product team and have redefined and launched a number of new solution initiatives. These are targeted at both new customers and upselling and cross-selling to our existing customers.  They include specific campaigns around the growth areas of Digital Workplace, Secure Connectivity and Managed Microsoft Azure.  Pipelines are being developed from each of these campaigns and we are confident our refined approach will give a greater success rate.  Further product releases will be made over the coming year.

 

During the year we were delighted to secure our first six figure annual recurring revenue customer for Managed Microsoft Azure following our successful sales campaign. The customer's IT workload will be deployed on Azure infrastructure on a managed basis over the next 4 years. A well-qualified pipeline of additional sales opportunities is building.  We are now working closely with Microsoft and anticipate this relationship will continue to strengthen.

 

In March 2022 we announced a new security partnership with cyber security specialists, e2e-assure, to deliver proactive 24/7 security operations centre services. The move into the security market has been a long-standing ambition of iomart and is a key part of the growth strategy. This partnership enables us to enter the market in an appropriate manner.

 

These new initiatives complement and enhance our well established Private Cloud infrastructure, 24/7 service capability and deep expertise which remains at the heart of our Hybrid offering.

 

Commercial

 

We have strengthened our commercial leadership with the appointment of our new Chief Commercial Officer, in February 2022, who brings a fresh perspective and experience to drive our organic growth. We continue to believe that our existing large customer base represents a fertile sales ground for the Group and the widening of our solutions offering increases our relevance to a wider pool of new customers.

 

M&A

 

We plan to use selective M&A to augment our organic growth. As well as acquiring new customer bases operating in recurring revenue business models we also plan to strengthen our technology, solution offerings  and route to market capabilities. We remain active in evaluating potential targets but the timing of M&A closure is hard to predict, and we will at all times maintain a structured and disciplined approach. 

 

Market

 

The Covid-19 pandemic has created a challenging business environment but we have again proven during the last year a robustness to our business model and our team's adaptability.  Covid-19 has seen the acceleration in the adoption of digital transformation and remote working, both of which are likely to enhance long-term drivers to the cloud but short-term we have seen a lack of larger-scale IT projects.  It appears clear that the UK economy will experience some negative factors in the short-term, from intensifying inflationary pressures, supply chain challenges combined with geo-political uncertainties. While iomart will not be completely immune to this economic backdrop, the requirement for organisations to be supported with their hybrid cloud challenges will continue to grow for the foreseeable future.

 

The concept of "Cloud" computing is now globally recognised. The "public cloud" giants such as Amazon, Microsoft and Google have vastly contributed to this general awareness and consequently, as is well documented, have seen high growth globally as many organisations look for Cloud infrastructure and capabilities. The reality of the situation is that a vast majority of the world's IT infrastructure is complex and untidy in nature which means hybrid cloud models will remain a key market feature for many use cases. Even if businesses want to use Public Cloud infrastructure fully, many lack the detailed know-how, skills and resources required to manage all the elements. iomart is well positioned to meet this demand given our long established capability in designing and running private clouds and supporting on-premise solutions along with our plans to continue to complement this with skills and capabilities for public cloud provisioning and management.

 

With the insatiable growth in data requirements from across all industries, the demand for the three core building blocks of compute power, storage and connectivity continues to expand. Organisations are increasingly outsourcing these requirements to experts, who can help them navigate a constantly evolving and complex technical landscape, providing high levels of reliability, customer support, flexibility and technical knowledge. These requirements increasingly come with greater security and compliance needs.

No two organisations are the same, and therefore the cloud solution mix in the future will be unique and reflect the needs of an organisation at that time, especially for those organisations that are running established applications that are not public cloud compatible. Many customers are looking for a single point of accountability for all their cloud needs and iomart is well positioned to provide this service going forward, particularly for medium to large enterprises.

 

Commitment to ESG and sustainability

 

iomart believes that integrating environmental, social and governance ("ESG") considerations across our business enables us to accelerate our customers' success whilst looking after the environment and society. During the year, we partnered with Schneider Electric to establish carbon reduction targets and identify ways to reduce further our overall emissions as we work towards achieving carbon neutrality. This concluded with an alignment with the UK Government targets and a commitment to achieve Net Zero by 2050, and earlier, if possible.

 

We also made progress in other areas of ESG, which will enable us to better protect stakeholder interests and strengthen our business resilience.

 

Environmental

·      Purchased Renewable Energy Guarantees of Origin ("REGO") certified renewable electricity across our UK data centre estate which reduces significantly our carbon emissions

·      Improved our data centres efficiency by replacing older equipment with modern technology

·      Installed Katrick Technologies' heat removal system' at our Glasgow data centre, with initial results showing a potential for up to 50% reduction in electrical power consumption

 

Social

·      Revamped our brand values, with "People First" at the core

·      Enhanced our employee benefits package

·      Partnered with local charities that align with our brand focus and employees' interests, such as SmartSTEMs and Scotland's Empowering Women to Lead Digital Transformation leadership program

·      Hosted Volunteer Days to serve the Glasgow and Manchester communities to deliver food and prep meals

·      Roll-out of Leadership Programme across the Group

·      Implemented a "People Forum" of cross group staff representatives, a first for the Group

 

Governance

·      Added a fourth Non-Executive Director to the Board to support our growth strategy

·      Engaged an external third party to lead an outsourced internal audit function

 

Operational Review

 

While all of our activities involve the provision of services from common infrastructure, we are organised into two operating segments, Cloud Services (£91.2m revenue) and Easyspace (£11.8m revenue).

 

Cloud Services

 

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 being: iomart cloud managed services, self-managed infrastructure and non-recurring revenue.  This means we are able to supply products and services across the full cloud spectrum and to do so using shared resources and common platforms across the Group. 

 

·      iomart cloud managed services: £55.7m revenue (2021: £57.9m): provides fully managed, complex bespoke designs, resulting in resilient solutions involving various infrastructures. This has a wide range of offering across the full cloud spectrum from simpler colocation data centre services to a full 24/7 managed service complemented by all of our offering around back-up and disaster recovery. Over the long-term we anticipate this will be the highest growth area for iomart, supported by the market drivers described above. This is the part of the business on which new product service launches are focused because we believe "IT as a service" is what organisations are looking for to support their business objectives and that we are well placed to offer.

 

·      Self-managed infrastructure: £28.4m revenue (2021: £30.3m): provides dedicated, physical, self-service servers to customers. We deliver many thousands of physical servers for our customers using highly automated systems and processes which we continue to develop and improve.  Over the last three years we have seen reduction in revenues within this area especially from a long tail of smaller customers many of whom were within legacy brands. We will continue to allocate resources to ensure we provide this customer base with resilient, cost effective and increasingly automated solutions. 

 

·      Non-recurring revenue: £7.1m (2021: £11.7m): relates primarily to on premise equipment and software reselling via our Cristie Data brand, plus consultancy projects.  By their nature this activity is lower margin but we believe it to be relevant to our ability to offer support to our existing customer base and new customer wins.  It is often these non-recurring activities that provide an interesting initial introduction to the wider iomart Group and evolve customers into a higher level of recurring services.

During the year ended 31 March 2022, Cloud Services revenues decreased by £8.7m (9%) to £91.2m (2021: £99.9m).

 

A fall in non-recurring activities accounted for a £4.6m drop in non-recurring revenue from lower equipment reselling which, coupled with a large scale consultancy project coming to an end which had contributed £1.3m of revenue in the prior year, had a disproportionate impact. However, we are pleased to report that we have commenced the new financial year with an increased order book and a sales team back at full strength.

 

Recurring revenue⁽³⁾ reduced by £4.2m in the financial year, split equally between our core cloud managed services areas and self-managed infrastructure revenues, largely as a result of lower levels of renewals than usual at the start of the year as a result of, corporate ownership changes, lack of breadth in public cloud solutions and customer service. Renewals rates have subsequently returned to normal levels and we are confident the investments we have made into our customer support processes and the broadening of our solutions offering in the year will continue to bring positive results in this regard.

 

Cloud Services EBITDA (before share based payments, acquisition costs and central group overheads) was £36.6m being 40.2% of cloud services revenue (2021: £40.5m (40.5% of cloud services revenue)). The underlying profitability has been reasonably stable in the year with the reduction in absolute EBITDA reflecting the revenue trend in the year.

 

Easyspace

 

The global domain name and mass market hosting sector continues to grow, supported by the increasing importance of an internet presence and ecommerce for all areas of the economy, including the small and micro business community represented within our Easyspace division. This sector is increasingly dominated by a smaller number of large global operators and we recognised a long time ago that the marketing spends required to compete for new business in this specific area was not the best use of iomart's resources. The Easyspace segment has performed well during the year, delivering revenues and EBITDA (before share based payments, acquisition costs and central group overheads) of £11.8m (2021: £11.9m) and £5.7m (2021: £5.3m), respectively.

 

Infrastructure investment and energy pricing

 

Our UK owned infrastructure is an important part of the delivery of our recurring revenue services, an important differentiator in the market and allows more of the value add to be retained by iomart. We have a well maintained data centre estate as this is core to ensuring a resilient service.

 

In the year we concluded investments in a number of projects that overlapped the prior year end, including the replacement of the cooling system in our second largest data centre in London, and investment into next generation core routing technology which provides 100GB capacity on our network, with the ability to scale to 400GB. In the year the only other larger project initiated was the upgrade to our uninterruptible power systems ("UPS") in our core sites, which will be steadily rolled out over the next two years as part of our standard infrastructure spend, plus the electrical system upgrade in our London site.  Given some of the lower revenue trends experienced we have also seen a lower level of spend in servers and storage systems linked to customer projects.  In combination these factors have resulted in an overall equipment CAPEX spend at a lower level: £9.5m versus £15.2m in prior year.

 

We are proactively managing the inflation in energy prices. Although the current volatility of the energy markets may cause us to have to absorb some of the price fluctuations through the year, the core of our existing customer agreements, to varying degrees allow us to increase pricing, and some of this has already been invoked. In addition, any new business, contract renewals or shorter-term arrangements will be price adjusted at the appropriate time. We have various options to put in place hedging type arrangements within our electricity procurement to provide some certainty for our customers and our own planning.

 

Current trading and outlook

 

The first two months of the new financial year has seen financial results in line with internal expectations, consistent with our high recurring revenue business model which gives good visibility. 

 

The focus for the coming year is the continued development of our sales pipeline, timely conversion of the opportunities created by new solution launches and the cyber security partnership, improvements made in our customer services, and our refreshed commercial leadership team.

 

We are mindful that the wider business environment continues to be challenging.  As iomart has shown in the past, during periods of uncertainty, we have a robust business model and strong financial position to manage such short-term pressures. This is especially the case as the market for cloud computing solutions continue to offer long-term growth and our strategic actions taken, together with our M&A plans, puts us in a stronger position to benefit from this over the coming year and beyond.

 

 

 

 

 

Reece Donovan

Chief Executive Officer

14 June 2022

 

Definition of alternative performance measures:

¹ Throughout these financial statements adjusted EBITDA (disclosed in the consolidated statement of comprehensive income) is earnings before interest, tax, depreciation and amortisation (EBITDA) before share-based payment charges, acquisition costs and gain 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 on page 11) is profit before tax, amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs, accelerated write off of arrangement fee on bank facility and gain on revaluation of contingent consideration

³ Recurring revenue is the revenue the repeats either under long-term contractual arrangement or on a rolling basis by predictable customer habit. % of recurring revenue is defined as Recurring Revenue (as disclosed in note 3) / Revenue (as disclosed in the consolidated statement of comprehensive income)

 

 

 

 

 

CHIEF FINANCIAL OFFICER'S REPORT

Financial Review

Key Performance Indicators

			2022	2021
Revenue			£103.0m	£111.9m
% of recurring revenue1			93%	90%
Gross profit %2			59.5%	60.5%
Adjusted EBITDA3			£38.0m	£41.4m
Adjusted EBITDA margin %4			36.9%	37.0%
Adjusted profit before tax5			£17.1m	£19.6m
Adjusted profit before tax margin %6			16.6%	17.5%
Profit before tax			£12.2m	£12.5m
Profit before tax margin %7			11.8%	11.1%
Basic earnings per share			8.6p	9.3p
Adjusted earnings per share (diluted) 8			12.0p	14.4p
Cash flow from operations / Adjusted EBITDA %9			100%	106%
Net debt / Adjusted EBITDA leverage ratio10			1.1	1.3

See page 14 for definition of alternative performance measures

Revenue

Overall revenue from our operations reduced by 8% to £103.0m (2021: £111.9m).  We saw a greater share of recurring revenue at 93% (2021: 90%) compared to prior years as non-recurring activity levels reduced by a disproportionate level. We remain focussed on retaining our recurring revenue business model with the combination of multi-year contracts and payments in advance providing us with good revenue visibility. 

Cloud Services

The following is the disaggregation of Cloud Services revenues of £91.2m (2021: £99.9m):

 

Disaggregation of Cloud Services revenue			2022 £'000	2021 £'000
Cloud managed services			55,745	57,961
Self-managed infrastructure			28,363	30,311
Non-recurring revenue			7,128	11,672
			91,236	99,944

 

Cloud managed services (recurring revenue)

The main driver for the £2.2m (4%) lower revenue experienced in the year was a lower level of customer renewals, primarily in the first half. We saw an improvement in the renewals in the second half of the year but by then the cumulative revenue impact had heavily influenced the full year result. This does however ensure a more normalised renewal level as we start our new financial year and a more solid revenue base as we await the layering on from forecasted higher order bookings from pipeline opportunities generated by additional product launch already underway and the refreshed commercial team.

Self-managed infrastructure (recurring revenue)

In the year the self-managed infrastructure revenue reduction was £1.9m (6%), largely attributable to a reduction in number of our long tail of smaller customers. While still a reduction in organic revenue, the pace has slowed from the previous two years which is somewhat encouraging especially given this area of the business typically has above average profitability.

Non-recurring revenue

Of the lower revenue contribution in this year £1.8m comes from lower consultancy income, including the impact of one large consultancy project which  came to an end in December 2020 and was not repeated. In addition, £2.7m can be attributed to lower one-off hardware and software reselling. This area of our activity continued to see slower decision making on larger hardware refresh projects than normal, longer lead times for equipment components, and also to some degree we were impacted by reduced sales heads in the Cristie Data sales force at the start of the year which only returned to full strength in the second half.  Some of these factors are timing related and we start the new financial year with a non-recurring order book £0.7m higher than last year. 

Easyspace

 

Our Easyspace segment has performed well over the year with revenues reducing by only £0.1m to £11.8m (2021: £11.9m).  The domain name and web hosting business is an area in which we do not invest heavily but it was pleasing to see a solid performance with high level of renewals from our base of 65,000 customers.  The activity remains highly profitable and cash generative.

Business model

Our business model in both segments generally involves the provision of cloud and managed hosting services from our data centres, delivering the computing power, storage, and network capability our customers require for the operation of their own businesses. We have invested in an estate of data centres, an extensive fibre network and for each customer the servers, routers, firewalls and other assets that are necessary to create the IT infrastructure they require. These resources, along with the associated staff, are shared across most of our revenue streams. Customers pay us for the provision of that infrastructure, with the potential to add 3^rd party technology and various degrees of a managed services wrapper. 

Larger customers tend to have multi-year contracts for complex cloud solutions, which are invoiced and paid on a monthly basis. Many of our smaller customers pay in advance for the provision of services which results in a substantial sum of deferred revenue, which is then recognised over the period of the service provision. A significant proportion of our revenue is therefore recurring and the combination of multi-year contracts and payment in advance provides us with strong revenue visibility.

Gross Profit

Gross profit in the year, which is calculated by deducting from revenue variable cost of sales such as power, software licences, connectivity charges, domain costs, public cloud costs, sales commission, the relatively fixed costs of operating our data centres plus, for non-recurring revenue, the cost of hardware and software sold, reduced by £6.3m to £61.3m (2021: £67.6m). In percentage terms, gross margin² was broadly stable at 59.5% (2021: 60.5%), however, the movement in the year is a combination of a reduction in on-premise hardware and software solution sales which are typically lower gross margin given the inclusion of the reselling element of their solutions, offset by initial lower contribution levels on some of the new business won compared to margins from some of the self-managed infrastructure only deal of earlier years.

We have not seen any significant individual price change in any of the components of the purchased cost base in the last 12 months, although as more complex solutions are designed for customers we generally see more bought in recurring costs being introduced to our cost of sales including consumption of public cloud resources.

Adjusted EBITDA³

The Group's adjusted EBITDA reduced by 8% to £38.0m (2021: £41.4m) which in adjusted EBITDA margin⁴ terms translates to 36.9% (2021: 37.0%). The administration expense (before depreciation, amortisation, share based payment charges and acquisition cost) of £23.3m is £2.9m lower than the previous year comparative.  An element of this reflects the secured synergy savings achieved from the two bolt on acquisitions in February and March 2020 and some relates to the specific timings of staff adjustments in our team as, like the wider sector, we saw a period of higher staff attrition and recruitment activity in the first half of the year.

The Cloud Services segment saw a 9% reduction in adjusted EBITDA to £36.6m (2021: £40.5m). In percentage terms the Cloud Services margin decreased slightly to 40.2% (2021: 40.5%).  The Easyspace segment's adjusted EBITDA was £5.7m (2021: £5.3m) reflecting the stable revenue performance in the year with the increase in profitability reflecting the specific bundle of packages sold to hosting customers.  In percentage terms the adjusted EBITDA margin increased to 48.2% (2021: 44.8%).

Group overheads remained stable at £4.3m (2021: £4.4m). 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 tax⁵

The depreciation charge of £16.3m (2021: £16.9m) has reduced by £0.6m in the year but as a percentage of recurring revenue is 17.0% which is broadly consistent with prior year of 16.8%. 

The charge for amortisation of intangibles, excluding amortisation of intangible assets resulting from acquisitions ("amortisation of acquired intangible assets"), of £2.6m (2021: £2.9m) has dropped slightly year on year.

Finance costs (including accelerated write off of arrangements fee on bank facility) of £2.1m (2021: £2.0m), has been stable.  This includes 4 months from the new revolving loan facility which has a slightly higher bank margin but overall small savings was achieved because of the lower overall debt levels.  Our revolving credit facility has a borrowing cost at the Group's current leverage levels of 180 basis points over SONIA.

After deducting the charges for depreciation, amortisation (excluding the charges for the amortisation of acquired intangible assets) and finance costs from the adjusted EBITDA, the Group's adjusted profit before tax reduced to £17.1m (2021: £19.6m), representing an adjusted profit before tax margin⁶ of 16.6% (2021: 17.5%).

Profit before tax

The measure of adjusted profit before tax is an alternative profit measure which is commonly used to analyse the performance of companies particularly where M&A activity forms a significant part of their activities.

A reconciliation of adjusted profit before tax to reported profit before tax is shown below:

Reconciliation of adjusted profit before tax to profit before tax			2022 £'000	2021 £'000
Adjusted profit before tax5			17,109	19,628
Less: Amortisation of acquired intangible assets			(4,044)	(5,457)
Less: Acquisition costs			(315)	(493)
Less: Share-based payments			(480)	(1,247)
Less: Accelerated write off of arrangement fee on bank facility			(102)	-
Add: Gain on revaluation of contingent consideration			-	33
Profit before tax			12,168	12,464

 

The adjusting items are: charges for the amortisation of acquired intangible assets of £4.0m (2021 £5.5m) with the reduction being from expiry of the amortisation charge on earlier acquisitions; acquisition costs of £0.3m (2021: £0.5m) and share-based payment charges of £0.5m (2021: £1.2m) with the reduction due to options lapsed in the period and the lower closing share price.

In addition, in the current year the successful refinancing required £0.1m of previously deferred arrangement fees to be written off early.  During the year to 31 March 2021 there was a very small gain on contingent consideration for previous acquisitions.

After deducting these items from the adjusted profit before tax, the reported profit before tax was fairly stable at £12.2m (2021: £12.5m).  In percentage terms the profit before tax margin⁷ was an increase to 11.8% (2021: 11.1%) fully driven by the continued reduction in the amortisation of acquired intangible assets and lower share based payment charge, offsetting fully the impact of the lower trading result in the year.

Taxation

The tax charge for the year is £2.8m (2021:  £2.3m). The tax charge for the year is made up of a corporation tax charge of £1.1m (2021: £3.5m) with a deferred tax charge of £1.7m (2021: £1.2m credit). The effective rate of tax for the year is 22.8% (2021: 18.1%).  The future increase to a 25% UK corporation tax rate has been reflected, for this first time, on the deferred tax balances.  In prior year the change in tax rate was not substantively enacted meaning the deferred tax balances were calculated with a 19% rate. The increase in the effective tax rate in the year to above the current UK headline corporation tax rate is a function of the greater impact from the tax accounting on share based payments offset partially by the positive effect of the higher "super deduction" available for capital investments. Given iomart is very much a UK business then the UK headline corporate tax is still considered a reasonable recurring effective tax rate for underlying profits. Further explanation of the tax charge for the year is given in note 4. 

Profit for the year

After deducting the tax charge for the year from the profit before tax the Group has recorded a profit for the year from total operations of £9.4m (2021: £10.2m).

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 8.6p (2021: 9.3p), a reduction of 7.5%.

Adjusted diluted earnings per share⁸, based on profit for the year attributed to ordinary shareholders before amortisation charges of acquired intangible assets, acquisition costs, share-based payment charges, accelerated write off of arrangement fee on bank facility, the gain on the revaluation of contingent consideration, and the tax effect of these items was 12.0p (2021: 14.4p), a reduction of 16.7%.

The measure of adjusted diluted earnings per share as described above is a non-statutory measure which is commonly used to analyse the performance of companies particularly where M&A activity forms a significant part of their activities.

Dividends

Our dividend policy, which has been in place for several years now, is based on the profitability of the business in the period measured with reference to the adjusted diluted earnings per share we deliver in a financial year. For the last few years we have been paying dividends at the maximum level allowed by our stated policy. The current policy is a maximum pay-out policy of 50% of adjusted diluted earnings per share.  The Directors are proposing a final dividend of 3.60p (2021:4.50p) which is at maximum level set by the dividend policy which we believe is fully appropriate given the recurring revenue nature of the Group, the level of operating cash which we deliver, the low level of indebtedness within the Group and the fact we have not utilised any of the government furlough schemes. As a result, along with the interim dividend of 2.42p (2021: 2.60p), which was paid in January 2022, the total dividend for the year is 6.02p (2021: 7.10p), a reduction reflecting the movement in the adjusted diluted earnings per share.

Cash flow and net debt

Net cash flows from operating activities

The Group continued to generate high levels of operating cash over the year. Cash flow from operations was £37.9m (2021: £43.7m) which represents a 100% conversion⁹ of adjusted EBITDA (2021: 106%). The higher headline conversion ratio in prior year was augmented by a £2.3m cash deposit returned by our landlord as part of the negotiation of the extension of the London data centre lease. Normalising for this item takes the EBITDA conversion to cash ratio to 100% in the prior year.

 

Cash payments for corporation taxation in the year fell to £2.5m (2021: £3.6m), resulting in net cash flow from operating activities in the year of £35.4m (2021: £40.1m).

 

Cash flow from investing activities

Our strategy is to continue to reinvest some of our strong operating cash flow we generate back into the business both in the form of internal investments into our UK infrastructure but also in the continuation of our disciplined acquisition strategy. The Group invested a total of £10.2m (2021: £19.2m) during the year. This was a relatively low level as there was no M&A type payments and generally our CAPEX was lower reflecting some of the activity levels.

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 £9.5m (2021: £15.2m) on assets, net of related lease drawdowns, trade creditor movements and non-cash reinstatement provisions.  Most of the expenditure in the year was on operational items such as servers and storage to support customer deployments.  Project type capital expenditure on the infrastructure was at a similar level to last year at around £4.0m. This included the final payments associated with the investment in the London data centre chiller replacement and the initial works on the electrical systems at the same site.

Expenditure was also incurred on development costs of £1.4m (2021: £1.3m) and on intangible assets of £0.1m (2021: £0.6m).  We sold our Leeds office during the year which created £0.7m of sales proceeds (2021: £nil).

We made no acquisitions in the last year and had no M&A related payment. In prior year we incurred £2.4m of expenditure in respect of contingent consideration due on previous year acquisitions. As we have outlined in our strategy we do expect M&A activity will continue to support and accelerate our organic growth ambitions over the coming five years. 

 

 

 

Cash flow from financing activities

In the prior year loan drawdowns of £1.2m were made from the revolving credit facility to fund the payment of contingent consideration due on acquisitions. In the current year there was no such loan drawdowns other than the initial drawdown on our new bank facility to repay the Bank of Scotland revolving loan which was refinanced (see below).

Bank loan repayments of £18.8m (2021: £1.2m) were made in the year reducing significantly the closing drawn bank loan to £34.0m (2021: £52.8m). Cash received in the year from issue of shares was only £4k (2021: £0.4m). We also made dividend payments of £7.6m (2021: £7.1m); paid finance costs of £2.1m (2021: £1.1m) which included £1.0m of arrangement and professional fees associated with the new bank facility and made lease repayments of £4.4.m (2021: £5.4m).

 

Net cash flow

As a consequence of the above component elements and especially our high bank loan repayment in the year, our overall cash position was an outflow of £7.7m (2021: £7.5m inflow) which resulted in cash and cash equivalent balances at the end of the year of £15.3m (2021: £23.0m).

Net Debt

The net debt position of the Group at the end of the year was £41.3m (2021: £54.6m) as shown below. The net debt position represents a multiple of 1.1 times¹⁰ our adjusted EBITDA (2021: 1.3 times) which we believe is a comfortable level of debt to carry given the recurring revenue business model and strong cash generation in the business.

			2022 £'000	2021 £'000
Bank revolver loan			34,000	52,791
Lease liabilities			22,623	24,867
Less: cash and cash equivalents			(15,332)	(23,038)
Net Debt			41,291	54,620

 

On 2 December 2021, we successfully refinanced and increased the Group's existing single bank Revolving Credit Facility of £80m that was due to mature on 30 September 2022. The new £100m Revolving Credit Facility ("RCF") was provided by a new four bank group consisting of HSBC, Royal Bank of Scotland, Bank of Ireland and Clydesdale Bank.

The new facility has an initial maturity date of 30 June 2025, with a 12-month extension option and benefits from a £50m Accordion Facility. The RCF has a borrowing cost at the Group's current leverage levels of 180 basis points over SONIA, compared to 150 basis points over LIBOR on the prior facility. An arrangement fee was paid upfront in addition to a commitment fee on the undrawn portion of the new RCF on equivalent terms to the previous facility.  The RCF and the Accordion Facility (if exercised) provide the Group with additional liquidity which will be used for general business purposes and to fund investments, in accordance with the Group's five-year strategic plan.

The decrease in the lease liability to £22.6m (2021: £24.9m) reflected expected payments on property arrangements and that there were no material revisions to existing leases.

 

 

Financial position

The strength of our business model, with high recurring revenue, low customer concentration across wide sectors and a positive cash cycle is well established and creates a very strong financial position. The Group continues to generate substantial amounts of operating cash. The generation of that cash flow, together with the committed bank loan facility for acquisitions, capital expenditure and general business purposes, means that the Group has the liquidity it requires to continue its growth through both organic and acquisitive means. 

 

 

 

 

Scott Cunningham

Chief Financial Officer

14 June 2022

 

Definition of alternative performance measures:

¹ Recurring revenue is the revenue the repeats either under long-term contractual arrangement or on a rolling basis by predictable customer habit. % of recurring revenue is defined as Recurring Revenue (as disclosed in note 3) / Revenue (as disclosed in the consolidated statement of comprehensive income)

² Gross profit margin % is defined as Gross Profit / Revenue as a % (both as disclosed in the consolidated statement of comprehensive income)

³ Adjusted EBITDA (as disclosed in the consolidated statement of comprehensive income) is earnings before interest, tax, depreciation and amortisation (EBITDA) before share-based payment charges, acquisition costs and gain on the revaluation of contingent consideration. Throughout these financial statements acquisition costs are defined as acquisition related costs and non-recurring acquisition integration costs.

⁴ Adjusted EBITDA margin % is defined as adjusted EBITDA (as disclosed in the consolidated statement of comprehensive income) / Revenue (as disclosed in the consolidated statement of comprehensive income) as a %

⁵ Adjusted profit before tax (as disclosed on page 11) is profit before tax, amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs, accelerated write off of arrangements fee on bank facility and gain on revaluation of contingent consideration.

⁶ Adjusted profit before tax margin % is defined as adjusted profit before tax (as disclosed on page 11) / Revenue (as disclosed in the consolidated statement of comprehensive income) as a %

⁷ Profit before tax margin % is defined as Profit before Tax / Revenue (both as disclosed in the consolidated statement of comprehensive income) as a %

⁸ Adjusted diluted earnings per share is earnings before amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs, accelerated write off of arrangement fee on bank facility and gain on revaluation of contingent consideration and the tax impact of adjusted items /weighted average number of ordinary shares - diluted (as disclosed in note 6)

⁹ Cash flow from operations / Adjusted EBITDA % is defined as cash flow from operations (as disclosed in the consolidated statement of cash flows) / Adjusted EBITDA (as defined on page 8) as a %

¹⁰ Net debt / Adjusted EBIDTA level ratio is defined as Net Debt (as disclosed on page 13) / Adjusted EBITDA (as disclosed in the consolidated statement of comprehensive income) 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 MARCH 2022

 

			Note	2022  £'000	2021  £'000
Revenue				103,018	111,883
Cost of sales				(41,712)	(44,241)
Gross profit				61,306	67,642
Administrative expenses				(47,076)	(53,230)
Operating profit				14,230	14,412
Analysed as:
Earnings before interest, tax, depreciation, amortisation, acquisition costs and share-based payments				38,009	41,408
Share-based payments				(480)	(1,247)
Acquisition costs				(315)	(493)
Depreciation			8	(16,296)	(16,882)
Amortisation - acquired intangible assets			7	(4,044)	(5,457)
Amortisation - other intangible assets			7	(2,644)	(2,917)
Gain on revaluation of contingent consideration				-	33
Finance income				-	19
Finance costs				(2,062)	(2,000)
Profit before taxation				12,168	12,464
Taxation			4	(2,772)	(2,260)
Profit for the year attributable to equity holders of the parent				9,396	10,204
Other comprehensive income
Amounts which may be reclassified to profit or loss
Currency translation differences				30	(94)
Other comprehensive income for the year				30	(94)
Total comprehensive income for the year attributable to equity holders of the parent				9,426	10,110
Basic and diluted earnings per share
Basic earnings per share			6	8.6p	9.3p
Diluted earnings per share			6	8.4p	9.1p

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2022

 

					2021
		Note		£'000	£'000
ASSETS
Non-current assets
Intangible assets - goodwill		7		86,479	86,479
Intangible assets - other		7		12,852	18,101
Trade and other receivables				531	502
Property, plant and equipment		8		70,893	77,012
Deferred tax		5		-	138
				170,755	182,232
Current assets
Cash and cash equivalents		17		15,332	23,038
Trade and other receivables		16		20,592	22,979
Current tax asset				1,658	235
				37,582	46,252
Total assets				208,337	228,484
LIABILITIES
Non-current liabilities
Trade and other payables				(2,643)	(2,662)
Non-current borrowings		9		(53,063)	(74,221)
Provisions				(2,438)	(2,097)
Deferred tax		5		(1,510)	-
				(59,654)	(78,980)
Current liabilities
Trade and other payables				(26,232)	(29,495)
Current borrowings		9		(3,560)	(3,437)
				(29,792)	(32,932)
Total liabilities				(89,446)	(111,912)
Net assets				118,891	116,572
EQUITY
Share capital				1,101	1,097
Own shares				(70)	(70)
Capital redemption reserve				1,200	1,200
Share premium				22,495	22,495
Merger reserve				4,983	4,983
Foreign currency translation reserve				(14)	(44)
Retained earnings				89,196	86,911
Total equity				118,891	116,572

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED 31 MARCH 2022

 

			Note	2022 £'000	2021 £'000
Profit before taxation				12,168	12,464
Gain on revaluation of contingent consideration				-	(33)
Finance costs - net				2,062	1,981
Depreciation			8	16,296	16,882
Amortisation			7	6,688	8,374
Share-based payments				480	1,247
Gain on disposal of property				(338)	-
Movement in trade receivables				3,257	2,516
Movement in trade payables				(2,702)	268
Cash flow from operations				37,911	43,699
Taxation paid				(2,455)	(3,643)
Net cash flow from operating activities				35,456	40,056
Cash flow from investing activities
Purchase of property, plant and equipment			8	(9,492)	(15,192)
Proceeds received from disposal of property, plant and equipment				700	260
Development costs			7	(1,352)	(1,306)
Purchase of intangible assets			7	(91)	(561)
Proceeds received from disposal of intangible assets				-	73
Contingent consideration paid				-	(2,447)
Finance income received				-	19
Net cash used in investing activities				(10,235)	(19,154)
Cash flow from financing activities
Issue of shares				4	353
Drawdown of bank loans				-	1,150
Payments under lease liabilities			10	(4,410)	(5,435)
Repayment of bank loans				(18,840)	(1,150)
Finance costs paid				(1,100)	(1,147)
Refinancing costs paid				(990)	-
Dividends paid				(7,591)	(7,132)
Net cash used in financing activities				(32,927)	(13,361)
Net (decrease)/increase in cash and cash equivalents				(7,706)	7,541
Cash and cash equivalents at the beginning of the year				23,038	15,497
Cash and cash equivalents at the end of the year				15,332	23,038

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 MARCH 2022

 

			Share capital	Own shares EBT	Foreign currency translation reserve	Capital redemption reserve	Share premium account	Merger reserve	Retained earnings	Total
			£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2020			1,092	(70)	50	1,200	22,147	4,983	82,592	111,994
Profit for the year			-	-	-	-	-	-	10,204	10,204
Currency translation differences			-	-	(94)	-	-	-	-	(94)
Total comprehensive income			-	-	(94)	-	-	-	10,204	10,110
Dividends - final (paid)			-	-	-	-	-	-	(4,287)	(4,287)
Dividends - interim (paid)			-	-	-	-	-	-	(2,845)	(2,845)
Share-based payments			-	-	-	-	-	-	1,247	1,247
Issue of share capital			5	-	-	-	348	-	-	353
Total transactions with owners			5	-	-	-	348	-	(5,885)	(5,532)
Balance at 31 March 2021			1,097	(70)	(44)	1,200	22,495	4,983	86,911	116,572
Profit for the year			-	-	-	-	-	-	9,396	9,396
Currency translation differences			-	-	30	-	-	-	-	30
Total comprehensive income			-	-	30	-	-	-	9,396	9,426
Dividends - final (paid)			-	-	-	-	-	-	(4,931)	(4,931)
Dividends - interim (paid)			-	-	-	-	-	-	(2,660)	(2,660)
Share-based payments			-	-	-	-	-	-	480	480
Issue of share capital			4	-	-	-	-	-	-	4
Total transactions with owners			4	-	-	-	-	-	(7,111)	(7,107)
Balance at 31 March 2022			1,101	(70)	(14)	1,200	22,495	4,983	89,196	118,891

 

 

 

 

NOTES TO THE FINANCIAL INFORMATION          

YEAR ENDED 31 MARCH 2022

 

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 2022 and 31 March 2021 within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 March 2021 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 2022 is derived from the statutory accounts for that year which were approved by the Directors on 14 June 2022. The statutory accounts for the year ended 31 March 2022 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) in conformity with the requirements of the Companies Act 2006. 

The Group's financial statements have been prepared on the historical cost basis, except for the valuation of certain financial instruments that are measured at fair values at the end of each reporting period.

 

Adoption of new and revised Standards - Amendments to IFRS that are mandatorily effective for the current year

There are no new accounting policies applied in the year ended 31 March 2022 which have had a material effect on these accounts.  In addition, the Directors do not consider that the adoption of new and revised standards and interpretations issued by the IASB in 2021 has had any material impact on the financial statements of the Group.

3.     sEGMENTAL ANALYSIS

The Chief Operating Decision-Maker has been identified as the Chief Executive Officer ("CEO") of the Company. The Group has two operating segments and the CEO reviews the Group's internal reporting which recognises these two segments in order to assess performance and to allocate resources. The Group has determined its reportable segments 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), Cristie Data, Sonassi, LDeX, Bytemark and Memset.

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

 

					2022	2021
					£'000	£'000
Easyspace					11,782	11,939
Cloud Services					91,236	99,944
					103,018	111,883

 

Cloud Services revenue can be further disaggregated as follows:

 

					2022	2021
					£'000	£'000
Cloud managed services					55,745	57,961
Self-managed infrastructure					28,363	30,311
Non-recurring revenue					7,128	11,672
					91,236	99,944

 

The nature of these three offerings are explained within the Chief Executive Officer report on pages 9 and 10.

 

Recurring and Non-recurring Revenue

The amount of recurring and non-recurring revenue recognised during the year can be summarised as follows:

 

					2022	2021
					£'000	£'000
Recurring - over time					95,890	100,211
Non-recurring - point in time					7,128	11,672
					103,018	111,883

 

 

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

					2022	2021
					£'000	£'000
United Kingdom					88,692	97,113
Rest of the World					14,326	14,770
Revenue from operations					103,018	111,883

 

 

 

Profit by Operating Segment

 

	2022			2021
	Adjusted EBITDA	Depreciation,  amortisation, acquisition costs and share-based payments	Operating profit/(loss)	Adjusted EBITDA	Depreciation,  amortisation, acquisition costs and share-based payments	Operating profit/(loss)
	£'000	£'000	£'000	£'000	£'000	£'000
Easyspace	5,674	(665)	5,009	5,343	(1,165)	4,178
Cloud Services	36,641	(22,319)	14,322	40,482	(24,091)	16,391
Group overheads	(4,306)	-	(4,306)	(4,417)	-	(4,417)
Acquisition costs	-	(315)	(315)	-	(493)	(493)
Share-based payments	-	(480)	(480)	-	(1,247)	(1,247)
	38,009	(23,779)	14,230	41,408	(26,996)	14,412
Gain on revaluation of contingent consideration			-			33
Group interest and tax			(4,834)			(4,241)
Profit for the year			9,396			10,204

 

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

 

 

4.     TAXATION

 

				2022 £'000	2021 £'000
Corporation Tax:
Tax charge for the year				(1,333)	(3,448)
Adjustment relating to prior years				209	(100)
Total current taxation charge				(1,124)	(3,548)
Deferred Tax: Origination and reversal of temporary differences				(1,517)	1,266
Adjustment relating to prior years				(137)	18
Effect of different statutory tax rates of overseas jurisdictions				(4)	4
Effect of changes in tax rates				10	-
Total deferred taxation (charge)/credit				(1,648)	1,288
Total taxation charge				(2,772)	(2,260)

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:

				2022 £'000	2021 £'000
Profit before tax				12,168	12,464
Tax charge @ 19% (2021: 19%)				2,312	2,368
Expenses disallowed for tax purposes and non-taxable income				4	33
Tax effect of net gain on revaluation of contingent consideration				-	(6)
Adjustments in current tax relating to prior years				(209)	100
Tax effect of different statutory tax rates of overseas jurisdictions				4	10
Movement in deferred tax relating to changes in tax rates				(10)	-
Tax effect of share-based remuneration				833	(259)
Effect of super-deduction				(377)	-
Movement in deferred tax related to development costs				72	-
Movement in deferred tax related to property, plant and equipment				6	32
Movement in deferred tax relating to prior years				137	(18)
Total taxation charge for the year				2,772	2,260

The weighted average applicable tax rate for the year ended 31 March 2022 was 19% (2021: 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 22.8% (2021: 18.1%).  The effective rate of tax has increased in the year due to the movement in the tax effect of share-based remuneration driving a £0.8m charge in the consolidated statement of comprehensive income largely driven by the movement in the share price and the rate change impact. This has been offset by the effect of super-deduction in the current year driving a £0.4m credit recognised in the consolidated statement of comprehensive income. 

Deferred tax assets and liabilities at 31 March 2022 have been calculated based on the rate of 25% enacted at the balance sheet date (2021: 19%). 

 

5.         DEFERRED TAX

 

The Group recognised deferred tax assets and liabilities as follows:

				2022 £'000	2021 £'000
Share-based remuneration				884	1,332
Capital allowances temporary differences				843	1,363
Deferred tax on acquired assets with no capital allowances				(19)	(40)
Deferred tax on development costs				(542)	-
Deferred tax on customer relationships				(2,499)	(2,356)
Deferred tax on intangible software				(177)	(161)
Deferred tax (liability)/asset				(1,510)	138

At the year end, the Group had no unused tax losses (2021: £nil) available for offset against future profits.

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

	Share-based remuneration £'000	Capital allowances temporary differences £'000	Development costs £'000	Deferred tax on acquired assets with no capital allowances £'000	Customer relationships £'000	Intangible software £'000	Total £'000
Balance at 1 April 2020	1,069	1,364	-	(88)	(3,298)	(193)	(1,146)
Credited/(charged) to statement of comprehensive income	263	(8)	-	48	953	32	1,288
Effect of different tax rates of overseas jurisdictions	-	7	-	-	(11)	-	(4)
Balance at 31 March 2021	1,332	1,363	-	(40)	(2,356)	(161)	138
(Charged)/credited to statement of comprehensive income	(869)	(947)	(542)	34	635	35	(1,654)
Effect of different tax rates of overseas jurisdictions	-	-	-	-	(4)	-	(4)
Effect of changes in tax rates	421	427	-	(13)	(774)	(51)	10
Balance at 31 March 2022	884	843	(542)	(19)	(2,499)	(177)	(1,510)

The deferred tax asset in relation to share-based remuneration arises from the anticipated future tax relief on the exercise of share options.

The deferred tax on capital allowances temporary differences arises mainly from plant and equipment in the Cloud Services segment where the tax written down value varies from the net book value.

The deferred tax on development costs arose from development expenditure on which tax relief was received in advance of the amortisation charge.

The deferred tax on acquired assets arises from data centre equipment acquired through the acquisition of iomart Datacentres Limited on which depreciation is charged but on which there are no capital allowances available.

The deferred tax on customer relationships and intangible software arises from permanent differences on acquired intangible assets.

 

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. 

				2022 £'000	2021 £'000
Profit for the financial year and basic earnings attributed to ordinary shareholders				9,396	10,204
				No	No
Weighted average number of ordinary shares:				000	000
Called up, allotted and fully paid at start of year				109,671	109,160
Own shares held by Employee Benefit Trust				(141)	(141)
Issued share capital in the year				181	230
Weighted average number of ordinary shares - basic				109,711	109,249
Dilutive impact of share options				2,210	2,416
Weighted average number of ordinary shares - diluted				111,921	111,665
Basic earnings per share				8.6 p	9.3 p
Diluted earnings per share				8.4 p	9.1 p

 

 

Adjusted earnings per share					2022 £'000	2021 £'000
Profit for the financial year and basic earnings attributed to ordinary shareholders					9,396	10,204
·      Amortisation of acquired intangible assets					4,044	5,457
·      Acquisition costs					315	493
·      Share-based payments					480	1,247
·      Gain on revaluation of contingent consideration					-	(33)
·          Accelerated write off of arrangement fee on bank facility					102	-
·      Tax impact of adjusted items					(879)	(1,341)
Adjusted profit for the financial year and adjusted earnings attributed to ordinary shareholders					13,458	16,027
Adjusted basic earnings per share					12.3 p	14.7 p
Adjusted diluted earnings per share					12.0 p	14.4 p

 

 

7.         INTANGIBLE ASSETS

 

	Goodwill	Development costs	Acquired customer relationships	Software	Beneficial contracts	Domain names & IP addresses	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Cost
At 1 April 2020	86,479	10,598	57,414	10,323	86	336	165,236
Additions	-	-	-	561	-	-	561
Currency translation differences	-	-	(78)	(57)	-	-	(135)
Disposals	-	-	(73)	-	-	-	(73)
Development cost capitalised	-	1,306	-	-	-	-	1,306
At 31 March 2021	86,479	11,904	57,263	10,827	86	336	166,895
Additions	-	-	-	91	-	-	91
Currency translation differences	-	-	36	27	-	-	63
Development cost capitalised	-	1,352	-	-	-	-	1,352
At 31 March 2022	86,479	13,256	57,299	10,945	86	336	168,401
Accumulated amortisation:
At 1 April 2020	-	(8,373)	(39,954)	(5,464)	(55)	(280)	(54,126)
Charge for the year	-	(1,446)	(5,457)	(1,455)	(7)	(9)	(8,374)
Currency translation differences	-	-	82	90	-	-	172
Disposals	-	-	13	-	-	-	13
At 31 March 2021	-	(9,819)	(45,316)	(6,829)	(62)	(289)	(62,315)
Charge for the year	-	(1,347)	(4,044)	(1,282)	(7)	(8)	(6,688)
Currency translation differences	-	-	(36)	(31)	-	-	(67)
At 31 March 2022	-	(11,166)	(49,396)	(8,142)	(69)	(297)	(69,070)
Carrying amount:
At 31 March 2022	86,479	2,090	7,903	2,803	17	39	99,331
At 31 March 2021	86,479	2,085	11,947	3,998	24	47	104,580

Of the total additions in the year of £91,000 (2021: £561,000), no amounts related to leases under IFRS 16 (note 10) (2021: £nil).  There were no amounts included in trade payables at the year end (2021: £nil). Consequently, the consolidated statement of cash flows discloses a figure of £91,000 (2021: £561,000) as the cash outflow in respect of the purchase of intangible asset in the year.

All amortisation and impairment charges are included in the depreciation, amortisation and impairment of non-financial assets classification, which is disclosed as administrative expenses in the statement of comprehensive income.

Included within customer relationships are the following significant net book values: £1.4m in relation to the acquisitions of Memset Limited with a remaining useful life of 6 years, the managed private cloud business of ServerChoice Limited of £1.1m with a useful life of 6 years, Bytemark Limited with a net book value of £0.4m and LDeX Group Limited of £1.4m both with a remaining useful life of 5 years, Sonassi Limited of £2.0m, Dediserve Limited of £0.6m, SimpleServers Limited of £0.3m all three with 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 (2021: £nil) arose as a result of this review. For this review goodwill was allocated to individual Cash Generating Units (CGU) on the basis of the Group's operations.

 

The carrying value of goodwill by each CGU is as follows:

Cash Generating Units (CGU)				2022 £'000	2021 £'000
Easyspace				23,315	23,315
Cloud Services				63,164	63,164
				86,479	86,479

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by the Board covering a five year period.  These projections are the result of detailed planning and assume similar levels of organic growth as the Group has experienced in the previous years.

The growth rates and margins used to extrapolate estimated future performance continue to be based on past growth performance adjusted downwards to take into account the additional risk due to the passage of time. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. The growth rates used to estimate future performance beyond the periods covered by the annual and strategic planning processes do not exceed the long-term average growth rates for similar products.

In determining the value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Management continue to apply the judgement that there are two distinct CGUs within the Group, namely Cloud Services and Easyspace. 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
				31 March 2022	31 March 2021	31 March 2022	31 March 2021
Discount rate				14.4%	14.0%	14.4%	14.0%
Future perpetuity rate				0.0%	0.0%	2.5%	2.5%
Initial period for which cash flows are estimated (years)				5	5	5	5

 

Based on an analysis of the impairment calculation's sensitivities to changes in key parameters (growth rate, discount rate and pre-tax cash flow projections) there was no reasonably possible scenario where the CGU's recoverable amount would fall below its carrying amount.

 

8.     PROPERTY, PLANT AND EQUIPMENT

 

	Freehold property		Leasehold property and improve-ments	Data centre equipment	Computer equipment	Office equipment	Motor vehicles	Total
	£'000		£'000	£'000	£'000	£'000	£'000	£'000
Cost:
At 1 April 2020	8,910		29,671	26,113	97,592	2,771	23	165,080
Additions in the year	-		9,157	1,966	10,504	40	-	21,667
Disposals in the year	(179)		-	-	-	-	-	(179)
Currency translation differences	-		(134)	-	127	-	-	(7)
At 31 March 2021	8,731		38,694	28,079	108,223	2,811	23	186,561
Additions in the year	-		1,834	2,890	5,907	43	-	10,674
Disposals in the year	(495)		(203)	(445)	(20)	(14)	-	(1,177)
Currency translation differences	-		99	-	158	-	-	257
At 31 March 2022	8,236		40,424	30,524	114,268	2,840	23	196,315
Accumulated depreciation:
At 1 April 2020	(697)		(7,104)	(15,470)	(67,532)	(1,924)	(9)	(92,736)
Charge for the year	(265)		(4,541)	(1,753)	(10,089)	(226)	(8)	(16,882)
Disposals in the year	25		-	-	-	-	-	25
Currency translation differences	-		(30)	-	74	-	-	44
At 31 March 2021	(937)		(11,675)	(17,223)	(77,547)	(2,150)	(17)	(109,549)
Charge for the year	(255)		(4,481)	(1,263)	(10,101)	(190)	(6)	(16,296)
Disposals in the year	138		-	445	20	-	-	603
Currency translation differences	-		(58)	-	(122)	-	-	(180)
At 31 March 2022	(1,054)		(16,214)	(18,041)	(87,750)	(2,340)	(23)	(125,422)
Carrying amount:
At 31 March 2022	7,182		24,210	12,483	26,518	500	-	70,893
At 31 March 2021	7,794		27,019	10,856	30,676	661	6	77,012

During the year there were additions of £249,000 (2021: £63,000) in respect of reinstatement provisions and additions of £1,491,000 (2021: £8,683,000) in respect of leases under IFRS 16 (note 10).  Of the total remaining additions in the year of £8,934,000 (2021: £12,921,000), £420,000 (2021: £977,000) was included in trade payables as unpaid invoices at the year end resulting in a net decrease of £558,000 (2021: net increase of £2,271,000) in trade payables. Consequently, the consolidated statement of cash flows discloses a figure of £9,492,000 (2021: £15,192,000) as the cash outflow in respect of property, plant and equipment additions in the year.

Note 10 provides the movements in the year relating to IFRS 16 right-of-use assets as included in the above table.

 

9.         BORROWINGS

 

				2022 £'000	2021 £'000
Current:
Lease liabilities (note 10)				(3,560)	(3,437)
Current borrowings				(3,560)	(3,437)
Non-current:
Lease liabilities (note 10)				(19,063)	(21,430)
Bank loans				(34,000)	(52,791)
Total non-current borrowings				(53,063)	(74,221)
Total borrowings				(56,623)	(77,658)

The carrying amount of borrowings approximates to their fair value.

Details of the Group's lease liabilities are included in note 10.

At the start of the year there was £52.8m (2021: £52.8m) outstanding on the multi option revolving credit facility and drawdowns of £nil (2021: £1.2m) were made from the facility during the year. Repayments totalling £18.8m (2021: £1.2m) were made in the year resulting in a balance outstanding at the end of the year of £34.0m (2021: £52.8m).

On 2 December 2021, the Group successfully refinanced and increased the Group's existing single bank Revolving Credit Facility of £80m that was due to mature on 30 September 2022.  The new £100m Revolving Credit Facility ("RCF") was provided by a new four bank group consisting of HSBC, Royal Bank of Scotland, Bank of Ireland and Clydesdale Bank. The new facility has an initial maturity date of 30 June 2025, with a 12-month extension option and benefits from a £50m Accordion Facility. The RCF has a borrowing cost at the Group's current leverage levels of 1.8% margin over SONIA, compared to 1.5% margin over LIBOR on the prior facility.  The revolving credit facility incurs a commitment fee of 35% of the 1.8% margin.  The effective interest rate for the multi option revolving credit facility in the current year was 1.78% (2021: 1.61%). 

Under IFRS 9, the refinancing does not constitute a substantial modification and therefore there has been no extinguishment of the previous bank loan.

Given the terms of the revolving credit facility and the ability for any drawdowns made to be extended beyond 31 March 2023 at the discretion of the Group, the total amount outstanding has been classified as non-current.

The obligations under the multi option revolving credit facility are repayable as follows:

 

	2022			2021
	Capital	Interest	Total	Capital	Interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Due within one year	-	(192)	(192)	-	(366)	(366)
Due within two to five years	(34,000)	-	(34,000)	(52,791)	-	(52,791)
	(34,000)	(192)	(34,192)	(52,791)	(366)	(53,157)

 

The Directors estimate that the fair value of the Group's borrowing is not significantly different to the carrying value.

 

 

 

Analysis of change in net debt	Cash and cash equivalents £'000	Bank loans £'000	Lease liabilities £'000	Total liabilities £'000	Total net debt £'000
At 1 April 2020	15,497	(52,791)	(20,347)	(73,138)	(57,641)
Additions to lease liabilities	-	-	(8,683)	(8,683)	(8,683)
Repayment of bank loans	-	1,150	-	1,150	1,150
New bank loans	-	(1,150)	-	(1,150)	(1,150)
Currency translation	-	-	169	169	169
Cash and cash equivalent cash inflow	7,541	-	-	-	7,541
Lease liabilities cash outflow	-	-	3,994	3,994	3,994
At 31 March 2021	23,038	(52,791)	(24,867)	(77,658)	(54,620)
Additions to lease liabilities	-	-	(1,491)	(1,491)	(1,491)
Disposals from lease liabilities	-	-	179	179	179
Settlement of commitment fee on loan	-	(49)	-	(49)	(49)
Repayment of bank loans	-	18,840	-	18,840	18,840
Currency translation	-	-	(49)	(49)	(49)
Cash and cash equivalent cash outflow	(7,706)	-	-	-	(7,706)
Lease liabilities cash outflow	-	-	3,605	3,605	3,605
At 31 March 2022	15,332	(34,000)	(22,623)	(56,623)	(41,291)

 

10.        LEASES

The Group leases assets including buildings, fibre contracts, colocation and software contracts.  Information about leases for which the Group is a lessee is presented below:

 

Right-of-use assets				Leasehold Property £'000	Data centre equipment £'000	Software £'000	Total £'000
Balance at 1 April 2021				18,859	4,222	950	24,031
Additions			1,412		79	-	1,491
Disposals				-	(179)	-	(179)
Currency translation differences				-	36	-	36
Depreciation				(2,084)	(1,349)	-	(3,433)
Amortisation				-	-	(285)	(285)
Balance at 31 March 2022				18,187	2,809	665	21,661

 

The right-of-use assets in relation to leasehold property and data centre equipment are disclosed as non-current assets and are disclosed within property, plant and equipment (note 8).  The right-of-use assets in relation to software are disclosed as non-current assets and are disclosed within intangibles (note 7).

 

 

Lease liabilities

Lease liabilities are presented in the balance sheet within borrowings as follows:

					2022 £'000	2021 £'000
	Current:
	Lease liabilities (note 9)				(3,560)	(3,437)
	Non-current:
	Lease liabilities (note 9)				(19,063)	(21,430)
	Total lease liabilities				(22,623)	(24,867)
The maturity analysis of undiscounted lease liabilities are shown in the table below:         2022 £'000 2021 £'000   Amounts payable under leases: Within one year (4,127) (4,215) Between two to five years (10,244) (11,552) After more than five years (11,585) (13,068)     (25,956) (28,835) Add: unearned interest 3,333 3,968 Total lease liabilities   (22,623) (24,867)

The Group has elected not to recognise a lease liability for short-term leases (leases with an expected term of 12 months or less) or for leases of low value assets.  Payments made under such leases are expensed on a straight line basis.  During the year, in relation to leases under IFRS 16, the Group recognised the following amounts in the consolidated statement of comprehensive income:

				2022 £'000	2021 £'000
Short-term and low value lease expense				(1,784)	(1,578)
Depreciation charge				(3,433)	(3,722)
Amortisation charge				(285)	(285)
Interest expense				(646)	(732)
				(6,148)	(6,317)

 

Amounts recognised in the consolidated statement of cash flows:

				2022 £'000	2021 £'000
Amounts payable under leases:
Short-term and low value lease expense				(1,784)	(1,578)
Payments under lease liabilities within cash flows from financing activities				(4,410)	(5,435)
				(6,194)	(7,013)