TIDMIOM

RNS Number : 3731A

Iomart Group PLC

07 June 2016

7 June 2016

iomart Group plc

('iomart' or the 'Group' or the 'Company')

Final Results for the Year ended 31 March 2016

iomart (AIM:IOM), the cloud computing company, is pleased to report its consolidated final results for the year ended 31 March 2016.

FINANCIAL HIGHLIGHTS


   --      Revenue growth of 16% to GBP76.3m (2015: GBP65.8m) 
   --      Adjusted EBITDA(1) growth of 11% to GBP32.3m (2015: GBP29.1m) 
   --      Adjusted profit before tax growth(2) of 14% to GBP19.0m (2015: GBP16.6m)

-- Adjusted diluted earnings per share(3) from operations increased by 14% to 14.44p (2015: 12.63p)


   --      Cashflow from operations increased by 14% to GBP30.9m (2015: GBP27.2m) 
   --      Adjusted PBT(2) margins maintained at 25% (2015: 25%) 
   --      Proposed final dividend increased by 26% to 3.15p per share (2015: 2.50p per share)

OPERATIONAL HIGHLIGHTS


   --      Continuing to build relationships for Hybrid Cloud opportunities with major players

-- First significant public cloud implementation and achieved Advanced Partner status with Amazon Web Services (AWS)


   --      Continued M&A activity with the acquisitions of SystemsUp and United Hosting 
   --      Continued investment in senior resources to provide platform for future growth

Statutory Equivalents

The above highlights are based on adjusted results. A full reconciliation between adjusted and statutory results is contained within this statement. The statutory equivalents of the above results are as follows:


   --      Profit before tax growth of 21% to GBP13.0m (2015: GBP10.8m) 
   --      Basic earnings per share from operations increased by 24% to 10.32p (2015: 8.34p)

(1) Throughout this statement adjusted EBITDA is earnings before interest, tax, depreciation and amortisation (EBITDA) before share based payment charges, gain on revaluation of contingent consideration and acquisition costs. Throughout this statement acquisition costs are defined as acquisition related costs and non-recurring acquisition integration costs.

(2) Throughout this statement adjusted profit before tax is profit before tax, amortisation charges on acquired intangible assets, shared based payment charges, mark to mark adjustments in respect of interest rate swaps, acquisition costs, interest on contingent consideration due, gain on revaluation of contingent consideration and the accelerated write off of arrangement fees on the bank borrowing facility which was restructured during the year.

(3) Throughout this statement adjusted earnings per share is earnings per share before amortisation charges on acquired intangible assets, shared based payment charges, mark to mark adjustments in respect of interest rate swaps, acquisition costs, interest on contingent consideration due, gain on revaluation of contingent consideration and the accelerated write off of arrangement fees on the bank borrowing facility which was restructured during the year, including the taxation effect of these.

Angus MacSween, CEO commented,

'Trading since the year end remains good and in line with market expectations.

'The long term opportunity is bigger than ever. The investments we have made in our staff, skillsets and industry relationships mean we are well positioned to take advantage of that opportunity and to deliver further significant growth.

'I look forward, once again, with confidence to the year ahead.'

For further information:


 
 iomart Group plc      Tel: 0141 931 6400 
 Angus MacSween 
 Richard Logan 
 
 Peel Hunt LLP         Tel: 020 7418 8900 
  (Nominated Adviser 
  and Broker) 
 Richard Kauffer 
  Euan  8004 4218 
 Caroline Forde 
 Hilary Buchanan 
 
 

About iomart Group plc

iomart Group plc (AIM: IOM) delivers cloud consultancy, facilitation and management to ISVs, SMEs, Enterprises and the UK public sector. The award-winning and highly ISO accredited hosting company provides public, private and hybrid cloud solutions - including managed AWS and Microsoft Azure - from a network of secure UK data centres connected by a high capacity private fibre network. iomart is a long term supplier to G-Cloud and its infrastructure and cloud and backup services are designed to meet the requirements of the UK public sector. They are certified for connection to the Public Services Network (PSN) and N3 NHS network and are CESG Pan Government Accredited. iomart delivers any cloud your way. www.iomart.com

CHAIRMAN'S STATEMENT

We have once again been able to deliver another year of excellent performance for our shareholders. It is especially pleasing that we have managed to maintain our relative level of organic growth in our Cloud Services segment (formerly the Hosting segment) in the midst of substantial overall revenue growth.

In accordance with our acquisition strategy we added SystemsUp, in June, and United Hosting, in November, into the Group and both are performing well. We have also benefited from the full year contribution from ServerSpace which we acquired in December 2014. We believe there will be other opportunities to allow us to continue to add to our organic growth through acquisition.

We have again enjoyed a substantial increase in profitability over the year, driven by both organic and acquisitive growth.

All of this progress 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.

After nearly 11 years of first class commitment and service, Chris Batterham has chosen not to stand for re-election as Non-Executive Director at our forthcoming Annual General Meeting. Both personally and on behalf of everyone connected with the Group, I want to thank him for his valuable contribution to the development of iomart over the years. The search for Chris' replacement is at an advanced stage and we expect to make an announcement in this regard in the near future.

As I indicated in my statement in last year's Report and Accounts, we have adopted a progressive dividend policy with the intention of moving over time to a pay-out ratio of 25% of our adjusted diluted earnings per share. Last year we paid a final dividend of 2.5p per share equivalent to a pay-out ratio of 19.8% of adjusted diluted earnings per share. This year the Board is proposing to pay a final dividend of 3.15p per share on 30 August 2016 to shareholders on the register on 12 August 2016, based on an ex-dividend date of 11 August 2016, representing an increase of 26% over the dividend last year and equivalent to a pay-out ratio of 22% of adjusted diluted earnings per share. We continue to offer shareholders the option to participate in a Dividend Reinvestment Plan (DRIP) as an alternative to receiving cash. Details of the DRIP scheme will be distributed with the annual accounts in due course.

We have started the new financial year in a strong position and I look forward to another exciting year of growth with considerable confidence.

Ian Ritchie

Chairman

6 June 2016

CHIEF EXECUTIVE'S REVIEW

Introduction

I am delighted to report on another excellent year for iomart. We have increased our revenues and profits both organically and through acquisition as we continue to deliver an ever broader range of cloud solutions.

Our revenues in the year were GBP76.3m, an increase of 16% over the previous year, our adjusted EBITDA of GBP32.3m showed an 11% increase over the previous year and our profit before tax increased by 21% remains to continue to grow both organically and through a disciplined acquisition strategy.

Market

The market for cloud services continues to grow and evolve. It is important to remember that we are still at the very early stages of this opportunity with enormous scope for long term growth. More and more applications and workloads are moving to the cloud, data volumes are growing exponentially, the emergence of the Internet of Things is creating ever more data, and alongside this a new generation of users now expect everything to be delivered to them through their mobile device of choice.

This means an ever growing complexity in the choices and permutations available when forming an IT policy for cloud and we believe that this will drive opportunity for those companies, such as iomart, who are agile and have the correct skillsets for success.

All businesses are now digital businesses to a greater or lesser extent. They are confronted by an increasingly complex set of cloud decisions in terms of cost, value, effectiveness, complexity, security, data protection and compliance.

Indeed the new legal requirements around data, particularly the EU General Data Protection Regulation (GDPR), are going to impact on all organisations. They will introduce significant new rules and compliance obligations for all organisations around data protection in the cloud with global implications and we believe will drive further opportunity for iomart in helping organisations become compliant and secure.

The traditional way of moving to the cloud, being a private or hybrid approach, is here for the foreseeable future and the long term recurring revenue opportunity for iomart remains compelling. We are well established as a major player in providing the flexible cloud solutions that businesses require, whether that be the private cloud, public or hybrid cloud spheres.

There is a large market opportunity in preparing and managing enterprises for transformation to cloud. This typically starts with an on-premise reorganisation and virtualisation programme, followed by some private cloud on-premise and in-hosted environments and moving through a hybrid model or a public cloud model.

The public cloud vendors led by AWS and Microsoft continue to win market share. It is becoming clear that they will require an ecosystem of businesses orbiting them to provide services and support. The public cloud has introduced another level of complexity to the choices that businesses have in their future IT buying decisions and we believe with that increase in choice and complexity comes opportunity. As underlying infrastructure becomes more mature and efficient the future success of cloud companies will be addressed further towards the application layer and not on the hardware.

Our challenge is to navigate through these early days of the further evolution of cloud adoption to ensure we have the skills and resources necessary to be successful in that space. The addition of SystemsUp to the Group during the period has enhanced our ability to provide solutions involving public cloud.

iomart set out on executing its current strategy almost 10 years ago. I believe that the opportunity over the next 10 years is significantly greater.

Acquisitions

We again augmented our organic growth through the acquisition of Systems Up Limited ('SystemsUp') in June and United Communications Limited (which trades as 'United Hosting') in November. SystemsUp has been added into our Cloud Services segment and United Hosting into our Easysapce segment. Both have performed well since acquisition.

We continue to look for businesses that fit our criteria with a view to making further acquisitions in the coming year.

Operational Review

Whilst all of our activities involve the provision of services from common infrastructure we are organised into two operating segments.

Cloud Serving segment as Cloud Services to better describe the breadth of products and services we deliver. Due to the complex nature of the market opportunity this breadth of offerings helps us to maintain overall growth as the demand for specific products and services fluctuates over time.

Revenues in this segment have grown by 19% to GBP65.4m (2015: GBP55.0m) partly as a result of the continued organic growth and as a result of acquisitions. Organic growth in the year was 9% and our adjusted EBITDA percentage margin remains amongst the highest in the industry.

iomart Hosting, Melbourne and ServerSpace are now managed as one business unit and trade as iomart Cloud and this will be reflected in our marketing as the year unfolds. This unit provides complex hosting solutions with customers typically paying for these services on a monthly basis on contracts ranging from one to three years in length. Last year I made reference to an increase in customer churn and some pricing pressure at contract renewal. I am pleased to report that over this period customer churn has improved and we have seen less pricing pressure at contract renewal. This has helped the overall segment maintain its healthy organic growth level over the period.

Our server infrastructure business, delivering dedicated physical servers to customers, is run as one unit encompassing the RapidSwitch and Redstation brands. We manage over 12,000 physical servers for our customers using highly automated systems and processes which we continue to develop and improve.

Our Back-up and Disaster Recovery specialism is primarily sold through Backup Technology.

SystemsUp provides consultancy services to organisations, particularly in the public sector, helping them to decide on their cloud strategy with an emphasis on the public cloud. We have started to see SystemsUp move into the provision of public cloud infrastructure to the public sector during the period.

We are able to supply products and services across the cloud spectrum and do so using common platforms across the Group.

Within the scope of our product set we have strengthened our relationships with Amazon Web Services (AWS) and Microsoft now labelled as Hypercloud vendors. Both are growing strongly on a global basis although they still account for a very small fraction of overall IT and Cloud spend.

Due partly to the amount of revenue we are generating from the provision of their public cloud we are now an Advanced Partner of AWS and moving towards the next level. We are one of Microsoft's most respected Cloud Service Providers in the UK and we are beginning to engage with their customers at a strategic consultancy level.

We continue to build on our skills and accreditations and see constant improvement across the Group's skillset. We have strengthened and broadened our sales and marketing team with a new Account Director, a new Sales Director, dedicated channel management and a new Director of Marketing.

Easyspace

The Easyspace segment has performed as expected over the year.

Our activities within this segment provide a range of products to the micro and SME markets including domain names, shared, dedicated and virtual servers and email services.

During the year United Hosting became part of the segment delivering a similar range of products but to larger organisations. It has successfully created a support operation in India to provide services to its customers.

Revenues of GBP10.9m (2015: GBP10.8m) have remained around the same level as in the previous year whilst delivering strong levels of cash for the Group.

Trading Results

Revenue

Revenues for the year grew by 16% to GBP76.3m (2015: GBP65.8m) through the combination of continued organic growth and the impact of acquisitions. ew revenues by 19% to GBP65.4m (2015: GBP55.0m). This growth was helped by a full year contribution from ServerSpace which we acquired in December 2014 and SystemsUp which was acquired in June 2015. Revenue growth in the Cloud Services segment excluding the impact of acquisitions was 9% (2015: 9%).

Revenues within the Easyspace segment grew by 1% to GBP10.9m (2015: GBP10.8m). This growth was entirely due to the contribution from United Hosting which was acquired in November 2015. Excluding the impact of the acquisition the segment's revenue declined by 8% (2015: 2%) due to the level of churn exceeding new sales both of which were in line with expectations. We expect the organic revenue levels in this segment to stabilise in the future as new sales and churn levels move into balance, through the introduction of new products and revised pricing in the domain market. Indeed the rate of decline in organic revenue over the full year was less than the rate in the first half of the year.

We continue to have good revenue visibility and high levels of recurring revenue. With our larger customers we have multi-year contracts for the provision of complex managed hosting solutions. Many of our smaller customers pay in advance for the provision of hosting services resulting in a substantial sum of deferred revenue which we then recognise during the period over which we provide our services.

Gross Margin

Our gross profit for the year was GBP51.6m (2015: GBP44.3m) increasing as a result of the additional revenues we generated as explained above. In percentage terms we maintained our margin at 67.7% (2015: 67.4%) with both operating segments maintaining their respective percentage margins.

Adjusted EBITDA

The adjusted EBITDA for the year was GBP32.3m (2015: GBP29.1m) an increase of 11%. Our adjusted EBITDA margin has reduced to 42.4% (2015: 44.2%). The Cloud Services segment increased its absolute level of margin over the period whilst experiencing a modest reduction in its percentage margin and the Easyspace segment increased both its absolute and percentage margin.

Adjusted EBITDA in the Cloud Services segment was GBP31.1m (2015: GBP27.5m), an increase of 13.1%. This greatly improved performance is a direct result of the additional gross margin delivered by the increase in sales revenue, from both organic and acquired sources, offset by an increase in administrative expenses. Administrative expenses have increased principally in relation to staff costs which has been largely due to the impact of the acquisition made in the period, the full impact of the acquisition made in the previous period and the recruitment of senior staff. In percentage terms the adjusted EBITDA margin has reduced to 47.5% (2015: 50.0%). This reduction is almost entirely due to the impact of acquisitions and in particular the impact of SystemsUp which although having a lower adjusted EBITDA margin than the rest of the Cloud Services segment also has almost no depreciation charge and therefore has a similar adjusted profit before tax percentage margin as the rest of the Group.

The Easyspace segment's adjusted EBITDA was GBP5.1m (2015: GBP4.9m) an increase of 3.9%. This improvement in adjusted EBITDA is entirely due to the impact of an acquisition made in the period. Excluding the acquisition adjusted EBITDA reduced as a result of the decline in organically generated revenue. In percentage terms the adjusted EBITDA margin has improved to 46.8% (2015: 45.5%). Excluding the acquisition the Easyspace segment maintained its adjusted EBITDA percentage margin, as a consequence of continued cost control. The improvement in percentage margin is entirely due to the impact of the acquisition made in the year.

Group overheads, which are not allocated to segments, include the cost of the Board, the running costs of the headquarters in Glasgow, Group marketing, human resource, finance and design functions and legal and professionts have increased to GBP3.8m (2015: GBP3.3m) mainly due to increased payroll and staff related costs.

Adjusted profit before tax

Depreciation charges of GBP10.9m (2015: GBP10.1m) have increased largely as a result of charges for the equipment bought to provide services to the additional Cloud Services segment customers and also as a result of the full year contribution of ServerSpace.

The charge for amortisation of intangibles, excluding amortisation of intangible assets resulting from acquisitions ('amortisation of acquired intangible assets') of GBP1.2m (2015: GBP1.0m) has increased over the year as a result of an increase in the level of software acquired over the year.

Finance income in the period was GBP0.1m (2015: GBPnil). Finance costs of GBP1.4m (2015: GBP1.3m), excluding the mark to market adjustment in respect of interest swaps on the Company's loans, the accelerated write off of arrangement fees on the restructuring of the bank facility and the interest charge on the contingent consideration due in respect of acquisitions, remained static over the period.

After deducting the charges for depreciation, amortisation, excluding the charges for the amortisation of acquired intangible assets, and finance costs, excluding the mark to market adjustment in respect of interest swaps on the Company's loans, the accelerated write off of arrangement fees on the restructuring of the bank facility and the interest charge on the contingent consideration due in respect of acquisitions, and crediting the finance income from the adjusted EBITDA, the Group's adjusted profit before tax was GBP19.0m (2015: GBP16.6m) an increase of 14%.

The adjusted profit before tax margin for the year was 25% (2015: 25%). Although the margin has remained the same over both periods there are two largely offsetting components. The adjusted EBITDA margin reduced by 1.8% primarily due to the impact of acquisitions and principally due to the impact of SystemsUp. On the other hand depreciation charges as a percentage of revenue have fallen by 1.1% again primarily due to the impact of the acquisition of SystemsUp which has minimal depreciation charges.

Profit before tax

The measure of adjusted profit before tax is a non-statutory measure which is commonly used to analyse the performance of companies 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                   2016       2015 
  before tax to profit before tax                 GBP'000    GBP'000 
 Adjusted profit before tax                        18,970     16,613 
 Less: Amortisation of acquired intangible 
  assets                                          (5,354)    (4,368) 
 Less: Acquisition costs                            (116)      (526) 
 Less: Share based payments                       (1,081)      (809) 
 Add/Less: Mark to market adjustment 
  on interest rate swaps                               64      (125) 
 Less: Accelerated write off of arrangement 
  fees on restructuring of the bank 
  facility                                          (177)          - 
 Less: Interest on contingent consideration         (152)          - 
 Add: Gain on revaluation of contingent 
  consideration                                       870          - 
 Profit before tax                                 13,024     10,785 
----------------------------------------------  ---------  --------- 

The adjusting items are: charges for the amortisation of acquired intangible assets of GBP5.4m (2015: GBP4.4m) which have increased substantially as a result of the acquisitions made in the year and the full year effect of acquisitions made in previous years; acquisition costs of GBP0.1m (2015: GBP0.5m) as a result of acquisitions made; share based payment charges of GBP1.1m (20esult of the award of share options in the year; a mark to market credit adjustment in respect of interest rate swaps on the Company's loans of GBP0.06m (2015: GBP0.12m charge); the accelerated write off of arrangement fees on the restructuring of the bank facility during the year of GBP0.2m (2015: GBPnil); the charge of interest, at the weighted average cost of capital rate of 15.5%, on the contingent consideration expected to be paid for the acquisition of United Hosting of GBP0.2m (2015: GBPnil); and the gain on the revaluation of the contingent consideration to be paid for SystemsUp of GBP0.9m (2015: GBPnil). It was originally estimated that the contingent consideration would be GBP1.0m which was based on a measure of the revenue generated by the business. Whilst the overall quantum of revenue generated by the business was consistent with what was expected, the mix of revenue was not, with more revenue than expected being generated from the provision of public cloud services and less from the provision of consultancy services. As a result the amount due in respect of the contingent consideration is GBP0.1m and consequently, an amount of GBP0.9m has been recognised in the Statement of Comprehensive Income during the year as a gain on revaluation of contingent consideration.

After deducting these items from the adjusted profit before tax; the reported profit before tax was GBP13.0m (2015: GBP10.8m) an increase of 21%. The increase in the year has been significantly affected by the gain on revaluation of the contingent consideration of GBP0.9m. In percentage terms the profit before tax margin was 17% (2015: 16%). This improvement is entirely due to the gain on revaluation of the contingent consideration due on the acquisition of SystemsUp. Before that gain the percentage margins in both years would have been very similar, consistent with the adjusted profit before tax percentage margin over the same periods.

Taxation

There is a tax charge for the year of GBP2.0m (2015: GBP1.9m). The tax charge for the year is made up of a corporation tax charge of GBP3.6m (2015: GBP2.7m) with a deferred tax credit of GBP1.6m (2015: credit GBP0.8m). The effective rate of tax for the year is 15.4% (2015: 17.5%) and an explanation of this reduction in given in note 4. At the year end, the Group has no unused tax losses (2015: GBP1.2m) available for offset against future profits.

Profit for the year from total operations

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 GBP11.0m (2015: GBP8.9m) an increase of 24% which has been significantly affected by the gain on revaluation of contingent consideration.

Earnings per share

Adjusted diluted earnings per share, based on profit for the year attributed to ordinary shareholders before share based payment charges, amortisation charges of acquired intangible assets, mark to market adjustments in respect of interest rate swaps, the accelerated write off of arrangement fees on the restructuring of the bank facility, acquisition costs; the charge of interest on contingent consideration due and the gain on the revaluation of the contingent consideration to be paid for SystemsUp and the tax effect of these items was 14.44p (2015: 12.63p) an increase of 14%.

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.

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 10.32p (2014: 8.34p), an increase of 24% which has been significantly affected by the gain on revaluation of contingent consideration.

Acquisitions

On 5 June 2015 the Company acquired the entire, no cash, normalised working capital basis. At completion an initial payment of GBP9m in cash was made and in addition an amount of GBP0.5m was made as an interim settlement of the expected amount due in respect of the no debt, no cash, normalised working capital adjustment. A further sum of GBP335,000 was paid in August 2015 to the vendors in respect of the final amount due in respect of the no debt, no cash, normalised working capital adjustment. A final sum was contingent on a measure of revenue for the year to 31 March 2016 and this has now been calculated to be GBP0.1m and was paid in May 2016.

On 30 November 2015, the Group acquired the entire issued share capital of United Hosting on a no cash no debt, normalised working capital basis. At completion, an initial payment of GBP7.5m in cash was made and in addition an amount of GBP2.0m in cash was paid as an interim settlement of the expected amount due in respect of the no debt, no cash, normalised working capital adjustment. An additional sum of GBP1.1m was paid in February 2016 in respect of the final amount due in respect of the no debt, no cash, normalised working capital adjustment. A further two sums are contingent on the profitability of the business in the years ending April 2016 and April 2017 and this has been estimated to have a present value at March 2016 of GBP3.1m. The maximum purchase price on a non-discounted basis is GBP11.0m, excluding any sums due in respect of the no debt, no cash, normalised working capital adjustment. The amount of contingent consideration due for the year ended April 2016 has now been agreed at GBP1.0m which was in line with expectations and was paid in June 2016.

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 GBP30.9m (2015: GBP27.2m) with the significant increase of 14% over the previous year's level largely due to the improvement in adjusted EBITDA. After deducting payments for corporation tax of GBP4.3m (2015: GBP3.2m) the net cash flow from operating activities was GBP26.6m (2015: GBP24.0m).

Cash flow from investing activities

In line with our strategy of accelerating our growth by acquisition the Group continued to incur substantial sums on investing activities, spending a total of GBP32.6m (2015: GBP15.8m) in the period. Of this amount, GBP15.9m (2015: GBP2.4m), net of cash acquired of GBP4.5m (2015: GBP0.2m), was incurred in relation to acquisition activities described above. In addition the Group incurred expenditure of GBP1.65m (2015: GBP1.3m) in respect of contingent considThe Group continues to invest in property, plant and equipment through expenditure on datacentres and on equipment required to provide managed services to both its existing and new customers. As a result the Group spent GBP12.4m (2015: GBP10.7m) on assets, net of related finance lease drawdown, trade creditor movements and non-cash reinstatement provisions.

Expenditure was also incurred on development costs of GBP1.1m (2015: GBP1.0m), on intangible assets of GBP1.2m (2015: GBP0.4m) and on property lease deposits of GBP0.3m (2015: GBPnil).

Cash flow from financing activities

The Company's banking facility was restructured in the year resulting in a substantial increase in the quantum of the facility together with a lower interest margin. There were drawdowns of GBP16.5m (2015: GBP13.5m) from the facility to fund the purchase of the acquisitions in the year. In addition bank loan repayments of GBP3.5m were made (2015: GBP22.0m) in the year. We received GBP0.1m (2015: GBPnil) from the issue of shares as a result of the exercise of options by employees. We also made a dividend payment of GBP2.7m (2015: GBP1.9m); incurred finance costs of GBP1.5m (2015: GBP1.3m); and made lease repayments of GBP1.0m (2015: GBP1.2m).

Net cash flow

As a consequence, our overall cash generated during the year was GBP2.0m (2015: GBP4.7m cash spent) which resulted in cash and cash equivalent balances at the end of the year of GBP10.3m (2015: GBP8.3m). After recognising bank loans of GBP34.5m (2015: GBP21.5m) and finance lease obligations of GBP1.4m (2015: GBP2.2m) net debt balances at the end of the period stood at GBP25.6m (2015: GBP15.4m) a level the Board is comfortable with given the strong cash generation of the Group.

Financial position

The Group is now in a position where it is generating substantial amounts of operating cash. The generation of that cash flow together with the committed bank loan facility for acquisitions and capital expenditure and finance lease facilities which are also available to fund capital expenditure, means that the Group has the liquidity it requires to continue its growth through both organic and acquisitive means.

Current trading and outlook

Trading since the year end remains good and in line with market expectations.

The long term opportunity is bigger than ever. The investments we have made in our staff, skillsets and industry relationships mean we are well positioned to take advantage of that opportunity and to deliver further significant growth.

I look forward, once again, with confidence to the year ahead.

Angus MacSween

Chief Executive Officer

6 June 2016

Consolidated Statement of Comprehensive Income

Year ended 31 March 2016


 
                                                    2016       2015 
                                         Note    GBP'000    GBP'000 
 Revenue                                          76,280     65,797 
 
 Cost of sales                                  (24,650)   (21,477) 
                                               ---------  --------- 
 
 Gross profit                                     51,630     44,320 
 
 Administrative expenses                        (37,917)   (32,121) 
--------------------------------------  -----  ---------  --------- 
 
 Operating profit                                 13,713     12,199 
 
 Analysed as: 
 Earnings before interest, 
  tax, depreciation, amortisation, 
  acquisition costs and share 
  based payments                                  32,341     29,053 
 Share based payments                            (1,081)      (809) 
 Acquisition costs                                 (116)      (526) 
 Depreciation                             9     (10,878)   (10,142) 
 Amortisation - acquired intangible 
  assets                                  8      (5,354)    (4,368) 
 Amortisation - other intangible 
  asse   (1,199)    (1,009) 
--------------------------------------  -----  ---------  --------- 
 
 Gain on revaluation of contingent 
  consideration                           7          870          - 
 Finance income                                      128         45 
 Finance costs                                   (1,687)    (1,459) 
                                               ---------  --------- 
 
 Profit before taxation                           13,024     10,785 
 
 Taxation                                 4      (2,005)    (1,890) 
                                               ---------  --------- 
 
 Profit for the year attributable 
  to equity holders of the 
  parent                                          11,019      8,895 
 
 
 Other comprehensive income 
 
 Amounts which may be reclassified 
  to profit or loss 
 Currency translation differences                     10       (49) 
--------------------------------------  -----  ---------  --------- 
 Other comprehensive income 
  for the year                                        10       (49) 
--------------------------------------  -----  ---------  --------- 
 
 Total comprehensive income 
  for the year attributable 
  to equity holders of the 
  parent                                          11,029      8,846 
 
 
 
 Basic and diluted earnings 
  per share 
 
 Total operations 
                                          6        10.32       8.34 
 Basic earnings per share                              p          p 
                                          6        10.17       8.24 
 Diluted earnings per share                            p          p 
--------------------------------------  -----  ---------  --------- 

Consolidated Statement of Financial Position

As at 31 March 2016


 
                                               2016       2015 
                                    Note    GBP'000    GBP'000 
--------------------------------   -----  ---------  --------- 
 ASSETS 
 Non-current assets 
 Intangible assets - goodwill        8       61,123     47,342 
 Intangible assets - other           8       23,065     19,041 
 Lease deposits                               2,760      2,416 
 Property, plant and equipment       9       36,045     34,846 
                                            122,993    103,645 
 Current assets 
 Cash and cash equivalents                   10,341      8,347 
 Trade and other receivables                 13,718     11,389 
                                             24,059     19,736 
 
 Total assets                               147,052    123,381 
 
 LIABILITIES 
 Non-current liabilities 
 Contingent consideration 
  due on acquisitions                12     (2,068)          - 
 Non-current borrowings              10       (826)    (1,346) 
 Trade and other payables                     (455)      (703) 
 Provisions                                 (1,879)    (2,187) 
 Deferred tax                        5      (2,075)    (2,087) 
                                            (7,303)    (6,323) 
 Current liabilities 
 Contingent consideration 
  due on acquisitions                12     (1,135)    (1,650) 
 Trade and other payables                  (19,532)   (18,680) 
 Provisions                                   (211)      (253) 
 Current income tax liabilities             (1,504)    (1,401) 
 Current borrowings                  10    (35,098)   (22,395) 
                                           (57,480)   (44,379) 
 
 Total liabilities                         (64,783)   (50,702) 
 
 Net assets                                  82,269     72,679 
---------------------------------  -----  ---------  --------- 
 
 EQUITY 
 Share capital                                1,078      1,078 
 Own shares                                   (489)      (538) 
 Capital redemption reserve                   1,200      1,200 
 Share premium                               21,067     21,067 
 Merger reserve                               4,983      4                            (37)       (47) 
 Retained earnings                           54,467     44,936 
---------------------------------  -----  ---------  --------- 
  Total equity                               82,269     72,679 
---------------------------------  -----  ---------  --------- 

Consolidated Statement of Cash Flows

Year ended 31 March 2016


 
                                                   2016        2015 
                                       Note     GBP'000     GBP'000 
 
Profit before taxation                           13,024      10,785 
Gain on revaluation of 
 contingent consideration              7          (870)           - 
Finance costs - net                               1,559       1,414 
Depreciation                           9         10,878      10,142 
Amortisation                           8          6,553       5,377 
Share based payments                              1,081         809 
Movement in trade receivables                   (1,612)     (3,277) 
Movement in trade payables                          298       1,956 
-----------------------------------  ------  ----------  ---------- 
Cash flow from operations                        30,911      27,206 
Taxation paid                                   (4,311)     (3,212) 
Net cash flow from operating 
 activities                                      26,600      23,994 
 
Cash flow from investing 
 activities 
Purchase of property, 
 plant and equipment                   9       (12,385)    (10,683) 
Capitalisation of development 
 costs                                 8        (1,123)     (1,041) 
Purchase of intangible

 assets                                8        (1,207)       (367) 
Payments for current period 
 acquisitions net of cash 
 acquired                                      (15,924)     (2,445) 
Contingent consideration 
 paid                                           (1,650)     (1,271) 
Payment of deposits                               (300)           - 
Finance income received                              33          33 
Net cash used in investing 
 activities                                    (32,556)    (15,774) 
 
Cash flow from financing 
 activities 
Issue of shares                                      91          13 
Draw down of bank loans                          16,500      13,500 
Repayment of finance leases                       (984)     (1,245) 
Repayment of bank loans                         (3,500)    (22,000) 
Finance costs paid                              (1,489)     (1,299) 
Dividends paid                                  (2,668)     (1,867) 
Net cash received from/(used 
 in) financing activities                         7,950    (12,898) 
 
Net increase/(decrease) 
 in cash and cash equivalents                     1,994     (4,678) 
 
Cash and cash equivalents 
 at the beginning of the 
 year                                             8,347      13,025 
----------------------------------   ------  ----------  ---------- 
 
Cash and cash equivalents at the 
 end of the year                                 10,341       8,347 
 

Consolidated Statement of Changes in Equity

Year ended 31 March 2016


 
                                                         Foreign 
                                   Own         Own      currency       Capital      Share 
   Changes in          Share    shares      shares   translation    redemption    premium     Merger    Retained 
   equity            capital       EBT    Treasury       reserve       reserve    account    reserve    earnings     Total 
                     GBP'000   GBP'000     GBP'000       GBP'000       GBP'000    GBP'000    GBP'000     GBP'000   GBP'000 
 ----------------  ---------  --------  ----------  ------------  ------------  ---------  ---------  ----------  -------- 
 
 Balance at 
  1 April 2014         1,078      (70)       (486)             2     113    64,887 
 
 Profit in 
  the year                 -         -           -             -             -          -          -       8,895     8,895 
 Currency 
  translation 
  differences              -         -           -          (49)             -          -          -           -      (49) 
                   ---------  --------  ----------  ------------  ------------  ---------  ---------  ----------  -------- 
 Total 
  comprehensive 
  income                   -         -           -          (49)             -          -          -       8,895     8,846 
                   ---------  --------  ----------  ------------  ------------  ---------  ---------  ----------  -------- 
 
 Dividends 
  - final (paid)           -         -           -             -             -          -          -     (1,867)   (1,867) 
 Share based 
  payments                 -         -           -             -             -          -          -         809       809 
 Deferred tax 
  on share based 
  payments                 -         -           -             -             -          -          -        (19)      (19) 
 Issue of own 
  shares for 
  option 
  redemption               -         -          18             -             -          -          -           5        23 
                   ---------  --------  ----------  ------------  ------------  ---------  ---------  ----------  -------- 
 Total 
  transactions 
  with owners              -         -          18             -             -          -          -     (1,072)   (1,054) 
                   ---------  --------  ----------  ------------  ------------  ---------  ---------  ----------  -------- 
 
 Balance at 
  31 March 2015        1,078      (70)       (468)          (47)         1,200     21,067      4,983      44,936    72,679 
----------------   ---------  --------  ----------  ------------  ------------  ---------  ---------  ----------  -------- 
 
 
 Profit in 
  the year                 -         -           -             -             -          -          -      11,019    11,019 
 Currency 
  translation 
  differences              -         -           -            10             -          -          -           -        10 
                   ---------  --------  ----------  ------------  ------------  ---------  ---------  ----------  -------- 
 Total 
  comprehensive 
  income                   -         -           -            10             -          -          -      11,019    11,029 
                   ---------  --------  ----------  ------------  ------------  ---------  ---------  ----------  -------- 
 
 Dividends 
  - final (paid)           -         -           -             -             -          -          -     (2,668)   (2,668) 
 Share based 
  payments                 -         -           -             -             -          -          -       1,081     1,081 
 Deferred tax 
  on share based 
  payments                 -         -           -             -             -          -          -          57        57 
 Issue of own 
  shares for 
  option 
  redemption               -         -          49             -             -          -          -          42        91 
 Total 
  transactions 
  with owners              -         -          49             -             -          -          -     (1,488)   (1,439) 
                   ---------  --------  ----------  ------------  ------------  ---------  ---------  ----------  -------- 
 
 
 Balance at 
  31 March 2016        1,078      (70)       (419)          (37)         1,200     21,067      4,983      54,467    82,269 
----------------   ---------  --------  ----------  ------------  ------------  ---------  ---------  ----------  -------- 
 

Notes to the Yearly Financial Information

Year ended 31 March 2016


   1.         GENERAL INFORMATION

iomart Group plc is a company incorporated and domiciled in Scotland. The company has a primary listing on the AIM stock exchanges Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP.


   2.         BASIS OF PREPARATION

These 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 financial statements have been prepared under the historical cost convention.

The financial information set out in the announcement does not constitute the Group's statutory accounts for the years ended 31 March 2016 and 31 March 2015 within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 March 2015 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 2016 is derived from the statutory accounts for that year which were approved by the Directors on 6 June 2016. The statutory accounts for the year ended 31 March 2016 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.


   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.

-- Easyspace - this segment provides a range of shared hosting and domain registration services to micro and SME companies. United Hosting was acquired during the year and has been reported as part of the Easyspace segment since acquisition.

-- Cloud Services - this segment provides managed cloud computing facilities and services, through a network of owned datacentres, to the larger SME and corporate markets. The segment uses several routes to market and provides managed hosting services through iomart Hosting, RapidSwitch, Melbourne, iomart Cloud Services, Redstation, Backup Technology, ServerSpace and SystemsUp. SystemsUp was acquired during the year and has been reported as part of the Cloud Services segment since acquisition.

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 the revaluation of contingent consideration. 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 deta

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


 
                               2016                            2015 
                  ------------------------------  ------------------------------ 
                   External   Internal     Total   External   Internal     Total 
                    GBP'000    GBP'000   GBP'000    GBP'000    GBP'000   GBP'000 
----------------  ---------  ---------  --------  ---------  ---------  -------- 
 Easyspace           10,883          -    10,883     10,782          -    10,782 
 Cloud Services      65,397      1,114    66,511     55,015        950    55,965 
                  ---------  ---------  --------  ---------  ---------  -------- 
                     76,280      1,114    77,394     65,797        950    66,747 
----------------  ---------  ---------  --------  ---------  ---------  -------- 

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


 
                                   2016      2015 
                                GBP'000   GBP'000 
-------------------------      --------  -------- 
 United Kingdom                  64,218    54,253 
 Rest of the 
  World                          12,062    11,544 
                               --------  -------- 
 Revenue from operations         76,280    65,797 
--------------------------     --------  -------- 

Profit by Operating Segment


 
                                           2016                                         2015 
                       -------------------------------------------  ------------------------------------------- 
                                    Depreciation,                                Depreciation, 
                                    amortisation,                                amortisation, 
                                      acquisition                                  acquisition 
                                            costs                                        costs 
                                        and share                                    and share 
                 Operating   Adjusted            based        Operating 
                          EBITDA         payments    profit/(loss)     EBITDA         payments    profit/(loss) 
                         GBP'000          GBP'000          GBP'000    GBP'000          GBP'000          GBP'000 
---------------------  ---------  ---------------  ---------------  ---------  ---------------  --------------- 
 Easyspace                 5,094            (815)            4,279      4,905            (416)            4,489 
 Cloud Services           31,084         (16,616)           14,468     27,481         (15,103)           12,378 
 Group overheads         (3,837)                -          (3,837)    (3,333)                -          (3,333) 
 Acquisition 
  costs                        -            (116)            (116)          -            (526)            (526) 
 Share based 
  payments                     -          (1,081)          (1,081)          -            (809)            (809) 
---------------------  ---------  ---------------  ---------------  ---------  ---------------  --------------- 
 Profit before 
  tax 
  and interest            32,341         (18,628)           13,713     29,053         (16,854)           12,199 
 Gain on revaluation 
  of 
  contingent 
  consideration                                                870                                            - 
 Group interest 
  and tax                                                  (3,564)                                      (3,304) 
                       ---------  ---------------  ---------------  ---------  ---------------  --------------- 
 Profit for 
  the year                32,341         (18,628)           11,019     29,053         (16,854)            8,895 
---------------------  ---------  ---------------  ---------------  ---------  ---------------  --------------- 

Group overheads, acquisition costs, share based payments, gain on revaluation of contingent consideration, interest and tax are not allocated to segments.


   4.         TAXATION 
 
                                                2016      2015 
                                             GBP'000   GBP'000 
 ---------------------------------------    --------  -------- 
 
  Tax charge for the year                    (3,663)   (2,782) 
  Adjustment relating to prior 
   years                                          52        36 
----------------------------------------    --------  -------- 
  Total current taxation charge              (3,611)   (2,746) 
 
  Origination and reversal 
   of temporary differences                    1,482       692 
  Adjustment relating to prior 
   years                                          31       179 
  Effect of different statutory 
  tax rates of overseas jurisdictions             61        14 
  Effect of changes in tax 
   rates                                          32      (29) 
----------------------------------------    --------  -------- 
  Total deferred taxation 
   credit                                      1,606       856 
 
  Total taxation charge                      (2,005)   (1,890) 
----------------------------------------    --------  -------- 

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


 
                                                  2016      2015 
                                               GBP'000   GBP'000 
 -----------------------------------------    --------  -------- 
 
  Profit before tax                             13,024    10,785 
------------------------------------------    --------  -------- 
 
  Tax charge @ 20% (2015 - 21%)                  2,605     2,265 
 
  Expenses disallowed for tax purposes              67        71 
  Non-taxable income                             (174)       (6) 
  Adjustments in current tax relati              (52)      (36) 
  Effect of different statutory 
   tax rates of overseas jurisdictions            (53)      (14) 
  Movement in deferred tax relating 
   to changes in tax rates                        (32)        29 
  Effect of research and development 
   tax reliefs                                   (335)     (395) 
  Tax effect of share based remuneration         (206)       155 
  Movement in unprovided deferred 
   tax related to development costs                228         - 
  Movement in unprovided deferred 
   tax related to property, plant 
   and equipment                                  (12)         - 
  Movement in deferred tax relating 
   to prior periods                               (31)     (179) 
 
  Taxation charge for the year                   2,005     1,890 
------------------------------------------    --------  -------- 

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 15.4% (2015: 17.5%). The reduction of just over 2% is partly due to the overall reduction in tax rates from 21% to 20% and also due to the favourable impact of both non-taxable income in the period, due to the gain on revaluation of contingent consideration, and deferred tax on share based remuneration due to the increase in the Company's share price in the year. Offsetting this has been the adverse impact of a deferred tax charge on the initial recognition of a deferred tax liability in relation to development costs and a smaller charge in respect of deferred tax relating to prior periods.


   5.         DEFERRED TAX

The Group recognised deferred tax assets and liabilities as follows:


 
                                               2016                                2015 
                                ----------------------------------  ---------------------------------- 
                                       Deferred           Deferred         Deferred           Deferred 
                                 tax Recognised   tax Unrecognised   tax Recognised   tax Unrecognised 
                                        GBP'000            GBP'000          GBP'000            GBP'000 
------------------------------  ---------------  -----------------  ---------------  ----------------- 
 
 Tax losses carried forward                   -                  -              289                  - 
 Share based remuneration                 1,010                  -              575                  - 
 Capital allowances temporary 
  differences                             1,103                  -              873                  - 
 Deferred tax on development 
  costs                                   (195)                  -                -                  - 
 Deferred tax on acquired 
  assets with no capital 
  allowances                              (442)                  -            (605)                  - 
 Deferred tax on customer 
  relationships                         (3,551)                  -          (3,219)                  - 
------------------------------  ---------------  -----------------  ---------------  -----------------

 Deferred tax liability                 (2,075)                  -          (2,087)                  - 
------------------------------  ---------------  -----------------  ---------------  ----------------- 

At the year end, the Group has no unused tax losses (2015: GBP1.2m) available for offset against future profits.

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


 
                                                                                  Deferred 
                                                       Capital                      tax on 
                            Tax                     allowances                    acquired 
                         losses           Share      temporary    Development       assets   carried           based    differences          costs         with    relationships      Total 
                        forward    remuneration        GBP'000        GBP'000   no capital          GBP'000    GBP'000 
                        GBP'000         GBP'000                                 allowances 
                                                                                   GBP'000 
--------------------  ---------  --------------  -------------  -------------  -----------  ---------------  --------- 
 
Balance at 
 1 April 2014            831          600             414             -           (765)         (3,523)       (2,443) 
Acquired on 
 acquisition 
 of subsidiary           89            -             (13)             -             -            (557)         (481) 
Debited to 
 equity                   -           (19)             -              -             -              -           (19) 
(Charged)/credited 
 to statement 
 of comprehensive 
 income                 (673)          2              550             -            131            861           871 
Effect of different 
 tax rates of 
 overseas 
 jurisdictions           44            -             (30)             -             -              -            14 
Effect of changes 
 in tax rates            (2)          (8)            (48)             -            29              -           (29) 
Balance at 
 1 April 2015            289          575             873             -           (605)         (3,219)       (2,087) 
Acquired on 
 acquisition 
 of subsidiary            -            -             (24)             -             -           (1,627)       (1,651) 
Credited to 
 equity                   -            57              -              -             -              -            57 
(Charged)/credited 
 to statement 
 of comprehensive 
 income                 (289)         389             378           (195)          115           1,115         1,513 
Effect of different 
 tax rates of 
 overseas 
 jurisdictions            -            -               -              -             -             61            61 
Effect of changes 
 in tax rates             -           (11)           (124)            -            48             119           32 
Balance at 
 31 March 2016            -          1,010           1,103          (195)         (442)         (3,551)       (2,075) 
--------------------  ---------  --------------  -------------  -------------  -----------  ---------------  --------- 
 
   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                                    2016      2015 
                                                 GBP'000   GBP'000 
--------------------------------------  ----    --------  -------- 
 Profit for the financial 
  year and basic earnings 
  attributed to ordinary shareholders             11,019     8,895 
--------------------------------------------    --------  -------- 
 
                                                      No        No 
 Weighted average number 
  of ordinary shares:                                000       000 
 
 Called up, allotted and 
  fully paid at start of year                    107,803   107,803 
 Own shares held in Treasury                       (898)     (971) 
 Own shares held by Employee 
  Benefit Trust                                    (141)     (141) 
 Weighted average number 
  of     106,764   106,691 
 
 Dilutive impact of share 
  options                                          1,609     1,236 
 
 Weighted average number 
  of ordinary shares - diluted                   108,373   107,927 
---------------------------------------    ---  --------  -------- 
 
 Basic earnings per share                          10.32      8.34 
                                                       p         p 
 Diluted earnings per share                        10.17      8.24 
                                                       p         p 
---------------------------------------------   --------  -------- 
 
 
 
 Adjusted earnings                                                    2016      2015 
  per share                                                        GBP'000   GBP'000 
 
 Profit for the financial 
  year and basic earnings 
  attributed to ordinary shareholders                               11,019     8,895 
 
   *    Amortisation of acquired intangible assets                   5,354     4,368 
 
   *    Acquisition costs                                              116       526 
 
   *    Share based payments                                         1,081       809 
 
   *    Mark to market interest adjustment                            (64)       125 
 
   *    Accelerated write off of arrangement fees                      177         - 
 
   *    Finance charge on contingent consideration                     152         - 
 
   *    Gain on revaluation of contingent consideration              (870)         - 
 
   *    Tax impact of adjusted items                               (1,311)   (1,093) 
 Adjusted profit for the 
  financial year and adjusted 
  earnings attributed to 
  ordinary shareholders                                             15,654    13,630 
---------------------------------------------------------    ---  --------  -------- 
 
 Adjusted basic earnings                                             14.66     12.77 
  per share                                                              p         p 
 Adjusted diluted earnings per                                       14.44     12.63 
  share                                                                  p         p 
---------------------------------------------------------------   --------  -------- 
 
 
   7.         ACQUISITIONS

Systems Up Limited

The Group acquired 100% of the issued share capital of Systems Up Limited ('SystemsUp') on 5 June 2015.

SystemsUp is a London consultancy business specialising in the delivery of IT transformation using Public Cloud. It boasts a range of expertise in the design and delivery of public cloud solutions and is a G-Cloud partner to Google, an authorised Government Partner to Amazon Web Services and a Microsoft Gold Partner. With the acquisition of SystemsUp, the Group has broadened its ability to engage at a strategic level and act as a trusted adviser on cloud strategy to organisations wanting to create the right blend of cloud services, both public and private, to fit their requirements. The acquisition is in line with the Group's strategy to grow its hosting operations both organically and by acquisition.

During the current period the Group incurred GBP113,000 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 2016.

The following table summarises the consideration to acquire SystemsUp and the amounts of identified assets acquired and liabilities assumed at the acquisition date and are final:


 
                                              GBP'000 
-------------------------------------------  -------- 
 Recognised amounts of net assets acquired 
  and liabilities assumed: 
 Cash and cash equivalents                      1,184 
 Trade and other receivables                      645 
 Proper    29 
 Intangible assets                              2,516 
 Trade and other payables                       (400) 
 Current income tax liabilities                 (339) 
 Deferred tax liability                         (503) 
-------------------------------------------  -------- 
 Identifiable net assets                        3,132 
 Goodwill                                       7,708 
-------------------------------------------  -------- 
 Total consideration                           10,840 
-------------------------------------------  -------- 
 
 Satisfied by: 
 Cash - paid on acquisition                     9,500 
 Contingent consideration - payable             1,005 
 Deferred consideration - paid                    335 
 Total consideration to be transferred         10,840 
-------------------------------------------  -------- 

The acquisition of SystemsUp included a provision for contingent consideration due in respect of revenues, on an adjusted basis, for the year to 31 March 2016. We estimated that the amount of contingent consideration that would be paid would be GBP1,005,000 and that payment will be made shortly after this reporting date. The amount of contingent consideration was based on both the level and mix of revenue generated through until March 2016. Whilst the overall quantum of revenue generated was consistent with what was expected the mix of revenue was not with more revenue than expected being generated from the provision of public cloud services and less from the provision of consultancy services. As a consequence it has now been established that the amount of contingent consideration due is GBP135,000. Consequently an amount of GBP870,000 has been recognised in the Statement of Comprehensive Income during the year as a gain on revaluation of contingent consideration.

At the point of the acquisition a payment was made of GBP9,500,000 in cash, including an amount of GBP500,000 as an interim payment towards the settlement in respect of the additional debt assumed, cash acquired and normalised working capital position of SystemsUp at completion. A further GBP335,000 was paid in August 2015 to the vendors in respect of the final amount due for the additional debt assumed, cash acquired and normalised working capital position of SystemsUp at completion and the GBP135,000 contingent consideration was paid in May 2016.

SystemsUp earned revenue of GBP4,358,000 and generated profits before tax of GBP792,000 in the period since acquisition.

United Communications Limited

The Group acquired 100% of the issued share capital of United Communications Limited ('United Hosting') on 30 November 2015.

United Hosting is a Hemel Hempstead based provider of managed and shared hosting services to over 7,000 customers. The acquisition is in line with the Group's strategy to grow its hosting operations both organically and by acquisition.

During the current period the Group incurred GBP150,000 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 period ended 31 March 2016.

The following table summarises the consideration to acquire United Hosting and the provisional amounts of identified assets acquired and liabilities assumed at the acquisition date and are provisional:


 
                                              GBP'000 
-------------------------------------------  -------- 
 Recognised amounts of net assets acquired 
  and liabilities assumed (provisional): 
 Cash and cash equivalents                      3,291 
 Trade and other receivables                       48 
 Property, plant and equipment                    146 
 Intangible assets                              5,912 
 Trade and other payables                       (843) 
 Deferred tax liability                       (1,148) 
-----------------------------net assets                        7,406 
 Goodwill                                       6,073 
-------------------------------------------  -------- 
 Total consideration                           13,479 
-------------------------------------------  -------- 
 
 Satisfied by: 
 Cash - paid on acquisition                     7,500 
 Deferred consideration                         3,063 
 Contingent consideration - payable             2,916 
 Total consideration transferred               13,479 
-------------------------------------------  -------- 

The recognised amounts of all the net assets acquired and liabilities assumed are provisional.

The share purchase agreement, in respect of the acquisition of United Hosting, included a provision under which the total consideration payable may have been adjusted by a payment to be made either to or by the Company, depending on the level of cash, debt and working capital shown in an agreed set of accounts (the Completion Accounts) made up to, and as at, the completion date. The initial payment to acquire the company was GBP7,500,000 in cash and in addition an amount of GBP2,000,000 in cash was paid as an interim settlement of the expected amount due in respect of the no debt, no cash, normalised working capital adjustment. Following agreement of the Completion Accounts a total payment of GBP3,063,000, before deduction of the interim settlement, was due by the Company in respect of the no debt, no cash, normalised working capital adjustment and the balance of GBP1,063,000 was paid in cash in February 2016.

The contingent consideration arrangements require the Company to pay the former shareholders of United Hosting additional amounts contingent on the level of profitability delivered by United Hosting in the year ending 30 April 2016 ('the First Earn-out Payment') and in the year ending 30 April 2017 ('the Second Earn-out Payment').

The potential undiscounted amount of the total payments that the Company could be required to make in respect of the First Earn-out Payment and the Second Earn-out Payment (together 'the Earn-out Payments') is between GBPnil and GBP3,500,000. The undiscounted amount of contingent consideration payable which was recognised as of the acquisition date was GBP3,450,000 and after discounting was GBP2,916,000.

The potential undiscounted amount of the total payment that the Company could be required to make in respect of the First Earn-out Payment is between GBPnil and GBP1,025,000. The undiscounted fair value of the First Earn-out Payment is GBP1,025,000 and after discounting is GBP951,000. The amount of the First Earn-out payment has now been agreed at GBP1,025,000 and was paid in June 2016.

The potential undiscounted amount of the total payment that the Company could be required to make in respect of the Second Earn-out Payment is between GBPnil and GBP3,500,000. After deducting the undiscounted value of the First Earn-out Payment, the undiscounted fair value of the Second Earn-out Payment has been calculated to be GBP2,425,000 and after discounting is GBP1,965,000.

United Hosting earned revenue of GBP1,009,000 and generated a profit before tax of GBP356,000 in the period since acquisition.

ServerSpace Limited

The fair values of acquired assets and liabilities, including goodwill, previously disclosed as provisional for ServerSpace Limited have been finalised in the current period with no changes to the fair values disclosed in the Annual Report and Accounts 2015.

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 2015. The amounts include the results of the acquired business, a charge for interest on the additional debt incurred to finance the acquisition and depreciation and amortisation of the acquired property, plant and equipment and intangible assets recognised on acquisition. The amountfrom 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 the combined companies.


 
                                     Pro-forma 
                                    year ended 
                                      31 March 
                                          2016 
-------------------------------  ------------- 
                                       GBP'000 
-------------------------------   ------------ 
 Revenue                                78,860 
 
 Profit after tax for the year          10,691 
--------------------------------  ------------ 
 
   8.         INTANGIBLE ASSETS 
 
                                                                                                     Domain 
                        Goodwill     Development          Customer                 Beneficial         names 
                                           costs     relationships                  contracts          & IP 
                                                                      Software                    addresses      Total 
                         GBP'000         GBP'000           GBP'000     GBP'000        GBP'000       GBP'000    GBP'000 
-------------------  -----------  --------------  ----------------  ----------  -------------  ------------  --------- 
 Cost 
 At 1 April 
  2014                    44,879           2,668            22,979       1,657             86           280     72,549 
 Additions                     -               -               598         435              -             -      1,033 
 Currency 
  translation 
  differences                  -               -                76          22              -             -         98 
 Acquired on 
  acquisition 
  of subsidiary            2,463               -             2,778           -              -             -      5,241 
 Development 
  cost capitalised             -           1,041                 -           -              -             -      1,041 
 At 1 April 
  2015                    47,342           3,709            26,431       2,114             86           280     79,962 
 Additions                     -               -                         1,020              -             -      1,020 
 Currency 
  translation 
  differences                  -               -                23           3              -             -         26 
 Acquired on 
  acquisition 
  of subsidiary           13,781               -             8,428           -              -             -     22,209 
 Development 
  cost capitalised             -           1,123                 -           -              -             -      1,123 
 At 31 March 
  2016                    61,123           4,832            34,882       3,137             86           280    104,340

-------------------  -----------  --------------  ----------------  ----------  -------------  ------------  --------- 
 
 Accumulated 
  amortisation: 
 At 1 April 
  2014                         -         (1,869)           (5,564)       (675)           (12)          (62)    (8,182) 
 Currency 
  translation 
  differences                  -               -              (20)           -              -             -       (20) 
 Charge for 
  the year                     -           (627)           (4,361)       (328)            (7)          (54)    (5,377) 
 At 1 April 
  2015                         -         (2,496)           (9,945)     (1,003)           (19)         (116)   (13,579) 
-------------------  -----------  --------------  ----------------  ----------  -------------  ------------  --------- 
 
 Currency 
  translation 
  differences                  -               -              (16)         (4)              -             -       (20) 
 Charge for 
  the year                     -           (698)               (55)    (6,553) 
-------------------  -----------  --------------  ----------------  ----------  -------------  ------------  --------- 
 At 31 March 
  2016                         -         (3,194)          (15,308)     (1,453)           (26)         (171)   (20,152) 
-------------------  -----------  --------------  ----------------  ----------  -------------  ------------  --------- 
 
 Carrying amount: 
 
 At 31 March 
  2016                    61,123           1,638            19,574       1,684             60           109     84,188 
-------------------  -----------  --------------  ----------------  ----------  -------------  ------------  --------- 
 
 At 31 March 
  2015                    47,342           1,213            16,486       1,111             67           164     66,383 
-------------------  -----------  --------------  ----------------  ----------  -------------  ------------  --------- 

Of the total additions in the year of GBP1,020,000 (2015: GBP1,033,000), GBPnil (2015: GBP182,000) were funded by finance leases, GBP297,000 (2015: GBP484,000) was included in trade payables as unpaid invoices at the year end resulting in a net decrease of GBP187,000 (2015: net cash inflow GBP484,000) in trade payables. Consequently, the consolidated statement of cash flows discloses a figure of GBP1,207,000 (2015: GBP367,000) 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.

During the year, goodwill was reviewed for impairment in accordance with IAS 36 'Impairment of Assets'. No impairment charges (2015: GBPnil) arose as a result of this review. For this review goodwill was allocated to individual Cash Generating Units (CGU) on the basis of the Group's operations. The goodwill acquired in the United Hosting acquisition has been allocated to the Easyspace CGU and the goodwill acquired in the SystemsUp acquisition has been allocated to the Cloud Services CGU, as these are the CGUs expected to benefit from the business combinations.

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


 
 Cash Generating           2016       2015 
  Units (CGU)           GBP'000    GBP'000 
 Easyspace               23,210     17,137 
 Cloud Services          37,913     30,205 
--------------------  ---------  --------- 
                         61,123     47,342 
   -----------------  ---------  --------- 
 
   9.         PROPERTY, PLANT AND EQUIPMENT 
 
                    Freehold        Leasehold   Datacentre     Computer       Office       Motor 
                    property    improve-ments    equipment    equipment    equipment    vehicles      Total 
                     GBP'000          GBP'000      GBP'000      GBP'000      GBP'000     GBP'000    GBP'000 
----------------  ----------  ---------------  -----------  -----------  -----------  ----------  --------- 
 
 Cost: 
 At 1 April 
  2014                 2,062            6,732       16,845       28,067        1,559          48     55,313 
 Additions 
  in the year              -              109        1,522        9,705          582           -     11,918 
 Acquisition 
  of subsidiary            -               16            -          434            3           -        453 
 Disposals 
  in the year              -                -            -        (322)            -           -      (322) 
 Currency 
  translation 
  differences              -                -            -           94            -           -         94 
 At 31 March 
  2015                 2,062            6,857       18,367       37,978        2,144          48     67,456 
 Additions 
  in the year              -              466        2,105        9,103          209           -     11,883   -                -            -          152            3          20        175 
 Disposals 
  in the year              -                -            -         (15)            -           -       (15) 
 Currency 
  translation 
  differences              -                -            -           24            -           -         24 
 At 31 March 
  2016                 2,062            7,323       20,472       47,242        2,356          68     79,523 
----------------  ----------  ---------------  -----------  -----------  -----------  ----------  --------- 
 
 Accumulated 
  depreciation: 
 At 1 April 
  2014                 (116)          (1,418)      (4,784)     (15,583)        (843)        (36)   (22,780) 
 Charge for 
  the year              (34)            (440)      (1,469)      (7,925)        (269)         (5)   (10,142) 
 Disposals 
  in the year              -                -            -          322            -           -        322 
 Currency 
  translation 
  differences              -                -            -         (10)            -           -       (10) 
 At 31 March 
  2015                 (150)          (1,858)      (6,253)     (23,196)      (1,112)        (41)   (32,610) 
 Charge for 
  the year              (41)            (479)      (1,686)      (8,399)        (259)        (14)   (10,878) 
 Disposals 
  in the year              -                -            -           15            -           -         15 
 Currency 
  translation 
  differences              -                -            -          (5)            -           -        (5) 
----------------  ----------  ---------------  -----------  -----------  -----------  ----------  --------- 
 At 31 March 
  2016                 (191)          (2,337)      (7,939)     (31,585)      (1,371)        (55)   (43,478) 
----------------  ----------  ---------------  -----------  -----------  -----------  ----------  --------- 
 
 Carrying 
  amount: 
 At 31 March 
  2016                 1,871            4,986       12,533       15,657          985          13     36,045 
 
 At 31 March 
  2015                 1,912            4,999       12,114       14,782        1,032           7     34,846 
----------------  ----------  ---------------  -----------  -----------  -----------  ----------  --------- 
 

Of the total additions in the year of GBP11,883,000 (2015: GBP11,918,000), GBP97,000 (2015: GBP458,000) were funded by finance leases and GBP1,755,000 (2015: GBP2,354,000) was included in trade payables as unpaid invoices at the year end resulting in a net decrease of GBP599,000 (2015: net increase of GBP777,000) in trade payables. Consequently, the consolidated statement of cash flows discloses a figure of GBP12,385,000 (2015: GBP10,683,000) as the cash outflow in respect of property, plant and equipment additions in the year.


   10.       BORROWINGS 
 
                                     2016      2015 
                                  GBP'000   GBP'000 
----------------------------     --------  -------- 
 
  Current: 
  Obligations under finance 
   leases                           (573)     (938) 
  Bank loans                     (34,525)  (21,457) 
  Current borrowings             (35,098)  (22,395) 
 
  Non-current: 
  Obligations under finance 
   leases                           (826)   (1,346) 
  Bank loans                            -         - 
  Total non-current 
   borrowings                       (826)   (1,346) 
 
 
  Total borrowings               (35,924)  (23,741) 
-------------------------------  --------  -------- 
 
   11.       ANALYSIS OF CHANGE IN NET DEBT 
 
                                                         Finance 
                                      Cash       Bank     leases 
  Analysis of change              and cash      loans   and hire 
  in net cash/(debt)           equivalents    GBP'000   purchase     Total 
                                   GBP'000               GBP'000   GBP'000 
-------------  ---------  -------- 
 
  At 1 April 2014                   13,025   (30,026)    (2,818)  (19,819) 
 
  Repayment of bank 
   loans                                 -     22,000          -    22,000 
  New bank loans                         -   (13,500)          -  (13,500) 
  Impact of effective 
   interest rate                         -         69          -        69 
  Inception of finance 
   leases                                -          -      (640)     (640) 
  Acquired on acquisition 
   of subsidiary                       155          -       (36)       119 
  Currency translation 
   differences                           -          -       (35)      (35) 
  Cash flow                        (4,833)          -      1,245   (3,588) 
---------------------------  -------------  ---------  ---------  -------- 
  At 31 March 2015                   8,347   (21,457)    (2,284)  (15,394) 
 
  Repayment of bank 
   loans                                 -      3,500          -     3,500

  New bank loans                         -   (16,500)          -  (16,500) 
  Impact of effective 
   interest rate                         -       (68)          -      (68) 
  Inception of finance 
   leases                                -          -       (97)      (97) 
  Acquired on acquisition 
   of subsidiaries                   4,476          -          -     4,476 
  Currency translation 
   differences                           -          -        (2)       (2) 
  Cash flow                        (2,482)          -        984   (1,498) 
  At 31 March 2016                  10,341   (34,525)    (1,399)  (25,583) 
---------------------------  -------------  ---------  ---------  -------- 
 
   12.       CONTINGENT CONSIDERATION 
 
                                                   2016      2015 
                                                GBP'000   GBP'000 
 ---------------------------------------  ---  --------  -------- 
 
  Contingent consideration due 
   on acquisitions within one 
   year: 
 
    *    ServerSpace Limited                          -   (1,650) 
 
    *    Systems Up Limited                       (135)         - 
 
   *    United Communications Limited           (1,000)         - 
----------------------------------------       --------  -------- 
                                                (1,135)   (1,650) 
 
  Contingent consideration due 
   on acquisitions after more 
   than one year: 
 
   *    United Communications Limited           (2,068)         - 
----------------------------------------       --------  -------- 
                                                (2,068)         - 
 
 
  Total contingent consideration 
   due on acquisitions                          (3,203)   (1,650) 
----------------------------------------       --------  -------- 
 
   13.       ANNUAL REPORT AND ACCOUNTS

The Annual Report and Accounts for 2016 will be posted to shareholders on 30 June 2016 and will also be available free of charge on request from the Company's registered office; Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP and on the Group's web-site at www.iomart.com.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR EANKKEEAKEFF

(END) Dow Jones Newswires

June 07, 2016 02:00 ET (06:00 GMT)

Iomart Group plc published this content on 07 June 2016 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 07 June 2016 06:09:13 UTC.

Original documenthttps://www.iomart.com/investors/securities-information/regulatory-news?id=http://corp2.advfn.com/index.php?pid=rns&compId=17&articleId=71667492

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