5 December 2023

iomart Group plc

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

Half Yearly Results

 

Continued momentum in the execution of its growth strategy

 

iomart (AIM: IOM), the cloud computing company, is pleased to report its consolidated half yearly results for the six months ended 30 September 2023 (H1 2024).

 

FINANCIAL HIGHLIGHTS

 

	H1 2024	H1 2023	Change
Revenue	£62.0m	£52.6m	+18%
% of recurring revenue1	94%	94%	-
Adjusted EBITDA2	£18.6m	£17.8m	+5%
Adjusted profit before tax3	£7.6m	£7.4m	+3%
Profit before tax	£4.4m	£4.9m	-10%
Adjusted diluted EPS4	5.2p	5.2p	-
Basic EPS	3.1p	3.5p	-11%
Cash generation from operations	£16.8m	£14.5m	+16%
Interim dividend per share	1.94p	1.94p	-

 

·	Revenue grew 18%, with strong levels of recurring revenues maintained (94%1 of Group revenues). The Concepta and Extrinsica acquisitions provided £6.0m of additional revenue in the period
·	Cloud managed services revenue, the largest component of the Group, increased strongly, by 27% to £37.0m (H1 2023: £29.2m), from a combination of modest organic growth, price adjustments from last year's energy cost increases, plus approximately £4.3m contribution from the latest two acquisitions
·	Group EBITDA margin performance of 30.0% is a reduction from H1 2023 of 33.8% but it is slightly ahead of H2 2023 of 29.1%. This trend in margin performance reflects the change in revenue mix and specific timing of inflationary price adjustments during the last financial year
·	Our energy hedging strategy is giving the Company and customers good cost certainty
·	£0.8m higher interest expense in the period, due to rise in bank interest rates, means adjusted profit before tax in the period of £7.6m showed a more modest 3% growth
·	Cash conversion ratio6 of 90% is higher than the prior period (H1 2023: 81%) which had included the timing impact of some vendor payments overlapping period ends
·	Net debt of £48.0m (31 March 2023: £39.8m), comfortable at 1.3 times annualised EBITDA5

 

OPERATIONAL HIGHLIGHTS

 

·	Focus on sales and marketing resulted in improving order bookings and pipeline development
·	Acquisitions of Concepta and Extrinsica have enhanced the Group's routes to market and depth of skills, improving iomart's overall customer proposition
·	Acquisition of Accesspoint Technologies post period end, providing deep legal industry expertise and a highly capable team with a strong reputation
·	Appointment of experienced CTO, providing increased focus on our technical platforms, product management, infrastructure and networks
·	Move of head office to a modern city centre location in Glasgow, providing greater ability for the retention and attraction of talented team members
·	Committed to solar panel installation on our Maidenhead data centre which will provide c.300kw peak power yield being around 15% of the total average site power use
·	Two new independent non-executive Directors appointed to the Board, bringing relevant commercial and industry experience

 

OUTLOOK

 

·	Ongoing sales channel and services initiatives combined with contributions from recent acquisitions will allow our full year results to demonstrate continued year on year momentum
·	Current trading is in line with the Board's expectations

 

 

STATUTORY EQUIVALENTS

 

A full reconciliation between adjusted and statutory profit before tax is contained within this statement. The largest item is the consistent add back of the non-cash amortisation of acquired intangible assets. The largest variance, period on period, is a £0.5m exceptional non-recurring charge recorded within administration costs related to the change in CEO during the month of September.

 

 

Lucy Dimes, CEO commented,

 

"I'm pleased to report on another period of progress at iomart. We continue to build on our existing strong foundations as a well-established and trusted service provider within the private cloud space, at the same time as extending our service offering across the wider and higher growth hybrid cloud market.

 

We see great opportunity ahead. For the UK to thrive as an economic powerhouse, its businesses will need to increase efficiency, operate at pace and adapt - leveraging cloud, data and digital technologies. Our blend of both IT and connectivity skills combined with our secure, scalable, resilient cloud and network infrastructure uniquely positions us to support the ambitions of our customer base, giving us confidence in our ability to participate successfully in the growing cloud sector."

 

Notes:

¹ Recurring revenue, as disclosed in note 2, is the revenue that repeats either under long-term contractual arrangement or on a rolling basis by predictable customer habit. % of recurring revenue is defined as Recurring Revenue (as disclosed in note 2) / Revenue (as disclosed in the consolidated statement of comprehensive income).

² Throughout this statement adjusted EBITDA, as disclosed in the consolidated interim statement of comprehensive income, is earnings before interest, tax, depreciation and amortisation (EBITDA) before share based payment charges, acquisition costs and exceptional non-recurring costs. Throughout this statement acquisition costs are defined as acquisition related costs and non-recurring acquisition integration costs.

³ Throughout this statement adjusted profit before tax, as disclosed on page 7, is profit before tax, amortisation charges on acquired intangible assets, share based payment charges, acquisition costs and exceptional non-recurring costs.

⁴ Throughout this statement adjusted diluted earnings per share, as disclosed in note 3, is earnings per share before amortisation charges on acquired intangible assets, share based payment charges, acquisition costs, exceptional non-recurring costs and the taxation effect of these.

⁵ Annualised EBITDA is the last 12 months of EBITDA for the period ended 30 September 2023.

⁶ Cash conversion is calculated as cash flow from operations, as disclosed in the consolidated interim statement of cash flows, divided by adjusted EBITDA defined above.  The 12-month basis aggregates the second half of the year to 31 March 2023 and the current 6 month reported period on the same basis of calculation.

 

This interim announcement contains forward-looking statements, which have been made by the Directors in good faith based on the information available to them up to the time of the approval of this report and such information should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward-looking information.

 

 

For further information:

iomart Group plc	Tel: 0141 931 6400
Lucy Dimes, Chief Executive Officer
Scott Cunningham, Chief Financial Officer
Investec Bank PLC (Nominated Adviser and Broker)	Tel: 020 7597 4000
Patrick Robb, Virginia Bull, Nick Prowting
Alma Strategic Communications	Tel: 020 3405 0205
Caroline Forde, Hilary Buchanan, Kinvara Verdon

 

 

About iomart Group plc

iomart Group plc (AIM: IOM) is a cloud computing and IT managed services business providing hybrid cloud infrastructure, data management, protection and cyber security services, and digital workplace capability. Our mission is simple: to make our customers unstoppable by enabling them to connect, secure and scale anywhere, anytime. From our portfolio of data centres we own and operate across the UK to connected sites around the world, our 480-strong team can design and deploy the right cloud solution for our customers.

 

For further information about the Group, please visit www.iomart.com.

 

 

 

Chief Executive's Statement

Introduction

 

I am pleased to be presenting our half year results for the first time as iomart's CEO. We have continued to make positive progress against our strategy to build on our existing strong foundations as a well-established and trusted service provider within the private cloud space, at the same time as extending our service offering across the wider and higher growth hybrid cloud market.

 

The results demonstrate an encouraging level of recurring revenues and successful execution of our M&A strategy, delivering revenues up 18% on the prior period to £62.0m, and an adjusted EBITDA of £18.6m. We achieved continued strong cash flow, which even after £9.3m of M&A related cash outflows, sees us close the period with a comfortable level of leverage with net debt of £48.0m. The increase in interest rates means that the growth in our profitability was held back somewhat due to the £0.8m higher interest expense in the period. Our adjusted profit before tax in the period of £7.6m was a modest 3% growth on the prior period.

 

The external environment for us was relatively more stable than in the year to 31 March 2023, primarily due to lower volatility in the wholesale energy markets. Our business model over the last few years has been regularly challenged, be that by Covid or the Energy Crisis, and we have consistently proven the resilience of the team and business. It is this foundation which gives us strong confidence on our ability to expand our offering around the growing hybrid cloud market.    

 

We were pleased to continue with M&A activity, in line with our strategic plans, with the completion of the acquisition of Extrinsica Global Holdings Limited ("Extrinsica") on 5 June 2023, extending the Group's products, skills and capabilities within the Microsoft Azure environment.

 

Subsequent to the period end, on 4 December 2023, we completed our second acquisition of the financial year, acquiring the entire issued share capital of Accesspoint Group Holdings Limited ("Accesspoint"), the holding company of Accesspoint Technologies Limited. Accesspoint provides a suite of managed and hosted services, including infrastructure hosting, software licensing, security management, business continuity services and communications provisioning, focused solely on the legal sector. 

 

Strategy

 

We see great opportunity ahead. For the UK to thrive as an economic powerhouse, its businesses will need to increase efficiency, operate at pace and be able to adapt in order to stay ahead of the pack leveraging cloud, data and digital technologies both for their internal productivity, and as a means to develop, launch and grow their offerings. We have the skills and infrastructure to provide this. The continued huge growth in demand for cloud computing is a persistent underlying growth driver, which we are focused on harnessing through a clear strategy.

 

Our growth strategy is underpinned by our deep private cloud infrastructure heritage and solid existing core business, which continues to operate in a growth market, delivering market leading profitability and strong cash generation.  To accelerate our organic growth, our roadmap sees us focused on extending our capabilities and skills into closely aligned product and services areas. As well as being complementary to our existing experience, skills and customer base these are also areas exposed to the higher growth of the wider IT sector. The new services can be categorised into three broad groupings of hybrid cloud, data management and security services plus, modern workplace.

 

We were delighted to welcome David Gammie to the Group as CTO in the period who brings a wealth of experience to the role. Following a successful career for a number of large consultancy businesses, he spent time in CIO roles in industry, with his most recent role leading the infrastructure and cloud elements at a UK managed services provider.

 

We have a successful track record of sourcing complementary acquisitions and we expect to continue to identify such acquisitions to expand the customer base, to acquire new skillsets, and to extend our go-to-market channels. The IT managed service sector remains highly fragmented and our strong balance sheet and existing bank facilities puts us in a good position to supplement our organic growth with a disciplined M&A programme.

 

The acquisition of Extrinsica on 5 June 2023 was a significant strategic step providing iomart with deep Microsoft Azure expertise. While we had made some good progress organically in this area, this acquisition accelerates our capabilities and customer references within the Microsoft public cloud domain. This ensures we can confidently offer both existing and new customers strong skills and know-how across the three infrastructure delivery modes of on-premise, private cloud or public cloud or, in what we see as the growing trend in the market, a combination of the three in the form of hybrid cloud.

 

Market

 

With the insatiable growth in data requirements from across all industries, the demand for the three core cloud building blocks of compute power, storage and connectivity continues to expand. The concept of "Cloud" computing is now globally recognised with the complexity of available options continuing to grow. Within any digital transformation project, the management and security of data is paramount, especially given the ever increasing security threat landscape. Many organisations are increasingly outsourcing these requirements to experts, who can help them navigate a constantly evolving and complex technical landscape, providing high levels of reliability, customer support, flexibility and technical knowledge. Areas in which we excel.

 

Many customers are looking for a single point of accountability for all their cloud needs and iomart is well positioned to provide this service going forward particularly for medium to large enterprises.

 

We are seeing that macroeconomic uncertainty is translating into greater scrutiny by customers, which is generally resulting in extended decision making timeframes. For iomart that has materialised in the period in some lower non-recurring activity such as hardware refreshes or consultancy projects and, while we have seen continued momentum in order levels from existing customers, we have seen a slightly lower order level from new customers as digital transformation projects continue to be delayed. Our long-standing financial stability provides a point of differentiation in these cautious times, giving comfort to potential customers.

 

Acquisitions

 

Extrinsica

 

We completed the acquisition of Extrinsica on 5 June 2023 for an initial consideration of £4.0m, with a potential further £0.4m in cash payable on the achievement of certain key customer targets during the calendar year. Of the initial consideration, £2m was satisfied by the issue of 1,562,500 new ordinary shares in iomart. The balance of £2.0m was paid in cash. We also repaid £3.7m of debt acquired on completion. A further £4.0m to £7.0m of contingent earn-out payments was included in the share purchase agreement based on the profitability for the 12 months ending 31 March 2024. Given the ongoing macroeconomic uncertainty impacting the timing of certain customer projects, the Board does not currently expect that any additional earn-out payment will be triggered. Prior to our acquisition, Extrinsica generated revenues of £7.4m, being year on year growth of c.40%, and EBITDA of £0.1m (unaudited).

 

Accesspoint

 

Subsequent to the period end, we completed the acquisition of Accesspoint on 4 December 2023. Based in North East London, Accesspoint is an IT hosting partner focused on the UK legal industry since 2009. Accesspoint provides a suite of managed and hosted services including infrastructure hosting, software licensing, security management, business continuity services and communications provisioning. The acquisition provides iomart with deep industry expertise and a highly capable team with a strong reputation within the legal sector. The addition of the new customer base when combined with iomart's existing legal customers consolidates iomart's position in a key sector.  

 

The initial consideration of £4.5m was paid in cash on completion on a debt and cash free basis, with a potential further £0.5m in cash payable on the achievement of certain post-acquisition milestones. The acquisition also includes up to a further £1.4m contingent earn-out payment based on the profitability of Accesspoint for the 12 months ending 31 August 2024. The initial consideration was financed through a combination of existing bank facilities and cash on the Company's balance sheet. For the year ended 31 August 2023, Accesspoint generated revenues of £3.8m and adjusted EBITDA of £0.8m (unaudited).

 

Board Changes

 

We were pleased to welcome two new independent non-executive Directors to the Board in the period, Annette Nabavi on 25 May 2023 and Adrian Chamberlain on 1 June 2023. Adrian has been appointed as the senior independent Director. Annette and Adrian both bring considerable experience in the technology services sector. Following six years on the Board, Richard Masters, non-executive Director did not stand for re-election and left the Board at the AGM in September.

 

On 18 September 2023, after three years in role, Reece Donovan stepped down as Chief Executive Officer and I replaced him, on a full time basis. The Nomination Committee is undertaking a search for an independent Chair, with the intention for the search to be completed by the Company's financial year end announcement. Until that point I will continue to act as Chair.

 

The changes made to the Board during the period bring different and very relevant commercial skills and experience to the Board, and will be extremely valuable in helping guide and drive the execution of our growth strategy.

 

Operational Review*

 

Cloud Services

 

Cloud Services revenues increased by £9.5m (20%) to £55.8m (H1 2023: £46.3m). This included £6.0m of additional revenue from the positive impact of our M&A activities over the last 12 months. Cloud Services EBITDA (before share-based payments, acquisition costs, exceptional items and central group overheads) was £18.2m being 32.6% of cloud services revenue (H1 2023: £17.0m (36.7% of cloud services revenue)). The increase of £1.2m in absolute Cloud Services EBITDA is a combination of many moving parts, including the contribution from owning Concepta for the full period. Margin performance of 32.6% in the current period is a reduction from H1 2023 of 36.7% but it is slightly ahead of H2 2023 of 31.3%. This trend in margin performance reflects the change in revenue mix and specific timing of inflationary price adjustments during the last financial year. Energy costs in the first half are £3.4m higher than the equivalent period last year. Given our energy hedging strategy and the timing of energy cost increases during the prior year, the second half will not experience such high energy cost base period on period variances, nor the resulting impact on revenue.

 

The following is the disaggregation of Cloud Services revenues of £55.8m (H1 2023: £46.3m):

 

Disaggregation of Cloud Services revenue		6 months to 30 September 2023 £'000	6 months to 30 September  2022 £'000 (restated, note1)	Year to 31  March 2023    £'000 (restated, note 1)
Cloud managed services		37,022	29,220	64,115
Self-managed infrastructure		14,730	13,891	29,617
Non-recurring revenue		4,026	3,219	9,359
		55,778	46,330	103,091

 

Cloud managed services (recurring revenue)

 

Cloud managed services includes the provision of fully managed, complex, bespoke and resilient solutions involving private, public and hybrid cloud infrastructure. We anticipate this will be the highest growth area for iomart due to the market drivers described above.

 

Cloud managed services revenue increased strongly, by 27% to £37.0m (H1 2023: £29.2m). This was a combination of modest organic growth, approximately £4.3m contribution from the latest two acquisitions and the price adjustments for last year's energy cost increases taking place. A significant number of moving parts have arisen in the last 18 months within our pricing and renewal profiles. The energy price adjustments are now, in some cases, over 12 months ago, meaning they have become structurally consumed into our renewals or new business pricing. This is also the case for our competitors.

 

Self-managed infrastructure (recurring revenue)

 

We have a large customer base, across a number of brands, the largest by far being our Rapidswitch brand, who wish to source compute power and connectivity mainly through the provision of dedicated servers and self-manage these directly. Our own regional data centre estate and fibre network positions us well to offer such infrastructure as a service. It is generally recognised that this activity is a lower growth area within the cloud market but continues to offer a cost competitive solution for many use cases and for customers who have retained their own IT skills.

 

In the first half of this financial year, the self-managed infrastructure revenue of £14.7m represented an increase of £0.8m in comparison to the first half of last year. This is a combination of a reduction in the number of our long tail of smaller customers, offset by the energy price rises passed onto customers, plus encouragingly some higher new order bookings. We will continue to allocate resources to ensure we provide this customer base with resilient, cost effective and increasingly automated solutions.

 

Our UK owned infrastructure is an important part of the delivery of our recurring revenue services, a differentiator in the market and allows more of the value add to be retained by iomart. We have a well maintained data centre estate and this is core to our resilient private cloud services in the UK. We have 12 UK data centres, with Maidenhead and London Central being our two larger sites accounting for around half of our capacity, with the other 10 spread across the regions offering infrastructure with close proximity to customers. During the period, the larger areas of spend on our own infrastructure included £1.4m upgrade to fibre network equipment, £0.6m upgrade to our Nottingham data centre plus £0.8m investment to fully outfit the new Glasgow office. The Board committed to the installation of solar panels on our Maidenhead data centre which provides c.300kw of peak power yield to the site being around 15% of the total average site power usage. Installation will be completed in the second half. In the period we successfully achieved the triannual recertification from our UKAS accredited certification body which covered five ISO standards, notably 9001, 20000, 270001, 22301 and 14001.

 

Non-recurring revenue

 

Non-recurring revenue of £4.0m (H1 2023: £3.2m) relates primarily to on premise product reselling via our Cristie Data and now the Pavilion IT brand, plus consultancy projects.  Often these non-recurring activities provide a useful initial introduction to the wider iomart Group and evolve customers into a higher level of recurring services. The Concepta acquisition in August 2022 included the Pavilion IT brand which is mainly involved in reselling activity. With a full period of trading (as opposed to only 6 weeks) it added £1.5m additional non-recurring revenue, meaning that, if you exclude the acquisition, the underlying reduction in non-recurring revenue was £0.7m. We have seen in the last 18 months that some of our customer base has slowed down its hardware refresh activity. To address this changing market we have recently decided to fully consolidate Cristie Data into iomart which will be completed during the second half. Cristie Data's heritage is data management which will be enhanced in a fully integrated operation and give a higher probability of transitioning customers over time to iomart's core recurring services.

 

Easyspace

 

The Easyspace segment has performed well during the period, delivering stable revenues and improved EBITDA (before share based payments, acquisition costs and central group overheads) of £6.3m (H1 2023: £6.2m) and £3.2m (H1 2023: £3.1m), respectively.

 

The global domain name and mass market hosting sector continues to grow, supported by the increasing importance of an internet presence and ecommerce for all areas of the economy, including the small and micro business community represented within our Easyspace division. A smaller number of large global operators increasingly dominates this sector, and we recognised a long time ago that the marketing spends required to compete for new business in this specific area was not the best use of iomart's resources. However, we do ensure our customer base of around 60,000 customers are well served with a good range of products and importantly a high level of customer service. This level of attention is ensuring strong renewal rates by customers.

 

*During the period we moved the financial reporting of the brand Simple Servers which has annual revenues of around £0.8m across c.800 customers into this business unit, see note 1 for the financial impact of the reclassification on the prior periods. This customer base was sourced from an acquisition in 2017.  The nature of the services provided and the profile of the customer base are aligned better with the mass market hosting sector which we address in the Easyspace division.

 

Financial Performance

 

Revenue

 

Overall revenue from our operations increased significantly by 18% to £62.0m (H1 2023: £52.6m) with a consistent high level of recurring revenue at 94% (H1 2023: 94%). We remain focussed on retaining our recurring revenue business model with the combination of multi-year contracts and payments in advance providing us with good revenue visibility. Our Cloud Services segment revenues increased by 20% to £55.8m (H1 2023: £46.3m). Our Easyspace segment has performed well over the period, with revenues for the first half stable at £6.3m (H1 2023: £6.2m).

 

Gross Profit

 

The gross profit in the period improved to £34.5m (H1 2023: £31.2m) with the gross profit as a percentage of revenue of 55.6%, as expected being a reduction from prior period (H1 2023: 59.4% of revenue) but more consistent with the second half of last year reflecting the heavy impact and specific timing from pass through of energy costs and to a lesser extent the recent corporate acquisitions. Our key vendor relationships have remained stable in the period with general cost increases across most areas of our supply chain due to the general inflationary environment. Our hedging strategy on energy costs means we have seen stability in the costs and have a good level of certainty in the medium term.

 

Adjusted EBITDA

 

The Group's adjusted EBITDA increased by 5% to £18.6m (H1 2023: £17.8m) which in EBITDA margin terms translates to 30.0% (H1 2023: 33.8%). The lower margin percentage versus the first half of last year was expected given the timing of the energy cost impact and represents a slight improvement on the level delivered in the second half of last year. Administration expenses (before depreciation, amortisation, share based payment charges, acquisition costs and exceptional non-recurring costs) of £15.9m are £2.5m higher than the previous period due to the inclusion of staff plus overhead costs from the Concepta and Extrinsica acquisitions. Outside of the acquisitions, we have seen a period of relatively stable overall headcount numbers and other overhead costs.

 

Cloud Services saw a 7% increase in its adjusted EBITDA to £18.2m (H1 2023: £17.0m), giving a margin of 32.6% (H1 2023: 36.7%). Adjusted EBITDA for Easyspace was consistent at £3.2m (H1 2023: £3.1m) and EBITDA margin at 50.6% (H1 2023: 50.4%).

 

Group overheads, which are not allocated to segments, include the cost of the Board, all the running costs of the headquarters in Glasgow, and Group led functions such as human resources, marketing, finance and design. Group overheads saw an increase of £0.3m to £2.7m (H1 2023: £2.4m) driven by staff related increases for central functions plus the move of our head office to a modern city centre location in Glasgow, providing greater ability for the retention and attraction of talented new team members.   

 

Adjusted profit before tax

 

Depreciation charges of £7.7m (H1 2023: £8.0m) have decreased slightly in absolute terms which also means it is down as a percentage of our recurring revenue in the period to 13.3% (H1 2023: 16.2%). This reduction in depreciation charge as a percentage of recurring revenue is a reflection of recent acquisitions and also some of the mix of the business which is less capital intensive, or in the case of Extrinsica, has no associated owned infrastructure with Microsoft Azure public cloud being consumed in the customer solution. The charge for the amortisation of intangible assets, excluding amortisation of intangible assets resulting from acquisitions ("amortisation of acquired intangible assets"), has increased slightly to £1.3m (H1 2023: £1.2m) due to the specific historic timing of investments made.

 

Net finance costs have increased to £2.0m (H1 2023: £1.2m) reflecting the increase in our borrowing cost from the rise in bank rates.

 

After deducting the charges for depreciation, amortisation, excluding the amortisation of acquired intangible assets, and finance costs from the adjusted EBITDA, the adjusted profit before tax for the period increased by £0.2m to £7.6m (H1 2023: £7.4m) representing an adjusted profit before tax margin of 12.2% (H1 2023: 14.1%). The overall profit benefit of £1.0m from growth in the adjusted EBITDA and lower depreciation charge has been mainly offset by the higher bank interest rates in the period.

 

Profit before tax

 

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

 

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

 

Reconciliation of adjusted profit before tax to profit before tax		6 months to 30 September 2023 £'000	6 months to 30 September 2022 £'000	Year to 31  March 2023    £'000
Adjusted profit before tax		7,581	7,360	14,820
Less: Share based payments		(206)	(418)	(696)
Less: Amortisation of acquired intangible assets		(1,982)	(1,748)	(3,880)
Less: Acquisition costs		(538)	(252)	(922)
Less: Administrative costs - exceptional non-recurring costs		(462)	-	-
Less: Cost of sales - exceptional non-recurring costs		-	-	(820)
Profit before tax		4,393	4,942	8,502

 

The larger adjusting items in the current period are:

 

·      non-cash charges for the amortisation of acquired intangible assets of £2.0m (H1 2023: £1.7m). Acquired intangible assets have increased by £0.3m due to the recent acquisitions and introduction of new intangible assets around customer relationships;

·      acquisition costs of £0.5m (H1 2023: £0.3m); and

·      £0.5m exceptional non-recurring charge recorded within administration costs related to the change in CEO during the month of September.

 

After deducting the charges for share based payments, the amortisation of acquired intangible assets,  acquisition costs and exceptional non-recurring costs, the reported profit before tax is £4.4m (H1 2023: £4.9m).

 

Taxation and profit for the period

 

There is a tax charge in the period of £1.0m (H1 2023: £1.1m), which comprises a current taxation charge of £1.1m (H1 2023: £1.0m), and a deferred taxation credit of £0.1m (H1 2023: charge of £0.1m). The headline effective tax rate is 22.0% (H1 2023: 22.6%). The increase to a 25% UK corporation tax rate, effective from 1 April 2023, has been applied to corporation tax at 30 September 2023. The tax charge in the year is the net result of the higher corporation tax rate, the positive effect of the "full expensing relief" available for capital investments and lower taxable income.

 

After deducting the tax charge from the profit before tax, the Group has recorded a profit for the period from total operations of £3.4m (H1 2023: £3.8m). 

 

Earnings per share

 

Adjusted diluted earnings per share, which is based on profit for the period attributed to ordinary shareholders before share based payment charges, amortisation of acquired intangible assets, acquisition costs and the tax effect of these items, was 5.2p (H1 2023: 5.2p). 

 

The measure of adjusted diluted earnings per share as described above is a non-statutory measure that is commonly used to analyse the performance of companies where M&A activity forms a significant part of their activities. Basic earnings per share from continuing operations was 3.1p (H1 2023: 3.5p). The calculation of both adjusted diluted earnings per share and basic earnings per share is included at note 3.

 

Cash flow

 

The Group generated cash from operations in the period of £16.8m (H1 2023: £14.5m) with an adjusted EBITDA conversion to cash ratio in the period of 90% (H1 2023: 81%). The first half year typically has a lower conversion ratio and in the prior period there was a small number of larger vendor payments which overlapped the period end causing the ratio in this period to be below 90%. Cash payments for corporation taxation in the period were £0.8m (H1 2023: limited to only £6,000), resulting in net cash flow from operating activities in the period of £16.0m (H1 2023: £14.5m).

 

Expenditure on investing activities of £12.8m (H1 2023: £13.8m) was incurred in the period.  £5.3m (H1 2023: £3.1m) was incurred on the acquisition of property, plant and equipment, principally to provide specific services to our customers and £1.4m to upgrade fibre network equipment. We incurred £0.9m (H1 2023: £0.6m) in respect of development costs during the period. In early June 2023 we paid the initial equity consideration on the Extrinsica acquisition which combined with the cash acquired, resulted in a £1.2m net cash outflow. In addition, in September 2023 we paid in cash the full value of the £4.0m earn-out consideration on the Concepta acquisition. The prior period included the initial equity consideration on the Concepta acquisition plus professional fees which, combined with the cash acquired, resulted in a £10.0m net outflow.

 

During the first half of the year, net cash used in financing activities was £6.4m (H1 2023: £1.7m generated). All shares issued in the current period under share options were issued at nominal value. In the current period we made a £5.5m (H1 2023: £10.4m) drawdown on the revolving credit facility solely to support the acquisition related payments. We repaid £3.7m of bank debt acquired from Extrinsica on completion (H1 2023: £1.5m on Concepta acquisition). In the current period we repaid £2.8m of lease liabilities (H1 2023: £2.5m), paid £1.4m (H1 2023: £0.7m) of finance charges and made a dividend payment of £3.9m (H1 2023: £4.0m). As a result, cash and cash equivalent balances at the end of the period were £10.7m (30 September 2023: £17.8m).

 

Net Debt

 

The net debt position of the Group at the end of the period was £48.0m, compared to £39.8m at 31 March 2023, with the increase driven by the payment of the initial consideration (including repayment of debt acquired) for the Extrinsica acquisition and the earn-out payment on the Concepta acquisition. Our multiple of the last 12 months of adjusted EBITDA to net debt is 1.3 times which remains a comfortable level of leverage.

The analysis of the net debt is shown below:

		30 September 2023 £'000	30 September 2022 £'000	31 March 2023    £'000
Bank revolver loan		39,900	44,400	34,400
Lease liabilities		18,757	21,196	19,180
Less: cash and cash equivalents		(10,673)	(17,770)	(13,818)
Net Debt		47,984	47,826	39,762

 

We have a £100m Revolving Credit Facility ("RCF") provided by a four-bank group consisting of HSBC, Royal Bank of Scotland, Bank of Ireland and Clydesdale Bank with a maturity date of 30 June 2026.  The facility also benefits from a £50m Accordion Facility. The RCF has a borrowing cost at the Group's current leverage levels of 180 basis points over SONIA.

 

Dividend

 

We have a dividend policy where the maximum pay-out is 50% of adjusted diluted earnings per share.  Given the high recurring revenue nature of the Group, the level of operating cash that we have delivered and comfortable level of indebtedness within the Group, we have applied the maximum pay-out ratio in our assessment of the appropriate level of interim dividend to be made. Therefore, the Board has approved an interim dividend of 1.94p per share (H1 2023: 1.94p) payable on 26 January 2024 to shareholders on the register on 5 January 2024, with an ex-dividend date of 4 January 2024. This interim dividend represents a pay-out ratio of 38% (H1 2023: 37%) of the adjusted diluted earnings per share for the period.

 

Current trading and outlook

 

Ongoing initiatives to improve sales channel effectiveness and service delivery will continue to be implemented, which along with the positive contribution from our most recent acquisitions, will allow our full year results to demonstrate continued year on year momentum. Current trading is in line with the Board's expectations.

 

iomart continues to be very well positioned to support customers in their digital transformation journeys including the complex multi-year process of migrating to a modern multi-cloud based infrastructure and becoming data driven businesses. Our blend of both IT and connectivity skills combined with our secure, scalable, resilient cloud and network infrastructure uniquely positions us to support the ambitions of our customer base. These factors combined with our strong technology vendor partnerships, 20+ years' experience and financial stability give us confidence that we will participate successfully in the growing cloud sector.

 

 

Lucy Dimes

Chief Executive Officer

5 December 2023

 

 

 

 

Consolidated Interim Statement of Comprehensive Income          

Six months ended 30 September 2023

 

		Unaudited  6 months to 30 September 2023 £'000	Unaudited  6 months to 30 September 2022 £'000	Audited  Year to 31 March 2023 £'000
Revenue		62,037	52,557	115,638
Cost of sales		(27,550)	(21,355)	(52,080)
Gross profit		34,487	31,202	63,558
Administrative expenses		(28,068)	(25,047)	(52,141)
Operating profit		6,419	6,155	11,417
Analysed as:
Earnings before interest, tax, depreciation, amortisation, acquisition costs, exceptional non-recurring costs and share based payments		18,598	17,794	36,161
Share based payments		(206)	(418)	(696)
Acquisition costs	4	(538)	(252)	(922)
Administrative expenses - exceptional non-recurring costs	4	(462)	-	-
Cost of sales - exceptional non-recurring costs		-	-	(820)
Depreciation	9	(7,713)	(7,980)	(15,861)
Amortisation - acquired intangible assets	8	(1,982)	(1,748)	(3,880)
Amortisation - other intangible assets	8	(1,278)	(1,241)	(2,565)
Finance costs	5	(2,026)	(1,213)	(2,915)
Profit before taxation		4,393	4,942	8,502
Taxation	6	(968)	(1,119)	(1,507)
Profit for the period/year		3,425	3,823	6,995
Other comprehensive income
Currency translation differences		11	166	60
Other comprehensive income for the period/year		11	166	60
Total comprehensive income for the period/year attributable to  equity holders of the parent		3, 436	3,989	7,055
Basic and diluted earnings per share
Basic earnings per share	3	3.1p	3.5p	6.4 p
Diluted earnings per share	3	3.0p	3.4p	6.2 p

 

 

 

 

Consolidated Interim Statement of Financial Position

As at 30 September 2023

		Unaudited 30 September 2023 £'000	Unaudited  30 September 2022 £'000	Audited  31 March 2023 £'000
ASSETS
Non-current assets
Intangible assets - goodwill	8	104,293	99,710	99,950
Intangible assets - other	8	15,460	15,153	12,981
Trade and other receivables		111	597	177
Property, plant and equipment	9	65,833	67,790	64,959
		185,697	183,250	178,067
Current assets
Cash and cash equivalents		10,673	17,770	13,818
Trade and other receivables		25,381	23,708	25,804
Current tax asset		704	789	987
		36,758	42,267	40,609
Total assets		222,455	225,517	218,676
LIABILITIES
Non-current liabilities
Trade and other payables		(3,330)	(2,978)	(2,666)
Non-current borrowings	11	(56,274)	(62,030)	(50,203)
Provisions for other liabilities and charges		(2,946)	(2,626)	(2,755)
Deferred tax liability		(3,936)	(2,694)	(3,221)
		(66,486)	(70,328)	(58,845)
Current liabilities
Contingent consideration due on acquisitions	7	(360)	(4,000)	(4,000)
Trade and other payables		(30,950)	(28,282)	(31,898)
Current borrowings	11	(2,383)	(3,566)	(3,377)
		(33,693)	(35,848)	(39,275)
Total liabilities		(100,179)	(106,176)	(98,120)
Net assets		122,276	119,341	120,556
EQUITY
Share capital		1,122	1,101	1,106
Own shares		(70)	(70)	(70)
Capital redemption reserve		1,200	1,200	1,200
Share premium		22,495	22,495	22,495
Merger reserve		6,967	4,983	4,983
Foreign currency translation reserve		57	152	46
Retained earnings		90,505	89,480	90,796
Total equity		122,276	119,341	120,556

 

 

 

Consolidated Interim Statement of Cash Flows

Six months ended 30 September 2023

		Unaudited 6 months to 30 September 2023 £'000	Unaudited  6 months to 30 September 2022 £'000	Audited  Year to 31 March 2023 £'000
Profit before tax		4,393	4,942	8,502
Finance costs - net		2,026	1,213	2,915
Depreciation		7,713	7,980	16,492
Amortisation		3,260	2,989	6,445
Share based payments		206	418	696
Professional fees on acquisition		-	232	-
Movement in trade receivables		1,928	(1,579)	(3,256)
Movement in trade payables		(2,702)	(1,722)	2,045
Cash flow from operations		16,824	14,473	33,839
Taxation paid		(813)	(6)	48
Net cash flow from operating activities		16,011	14,467	33,887
Cash flow from investing activities
Purchase of property, plant and equipment		(5,346)	(3,130)	(8,918)
Development costs		(860)	(627)	(1,887)
Purchase of intangible assets		(1,358)	(31)	(44)
Payment for acquisition of subsidiary net of cash acquired		(1,225)	(9,963)	(10,307)
Payment of contingent consideration		(4,000)	-	-
Net cash used in investing activities		(12,789)	(13,751)	(21,156)
Cash flow from financing activities
Issue of shares		16	-	5
Drawdown of bank loans		5,500	10,400	10,400
Repayment of bank loans		-	-	(10,000)
Repayment of lease liabilities		(2,792)	(2,509)	(4,902)
Repayment of debt acquired on acquisition		(3,728)	(1,508)	(1,508)
Finance costs paid		(1,441)	(704)	(1,900)
Refinancing costs paid		-	-	(249)
Dividends paid		(3,922)	(3,957)	(6,091)
Net cash (used in)/generated from financing activities		(6,367)	1,722	(14,245)
Net (decrease)/increase in cash and cash equivalents		(3,145)	2,438	(1,514)
Cash and cash equivalents at the beginning of the period		13,818	15,332	15,332
Cash and cash equivalents at the end of the period		10,673	17,770	13,818

 

 

Consolidated Interim Statement of Changes in Equity

Six months ended 30 September 2023

 

		Share capital	Own shares	Capital redemption reserve	Share premium account	Merger reserve	Foreign currency translation reserve	Retained earnings	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2022		1,101	(70)	1,200	22,495	4,983	(14)	89,196	118,891
Profit in the period		-	-	-	-	-	-	3,823	3,823
Currency translation differences		-	-	-	-	-	166	-	166
Total comprehensive income		-	-	-	-	-	166	3,823	3,989
Dividends		-	-	-	-	-	-	(3,957)	(3,957)
Share based payments		-	-	-	-	-	-	418	418
Total transactions with owners		-	-	-	-	-	-	(3,539)	(3,539)
Balance at 30 September 2022 (unaudited)		1,101	(70)	1,200	22,495	4,983	152	89,480	119,341
Profit in the period		-	-	-	-	-	-	3,172	3,172
Currency translation differences		-	-	-	-	-	(106)	-	(106)
Total comprehensive income		-	-	-	-	-	(106)	3,172	3,066
Dividends		-	-	-	-	-	-	(2,134)	(2,134)
Share based payments		-	-	-	-	-	-	278	278
Issue of share capital		5	-	-	-	-	-	-	5
Total transactions with owners		5	-	-	-	-	-	(1,856)	(1,851)
Balance at 31 March 2023 (audited)		1,106	(70)	1,200	22,495	4,983	46	90,796	120,556
Profit in the period		-	-	-	-	-	-	3,425	3,425
Currency translation differences		-	-	-	-	-	11	-	11
Total comprehensive income		-	-	-	-	-	11	3,425	3,436
Dividends		-	-	-	-	-	-	(3,922)	(3,922)
Share based payments		-	-	-	-	-	-	206	206
Issue of share capital		16	-	-	-	1,984	-	-	2,000
Total transactions with owners		16	-	-	-	1,984	-	(3,716)	(1,716)
Balance at 30 September 2023 (unaudited)		1,122	(70)	1,200	22,495	6,967	57	90,505	122,276

 

 

 

 

Notes to the half yearly financial information               

Six months ended 30 September 2023

 

1.              Basis of preparation

 

The half yearly financial information does not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 March 2023 have been delivered to the Registrar of Companies and included an independent auditor's report, which was unqualified and did not contain a statement under section 493 of the Companies Act 2006.

 

The half yearly financial information has been prepared using the same accounting policies and estimation techniques as will be adopted in the Group financial statements for the year ending 31 March 2024.  The Group financial statements for the year ended 31 March 2023 were prepared in accordance with the international accounting standards in conformity with the requirements of the Companies Act 2006. These half yearly financial statements have been prepared on a consistent basis and format with the Group financial statements for the year ended 31 March 2023. The provisions of IAS 34 'Interim Financial Reporting' have not been applied in full.

Operating segments (note 2 only) - prior period reclassification

 

As noted in the Chief Executive's statement on page 6, during the period we moved the financial reporting of the brand SimpleServers into the Easyspace division as the nature of the services provided and the profile of the customer base are aligned better with the mass market hosting sector which we address in the Easyspace division.  As a result, operating segment disclosures in note 2 in H1 2023 and year to 31 March 2023 (FY23) have been reclassified resulting in an increase in Easyspace revenue and adjusted EBITDA with the opposite impact in Self-managed infrastructure in Cloud Services (Revenue impact H1 2023: £436k, FY23: £864k, EBITDA impact H1 2023: £264k, FY23: £535k).

 

Going concern

 

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's Statement.

 

At the period end, the Group has access to a £100m multi option revolving credit facility that matures on 30 June 2026, which also benefits from a £50m Accordion Facility. The directors are of the opinion that the Group can operate within the current facility and comply with its banking covenants. 

 

At the end of the half year, the Group had net debt of £48.0m (H1 2023: £47.8m). The Board is comfortable with the net debt position given the strong cash generation and considerable financial resources of the Group, together with long‐term contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the directors believe that the Group is well placed to manage its business risks.

 

After making enquiries, the directors have a reasonable expectation that the Group will be able to meet its financial obligations and has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

 

 

2.              Operating segments

 

Revenue by Operating Segment

 

				6 months to 30 September 2023	6 months to 30 September 2022 (restated, note 1)	Year to 31 March 2023 (restated, note 1)
				£'000	£'000	£'000
Easyspace				6,259	6,228	12,548
Cloud Services				55,778	46,329	103,090
				62,037	52,557	115,638

 

Cloud Services revenue during the period/year can be further disaggregated as follows:

 

				6 months to 30 September 2023	6 months to 30 September 2022 (restated, note 1)	Year to 31 March 2023 (restated, note 1)
				£'000	£'000	£'000
Cloud managed services				37,022	29,220	64,115
Self-managed infrastructure				14,730	13,891	29,617
Non-recurring revenue				4,026	3,219	9,359
				55,778	46,330	103,091

 

 

Geographical Information

 

In presenting the consolidated information on a geographical basis, revenue is based on the geographical location of customers. The United Kingdom is the place of domicile of the parent company, iomart Group plc. No individual country other than the United Kingdom contributes a material amount of revenue therefore revenue from outside the United Kingdom has been shown as from Rest of the World.

 

Analysis of Revenue by Destination

 

				6 months to 30 September 2023	6 months to 30 September 2022	Year to 31 March 2023
				£'000	£'000	£'000
United Kingdom				52,845	45,147	99,961
Rest of the World				9,192	7,410	15,677
				62,037	52,557	115,638

 

Recurring and Non-Recurring Revenue

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

 

				6 months to 30 September 2023	6 months to 30 September 2022	Year to 31 March 2023
				£'000	£'000	£'000
Recurring - over time				58,011	49,338	106,279
Non-recurring - point in time				4,026	3,219	9,359
				62,037	52,557	115,638