28th Nov 2007 07:01
Iomart Group PLC28 November 2007 28th November 2007 Iomart Group plc Interim Results Announcement iomart Group plc ("iomart"), the datacentre operating and web hosting business,presents its consolidated interim results for the six month period ended 30September 2007. FINANCIAL HIGHLIGHTS • Group operating loss of £0.4m (H1 FY07 profit £0.16m) after investment in datacentre business acquired at end of FY 07 • iomart's existing businesses, which exclude the datacentre operation, deliver substantially improved performance: • Operating profit increase to £1.2m (H1 FY07: £0.2m) • Increase in operating cash contribution to £1.7m (H1 FY07: outflow £0.03m) • Beneficial ownership of 99.8% of datacentre operation achieved OPERATIONAL HIGHLIGHTS • Improved operational efficiency, strengthened management and streamlined existing businesses • Senior management team in place to build datacentre business • London datacentre fully operational Nick Kuenssberg, Chairman, commented: "It is gratifying that management's efforts to improve the established iomartbusinesses have been rewarded. An experienced and capable management team hasbeen recruited to develop the datacentre business and I am delighted that theLondon datacentre is now fully operational. Beneficial ownership of 99.8% of the datacentre operation has now been achievedwhich means we will acquire the datacentre business for a maximum totalconsideration of £9.6m. As advised previously this is an appropriate time to review the composition ofthe Board and I am pleased to advise that we have made good progress on theappointment of a non-executive director and expect to make an announcement inthe near future." Angus MacSween, CEO added, "I am pleased to report that we have succeeded in increasing the profitabilityof iomart's established businesses during the period and I am confident thatfurther progress will be made in the second half of the year. We are seeingconsiderable and growing interest in both our datacentre services and ourcomplex hosting capability - particularly from our target market of blue-chipenterprises seeking long term solutions. These will form the core of our futurerevenue streams, providing high margin earnings with good visibility." For further information: Iomart Group plcAngus MacSween Tel: 0141 931 6400Nick Kuenssberg Tel: 07860635191 KBC Peel Hunt Tel: 020 7418 8900Oliver ScottRichard Kauffer ICIS Limited Tel: 020 7651 8688Tom MoriartyBob Huxford Chief Executive's Statement During the past six months iomart has successfully developed Ufindus andEasyspace and substantially reduced losses in Netintelligence thereby improvingoperating margin and profitability of the existing businesses while restrictingrevenues to a certain extent in the short term. We have identified a number ofgrowth opportunities in these businesses as well as scope to implement furtheroperational efficiencies. While the datacentre business is still in start-up mode we are pleased with theinitial interest from our target market of large-scale enterprises seekinglong-term contracts, albeit that these have taken longer to close thanoriginally planned. Given the current pricing environment we anticipate thatmargins will continue to improve and we look forward to taking advantage of thistrend in 2008. The operating losses incurred during the period were as aresult of the initial development of the datacentre business. Financials Group Financials 6 months ended 30 September 2007 6 months ended 30 September 2006 Existing Datacentres Combined Existing Businesses Group Businesses £'000 £'000 £'000 £'000Revenue 9,558 73 9,631 10,855Gross profit 7,812 (1,036) 6,776 8,356Operating (loss)/profit 1,159 (1,555) (396) 168Cash flow from operations 1,737 (2,748) (1,011) (32) Total revenue for the 6 months declined to £9.6m from £10.9m in the same periodlast year, a decrease of 11%. This resulted from the deliberate strategy toimprove the profitability of the Ufindus business which saw a cut in directsales headcount and focus on improved operational efficiencies. This strategyhas been successful because, although revenues were depressed, operating profitshave improved. Gross profit for the period was £6.8m (H1 FY07 £8.4m) and gross margin was 70%(H1 FY07 77%) the reduction in which is entirely due to the gross loss of thedatacentre operation, with the existing businesses having delivered an increasein gross margin in percentage terms. An operating loss of £0.4m was recorded forthe period (H1 FY07 operating profit of £0.2m) but the decline can be whollyattributed to the operating and administrative expenses associated with thedatacentre business acquired at the close of FY 2007. The continued recognition of a deferred tax asset in respect of Ufindus taxlosses has provided a tax credit of £0.27m (H1 FY £0.29m). The net loss for theperiod is therefore £0.16m (H1 FY07 profit of £0.3m). There was an operating cash outflow in the period of £1.01m (H1 FY07 outflow of£0.03m) caused by the expenditure associated with the datacentre business. Netdebt at the end of September was £0.62m (HI FY07 £4.54m). Like- for-Like Financials Excluding the effects of the datacentre acquisition at the end of FY 2007, theperformance of the existing businesses was encouraging. Revenue was £9.6m (H1FY07 £10.9m) but there was a substantial improvement in both our gross margin to82% (HI FY07 77%) and operating profit to £1.2m (H1 FY07 £0.2m) resulting fromactions taken in Ufindus, Easyspace and Netintelligence. These existing businesses are now cash positive with an operating cashcontribution of £1.7m against an outflow of £0.03m in the comparable period.This confirms that these operations are stable and healthy, providing a solidfoundation on which to support the expansion of the new datacentre business. Business Divisions Ufindus The last 6 months has been a period of stabilisation and refinement for Ufindus,our online directory and web search optimisation business. Having taken actionto increase profitability by streamlining the sales function the number ofdirect sales staff is considerably lower than in H1 FY07. Therefore, althoughrevenues are down, the business is now more profitable in absolute and relativeterms and has improved its cash generation. Ufindus has also achieved theobjective of becoming more self-sufficient in terms of operational management.Having established a more robust and profitable platform for Ufindus we nowanticipate additional revenue growth through both new sales and improvedcustomer retention. Easyspace Easyspace continued to provide solid profit and cash generation during theperiod. The senior management team has recently been strengthened allowing usto accelerate new initiatives and to take advantage of the current strong demandfor hosting services. iomart Datacentres Market Opportunity iomart sees positive market dynamics within the datacentre space, as echoed bynumerous market commentators. A recent industry report revealed that globaldemand for datacentre space grew by some 12.5% in the past year against anincrease in available space of only 4.2% and market commentators at this year'sData Centres Europe conference predict that this pattern will be sustained forsome years to come. The market reaction to the Telecity IPO in October provideda general confirmation of our views. With demand outstripping supply, prices fordatacentre space are inevitably increasing. This increasing market demand, coupled with iomart's ability to offer thecomplete set of components in the hosting arena from dedicated servers throughto complex managed hosting solutions and co-location space, means that the Groupis well positioned to win high-value contracts with large organisationsrequiring significant amounts of rack space. Contracts of this kind, usuallylong-term, attract a premium price while offering numerous up-sellingopportunities. Progress The main focus of the management team has been to make the datacentres fullyoperational and able to deliver according to the highest industry standards. TheLondon datacentre is now fully operational and work has begun on the Nottinghamand Leicester datacentres. We have continued to win contracts for the provision of managed hosting withannual values of up to £0.5m at good rack rates albeit for low volumes of racks.In addition we are presently pursuing prospects for the datacentre business inline with the Company's planned rack rate targets through sales teams on theground in London and Glasgow, two telemarketing companies and a disciplineddatabase marketing campaign targeting companies and organisations that webelieve will require outsourced datacentre and hosting solutions in the monthsand years ahead. The actual sale of our datacentre space has been slower then first expected dueto the need to recruit an operational team and this has been exacerbated bycontracts often being tender-led and part of an overall sales process that canlast up to 12 months prior to being finalised. Encouragingly, the team is nowperforming well and has built a pipeline of new business which is growingmonth-on-month and is, after a relatively short period, showing considerablepotential. However, the overall result of these delays is that we anticipatethe ramp-up in datacentre revenues will occur 6-9 months later than our originalexpectations, although in the current year this will be offset by lower costs. The datacentre operation has significantly increased its profile as a prominentplayer within the datacentre market, capable of offering a full end-to-endservice. As a result of these developments, combined with encouraging marketconditions, iomart is very positive regarding the long term prospects for itsdatacentre business. Outlook We are encouraged by the progress that has been made in our web servicesdivision and believe that we can build on the significant improvements madeduring the first six months of the year. Since the end of the period the Group has continued to trade in line withexpectations and we anticipate this to continue for the rest of the year. In terms of the longer term opportunity, there is undoubtedly strong demand forboth our datacentre services and our complex hosting capability - particularlyfrom our target market of blue-chip enterprises seeking long term solutions.Whilst our pipeline contains several opportunities for large hosting contracts,the rate and timing of these contract wins is difficult to predict. We believe that our strategy of becoming a leader in managed complex hosting,leveraging our own national infrastructure and experience will create a businesswith strong revenue streams, providing high margin earnings and good visibility. Consolidated Interim Income StatementSix months ended 30 September 2007 6 months ended Year ended Unaudited Unaudited Audited 30.9.07 30.9.06 31.3.07Continuing Note £'000 £'000 £'000Revenue 9,631 10,855 21,086 Cost of sales (2,855) (2,499) (4,686) Gross profit 6,776 8.356 16,400 Administrative expenses (7,172) (8,188) (15,835) Operating (loss)/profit (396) 168 565 Finance income 86 3 11Finance costs (125) (141) (358) (Loss)/profit before taxation (435) 30 218 Taxation 270 292 1,962 (Loss)/profit for the year attributable to equity (165) 322 2,180holders of the companyBasic and diluted earnings per shareBasic 2 (0.17)p 0.42p 2.78pDiluted 2 (0.17)p 0.41p 2.72p Consolidated Interim Balance SheetAs at 30 September 2007 6 months ended Year ended Unaudited Unaudited Audited 30.09.2007 30.09.2006 31.03.2007 Note £'000 £'000 £'000ASSETSNon-current assetsIntangible assets - goodwill 14,475 14,289 14,475Intangible assets - development costs 407 184 310Intangible assets - software 37 35 39Deferred tax asset (non-current element) 1,660 - 1,137Deposits 884 - -Property, plant and equipment 10,447 1,191 10,615 27,910 15,699 26,576Current assetsTrade and other receivables 3 3,367 2,748 2,989Deferred tax asset (current element) 595 207 848Amount due from share placing - - 10,466Cash and cash equivalents 588 - - 4,550 2,955 14,303 Total assets 32,460 18,654 40,879 LIABILITIESNon-current liabilitiesMinority interest payable (4,800) - (4,800)Non-current borrowings (158) (1,130) (649) (4,958) (1,130) (5,449)Current liabilitiesCash and cash equivalents - (2,486) (3,152)Trade and other payables (4,412) (4,385) (4,336)Current income tax liabilities - (19) -Current borrowings (1,051) (926) (1,032)Amount due in relation to acquisition - - (4,800) (5,463) (7,816) (13,320) Total liabilities (10,421) (8,946) (18,769) Net assets 22,039 9,708 22,110 EQUITYShare capital 994 793 994Capital Redemption reserve 1,200 1,200 1,200Share premium 17,541 7,270 17,541Profit and loss reserve 2,304 445 2,375 Total equity 22,039 9,708 22,110 The comparative figures for the financial year ended 31 March 2007 are anextract of the company's statutory financial statements for that financial yearunder IFRS. Those financial statements have been reported on by the company'sauditors and delivered to the Registrar of Companies. The report of theindependent auditors was unqualified and did not contain a statement undersection 237 (2) or (3) of the Companies Act 1985. This report was approved bythe board of directors on 27 November 2007. Consolidated Interim Cash Flow StatementSix months ended 30 September 2007 6 months ended Year ended 30.9.07 30.9.06 31.3.07tc "Consolidated cash flow statement" /f £'000 £'000 £'000Contents Operating (loss) / profit (396) 168 565Depreciation 382 277 653Amortisation 94 44 113Share based payments 94 81 153Recognition of deferred grants (12) (25) (48)Movement in deposits (884) - -Movement in trade receivables (378) (132) (631)Movement in trade payables 89 (445) (562)Cash flow from operations (1,011) (32) 243 Research and development tax credit - - 142receivedCorporation tax paid - (150) (160)Net cash flow from operating activities (1,011) (182) 225 Cash flow from investing activitiesPurchase of property, plant and (168) (289) (463)equipmentCapitalisation of development costs (181) (100) (282)Purchase of intangible assets - (9) (12) (29)softwarePayment for acquisition of subsidiary (4,800) - -Net cash used in investing activities (5,158) (401) (774) Cash flow from financing activitiesIssue of shares - 37 43Repayment of finance leases (80) (44) (109)Repayment of borrowings (438) (433) (865)Receipt of cash from share placing 10,466 - -Dividends - (1,284) (1,284)Interest received 86 3 11Interest paid (125) (141) (358)Net cash from/(used in) financing 9,909 (1,862) (2,562)activities Net increase/(decrease) in cash and cash equivalents 3,740 (2,445) (3,111) Debt at the beginning of the period (3,152) (41) (41) Cash equivalents/(debt) at the end of the period 588 (2,486) (3,152) Consolidated Interim Statement of Changes in EquitySix months ended 30 September 2007 Share Share Share Profit Total capital capital premium and loss redemption account account reserve £'000 £'000 £'000 £'000 £'000Balance at 1 April 2006 773 1,200 6,203 2,376 10,552Scrip dividend 15 - 1,035 (1,050) -Dividends paid - - - (1,284) (1,284)Share based payments - - - 81 81Shares issued for share option 5 - 32 - 37redemption Profit in the period - - - 322 322Balance at 30 September 2006 793 1,200 7,270 445 9,708Share based payments - - - 72 72Shares issued for share option 1 - 5 - 6redemptionIssue of new shares for 200 - 10,266 - 10,466acquisition Profit in the period - - - 1,858 1,858Balance at 31 March 2007 994 1,200 17,541 2,375 22,110 Balance at 1 April 2007 994 1,200 17,541 2,375 22,110Share based payments - - - 94 94Loss in the period - - - (165) (165)Balance at 30 September 2007 994 1,200 17,541 2,304 22,039 Notes to the Interim Financial InformationSix months ended 30 September 2007 1. Accounting policies The interim financial information does not constitute statutory financialstatements for the purpose of section 240 of the Companies Act 1985. The figuresfor the year ended 31 March 2007 have been extracted from the Group FinancialStatements for that year. Those financial statements have been delivered to theRegistrar of Companies and included an independent auditors' report, which wasunqualified. The interim financial information has been prepared using the same accountingpolicies and estimation techniques as will be adopted in the Group financialstatements for the year ending 31 March 2008. The Group financial statements forthe year ended 31 March 2007 were prepared under International FinancialReporting Standards. These interim financial statements have been prepared on aconsistent basis and format; however IAS 34 'Interim Financial Reporting' hasnot been applied in full. The Group financial statements for the year ended 31 March 2007 were prepared inaccordance with International Financial Reporting Standards (IFRS) and thecomparative figures for the 6 months ended 30 September 2006 within thisstatement have been restated in accordance with IFRS. 2. Earnings per share The calculations of earnings per share are based on the following results andnumbers of shares: 6 months ended Year ended 30.9.07 30.9.06 31.3.07 £'000 £'000 £'000(Loss)/profit for the financial period and basic (165) 322 2,180earnings attributed to ordinary shareholders 000 000 000Weighted average number of ordinary shares:For basic earnings per share 99,436 77,513 78,558Exercise of share options - 1,768 1,683For diluted earnings per share 99,436 79,281 80,241 Basic earnings per share (0.17)p 0.42p 2.78pFully diluted earnings per share (0.17)p 0.41p 2.72p For the 6 months ended 30 September 2007 there was no dilutive effect from thepotential exercise of options due to the group being loss-making. 3. Trade and other receivables 6 months ended Year ended 30.9.07 30.9.06 31.3.07 £'000 £'000 £'000 Trade receivables (net) 1,859 1,375 2,086Other receivables 234 435 38Prepayments and accrued income 1,274 938 813Trade and other receivables 3,367 2,748 2,989 Notes to the Interim Financial Information Six months ended 30 September 2007 4. Analysis of change in net debt Cash at bank and in Bank Bank Finance Net hand overdrafts loan leases debt £'000 £'000 £'000 £'000 £'000 At 1 April 2006 1,279 (1,320) (2,173) (64) (2,278)Inception of finance leases - - - (296) (296)Cash flow (526) (1,922) 438 44 (1,966)At 30 September 2006 753 (3,242) (1,735) (316) (4,540) Inception of finance leases - - - (122) (122)Cash flow 246 (909) 427 65 (171)At 31 March 2007 999 (4,151) (1,308) (373) (4,833) Cash at bank and in Bank Bank Finance Net hand overdrafts loan leases debt £'000 £'000 £'000 £'000 £'000 At 1 April 2007 999 (4,151) (1,308) (373) (4,833)Inception of finance leases - - - (46) (46)Cash flow (411) 4,151 438 78 4,256At 30 September 2007 588 - (870) (341) (623) 5. Availability of interim reports Interim reports will be sent to all shareholders on 11 December 2007. Copies ofthe interim report will be available for collection from the offices of KBC PeelHunt Ltd, 111 Old Broad Street, London, EC2N 1PH, for a period of 1 month fromthe date of despatch and in accordance with Rule 20 of the AIM Rules, availablefrom the Company's website at www.iomartgroup.com. INDEPENDENT REVIEW REPORT TO IOMART GROUP PLC Introduction We have been engaged by the company to review the financial information in thehalf-yearly financial report for the six months ended 30 September 2007 whichcomprises the condensed consolidated interim income statement, condensedconsolidated interim balance sheet, condensed consolidated interim statement ofchanges in equity and the condensed consolidated interim cash flow statement andthe related notes 1 to 5 set out on pages 5 to 11. We have read the otherinformation contained in the half yearly financial report which comprises onlythe interim results announcement and the chief executive's statement andconsidered whether it contains any apparent misstatements or materialinconsistencies with the information in the financial information. This report is made solely to the company in accordance with guidance containedin ISRE (UK and Ireland) 2410, "Review of Interim Financial Informationperformed by the Independent Auditor of the Entity". Our review work has beenundertaken so that we might state to the company those matters we are requiredto state to them in a review report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the company, for our review work, for this report, or for theconclusion we have formed. Directors' Responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The AIM rules of the London Stock Exchange require that theaccounting policies and presentation applied to the interim figures areconsistent with those which will be adopted in the annual accounts having regardto the accounting standards applicable for such accounts. As disclosed in Note 1, the interim financial statements of the group areprepared in accordance with the accounting policies which will be adopted in thefinancial statements for the year ending 31 March 2008. Our Responsibility Our responsibility is to express to the Company a conclusion on the financialinformation in the half-yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion. INDEPENDENT REVIEW REPORT TO IOMART GROUP PLC Conclusion Based on our review, nothing has come to our attention that causes us to believethat the financial information in the half-yearly financial report for the sixmonths ended 30 September 2007 is not prepared, in all material respects, inaccordance with the basis of accounting described in Note 1. GRANT THORNTON UK LLP REGISTERED AUDITOR CHARTERED ACCOUNTANTSGlasgow 27 November 2007 Notes: The maintenance and integrity of the iomart Group plc website is theresponsibility of the directors: the interim review does not involveconsideration of these matters and, accordingly, the company's reportingaccountants accept no responsibility for any changes that may have occurred tothe interim report since it was initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination ofinterim report differs from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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