Final Results

11 June 2024

iomart Group plc

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

Final Results

Solid financial results provide foundation for a bolder strategy for growth

iomart (AIM: IOM), the cloud computing company, is pleased to report its final results for the year ended 31 March 2024 (FY2024).

FINANCIAL HIGHLIGHTS

STRATEGIC HIGHLIGHTS

We have established a clear strategic vision and renewed sense of purpose to execute around three simple messages: Bigger, Better, Bolder.

Key achievements to date and areas of focus:

Bigger

Better

Bolder

BOARD APPOINTMENTS

OUTLOOK

STATUTORY EQUIVALENTS

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

Lucy Dimes, CEO commented,

"I am delighted to report on a year of revenue growth supported by two acquisitions and organic growth within cloud managed services, the area which is the key focus of our commercial and product strategy. We delivered good profitability and continued strong cash generation, providing us with the strong financial foundation on which to execute our growth strategy.

"Our vision is to be the UK's leading secure cloud services provider to the SME market. We want to provide a compelling proposition to customers as cloud optimisation experts and a managed service provider that delivers the right cloud for the right workloads, which is secure by design.

"In a world where computing demands are getting ever more intense, and businesses across all sectors and size are looking at how they can harness the very latest technologies, iomart sits in an enviable position. We have a valuable data centre estate and capability connected by a fibre backbone, providing security, resilience and control, underpinned by a talented team of world class technical experts and engineers, combined with proven expertise across a range of customer segments. This and the financial firepower to rapidly expand our offering and scale through selective M&A gives us the confidence to drive for accelerated growth and achieve our vision."

Notes:

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

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

³  Throughout this statement adjusted EBIT is earnings before interest and tax (EBIT) before amortisation charges on acquired intangible assets,  share-based payment charges, acquisition costs and exceptional non-recurring costs. Throughout these financial statements acquisition costs are defined as acquisition related costs and non-recurring acquisition integration costs.

⁴  Throughout this statement adjusted profit before tax, as disclosed on page 12, is profit before tax, amortisation charges on acquired intangible assets, share based payment charges, acquisition costs and exceptional non-recurring costs

⁵     Throughout this statement adjusted diluted earnings per share, as disclosed in note 7, is earnings per share before amortisation charges on acquired intangible assets, share based payment charges, acquisition costs and exceptional non-recurring costs and the taxation effect of these /weighted average number of ordinary shares - diluted (as disclosed in note 7)

⁶   Net debt being outstanding bank loans, lease liabilities less cash and cash equivalents (as disclosed on page 14). 

⁷     Cash conversion is calculated as cash flow from operations, as disclosed in the consolidated statement of cash flows, divided by adjusted EBITDA defined above 

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

For further information:

About iomart Group plc

iomart Group plc (AIM: IOM) is a cloud computing and IT managed services business providing hybrid cloud infrastructure, data management, protection and cyber security services, and digital workplace capability. Our mission is simple: to make our customers unstoppable by enabling them to connect, secure and scale anywhere, anytime. From our portfolio of data centres we own and operate across the UK to connected sites around the world, our 500-strong team can design and deploy the right cloud solution for our customers.

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

CHAIR'S STATEMENT

Financial year 2024 has been busy for iomart. During the year our previous CEO stepped down and the Board asked me to perform the dual role of Chair and CEO from September 2023, which allowed time for us to perform a diligent external search process for a new Chair. I am delighted, as announced on 11 June 2024, that we were able to nominate Richard Last, to take over as the new independent non-executive chair from 12 June 2024. Richard has a wealth of experience in chair and non-executive roles in many large and successful technology companies. We are very excited to have attracted such an experienced and knowledgeable individual to help guide us through this important period of our strategy's development and implementation.

Overview and financial results

Our results demonstrate the resilience of the Group in the face of the ongoing challenging economic backdrop for UK businesses. For the year ended 31 March 2024, the Group delivered revenue growth of 10% to £127.0 m (2023: £115.6 m), adjusted EBITDA growth of 4% to £37.7 m (2023: £36.2 m) and adjusted profit before tax of £15.0 m (2023: £14.8 m). The statutory profit before tax in the year was £8.7m (2023: £8.5m). These solid financial results provide the foundation and confidence for us to pursue a bolder strategy for growth, which is set out in detail below.

It is clear to me that iomart has the necessary ingredients to establish itself as the UK's leading secure cloud services provider to the SME marketplace. In my first 9 months as CEO, I have been focused on sharpening our corporate vision and customer propositions and streamlining our internal operating model. Good progress has been made in these areas, demonstrated by continued growth in our managed services order bookings, two successful acquisitions completed in the year, the strengthening of our senior management team with the recruitment of a Chief Technology Officer and Chief Portfolio Officer, and ultimately delivering full year profits in line with consensus.

Our iomart team is at the heart of the Group's success.  I would like to thank them all for their hard work and commitment during the year. One of the strengths of the Group is the quality of its fantastic workforce and each member's further development and support is one of the central tenets of our strategy. To underpin the importance of our people and the high performance culture we are nurturing, we have signed up to the Great Place to Work programme and will start the journey of accreditation over the coming year.

Additional Board changes

We were pleased to welcome two new independent non-executive Directors to the Board in the year, Annette Nabavi on 25 May 2023 and Adrian Chamberlain on 1 June 2023 ensuring we retained a majority of independent non-executive Directors on the Board. Adrian has been appointed as the Senior Independent Director and Annette as Chair of the Remuneration Committee. Annette and Adrian both bring considerable experience in the technology services sector. Following six years on the Board, Richard Masters, non-executive Director did not stand for re-election and left the Board following the AGM in September.

Dividend

We paid an interim dividend of 1.94p per share to shareholders in January 2024 and the Board is now proposing to pay a final dividend of 3.00p per share taking the total for the year to 4.94p. This would represent the maximum pay-out ratio under our stated dividend policy of paying up to 50% of adjusted diluted earnings per share. We believe this is appropriate given our funding position, robust business model and strength of our balance sheet. Subject to shareholder approval this proposed final dividend would be payable on 9 September 2024 to shareholders on the register at close on 16 August 2024.

Lucy Dimes

Executive Chair

11 June 2024

CHIEF EXECUTIVE OFFICER'S REPORT

Robust financial performance

I am delighted that we delivered a strong revenue growth of 10% and achieved a record revenues of £127.0m (2023: £115.6m) supported by two acquisitions in the year and a further year of organic growth within cloud managed services, the area which is the key focus of our commercial and product strategy.

We have delivered good profitability and strong cash generation in the year. Adjusted EBITDA¹ grew by 4% to £37.7m (2023: £36.2 m) with adjusted profit before tax² of £15.0 m (2023: £14.8 m) being flatter due to a £1.4m increase in finance costs due to the higher base rates. Given the strategic focus of growth within hybrid cloud we will, over time, see the Group deploy more public cloud infrastructure in customer solutions.  As a result of this changing mix, the Board is increasingly focused on adjusted EBIT³ which in year increased by 9% to £19.2m (2023: £17.7m).

The Group's cash generation continued to be strong with an adjusted EBITDA to operating cash flow conversion ratio of 97% (2023:94%).  This is a real strength of the business as has been demonstrated for more than a decade and is testament to our business model and strong focus on cash. In the year we invested £21.7m of cash (2023: £21.2m) into our datacentre estate, network and selected acquisitions. Despite this, our year-end net debt, only increased by 6% to £42.3m (2023: £39.8m). This represents a comfortable net debt to adjusted EBITDA ratio of 1.1 times (2023: 1.1 times).

A clear strategic vision

In a world where computing demands are getting ever more intense, and businesses across all sectors and size are looking at how they can harness the very latest technologies, iomart sits in an enviable position. We have a valuable data centre estate and capability connected by a fibre backbone, providing security, resilience and control, underpinned by a talented team of world class technical experts and engineers, combined with proven expertise across a range of customer segments. This and the financial firepower to rapidly expand our offering and scale through selective M&A gives us the confidence to drive for accelerated growth.

Our vision is to be the UK's leading secure cloud services provider to the SME market. We want to provide a compelling proposition to customers as cloud optimisation experts and a managed service provider that delivers the right cloud for the right workloads, which is secure by design. We can support our customers through every aspect of their digital transformation journey, provide true digital mobility, resilience and scalability, and become a trusted partner to them and their customers.

While we have many of the ingredients required to achieve this vision, we know we also have some key activities to undertake. These include extending our product offering (organically and through M&A), increasing our brand awareness, and improving our underlying operating model to ensure we deliver outstanding customer service and are a streamlined, commercially minded organisation able to execute at pace.

A renewed and sharpened sense of purpose to execute

Since I took over as CEO in September 2023 I have worked with our people and teams across the business to sharpen and strengthen our vision, strategy, purpose and values. Taking their feedback, we have honed in on three simple messages to align our execution to our strategic vision: Bigger, Better, Bolder.

These three watch words encapsulate the programme of activities we are driving internally, all of which are focused on increasing iomart's ability to drive growth within its cloud managed services segment.

Over the last year good progress has been made in key areas with the highlights noted in each of the areas detailed below:

Bigger

Order growth

We previously reported that we started FY24 with a well-inducted and skilled commercial team established after the appointment of a new Chief Sales Officer in February 2022. The commercial team delivered double digit order bookings growth in the year, including an increase in average order values and a higher number of new customer wins.

Acquisitive growth

We completed two acquisitions in the year which add significant skills and capabilities to the Group. The Extrinsica acquisition accelerated our capabilities and customer references within the Microsoft public cloud domain. We have seen positive trends in this area, including our first +£1m annual order value booking within the Microsoft practice being secured in the final month of the year for a new customer. 

Market positioning & partnerships

Following the acquisition of VMware by Broadcom, iomart has been selected as one of only seven UK strategic Broadcom Pinnacle Partners. This reflects the pedigree and engineering skills we have in this market leading technology and our strong position within the cloud market in the UK. Initial sales engagement with customers under this new arrangement has been encouraging with several new logos signing contracts during March and April 2024.

We have recently invested in additional resource to lead our strategic partnership programme which will ensure we have clearer criteria for designation of our strategic vendor partners and achieve greater leverage from the combined strengths of key relationships.

Better

Increasing our bandwidth to ensure innovation in our offering

We appointed an experienced Chief Technology Officer in late May 2023 to bring focus on the two discrete areas of technology and customer experience. This has proven to be successful in adding greater bandwidth on execution.  We concluded the reshaping of our senior management team with the recruitment of a Chief Portfolio Officer in November 2023.  Since then, we have invested in the product team who work in a collaborative manner across the business, ensuring increased attention to innovating our managed service solutions, leveraging vendor technologies, to meet customer needs and to more closely align iomart's solutions portfolio and positioning with market trends.

Streamlining our operating model

We made the decision earlier this year to accelerate the streamlining of our operating model which had been started under the previous "one iomart" initiative. During the year we fully integrated Cristie Data into iomart and in the last 3 months have used a similar blueprint to start integration for the more recently acquired businesses of Pavilion IT, Oriium and Extrinsica. These integrations will be fully concluded in the first half of the new financial year and will mean all of our managed services activity will be fully aligned to the same functional model of sales, product, service and technology. Our mass domain and hosting services division looking after the Easyspace and Hosting UK brands remain separate, supported by our technology services team and central support functions. 

Improved working environment

As the near 500 strong skilled iomart workforce continues to grow, we are increasingly focused on the recruitment, engagement, motivation, productivity, and retention of our people. Recognising the importance of the working environment, we relocated to a new Grade A office in Glasgow city centre in September 2023. Over the next 12 months, we plan to refurbish our key offices in London and Manchester to replicate the modern and welcoming atmosphere of our Glasgow location. The Board has also approved our goal to achieve the Great Place to Work accreditation, committing to continuous investment in fostering an environment where our employees can learn, grow, and thrive. We will continue to focus on strengthening the employee proposition and culture inside iomart and recently rolled out our new values - Purpose, Passion and Pride - which will provide guiding principles underpinning our renewed aspirations.

Bolder

Bringing all our customer propositions under one brand

As well as one singular operating model, we will also move forward with one brand for our secure cloud services activities. In the past we have been hesitant in retiring acquired brands due to concerns around specific customer reactions. While clearly this is a consideration, our belief is that, while we have varying product solutions, we are fundamentally supporting customers with their critical digital transformations and critical operational infrastructure underpinning their businesses and this is best served by an integrated, interoperable and optimised portfolio of solutions under a single brand and aligned organisation. We retired the Cristie Data brand in January 2024 and will do the same with Pavilion IT, Oriium and Extrinsica over the next 12 months. We are also tackling some of the legacy sub-brands which still exist on-line and will be closing these legacy websites and social media content.

Targeting acquisitions of greater size & scale

We have made 24 acquisitions in the last 14 years of varying size. The average revenue across these 24 acquisitions was around £4m, with the largest being the August 2022 acquisition of Concepta which had around £10m of revenue. We are looking to be bolder with our M&A strategy and target growing businesses in carefully selected areas with revenues of more than £10m in order to accelerate our growth trajectory and ensure more scale and a quicker impact. The strength of our balance sheet and cash generation, and proven expertise in acquisitions provide strong foundations to take this bolder approach. There may be opportunities which are of a smaller size, and these will continue to be considered on a case-by-case basis including consideration as to how easily they can be integrated and how the target company's specialist skills or customer verticals can add to iomart's overall portfolio.

FY25 focus

Looking ahead, our key areas of focus underpinning the 'Bigger, Better, Bolder' strategy will be:

Our objective through bolder M&A is to pivot the product mix to have a greater exposure to high growth, higher value-added services segments of the broader hybrid cloud services market i.e. higher value managed cloud services and security, cyber and data protection services. We will also strengthen our sector specific focus and positioning through greater tailoring of sector specific benefits of our solutions and expertise and improved customer referenceability.

We operate in a structurally growing market

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

We do not expect any of the above structural growth drivers to diminish over the long-term and indeed AI is anticipated to fuel another wave of growth and most likely bring increased regulatory focus on business resilience and data governance. While there are signs of an improving UK macroeconomic outlook, there is some offset to the general sector outlook as economic pressures still apply in many parts of the economy. For iomart this materialises primarily in the longer sales cycle for larger orders from new customers undertaking digital transformation projects as greater scrutiny is applied to decision making.

Acquisitions undertaken in the year

A key element of our growth strategy is continued selective M&A to augment our organic growth. Our roadmap sees us focus on extending our capabilities and skills into closely aligned product and services areas. As well as being complementary to our existing experience, skills, and customer base these are also areas exposed to the higher growth of the wider IT sector.

Last year we re-established our M&A activity, after two financial years with no acquisitions, when we purchased Concepta in August 2022. It was pleasing to continue this by making two further acquisitions in the current year as noted below: 

We will maintain our structured and disciplined approach to M&A and remain active in the evaluation of potential targets.

Our commitment to ESG and sustainability

We believe that integrating environmental, social and governance ("ESG") considerations across our business enables us to accelerate our customers' success whilst looking after the environment and society. 

Our ongoing commitment is for iomart to be aligned with UK Government targets and as such we have committed to achieve Net Zero by 2050, or earlier, if possible. We commenced purchasing Renewable Energy Guarantees of Origin ("REGO") certified renewable electricity across our UK data centre estate in 2021, which significantly reduces our carbon emissions. During the last year the largest additional project undertaken was the installation of solar panels on the roof of our largest data centre in Maidenhead. This provides c.300kw peak power which is around 15% of the total average site power use. Full commission was completed in May 2024. We continue to look at ways to increase the energy efficiency across our UK data centre estate, including continuing the upgrades to our battery power systems. 

In terms of our Social agenda, we have continued our sponsorship of the "Empowering Woman in Leadership" programme which is designed to address the lack of gender diversity in leadership roles across the technology profession, and continued our support to the charity SmartSTEMs who organise and host events to inspire and engage young people from underprivileged backgrounds with the range of careers in STEM. This also leverages their partnership with Generation, a company that transforms education to employment to prepare, place and support people from disadvantaged backgrounds into careers that would otherwise be inaccessible. We have also set up a new Executive ESG Steering Group which will meet quarterly, and appointed our Chief Customer Officer, Sharon Mars-Leach as our Equality, Diversity and Inclusivity champion.

We have continued to strengthen our focus on Governance, with a new Executive Risk Committee which meets quarterly and as at 31 March 2024 we have now seen two full years of the internal audit programme which is managed by EY. Together these bring a heightened awareness and allowed greater embedding of risk management into the operations of the business. The two Non-Executive Directors appointed during the year, and the new Chair appointed post year end, bring a wealth of relevant experience in the technology services sector and bring different and very relevant commercial skills and experience to the Board.

Update on our infrastructure investment and energy pricing

Our UK-owned infrastructure is an important aspect of the delivery of our recurring revenue services and a critical differentiator in the market, enabling greater control over our resilience and providing control for our customers and importantly also allowing more value-add to be retained by iomart. We have a well-maintained data centre estate as this is core to ensuring a resilient service. We have 12 data centres in the UK, with our two largest data centres in Maidenhead and central London accounting for around half of our UK capacity and over 25 points of presence globally, all connected by a resilient network.

During the year we invested £9.5m (2023: £8.9m) in fixed assets. Of this amount around £3.8m was in the fabric of the datacentres and our UK network, with the balance being on compute power and storage for our customers. The largest spend within the infrastructure was £1.2m on cooling systems in the Maidenhead and Nottingham DCs. We are continuing this scheduled upgrade programme including a £1.5m full replacement of the cooling system at our Gosport datacentre in the first half of the new financial year. 

The data centre sector as a whole has had to navigate the significant challenges in the energy markets during the prior year. iomart's robust business model and customer arrangements have ensured this additional energy cost has been appropriately passed through to the customer base. Given the profile of the energy costs during the last 24 months and our hedging strategy, our overall energy costs have been fairly stable year on year. This position will continue into the new financial year as we have the majority of the next 12 months energy costs secured under hedging arrangements. 

Current trading and outlook

The first two months of the new financial year has seen trading in line with Board expectations, consistent with our high recurring revenue business model which gives good visibility. The industry-wide change to VMware licencing introduced by Broadcom has resulted in increased costs ahead of associated revenue enhancing opportunities and this, combined with the timing of revenue recognition from the recently secured customer contracts and inflation driven cost and salary increases, means growth is likely to be more second half weighted.  

Our clear strategy for growth is designed to increase our customer portfolio in the higher growth areas of the expanding cloud market.  Unlike many of our peers we are doing this from a position of strength with our secure, resilient cloud and network infrastructure, strong customer base, robust business model and financial position. The underlying drivers for cloud computing, increasing complexity of the technical landscape and customers looking for a trusted and experienced service partner gives the Board confidence in the outlook for the long-term prospects for the Group.

Lucy Dimes

Chief Executive Officer

11 June 2024

Definition of alternative performance measures:

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

² Throughout these financial statements adjusted profit before tax (disclosed on page 12) is profit before tax, amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs and exceptional non-recurring costs

³ Adjusted EBIT is earnings before interest and tax (EBIT) before amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs and exceptional non-recurring costs. Throughout these financial statements acquisition costs are defined as acquisition related costs and non-recurring acquisition integration costs.

⁴ Recurring revenue is the revenue that repeats either under long-term contractual arrangement or on a rolling basis by predictable customer habit. % of recurring revenue is defined as Recurring Revenue (as disclosed in note 3) / Revenue (as disclosed in the consolidated statement of comprehensive income)

CHIEF FINANCIAL OFFICER'S REPORT

I am pleased to report on a year of steady financial performance, with good signs of order growth within our focus business area of cloud managed services, reflecting a positive response by customers and the wider market to our growing hybrid cloud offering. Recurring revenues remain high as a % of revenue, across what remains a low customer concentration across wide sectors, but we are focused on further progress on our product portfolio and customer service levels to increase our renewal levels. Steady margins, high levels of recurring revenues, strong cash generation, a well-funded balance sheet and strong financing structure provides the firepower to execute further M&A.

     See page 15 for definition of alternative performance measures 

Revenue

Overall revenue from operations increased by 10% to £127.0m (2023: £115.6m). We saw a consistent share of recurring revenue at 91% (2023: 92%) compared to prior years. We remain focussed on retaining our recurring revenue business model with the combination of multi-year contracts and payments in advance providing us with good revenue visibility. 

Cloud Services

The following is the disaggregation of Cloud Services revenues of £114.6m (2023: £103.1m):

Cloud managed services (recurring revenue)

Revenue within cloud managed services increased by £11.1m or 17% to £75.2m (2023: £64.1m). This was driven by 3% organic growth in recurring revenue and approximately £8.9m revenue contribution from the latest three acquisitions. A significant number of moving parts have arisen in the last two years within our pricing and renewal profiles. The energy price adjustments are now, in some cases, over 18 months ago, meaning they have become structurally consumed into our renewals or new business pricing. Our energy hedging strategy will mean a continued stable and predictable energy cost for the business and our customers over the next 12 months. 

Our order bookings in this area of the business grew well over the year, which bodes well for the future growth of the business, as both existing customers and prospects have responded positively to our broader solution set and re-invigorated focus on customer service. The year did also see some lower levels of renewals from some existing customers and improving renewal levels continues to be a focus area of the business looking ahead. The timing aspect of these elements will dampen the run-rate entering the first half of the new financial year, especially prior to the deployments and billing of the new orders booked.

Self-managed infrastructure (recurring revenue)

The self-managed infrastructure revenue of £28.4m (2023: £29.6m) decreased by £1.2m. Our own regional data centre estate and fibre network positions us well to offer such infrastructure as a service which primarily takes the form of the provision of dedicated servers. It is generally recognised that this activity is a lower growth area within the cloud market but continues to offer a cost competitive solution for many use cases and for customers who have retained their own IT skills.

Due to the scalable and self-managed nature of the dedicated server customer proposition we do have a larger number of customers within this area, including a very long tail of smaller customers. In this area we have seen more sensitivity to the energy price rises which were applied towards the end of FY23. As the Group continues its evolution towards a broader portfolio of managed service offerings, the impact of potential lower level of renewals in this area in particular will decrease.

We will continue to allocate resources to ensure we provide this customer base with resilient, cost effective and increasingly automated solutions.

Non-recurring revenue

Non-recurring revenue of £10.9m (2023: £9.4m) relates primarily to on premise product and licence reselling plus consultancy projects. Approximately £2.6m revenue contribution related to acquisitions, primarily the Concepta acquisition in August 2022 which included the Pavilion IT brand. This means excluding the acquisition impact, the underlying reduction in non-recurring revenue was £1.1m which mainly arose in the first half of the year.

We continued to simplify our operations in this area with the full integration of the reselling brand Cristie Data. This took place in December 2023 and we plan to take a similar approach with Pavilion IT in the first half of the new financial year. This means all reselling activity will be undertaken by an integrated iomart operation. 

Easyspace

Our Easyspace segment has performed well over the year with revenues remaining consistent at £12.5m (2023: £12.5m).  The domain name and web hosting business is an area in which we do not invest heavily but it was pleasing to see a solid performance with high level of renewals from our base of c.57,000 customers. The activity remains highly profitable and cash generative.

Gross Profit

Gross profit in the year, which is calculated by deducting from revenue variable cost of sales such as power, software licences, connectivity charges, domain costs, public cloud costs, sales commission, the relatively fixed costs of operating our data centres plus, for non-recurring revenue, the cost of hardware and software sold, increased by £6.0m to £69.6m (2023: £63.6m). In percentage terms, gross margin² overall is relatively stable on the prior year at 54.8% (2023: 55.0%) which is positive especially recognising the many moving parts, including the recent acquisition activity and a high inflationary external environment.

Adjusted EBITDA³

The Group's adjusted EBITDA increased by £1.5m to £37.7m (2023: £36.2m) translating to an adjusted EBITDA margin⁴ of 29.7% (2023: 31.3%). The administration expense (before depreciation, amortisation, share based payment charges, acquisition costs and exceptional non-recurring costs) of £31.8m (2023: £27.4m) is £4.4m higher than the previous year comparative. However, this includes £4.1m of administrative expenses from the Extrinsica and Accesspoint acquisitions and the full year impact of the Concepta acquisition meaning the underlying increase in administrative expenses is limited to £0.3m or 1%.

The Cloud Services segment saw a 5.6% increase in adjusted EBITDA to £36.7m (2023: £34.8m). In percentage terms the Cloud Services margin decreased to 32.1% (2023: 33.8%) primarily due to both the mix impact of the acquisitions and our business model becoming less capital intensive over time. The Easyspace segment's adjusted EBITDA was £6.2m (2023: £6.2m) reflecting the stable revenue performance in the year, which in percentage terms was again stable at 49.4% (2023: 49.2%).

Group overheads increased by £0.4m in the year to £5.2m (2023: £4.8m). These are costs which are not allocated to segments, including the cost of the Board, the running costs of the headquarters in Glasgow, Group marketing, human resource, finance, legal, and design functions and professional fees for the year.

Adjusted EBIT⁵

The Group depreciation charge of £15.7m (2023: £15.9m) fell by £0.2m in the year and as a percentage of recurring revenue is 13.5% (2023: 14.9%). This is the second year in a row in which we have seen this percentage value drop. The Group charge for amortisation of intangibles, excluding amortisation of intangible assets resulting from acquisitions ("amortisation of acquired intangible assets"), of £2.8m (2023: £2.6m) is consistent year on year. This means that the Group's adjusted EBIT increased by £1.5m to £19.2m (2023: £17.7m) which in adjusted EBIT margin⁶ terms translates to 15.1% (2023: 15.3%).

The strategic focus of growth within hybrid cloud and expected resulting increase in consumption of public cloud infrastructure within customer solutions, meaning no capital requirement on iomart infrastructure, may cause a gradual reduction in our adjusted EBITDA margin⁴ but a more stable EBIT margin⁵ as depreciation as a % of our recurring revenue falls. This is why the Board are now viewing this measure as an additional KPI.

Adjusted profit before tax⁷

Finance costs of £4.3m (2023: £2.9m) has increased year on year by £1.4m due to the higher SONIA interest rate. Our revolving credit facility has a borrowing cost at the Group's current leverage levels of 180 basis points over SONIA.

After deducting the charges for depreciation, amortisation (excluding the charges for the amortisation of acquired intangible assets), exceptional non-recurring costs and finance costs from the adjusted EBITDA, the Group's adjusted profit before tax increased to £15.0m (2023: £14.8m), representing an adjusted profit before tax margin⁸ of 11.8% (2023: 12.8%).

Earnings before interest and tax and Profit before tax

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

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

The adjusting items in the current year are:

In the prior year we had a non-recurring cost of sales item of £0.8m which was related to the energy crisis and specific cost notification timing issues. Given the exceptional and non-recurring nature of this item we felt it required to be drawn out separately to ensure a more meaningful understanding of the financial performance in that year.

After deducting these items from the adjusted profit before tax, the reported profit before tax was £8.7m (2023: £8.5m). In percentage terms the profit before tax margin⁹ was a slight decrease to 6.9% (2023: 7.4%).

Earnings before interest and tax ("EBIT") in the year was £13.0m (2023: £11.4m), the increase consistent with the Adjusted EBIT⁵ movement as the overall variance of the adjusted items year on year is only £0.1m.

Taxation

The tax charge for the year is £2.3m (2023: £1.5m). The tax charge for the year is made up of a corporation tax charge of £2.7m (2023: £0.9m) with a deferred tax credit of £0.4m (2023: charge of £0.6m). The effective rate of tax for the year is 26% (2023: 18%). In the current year, we have applied the 25% UK corporation tax rate to corporation tax (2023:19%), effective 1^st April 2023. In addition, the tax charge in the year is the net result of higher taxable income and the effect of the full expensing relief available for capital investments. Given iomart is very much a UK business, then the UK headline corporate tax is still considered a reasonable recurring effective tax rate for underlying profits.

Profit for the year

After deducting the tax charge for the year from the profit before tax the Group has recorded a profit for the year of £6.4m (2023: £7.0m).

Earnings per share

The calculation of both adjusted earnings per share and basic earnings per share is included at note 7.

Basic earnings per share from continuing operations was 5.8p (2023: 6.4p), a reduction of 9%.

Adjusted diluted earnings per share¹¹, based on profit for the year attributed to ordinary shareholders before amortisation charges of acquired intangible assets, acquisition costs, share-based payment charges, exceptional non-recurring costs, and the tax effect of these items was 9.8p (2023: 10.9p), a reduction of 10%. Given the adjusted profit before tax shows a small increase this reduction in adjusted diluted earnings per share of 10% is mainly driven by the increase in the UK corporation tax to 25%.

Dividends

Our dividend policy, which has been in place for several years now, is based on the profitability of the business in the period measured with reference to the adjusted diluted earnings per share we deliver in a financial year. For the last few years we have been paying dividends at the maximum level allowed by our stated policy. The current policy is a maximum pay-out of 50% of adjusted diluted earnings per share. The Directors are proposing a final dividend of 3.00p (2023: 3.50p) which is at maximum level set by the dividend policy which we believe is fully appropriate given the recurring revenue nature of the Group, the level of operating cash which we deliver and the low level of indebtedness within the Group. As a result, along with the interim dividend of 1.94p (2023: 1.94p), which was paid in January 2024, the total dividend for the year is 4.94p (2023: 5.44p), the reduction reflecting the movement in the adjusted diluted earnings per share.

Acquisitions

Extrinsica

We completed the acquisition of Extrinsica on 5 June 2023 for an initial consideration of £4.0m, with a further cash payment of £0.4m made after the achievement of certain key customer targets. Of the initial consideration, £2m was satisfied by the issue of 1,562,500 new ordinary shares in iomart. The balance of £2.0m was paid in cash. We also repaid £3.7m of debt acquired on completion.

The sale and purchase agreement included the potential for a further £4.0m to £7.0m of contingent earn-out payments based on the profitability for the twelve months ending 31 March 2024. The business has seen growth since the acquisition but not at the pace assumed by the previous management. This was primarily due to slippage of certain assumed new customer project wins.  As a result, no earn-out payments are payable. There was a final deferred payment due of £0.2m on achievement of certain key customer targets. This was paid subsequent to the year end in April 2024.

Accesspoint

We completed the acquisition of Accesspoint on 5 December 2023 for an initial consideration of £4.5m which was paid in cash on completion on a debt and cash free basis. Subsequent to the year end, a further £0.5m was paid in May 2024 on achievement of the final post acquisitions milestones. The acquisition also includes up to a further £1.4m contingent earn-out payment based on the profitability of Accesspoint for the twelve months ending 31 August 2024. 

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 £36.6m (2023: £33.8m) which represents a 97% conversion¹² of adjusted EBITDA (2023: 94%). This metric in prior year was somewhat distorted by the cash element of the non-recurring adjusting items of around £0.8m which if excluded from cash flow from operations would result in a conversion ratio of 96%. 

Cash payments for corporation tax in the year were £0.7m (2023: refund of £0.05m), resulting in net cash flow from operating activities in the year of £35.9m (2023: £33.9m).

Cash flow from investing activities

Our strategy is to continue to reinvest some of the strong operating cash flow we generate back into the business both in the form of internal investments into our UK infrastructure but also in the continuation of our disciplined acquisition strategy. The Group invested a total of £21.7m (2023: £21.2m) during the year. In the current year, we paid equity consideration on the Extrinsica and Accesspoint acquisitions which, when net with the cash acquired, resulted in a £5.7m net outflow (2023: £10.3m related to the Concepta acquisition). The earn-out consideration on the Concepta and a contingent element of the Extrinsica acquisitions was also paid in the year resulting in an additional outflow of £4.2m (2023: £nil). 

The Group continues to invest in property, plant and equipment through expenditure on data centres, network and on equipment required to provide managed services to both its existing and new customers. As a result, the Group spent £9.5m (2023: £8.9m) on assets. Most of the expenditure in the year was on operational items such as servers and storage to support customer deployments.

Expenditure was also incurred on development costs of £2.2m (2023: £1.9m) and on intangible assets of £0.1m (2023: £0.1m). 

Cash flow from financing activities

In the current year, loan drawdowns of £7.6m (2023: £10.4m) were made from the revolving credit facility to support the initial equity consideration for the Extrinsica and Accesspoint acquisitions. We also repaid £3.7m of bank debt acquired from Extrinsica at completion.

Bank loan repayments of £2.0m (2023: £10.0m) were made in the year resulting in a closing drawn bank loan of £40.0m (2023: £34.4m). Cash received in the year from issue of shares was £7k (2022: £5k). We also made dividend payments of £6.1m (2023: £6.1m); paid finance costs of £3.1m (2023: £2.2m) and made lease repayments of £5.0m (2023: £4.9m). 

Net cash flow

As a consequence of the above component elements and working capital movements in the year, our overall cash position was an inflow of £1.9m (2023: £1.5m outflow) which resulted in cash and cash equivalent balances at the end of the year of £15.8m (2023: £13.8m).

Net Debt

The net debt position of the Group at the end of the year was £42.3m (2023: £39.8m) as shown below. The net debt position represents a multiple of 1.1 times¹³ our adjusted EBITDA (2023: 1.1 times) which we believe is a comfortable level of debt to carry given the recurring revenue business model and strong cash generation in the business.

The Group has access to a £100m Revolving Credit Facility ("RCF") provided by a banking group consisting of HSBC, Royal Bank of Scotland, Bank of Ireland and Clydesdale Bank, that matures on 30 June 2026 which also benefits from a £50m Accordion Facility.  The RCF has a borrowing cost at the Group's current leverage levels of 180 basis points over SONIA. 

The decrease in the lease liability to £18.1m (2023: £19.2m) reflects expected payments on property arrangements and that there were no material revisions to existing leases.

Post balance sheet event

Following the acquisition of VMware by Broadcom, iomart has been selected as one of only seven UK strategic Broadcom VMware partners. The iomart Board during May 2024 approved the decision to commit to a 5 year licence programme with Broadcom. This commitment ensures our existing customers continue to benefit from our deep VMware know-how and capability and will allow us to support new customers who now require an intermediary partner to support their own requirements. As for many organisations globally, the new licence fees will represent a higher cost burden from that of the previous licence consumption arrangements of the past. Prior to various mitigations actions, and ultimately recovery from our customer base over time, such increase is around 60%.  For iomart we will be seeking to ensure as much platform optimisation takes place as possible but we will also, in combination, seek to ensure the higher cost is recovered at customer renewals. There will be a timing lag on recovery over the coming 12 months which will impact the first half in particular. Our status as a Broadcom VMware Pinnacle partner does offers up a new revenue stream from smaller managed service providers and also end users who can no longer transact directly with VMware but this will be lower margin activity.

As at the date of this report, we await final contractual agreements from Broadcom. As a result, at this date, we have not entered into a legally binding arrangement. It is likely that the full 5 year commitment will have an approximate £15m value, with cash payments made during the course of the term. It is likely that, given the different characteristic and length of the licence commitment, rather than a variable operating cost item, the equivalent cost will be recorded as an intangible asset and amortised appropriately over the 5 year period.  Based on this expecting accounting treatment this will change the cost classification within the statement of comprehensive income with what was previously recorded as a cost of sale item now, due to the new arrangements outlined above, going forward being recorded as intangible amortisation.

Scott Cunningham

Chief Financial Officer

11 June 2024

Definition of alternative performance measures:

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

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

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

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

⁵ Adjusted EBIT is earnings before interest and tax (EBIT) before amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs and exceptional non-recurring costs. Throughout these financial statements acquisition costs are defined as acquisition related costs and non-recurring acquisition integration costs.

⁶ Adjusted EBIT margin% is defined as adjusted EBIT / Revenue (as disclosed in the consolidated statement of comprehensive income) as a %

⁷ Adjusted profit before tax (as disclosed on page 12) is profit before tax, amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs and exceptional non-recurring costs.

⁸ Adjusted profit before tax margin % is defined as adjusted profit before tax (as disclosed on page 12) / Revenue (as disclosed in the consolidated statement of comprehensive income) as a %

⁹ Profit before tax margin % is defined as Profit before Tax / Revenue (both as disclosed in the consolidated statement of comprehensive income) as a %

¹⁰ EBIT is earnings before interest and tax 

¹¹ Adjusted diluted earnings per share is earnings before amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs and exceptional non-recurring costs and the tax impact of adjusted items /weighted average number of ordinary shares - diluted (as disclosed in note 7)

¹² Cash flow from operations / Adjusted EBITDA % is defined as cash flow from operations (as disclosed in the consolidated statement of cash flows) / Adjusted EBITDA (as disclosed in the consolidated statement of comprehensive income) as a %

¹³ Net debt / Adjusted EBIDTA level ratio is defined as Net Debt (as disclosed on page 14) / Adjusted EBITDA (as disclosed in the consolidated statement of comprehensive income)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 MARCH 2024

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2024

​
 

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED 31 MARCH 2024

​

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 MARCH 2024

NOTES TO THE FINANCIAL INFORMATION          

YEAR ENDED 31 MARCH 2024

1.         GENERAL INFORMATION

iomart Group plc is a public listed company listed on the Alternative Investment Market ("AIM"), incorporated and domiciled in the United Kingdom and registered in Scotland under the Companies Act 2006. The address of the registered office is 6 Atlantic Quay, 55 Robertson Street, Glasgow, G2 8JD.

2.         ACCOUNTING POLICIES

Basis of preparation

The financial information set out in the announcement does not constitute the Group's statutory accounts for the years ended 31 March 2024 and 31 March 2023 within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 March 2023 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 2024 is derived from the statutory accounts for that year which were approved by the Directors on 11 June 2024. The statutory accounts for the year ended 31 March 2024 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors reported on those accounts; their report was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The Group's financial statements have been prepared in accordance accordance with applicable law and UK-adopted international accounting standards.

The Group's financial statements have been prepared on the historical cost basis.

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

There are no new accounting policies applied in the year ended 31 March 2024 which have had a material effect on these accounts.  In addition, the Directors do not consider that the adoption of new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2023 has had any material impact on the financial statements of the Group.

Operating segments - prior period reclassification (note 3 only)

During the year we moved the financial results of the brand SimpleServers into the Easyspace division as the nature of the services provided and the profile of the customer base are aligned better with the mass market hosting sector which we address in the Easyspace division. As a result, operating segment disclosures for the year ended 31 March 2023 have been reclassified resulting in an increase in Easyspace revenue and adjusted EBITDA with the opposite impact in Self-managed infrastructure in Cloud Services (Revenue impact 2023: £864k, EBITDA impact 2023: £55k).

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 are also its operating segments based on these reports.

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

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

Cloud Services - this segment provides managed cloud computing facilities and services, through a network of owned data centres, to the larger SME and corporate markets.

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, any gain or loss on revaluation of contingent consideration and material non-recurring items. This segment EBITDA is used to measure performance as the CEO believes that such information is the most relevant in evaluating the results of the segment.

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

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

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

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

Operating Segments

Revenue by Operating Segment

The nature of these three offerings are explained within the Chief Executive Officer report on pages 10 and 11.

Recurring and Non-recurring Revenue

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

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

Profit by Operating Segment

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

4.     TAXATION

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

The weighted average applicable tax rate for the year ended 31 March 2024 was 25% (2023: 19%).  The effective rate of tax for the year, based on the taxation charge for the year as a percentage of the profit before tax is 26% (2023: 18%).  The effective rate of tax has increased largely driven by the adoption of the UK Corporation tax rate of 25% (2023: 19%), effective 1 April 2023, to corporation tax, the net result of higher taxable income and the effect of the "full expensing relief" available for capital investments.

Deferred tax assets and liabilities at 31 March 2024 have been calculated based on the rate of 25% enacted at the balance sheet date (2023: 25%). 

5.         DEFERRED TAX

The Group recognised deferred tax assets/(liabilities) as follows: