RNS Number : 8495Q
Iomart Group PLC
24 June 2020
 

24 June 2020

iomart Group plc

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

Final Results

 

Increased organic growth and continued resilience

 

iomart (AIM:IOM), the cloud computing company, is pleased to report its consolidated final results for the year ended 31 March 2020.

 

FINANCIAL HIGHLIGHTS

 

 

2020

2019

Change

Revenue

£112.6m

£103.7m

+9%

Adjusted EBITDA1

£43.5m

£42.2m

+3%

Adjusted profit before tax2

£22.8m

£25.5m

-11%

Profit before tax

£16.8m

£16.2m

+4%

Adjusted diluted eps3

16.3p

18.6p

-12%

Basic eps

12.5p

11.9p

+5%

Proposed final dividend per share

3.93p

5.01p

-22%

 

·      Revenue up by 9% to £112.6m, with the majority of the growth derived organically in the year

·      Adjusted EBITDA1 benefitted by £3.0m from transition to IFRS 16 'Leases'

·      Adjusted profit before tax2 and adjusted earnings per share3 reflects over £1m annualised investment in sales engine and broader mix of revenue

·     Cash generated from operations in the year of £41.3m (2019: £39.1m before exceptional items) which retains the consistently strong profit-to-cash conversion ratio (95% conversion of adjusted EBITDA) (2019: 93%)

·     Year-end cash position of £15.5m (2019: £10.1m) with net debt of £57.6m (£37.3m pre the adoption of IFRS 16) (2019: £39.2m), at a comfortable level of 1.3 times EBITDA4

 

OPERATIONAL HIGHLIGHTS

 

·      Cloud Services organic growth rate increased to 6% in the year (2019: 2%)

·    Increased investment in sales engine has led to several multi-million pound, multi-year contracts being secured, adding to future revenue visibility

·      Continued market leading profitability and low customer attrition

·      Acquisitions of ServerChoice in February 2020 and Memset Limited in March 2020, provide good quality customer base, with integration already underway

·      Appointment of Reece Donovan as Chief Operating Officer to prepare Group for next stage of growth

 

CURRENT TRADING AND OUTLOOK

 

·      Robust business model and strength of offering is providing resilience during Covid-19 lockdown

·    The Group has traded in line with management expectations in the first two months of the new financial year, consistent with the Group's high recurring revenue business model

·      Group current cash balances remain at a similar level to the year end

·     Business development continues, with good discussions with both new and existing customers, although timing of new projects is likely to be more uncertain for the remainder of this calendar year 

 

Statutory Equivalents

 

A full reconciliation between adjusted and statutory profit before tax is contained within this statement. The largest variance year on year within the adjustments relates to the £1.9m reduction in contingent consideration on the 2018 LDeX acquisition which translates to a gain within the consolidated statement of comprehensive income. In the prior year a similar accounting entry was recorded for the 2017 Sonassi acquisition but in that situation it was a loss of £1.4m on the finalisation of the earn-out final payment which was higher than previously expected. 

 

 

 

Angus MacSween, CEO commented,

 

"This is the twelfth consecutive year of growth since the transition of the business to cloud services in 2008 with the acquisition of our first data centres. Since that time, revenues and profits have grown considerably, with revenue reaching £112.6m, through the combination of continued organic growth and acquisitions.

 

"As we look forward to the next stage of growth, we do so with our teams all working remotely and the world around us considerably changed due to the global impact of Covid-19. Our focus must be first and foremost on the well being of our people, all of whom have risen to the challenge fantastically, for which I and the Board are extremely grateful.

 

"Together we have built a strong, resilient business, providing mission critical infrastructure to a wide spread of customers across diverse industries. This resilience will serve us well as we progress through the months ahead. The switch to remote working across the world has only accelerated the move to the cloud which we believe will be a growth driver for our business over the longer term.

 

"Our high levels of recurring revenues, breadth of customer base, industry leading profit margins and strong cash generation, mean we are confident iomart is well positioned to withstand the current challenges and deliver long-term growth."

 

 

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

2 Throughout these financial statements adjusted profit before tax (disclosed in the Chief Financial Officer's report) is profit before tax, amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs, accelerated write off of arrangement fees on bank facility and gain/(loss) on revaluation of contingent consideration.

3 Throughout these financial statements adjusted diluted earnings per share (disclosed in note 6) is earnings per share before amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs, accelerated write off of arrangement fees on bank facility and gain/(loss) on revaluation of contingent consideration. 

4  EBITDA is earnings before interest, tax, depreciation and amortisation.   

 

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

 

For further information:

                                                       

 

iomart Group plc

Tel: 0141 931 6400

Angus MacSween, Chief Executive Officer

 

Scott Cunningham, Chief Financial Officer

 

 

 

Peel Hunt LLP (Nominated Adviser and Broker)

Tel: 020 7418 8900

Edward Knight

Edward Allsop

Nick Prowting

 

 

Alma PR

 

Tel: 020 3405 0212

Caroline Forde

 

Helena Bogle

 

 

About iomart Group plc

For over 20 years iomart Group plc (AIM: IOM) has been helping growing organisations to maximise the flexibility, cost effectiveness and scalability of the cloud. From data centres we own and operate in the U.K., and from connected facilities across the globe, we deliver 24/7 storage and protection for data across the most complex of cloud and legacy infrastructures. Our team of over 400 dedicated staff work with our customers at the strategy stage through to delivery and ongoing management, to implement the secure cloud solutions that deliver to their business requirements.  For further information about the Group, please visit www.iomart.com 
 

CHAIRMAN'S STATEMENT

 

I am pleased to report that iomart (the "Group") has delivered another year of revenue growth, strong profitability and cash generation, in line with expectations. Due to the timing of the year end, the Group experienced minimal impact on trading in the year from the effects of Covid-19.

 

As we publish this report, Covid-19 continues to impact people and economies around the world.  In times such as these, our purpose as a Board comes into clear focus: to ensure all employees are safe and supported; to ensure that the business continues to operate to the highest standards for the benefit of all stakeholders; and to protect and enhance the long-term future of the business.  I am pleased to report that during these challenging times, this has indeed been the case.  Having implemented remote working across our sites from early March 2020, the Group has continued to operate to its customary high standards, ensuring 100% uptime and high levels of customer support while continuing to develop prospects for future growth.  The teams have responded positively to the changes asked of them, and I and the Board wish to thank them for their increased efforts in what have been challenging times for all. 

 

iomart is a well-funded, well-managed, profitable and cash-generative business with high levels of recurring revenue.  The cash position at year end had increased to £15.5m, up from £10.1m at the prior year end, demonstrating the financial strength of the business.  The management team has run reasonable downside scenario tests and is confident we have the resources to withstand a significant economic downturn.  We will continue to be vigilant in terms of monitoring business levels and the Group's cash position, however with greater than 85% of the Group's revenue recurring in nature, a wide customer base across multiple industry sectors and our offering delivering mission critical infrastructure, the Board is confident iomart is in a strong and robust position to address any future broader economic concerns.

 

During the year we paid an interim dividend of 2.60p per share which was paid to shareholders in January.  In addition, the Board is now proposing to pay a final dividend of 3.93p per share. With this final dividend payment, the total for the year will be 6.53p, equivalent to the maximum pay-out ratio under our current policy of 40% of adjusted diluted earnings per share.  We are aware of the focus from the wider community on dividend payments in the current economic situation, but believe that, given our funding position, our decision not to apply for the government's furlough scheme, our robust business model and our focus on being as fair and supportive as we can be to all stakeholders during the recent unprecedented events, including employees, customers and suppliers, we should recognise the support from our shareholders by continuing our dividend policy.  

 

On 30 March 2020, we were delighted to welcome Reece Donovan to the Board as Chief Operating Officer. Reece has significant experience in the technology and telecommunication industries, with a demonstrable track record of achievement in roles both in the UK and internationally. Given the growth of the business and our plans for the future it was important to strengthen our executive team and we welcome Reece to the Group. 

 

The progress we have made this year and the continued strong financial performance is a result of a great deal of hard work by our executives and staff and I thank them all on behalf of the Board and the shareholders for their efforts over the year.

 

 

 

 

Ian Steele

Non-Executive Chairman

24 June 2020

 

 

 

 

CHIEF EXECUTIVE OFFICER'S REPORT

 

Introduction

This is the twelfth consecutive year of growth since the transition of the business to cloud services in 2008 with the acquisition of our first data centres. Since that time, revenues and profits have grown considerably, reaching £112.6m (2019: £103.7m), an increase of 9% on the prior year through the combination of continued organic growth and the impact of acquisitions.

A key point of focus in the last 18 months has been the refresh of our sales and marketing operations to ensure we have the right mix of skills, processes and tools to deliver the next stage of growth. We have been encouraged by the early signs of success, securing several multi-million pound contracts in the year, which add to our long-term visibility of revenues. While adjusted EBITDA margins have naturally reduced as a result of this investment and the specific mix of revenues in the current year, we retain market leading adjusted EBITDA margins of above 38%, strong cash generation and high levels of customer retention. Our statutory profit before tax increased by 4% to £16.8m.

Covid-19

In the three months since the response to the Covid-19 pandemic was initiated in the UK, there has been limited impact on iomart's trading.  We take great comfort from the resilience of our business model, especially the diversity and limited concentration of our customer base. We are not significantly exposed to industries that are suffering the worst effects. The level of customer churn across all segments of the business has been low, renewal levels high and cash collection in line with our typical profile. However, we remain vigilant to the economic impact the ongoing situation may create, particularly on the SME segment of the market.

Our priority has been the wellbeing and health of our staff and our teams have responded fantastically to the changes placed upon them. iomart has always had the technological capability to enable home working and implemented this mode of operation with no disruption from 9 March, while mission critical on-site roles, such as in data centres, have been manned in compliance with social distancing rules. As a result, our business has continued to operate 24/7 as near to normal as possible.  Each of our data centres remains operational to high standards of security and resilience and all customer support has been maintained.

We have increased the monitoring of cash flow, and cash management has been strong. We have not applied for any support from the government's furlough scheme, preferring instead to continue to pay the salaries of the small number of the team whose roles are not currently required, while encouraging them to offer their time to the support of their communities.

Market and Strategy

We operate in a dynamic market with new products and solutions being developed at an ever-increasing pace.  We are focussed on ensuring our product portfolio remains relevant to support customers in the journey to cloud based solutions, be that of a public, private, hybrid nature or indeed "on premise", as a substantial number of organisations still continue to acquire elements of what they need in this way.

The growth in data requirements sees no slow down, with the number of users, devices, content rich data and applications increasing demand for computer power, storage and connectivity.  Development around such areas as machine learning, internet of things and big data will ensure this is a long-term trend.  The complexity of hosting environments is putting pressure on resourcing and capabilities of in-house IT teams, driving outsourcing demand. The market for cloud computing solutions which we identified in 2007 presents us with as much opportunity now as it did then and our strategy is well positioned to deliver continued success.  The current situation around Covid-19 may see the acceleration in the adoption of digital transformation and remote working, both of which are likely to be long-term drivers to the Cloud. 

Overall, our market continues to grow strongly.  As has been well documented, a large part of this growth is dominated by the 'hyper-scalers', primarily Amazon, Microsoft and Google.  These organisations are now established parts of the landscape and what has been shown, especially given the trend to multiple cloud architectures, is that there is plenty of space for organisations like iomart and the hyper-scalers to coexist.  We strongly believe our differentiation is that we provide advice, help, great customer service and flexibility. In addition, for organisations with a stable baseload of computer power, iomart's bespoke cloud solutions can compete head to head on full life costs.  The untidy nature of the vast majority of the world's legacy IT infrastructure provides us with the reassurance that there will always be customers who are looking for a trusted advisor in this space.

We have already established a strong position as a leading provider of managed cloud computing services which has customer relationships and excellence in service at the heart of the business. We plan to build on this position by focussing on:

•     Growing our managed cloud services by excelling in customer service and ensuring innovation in our customer offering continues to match the needs of the market;

•     Growing our self-managed infrastructure brands by differentiating with products, solutions and support which add value and help solve business problems;

•     Retaining our presence in the mass consumer domain name and web hosting market via selective marketing and dynamic pricing;

•     Building a high performance team supported by best in class systems, processes and tools;

•     Continued optimisation of our data centre estate with cost efficiency achieved via asset planning, procurement and automation;

•     Ensuring robust and resilient infrastructure, connectivity and security at all times; and

•     Continuation of our disciplined acquisition strategy, with earning enhancing deal valuations and clear integration to the existing business.

Acquisitions

We again augmented our overall growth during the year through the acquisition of:

•    The managed private cloud division of privately owned ServerChoice Limited ("ServerChoice") on 28 February 2020, seeing the transfer of around 30 customers, some equipment and a small number of staff into our core managed Cloud Services business; and

•    Memset Limited ("Memset") on 12 March 2020. Memset is a well-established business providing dedicated and virtualised private cloud infrastructure to around 2,000 customers from a team and data centre based in Dunsfold, Surrey. 

 

The timing of these acquisitions means they had no material impact on revenue and profit in the year ended 31 March 2020 and planning for integration is already underway as we enter the new financial year.  Strict criteria continue to be applied to any potential acquisition target, ensuring they enhance our overall strategy and are accretive to the financial strength of the Group. We expect M&A activity will continue as an important growth driver for the Group in what remains a highly fragmented market.

 

Operational Review

 

While all of our activities involve the provision of services from common infrastructure, we are organised into two operating segments, Cloud Services (£99.8m revenue) and Easyspace (£12.8m revenue).

 

Cloud Services

Revenues in this segment have grown by 10% to £99.8m (2019: £90.6m). While the full year contribution from the prior year acquisitions was a positive factor, it was pleasing to see organic growth being the largest element of our overall growth in the current year. Revenue growth in the Cloud Services segment, excluding the impact of acquisitions, was 6% (2019: 2%). The Cloud Services adjusted EBITDA (before share-based payments, acquisition costs and central group overheads) was £42.3m being 42.4% of revenue (2019: £40.4m being 44.6% of revenue), or £39.3m on a like-for-like basis, excluding the impact of IFRS 16 'Leases'.  We continue to expect Cloud Services to be the driver of revenue and profit growth for the Group going forward.

 

Within our Cloud Services division, we have three core offerings, recognising the differing complexity of the solutions designed and the level of ongoing managed services we provide.  This means we are able to supply products and services across the full cloud spectrum and do so using shared resources and common platforms across the Group:

 

·      iomart Cloud Services: provides fully managed, complex bespoke designs, resulting in resilient solutions involving private, public and hybrid cloud infrastructure. This can range from the provision of managed online backup and disaster recovery solutions, through to an entity's entire online live presence where all revenue generated by the entity's activities are transacted through the cloud infrastructure we provide, delivered with the reassurance of a full 24/7 management service.

 

·     Infrastructure as a Service (IaaS): delivers dedicated, physical, self-service servers to customers. We provide many thousands of physical servers for our customers using highly automated systems and processes which we continue to develop and improve.  Over the last few years we have been a consolidator of the UK market within this area, via our M&A activity, including for example our most recent acquisition of Memset.  In a considered manner, ensuring minimum disruption to the customer experience, we continue to consolidate legacy brands. 

 

·    Cristie Data: supplies computer equipment to customers' premises along with associated support services.  The continued revenue growth of this brand, including a higher mix of recurring business, confirms the move to the consumption of computing power in the cloud by established organisations is happening over a long period and establishing relationships at this early stage has allowed us to support customers as they start the journey to the cloud. 

 

The improvement in the revenue in the current year benefited from a strong performance by Cristie Data.  The provision of IaaS saw some reductions in revenue primarily from the smaller customers, which while not material to the overall net revenue growth achieved, is high margin business. We achieved improved momentum in new business wins within the Cloud Services division, where the highest level of management effort and investment has been in the last year. Two large enterprise wins were achieved in the year which are both around £1m of annual recurring revenue.  These were great examples of the full utilisation of our capability and service to support the move from fragmented on-premise IT infrastructure into a scalable, resilient and secure private cloud environment needed to support global operations. 

 

We believe controlling our own infrastructure is important to delivering high quality, secure and robust solutions to customers.  In June 2020, subsequent to the year end, we extended our London data centre property lease to June 2035. Following this, we plan to upgrade the main cooling and the electrical systems on the site over the coming 18 months, improving resilience but also adding to our energy efficiency.

 

Easyspace

The Easyspace segment which provides a range of products to the micro and SME markets including domain names, shared, dedicated and virtual servers and email services, saw a small reduction in revenue in the year to £12.8m (2019: £13.1m).  To grow Easyspace significantly would mean competing in a more commoditised market with the need for a high marketing budget.  As a result, our target for Easyspace is to retain our existing presence in the UK market via selective marketing and responding to market conditions with dynamic pricing.  As in the past, Easyspace delivered strong profitability with an adjusted EBITDA (before share-based payments, acquisition costs and central group overheads) of £5.6m being 44.2% of revenue (2019: £6.2m being 47.1% of revenue).  The business benefits from use of the Group infrastructure meaning this profitability translates to strong cash flow for the Group.

 

Current trading and outlook

The first two months of the new financial year have performed in line with our expectations, consistent with our high recurring revenue business model.  As evidenced by our robustness during the Covid-19 period, our current cash balances remain at a similar level to the year end. Business development continues, with good discussions with both new and existing customers, although timing of new projects is likely to be more uncertain for the remainder of this calendar year. 

While visibility of sales pipeline conversion remains less clear, we believe the medium-term impact of the social distancing measures implemented across the world will prompt the acceleration in the adoption of digital transformation and remote working, both of which are long-term drivers to the cloud. Our high levels of recurring revenues, breadth of customer base, industry leading profit margins and strong cash generation, mean we are confident iomart is well positioned to withstand the current challenges and deliver long-term growth.

 

 

 

Angus MacSween

Chief Executive Officer

24 June 2020

 

 

 

 

CHIEF FINANCIAL OFFICER'S REPORT

 

Financial Review

Key Performance Indicators     

                                                                                                                                                         
2020              2019

Revenue

 

 

£112.6m

£103.7m

Gross Profit %

 

 

60.8%

64.4%

Adjusted EBITDA

 

 

£43.5m

£42.2m

Adjusted EBITDA margin %

 

 

38.6%

40.7%

Adjusted profit before tax

 

 

£22.8m

£25.5m

Adjusted profit before tax margin %

 

 

20.2%

24.6%

Profit before tax

 

 

£16.8m

£16.2m

Profit before tax margin %

 

 

14.9%

15.6%

Basic earnings per share

 

 

12.5p

11.9p

Adjusted earnings per share (diluted)

 

 

16.3p

18.6p

Cash flow from operating activities before exceptional costs / Adjusted EBITDA %

95%

93%

Net debt / Adjusted EBITDA leverage ratio

 

 

1.3

0.9

Revenue

Revenue for the year grew by 9% to £112.6m (2019: £103.7m) through the combination of continued organic growth and the full year impact of acquisitions made in the prior year.

Our Cloud Services segment grew revenues by 10% to £99.8m (2019: £90.6m), 6% excluding the impact of acquisitions (2019: 2%). A full year contribution from Bytemark and LDeX, acquired in August 2018 and late December 2018, respectively, contributed to the overall growth rate. The timing of our latest two acquisitions, completed in February and March 2020 means they made no material impact to the trading results in the year.  The segment benefited from a strong performance by our hardware reseller brand, Cristie Data, with revenue from our higher margin Infrastructure as a Service offerings being slightly down. We achieved improved momentum in new business wins within the managed cloud services, where the highest level of management effort and investment has been in the last year, with the majority of revenue from these multi-year contracts being recognised in future years, increasing our monthly run-rate of revenue. 

Our Easyspace segment has performed in line with expectations over the year with revenues reducing only slightly to £12.8m (2019: £13.1m).

Business model

Our business model in both segments generally involves the provision of cloud and managed hosting services from our data centres, delivering the computing power, storage, and network capability our customers require for the operation of their own businesses. We have invested in an estate of data centres, an extensive fibre network and for each customer the servers, routers, firewalls etc that are necessary to create the IT infrastructure they require. Customers pay us for the provision of that infrastructure, with the potential to add a managed services wrapper.

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

Gross Profit

Gross profit in the year, which is calculated by deducting from revenue variable cost of sales such as domain costs, public cloud costs, the cost of hardware and software sold, power, sales commission and the relatively fixed costs of operating our data centres, increased by 3% to £68.5m (2019: £66.7m).  In percentage terms, gross margin has reduced to 60.8% (2019: 64.4%) due primarily to two factors. Sales by Cristie Data are typically lower gross margin given the inclusion of the reselling element of their solutions, plus some of the larger managed cloud solutions recently signed have initial contribution levels lower than the smaller infrastructure only deals from the past, although we anticipate their gross profit margin will increase over time. We have not seen any significant individual price change in any of the components of the purchased cost base in the 12 months.

Gross profit within our Easyspace segment reduced slightly from the previous year due to the specific bundle of packages sold to hosting customers in the year.

Adjusted EBITDA

Our adjusted EBITDA performance in the year reflects the increased investments we have made in the organisation to provide us with the right platform for accelerated future growth, plus the impact of the revenue mix described above. While our adjusted EBITDA margin has decreased to 38.6%, we retain market leading margins and are confident this level is now sustainable, striking the right balance between investment in the organisation to better align the business with higher growth areas of the market and high levels of profit generation.

Adjusted EBITDA for the year was £43.5m (2019: £42.2m) an increase of 3% which in EBITDA margin terms translates to 38.6% (2019: 40.7%). The adoption of IFRS 16 'Leases' ("IFRS 16"), which reclassifies previous operating lease rentals to a depreciation and interest charge, has a benefit of £3.0m in the year to the adjusted EBITDA metric.  The previously flagged investment in our commercial operation, combined with the overhead base of the prior year acquisitions, resulted in a £3.4m increase in our administrative expenses versus the prior year.  This, along with the broader mix of revenue, has reduced our underlying EBITDA generation in the year. 

Adjusted EBITDA in the Cloud Services segment was £42.3m (2019: £40.4m), an increase of 5%. This reported result includes the impact from the adoption of IFRS 16, the specific mix of business and our investment into our commercial operations previously mentioned which are all solely applicable to the Cloud Services segment. We do not anticipate any more significant increases in investments into the overheads moving forward as the reorganisation of our commercial operation is complete.  These factors mean that in percentage terms, the full year adjusted EBITDA margin in the Cloud Services segment has decreased to 42.4% (2019: 44.6%).

The Easyspace segment's adjusted EBITDA was £5.6m (2019: £6.2m) reflecting the impact of slightly lower revenue this year plus some reduction in gross margin due to specific products sold.  In percentage terms the adjusted EBITDA margin is reduced to 44.2% (2019: 47.1%).

Group overheads remained stable at £4.4m (2019: £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 tax

Excluding the impact of additional depreciation of £2.9m following the adoption of IFRS 16, depreciation charges have remained broadly consistent with prior year at £15.6m (2019: £13.1m).  There were no material project type investments made in the year with most of the CAPEX spend being on operational items such as servers and storage to support customer deployments and growth.

The charge for amortisation of intangibles, excluding amortisation of intangible assets resulting from acquisitions ("amortisation of acquired intangible assets"), of £2.9m (2019: £2.5m) has increased as a result of an increase in the level of software investment.

Finance costs of £2.2m (2019: £1.2m), has increased primarily due to the adoption of IFRS 16, which reclassifies previous operating lease rentals to a depreciation and interest charge.  The new interest charge created by this was £0.6m.  

After deducting the charges for depreciation, amortisation (excluding the charges for the amortisation of acquired intangible assets) and finance costs (excluding the accelerated write off of arrangement fees on bank facility) from the adjusted EBITDA, the Group's adjusted profit before tax reduced by 11% to £22.8m (2019: £25.5m), representing an adjusted profit before tax margin of 20.2% (2019: 24.6%).

Profit before tax

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

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

Reconciliation of adjusted profit before tax to profit before tax

 

 

2020

£'000

2019

£'000

Adjusted profit before tax

 

 

22,768

25,524

Less: Amortisation of acquired intangible assets

 

 

(6,159)

(6,492)

Less: Acquisition costs

 

 

(438)

(351)

Less: Share-based payments

 

 

(1,243)

(1,008)

Add/(Less): Gain/(loss) on revaluation of contingent consideration

 

 

1,856

(1,394)

Less: Accelerated write off of arrangement fees on bank facility

 

 

-

(63)

Profit before tax

 

 

16,784

16,216

 

The adjusting items are: charges for the amortisation of acquired intangible assets of £6.2m (2019: £6.5m) which is the net impact of the acquisitions made in the year and the specific amortisation profile of items from acquisitions made in previous years; acquisition costs of £0.4m (2019: £0.4m) as a result of professional fees associated with acquisitions made and share-based payment charges of £1.2m (2019: £1.0m) an increase due to the issue of additional share options.

In addition, the adjusting items also include a gain on the revaluation of contingent consideration of £1.9m (2019: £1.4m net loss). The current year gain relates to the reduction in the earn-out payment on the LDeX acquisition. This contingent payment relates to the EBITDA achieved during the 12 months to 31 December 2019 for which a multiple of six is applied. As a result, the reduction represents a £0.3m EBITDA variance to previous forecasts. In prior year, the final payment due on the Sonassi acquisition was £1.8m higher than the previous estimate. The structure of the Sonassi earn-out arrangement, with a high multiple factor under a ratchet mechanism, meant that a modest change in profitability within a certain range resulted in a substantial change in the amount due under the earn-out terms. The brand's performance exceeded management expectations in the final months of the earn-out period to July 2018. Offsetting this loss in prior year was a gain of £0.4m on the revaluation of the Bytemark contingent consideration with settlement paid in full.

In the prior year comparatives there was one additional adjustment: non-cash accelerated write off of previously capitalised arrangements fees of £0.1m following the Group entering into a new banking facility on 6 June 2018.

After deducting these items from the adjusted profit before tax; the reported profit before tax was £16.8m (2019: £16.2m) an increase of 4%. In percentage terms the profit before tax margin was a slight reduction to 14.9% (2019: 15.6%) with favourable movement on the gain/(loss) on contingent consideration offsetting trading result reductions. 

Taxation

The tax charge for the year is £3.1m (2019:  £3.3m). The tax charge for the year is made up of a corporation tax charge of £3.6m (2019: £5.0m) with a deferred tax credit of £0.5m (2019: £1.7m). The effective rate of tax for the year is 18.7% (2019: 20.6%).  The movement in the year is heavily influenced by three main factors being: the swing in the tax charge in the current year from the non-taxable gain on revaluation of contingent consideration compared to the non-taxable deductible loss in prior year, tax effect from share-based remuneration and adjustments in the current year tax relating to prior period. We believe 19%, being the UK headline corporation tax rate, is considered a reasonable recurring effective tax rate for underlying profits. Further explanation of the tax charge for the year is given in note 4. 

Profit for the year

After deducting the tax charge for the year from the profit before tax the Group has recorded a profit for the year from total operations of £13.7m (2019: £12.9m) an increase of 6%.

Earnings per share

The calculation of both adjusted earnings per share and basic earnings per share is included at note 6.

Basic earnings per share from continuing operations was 12.5p (2019: 11.9p), an increase of 5%.

Adjusted diluted earnings per share, based on profit for the year attributed to ordinary shareholders before amortisation charges of acquired intangible assets, acquisition costs, share-based payment charges, the gain/(loss) on the revaluation of contingent consideration, accelerated write off of arrangement fees on the bank facility, and the tax effect of these items was 16.3p (2019: 18.6p), a reduction of 12%.

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

Acquisitions

On 28 February 2020, iomart acquired the managed private cloud division of privately owned ServerChoice Limited, for an initial consideration of £2.0m after a deduction of £0.1m for working capital, with a further maximum consideration of £0.9m. The initial payment was funded from a drawdown from the Company's revolving credit facility. The contingent consideration will be based on achievement of certain monthly recurring revenue targets in June 2020 and September 2020. Based on estimates of the probabilities of various levels of revenue, we expect the amount to be paid in respect of the final contingent consideration due will be £0.8m (note 12).  The business purchase agreement saw the transfer of around 30 customers, £0.3m of fixed assets and a small number of staff based in Stevenage into our core managed cloud services business.

On 12 March 2020, iomart completed the acquisition of Memset Limited for an initial consideration of £2.7m, with a further maximum consideration of £1.0m.  This initial payment included a deduction of £0.6m to settle the adjustments required to the locked box accounts in respect of the cash, debt and working capital position. The initial payment was funded from a drawdown from the Company's revolving credit facility. The contingent consideration will be based on achievement of certain monthly recurring revenue targets in December 2020.  Based on estimates of the probabilities of various levels of revenue, we expect the amount to be paid in respect of the final contingent consideration due will be £0.5m (note 12).   Memset is a well-established business based in Dunsfold, Surrey providing dedicated and virtualised private cloud infrastructure to around 2,000 customers.

Dividends

Our dividend policy, which has been in place for several years now, is based on the profitability of the business in the period. We have committed to a pay-out policy of up to 40% of the adjusted diluted earnings per share we deliver in a financial year.

This year we paid an interim dividend of 2.60p (2019: 2.45p) which was paid in January 2020. We have now proposed a final dividend payment of 3.93p per share (2019: 5.01p) which would result in a total dividend for the year of 6.53p (2019: 7.46p) representing a pay-out ratio of 40% of the adjusted diluted earnings per share for the year.  The Board has taken the decision to pay a final dividend to shareholders as a result of the recurring revenue nature of the Group, the level of operating cash which we now deliver and the low level of indebtedness within the Group. Should the impact of Covid-19 increase in the year ahead, the Board will keep the level of future dividend payment under review.  However, it should be noted the Group has not, to date, utilised any of the government furlough schemes and therefore believes that there is no impediment in this respect to paying a dividend to shareholders.

Cash flow and net debt

Net cash flows from operating activities

The Group continued to generate high levels of operating cash over the year. Cash flow from operations was £41.3m (2019: £39.1m before exceptional non-recurring costs) which represents a 95% conversion of adjusted EBITDA (2019: 93%).   This strong level of cash flow conversion has been a constant feature over the years, recognising the strength of our business model and cash cycle.  The adoption of IFRS 16, which reclassifies previous operating lease rental payments to lease repayments and interest represents a reclassification from net cash flows from operating activities of £3.0m to net cash flows from financing activities.

Payments of taxation in the year remained reasonably stable at £4.7m (2019: £5.4m) and results in a net cash flow from operating activities in the year of £36.6m (2019: £31.4m after paying £2.3m of non-recurring software licence fees).

Cash flow from investing activities

Given our strong position, in a growing market, we continue to invest large sums on investing activities split between both internal investments into our global infrastructure but also in the continuation of our disciplined acquisition strategy. The Group invested a total of £21.2m (2019: £35.3m) during the year.

The Group continues to invest in property, plant and equipment through expenditure on data centres and on equipment required to provide managed services to both its existing and new customers. As a result, the Group spent £14.7m (2019: £10.4m) on assets, net of related lease drawdowns, trade creditor movements and non-cash reinstatement provisions.  This is broadly similar to last year after recognising the Maidenhead freehold purchase in December 2018 for £5.4m (excluding £0.3m of fees and taxes). We remain focused on increased automation and asset planning within the infrastructure estate with the aim of ensuring cost and utilisation efficiency.

Expenditure was also incurred on development costs of £1.4m (2019: £1.4m) and on intangible assets of £1.1m (2019: £1.1m).

In line with our strategy of accelerating our growth by acquisition the Group spent £4.2m (2019: £12.0m), net of cash acquired, in relation to the acquisitions of the managed private cloud division of privately owned ServerChoice Limited and Memset Limited, as described above. In the current year, the Group did not incur any expenditure in respect of contingent consideration due on previous acquisitions (2019: £4.7m).

Cash flow from financing activities

Drawdowns of £6.2m (2019: £25.9m) were made from the revolving credit facility in the year to fund the purchase of the acquisitions.  Bank loan repayments of £2.0m (2019: £12.2m) were made in the year. We received £0.6m (2019: £0.3m) from the issue of shares as a result of the exercise of options by employees. We also made dividend payments of £8.3m (2019: £8.0m); paid finance costs of £1.7m (2019: £1.1m); and made lease repayments of £4.7m (2019: £0.5m).  The adoption of IFRS 16, which reclassifies previous operating lease rentals appearing within cash flow from operations to repayment of lease liabilities and additional finance costs paid is the reason for the increase in these related cash outflows within financing activities. 

Net cash flow

As a consequence, our overall cash generated during the year was £5.4m (2019: £0.6m) which resulted in cash and cash equivalent balances at the end of the year of £15.5m (2019: £10.1m).

Net Debt

The net debt position of the Group at the end of the period was £57.6m (2019: £39.2m) as shown below, of which nearly £20m is as a result of the adoption of IFRS 16.  This represents a multiple of 1.3 times our annual adjusted EBITDA which we believe is a comfortable level of debt to carry given the recurring revenue business model and strong cash generation in the business. The level of net debt has increased purely as the result of the introduction of £20.3m of lease liability on the adoption of IFRS 16 (note 11).

 

 

 

2020

£'000

 

2019

£'000

Bank revolver loan

 

 

52,791

48,536

Lease liabilities

 

 

20,347

777

Less: cash and cash equivalents

 

 

(15,497)

(10,069)

Net Debt

 

 

57,641

39,244

 

The banking facility, which provides an £80m revolving credit facility, matures in September 2022.

Financial position

The strength of our business model, with high recurring revenue, low customer concentration across wide sectors and a positive cash cycle is well established and creates a very strong financial position, even in the current challenging environment caused by the Covid-19 virus. The Group continues to generate substantial amounts of operating cash. The generation of that cash flow together with the committed bank loan facility for acquisitions, capital expenditure and general business purposes, means that the Group has the liquidity it requires to continue its growth through both organic and acquisitive means. 

 

 

Scott Cunningham

Chief Financial Officer

24 June 2020

 

 

Definition of alternative profit measures:

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

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

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

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

Cash flow from operating activities before exceptional costs / Adjusted EBITDA % is defined as cash flow from operating activities before exceptional costs (as disclosed in the consolidated statement of cash flows) / Adjusted EBITDA (as defined earlier) as a %

Net debt / Adjusted EBIDTA level ratio is defined as Net Debt (as disclosed in the Chief Financial Officer's report) / Adjusted EBITDA (as defined earlier)

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 MARCH 2020

 

 

 

 

Note

2020

 £'000

2019

 £'000

Revenue

 

 

 

112,581

103,709

 

 

 

 

 

 

Cost of sales

 

 

 

(44,093)

(36,965)

 

 

 

 

 

 

Gross profit

 

 

 

68,488

66,744

 

 

 

 

 

 

Administrative expenses

 

 

 

(51,387)

(47,952)

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

    

17,101

18,792

 

 

 

 

 

 

Analysed as:

 

 

 

 

 

Earnings before interest, tax, depreciation, amortisation, acquisition costs and share-based payments

 

 

 

43,510

42,232

Share-based payments

 

 

 

(1,243)

(1,008)

Acquisition costs

 

 

 

(438)

(351)

Depreciation

 

 

9

(15,635)

(13,091)

Amortisation - acquired intangible assets

 

 

8

(6,159)

(6,492)

Amortisation - other intangible assets

 

 

8

(2,934)

(2,498)

 

 

 

 

 

 

 

 

 

 

 

 

Gain/(loss) on revaluation of contingent consideration

 

 

 

1,856

(1,394)

Finance income

 

 

 

39

21

Finance costs

 

 

 

(2,212)

(1,203)

 

 

 

 

 

 

Profit before taxation

 

 

 

16,784

16,216

 

 

 

 

 

 

Taxation

 

 

4

(3,135)

(3,339)

 

 

 

 

 

 

Profit for the year attributable to equity holders of the parent

 

 

 

13,649

12,877

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Amounts which may be reclassified to profit or loss

 

 

 

 

 

Currency translation differences

 

 

 

98

(8)

Other comprehensive income for the year

 

 

 

98

(8)

 

 

 

 

 

 

Total comprehensive income for the year attributable to equity holders of the parent

 

 

 

13,747

12,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share

 

 

 

 

 

Basic earnings per share

 

 

6

12.5p

11.9p

Diluted earnings per share

 

 

6

12.2p

11.6p

 

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2020

 

 

 

 

 

2020

2019

 

 

 

 

 

 

Note

 

£'000

£'000

ASSETS

 

 

 

 

 

Non-current assets

 

 

 

 

 

Intangible assets - goodwill

 

8

 

86,479

85,382

Intangible assets - other

 

8

 

24,631

25,211

Trade and other receivables

 

 

 

2,760

2,520

Property, plant and equipment

 

9

 

72,344

47,045

 

 

 

 

186,214

160,158

Current assets

 

 

 

 

 

Cash and cash equivalents

 

 

 

15,497

10,069

Trade and other receivables

 

 

 

23,237

20,794

 

 

 

 

38,734

30,863

 

 

 

 

 

 

Total assets

 

 

 

224,948

191,021

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Trade and other payables

 

 

 

(2,283)

-

Non-current borrowings

 

10

 

(70,109)

(48,957)

Provisions

 

 

 

(1,956)

(1,115)

Deferred tax

 

5

 

(1,146)

(939)

 

 

 

 

(75,494)

(51,011)

Current liabilities

 

 

 

 

 

Contingent consideration due on acquisitions

 

12

 

(2,480)

(3,009)

Trade and other payables

 

 

 

(31,948)

(30,933)

Current tax liabilities

 

 

 

(3)

(1,315)

Current borrowings

 

10

 

(3,029)

(356)

 

 

 

 

(37,460)

(35,613)

 

 

 

 

 

 

Total liabilities

 

 

 

(112,954)

(86,624)

 

 

 

 

 

 

Net assets

 

 

 

111,994

104,397

 

 

 

 

 

 

EQUITY

 

 

 

 

 

Share capital

 

 

 

1,092

1,085

Own shares

 

 

 

(70)

(70)

Capital redemption reserve

 

 

 

1,200

1,200

Share premium

 

 

 

22,147

21,518

Merger reserve

 

 

 

4,983

4,983

Foreign currency translation reserve

 

 

 

50

(48)

Retained earnings

 

 

 

82,592

75,729

 Total equity

 

 

 

111,994

104,397

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED 31 MARCH 2020

 

 

 

 

 

Note

2020

£'000

2019

£'000

 

 

 

 

 

 

 

 

Profit before taxation

 

 

 

16,784

16,216

 

(Gain)/loss on revaluation of contingent consideration

 

 

 

(1,856)

1,394

 

Finance costs - net

 

 

 

2,173

1,182

 

Depreciation

 

 

9

15,635

13,091

 

Amortisation

 

 

8

9,093

8,990

 

Share-based payments

 

 

 

1,243

1,008

 

Movement in trade receivables

 

 

 

(1,107)

          (1,226)

 

Movement in trade payables

 

 

 

(627)

    (1,563)

 

Cash flow from operations (before payment of exceptional non-recurring cost)

 

41,338

        39,092

 

 

Payment of exceptional non-recurring cost

 

 

 

-

            (2,312)

 

Cash flow from operations

 

 

 

41,338

36,780

 

Taxation paid

 

 

 

(4,719)

(5,353)

 

Net cash flow from operating activities

 

 

 

36,619

31,427

 

 

 

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

9

(14,688)

(10,383)

 

Purchase of Maidenhead freehold

 

 

9

-

(5,729)

 

Development costs

 

 

8

(1,405)

(1,412)

 

Purchase of intangible assets

 

 

8

(1,065)

(1,107)

 

Payments for current period acquisitions net of cash acquired

 

 

 

(4,156)

(11,970)

 

Contingent consideration paid

 

 

 

-

(4,688)

 

Finance income received

 

 

 

39

21

 

Net cash used in investing activities

 

 

 

(21,275)

(35,268)

 

 

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

 

Issue of shares

 

 

 

 636

292

 

Drawdown of bank loans

 

 

 

          6,150

   25,860

 

Repayment of lease liabilities

 

 

11

(4,686)

(471)

 

Repayment of bank loans

 

 

 

(2,000)

(12,200)

 

Finance costs paid

 

 

 

(1,734)

(1,075)

 

Dividends paid

 

 

 

(8,282)

(7,991)

 

Net cash (used in)/generated from financing activities

 

 

 

(9,916)

4,415

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

5,428

574

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

 

10,069

9,495

 

 

 

 

 

 

Cash and cash equivalents at the end of the year

 

15,497

10,069

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 MARCH 2020

 

 

 

 

 

 

 

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 2018

 

1,080

(70)

(40)

1,200

21,231

4,983

70,088

98,472

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

-

-

-

-

-

-

12,877

12,877

Currency translation differences

 

-

-

(8)

-

-

-

-

(8)

Total comprehensive income

 

 

-

(8)

-

-

-

12,877

12,869

 

 

 

 

 

 

 

 

 

 

Dividends - final (paid)

 

-

-

-

-

-

-

(5,336)

(5,336)

Dividends - interim (paid)

 

-

-

-

-

-

-

(2,655)

(2,655)

Share-based payments

 

-

-

-

-

-

-

1,008

1,008

Deferred tax on share-based payments

 

-

-

-

-

-

-

(253)

(253)

Issue of share capital

 

5

-

-

-

287

-

-

292

Total transactions with owners

 

5

-

-

-

287

-

(7,236)

(6,944)

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2019

 

1,085

(70)

(48)

1,200

21,518

4,983

75,729

104,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

-

-

-

-

-

-

13,649

13,649

Currency translation differences

 

-

-

98

-

-

-

-

98

Total comprehensive income

 

-

-

98

-

-

-

13,649

13,747

 

 

 

 

 

 

 

 

 

 

Dividends - final (paid)

 

-

-

-

-

-

-

(5,448)

(5,448)

Dividends - interim (paid)

 

-

-

-

-

-

-

(2,834)

(2,834)

Share-based payments

 

-

-

-

-

-

-

1,243

1,243

Deferred tax on share-based payments

 

-

-

-

-

-

-

253

253

Issue of share capital

 

7

-

-

-

629

-

-

636

Total transactions with owners

 

7

-

-

-

629

-

(6,786)

(6,150)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2020

 

1,092

(70)

50

1,200

22,147

4,983

82,592

111,994

                     

 

 

 

 

 

 

 

NOTES TO THE FINANCIAL INFORMATION          

YEAR ENDED 31 MARCH 2020

 

1.         GENERAL INFORMATION

iomart Group plc is a public listed company listed on the Alternative Investment Market ("AIM"), incorporated and domiciled in the United Kingdom and registered in Scotland under the Companies Act 2006. The address of the registered office is Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow, G20 0SP.

2.         ACCOUNTING POLICIES

 

Basis of preparation

The financial information set out in the announcement does not constitute the Group's statutory accounts for the years ended 31 March 2020 and 31 March 2019 within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 March 2019 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The financial information for the year ended 31 March 2020 is derived from the statutory accounts for that year which were approved by the directors on 24 June 2020. The statutory accounts for the year ended 31 March 2020 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors reported on those accounts; their report was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The Group's financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the Companies Act 2006 applicable to companies reporting under IFRS.

The Group's financial statements have been prepared under the historical cost convention.

 

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

In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective in the current year.

 

IFRS 16 - Leases

In the current year, the Group has applied IFRS 16 that is effective for annual periods that begin on or after 1 January 2019.  The date of initial application of IFRS 16 for the Group is 1 April 2019. IFRS 16 introduces significant changes to lessee accounting by removing the distinction between operating and finance leases, requiring the recognition of a right-of-use asset and a lease liability at the commencement of all contracts that are, or contain a lease, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value (below £5,000).  

 

Approach to transition

The Group has applied IFRS 16 using the modified retrospective adoption method, with no restatement of prior year comparatives, and has recognised leases on balance sheet as at 1 April 2019.   From 1 April 2019, the Group recognises a right-of-use asset and corresponding lease liability on the balance sheet with respect of all lease arrangements in which it is a lessee, except for short-term leases and low value leases.  At this date, the Group has elected to measure the right-of-use assets to an amount equal to the lease liability. 

For contracts in place at the date of transition, the Group has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as leases under IAS 17 and IFRIC 4.

The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of transition.

Instead of performing an impairment review on the right-of-use assets for operating leases in existence at the date of transition, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS 16. 

 

On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low-value assets, the Group has applied the optional exemptions to not recognise the right-of-use assets but to account for the lease expense on a straight line basis over the remaining lease term.

On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was 2.85%.

Judgements applied in the adoption of IFRS 16 include determining the lease term for those leases with termination or extension options and determining an incremental borrowing rate where the rate implicit in a lease could not be readily determined.  The directors do not consider that there have been material judgements made.

Full details of lease liabilities are set out in note 11.

The following is a reconciliation of total operating lease commitments at 31 March 2019 to the lease liabilities recognised at 1 April 2019:

 

 

 

 

 

£'000

  Total operating lease commitments disclosed at 31 March 2019

 

21,610

   Discounted using the lessee's incremental borrowing rate at the date of initial application

 

(3,126)

   Less: low value and short-term leases recognised on a straight line basis as expense

 

(1,516)

   Add: adjustments as a result of a different treatment of extension and termination options *

 

3,453

Total lease liability recognised under IFRS 16 at 1 April 2019 (note 11)

 

20,421

 

*On adoption of IFRS 16, lease extension options have been extended beyond the non-cancellable period under IAS 17 and rental payments increased on a significant property lease following a rent review in the current period.

Leases - Accounting policy applicable from 1 April 2019 following the adoption of IFRS 16

For any new contracts entered into on or after 1 April 2019, the Group will consider whether a contract is, or contains a lease. A lease is defined as a contract, or part of a contract, that conveys the right to use of an asset (the underlying asset) for a period of time in exchange for consideration. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group; the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; and the Group has the right to direct the use of the identified asset throughout the period of use.

Measurement and recognition of leases as a lessee

At the lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability measured at the present value of future lease payments, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.   The Group assesses the right-of-use asset for impairment under IAS 36 'Impairment of Assets' where such indicators exist.

The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted using the rate implicit in the lease.  If this rate cannot readily be determined, the Group applies an incremental borrowing rate.  The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability and by reducing the liability by payments made. The Group re-measures the lease liability (and adjusts the related right?of?use asset) whenever the lease term has changed or a lease contract is modified and the modification is not accounted for as a separate lease.

Lease payments included in the measurement of the lease liability can be made up of fixed payments, variable payments based on an index or rate, amounts expected to be payable under a residual guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is re-measured to reflect any reassessment or modification, or if there are changes in fixed payments. When the lease liability is re-measured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.

The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight line basis over the lease term.

Under IFRS 16, the Group recognises depreciation of the right-of-use asset and interest on lease liabilities in the consolidated statement of comprehensive income over the period of the lease.  On the balance sheet, right-of-use assets have been included in property, plant and equipment and software and lease liabilities have been included in borrowings due within one year and after more than one year.

Under IFRS 16, the Group also separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within financing activities) in the consolidated statement of cash flows.  In the prior year, operating rental costs were presented within operating activities.

In accordance with IAS 17 Leases, the economic ownership of a leased asset is deemed to have been transferred to the Group (the lessee) if the Group bears substantially all the risks and rewards related to the ownership of the leased asset.  The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee.  A corresponding amount is recognised as a lease liability.  The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to profit or loss (finance costs) over the period of the lease. 

All other leases are regarded as operating leases and the payments made under them are charged to profit or loss on a straight line basis over the lease term.  Lease incentives are spread over the term of the lease. 

 

3.     sEGMENTAL ANALYSIS

The chief operating decision-maker has been identified as the Chief Executive Officer ("CEO") of the Company. The Group has two operating segments and the CEO reviews the Group's internal reporting which recognises these two segments in order to assess performance and to allocate resources. The Group has determined its reportable segments which are also its operating segments based on these reports.

The Group currently has two operating and reportable segments being Easyspace and Cloud Services.

•     Easyspace - this segment provides a range of shared hosting and domain registration services to micro and SME companies.

•     Cloud Services - this segment provides managed cloud computing facilities and services, through a network of owned data centres, to the larger SME and corporate markets. The segment uses several routes to market including iomart Cloud, Infrastructure as a Service (IaaS), SystemsUp, Cristie Data, Sonassi, LDeX, Bytemark plus Memset which was acquired in the year.

Information regarding the operation of the reportable segments is included below. The CEO assesses the performance of the operating segments based on revenue and a measure of earnings before interest, tax, depreciation and amortisation (EBITDA) before any allocation of Group overheads, charges for share-based payments, costs associated with acquisitions and any gain or loss on revaluation of contingent consideration and material non-recurring items. This segment EBITDA is used to measure performance as the CEO believes that such information is the most relevant in evaluating the results of the segment.

The Group's EBITDA for the year has been calculated after deducting Group overheads from the EBITDA of the two segments as reported internally. Group overheads include the cost of the Board, all the costs of running the premises in Glasgow, the Group marketing, human resource, finance and design functions and legal and professional fees.

The segment information is prepared using accounting policies consistent with those of the Group as a whole. 

The assets and liabilities of the Group are not reviewed by the chief operating decision-maker on a segment basis. Therefore none of the Group's assets and liabilities are segmental assets and liabilities and are all unallocated for segmental disclosure purposes. For that reason the Group has not disclosed details of segmental assets and liabilities.

All segments are continuing operations. No customer accounts for 10% or more of external revenues. Inter-segment transactions are accounted for using an arms-length commercial basis.

 

Operating Segments

 

Revenue by Operating Segment

 

 

 

 

 

 

2020

2019

 

 

 

 

 

£'000

£'000

Easyspace

 

 

 

 

12,792

13,113

Cloud Services

 

 

 

 

99,789

90,596

 

 

 

 

112,581

103,709

 

Geographical Information

In presenting the consolidated information on a geographical basis, revenue is based on the geographical location of customers. There is no single country where revenues are individually material other than the United Kingdom. The United Kingdom is the place of domicile of the parent company, iomart Group plc.

 

Analysis of Revenue by Destination

 

 

 

 

 

2020

2019

 

 

 

 

 

£'000

£'000

United Kingdom

 

 

 

 

95,333

86,246

Rest of the World

 

 

 

 

17,248

17,463

Revenue from operations

 

 

 

112,581

103,709

 

Profit by Operating Segment

 

 

2020

2019

 

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

5,649

(1,459)

4,190

6,182

(1,595)

4,587

Cloud Services

42,307

(23,269)

19,038

40,447

(20,486)

19,961

Group overheads

(4,446)

-

(4,446)

(4,397)

-

(4,397)

Acquisition costs

-

(438)

(438)

-

(351)

(351)

Share-based payments

-

(1,243)

(1,243)

-

(1,008)

(1,008)

 

43,510

(26,409)

17,101

42,232

(23,440)

18,792

Gain/(loss) on revaluation of contingent consideration

 

 

1,856

 

 

(1,394)

Group interest and tax

 

 

(5,308)

 

 

(4,521)

Profit for the year

 

 

13,649

 

 

12,877

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

 

4.     TAXATION

 

 

 

 

 

2020

£'000

2019

£'000

Corporation Tax:

 

 

 

 

Tax charge for the year

 

 

(3,976)

(4,920)

Adjustment relating to prior years

 

 

357

(119)

Total current taxation charge

 

 

(3,619)

(5,039)

 

 

 

 

 

Deferred Tax:

Origination and reversal of temporary differences

 

 

 

367

 

1,661

Adjustment relating to prior years

 

 

266

24

   Effect of different statutory tax rates of overseas jurisdictions

 

(13)

(8)

Effect of changes in tax rates

 

 

(136)

23

Total deferred taxation credit

 

 

484

1,700

 

 

 

 

 

Total taxation charge

 

 

(3,135)

(3,339)

The differences between the total taxation charge shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax are as follows:

 

 

 

 

 

 

2020

£'000

 

 

2019

£'000

 

 

 

 

 

Profit before tax

 

 

16,784

16,216

 

 

 

 

 

Tax charge @ 19% (2019: 19%)

 

 

3,189

3,081

 

 

 

 

 

Expenses disallowed for tax purposes

 

 

20

76

Tax effect of net (loss)/gain on revaluation of contingent consideration

 

 

(353)

265

Adjustments in current tax relating to prior years

 

 

(357)

119

Tax effect of different statutory tax rates of overseas jurisdictions

 

 

6

22

Movement in deferred tax relating to changes in tax rates

 

 

136

(23)

Tax effect of share-based remuneration

 

 

651

(192)

Movement in unprovided deferred tax related to development costs

 

 

40

11

   Movement in unprovided deferred tax related to property, plant and equipment

69

4

Movement in deferred tax relating to prior years

 

 

(266)

(24)

 

 

 

 

 

Total taxation charge for the year

 

 

3,135

3,339

The weighted average applicable tax rate for the year ended 31 March 2020 was 19% (2019: 19%).  The effective rate of tax for the year, based on the taxation charge for the year as a percentage of the profit before tax, is 18.7% (2019: 20.6%).    The net decrease of 1.9% of the effective tax rate for the year is largely due to the following:

•     the decrease in the tax effect as a result of a net gain on revaluation of contingent consideration in the year (2019: net loss) and the movement relating to adjustments in current tax relating to prior years;

•     the increase in the tax effect of share-based remuneration as a result of the decrease in the year end share price from 2019 to 2020; and

•     the impact of the increase in the deferred tax rate from 17% to 19%.

A UK corporation tax rate of 19% has been applied based on the rate substantively enacted at the balance sheet date.  Deferred tax assets and liabilities at 31 March 2020 have been calculated based on the rate of 19% enacted at the balance sheet date. 

 

 

5.         DEFERRED TAX

 

The Group recognised deferred tax assets and liabilities as follows:

 

 

 

 

2020

£'000

2019

£'000

 

 

 

 

 

 

Share-based remuneration

 

 

 

1,069

1,378

Capital allowances temporary differences

 

 

 

1,364

1,632

Deferred tax on development costs

 

 

 

-

(422)

  Deferred tax on acquired assets with no capital allowances

 

(88)

(157)

Deferred tax on customer relationships

 

 

 

(3,298)

(3,173)

Deferred tax on intangible software

 

 

 

(193)

(197)

Deferred tax liability

 

 

 

(1,146)

(939)

At the year end, the Group had no unused tax losses (2019: £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 2018

1,588

1,455

(329)

(235)

(3,581)

(217)

(1,319)

Acquired on acquisition of subsidiaries

-

(226)

-

-

(841)

-

(1,067)

Credited to equity

(253)

-

-

-

-

-

(253)

Credited/(charged) to statement of comprehensive income

43

394

(108)

87

1,249

20

1,685

Effect of different tax rates of overseas jurisdictions

-

-

-

-

(8)

-

(8)

Effect of changes in tax rates

-

9

15

(9)

8

-

23

Balance at 31 March 2019

1,378

1,632

(157)

(3,173)

Acquired on acquisition of subsidiaries

-

(82)

-

-

(875)

-

(957)

Charged to equity

253

-

-

-

-

-

253

Credited/(charged) to statement of comprehensive income

(724)

(373)

472

87

1,131

27

620

Effect of different tax rates of overseas jurisdictions

-

7

-

-

6

-

13

Effect of changes in tax rates

162

180

(50)

(18)

(387)

(23)

(136)

Balance at 31 March 2020

1,069

1,364

-

(88)

(3,298)

(193)

(1,146)

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

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

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

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

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

 

 

6.         EARNINGS PER SHARE

 

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, after deducting any own shares held in Treasury and held by the Employee Benefit Trust.  Diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the total of the weighted average number of ordinary shares in issue during the year, after deducting any own shares, and adjusting for the dilutive potential ordinary shares relating to share options. 

 

Total operations

 

 

 

2020

£'000

 

2019

£'000

Profit for the financial year and basic earnings attributed to ordinary shareholders

 

 

13,649

12,877

Weighted average number of ordinary shares:

 

 

 

No

000

No

000

 

 

 

 

 

 

Called up, allotted and fully paid at start of year

 

 

108,510

107,990

Own shares held by Employee Benefit Trust

 

 

(141)

(141)

Issued share capital in the year

 

 

436

396

Weighted average number of ordinary shares - basic

 

 

108,805

108,245

 

 

 

 

 

Dilutive impact of share options

 

 

2,861

2,909

 

 

 

 

 

Weighted average number of ordinary shares -diluted

 

 

111,666

111,154

 

 

 

 

 

Basic earnings per share

 

 

12.5 p

11.9 p

Diluted earnings per share

 

12.2 p

11.6 p

           

 

 

Adjusted earnings per share

 

 

2020

£'000

2019

£'000

 

 

 

 

 

Profit for the financial year and basic earnings attributed to ordinary shareholders

 

13,649

12,877

-        Amortisation of acquired intangible assets

 

6,159

6,492

-        Acquisition costs

 

438

351

-        Share-based payments

 

1,243

1,008

-        Net (gain)/loss on revaluation of contingent consideration

 

(1,856)

1,394

-        Accelerated write off of arrangement fees on bank facility

 

-

63

-        Tax impact of adjusted items

 

(1,406)

(1,462)

Adjusted profit for the financial year and adjusted earnings attributed to ordinary shareholders

 

 

18,227

20,723

 

 

 

 

 

 

Adjusted basic earnings per share

 

 

16.8 p

19.1 p

Adjusted diluted earnings per share

 

16.3 p

18.6 p

           

 

 

7.         ACQUISITIONS

 

On 12 March 2020, the Company acquired the entire share capital of Memset Limited, and on 28 February 2020, iomart Hosting Limited, a 100% owned subsidiary of the Company, acquired the net assets of the managed private cloud business formerly operated by ServerChoice Limited.  Total cash paid on acquisitions, net of cash acquired, in the year ended 31 March 2020 was £4.2m.

Memset Limited

The Group acquired 100% of the issued share capital of Memset Limited ("Memset") on 12 March 2020.

Memset provides a range of cloud VPS and dedicated servers to around 2,000 customers from its data centre in Dunsfold, Surrey and a third party data centre in Reading.

The acquisition is in line with the Group's strategy to grow its operations, both organically and by acquisition, and provides the Group with additional data centre space.

During the current year, the Group incurred £172,000 of third party acquisition related costs in respect of this acquisition. These expenses are included in administrative expenses in the Group's consolidated statement of comprehensive income for the year ended 31 March 2020.

The following table summarises the consideration to acquire Memset, and the amounts of identified assets acquired and liabilities assumed at the acquisition date, which are provisional.

 

Book value £'000

Fair value adjustments £'000

Final fair value £'000

Recognised amounts of net assets acquired and liabilities assumed:

 

 

 

Cash and cash equivalents

547

-

547

Trade and other receivables

740

-

740

Property, plant and equipment

2,894

-

2,894

Intangible assets

56

2,308

2,364

Trade and other payables

(1,427)

-

(1,427)

Current borrowings

(1,088)

-

(1,088)

Borrowings due after more than 1 year

(628)

-

(628)

Deferred tax liability

(82)

(438)

(520)

Identifiable net assets

1,012

1,870

2,882

Goodwill

 

 

331

Total consideration

 

 

3,213

 

 

 

 

Satisfied by:

 

 

 

Cash - paid on acquisition

 

 

2,713

Contingent consideration - payable

 

 

500

Total consideration transferred

 

 

3,213

 

The acquisition of Memset was completed using a "locked box" mechanism, on a no cash, no debt, and normalised working capital basis. An initial payment of £2,713,000 was made at completion. This initial payment included a deduction of £587,000 to settle the adjustments required to the locked box accounts in respect of the cash, debt and working capital position at the locked box date.

The share purchase agreement included a provision requiring the Company to pay the former shareholders of Memset an additional amount contingent on the level of a particular portion of the monthly recurring revenue ("MRR") in December 2020 ("the Deferred Payment").

The potential undiscounted amount of the Deferred Payment that the Company could be required to pay is between £nil and £1,000,000.  The amount of contingent consideration payable, which was recognised as of the acquisition date, was £500,000.  The level of the relevant MRR was estimated by considering different scenarios based on the current level of the MRR, historic performance, known and agreed changes to the current level, and forecasts. In addition to the minimum and maximum, those scenarios reviewed had a range of outcomes for the amount of the Deferred Payment of £320,000 to £700,000.  A weighted average, based on management estimates of the probability of the achievement of the various levels of MRR, was then calculated to give the expected outcome of the amount of the Deferred Payment of £500,000.

 

The goodwill arising on the acquisition of Memset is attributable to the premium payable for a pre-existing, well-positioned business and the specialised, industry specific knowledge of the management and staff, together with the benefits to the Group in merging the business with its existing infrastructure and the anticipated future operating synergies from the combination.  The goodwill is not expected to be deductible for tax purposes.

The name "Memset" is not actively advertised or promoted.  The standard Memset contracts restrict the ability of Memset to sell, distribute or lease any personal information it holds on customers unless the customer's permission is given.  As a consequence, there is no significant value in either the trade name/brand or customer lists acquired at the acquisition date and therefore no value has been attributed to either intangible asset.

The fair value of the financial assets acquired includes trade receivables with a fair value of £740,000. The gross amount due under contracts is £740,000 all of which is expected to be collectable.

The fair value included in respect of the acquired customer relationships intangible asset is £2,308,000.

To estimate the fair value of the customer relationships intangible asset, a discounted cash flow method, specifically the income approach, was used with reference to the directors' estimates of the level of revenue, which will be generated from them. A pre-tax discount rate of 11.9% was used for the valuation. Customer relationships are being amortised over an estimated useful life of 8 years.

Memset earned revenue of £282,000 and generated profits, before allocation of group overheads, share-based payments and tax, of £25,000 in the period since acquisition.

Net assets of the managed private cloud business formerly operated by ServerChoice Limited

On 28 February 2020, the Group acquired the net assets of the managed private cloud business formerly operated by ServerChoice Limited ("the ServerChoice assets").  The acquisition of the net assets and the transfer of employees engaged in the business, together satisfy the criteria for the definition of a business under IFRS 3 and the acquisition has therefore been treated as a business combination.

The acquisition is in line with the Group's strategy to grow its operations both organically and by acquisition and provides an additional high quality customer base.

During the current year, the Group incurred £35,000 of third party acquisition related costs in respect of this acquisition. These expenses are included in administrative expenses in the Group's consolidated statement of comprehensive income for the year ended 31 March 2020. 

The following table summarises the consideration to acquire the business, and the amounts of identified assets acquired and liabilities assumed at the acquisition date, which are provisional.

 

Book value £'000

Fair value adjustments £'000

Final fair value £'000

Recognised amounts of net assets acquired and liabilities assumed:

 

 

 

Property, plant and equipment

297

-

297

Intangible assets

-

2,302

2,302

Trade and other payables

(111)

-

(111)

Deferred tax liability

-

(437)

(437)

Identifiable net assets

186

1,865

2,051

Goodwill

 

 

766

Total consideration

 

 

2,817

 

 

 

 

Satisfied by:

 

 

 

Cash - paid on acquisition

 

 

1,990

Contingent consideration - payable

 

 

827

Total consideration transferred

 

 

2,817

 

 

The business purchase agreement ("BPA") included provisions requiring the Group to pay to ServerChoice Limited two additional contingent amounts.  These are based on the level of the total monthly recurring revenue ("MRR") invoiced to specific customers in June 2020 and September 2020, together the "Deferred Payments".

The potential undiscounted amounts of the Deferred Payments are between £nil and £887,000.  The amount of contingent consideration payable, which was recognised as of the acquisition date, was £827,000.  The levels of the relevant MRR, expected to be invoiced in June 2020 and September 2020, were estimated by considering different scenarios based on the current level of the MRR, historic performance, known and agreed changes to the current level, and forecasts. 

In addition to the minimum of £nil and the maximum of £887,000, those scenarios reviewed for the Deferred Consideration had a range of outcomes for the Deferred Payment of £425,000 to £830,000.  A weighted average, based on management estimates of the probability of the achievement of the various levels of MRR, was then calculated to give the expected outcome of the amount of the Deferred Payment of £827,000.

The goodwill arising on the acquisition of the former ServerChoice managed private cloud business is attributable principally to the benefits to the Group in merging the business with its existing infrastructure and the anticipated future operating synergies from the combination.  The goodwill is not expected to be deductible for tax purposes.

Apart from the goodwill, the only intangible asset acquired is the customer relationships, which have been fair valued at £2,302,000.

To estimate the fair value of the customer relationships intangible asset, a discounted cash flow method, specifically the income approach, was used with reference to the directors' estimates of the level of revenue, which will be generated from them. A pre-tax discount rate of 13.0% was used for the valuation. Customer relationships are being amortised over an estimated useful life of 8 years.

The acquired managed private cloud business earned revenue of £139,000 and generated profits, before allocation of group overheads, share-based payments and tax, of £67,000 in the period since acquisition.

Pro-forma full year information

The following summary presents the Group as if the businesses acquired during the year had been acquired on 1 April 2019.  The amounts include the results of the acquired business, depreciation and amortisation of the acquired property, plant and equipment plus a post-tax amount of £691,000 in respect of the amortisation of intangible assets recognised on acquisition.  The amounts do not include any possible synergies from the acquisition.  The information is provided for illustrative purposes only and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of the future results of combined companies.

 

 

Pro-forma year ended 31 March 2020

 

 

£'000

Revenue

 

119,497

Profit after tax for the year

 

13,779

 

 

8.    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 2018

75,837

7,781

47,999

6,943

86

280

138,926

Additions

-

-

-

1,082

-

-

1,082

Currency translation differences

-

-

(13)

-

-

-

(13)

Acquired on acquisition of subsidiaries

9,545

-

4,780

14

-

-

14,339

Development cost capitalised

-

1,412

-

-

-

-

1,412

At 31 March 2019

85,382

9,193

52,766

8,039

86

280

155,746

Additions

-

-

-

2,490

-

-

2,490

Currency translation differences

-

-

38

(33)

-

-

5

Acquired on acquisition of subsidiaries

1,097

-

4,610

-

-

56

5,763

Disposals

-

-

-

(173)

-

-

(173)

Development cost capitalised

-

1,405

-

-

-

-

1,405

At 31 March 2020

86,479

10,598

57,414

10,323

86

336

165,236

 

 

 

 

 

 

 

 

Accumulated amortisation:

 

 

 

 

 

 

 

At 1 April 2018

-

(5,424)

(27,303)

(3,115)

(41)

(280)

(36,163)

Charge for the year

-

(1,442)

(6,492)

(1,049)

(7)

-

(8,990)

At 31 March 2019

-

(6,866)

(33,795)

(4,164)

(48)

(280)

(45,153)

Charge for the year

-

(1,507)

(6,159)

(1,420)

(7)

-

(9,093)

Currency translation differences

-

-

-

(53)

-

-

(53)

Disposals

-

-

-

173

-

-

173

At 31 March 2020

-

(8,373)

(39,954)

(5,464)

(55)

(280)

(54,126)

 

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 March 2020

86,479

2,225

17,460

4,859

31

56

111,110

 

 

 

 

 

 

 

 

At 31 March 2019

85,382

2,327

18,971

3,875

38

-

110,593

 

Of the total additions in the year of £2,490,000 (2019: £1,082,000), £1,425,000 was included within lease liabilities within borrowings (2019: £nil).  There were no amounts included in trade payables at the year end (2019: £nil). Consequently, the consolidated statement of cash flows discloses a figure of £1,065,000 (2019: £1,107,000) as the cash outflow in respect of intangible asset additions in the year.

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

As disclosed in note 11, on 1 April 2019, the Group adopted IFRS 16.  At 31 March 2020, a total of £1.4m is recognised within additions to software for appropriate lease transactions in the current year with a corresponding amortisation charge of £0.2m.

Included within customer relationships are the following significant items: customer relationships in relation to the acquisitions of Memset Limited of £2.3m with a useful life of 8 years, the managed private cloud business of ServerChoice Limited of £2.3m with a useful life of 8 years, Bytemark Limited with a net book value of £0.9m and LDeX Group Limited of £2.7m both with a remaining useful life of 7 years.  Sonassi Limited with a net book value of £3.6m and a remaining useful life of 6 years, Dediserve Limited with a net book value of £1.4m and a remaining useful of 6 years, Simple Servers Limited with a net book value of £0.7m and a remaining useful life of 6 years, Backup Technology with a net book value of £0.8m and a remaining useful life of 2 years and United Hosting with a net book value of £1.4m and a remaining useful life of 4 years.

 

During the year, goodwill was reviewed for impairment in accordance with IAS 36 "Impairment of Assets". No impairment charges (2019: £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 goodwill acquired in the year on all acquisitions has been allocated to the Cloud Services CGU as this is the CGU expected to benefit from the business combination.

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

Cash Generating Units (CGU)

 

 

 

2020

£'000

2019

£'000

Easyspace

 

 

 

23,315

23,315

Cloud Services

 

 

 

63,164

62,067

 

 

 

 

86,479

85,382

 

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by the Board covering a three year period.  These projections are the result of detailed planning and assume similar levels of organic growth as the Group has experienced in the previous years. As outlined previously, management remain confident in sustaining such levels of growth despite the current situation surrounding Covid-19. The impact of the pandemic has been considered in great detail when finalising these projections and they are perceived to be a reliable basis upon which to base our impairment testing.

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

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

Management continue to apply the judgement that there are two distinct CGUs within the Group, namely Cloud Services and Easyspace. These segments have been derived with due consideration to IAS 36. The assumptions used for the CGU included within the impairment reviews are as follows:

 

 

 

 

Easyspace

Cloud Services

Discount rate

 

 

 

13.1%

12.5%

Future perpetuity rate

 

 

0.0%

2.0%

Initial period for which cash flows are estimated (years)

 

5

5

 

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

 

 

 

 

9.     PROPERTY, PLANT AND EQUIPMENT

 

 

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 2018

2,062

8,540

31

105,754

Additions in the year

5,729

33

-

15,831

Acquisition of subsidiaries

1,131

-

-

4,074

Disposals in the year

-

(630)

-

(780)

Currency translation differences

(12)

-

-

(7)

At 31 March 2019

8,910

7,943

23,457

81,611

2,920

31

124,872

Additions in the year

-

21,287

11

37,684

Acquisition of subsidiaries

-

457

2

3,191

Disposals in the year

-

(16)

(21)

(883)

Currency translation differences

-

-

-

216

At 31 March 2020

8,910

29,671

26,113

97,592

2,771

23

165,080

 

 

 

 

 

 

 

 

Accumulated depreciation:

 

 

 

 

At 1 April 2018

(306)

(3,138)

(21)

(65,068)

Charge for the year

(112)

(570)

(3)

(13,091)

Disposals in the year

-

198

-

348

Currency translation differences

-

-

-

(16)

At 31 March 2019

(418)

(3,510)

(13,635)

(58,372)

(1,868)

(24)

(77,827)

Charge for the year

(279)

(3,610)

(1,853)

(9,625)

(262)

(6)

(15,635)

Disposals in the year

-

16

18

622

206

21

883

Currency translation differences

-

-

-

(157)

-

-

(157)

At 31 March 2020

(697)

(7,104)

(15,470)

(67,532)

(1,924)

(9)

(92,736)

 

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

At 31 March 2020

8,213

22,567

10,643

30,060

847

14

72,344

 

 

 

 

 

 

 

 

At 31 March 2019

8,492

4,433

9,822

23,239

1,052

7

47,045

                 

 

Of the total additions in the year of £37,684,000, £20,421,000 relates to right-of-use assets brought on the balance at 1 April 2019 on transition to IFRS 16 (note 11).  In addition, during the year there were additions of £824,000 in respect of reinstatement provisions and a further £119,000 in respect of leases (note 11).  Of the total remaining additions in the year of £16,320,000 (2019: £15,831,000), £3,185,000 (2019: £1,553,000) was included in trade payables as unpaid invoices at the year end resulting in a net increase of £1,632,000 (2019: net decrease of £293,000) in trade payables. Consequently, the consolidated statement of cash flows discloses a figure of £14,688,000 (2019: £16,112,000) as the cash outflow in respect of property, plant and equipment additions in the year.

As disclosed in note 11, on 1 April 2019, the Group adopted IFRS 16 and recognised a right-of-use asset of £20.4m. At 31 March 2020, a total of £20.2m is recognised within additions to leasehold property and improvements in relation to the initial recognition along with subsequent additions in relation to IFRS 16, with a corresponding depreciation charge of £2.7m.  In addition, a further £1.2m is recognised within additions to data centre equipment with a corresponding depreciation charge of £0.5m.

 

10.       BORROWINGS

 

 

 

 

 

2020

£'000

2019

£'000

 

 

 

 

 

 

Current:

 

 

 

 

Lease liabilities (note 11)

 

 

(3,029)

(356)

Current borrowings

 

 

(3,029)

(356)

 

 

 

 

 

Non-current:

 

 

 

 

Lease liabilities (note 11)

 

 

(17,318)

(421)

Bank loans

 

 

(52,791)

(48,536)

Total non-current borrowings

 

 

 

(70,109)

(48,957)

 

 

 

 

 

 

Total borrowings

 

 

 

(73,138)

(49,313)

The carrying amount of borrowings approximates to their fair value.

Details of the Group's lease liabilities are included in note 11.

At the start of the year there was £48.5m (2019: £35.2m) outstanding on the multi option revolving credit facility and drawdowns of £6.2m (2019: £25.9m) were made from the facility during the year. Repayments totalling £2.0m (2019: £12.2m) were made resulting in a balance outstanding at the end of the year of £52.8m (2019: £48.5m).

The multi option revolving credit facility of £80m is able to be used by the Group to finance acquisitions, capital expenditure, general business purposes (up to a maximum of £8m each year) and for the issue of guarantees, bonds or indemnities.  As at 31 March 2020, the facility is available until September 2022 at which point any advances made under the multi option revolving credit facility become immediately repayable. Each drawdown made under this facility can be for either 3 or 6 months and can either be repaid or continued at the end of the period. Interest is charged on this loan at an annual rate determined by the sum of the multi option revolving credit facility margin, LIBOR and the lender's mandatory costs. The multi option revolving credit facility margin is fixed at 1.5% (2019: 1.5%) per annum and a non-utilisation fee of 40% (2019: 40%) of the multi option revolving credit facility margin is due on any undrawn portion of the full £80m multi option revolving credit facility. The effective interest rate for multi option revolving credit facility in the current year was 2.17% (2019: 2.44%). 

Given the terms of the revolving credit facility and the ability for any drawdowns made to be extended beyond 31 March 2021 at the discretion of the Group, the total amount outstanding has been classified as non-current.

 

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

 

 

2020

2019

 

Capital

Interest

Total

Capital

Interest

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Due within one year

-

(465)

(465)

-

-

-

Due within two to five years

(52,791)

-

(52,791)

(48,536)

(192)

(48,728)

 

(52,791)

(465)

(53,256)

(48,536)

(192)

(48,728)

 

The directors estimate that the fair value of the Group's borrowing is not significantly different to the carrying value. The capital element of the bank loans is £52,791,000 (2019: £48,536,000), in the prior year this figure differs from the net amount drawn down of £48,641,000 due to an effective interest rate adjustment. 

 

 

 

Analysis of change in net cash/(debt)

 

Cash and cash equivalents

£'000

 

 

Bank

loans

£'000

Lease liabilities

£'000

 

 

Total liabilities

£'000

Total net cash/(debt)

£'000

 

 

 

 

 

 

At 1 April 2018

9,495

(35,239)

(830)

(36,069)

(26,574)

 

 

 

 

 

 

Repayment of bank loans

-

12,200

-

12,200

12,200

New bank loans

-

(25,860)

 

(25,860)

(25,860)

Impact of effective interest rate

-

363

-

363

363

Acquired on acquisition of subsidiary

841

-

(430)

(430)

411

Currency translation differences

-

-

12

12

12

Cash and cash equivalent cash outflow

(267)

-

-

-

(267)

Lease liabilities cash outflow

-

-

471

471

471

At 31 March 2019

10,069

(48,536)

(777)

(49,313)

(39,244)

 

 

 

 

 

 

Lease liabilities on transition to IFRS 16

 

-

(20,421)

(20,421)

(20,421)

Additions to lease liabilities

-

-

(1,544)

(1,544)

(1,544)

Repayment of bank loans

-

2,000

-

2,000

2,000

New bank loans

-

(6,150)

-

(6,150)

(6,150)

Impact of effective interest rate

-

(105)

-

(105)

(105)

Acquired on acquisition of subsidiaries

-

-

(1,705)

(1,705)

(1,705)

Cash and cash equivalent cash inflow

5,428

-

-

-

5,428

Lease liabilities cash outflow

-

-

4,100

4,100

4,100

At 31 March 2020

15,497

(52,791)

(20,347)

(73,138)

(57,641)

 

 

11.        LEASES

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

 

 

Right-of-use assets

 

 

Leasehold Property

£'000

Data centre equipment

£'000

 

 

Software

£'000

Total

£'000

 

 

 

 

 

 

 

Balance at 31 March 2019*

 

-

509

-

509

Adjustment on transition to IFRS 16

 

19,748

673

-

20,421

Balance at 1 April 2019 after adoption of IFRS 16

 

19,748

1,182

-

20,930

 

 

 

 

 

 

Additions

 

47

72

1,425

1,544

Acquired on acquisition of subsidiary

 

457

-

-

457

Depreciation

 

(2,758)

(466)

-

(3,224)

Amortisation

 

-

-

(190)

(190)

 

 

 

 

 

 

 

Balance at 31 March 2020

 

 

17,494

788

1,235

19,517

               

*net book value of leased assets under IAS 17 as at 31 March 2019

The right-of-use assets in relation to leasehold property and data centre equipment are disclosed as non-current assets and are disclosed within property, plant and equipment at 31 March 2020 (note 9).  The right-of-use assets in relation to software are disclosed as non-current assets and are disclosed within intangibles at 31 March 2020 (note 8).

Lease liabilities

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

 

 

 

 

2020

£'000

2019*

£'000

 

 

 

 

 

 

Current:

 

 

 

 

Lease liabilities

 

 

(3,029)

(356)

 

 

 

 

 

Non-current:

 

 

 

 

Lease liabilities

 

 

(17,318)

(421)

 

 

 

 

 

 

Total lease liabilities

 

 

 

(20,347)

(777)

    *lease liabilities under IAS 17

The maturity analysis of undiscounted lease liabilities are shown in the table below:

 

 

 

 

2020

£'000

2019*

£'000

 

 

 

 

 

 

Amounts payable under leases:

 

 

 

 

Within one year

 

 

(3,536)

(356)

Between two to five years

 

 

(9,823)

(421)

After more than five years

 

 

(9,709)

-

 

 

 

 

 

 

 

 

 

 

(23,068)

(777)

Add: unearned interest

 

 

 

2,721

-

Total lease liabilities

 

 

 

(20,347)

(777)

*lease liabilities under IAS 17

 

 

 

 

 

 

 

The Group has elected not to recognise a lease liability for short-term leases (leases with an expected term of 12 months or less) or for leases of low value assets.  Payments made under such leases are expensed on a straight line basis.  During the year ended 31 March 2020, in relation to leases under IFRS 16, the Group recognised the following amounts in the consolidated statement of comprehensive income:

 

 

 

 

 

Year ended 31 March 2020

£'000

   Short-term and low value lease expense

 

 

 

(1,662)

Depreciation charge

 

 

 

(3,224)

Amortisation charge

 

 

 

(190)

   Interest expense

 

(649)

 

 

 

 

(5,725)

 

Amounts recognised in the consolidated statement of cash flows:

 

 

 

 

 

Year ended 31 March 2020

£'000

   Short-term and low value lease expense

 

 

 

(1,662)

   Repayment of lease liabilities within cash flows from financing activities

 

(4,686)

 

 

 

 

(6,348)

Included in repayment of lease liabilities within cash flows from financing activities is a repayment of £1.0m in relation to the settlement of lease liabilities on the acquisition of Memset Limited.

12.       CONTINGENT CONSIDERATION

 

 

 

2020

£'000

2019

£'000

 

 

 

 

 

Contingent consideration due on acquisitions within one year:

 

 

 

 

-       LDeX Group Limited

 

 

(1,153)

(3,009)

-       Memset Limited

 

 

(500)

-

-       ServerChoice Limited

 

 

(827)

-

 

 

 

 

 

Total contingent consideration due on acquisitions

 

 

(2,480)

(3,009)

 

The final consideration due on LDeX Group Limited, agreed with the previous shareholder and paid subsequent to the year end, is £1,153,000.  This has resulted in gain on revaluation of contingent consideration of £1,856,000 recorded in the consolidated statement of comprehensive income. 

Contingent consideration for Memset Limited and ServerChoice Limited are based on the directors' best estimate of payments due at 31 March 2020.  Details of the range of possible outcomes are disclosed in note 7.

13.       POST BALANCE SHEET EVENT

 

On 23 June 2020, the lease of our London data centre was extended by a further 5 years to June 2035. As part of this extension, £2.3m of total lease deposits will be returned to the Group post year end.

 


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