1
iomart Group plc Annual report and accounts 2018 Contents
OVERVIEW
20:20 Cloud Vision
Highlights
STRATEGIC REPORT
Chairman’s statement
Chief executive officer’s report
Chief financial officer's report
Key performance indicators and principal risks and uncertainties
CORPORATE GOVERNANCE
Board of directors
Corporate governance report
Report of the board to the members on directors’ remuneration
Directors' report
Directors' responsibilities statement
FINANCIAL STATEMENTS
Independent auditor's report to the members of iomart Group plc
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes in equity
Notes to the financial statements
Parent company financial statements
ANNUAL GENERAL MEETING
Notice of annual general meeting
OFFICERS AND PROFESSIONAL ADVISERS
Officers and professional advisers
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iomart Group plc Annual report and accounts 2018
Providing Clarity In The
Cloud For Two Decades
20:20 Cloud Vision
This year iomart Group plc celebrates 20 years of business. Two decades of growth which has seen
the Group evolve into one of the UK’s largest independent providers of managed cloud computing
services.
Much has changed since the company was founded in 1998. At that time Microsoft was still a software
house, AWS was a four year old online bookseller, and Google had just filed for incorporation in
California. However this was also the year that Scottish entrepreneur Angus MacSween saw the
opportunity to offer business services via the Internet. iomart was launched as an integrated
internet and telecommunications company and quickly made an impact in the market - offering
the first UK consumer broadband connection and not long after, the first large scale email hosting
service.
While other Internet start-ups fell by the wayside as the dot.com bubble burst, iomart continued
to grow. In 2000 the company was floated on the London Stock Exchange’s Alternative Investment
Market. In 2007, as the long term opportunity to provide secure managed hosting services to help
companies move their IT systems out of their offices became clear, iomart bought its first four data
centres - in London, Glasgow, Nottingham and Leicester.
Today iomart is one of the UK’s leading providers of managed cloud computing services, acting as
a trusted partner for some of the country’s biggest businesses. We help companies at all stages of
their journey with a wide portfolio of managed cloud services – from initial consultancy, through to
the provision of and ongoing support for the most complex of cloud solutions.
It has been an exciting and rewarding first 20 years for iomart and there is more of the story to be
told.
3
iomart Group plc Annual report and accounts 2018 Our Financial Year
iomart has enjoyed another excellent year, with revenues
and profits growing to record levels as we continue to deliver
the cloud-based solutions that the market is looking for.
“We set out our current strategy of establishing a UK-based
cloud computing operation in March 2007 when we acquired
our initial data centre estate.
We strongly believe that the market for cloud computing
solutions we identified in 2007 presents us with as much
opportunity now as it did then and that, together with
additional acquisitions, will allow us to continue to execute
successfully on the strategy we put in place at that time.
There is still a long runway of opportunity as the “IT as a
Service” philosophy and delivery unfolds.”
Angus MacSween, CEO, iomart.
4
iomart Group plc Annual report and accounts 2018 What Our Customers and Partners Say
Legal firm Farrer & Co LLP is moving
to a secure Azure hybrid cloud
platform and next generation desktop
environment based on Office 365 and
Windows 10.
This is completely new to us and many in
the legal market and this was about finding
the right company to take this forward and
demonstrate real experience.
Neil Davison, IT Director
The England and Wales Cricket Board
(ECB) selected Mvine’s Cloud Services
Enablement platform running on iomart’s
CloudSure managed hosting.
We’re delighted with the delivery of this
project. ECB is now able to enjoy the benefits
of the transformational work as well as the
digital and cloud technologies enabling it.
Frank Joshi, Director at Mvine
MMR IT moved to a private cloud
solution.
Working with iomart, which has similar
expertise and security accreditations, as
well as a public listing on the stock market,
we were able to assure our clients that they
could trust us with their data and they were
happy to give us control to create the best
cloud solution.
Paul Line, Head of Commercial
Housing association GreenSquare
moved its disaster recovery to
Azure Site Recovery with support
from iomart’s digital transformation
consultancy SystemsUp.
They planned it incredibly thoroughly and
there was a huge transfer of knowledge to
our engineers on site.
Rob Fletcher, Group Head of ICT
Exel Computer Systems plc required a partner to support its Enterprise Resource Planning
software.
Working together with iomart our customers don’t have to worry about security, and when they want
to scale up, we have the ability to instantly scale the resource to meet their demands.
Jonathan Orme, Sales Operations and Marketing Manager
5
iomart Group plc Annual report and accounts 2018 Data Protection
One of the most commonly cited fears for companies considering outsourcing elements of their IT
infrastructure to a third party is that of data security.
With the recent introduction of the EU General Data Protection Regulation to provide safeguards
around personally identifiable informational, security and data protection is more important than ever
- to us and our customers.
This is why we continue to invest in the skills and certifications to ensure our customers’ data is secure
on our servers and that our management systems meet the most rigorous international standards.
We are proud to be the most accredited company in our space in the UK.
6
iomart Group plc Annual report and accounts 2018 Our Infrastructure
We have invested over two decades to create a secure and reliable data centre infrastructure to support
our customers’ mission-critical hosting requirements, enabling them to take advantage of the huge
growth in cloud computing wherever their business is located.
In the UK we own and operate data centres at eight locations. They are connected by almost 2,000km
of private fibre, enabling large scale virtualisation, distributed storage and multi-site disaster recovery.
Customers with an international footprint can access our services via multiple points of presence.
We have built out a secure, resilient and flexible global infrastructure to serve their global business
requirements.
7
iomart Group plc Annual report and accounts 2018 Financial statements for year ended 31 March 2018
Highlights
FINANCIAL HIGHLIGHTS
· Revenue growth of 9% to £97.7m (2017: £89.6m)
· Adjusted EBITDA1 growth of 9% to £39.8m (2017: £36.6m)
· Adjusted profit before tax growth2 of 7% to £24.0m (2017: £22.4m)
· Adjusted diluted earnings per share3 from operations increased by 6% to 17.96p (2017: 16.99p)
· Cashflow from operations increased by 8% to £40.8m (2017: £37.8m)
· Adjusted profit before tax2 margin maintained at 25% (2017: 25%)
· Proposed final dividend of 4.93p per share resulting in total dividend for year of 7.18p per share,
an increase of 20% (2017: 6.00p per share)
OPERATIONAL HIGHLIGHTS
· 3 successful acquisitions completed during the year:
- Dediserve for €7.9m
- Simple Servers for £4.9m
- Sonassi for £11.8m
· Creation of software defined fibre network
· Post year-end extension on London datacentre lease until 2030
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 1% to £14.8m (2017: £14.7m)
· Basic earnings per share from operations increased by 1% to 11.41p (2017: 11.27p)
1 Throughout these financial statements adjusted EBITDA is earnings before interest, tax, depreciation and amortisation (EBITDA) before share based payment charges, acquisition costs, gain on the
revaluation of contingent consideration and 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 is profit before tax, amortisation charges on acquired intangible assets, share based payment charges, mark to market adjustments in
respect of interest rate swaps, acquisition costs. interest on contingent consideration due, gain on revaluation of contingent consideration and non-recurring costs.
3 Throughout these financial statements adjusted diluted earnings per share is earnings per share before amortisation charges on acquired intangible assets, share based payment charges, mark to market
adjustments in respect of interest rate swaps, acquisition costs, interest on contingent consideration due, gain on revaluation of contingent consideration and non-recurring costs.
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iomart Group plc Annual report and accounts 2018
Strategic Report
Chairman's Statement
I am again delighted to report on another successful year for the Group. We have continued to grow revenues, both organically
and through acquisitions whilst maintaining profit margins and generating our usual high levels of operating cash.
This has been another active year on the acquisition front as we have welcomed Dediserve, Simple Servers and Sonassi into
the Group. The latter two acquisitions provide us with a high level of expertise in the provision of Magento hosting, which
represents our first foray into the area of application support.
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 the year end we replaced our borrowing facility, due to end in June 2019, with a revolving credit facility of £80m through
until June 2022. We appreciate the continued support shown by the Bank of Scotland Plc through the provision of this
increased facility.
As we indicated last year, due to our high level of both profit and operating cash generation coupled with our relatively low level
of debt, we have been able to establish a progressive dividend policy. At present that policy is to pay out a maximum dividend
of up to 40% of our adjusted diluted earnings per share. During the year we introduced a maiden interim dividend of 2.25p
per share which was paid to shareholders in January. In addition, the Board is now proposing to pay a final dividend of 4.93p
per share on 6 September 2018 to shareholders on the register at close on 17 August 2018. With this final dividend payment
the total for the year will be 7.18p representing an increase of 20% over last year and equivalent to a pay-out ratio of 40% of
adjusted diluted earnings per share. This is the maximum we are committed to distributing under our current policy and we
will re-consider the parameters of the policy over the coming financial year. 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.
I was appointed to the Board of iomart in December 2007, becoming Chairman the following year. It has been both a privilege
and a pleasure to serve as your Chairman since then and to be part of the success which has been achieved over these years.
I have decided not to stand for re-election at the forthcoming Annual General Meeting and will leave the Board at that time. I
look forward to hearing of the continued success of the Group in future years.
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
11 June 2018
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iomart Group plc Annual report and accounts 2018 Strategic Report
Chief Executive Officer's Report
Introduction
We have again enjoyed another excellent year with revenues and profits growing to record levels driven both organically and
through acquisition as we continue to deliver the cloud based solutions that the market is looking for. Our revenues in the year
were £97.7m, an increase of 9% over the previous year, our adjusted EBITDA of £39.8m also showed a 9% increase over the
previous year and our profit before tax increased by 1% to £14.8m.
After over 10 years of first class commitment and service, most of which time was spent as Chairman, Ian Ritchie has chosen
not to stand for re-election 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. Ian Steele, who
was appointed to the Board in June 2016, has agreed to replace Ian as Chairman and we will recruit an additional Non-Executive
Director in due course.
Market and Strategy
We set out our current strategy of establishing a UK-based cloud computing operation in March 2007 when we acquired our
initial datacentre estate. At that time the cloud computing market was in the very early stages of growth in the UK and there
were many small entities entering the market to supply cloud based solutions. We identified the market opportunity at that
time as both substantial and long term. The traditional method of computing power consumption on an organisation’s own
premises was still prevalent at that time and we predicted that over time the move from “on premise” consumption to cloud
based consumption would occur. Our view was that would take place slowly as organisations chose to move some of their IT
infrastructure to the cloud when there was a need to refresh part of their existing server estate or begin a new project.
The market has indeed evolved as we had predicted and computing power is now consumed in many ways by organisations.
That includes the consumption of cloud based solutions whether that be of a public, private or hybrid nature or indeed “on
premise” as a substantial number of organisations still continue to acquire what they need in this way.
It was always part of our strategy to address the market opportunity by acquiring customers organically and through the
acquisition of competitors as the supply side of the market consolidated. We made our first such acquisition in May 2009 and
since then we have made over 20 acquisitions in total including the three we have made in the course of this financial year.
We strongly believe that the market for cloud computing solutions we identified in 2007 presents us with as much opportunity
now as it did then and that our strategy is well positioned to deliver continued success. There is still a long runway of
opportunity as the “IT as a service” philosophy and delivery unfolds.
Clearly, our product portfolio has evolved over the years to match the needs of the market.
Security and data protection remain in the headlines and continue to be a driver of outsourcing areas of IT because of the lack
of internal skills and experience in many organisations. Business continuity, disaster recovery and coping with ever increasing
volumes of data mean organisations will look for help in mitigating their risk profiles.
The market overall is growing strongly and parts of that growth are dominated by the ‘public cloud’ vendors, primarily Amazon,
Microsoft and Google. These are the whale sharks of the industry and they certainly swim in the same ocean as us, but it is
a very big ocean. By their size and nature, they are largely faceless and rigid in their business models and we are certain that
there is plenty of room in that ocean for companies, such as iomart, that are the opposite of faceless; companies that provide
advice, help and great customer service and flexibility.
The untidy nature of the vast majority of the world’s legacy IT infrastructure provides me with the reassurance that there will
always be customers who are looking for a trusted advisor in this space.
Whatever the cloud challenge iomart can assist all organisations in moving to the cloud, whether it be private, public or hybrid
approach. The long term recurring revenue opportunity for iomart remains compelling.
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iomart Group plc Annual report and accounts 2018 Strategic Report. Chief Executive Officer's Report
Since 2007, we have grown to become around a £100m plus revenue business with healthy margins and excellent cashflow.
The objective for us now is to maintain our revenue growth and healthy margins over the next few years.
We are restructuring and reinvigorating our sales and marketing team and investing in deeper customer service skills and level
of support. We remain open to growth by acquisition whilst maintaining our disciplined approach.
Our challenge is to continue to navigate through the further evolution of cloud adoption and to ensure we build the skills and
resources necessary to be successful in that ever more complex space.
Acquisitions
We again augmented our organic growth through the acquisition of Dediserve Limited (“Dediserve”) a Dublin based provider of
cloud solutions in 10 locations around the world in May 2017, Tier 9 Limited (which trades as “Simple Servers”) in July 2017 and
Sonassi Holding Company Limited (“Sonassi”) in November 2017. Both Simple Servers and Sonassi are located in the UK and
specialise in the provision of cloud solutions for users of the Magento ecommerce application.
We continue to look for businesses that fit our criteria with a view to making further acquisitions in the coming year.
UK membership of the European Union
We have considered the potential impact of the UK’s exit from the European Union (“EU”). To this point in time, other than
some volatility in the foreign exchange markets involving Sterling, we have not seen any impact from the decision to leave.
The majority of our revenue is generated within the UK. Revenue generated from other EU states is not material and tends
to be from our online operations involving the provision of domain names and both shared and dedicated servers where our
customers are choosing to take a service from our UK-based datacentres. We do not rely on migrant employees from other EU
states to provide services to our customers. We may see an impact in administration in areas such as VAT when trading with
EU member states post the UK’s exit. As a result of the acquisition of Dediserve in May we have an established operation within
the EU should that be required post Brexit.
Operational Review
In last year’s Annual Report, we reported in three segments following the acquisition of Cristie Data (“Cristie”) in August 2016.
Cristie initially gave us more exposure to the provision of infrastructure on customers’ premises and, unlike the rest of the
Group, generated a substantial amount of non-recurring revenue. Consequently we reported the performance of that unit
within a non-recurring revenue segment. In our half-yearly results at September 2017, we reported that Cristie had integrated
well within the Group and had become involved in projects with our consultancy operation and in the provision of cloud
solutions from our datacentres. In addition, a substantial amount of orders won and revenue generated through the operations
of Cristie over the year were recurring in nature. Therefore, we concluded that it was no longer appropriate to include the
results of Cristie separately, particularly in a non-recurring revenue segment, from the rest of our Cloud Services operations and
we now report it within the Cloud Services segment. Consequently, we now report in two operating segments, namely Cloud
Services and Easyspace.
Cloud Services
Revenues in this segment have grown by 10% to £84.1m (2017: £76.3m). Some of this growth has been generated organically
as we continue to build on our strategy of providing cloud based solutions to both new and existing customers as they increase
their cloud-based presence. The remainder of this growth has been driven by the contribution from the acquisitions made in
both this period and the previous year as we continue to complement our organic growth through acquisition.
During the year we made a substantial investment to implement a software defined network across our datacentre estate in the
UK. We are now in a position where we can implement network changes, within our datacentres, using software tools rather
than the need for physical intervention by an engineer. As a consequence our network is now more resilient and is not as heavily
dependent on labour when changes are required to be made.
After the end of the financial year we extended the lease for our London datacentre. The original lease was due to terminate in
2020 and that has now been extended until 2030. We will upgrade the facility over the coming year and we now have the vast
majority of our datacentre estate on either freehold or leasehold terms lasting for 12 years or more.
Software licencing in a cloud environment is a complex issue and a recent audit carried out on behalf of a software licensor has
identified a shortfall in licence revenue owing to that licensor for the four year period to March 2017. As a result, we estimated
a provision in this period of £2.1m in respect of licence fee charges. The final amount could be higher, however not materially,
although we believe this is unlikely and it could be lower. In each individual year to which the charge relates, the amount would
not have materially affected our profitability. Full provision has been estimated in this financial year for licence fees relating to
the current year based on the level of provision for the prior years. We are confident this is an isolated issue. We have taken
steps to improve our processes in this area of operation with both additional resources and tools being deployed to ensure we
accurately report and invoice for licence usage in the future.
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iomart Group plc Annual report and accounts 2018 Strategic Report. Chief Executive Officer's Report
Cloud Services (continued)
Through our iomart Cloud operation, we provide fully managed, complex bespoke designs, resulting in resilient solutions
involving private, public and hybrid cloud infrastructure. This can range from the provision of online backup and disaster
recovery solutions through to an entity’s entire online live presence where all revenue generated by that entity’s activities are
transacted through the cloud infrastructure we provide.
Our Infrastructure as a Service (IaaS) operation, which encompasses the activities of our RapidSwitch and Redstation brands,
delivers dedicated, physical, self-service servers to customers. We provide many thousands of physical servers for our
customers using highly automated systems and processes which we continue to develop and improve.
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. Having a consultancy division within the Group allows us to engage at
an earlier stage with organisations considering their cloud strategy and provides the opportunity to leverage the provision of
those consultancy services to gain recurring revenue through the deployment of cloud solutions. However, unlike most of our
other activities within the Cloud Services segment there is less recurring revenue generated from consultancy services. As we
indicated in our half-yearly report revenue generated from our consultancy operation has declined in the year due to one low
margin public cloud consultancy project ending.
As previously mentioned the activities of Cristie are now included within this segment. Having a unit within the Group that
supplies computer equipment to customers’ premises has proved a very useful addition. It has allowed us to confirm that the
move to the consumption of computing power in the cloud by established organisations is happening over a long period. Only
when entities have both the need to acquire additional infrastructure and have taken the decision to acquire some of that
through the cloud will a selling opportunity arise for the Group. In general, we see a continual and steady movement in that
direction.
We are able to supply products and services across the cloud spectrum and do so using common platforms across the Group.
We continue to build on our skills and accreditations and see constant improvement across the Group’s skillset.
Easyspace
In line with our expectations, the Easyspace segment has performed well over the year, maintaining the organic revenue growth
which was re-established in the previous 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. Revenues in the segment have
grown by 2.4% to £13.6m (2017: £13.2m) all as a result of organic growth.
Current trading and outlook
We are delighted to report another year of excellent results, with increased revenues and profits and the completion of a
number of acquisitions, augmenting the Group’s customer base and skill set. Trading in the new year has continued in a similarly
positive vein.
Since we embarked on our current strategy in 2007, we have successfully executed on our growth strategy, growing revenues
from £8m to nearly £100m. We strongly believe that the market for cloud computing solutions we identified at the time presents
us with as much opportunity now as it did then and that, together with additional acquisitions, will allow us to continue to
execute successfully on the strategy we put in place at that time.
There is still a long runway of opportunity as the “IT as a service” philosophy and delivery unfolds, providing us with considerable
scope for long-term, sustained growth. We therefore look to the coming year and beyond with confidence.
Angus MacSween
Chief Executive Officer
11 June 2018
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iomart Group plc Annual report and accounts 2018 Strategic Report. Finance Director's Report
Strategic Report
Chief Financial Officer's Report
Trading Results
Revenue
Revenues for the year grew by 9% to £97.7m (2017: £89.6m) through the combination of continued organic growth and the
impact of acquisitions.
Our Cloud Services segment, including the operation of Cristie, grew revenues by 10% to £84.1m (2017: £76.3m). A full year
contribution from Cristie, which we acquired in August 2016, and Dediserve, Simple Servers and Sonassi all of which were
acquired at various points during the year helped this growth. Revenue growth in the Cloud Services segment excluding the
impact of acquisitions was 3% (2017: 10%). As we reported in our half-yearly results, the rate of organic growth in the year has
been weighed down by a low margin public cloud consultancy project coming to an end at the end of the previous financial
year. Adjusting for the effect of that project the organic growth rate was 7%, which is similar to the comparable growth rate in
the last financial year if the low margin public cloud consultancy project is excluded.
Revenues within the Easyspace segment grew by 2.4% to £13.6m (2017: £13.2m) all of which is organic.
Our business model in both segments generally involves the provision of cloud and managed hosting services from our
datacentres delivering to our customers the computing power, storage, and network capability they require for the operation
of their own businesses. We have invested in an estate of datacentres, in an extensive fibre network and for each customer
the servers, routers, firewalls etc that are required to create the IT infrastructure they require. Customers then pay us for the
provision of that infrastructure.
Larger customers tend to have multi-year contracts for complex cloud solutions, which are invoiced on a monthly basis. Many
of our smaller customers pay in advance for the provision of services which results in a substantial sum of deferred revenue,
which is then recognised over the period of the service provision. A very large proportion of our revenue is therefore recurring
and the combination of multi-year contracts and payment in advance provides us with excellent revenue visibility.
The Group has completed its assessment of the impact of IFRS 15, which will be adopted in the next financial year, and current
revenue recognition policies, and whilst unaudited, that assessment confirms that the adoption of IFRS 15 will not result in a
material change to the financial statements (see note 2).
Gross Margin
Our gross profit for the year was £62.9m (2017: £57.3m) increasing as a result of the additional revenues we generated as
explained above. In percentage terms, our margin remained around the same level at 64.4% (2017: 64.0%). Whilst the overall
level of percentage margin is similar there have been a few individual movements, which have resulted in our margins being
maintained.
Within Cloud Services the completion of the low margin public cloud consultancy project has reduced our costs and therefore
improved our percentage margin. Conversely, the contribution of a full year of Cristie, bringing low margin hardware and
software sales to customers’ own premises has increased costs and reduced our percentage margin. We have also seen a
benefit from the fixed cost nature of our datacentre estate where costs do not rise in line with revenue offset by a relative
increase in licencing costs. All of our acquisitions in the year have also helped to increase modestly our percentage margin.
The gross margin within our Easyspace segment has remained consistent with the previous year.
Adjusted EBITDA
The adjusted EBITDA for the year was £39.8m (2017: £36.6m) an increase of 9% (page 43). Our adjusted EBITDA margin has
remained at the same level of 40.8% (2017: 40.8%). The Cloud Services segment increased its absolute level of margin over
the period whilst maintaining its percentage margin, while the Easyspace segment’s absolute and percentage margin were very
similar to the previous year.
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iomart Group plc Annual report and accounts 2018 Strategic Report. Chief Financial Officer's Report
Adjusted EBITDA (continued)
Adjusted EBITDA in the Cloud Services segment was £37.1m (2017: £34.0m), an increase of 9%. This improved performance is
mainly a direct result of the additional gross margin delivered by the increase in sales revenue, from both organic and acquired
sources, offset by a modest increase in administrative expenses with payroll costs having increased mainly due to the impact
of acquisitions and an increase in software licence fees, offset by a reduction in bad debt expense. In percentage terms the
adjusted EBITDA margin has slightly decreased to 44.1% (2017: 44.6%).
The Easyspace segment’s adjusted EBITDA was £6.4m (2017: £6.2m) an increase of 3%. This improvement in adjusted EBITDA
is largely due to a reduction in the level of administrative expenses. In percentage terms the adjusted EBITDA margin has
remained consistent at 47.3% (2017: 47.1%).
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 professional fees for the year. These
overhead costs have remained constant at £3.6m (2017: £3.7m).
Adjusted profit before tax
Depreciation charges of £12.5m (2017: £11.0m) have increased over the period, partly due to the impact of acquisitions, partly
due to price increases implemented by hardware vendors as a result of the weakening of Sterling since the Brexit vote and
partly because of charges for the equipment bought to provide services to the additional Cloud Services segment, including the
impact of a substantial investment in our fibre network, which was made during the year.
The charge for amortisation of intangibles, excluding amortisation of intangible assets resulting from acquisitions (“amortisation
of acquired intangible assets”) of £2.1m (2017: £1.9m) has increased over the year as a result of an increase in the level of
software investment.
Finance costs of £1.2m (2017: £1.3m), excluding the mark to market adjustment in respect of interest swaps on the Company’s
loans 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 and the
interest charge on the contingent consideration due in respect of acquisitions from the adjusted EBITDA, the Group’s adjusted
profit before tax was £24.0m (2017: £22.4m) an increase of 7%.
The adjusted profit before tax margin for the year was 24.6% (2017: 25.0%). This modest margin reduction is mainly due to the
slight increase in depreciation charges as a percentage of revenue.
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 before tax to profit before tax
Adjusted profit before tax
Less: Amortisation of acquired intangible assets
Less: Acquisition costs
Less: Share based payments
Add: Mark to market adjustment on interest rate swaps
Less: Interest on contingent consideration
Add: Gain on revaluation of contingent consideration
Less: Non-recurring software licence fees relating to prior years
Profit before tax
2018
£’000
24,039
(6,449)
(774)
(1,206)
46
(51)
1,335
(2,143)
14,797
2017
£’000
22,406
(5,558)
(104)
(1,844)
84
(330)
-
-
14,654
The adjusting items are: charges for the amortisation of acquired intangible assets of £6.4m (2017: £5.6m) which have increased
mainly as a result of the acquisitions made in the year and the full year effect of acquisitions made in previous years; acquisition
costs of £0.8m (2017: £0.1m) as a result of acquisitions made; share based payment charges of £1.2m (2017: £1.8m) which
have decreased as a result of share option awards made in previous years not fully vesting; a mark to market credit adjustment
14
iomart Group plc Annual report and accounts 2018
Strategic Report. Chief Financial Officer's Report
in respect of interest rate swaps on the Company’s loans of £0.1m (2017: £0.1m); and the charge of interest, at the weighted
average cost of capital rate of 15.5%, on the contingent consideration paid for the acquisition of United Communications
Limited of £0.1m (2017: £0.3m).
In addition, there are two adjusting items in this period with no comparable amount in the previous financial year. We have
made a net gain on revaluation of contingent considerations in the period of £1.3m (2017: £nil). The structure of the Sonassi
earn out arrangement was such that a relatively modest change in profitability could result in a substantial change in the
amount due under the earn out terms. Consequently, estimating the amount due was challenging. The decrease of £1.5m from
the originally estimated £2.3m for Sonassi represents an underlying reduction in expected profitability over the earn out period,
which ends in July 2018, of only 5.4%. We have also recorded a loss on the revaluation of contingent considerations in respect
of Simple Servers of £0.1m and United Communications of £0.1m resulting in a total net gain on revaluation of contingent
consideration of £1.3m in the period.
The other adjusting item which does not have a comparable amount in the previous year relates to software licence fees. As
a result of an audit undertaken on behalf of a software licensor in the current year, incorrect licence information relating to
previous financial years has been identified. The software licensor accepts this situation is not due to any deliberate action of
the Group and we are discussing an even stronger collaboration together in the future. The audit covered the four year period
ending March 2017 and a sum of £2.1m has been estimated as being due in respect of these four financial years. The final
amount could be higher, however not materially, although we believe this is unlikely and it could be lower. The shortfall in
licence count identified has been quantified at current year prices rather than the lower pricing that would have been applied in
each of the years covered by the audit. Software licencing in a cloud environment is not straightforward with the cloud provider
being responsible to the licensor for all software installed on any infrastructure platform provided to its customers, even if the
cloud provider does not actually install the software. It is the case that we should have charged our customers more than we
have for the use of software on the cloud platforms we provided over the audit period. We are taking steps to improve controls
in this area and the adjusted profit before tax for the period of £24.0m includes full provision for all software licences due in
that period.
After deducting these items from the adjusted profit before tax; the reported profit before tax was £14.8m (2017: £14.7m) an
increase of 1%. In percentage terms the profit before tax margin having been adversely affected by the licence fee provision
offset to some extent by the gain on revaluation of contingent consideration reduced to 15% (2017: 16%).
Taxation
There is a tax charge for the year of £2.5m (2017: £2.6m). The tax charge for the year is made up of a corporation tax charge
of £4.3m (2017: £4.4m) with a deferred tax credit of £1.8m (2017: £1.8m). The effective rate of tax for the year is 17.0% (2017:
17.5%). The decrease of 0.5% is due to the reduction to the tax charge in the current year on the non-taxable income in respect
of the gain on revaluation of contingent consideration and the increase in the deduction to the tax charge for the tax effect of
share based remuneration. This is offset by an increase to the tax charge in respect of overseas jurisdictions as a result of the
US tax rate reducing from 34% to 21% effective from 1 January 2018 impacting deferred tax assets held. Further explanation
of the tax charge for the year is given in note 9.
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 £12.3m (2017: £12.1m) an increase of 2%.
Earnings per share
The calculation of both adjusted earnings per share and basic earnings per share is included at note 12.
Basic earnings per share from continuing operations was 11.41p (2017: 11.27p), an increase of 1%, and again this has been
adversely affected by the licence fee provision offset to some extent by the gain on revaluation of contingent consideration.
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 gain on the revaluation of contingent consideration and the charge of interest on contingent consideration due,
non-recurring costs, acquisition costs and the tax effect of these items was 17.96p (2017: 16.99p), an increase of 6%.
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.
15
iomart Group plc Annual report and accounts 2018 Strategic Report. Chief Financial Officer's Report
Acquisitions
On 17 May 2017, the Company acquired the entire share capital of Dediserve on a no debt, no cash, normalised working capital
basis for a total purchase price of €7.9m (£6.7m). An initial payment of €7.8m (£6.7m) in cash less the sum of €0.25m (£0.21m)
as an interim settlement of the expected amount due by the vendors in respect of the no debt, no cash, normalised working
capital adjustment was made on acquisition. The initial payment was funded from a drawdown from the Company’s revolving
credit facility. A further payment of €0.11m (£0.1m) was made in respect of the final no debt, no cash, normalised working capital
adjustment. In November a final amount of deferred consideration of €0.1m (£0.09m) was paid.
On 26 July 2017, the Company acquired the entire share capital of Simple Servers on a no debt, no cash, normalised working
capital basis for a total purchase price of £4.9m. An initial payment of £3.0m in cash was made on acquisition. The initial
payment was funded from a drawdown from the Company’s revolving credit facility. In October, a further payment of £0.37m
was made in respect of the no debt, no cash, normalised working capital adjustment. An amount of contingent consideration
was due in respect of the period ending 31 March 2018. The contingent consideration has now been agreed at £1.9m. £1.8m
was paid in June 2018 with the balance due in September 2018 (note 21).
On 17 November 2017, the Company acquired the entire share capital of Sonassi on a no debt, no cash, normalised working
capital basis using a locked box mechanism at 30 September 2017 and a daily contribution from then until completion with the
benefit of trading during that period accruing to the vendors. At completion, an initial payment of £10.0m in cash was made
and in addition, an amount of £3.2m in cash was paid in settlement of the no debt, no cash, normalised working capital and
daily contribution adjustment. The initial payment was funded from a drawdown from the Company’s revolving credit facility. In
February, a sum of £1.0m, which was contingent on the completion of an element of software development was paid. A final
sum of no more than £5.5m is payable dependent on the profitability of the business in the year to July 2018. The maximum
purchase price is therefore £16.5m, excluding any sums due in respect of the no debt, no cash, normalised working capital
and daily contribution adjustment. We expect the amount to be paid in respect of the final contingent consideration due will
be £0.8m (note 21).
Dividends
Our dividend policy, as noted in our Chairman’s statement on page 9, which has been in place for several years now, is based
on the profitability of the business in the period. We have committed to a pay-out policy of up to 40% of the adjusted diluted
earnings per share we deliver in a financial year. This year we introduced an interim dividend of 2.25p which was paid in January
2018. We have now proposed a final dividend payment of 4.93p per share which would result in a total dividend for the year of
7.18p (2017: 6.00p) an increase of 20% and representing a pay-out ratio of 40% of the adjusted diluted earnings per share for
the year. The Board has taken the decision to increase the dividend to shareholders as a result of the recurring revenue nature
of the Group, the level of operating cash which we now deliver and the low level of indebtedness within the Group.
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 £40.8m (2017:
£37.8m) with the significant increase of 8% over the previous year’s level due to a combination of the increase in adjusted
EBITDA and improvements in working capital management. The adverse movement in trade receivables has been affected by
the recording of a large software maintenance invoice in the year covering a period post the year-end resulting in a significant
year-end prepayment. As this invoice was not due to be paid by the end of the year it has also contributed to the favourable
movement in trade payables. In addition, the movement in both trade receivables and payables has been increased by the
trading of Cristie close to the year end when relatively large on premise supply of equipment has led to both trade receivables
and payables being outstanding at the year-end. After deducting payments for corporation tax of £5.2m (2017: £3.9m) the net
cash flow from operating activities was £35.6m (2017: £33.9m).
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 £41.5m (2017: £15.2m) in the year. Of this amount, £20.1m (2017: £0.7m), net of cash acquired of
£4.2m (2017: £3.1m), was incurred in relation to the acquisitions of Dediserve, Simple Servers and Sonassi as described above.
In addition, the Group incurred expenditure of £2.5m (2017: £1.2m) in respect of contingent consideration due on previous
acquisitions.
16
iomart Group plc Annual report and accounts 2018 Strategic Report. Chief Financial Officer's Report
Cash flow and net debt (continued)
The 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 £16.1m (2017:
£10.2m) on assets, net of related finance lease drawdowns, trade creditor movements and non-cash reinstatement provisions.
The main reason for the increase is the substantial investment in the network which was made during the year for which we
will see the benefit in future years.
Expenditure was also incurred on development costs of £1.6m (2017: £1.4m) and on intangible assets of £1.2m (2017: £1.8m).
Cash flow from financing activities
Drawdowns of £25.0m (2017: £nil) were made from the revolving credit facility in the year to fund the purchase of the
acquisitions. Bank loan repayments of £8.5m (2017: £16.0m) were made in the year. We received £0.2m (2017: £1.1m) from the
issue of shares as a result of the exercise of options by employees. We also made dividend payments of £8.9m (2017: £3.4m)
(note 8); incurred finance costs of £1m (2017: £1.2m); and made lease repayments of £0.3m (2017: £0.6m).
Net cash flow
As a consequence, our overall cash generated during the year was £0.6m (2017: £1.4m cash expenditure) which resulted in
cash and cash equivalent balances at the end of the year of £9.5m (2017: £8.9m). After recognising bank loans of £35.2m (2017:
£18.6m) and finance lease obligations of £0.8m (2017: £0.9m) net debt balances at the end of the period stood at £26.6m (2017:
£10.6m) a level the Board is comfortable with given the strong cash generation of the Group.
Exposure to credit and liquidity risks
Disclosures relating to our exposure to credit and liquidity risks are outlined in note 30.
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, capital expenditure and general business purposes 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.
Richard Logan
Chief Financial Officer
11 June 2018
17
iomart Group plc Annual report and accounts 2018 Strategic Report - Key Performance Indicators and Principal Risks and Uncertainties
Key performance indicator review
Revenue Growth
Revenue
Growth
2018
£97.7m
2017
£89.6m
9% increase
17% increase
Revenue from continuing operations grew by 9% over the year compared to growth of 17% in the previous year. The Cloud
Services segment grew revenues by 10% (2017: 11%) and the Easyspace segment grew by 2.5% (2017: 22%).
Adjusted EBITDA Margin
Adjusted EBITDA
Adjusted EBITDA margin
2018
£39.8m
41%
2017
£36.6m
41%
The adjusted EBITDA has shown a 9% increase as a consequence of organic growth and acquisitions. In percentage terms the
margin has remained constant at 41% at an overall group level and both segments have recorded margins in line with the
previous year.
Adjusted PBT Margin
Adjusted PBT
Adjusted PBT margin
2018
£24.0m
25%
2017
£22.4m
25%
The adjusted PBT has shown a 7% increase as a consequence of organic growth and acquisitions. The percentage margin has
been maintained over the year.
Adjusted diluted EPS
Adjusted diluted EPS
Adjusted diluted EPS growth
2018
17.96p
6%
2017
16.99p
18%
Our dividend policy uses adjusted diluted EPS as its calculation basis. We have therefore added adjusted diluted EPS and in
particular the growth of this measure as a KPI. The adjusted diluted EPS has shown a 6% increase as a consequence of organic
growth and acquisitions.
Principal risks and uncertainties
The board has established a formal process to identify risks and uncertainties through the production and maintenance of a
risk register. There are a number of potential risks and uncertainties which have been identified as a result of this process which
could have a material impact on the Group’s future performance. These are not all the risks which the board has identified
but those that the Directors currently consider to be the most material. In addition to these risks note 30 contains details of
financial risks.
Staff
As with any service organisation iomart is dependent on the skill, experience and commitment of its employees and
especially a relatively small number of senior staff. The performance of the Group could be adversely affected if the required
staffing levels are not maintained or senior staff are not retained. The Group seeks to recruit and retain suitably skilled
and experienced staff by offering a challenging and rewarding work environment. This includes competitive and innovative
reward packages and a strong commitment to training and development.
Datacentre operation
Any downtime experienced at our datacentres would immediately have an impact on our ability to provide customers
with the level of service they demand. Should the Group be unable to provide the required level of service this could have
an adverse effect on the Group’s performance through the loss of customers and reputation. Our ongoing investment in
preventative maintenance and lifecycle replacement programme ensures our datacentres continue to deliver operational
efficiency and effectiveness.
Network
The Group provides an essential service to an extensive client base many of whom rely on the provision of that service for
their major internet presence. The service we provide to customers is dependent on the continued operation of our fibre
network which connects our datacentre estate. Should the network fail there would be an adverse impact on customers and
any diminution in the level of service could have serious consequences for customer acquisition and retention. The Group
has implemented a resilient network throughout its datacentre estate with no single points of failure to ensure the likelihood
of network failure is minimised. In addition, our high level of recurring revenue and our low level of customer attrition are
evidence of our ability to provide the level of service required.
18
iomart Group plc Annual report and accounts 2018 Strategic Report - Key Performance Indicators and Principal Risks and Uncertainties
Principal risks and uncertainties (continued)
Data and Cyber Security
There has been a sharp rise in recent years in cyber and data related crime. The security of customer, commercial and
personal data presents both a reputational and financial risk to the Group. Whilst it is a challenge to completely eliminate
all data and cyber security risks the Group continues to make substantial investment in physical and data security systems
and promote a culture within the organisation which embeds security across all of our operations. The Group also carries
specific insurance in this regard.
Key suppliers
The Group is dependent on certain key suppliers for the continued operation of its business, the most significant of which
are those for electricity, bandwidth and servers. Were any of these key suppliers to fail in their service provision to the Group
this could have an adverse effect on the Group’s ability to provide services to its customers. In all cases these supplies are
obtained from reputable organisations chosen after a thorough selection process. After selection, the Group actively seeks
to maintain good relationships with the chosen suppliers. The Group also seeks to maintain either several sources of supply
or in the case of electricity alternative sources of power.
Search engine optimisation
A significant amount of the Group’s sales revenues are generated through consumers using internet search engines to
acquire goods and services. Should the Group’s search engine optimisation performance deteriorate this could have an
adverse effect on the revenue of the Group. The Group continually monitors the position of its websites with respect to
these search engines. Through the allocation of experienced staff the Group seeks to maintain or enhance the position of
its websites for detection by internet search engines.
Growth management
The Group is experiencing high levels of growth through both organic and acquisitive means. As a consequence we need
to continue to evolve as an organisation to meet the demands that such growth places on our business operations. Failure
to evolve in the necessary way could lead to deterioration in overall business performance. As part of our annual strategy
and budget review process, which is updated as necessary throughout the year we identify the resource and organisational
changes that are needed to support our growth. In addition, a detailed integration and migration plan is produced for each
acquisition that is made to ensure the acquired operation is successfully integrated into the Group’s operations.
Acquisitions
The Group has made several acquisitions over the last number of years and has a stated strategy to continue to make
acquisitions. This produces three areas of risk:
•
•
•
Acquisition target risk – We may not be able to identify suitable targets for acquisition. Through a combination of
internal research and external relations we maintain an active pipeline of potential acquisition targets.
Acquisition integration risk – We may not integrate the acquired business into the Group in an effective manner and
as a consequence could lose staff and customers of the acquired business. For each acquisition we prepare a detailed
integration and migration plan which includes the participation of the vendor to ensure successful integration of the
acquired business into the Group’s operations.
Acquisition performance risk – The acquired business may not perform in line with expectations. As a consequence the
expected financial performance of the operation may not be achieved with a resulting adverse effect on profits and
cashflow. For each acquisition diligence and integration planning is undertaken and all potential synergies identified.
The Strategic Report on pages 9 to 19 has been approved by the Board and is signed on its behalf:
Richard Logan
Chief Financial Officer
11 June 2018
19
iomart Group plc Annual report and accounts 2018 Corporate Governance
Board of Directors
Ian Ritchie
Non-Executive Chairman
Date of appointment
December 2007
Committee Membership
Audit, Remuneration and Nomination (Chair)
Background and experience
Ian has spent a significant amount of his career working in the technology sector and is an experienced
Non-Executive Chairman currently holding a number of senior post across various sectors. Ian is a
past President of the British Computer Society and former Vice-President of the Royal Society of
Edinburgh and Honorary Treasurer of the Royal Academy of Engineering. He was founding chairman
of several technology companies, including Voxar Limited (now part of Canon), Orbital Software Group
plc (now part of Sopheon plc), Digital Bridges Limited (now part of Oberon Inc) and Sonaptic Limited
(now part of Cirrus Logic Inc).
External appointments
Ian was appointed in June 2017 as Non-Executive Chairman of Tern Plc and is Non-Executive Chairman
of Computer Application Services Limited, Krotos Limited, and Red Fox Media Limited.
Angus MacSween
Chief Executive Officer
Date of appointment
March 2000
Committee Membership
Nomination
Background and experience
Angus founded iomart in December 1998 following 15 years spent creating and selling businesses
in the telephony and internet sector. In 1984, after a short service commission in the Royal Navy,
Angus started his first business selling telephone systems. He then grew and sold five profitable
businesses – including Prestel, an online information division of BT, which he turned into one of the
UK’s first internet service providers. Following the sale of Teledata Limited, the UK’s leading telephone
information services company, to Scottish Telecom plc, Angus then spent two years on the executive
of Scottish Telecom plc where he was responsible for the development of the company’s internet
division.
Richard Logan
Chief Financial Officer
Date of appointment
July 2006
Background and experience
Richard is a chartered accountant, having qualified with Arthur Young in 1984. Richard then spent
seven years with Ben Line Group Limited initially as Group treasurer and latterly as finance director
of the main container shipping division. From 1992 to 2002 Richard served as finance director of
Kingston SCL, which provided administration and billing software to the mobile communications
market, during which time he was involved in a management buy-out and subsequent trade sale of
the company. Immediately prior to joining iomart Richard served as finance director of ePOINT Group
Limited, a technology company based in Scotland.
External appointments
Richard is a Non-Executive Director of Inspired Energy plc, an AIM listed energy procurement
organisation.
20
iomart Group plc Annual report and accounts 2018 Corporate Governance Report
Board of Directors continued
Ian Steele
Non-Executive Director
Date of appointment
June 2016
Committee Membership
Audit (Chair), Remuneration and Nomination
Background and experience
Ian is a chartered accountant with over 35 years’ experience in the corporate finance and corporate
advisory sector. During a 16-year career with Deloitte LLP, Ian undertook roles within corporate
finance and global advisory services. For the past eight years, Ian sat on the UK board of Deloitte LLP
and fulfilled the role of senior partner for Scotland and Northern Ireland.
External appointments
Ian is a member of the Council of the Institute of Chartered Accountants of Scotland. He is a Non-
Executive Director of STV Group plc and a Non-Executive Director of Killinchy Aerospace Holdings
Limited, the principal trading subsidiary of which is Martin-Baker Aircraft Company Limited.
Richard Masters
Non-Executive Director
Date of appointment
June 2017
Committee Membership
Audit, Remuneration (Chair) and Nomination
Background and experience
Richard has over 30 years’ experience in the legal profession and was managing partner of McGrigors
LLP until April 2012 when it merged with Pinsent Masons LLP. He sat on the main board of Pinsent
Masons until March 2017 and has held a number of roles in the business including corporate finance
advisory services. He served as Head of Client Operations for Pinsent Masons for three years post
merger before being appointed as Executive Chairman of Complete Electronic Risk Compliance
Limited, a Pinsent Masons LLP subsidiary which was sold to Dow Jones in February 2018.
External appointments
Richard is a member of Pinsent Masons LLP and Pinsent Masons International LLP.
21
iomart Group plc Annual report and accounts 2018 Corporate Governance Report
As the company is listed on the Alternative Investment Market (AIM) it is not required to comply with the provisions of the
UK Corporate Governance Code (the “Code”) issued in April 2016. However, the Board is committed to ensuring that strong
standards of corporate governance operate and has established governance procedures and policies that are considered
appropriate to the nature and size of the Group.
We do not comply with the Code. During the year, the Board met with corporate governance advisers and reviewed trends in
corporate governance, best practice where compliance with the Code was not required and its current corporate governance
arrangements. We have reported on our Corporate Governance arrangements by drawing upon that review including those
aspects of the Code we consider to be relevant to the Company. The Board considers that at this stage in the Group’s
development the expense of fully complying with the Code is not appropriate.
Under a change in AIM rules announced by the London Stock Exchange, with effect from September 2018, all AIM companies
are required to recognise a corporate governance code and explain how they do so. It is likely that the Group will comply with
the Quoted Companies Alliance (“QCA”) code, the corporate governance code tailored for small and mid-size quoted companies
and this will be reflected in the annual report and accounts for the year ending 31 March 2019.
The Board
The Code requires the Company to have an effective Board whose role is to develop strategy and provide leadership to the
Company as a whole, as well as ensuring a framework of controls exist which allow for the identification, assessment and
management of risk, ultimately taking collective responsibility for the success of the Company.
Through the leadership of the Chairman, the Board sets the Company’s strategic goals; ensuring obligations to shareholders
are met. Matters reserved for a decision of the Board include approval of Group strategy, annual budgets and business plans,
acquisitions, disposals, business development, annual reports, interim statements, and any significant funding and capital
expenditure plans.
The Board meets regularly, usually monthly, to discuss and agree on the various matters brought before it, including the trading
results. The Company has a highly committed and experienced Board, which is supported by a senior management team, with
the qualification and experience necessary for the running of the Group.
In addition, there is regular communication between Executive and Non-Executive Directors, where appropriate, to update the
Non-Executive Directors on matters requiring attention prior to the next Board meeting.
Role of the Chairman and Chief Executive Officer
The Code requires that there should be a clear division of responsibilities between the running of the Board and the executive
responsible for the Company’s business, to ensure that no one person has unrestricted powers of decision.
The Chairman is responsible for the leadership of the Board, ensuring its effectiveness and setting its agenda. Once the Board
has agreed strategic and financial objectives, it is the Chief Executive Officer’s responsibility to ensure they are delivered upon.
To facilitate this, the Chief Executive Officer chairs the Group’s Operations Boards which additionally comprises the other
executive director and, where appropriate, senior members of the management team. These Boards manage the day-to-day
operation of the Group’s business.
The Chairman holds other directorships, as detailed in his biography on page 20. The Board has considered the time
commitment required by his other roles and has concluded they do not detract from his chairmanship of the Company.
Composition of and Appointments to the Board
The Code requires that there should be a balance of Executive and Non-Executive Directors and when appointing new Directors
to the Board there should be a formal, rigorous and transparent procedure.
The Board comprises a Non-Executive Chairman, Chief Executive Officer, Chief Financial Officer and two independent Non-
Executive Directors. Short biographies of the directors are given on pages 20 and 21.
All Non-Executive Directors serving at the year-end are considered to be independent. The Board does not consider the
shareholdings of the Non-Executive Directors as detailed on page 30 to have any effect on their independence.
The Board is satisfied with this balance between Executive and Non-Executive Directors. The Board considers that its
composition is appropriate in view of the size and requirements of the Group’s business and the need to maintain a practical
balance between Executive and Non-Executive Directors.
Each member of the Board brings different experience and skills to the Board and its various committees. The Board
composition is kept under review as this mix of skills and business experience is a major contributing factor to the proper
functioning of the Board, helping to ensure matters are fully debated and that no individual or group dominates the Board
decision-making process.
22
iomart Group plc Annual report and accounts 2018 Corporate Governance Report
When a new appointment to the Board is made, consideration is given to the particular skills, knowledge and experience that
a potential new member could add to the existing Board composition. A formal process is then undertaken, which may involve
external recruitment agencies, with appropriate consideration being given, in regards to Executive appointments, to internal
and external candidates. Before undertaking the appointment of a Non-Executive Director, the Chairman establishes that the
prospective Director can give the time and commitment necessary to fulfil their duties, in terms of availability both to prepare
for and attend meetings and to discuss matters at other times.
Information and Development
A further principle of the Code is that information of a sufficient quality is supplied to the Board in a timely manner.
The Chairman is responsible for ensuring that all the Directors continually update their skills, their knowledge and familiarity
with the Group in order to fulfil their role on the Board and the Board’s Committees. Updates dealing with changes in legislation
and regulation relevant to the Group’s business are provided to the Board by the Company Secretary/Chief Financial Officer
and through the Board Committees.
All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring the
Board procedures are properly complied with and that the discussions and decisions are appropriately minuted. Directors may
seek independent professional advice at the Company’s expense in furtherance of their duties as Directors.
Training in matters relevant to their role on the Board is available to all Board Directors. New Directors are provided with an
induction in order to introduce them to the operations and management of the business.
Performance Evaluation
The Code requires the Board to undertake a formal and rigorous evaluation of its own performance annually and that of its
committees and individual Directors.
During the year a formal evaluation was conducted by means of a detailed questionnaire which was completed by each
Director. The results of this process were collated by the Chairman and discussed by the Board collectively. The evaluation
included a review of the performance of individual Directors, including the Chairman, and the Board Committees. Based on this
evaluation the Board has concluded that its performance in the past year has been satisfactory.
Re-election
Under the Code, Directors should offer themselves for re-election at regular intervals and under the Company’s Articles of
Association, at every Annual General Meeting, at least one third of the Directors who are subject to retirement by rotation,
are required to retire and may be proposed for re-election. In addition, any Director who was last appointed or re-appointed
three years or more prior to the AGM is required to retire from office and may be proposed for re-election. Such retirement
will count in obtaining the number required to retire at the AGM. New Directors, who were not appointed at the previous AGM,
automatically retire at their first AGM and, if eligible, can seek re-appointment.
Two Directors will retire from office at the Company’s forthcoming AGM and stand for re-appointment.
Board Committees
The Board has established two committees to deal with specific aspects of the Board’s affairs: Audit and Remuneration
Committees.
The Board has also established a Nominations Committee, which is chaired by Ian Ritchie and includes Richard Masters, Ian
Steele and the Chief Executive Officer.
Attendance at Board and Committee Meetings
Attendances of Directors at Board and Committee meetings convened in the year, along with the number of meetings that
they were invited to attend, are set out below:
Board
Remuneration
Committee
Audit
Committee
Held
Attended
Held
Attended
Held
Attended
Ian Ritchie – Non-Executive Chairman
Angus MacSween – Chief Executive Officer
Crawford Beveridge – Non-Executive Director
(resigned 23 August 2017)
Richard Masters – Non-Executive Director
(appointed 20 June 2017)
Richard Logan – Chief Financial Officer
Ian Steele – Non-Executive Director
10
10
3
8
10
10
9
10
3
6
9
10
2
-
-
2
2
2
2
-
-
2
2
2
4
-
2
2
4
4
4
-
2
2
4
4
23
iomart Group plc Annual report and accounts 2018 Corporate Governance Report
Where any Board member has been unable to attend Board or Committee meetings during the year, their input has been
provided to the Company Secretary or Chief Financial Officer ahead of the meeting. The relevant Chairman then provides a
detailed briefing along with the minutes of the meeting following its conclusion.
The Audit Committee
The members of the Audit Committee during the year were Ian Steele, Ian Ritchie, Crawford Beveridge until his resignation on
23 August 2017 and Richard Masters who was appointed on 23 August 2017.
The Audit Committee, chaired by Ian Steele, who has recent and relevant experience, is authorised by the Board to conduct
any activity within its terms of reference and to seek any information it requires from any employee. The Audit Committee has
written terms of reference, which are available on request, and include reviewing and monitoring:
interim and annual reports, including consideration of the appropriateness of accounting policies;
•
• material assumptions and estimates adopted by management;
developments in accounting and reporting requirements;
•
external auditor’s plans for the year-end audit of the Company and its subsidiaries;
•
the effectiveness of the Committee;
•
the Risk Register covering the systems of internal control and their effectiveness, reporting and making recommendations
•
to the Board on the results of the review and receiving regular updates on key risk areas of financial control;
the performance and independence of the external auditor concluding in a recommendation to the Board on the
reappointment of the auditor by shareholders at the Annual General Meeting;
non-audit fees charged by the external auditor; and
the formal engagement terms entered into with the external auditor.
•
•
•
Significant areas considered by the Committee in meeting in relation to the 2018 financial statements are set out below:
Areas of estimates
Matter Considered and Role of the Committee
Impairment of goodwill
The Committee considered the carrying value of goodwill at 31 March 2018. The
Committee reviewed the validity of cashflow projections and the significant financial
assumptions used, including the selection of appropriate discount and long term
growth rates. These projections and assumptions were further challenged through
the use of sensitivity analysis, As set out in note 13 to the consolidated financial
statements, no impairments of goodwill resulted from this exercise and the Committee
did not consider that a reasonably possible change in the assumptions would cause an
impairment to be recognised.
Business combinations valuation of
intangible assets and fair value
adjustments on acquisition
During the year ended 31 March 2018 the Group made three acquisitions (note
11). The Committee consider the calculations supporting the fair value of assets and
liabilities of any business acquired in the year and review the supporting workings to
support the value of intangibles acquired and any fair value adjustments required.
Contingent consideration
Revenue recognition and the
adoption of IFRS 15
When an acquisition involves a potential payment of contingent consideration, the
Committee review the fair value assessment prepared having regard to criteria on
which any sum due will be calculated and challenge the probability of payment being
required (note 21).
In the next financial year the Group will adopt the provisions of IFRS 15 “Revenue from
Contracts with Customers” relating to revenue recognition. The Group has completed
its assessment of the impact of IFRS 15 and current revenue recognition policies and,
whilst unaudited, that assessment confirms that the adoption of IFRS 15 will not result
in a material change to the financial statements (note 2).
At the invitation of the Committee, meetings may be attended by the Chief Executive Officer, the Chief Financial Officer and
the Group Financial Controller. Representatives of the external auditors, Grant Thornton, also attend each meeting. The
Chairman of the Committee also meets separately with senior management and the external auditors.
The Chairman of the Audit Committee reports to the subsequent meeting of the Board on the Committee’s work and the Board
receives a copy of the minutes of each meeting.
The Committee’s effectiveness is reviewed annually as part of the Board evaluation exercise.
Under its terms of reference, the Audit Committee is responsible for monitoring the independence, objectivity and performance
of the external auditors and for making a recommendation to the Board regarding the appointment of external auditors on an
annual basis. The Group’s external auditors, Grant Thornton UK LLP, were first appointed as external auditors of the Group for
the period ended 31 March 2005.
24
iomart Group plc Annual report and accounts 2018 Corporate Governance Report
The auditors have confirmed to the Committee that in relation to their services to the Company they comply with UK regulatory
and professional requirements, including Ethical Standards issued by the Auditing Practices Board and that their objectivity is
not compromised.
The auditors are required each year to confirm in writing that they have complied with the independence rules of their
profession and regulations governing independence. Before Grant Thornton takes on any engagement for other services from
the Company careful consideration is given as to whether the project could conflict with their role as auditor or impair their
independence.
The Remuneration Committee
The Remuneration Committee was chaired by Crawford Beveridge until his resignation on 23 August 2017 and is now chaired
by Richard Masters who was appointed on 23 August 2017. Its other members are Ian Ritchie and Ian Steele. It is normal for
the Chief Executive Officer to be invited to attend meetings except where matters under review by the Committee relate to him.
The Committee has responsibility for making recommendations to the Board on the remuneration packages of the Executive
Directors which includes:
• making recommendations to the Board on the Company’s policy on Directors’ remuneration and overseeing long term
incentive plans (including share option schemes for all employees);
ensuring remuneration is both appropriate to the level of responsibility and adequate to attract and/or retain Directors
and staff of the calibre required by the Company; and
ensuring that remuneration is in line with current industry practice.
•
•
Risk Management and Internal Control
The Directors, who are responsible for the Group’s system of risk management and internal control, have established systems
to ensure that an appropriate level of oversight and control is provided. The systems are reviewed for effectiveness by the Audit
Committee and the Board. The Group’s systems of risk management and internal control are designed to help the Company
meet its business objectives by appropriately managing, rather than eliminating, the risks to those objectives. The controls
can only provide reasonable, not absolute, assurance against material misstatement or loss. Executive Directors and senior
management meet to review both the risks facing the business and the controls established to minimise those risks and their
effectiveness in operation on an on-going basis. The aim of these reviews is to provide reasonable assurance that material risks
and problems are identified and appropriate action taken at an early stage.
The Board confirms that procedures to identify, evaluate and manage the significant risks faced by the Group have been in place
throughout the year and up to the date of approval of the Annual Report.
Financial Control
The annual financial plan is reviewed and approved by the Board. Financial results with comparisons to plan and forecast results
are reported on monthly to the Board together with a report on operational achievements, objectives and issues encountered.
Significant variances from plan are discussed at Board meetings and actions set in place to address them.
Approval levels for authorisation of expenditure are at set levels and cascaded through the management structure with any
expenditure in excess of predefined levels requiring approval from the executive directors.
Relations with Shareholders
The Chief Executive Officer and Chief Financial Officer have, where appropriate, had regular dialogue with shareholders and
analysts to discuss strategic and other issues including the Company’s financial results.
The Company engages in full and open communication with both institutional and private investors and responds promptly to
all queries received. In conjunction with the Company’s brokers and other financial advisers all relevant news is distributed in a
timely fashion through appropriate channels to ensure shareholders are able to access material information on the Company’s
progress. The Company’s website has a section for investors, which contains all publicly available financial information and news
on the Company.
Going Concern
The Directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate resources
to continue in business for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in
preparing the financial statements. In making this assessment, the Directors have considered the Group budgets and the cash
flow forecasts for the next two financial periods, and associated risks and the availability of bank and leasing facilities. On 6 June
2018, the Group entered into a new banking facility which provides an £80m multi option revolving credit facility that matures
in June 2022.
25
iomart Group plc Annual report and accounts 2018 AIM Rule Compliance Report
iomart Group plc is quoted on AIM and as a result the Company has complied with AIM Rule 31 which requires the following:
Corporate Governance Report
• Have in place sufficient procedures, resources and controls to enable its compliance with the AIM Rules;
•
Seek advice from its Nominated Advisor (“Nomad”) regarding its compliance with the Rules whenever appropriate and
take that advice into account;
Provide the Company’s Nomad with any information it reasonably requests in order for the Nomad to carry out its
responsibilities under the AIM Rules for Nominated Advisors, including any proposed changes to the Board and
Provision of draft notifications in advance;
Ensure that each of the Company’s Directors accepts full responsibility, collectively and individually, for compliance with
the AIM rules; and
Ensure that each Director discloses without delay all information which the Company needs in order to comply with
AIM Rule 17 (Disclosure of Miscellaneous Information) insofar as that information is known to the director or could with
reasonable diligence be ascertained by the Director.
•
•
•
Quality of Personnel and Employee Involvement
The Group is committed to attracting and retaining the highest level of personnel. It strives to do this through, amongst other
things, the application of high standards in recruitment. The Group is aware of the importance of good communication in
relationships with its staff and also follows a policy of encouraging training.
A number of employees participate in the growth of the business through the ownership of share options with some employees
also participating in the Group bonus scheme.
Business Ethics
The Board recognises that the Company is accountable to its shareholders and, at the same time, seeks to take into account the
interests of all its stakeholders including customers, suppliers and subcontractors, employees, as well as the local community,
and the environment in which it operates.
The Group maintains core values of Honesty, Integrity, Hard Work, Service and Quality and actively promotes these values in all
activities undertaken on behalf of the Group.
Customers
The Group treats all of its customers with the utmost respect and seeks to be honest and fair in all relationships with them. The
Group provides its customers with products of high quality.
Suppliers and Subcontractors
Relationships with suppliers and subcontractors are based on mutual respect, and the Group seeks to be honest and fair in its
relationships with suppliers and subcontractors, and to honour the terms and conditions of its agreements in place with such
suppliers and subcontractors.
The Group is aware that the giving or accepting of bribes is not acceptable business conduct.
Employees
The Group recognises the importance of its employees and that the success of the Group is due to their efforts. The Group
respects the dignity and rights of all its employees. The Group provides clean, healthy and safe working conditions. An inclusive
working environment and a culture of openness are maintained by the regular dissemination of information.
The Group endeavours to provide equal opportunities for all employees and facilitates the development of employees’ skill sets.
A fair remuneration policy is adopted throughout the Group.
The Group does not tolerate any sexual, physical or mental harassment of its employees. The Group operates an equal
opportunities policy and specifically prohibits discrimination on grounds of colour, ethnic origin, gender, ages, religion, political
or other opinion, disability, or sexual orientation.
By order of the Board
Andrew McDonald
Company secretary
11 June 2018
26
iomart Group plc Annual report and accounts 2018 Report of the board to the members on directors' remuneration
Directors’ Remuneration Report for the year to March 2018
As the Company is listed on the Alternative Investment Market it is not required to comply with the provisions of the UK
Corporate Governance Code 2016 (“Code”) issued by the Financial Reporting Council. However, in framing its remuneration
policy the Remuneration Committee has given consideration to the Code to ensure that the remuneration policy both reflects
our strategy and is aligned with shareholders’ interests.
We have provided disclosures in addition to that which is required by AIM Rule 19 on a voluntary basis to enable shareholders to
understand and consider our remuneration arrangements. In line with best practice, we will also voluntarily submit this report
to an advisory shareholder vote at the annual general meeting.
Remuneration committee
The remuneration committee determines, on behalf of the board, the Group’s policy for executive remuneration and the
individual remuneration packages for executive directors. In setting the Group’s remuneration policy, the remuneration
committee considers a number of factors, including the following:
•
•
•
salaries and benefits available to executive directors of comparable companies;
the need to attract and retain executives of an appropriate calibre; and
alignment with our overall strategy and the continued commitment of executives to the Group’s success through
appropriate incentive schemes.
The committee is chaired by Richard Masters. Ian Ritchie, the Company’s non-executive Chairman and Ian Steele are also
members of the Committee. The CEO may attend meetings from time to time at the invitation of the committee and provide
information and support as requested. Directors are not present when their own remuneration is being discussed.
The committee normally meets at least twice per year and met two times during the current year.
Remuneration of executive directors
The remuneration packages of the executive directors comprise the following elements:
Opportunity
Performance measures
• The committee recently reviewed
base salary and salaries with effect
from 1 April 2018 will be as follows:
n/a
CEO – £358,750
CFO – £215,250
Element
Base salary
Overview of policy and
structure
• The remuneration committee
sets base salaries to reflect
responsibilities and the skill,
knowledge and experience of the
individual taking into account salary
levels in the wider market, including
at similar sized businesses.
• Base salaries are reviewed annually.
Where appropriate the remuneration
committee considers external expert
advice when setting the level of
reward packages.
• The executive directors do not
receive directors’ fees.
27
iomart Group plc Annual report and accounts 2018 Report of the board to the members on directors' remuneration
Remuneration of executive directors (continued)
Element
Annual
bonus
Overview of policy and
Structure
• The executive directors are eligible to
receive an annual bonus dependent
on Group and individual performance
at the discretion of the remuneration
committee.
• Bonuses are normally paid in cash
following the year end.
Opportunity
Performance measures
• The maximum annual
bonus opportunity is
135% of base salary.
Performance
share plan
• The Group operates a performance
share plan for executive directors
and managers to reward, retain and
incentivise those individuals who
have made a major contribution to
the Group and will continue to play a
key role in helping the Group achieve
its objectives in the future.
• Awards are granted in the form of
nominal cost, 1p options.
• The maximum award
under the performance
share plan is 110% of
base salary.
• The level of executive directors’
discretionary bonus payments
is determined by a number of
factors including the Group’s
financial performance, its
successful continuation of its
organic and acquisitive strategy,
its continual internal improvement
programme and the individual’s
own performance.
• For the bonus for the financial
year ending March 2018 the
performance measure was
based primarily on Group
adjusted EBITDA performance,
with the above criteria taken
into account by the Committee
when determining payments.
The expectation is that a similar
approach will be adopted in
respect of the financial year
ending March 2019.
• For achievement of target a
bonus of 100% of salary is paid.
Executives only receive more than
100% of salary for performance
well in excess of target. Bonuses
reduce significantly if targets are
not achieved with generally no
bonuses payable if less than 90%
of target is achieved.
• The vesting of options is subject to
the achievement of performance
conditions. Normally vesting
is also subject to continued
employment.
• Performance is currently assessed
based on the achievement of
profit targets in three years set
with reference to our organic and
acquisitive growth strategy.
28
iomart Group plc Annual report and accounts 2018 Report of the board to the members on directors' remuneration
Opportunity
Performance measures
• Options awarded in April 2018
will vest based on Group adjusted
EBITDA performance for the
March 2021 financial year to
ensure continued focus on driving
profit performance.
n/a
• The maximum
contributions
payable by the
Company are 2 times
the contribution
made by the
director up to a
maximum employer
contribution of 10%
of basic salary.
• Neither the CEO nor
the CFO currently
receive a pension
contribution.
n/a
n/a
Remuneration of executive directors (continued)
Element
Overview of policy and
Structure
Performance
share plan
(continued)
• Share options awarded will normally
vest after the third anniversary of the
date of grant.
• Participants have 10 years from
award to exercise awards.
Pension
• The Company may make
contributions towards an individuals’
personal pension arrangements.
Benefits
• The executive directors are entitled
to life insurance cover, death in
service benefits and to participate in
the Group’s Private Medical Insurance
scheme. Other role-appropriate
benefits may also be provided.
• The Group operates a Sharesave
scheme for all employees including
executive directors.
Service contracts
Executive directors are engaged under service contracts which require the following notice periods:
Angus MacSween
Richard Logan
12 months
6 months
Remuneration of non-executive directors
The fees paid to the non-executive directors are determined by the Board. Non-executive directors are not entitled to receive
any bonus or other benefits. Non-executive directors are entitled to reasonable expenses incurred in the performance of their
duties.
Non-executive directors’ fees were reviewed in the prior year to ensure that they are appropriate for a company of our size and
complexity. Our policy for the March 2019 financial year remains the same as prior year to pay a fee of £40,000 per annum for
Board Director duties with additional fees of £5,000 per annum paid to the Audit and Remuneration Committee chairman to
reflect the additional time required to fulfil these roles.
The chairman receives a fee of £75,000 per annum.
Non-executive directors’ letters of appointment are on a 6 month rolling basis.
29
iomart Group plc Annual report and accounts 2018
Report of the board to the members on directors' remuneration
Directors’ remuneration for the year ended 31 March 2018
Details of individual director’s emoluments for the year are as follows (this information has been audited):
Name of director
Executive directors
Angus MacSween
Richard Logan
Sarah Haran 1
Non-executive directors
Chris Batterham 2
Crawford Beveridge 3
Ian Ritchie
Ian Steele
Richard Masters 4
Salary or
fees
Bonus
Benefits
Pension
contributions
£
£
£
350,000
210,000
n/a
84,921
84,921
n/a
n/a
10,417
75,000
45,000
35,308
n/a
n/a
-
-
-
4,496
2,873
n/a
n/a
n/a
-
-
-
Year
ended 31
March
2018
Total
Year
ended 31
March
2017
Total
£
£
£
-
-
439,417
297,794
n/a
n/a
n/a
n/a
-
-
-
n/a
10,417
75,000
45,000
35,308
565,210
335,869
325,640
14,090
25,000
55,000
27,462
n/a
1 Sarah Haran resigned from the Board on 31 March 2017
2 Chris Batterham resigned from the Board on 24 August 2016
3 Crawford Beveridge resigned from the Board on 23 August 2017
4 Richard Masters was appointed to the Board on 20 June 2017
Directors’ interests in shares
The interests of the directors in the shares of the company at 31 March 2018, together with their interests at 1 April 2017 were
as follows:
Name of director
Angus MacSween
Crawford Beveridge (resigned 23 August 2017)
Richard Logan
Ian Ritchie
Ian Steele
Richard Masters (appointed 20 June 2017)
Number of ordinary shares
31 March 2018
At 1 April 2017
16,998,789
16,998,789
n/a
962,095
156,102
nil
nil
30,000
962,095
156,102
nil
n/a
30
iomart Group plc Annual report and accounts 2018 Report of the board to the members on directors' remuneration
Directors’ interests in share options (this information has been audited)
The interests of the directors at 31 March 2018 in options over the ordinary shares of the Company were as follows:
At 1 April
2017 Exercised
Granted
Lapsed
Name of
director
Angus
MacSween
Richard
Logan
43,010
113,334
113,333
113,333
117,480
4,620
175,575
134,281
-
-
814,966
28,495
80,000
80,000
80,000
72,080
4,620
87,557
72,481
7,428
-
-
512,661
Ian Ritchie
4,620
4,620
At 31
March
2018
Exercise
price
Date of
Grant
Date from
which
exercisable
Expiry date
43,010
46.5p
06/10/2008
31/03/2009
06/10/2018
113,334
113,333
113,333
117,480
1p
1p
1p
1p
27/03/2013
31/05/2014
27/03/2023
27/03/2013
31/05/2015
27/03/2023
27/03/2013
31/05/2016
27/03/2023
25/09/2014
25/09/2017
25/09/2024
4,620
194.8p
12/08/2015
01/10/2018
31/03/2019
175,575
134,281
129,848
1p
1p
1p
28/08/2015
28/08/2018
28/08/2025
01/04/2016
01/04/2019
01/04/2026
12/04/2017
12/04/2020
12/04/2027
3,560
252.8p
18/08/2017
01/10/2020
31/03/2021
-
-
-
-
-
-
-
-
129,848
3,560
-
-
-
-
-
-
-
-
-
133,408
-
948,374
-
-
-
-
-
-
-
-
-
77,909
3,560
-
-
-
-
-
-
-
-
-
-
28,495
80,000
80,000
80,000
72,080
46.5p
06/10/2008
31/03/2010
06/10/2018
1p
1p
1p
1p
27/03/2013
31/05/2014
27/03/2023
27/03/2013
31/05/2015
27/03/2023
27/03/2013
31/05/2016
27/03/2023
25/09/2014
25/09/2017
25/09/2024
4,620
194.8p
12/08/2015
01/10/2018
31/03/2019
87,557
72,481
7,428
77,909
1p
1p
1p
1p
28/08/2015
28/08/2018
28/08/2025
01/04/2016
01/04/2019
01/04/2026
24/08/2016
24/08/2019
24/08/2026
12/04/2017
12/04/2020
12/04/2027
3,560
252.8p
18/08/2017
01/10/2020
31/03/2021
81,469
-
594,130
-
-
-
-
4,620
194.8p
12/08/2015
01/10/2018
31/03/2019
4,620
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
During the year options over 207,757 ordinary shares (2017: 288,293) were granted to Directors under the unapproved
share option scheme with an average exercise price of 1.0p per share (2017: 1.0p per share) and 7,120 options over ordinary
shares under the Sharesave scheme were granted to Directors (2017: nil) with an average exercise price of 252.8p per share
(2017: nil).
31
iomart Group plc Annual report and accounts 2018 Report of the board to the members on directors' remuneration
Directors’ interests in share options (continued)
The market price of the company’s shares at the end of the financial period was 366.50p and the range of prices during the
period was between 290.0p and 410.0p.
By order of the board
Richard Masters
Chairman, Remuneration committee
11 June 2018
32
iomart Group plc Annual report and accounts 2018 Directors' report
The directors present their annual report on the affairs of the Group, together with the financial statements and auditor’s
report, for the year ended 31 March 2018.
Financial risk management objectives and policies
The Group’s financial instruments comprise cash and liquid resources, bank loans and finance leases together with various
items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial
instruments is to provide finance for the Group’s operations.
As described in note 22, during the year the Group had a £60m multi option revolving credit facility with Bank of Scotland Plc of
which £35.0m was drawn down at the year end and which was available until June 2019. On 6 June 2018, the Group entered
into a new banking facility to replace the facility which was available during the year and which provides an £80m multi option
revolving credit facility that matures in June 2022.
The multi option revolving credit facility may be used by the Group to finance acquisitions, capital expenditure, general business
purposes and for the issue of guarantees, bonds or indemnities. The current facility was available until June 2019 at which point
any advances made under the multi option revolving credit facility would have become immediately repayable. In addition, each
draw down made under the facility can be for either 3 or 6 months and can either be repaid or continued at the end of the
period. Interest is charged on this loan at an annual rate determined by the sum of the multi option revolving credit facility
margin, LIBOR and the lender’s mandatory costs. The multi option revolving credit facility margin is fixed at 1.7% per annum
and a non-utilisation fee of 40% of the multi option revolving credit facility margin is due on any undrawn portion of the full
£60m multi option revolving credit facility. The effective interest rate for the multi option revolving credit facility in the current
year was 2.7% (2017: 3.32%).
The Group’s borrowings at 31 March 2018 comprise finance leases totalling £0.8m (2017: £0.9m) and bank facility usage
totalling £35.2m (2017: £18.6m). The interest rates on the finance leases are fixed for the term of the lease at between 9.3%
and 11.5% and the average interest rate was 11.4% (2017: 11.2%).
The Group has exposure to movements in interest rates on its bank borrowings. The Group has entered into an interest rate
swap in respect of £10m which has been drawn under the revolving credit facility from April 2015 which reduces by £2m every
6 months until October 2017 and as a consequence the interest rate on that amount of borrowing is fixed at 2.03% from April
2015 until maturity. As a consequence, at 31 March 2018, the interest rate swap has matured in October 2017 and £nil (2017:
£2m) of the amount drawn under the multi option revolving credit facility was covered by interest rate swap arrangements. The
fair value of the interest rate swap contract is estimated to be a gain of £46,000 (2017: £84,000) which has been recognised in
profit or loss for the year.
The Group has exposure to movements in the exchange rate of the US dollar as certain domain name purchases and licences
are transacted in this currency. To protect cash flows against the level of exchange rate risk, the Group entered into forward
exchange contracts to hedge foreign exchange exposures arising on the forecast payments. The majority of transactions of the
parent company and the UK subsidiaries are in UK sterling and, with the exception of forward foreign exchange contracts and
interest rate swaps, the Group does not use derivative instruments. Additional information on financial instruments is included
in note 30.
Dividend
The directors declared an interim dividend for the year ended 31 March 2018 of 2.25p per share (2017: £nil). The directors
recommend a final dividend for the year ended 31 March 2018 of 4.93p per share (2017: 6.00p per share).
Research and development
The Group develops cloud computing products including private cloud platforms, hybrid cloud platforms, virtual platforms,
online backup and storage solutions and email related products.
Post balance sheet events
On 6 June 2018, the Group entered into a new banking facility which provides an £80m multi option revolving credit facility that
matures in June 2022.
On 30 May 2018, the Group extended the London datacentre lease to June 2030.
Future developments
The Group’s business activities, together with the factors likely to affect its future development, performance and position are
set out in the Strategic Report on pages 18 to 19.
33
iomart Group plc Annual report and accounts 2018 Directors' report
Directors and their interests
The present membership of the board is set out on page 20 to 21 and the directors who served during the year are listed on
page 30. Under the company’s Articles of Association Ian Ritchie is due to retire by rotation but has chosen not to stand for
re-election at our forth coming annual general meeting. Therefore, in accordance with the Articles of Association, Ian Steele and
Angus MacSween are due to retire by rotation and offer themselves for re-election at the forthcoming annual general meeting.
Details of directors’ interests in the company’s shares are set out in the Report of the Board to the Members on Directors’
Remuneration on pages 27 to 32.
Insurance for directors and officers
The Company has purchased and maintains appropriate insurance cover against legal action brought against directors and
officers.
Substantial shareholdings
At 31 May 2018 the following interests in 3% or more of the issued ordinary share capital, excluding shares held by the iomart
Group plc Employee Benefit Trust, had been notified to the Company:
Shareholder
Liontrust Asset Management
Angus MacSween
Octopus Investments
Investec Wealth & Investment
Noble Grossart Investment Limited
Transactions in own shares
Shares
Percentage held
17,877,821
16,998,789
13,710,122
5,369,611
3,505,000
16.51%
15.73%
12.66%
4.96%
3.24%
During the year 100,839 (2017: 745,797) own shares held in treasury at the carrying value of 49.5p each were issued following
the exercise of share options by employees for which a net total of £57,515 (2017: £1,065,018) was received.
Employee involvement
The Group regularly communicates with all staff providing information on developments within the Group including updates on
the Group’s strategy and details of new products and services provided by the Group.
Staff are eligible to receive share options in the company under the Group’s share incentive schemes and it is the board’s policy
to make specific awards as appropriate to attract and retain the best available people.
Employment of disabled persons
Full and fair consideration is given to applications for employment made by disabled persons having regard to their particular
aptitudes and abilities. Appropriate training is arranged for disabled persons, including retraining for alternative work of
employees who become disabled, to promote their career development within the organisation.
Independent Auditor
The directors confirm that each of the persons who is a director at the date of approval of this annual report confirms that:
so far as each director is aware, there is no relevant audit information of which the Group and Parent Company’s auditor
is unaware; and
the directors have taken all the steps that they ought to have taken as directors in order to make themselves
aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
This information is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2016.
Grant Thornton UK LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them
will be proposed at the forthcoming annual general meeting.
By order of the board
Andrew McDonald
Company secretary
11 June 2018
34
iomart Group plc Annual report and accounts 2018 Directors' responsibilities statement
The directors are responsible for preparing the Strategic Report and Directors’ Report, and the Group and Parent Company
financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have
to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by
the European Union and have chosen to prepare the Parent Company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice Financial Reporting Standard 101, ‘Reduced Disclosure Framework’ (FRS 101). Under
company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view
of the state of affairs and profit or loss of the Company and Group for that period.
In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable IFRSs have been followed for the Group financial statements and whether United Kingdom
Generally Accepted Accounting Practice FRS 101 (United Kingdom Accounting Standards and applicable laws) have been
followed for the Parent Company financial statements, subject to any material departures disclosed and explained in the
financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will
continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and
Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent
Company and enable them to ensure that the Group and Parent Company financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the Group and Parent Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
35
iomart Group plc Annual report and accounts 2018
Independent Auditor's Report to the Members of iomart Group Plc
Independent auditor’s report to the members of iomart Group plc
Opinion
Our opinion on the group financial statements is unmodified
We have audited the group financial statements of iomart Group plc for the year ended 31 March 2018, which comprise of
the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement
of cash flows, consolidated statement of changes in equity and notes to the financial statements, including a summary of
significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law
and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, the group financial statements:
•
•
•
give a true and fair view of the state of the group’s affairs as at 31 March 2018 and of its profit for the year then
ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the group financial
statements section of our report. We are independent of the group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion.
Who we are reporting to
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you
where:
•
the directors’ use of the going concern basis of accounting in the preparation of the group financial statements is not
appropriate; or
•
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the group’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve
months from the date when the financial statements are authorised for issue.
Overview of our audit approach
• Overall materiality: £1.793m, which represents 4.5% of the Group’s EBITDA;
•
Key audit matters were identified as revenue recognition, business combinations and carrying value
of Goodwill; and
• We performed full scope audit procedures on the financial statements of Iomart Group plc and on
the financial information of all trading UK subsidiaries along with targeted procedures on Iomart
Cloud Inc and Dediserve Limited. This gave us coverage across all revenue.
36
iomart Group plc Annual report and accounts 2018
Independent Auditor's Report to the Members of iomart Group Plc
Key audit matters
The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement
impact and the extent of management judgement.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or
not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the
context of our audit of the group financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
Key Audit Matters
Revenue Recognition
How the matter was addressed in the audit
The Group has recognised revenues of £97.7 million (31
March 2017: £89.6 million) in the year. Revenue is derived
from a number of revenue streams, and key streams include
domain and hosting services, managed cloud computing
facilities and consultancy. Each stream has its own revenue
recognition policies based on the nature of the revenue.
Revenue has different streams with different methods
of recognition and therefore judgement is required to
determine when this is recognised. This was the area that
the audit team had a significant level of resource allocated
to, to make sure this was correctly accounted for. We
therefore identified this risk as a significant risk, which
was one of the most significant assessed risks of material
misstatement.
Our audit work included, but was not restricted to:
• Evaluating the Group’s accounting policies for
compliance with IAS 18, and agreeing whether revenue
has been recognised in accordance with these policies;
• Performing detailed sample testing on a population of
revenue throughout the year by vouching these to either
cash payment or alternative appropriate supporting
documentation proving the validity of the sale; and
• Considering within this testing the deferred revenue
element and whether this had, if applicable been treated
correctly.
The group’s accounting policy on revenue recognition is
shown in note 2 to the financial statements.
Key observations
Our testing has given us sufficient audit evidence that
revenue is not materially misstated.
37
iomart Group plc Annual report and accounts 2018
Independent Auditor's Report to the Members of iomart Group Plc
Key Audit Matters
Business Combinations
How the matter was addressed in the audit
There were 3 acquisitions within the period under audit.
Our audit work included, but was not restricted to:
Dediserve Limited, based in Ireland was acquired in May
2017, for a cost of €7.9m.
The Tier 9 Limited Group (‘Simple Servers’), was acquired in
July 2017 for total consideration to be transferred of £5.15m,
which included £1.7m of contingent consideration.
Sonassi Holdings Limited and its subsidiary Sonassi Limited
were acquired in November 2017 for total consideration
to be transferred of £16.6m, which included £2.3m of
contingent consideration.
Details of the makeup of all the considerations for the
acquisitions are included within note 11 including year-end
reassessment of contingent consideration.
Given the subjectivity around assumptions used as part
of the determining of the fair value of assets and liabilities
acquired, there is a risk that such assets are incorrectly
measured along with the assumptions used within the
contingent consideration. We are aware that the company
themselves have performed the valuation calculations
of each acquisition. We therefore identified acquisition
accounting as a significant risk, which was the most
significant assessed risk of material misstatement.
• Considering the terms of the sale and purchase
agreement and public offer documentation respectively
to ensure that the terms of the acquisitions have
been appropriately accounted for within the financial
statements by management;
• Critically appraising the fair value adjustments relating to
the acquisition of Simple Servers and Sonassi.
• Critically appraising any material movements within the
Dediserve acquisition accounting from those audited in
the prior year; along with our assessment of the current
position of the company and whether an indication was
given that any triggers were noted which would create
any additional adjustments;
• Critical assessment of management’s assumptions
and calculations for goodwill and other intangible
assets identified from acquisitions, incorporating the
evaluation of relevant forecasts used to complete
these calculations. This involved input by our specialist
Valuations Team to ensure the calculations comply
with the requirements set out in IFRS 3 ‘Business
Combinations’; and
• Challenging management’s rationale and calculations
behind the fair values of any contingent consideration,
including the assessment of the range of possible
outcomes and the probability of each of these.
The group’s accounting policy on acquisition accounting is
shown in note 2 and related disclosures are included in note
11. The Audit Committee identified acquisition accounting
as a significant area in its report on page 24, where the Audit
Committee also described the action that it has taken to
address this issue.
Key observations
We gained sufficient audit evidence that the accounting
for business combinations and related intangible asset
recognition were in compliance with IFRS 3, and were not
materially misstated.
38
iomart Group plc Annual report and accounts 2018
Independent Auditor's Report to the Members of iomart Group Plc
Key Audit Matters
Carrying value of Goodwill
How the matter was addressed in the audit
The carrying value of goodwill is £75.8 million at 31 March
2018 (31 March 2017: £62.0 million), with the increase
primarily driven by the three acquisition’s discussed in the
key audit matter above.
Goodwill is reviewed annually for impairment under IFRSs
as adopted by the European Union. An impairment review
must be carried out for each cash-generating unit (‘CGU’),
with a CGU being the smallest group of assets that includes
the asset being tested for impairment. Management have
assessed that there are two CGUs in the business, being
“Cloud Services” and “Easyspace”. The carrying value of
this Goodwill and other associated assets is assessed by
management with key judgements being made around
discount rate, growth rate and future cash flows. Given
the level of management judgement involved, we identified
the carrying value of goodwill as a significant risk, which
was one of the most significant assessed risks of material
misstatement.
Our audit work included, but was not restricted to:
• Consideration of the CGUs used within the calculation,
analysing and critically assessing management’s
assessment of the appropriateness of the two CGUs
• Consideration of the cash flow projections for each CGU
as prepared by management, critically assessing the
inherent judgements and assumptions;
• Performing sensitivity analysis on the key assumptions
and reviewing the headroom when flexing key
assumptions.
• A comparison was performed of the results of previous
year’s budgets against actual performance to assess
management’s ability for the current year.
The group’s accounting policy on carrying value of goodwill is
shown in note 2 and related disclosures are included in note
13. The Audit Committee identified goodwill impairment as
a significant area in its report on page 24, where the Audit
Committee also described the action that it has taken to
address this issue.
Key observations
We gained sufficient appropriate audit evidence that the
assumptions used by management in assessing goodwill and
the resultant carrying value of goodwill is not impaired.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature,
timing and extent of our audit work and in evaluating the results of that work.
We determined materiality for the audit of the group financial statements as a whole to be £1.793m, which is 4.5% of EBITDA.
This benchmark is considered the most appropriate because it is the key performance measure applied by users of the financial
statements.
Materiality for the current year is higher than the level that we determined for the year ended 31 March 2017 to reflect the
growth in EBITDA in the year.
We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 75% of
financial statement materiality for the audit of the group financial statements.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential
uncorrected misstatements.
39
iomart Group plc Annual report and accounts 2018
Independent Auditor's Report to the Members of iomart Group Plc
Our application of materiality (continued)
We also determine a lower level of specific materiality of £67k for directors’ remuneration, which is based on 5% of the prior
year aggregate emoluments of £1.348m.
We determined the threshold at which we will communicate misstatements to the audit committee to be £90k. In addition, we
will communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment
and risk profile and in particular included:
•
•
•
evaluation by the group audit team of identified components to assess the significance of that component and to determine
the planned audit response based on a measure of materiality. We considered each component’s significance as a
percentage of the group’s total assets, current assets, total liabilities, equity, revenues and EBITDA or significance based on
qualitative factors, such as specific use is or concerns over specific components;
an interim visit, which included an evaluation the group’s internal controls environment including its IT systems and
controls;
components were identified as significant based on a detailed consideration of each component, quantitative financial
considerations, risks identified at the component level and other qualitative factors;
Audit of financial
information
• All Uk trading and
non-trading entities
Targeted
• Dediserve Ltd
• iomart Cloud Inc
Analytical
procedures
• All other entries
•
there were no significant changes in scope from the prior year audit beyond the additional procedures required around
the acquisitions as noted above.;
• Coverage of revenue for full scope audits was 96% with the remaining 4% covered by the targeted procedures performed;
• Communications were had with the component auditors of Dediserve Ltd, the only component not audited by Grant
Thornton UK. This involved detailed communications including group instructions as part of the risk assessment for the
component, and a review of targeted working papers at the fieldwork stage of the audit.
40
iomart Group plc Annual report and accounts 2018 Independent Auditor's Report to the Members of iomart Group Plc
An overview of the scope of our audit (continued)
Other information
The directors are responsible for the other information. The other information comprises the information included in the
annual report set out on pages 3 to 34, other than the financial statements and our auditor’s report thereon. Our opinion on
the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion thereon.
In connection with our audit of the group financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the group financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there is a material misstatement of the group financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
•
•
•
the information given in the strategic report and the directors’ report for the financial year for which the group
financial statements are prepared is consistent with the group financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we
have not identified material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to
report to you if, in our opinion:
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
41
iomart Group plc Annual report and accounts 2018 Independent Auditor's Report to the Members of iomart Group Plc
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 35, the directors are responsible for the
preparation of the group financial statements and for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of group financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the group financial statements, the directors are responsible for assessing the group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the group financial statements
Our objectives are to obtain reasonable assurance about whether the group financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these group financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matter
We have only reported on the information in the Directors’ Remuneration Report that is described as having been audited. We
have reported separately on the parent company financial statements of Iomart Group plc for the year ended 31 March 2018.
That report includes details of the parent company key audit matters; how we applied the concept of materiality in planning
and performing our audit; and an overview of the scope of our audit..
Robert Hannah
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Glasgow
11 June 2018
42
iomart Group plc Annual report and accounts 2018
Consolidated statement of comprehensive income. Year ended 31 March 2018
Revenue
Cost of sales
Gross profit
Administrative expenses
Administrative expenses – exceptional non-recurring costs
Operating profit
Analysed as:
Earnings before interest, tax, depreciation, amortisation,
acquisition costs, share based payments and non-recurring
costs
Share based payments
Acquisition costs
Depreciation
Amortisation – acquired intangible assets
Amortisation – other intangible assets
Administrative expenses – exceptional non-recurring costs
Gain on revaluation of contingent consideration
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year attributable to equity holders of the parent
Other comprehensive income
Amounts which may be reclassified to profit or loss
Currency translation differences
Other comprehensive income for the year
Total comprehensive income for the year attributable to
equity holders of the parent
Basic and diluted earnings per share
Total operations
Basic earnings per share
Diluted earnings per share
The following notes form part of the financial statements.
43
Note
4
4
4
27
6
4
4
4
4
30
7
7
9
2018
£’000
97,669
2017
£’000
89,573
(34,741)
(32,266)
62,928
57,307
(46,154)
(41,074)
(2,143)
-
14,631
16,233
39,843
36,570
(1,206)
(774)
(1,844)
(104)
(12,536)
(10,972)
(6,449)
(2,104)
(2,143)
1,335
13
(5,558)
(1,859)
-
-
22
(1,182)
(1,601)
14,797
14,654
(2,510)
(2,571)
12,287
12,083
(25)
(25)
22
22
12,262
12,105
12
12
11.41p
11.21p
11.27 p
11.08 p
iomart Group plc Annual report and accounts 2018
Consolidated statement of financial position. Year ended 31 March 2018
Note
2018
£’000
2017
£’000
13
13
14
16
18
17
22
20
23
10
21
19
23
22
25
26
75,837
26,926
2,760
40,686
146,209
9,495
17,958
27,453
62,000
19,707
2,760
35,049
119,516
8,906
15,080
23,986
173,662
143,502
(503)
-
(1,775)
(1,319)
(3,597)
(2,694)
(29,145)
(2,587)
(1,608)
(35,566)
(71,600)
(625)
(102)
(1,721)
(888)
(3,336)
(2,373)
(23,368)
(38)
(2,000)
(18,872)
(46,651)
(75,197)
(49,987)
98,465
93,515
1,080
(70)
1,200
21,231
4,983
(40)
70,081
98,465
1,078
(120)
1,200
21,067
4,983
(15)
65,322
93,515
ASSETS
Non-current assets
Intangible assets – goodwill
Intangible assets – other
Lease deposits
Property, plant and equipment
Current assets
Cash and cash equivalents
Trade and other receivables
Total assets
LIABILITIES
Non-current liabilities
Non-current borrowings
Trade and other payables
Provisions
Deferred tax
Current liabilities
Contingent consideration due on acquisitions
Trade and other payables
Provisions
Current tax liabilities
Current borrowings
Total liabilities
Net assets
EQUITY
Share capital
Own shares
Capital redemption reserve
Share premium
Merger reserve
Foreign currency translation reserve
Retained earnings
Total equity
These financial statements were approved by the board of directors and authorised for issue on 11 June 2018.
Signed on behalf of the board of directors
Angus MacSween
Director and chief executive officer
iomart Group plc – Company Number: SC204560
The following notes form part of the financial statements
44
iomart Group plc Annual report and accounts 2018
Note
30
7
4
4
27
16
13
13
11
30
7
22
22
22
8
18
2018
£’000
14,797
(1,335)
1,169
12,536
8,553
1,206
(2,289)
6,195
40,832
(5,236)
35,596
(16,092)
(1,577)
(1,223)
(20,143)
(2,475)
13
(41,497)
224
24,956
(276)
(8,500)
(1,029)
(8,885)
6,490
2017
£’000
14,654
-
1,579
10,972
7,417
1,844
837
480
37,783
(3,874)
33,909
(10,189)
(1,372)
(1,845)
(703)
(1,161)
22
(15,248)
1,064
-
(580)
(16,000)
(1,205)
(3,375)
(20,096)
589
(1,435)
8,906
9,495
10,341
8,906
Consolidated statement of cash flows. Year ended 31 March 2018
Profit before taxation
Gain on revaluation of contingent consideration
Finance costs – net
Depreciation
Amortisation
Share based payments
Movement in trade receivables
Movement in trade payables
Cash flow from operations
Taxation paid
Net cash flow from operating activities
Cash flow from investing activities
Purchase of property, plant and equipment
Capitalisation of development costs
Purchase of intangible assets
Payments for current period acquisitions net of cash
acquired
Contingent consideration paid
Finance income received
Net cash used in investing activities
Cash flow from financing activities
Issue of shares
Draw down of bank loans
Repayment of finance leases
Repayment of bank loans
Finance costs paid
Dividends paid
Net cash received from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The following notes form part of the financial statements.
45
iomart Group plc Annual report and accounts 2018 Consolidated statement of changes in equity. Year ended 31 March 2018
Share
capital
Own
shares
EBT
Own
shares
Treasury
Foreign
currency
translation
reserve
Capital
redemption
reserve
Share
premium
account
Merger
reserve
Retained
earnings
Note
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Total
£’000
Balance at 1 April 2016
1,078
(70)
(419)
(37)
1,200
21,067
4,983
54,467 82,269
Profit for the year
Currency translation
differences
Total comprehensive
income
Dividends – final (paid)
Share based payments
Deferred tax on share based
payments
Issue of own shares for
option redemption
Total transactions with
owners
8
27
10
26
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
369
369
-
22
22
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,083
12,083
-
22
12,083 12,105
(3,375)
(3,375)
1,844
1,844
(392)
(392)
695
1,064
(1,228)
(859)
Balance at 31 March 2017
1,078
(70)
(50)
(15)
1,200
21,067
4,983
65,322 93,515
Profit for the year
Currency translation
differences
Total comprehensive
income
Dividends – interim (paid)
Dividends – final (paid)
Share based payments
Deferred tax on share based
payments
Issue of share capital
Issue of own shares for
option redemption
Total transactions with
owners
8
8
27
10
25
26
-
-
-
-
-
-
-
2
-
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50
50
-
(25)
(25)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
164
-
164
-
-
-
-
-
-
-
-
-
-
12,287
12,287
-
(25)
12,287 12,262
(2,426)
(2,426)
(6,459)
(6,459)
1,206
1,206
143
-
8
143
166
58
(7,528)
(7,312)
Balance at 31 March 2018
1,080
(70)
-
(40)
1,200
21,231
4,983
70,081 98,465
The following notes form part of the financial statements.
46
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
1. GENERAL INFORMATION
iomart Group plc is a company incorporated and domiciled in the United Kingdom under the Companies Act 2006. The address
of the registered office is given on page 108 of this report. The nature of the Group’s operations and its principal activities are
set out in the Strategic Report and Directors’ Report.
The financial statements are presented in UK Pounds Sterling because that is the currency of the primary economic environment
in which the Group operates.
2. ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements have been prepared in accordance with applicable International Financial Reporting
Standards (IFRS) as adopted by the EU and in accordance with the Companies Act 2006.
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial
instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the
accounting policies below.
The measurement bases and principal accounting policies of the Group are set out below. These policies have been consistently
applied to all years presented unless otherwise stated.
Adoption of new and revised Standards - Amendments to IFRS that are mandatorily effective for the current year
In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards
Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2017. Their adoption has
not had any material impact on the disclosures or on the amounts reported in these financial statements.
Amendments to IAS 7 Disclosure Initiative – The Group has adopted the amendments to IAS 7 for the first time in the current
year. The amendments required an entity to provide disclosures that enable users of financial statements to evaluate changes
in liabilities arising from financing activities, including both cash and non-cash changes. The Group’s liabilities arising from
financing activities consist of borrowings. A reconciliation between the opening and closing balances of these items is provided
in note 22. Apart from the additional disclosure in note 22, the application of these amendments has had no impact on the
Group’s consolidated financial statements.
Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses –The Group has adopted the amendments to IAS
12 for the first time in the current year. The amendments clarify how an entity should evaluate whether there will be sufficient
future taxable profits against which it can utilise a deductible temporary difference. The application of these amendments has
had no impact on the Group’s consolidated financial statements as the Group already assesses the sufficiency of future taxable
profits in a way that is consistent with these amendments.
Amendments to Annual Improvements to IFRSs 2014-2016 cycle – The Group has considered the amendments to IFRS 12 included
in the Annual Improvements to IFRSs 2014 – 2016 cycle for the first time in the current year. The other amendments included
in this package are not yet effective and they have not been early adopted by the Group. IFRS 12 states that an entity need not
provide summarised financial information for interests in subsidiaries, associates or joint ventures that are classified as held for
sale. This amendment does not impact the Group for the year ended 31 March 2018.
New and revised IFRSs in issue but not yet effective and have not been adopted by the Group
At the date of authorisation of these financial statements, the following standards, interpretations and amendments have been
issued but are not yet effective and have no material impact on the Group’s financial statements:
IFRS 10 and IAS 28 (amendments) - Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture.
IFRS 11 - Amendments relating to Acquisitions of Interests in Joint Operations.
IFRS 2 (amendments) – Classification and Measurement of Share-Based Payment Transactions.
Annual Improvements to IFRSs 2012 - 2014 cycle – Amendments to IFRS 1 first-time adoption of International Financial
Reporting Standards.
•
•
•
•
47
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
2. ACCOUNTING POLICIES (continued)
New and revised IFRSs in issue but not yet effective and have not been adopted by the Group (continued)
IFRS 15 - Revenue from Contracts with Customers
IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with
customers. The Group is required to adopt IFRS 15 for the year ending 31 March 2019. The guidance permits two methods
of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the
cumulative effect of initially applying the guidance recognised at the date of initial application (the cumulative catch-up transition
method). In the previous year, it was expected that the Group would adopt the cumulative catch-up transition method,
however, on further review of the impact of IFRS 15 the Group intend to adopt the full retrospective method on a contract by
contract basis as we feel, on reflection, it is more informative.
The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. The Standard introduces a 5-step approach to revenue recognition:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.
Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied ie when ‘control’ of the goods or
services underlying the particular performance obligation is transferred to the customer.
The Group has completed a detailed assessment of the impact of IFRS 15 on all aspects of its business and the various revenue
streams. Whilst unaudited, that assessment confirms that the vast majority of the Group’s current accounting policies as
regards revenue recognition will not change and will not result in a material change to the financial statements as a result of
the adoption of IFRS 15. The review has identified some minor areas in which adjustments will be required in revenue and cost
recognition and in the related procedures and processes. Whilst not material, the areas which are likely to be affected are in
relation to set-up fees within the cloud services segment and revenue from domain registration within the Easyspace segment.
Cloud Services segment
Under IFRS 15 some set-up fees charged on contracts, which are currently recognised when the set-up is complete, will require
to be spread over the life of the contract.
The impact of any changes, both individually and in aggregate are not expected to be material to the revenue or profits in any
given financial year.
Easyspace segment
The total revenue from the provision of domain names is currently recognised at the point of sale when the title to the domain
name passes to the customer. Under IFRS 15 this revenue will require to be split between the registration of the domain and
the ongoing services, such as support and mail forwarding, which are provided by the company over the period of registration
of the domain.
As with the Cloud Services segment, the impact of any changes, both individually and in aggregate are not expected to be
material to the revenue or profits in any given financial year. The parent company only will not be impacted by IFRS 15 as it
does not generate revenue.
IFRS 16 - Leases
IFRS 16 presents new requirements for the recognition, measurement, presentation and disclosure of leases. The standard
provides that lessees will be required to recognise assets and liabilities for all leases unless the lease term is 12 months or
less or the underlying asset has a low value. The standard was issued in January 2016 and applies to annual reporting periods
beginning on or after 1 January 2019. The standard is expected to be applicable to the Group for the period beginning 1 April
2019. As at 31 March 2018, the Group has non-cancellable operating lease commitments of £7.3m. Under IFRS 16, a lease
liability will have to be recognised on the balance sheet for each operating lease where the lease term is more than 12 months
and they will be depreciated over the period of the lease. See note 24 for details on the Group’s operating lease commitments.
48
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
2. ACCOUNTING POLICIES (continued)
New and revised IFRSs in issue but not yet effective and have not been adopted by the Group (continued)
IFRS 9 – Financial Instruments
The Group is required to adopt IFRS 9 for the year ending 31 March 2019. The full impact of adopting IFRS 9 on the Group’s
consolidated financial statements will depend on the financial instruments that the Group has during the year ended 31 March
2019 as well as economic conditions and judgements made at the year end. Ahead of the adoption of IFRS 9, management
has reviewed the impact of the standard and has determined that the main impact on the Group and parent company will be
in respect of the expected credit loss model for impairment review which management do not anticipate will have an overall
material impact on the Group and parent company.
Summary of Accounting Policies
Basis of consolidation
The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 31 March
2018. Under IFRS 10, control exists when an investor is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power over the investee. As each of the divisions within the
Group are 100% wholly owned subsidiaries, the Group has full control over each of its investees.
Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are eliminated on
consolidation and the underlying value of the asset transferred is tested for impairment. Amounts reported in the financial
statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted
by the Group.
Business Combinations
Acquisitions of subsidiaries are accounted for using the acquisition method. The acquisition method involves the recognition
at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date,
regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the subsidiary are included in the statement of financial position at their fair values,
which are also used as the bases for subsequent measurement in accordance with the Group accounting policies.
Where the Group’s assessment of the net fair value of a subsidiary’s identifiable assets acquired and liabilities assumed is less
than the fair value of the consideration including contingent consideration of the business combination then the excess is
treated as goodwill. Where the Group’s assessment of the net fair value of a subsidiary’s net assets and liabilities exceeds the
fair value of the consideration including contingent consideration of the business combination then the excess is recognised
through profit or loss immediately.
Revenue
Revenue comprises the fair value of the consideration received or receivable for the sale of services in the ordinary course
of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales
within the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic
benefits will flow from the transaction and specific criteria have been met for each of the Group’s activities as described below.
The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been
resolved. The Group bases its estimates on prior experience, taking into consideration the type of customer and the type of
transaction.
Easyspace
This operating segment provides domain name registration and hosting services. Revenue from the provision of domain names
is recognised at the point of sale when the title to the domain name passes to the customer. Revenue from the provision
of hosting services is recognised evenly over the period of the service and only after the service has been established. Any
unearned portion of revenue is included in payables as deferred revenue.
49
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
2. ACCOUNTING POLICIES (continued)
Revenue (continued)
Cloud Services
This operating segment provides managed cloud computing facilities and services including consultancy. Revenue from the sale
of cloud computing facilities and managed services is spread evenly over the period of the agreement and only after the service
has been established. Any unearned portion of revenue is included in payables as deferred revenue. Consultancy services
are generally provided on a “time and materials” basis and therefore revenue is recognised as these services are rendered.
In addition, this operating segment also provides data storage, backup and virtualisation solutions. Revenue from the supply
of hardware or software, and the provision of services in respect of installation or training, is recognised when delivery and
installation of the equipment is completed. Revenue from the sale of cloud computing facilities and support services is spread
evenly over the period of the agreement and only after the service has been established. Any unearned portion of revenue is
included in payables as deferred revenue.
Interest
Interest is recognised on an accruals basis using the effective interest method.
Intangible assets
Goodwill
Goodwill arising on consolidation is capitalised in the consolidated statement of financial position and, subject to an annual
impairment test, has an indefinite life. The carrying value of goodwill is cost less accumulated impairment losses and is allocated
to cash generating units for the purpose of impairment testing. The allocation is made to those cash generating units that
are expected to benefit from the business combination. Impairment reviews are carried out by the Board at least annually.
Impairments to goodwill are charged to profit or loss in the period in which they arise.
Customer relationships
Customer relationships are recognised only on acquisition. The fair value is derived based on discounted cash flows from
estimated recurring revenue streams. The carrying value is stated at fair value at acquisition less accumulated amortisation
and impairment losses. The useful economic life is assessed for each acquisition separately. Amortisation is charged over the
useful life of the relationships in proportion to the estimated future cash flows, a period which is generally between five and
eight years.
Research and development
Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is
incurred. Development costs incurred are capitalised when all the following conditions are satisfied:
•
•
•
•
•
•
completion of the intangible asset is technically feasible so that it will be available for use or sale
the Group intends to complete the intangible asset and use or sell it
the Group has the ability to use or sell the intangible asset
the intangible asset will generate probable future economic benefits
there are adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset, and
the expenditure attributable to the intangible asset during its development can be measured reliably.
Development costs not meeting the criteria for capitalisation are expensed as incurred. The costs which do meet the criteria
range from new product development to the enhancement of existing services such as mail platforms. The scope of the
development team’s work continues to evolve as the Group continues to deliver business critical solutions to a growing
customer base. Development costs capitalised are amortised on a straight-line basis over the estimated useful life of the asset.
The estimated useful life is deemed to be three years for all developments capitalised. Amortisation charges are recognised
through profit or loss in the period in which they are incurred.
Software
Software is recognised at cost on purchase or fair value on acquisition and amortised on a straight-line basis over its useful
economic life, which does not generally exceed five years or eight years for acquired software.
50
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
2. ACCOUNTING POLICIES (continued)
Acquisition costs
In accordance with IFRS 3 Business Combinations, costs incurred on professional fees during an acquisition are not included in
the overall cost of the investment in the acquired business. Consequently, these acquisition costs are included as administrative
expenses in the consolidated statement of comprehensive income. In addition, the costs associated with integrating the
acquired businesses into the Group are also included in this category. The combination of both these types of expenses is also
shown in the consolidated statement of comprehensive income as acquisition costs.
Non-Statutory Profit Measures
In addition to measuring financial performance of the Group based on statutory profit measures, the Group also measures
performance based on adjusted EBITDA, adjusted profit before tax and adjusted diluted earnings per share.
Adjusted EBITDA
Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortisation (EBITDA) before share based payment
charges, acquisition costs and any gains or losses on revaluation of contingent consideration and material non-recurring costs.
Adjusted EBITDA is a common measure used by investors and analysts to evaluate the operating financial performance of
companies, particularly in the sector that the Group operates.
The Group considers adjusted EBITDA to be a useful measure of operating performance because it approximates the underlying
operating cash flow by eliminating the charges mentioned above. It is not a direct measure of liquidity, which is shown in the
Consolidated Statement of Cash Flows, and needs to be considered in the context of the Group’s financial commitments.
Adjusted Profit before Tax
Adjusted profit before tax is defined as profit before tax adjusted for the following:
amortisation charges on acquired intangible assets;
share based payment charges;
•
•
• mark to market adjustments in respect of interest rate swaps;
• where bank facilities are restructured during the year any accelerated write off of arrangement fees;
• M&A activity including:
o Professional fees;
o Any non-recurring integration costs
o Any gain or loss on the revaluation of contingent consideration where it is material
o Any interest charge on contingent consideration; and
•
Any material non-recurring costs where their removal is necessary for the proper understanding of the underlying
profit for the period.
Adjusted profit before tax is a common measure used by investors and analysts to evaluate the financial performance of
companies, particularly in the sector that the Group operates, where M&A activity forms a significant part its activities.
The Group considers adjusted profit before tax to be a useful measure of performance because it eliminates the impact of
certain non-recurring items including those associated with acquisitions and other charges commonly excluded from profit
before tax by investors and analysts for valuation purposes.
Adjusted Diluted Earnings per Share
Adjusted diluted earnings per share is calculated by taking the adjusted profit before tax as described after deducting an
appropriate taxation charge and dividing by the total weighted average number of ordinary shares in issue during the year and
adjusting for the dilutive potential ordinary shares relating to share options.
The Group considers adjusted diluted earnings per share to be a useful measure of performance for the same reasons as
adjusted profit before tax. In addition, it is used as the basis for dividend payments.
51
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
2. ACCOUNTING POLICIES (continued)
Contingent consideration
Where an acquisition involves a potential payment of contingent consideration the estimate of any such payment is based on
its fair value. To estimate the fair value an assessment is made as to the amount of contingent consideration which is likely to
be paid having regard to the criteria on which any sum due will be calculated and is probability based to reflect the likelihood
of different amounts being paid. Where a change is made to the fair value of contingent consideration within the initial
measurement period as a result of additional information obtained on facts and circumstances that existed at the acquisition
date then this is accounted for as a change in goodwill. Where changes are made to the fair value of contingent consideration
as a result of events that occurred after the acquisition date then the adjustment is accounted for as a charge or credit to profit
or loss.
Property, plant and equipment
Property, plant and equipment is stated at cost net of depreciation and any provision for impairment. Leasehold property is
included in property, plant and equipment only where it is held under a finance lease.
Disposal of assets
The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the
carrying amount of the asset and is recognised in profit or loss.
Depreciation
Depreciation is calculated to write down the cost of all property, plant and equipment to the expected residual value by equal
annual instalments over their estimated useful economic lives. All items of plant and equipment have immaterial residual
values. The rates generally applicable are:
Freehold property
Between 2.00% and 3.33% per annum
Leasehold improvements
Between 6% and 10% per annum
Computer equipment
Between 20% and 50% per annum
Office equipment
Between 10% and 25% per annum
Datacentre equipment
Between 6% and 10% per annum
Motor vehicles
25% per annum
Impairment testing of goodwill, other intangible assets and property, plant and equipment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash flows (cash-generating units). Goodwill is allocated to those cash-generating units that are expected to benefit from
synergies of the related business combination and represent the lowest level within the Group at which management monitors
goodwill.
Goodwill, other individual assets or cash-generating units that include goodwill, and those intangible assets not yet available for
use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the assets or cash-generating unit’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and
value in use based on an internal discounted cash flow evaluation. Management estimate expected future cash flows from each
cash generating unit and determine a suitable interest rate to calculate the present value of the future cash flows. Discount
factors are determined for each cash generating unit to reflect the underlying risks involved. The future cash flows used in the
calculation are based on the Group’s latest approved budget.
Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the
carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating
unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously
recognised may no longer exist.
Details of the key assumptions and judgements are shown in note 13.
52
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
2. ACCOUNTING POLICIES (CONTINUED)
Leased assets
In accordance with IAS 17 Leases, the economic ownership of a leased asset is deemed to have been transferred to the Group
(the lessee) if the Group bears substantially all the risks and rewards related to the ownership of the leased asset. The related
asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the
minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised
as a finance lease liability.
The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged
to profit or loss over the period of the lease.
All other leases are regarded as operating leases and the payments made under them are charged to profit or loss on a straight
line basis over the lease term. Lease incentives are spread over the term of the lease. Where a lease is for land and buildings,
these are considered separately as to whether there is a finance lease within the lease.
Lease deposits
Rental and re-instatement deposits for leasehold premises are included in the Consolidated Statement of Financial Position
as either non-current assets or current assets depending on the length of time to maturity. Where lease deposits are interest
earning the amount of deposit is not discounted and where they are not interest earning they are discounted at an appropriate
rate.
Borrowings
Borrowings are initially stated at fair value after deduction of any issue costs. The carrying amount is increased by the finance
costs in respect of the accounting period and reduced by payments made in the period. Borrowings are subsequently stated at
amortised cost, any difference between the periods (net of transaction costs) and the redemption value is recognised through
profit or loss over the period of the borrowings using the effective interest method. Where borrowings are repaid early and
new loan facilities agreed the terms of each loan facility are compared. Where the terms of the new borrowings are significantly
different from those of the previous borrowings, the previous borrowings are treated as extinguished rather than modified as
prescribed under IAS 39.
Reinstatement costs
The Group has made alterations to properties which it occupies under lease arrangements. These lease arrangements contain
provision for reinstatement of the property to its original condition at the Group’s cost at the end of the lease should the
landlord require that to happen. In respect of property leases which contain such a reinstatement provision the estimated
cost of the reinstatement is provided in the financial statements. The discounted value of the expected cost of reinstatement is
recorded as a leasehold improvement within property, plant and equipment and is then depreciated over the remaining term
of the lease. A matching provision is recognised at the same time which is increased over the period of the lease by way of an
interest charge such that the estimated cost of the reinstatement has been fully provided at the end of the lease period.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable
that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are
measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that
reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognised as interest expense.
Taxation
The tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other
comprehensive income or directly in equity.
53
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
2. ACCOUNTING POLICIES (CONTINUED)
Current Tax
Current tax is the tax currently payable based on taxable profit for the year. Taxable profit differs from net profit as reported
in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in
other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated
using tax rates that have been enacted or substantively enacted by the balance sheet date.
A provision is recognised for those matters for which the tax determination is uncertain but it is considered probable that there
will be a future outflow of funds to a tax authority. The provisions are measured at the best estimate of the amount expected
to become payable.
Deferred Tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted
for using the balance sheet liability method. Deferred tax liabilities are provided in full and are generally recognised for all
taxable temporary differences, with no discounting. Deferred tax assets are recognised to the extent that it is probable that
the underlying deductible temporary differences will be able to be offset against future taxable income. The carrying amount of
deferred tax assets is reviewed at each balance sheet date and reduced to the extent that is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless
the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences
associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group
and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as
well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Where current or deferred
tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business
combination.
Current and deferred tax assets and liabilities are calculated at tax rates and laws that are expected to apply to their respective
period of realisation, provided they are enacted or substantively enacted at the balance sheet date.
Changes in current and deferred tax assets or liabilities are recognised as a component of tax expense in the statement of
comprehensive income, except where they relate to items that are recognised directly in other comprehensive income or equity
(such as share based remuneration) in which case the related deferred tax is also recognised in other comprehensive income
or equity accordingly.
Financial assets
All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial
assets other than those categorised as at fair value through profit or loss are recognised at fair value plus transaction costs on
initial recognition. Financial assets categorised as at fair value through profit or loss are recognised initially at fair value with
transaction costs expensed through profit or loss.
All income and expenses relating to financial assets that are recognised in the statement of comprehensive income are
presented within ‘finance costs’ or ‘finance income’ except for impairment of trade receivables which is presented within
‘administrative expenses’.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest
method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash
and cash equivalents, trade and most other receivables fall into this category of financial instruments.
Provision against trade and other receivables is made when there is objective evidence that the Group will not be able to collect
all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined
as the difference between the asset’s carrying amount and the present value of estimated future cash flows. An assessment for
impairment is undertaken at least at each reporting date.
54
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
2. ACCOUNTING POLICIES (CONTINUED)
Financial assets (continued)
Financial derivatives such as forward foreign exchange contracts and interest rate swaps are carried at fair value through profit
or loss subsequent to initial recognition.
Financial liabilities
Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to
the contractual provisions of the instrument. Financial liabilities categorised as at fair value through profit or loss are recorded
initially at fair value, all transaction costs are recognised immediately in profit or loss. All other financial liabilities are recorded
initially at fair value, net of direct issue costs.
Financial liabilities categorised as at fair value through profit or loss are re-measured at each reporting date at fair value, with
changes in fair value being recognised through profit or loss. All other financial liabilities are recorded at amortised cost using
the effective interest method, with interest-related charges recognised as an expense in finance costs through profit or loss.
A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged, cancelled
or when it expires. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are
charged to profit or loss on an accruals basis using the effective interest method and are added to the carrying amount of the
instrument to the extent that they are not settled in the period in which they arise.
Foreign currency transactions
Transactions denominated in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the period end are retranslated at the rates ruling at that date. Any gains
or losses arising on assets and liabilities between the date of recording and the date of settlement are treated as gains or
losses through profit or loss. Forward foreign exchange contracts used to hedge the Group’s exposure to foreign currency
transactions are fair valued at the balance date and the gain or loss is recognised through profit or loss for the period.
The results and financial position of all Group entities that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
•
•
•
assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of
the statement of financial position;
income and expenses for each income statement are translated at average exchange rates; and
all resulting exchange differences are recognised as a separate component of equity in the foreign currency translation
reserve.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid
investments that are readily convertible into known amounts of cash with maturities of three months or less from inception
and which are subject to an insignificant risk of changes in value.
Dividends
Dividend distributions payable to equity shareholders are included in the financial statements within ‘other short term financial
liabilities’ when a final dividend is approved in a general meeting. Interim dividend distributions to equity shareholders
approved by the Board are not included in the financial statements until paid.
55
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
2. ACCOUNTING POLICIES (CONTINUED)
Equity
Equity comprises the following:
•
•
•
•
•
•
•
•
“Share capital” represents the nominal value of equity shares.
“Own shares Treasury” represents the amount of the Company’s own equity shares, plus attributable transaction costs,
that is held by the Company as treasury shares.
“Own shares EBT” represents the amount of the Company’s own equity shares, plus attributable transaction costs, that
is held by the Company within the iomart Group plc Employee Benefit Trust.
“Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares,
net of expenses of the share issue.
“Merger reserve” represents the excess over nominal value of the fair value of consideration received for equity shares,
net of expenses of the share issue, when ordinary share capital is included in the consideration for business acquisitions.
“Capital redemption reserve” represents set aside reserves in relation to previous redemption of own shares.
“Foreign currency translation reserve” represents all exchange differences on the translation of the results and financial
position of Group entities that have a functional currency different from the presentation currency.
“Retained earnings” represents retained profits.
Employee benefits - pensions
The Group contributes to an auto-enrolment pension scheme and also to a number of personal pension schemes on behalf
of executive directors and some senior employees. The pension costs charged against operating profit are the contributions
payable to the schemes in respect of the accounting period.
Share-based payments
The Group operates equity-settled share-based remuneration plans for its employees. All goods and services received in
exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using
share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the
instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market
vesting conditions (for example, profitability and sales growth targets).
All share-based remuneration plans are ultimately recognised as an expense through profit or loss with a corresponding credit
to ‘retained earnings’.
If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on
the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there
is any indication that the number of share based incentives expected to vest differs from previous estimates. The two main
vesting conditions that apply to share options relate to the achievement of annual objectives and continuous employment. Any
cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised
in prior periods if share based incentives ultimately exercised are different to that estimated on vesting.
Upon exercise of share based incentives the proceeds received net of attributable transaction costs are credited to share
capital, and where appropriate share premium.
Segmental reporting
The Group provides segmental reporting on a basis consistent with the provision of internal financial information used for
decision making purposes by the Chief Operating Decision Maker. Internal reports are produced on a basis consistent with the
accounting policies adopted in the Group’s financial statements.
The Group calculates geographical information on the basis of the location of the customer.
56
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
2. ACCOUNTING POLICIES (CONTINUED)
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and
position are set out in the Strategic Report on pages 9 to 19. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are described in the Chief Financial Officer’s Report on pages 13 to 17.
In addition, note 30 to the financial statements includes the Group’s objectives, policies and processes for managing its capital;
its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit
risk and liquidity risk. As described in note 22, during the year the Group had a £60m multi option revolving credit facility with
Bank of Scotland Plc of which £35.0m was drawn down at the year end and which was available until June 2019. On 6 June
2018, the Group entered into a new banking facility to replace the facility which was available during the year and within which
provides an £80m multi option revolving credit facility that matures in June 2022 and which an amount is available interalia
to be drawn on for general business purposes should that be required. At the end of the financial year, the Group had net
debt of £26.6m (2017: £10.6m) a level which the Board is comfortable with given the strong cash generation of the Group. The
Group has considerable financial resources together with long term contracts with a number of customers and suppliers across
different geographic areas and industries. As a consequence, the directors believe that the Group is well placed to manage its
business risks.
The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for
the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial
statements.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the year end, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
discussed below. The Group do not consider that there are any key judgements in the preparation of the financial statements.
Impairment of goodwill
The Group is required to make a judgement as to whether there is any impairment of goodwill. This requires an estimation
of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires
the entity to estimate the future cash flows expected to arise from the cash-generating unit and to select a suitable discount
rate in order to calculate the present value. Full details of the assumptions used in the calculation are disclosed in note 13.
Valuation of intangible assets and fair value adjustments on acquisition
As the Group continues to implement its acquisition strategy there is a requirement to fair value the assets and liabilities of any
business acquired during the year. The Group is required to make a judgement as to what intangible assets exist within the
acquired business at the time of the acquisition and what fair value adjustments are required. When reviewing the existence
of intangible assets consideration has been given to potential intangible assets such as customer relationships and brand.
The estimation of the valuation of customer relationships is based on the value in use calculation which requires estimates of
the future cash flows expected to arise from the existing customer relationships over their useful life and to select a suitable
discount rate in order to calculate the present value. Full details of the assumptions used in the calculation of intangible assets
and fair value adjustments on the acquisitions that have occurred during the current year are disclosed in note 11.
Contingent consideration
Where an acquisition involves a potential payment of contingent consideration the Group is required to make a judgement
as to whether any contingent consideration payment is likely. If it is then an estimate of any such payment is based on its fair
value. To estimate the fair value an assessment is made as to the amount of contingent consideration which is likely to be paid
having regard to future forecasts, the criteria on which any sum due will be calculated and is probability based to reflect the
likelihood of different amounts being paid. At 31 March 2018, contingent consideration relates to Sonassi Holding Company
Limited and Tier 9 Limited (note 21).
Provision for non-recurring software licence fees
As noted on page 15, a recent audit carried out on behalf of a software licensor has identified a shortfall in licence fees owing
to that licensor for the four year period to March 2017. Based on information received to date, the Group has estimated that
a provision of £2.1m is required in respect of this. The final amount could be higher, however not materially, although that is
thought to be unlikely and it could be lower. The amount provided is the best estimate of the expected outcome (note 23).
57
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
3. SEGMENTAL ANALYSIS
The Chief Operating Decision-Maker has been identified as the Chief Executive Officer (“CEO”) of the Company. The Group has
two operating segments and the CEO reviews the Group’s internal reporting which recognises these two segments in order to
assess performance and to allocate resources. The Group has determined its reportable segments which are also its operating
segments based on these reports.
The Group currently has two operating and reportable segments being Easyspace and Cloud Services.
• Easyspace – this segment provides a range of shared hosting and domain registration services to micro and SME
companies.
• Cloud Services – this segment provides managed cloud computing facilities and services, through a network of owned
datacentres, to the larger SME and corporate markets. The segment uses several routes to market including iomart
Cloud, Infrastructure as a Service (IaaS) which was previously detailed as RapidSwitch and Redstation, SystemsUp, Cristie
Data and the activities of Dediserve, Simple Servers and Sonassi which were acquired in the year.
In the prior year there were three segments reported which included Easyspace, Cloud Services and a Non-recurring segment
which included the operations of Cristie Data (“Cristie”) which was acquired in the prior year. Since the prior year, Cristie has
become more integrated into our Cloud Services operation. We have provided consultancy services, through SystemsUp,
to customers of Cristie, focusing on cloud strategy. In addition, Cristie has also won contracts to provide solutions from our
datacentres on a dedicated cloud basis. Consequently, in this year, nearly half of the revenue generated and orders won by
Cristie have been of a recurring nature. Therefore, we have concluded that it is no longer appropriate to include the results of
Cristie separately, particularly in a non-recurring revenue segment, from the rest of our Cloud Services operations and we will
report it within this segment from now on. The comparative figures for segmental analysis for the year ended 31 March 2017
have been restated to reflect this change.
Information regarding the operation of the reportable segments is included below. The CEO assesses the performance of the
operating segments based on revenue and a measure of Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA)
before any allocation of Group overheads, charges for share based payments, costs associated with acquisitions and any gain
or loss on revaluation of contingent consideration and material non-recurring items. This segment EBITDA is used to measure
performance as the CEO believes that such information is the most relevant in evaluating the results of the segment.
The Group’s EBITDA for the year has been calculated after deducting Group overheads from the EBITDA of the two segments
as reported internally. Group overheads include the cost of the Board, all the costs of running the premises in Glasgow, the
Group marketing, human resource, finance and design functions and legal and professional fees.
The segment information is prepared using accounting policies consistent with those of the Group as a whole.
The assets and liabilities of the Group are not reviewed by the chief operating decision-maker on a segment basis. Therefore
none of the Group’s assets and liabilities are segmental assets and liabilities and are all unallocated for segmental disclosure
purposes. For that reason the Group has not disclosed details of segmental assets and liabilities.
All segments are continuing operations. No customer accounts for 10% or more of external revenues. Inter-segment
transactions are accounted for using an arms-length commercial basis.
Operating Segments
Revenue by Operating Segment
Easyspace
Cloud Services
2018
2017 (restated)*
External
Internal
£’000
13,580
84,089
97,669
£’000
2
1,389
1,391
Total
£’000
13,582
85,478
99,060
External
Internal
£’000
£’000
13,249
76,324
89,573
12
1,538
1,550
Total
£’000
13,261
77,862
91,123
58
iomart Group plc Annual report and accounts 2018
Notes to the financial statements. Year ended 31 March 2018
3. SEGMENTAL ANALYSIS (CONTINUED)
Operating Segments (continued)
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
United Kingdom
Rest of the World
Revenue from operations
Profit by Operating Segment
Easyspace
Cloud Services
Group overheads
Acquisition costs
Share based payments
Profit before tax
and interest
Gain on revaluation of contingent
consideration
Group interest and tax
Profit for the year
2018
£’000
79,625
18,044
97,669
2017
£’000
75,163
14,410
89,573
2018
Depreciation,
amortisation,
acquisition
costs, share
based
payments and
non-recurring
costs
2017 (restated)*
Depreciation,
amortisation,
acquisition
costs, share
based
payments and
non-recurring
costs
Operating
profit/(loss)
Adjusted
EBITDA
£’000
(1,636)
(21,596)
-
(774)
(1,206)
£’000
4,781
15,460
(3,630)
(774)
(1,206)
£’000
6,244
34,006
(3,680)
-
-
£’000
(948)
(17,441)
-
(104)
(1,844)
Adjusted
EBITDA
£’000
6,417
37,056
(3,630)
-
-
Operating
profit/(loss)
£’000
5,296
16,565
(3,680)
(104)
(1,844)
39,843
(25,212)
14,631
36,570
(20,337)
16,233
39,843
(25,212)
1,335
(3,679)
12,287
36,570
(20,337)
-
(4,150)
12,083
Group overheads, acquisition costs, share based payments, interest and tax are not allocated to segments.
*Prior to the restatement, external revenue for the year ended to 31 March 2017 was £13,249,000 for Easyspace and £72,685,000
for Cloud Services; adjusted EBITDA for the year ended 31 March 2017 was £6,244,000 for Easyspace and £33,680,000 for Cloud
Services; and operating profit for the year ended 31 March 2017 was £5,296,000 for Easyspace and £16,560,000 for Cloud
Services.
59
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
4. OPERATING PROFIT
The profit for the year from total operations is stated after charging/(crediting) the following operating costs:
Staff costs excluding development costs capitalised and research and
development costs written off profit or loss
Depreciation of property, plant and equipment
- Owned assets
- Leased assets
Property, plant and equipment hire
- Land and buildings
- Plant and machinery
Amortisation of intangible assets
- Acquired intangible assets
- Other intangible assets
R&D expensed to profit or loss
Bad debt expense
Exchange loss/(gain)
2018
£’000
2017
£’000
17,812
19,184
12,146
10,495
390
477
3,001
75
6,449
2,104
92
287
207
2,623
76
5,558
1,859
74
622
(524)
Exceptional administrative expenses of £2,143,000 (2017: £nil) relate to non-recurring software licence fees relating to prior
years as discussed on page 15.
Included within administrative expenses are fees paid to the Group’s auditors, an analysis of which is provided below:
Auditors’ remuneration
Audit services:
- Fees payable for the audit of the consolidation and the parent
company accounts
- Fees payable for audit of subsidiaries, pursuant to legislation – UK
- Fees payable for audit of subsidiaries, pursuant to legislation –
International
Non-audit services:
- Audit related services
- Assurance service fees
- Tax advisory
- Tax compliance – UK
- Tax compliance - International
2018
£’000
2017
£’000
57
81
12
14
-
3
43
19
55
77
-
-
6
23
50
-
229
211
60
iomart Group plc Annual report and accounts 2018
Notes to the financial statements. Year ended 31 March 2018
5. INFORMATION REGARDING DIRECTORS AND EMPLOYEES
Directors’ emoluments
Aggregate emoluments
Share based payments
Total Directors’ emoluments
2018
£’000
2017
£’000
903
668
1,348
819
1,728
2,167
Emoluments payable to the highest paid director are as follows:
Aggregate emoluments
439
565
During the year the Company did not make any personal pension contributions to personal pension schemes of the
directors (2017: nil).
The aggregate amount of gains realised by directors on the exercise of share options during the year was £nil (2017:
£161,600).
The detailed numerical analysis of directors’ remuneration and share options is included in the Report of the Board to the
Members on Directors’ Remuneration on pages 27 to 32.
Average number of persons employed by the Group (including directors):
Technical
Sales and marketing
Administration
Staff costs of the Group during the year in respect of
employees and directors were:
Wages and salaries
Social security costs
Pension costs
Share based payments
2018
No.
236
92
42
370
2017
No.
242
99
46
387
2018
£’000
2017
£’000
15,957
16,739
1,800
100
1,206
1,726
172
1,844
19,063
20,481
The Group operates a stakeholder pension scheme and also contributes to a number of personal pension schemes on behalf
of executive directors and some senior employees. In the case of executive directors, details of the pension arrangements
are given within the Report of the Board to the Members on Directors’ Remuneration on pages 27 to 32. In the case of senior
employees, pension contributions to individuals’ personal pension arrangements are payable by the Group at a rate equal to
the contribution made by the senior employee subject to a maximum employer contribution of 5% of basic salary.
61
iomart Group plc Annual report and accounts 2018 6. ACQUISITION COSTS
Professional fees
Non-recurring integration costs:
-
Other
Total acquisition costs
Notes to the financial statements. Year ended 31 March 2018
2018
£’000
2017
£’000
774
-
774
99
5
104
During the year costs of £774,000 (2017: £99,000) were incurred in respect of professional fees on acquisitions and £nil (2017:
£5,000) other costs directly related to the integration of acquisitions into the Group were also incurred.
7. NET FINANCE COSTS
Finance income:
Bank interest receivable
Finance income for the year
Finance costs:
Bank loan
Finance leases
Other interest charges
Items affecting adjusted profit before tax calculation:
Mark to market interest adjustment
Finance charge on contingent consideration on business
combinations
Finance costs for the year
Net finance costs
8. DIVIDENDS ON SHARES CLASSED AS EQUITY
Paid during the year:
Interim dividend
Equity dividends on ordinary shares
Final dividend
Equity dividends on ordinary shares
2018
£’000
2017
£’000
13
13
22
22
(1,000)
(124)
(53)
(1,177)
(1,131)
(172)
(52)
(1,355)
46
(51)
84
(330)
(1,182)
(1,601)
(1,169)
(1,579)
2018
Pence per
share
2018
£’000
2017
Pence per
share
2017
£’000
2.25p
2,426
-
-
6.00p
6,459
3.15p
3,375
Total dividend paid
8,885
3,375
The directors have recommended a final dividend for the year ended 31 March 2018 of 4.93p per share (2017: 6.00p per
share). Subject to shareholder approval this proposed final dividend would be payable on 6 September 2018 to shareholders
on the register at close on 17 August 2018.
62
iomart Group plc Annual report and accounts 2018
Notes to the financial statements. Year ended 31 March 2018
9. TAXATION
Corporation Tax:
Tax charge for the year
Adjustment relating to prior years
Total current taxation charge
Deferred Tax:
Origination and reversal of temporary differences
Adjustment relating to prior years
Effect of different statutory tax rates of overseas jurisdictions
Effect of changes in tax rates
Total deferred taxation credit
2018
£’000
(4,364)
68
(4,296)
1,900
(15)
(70)
(29)
1,786
2017
£’000
(4,349)
(12)
(4,361)
1,751
227
27
(215)
1,790
Total taxation charge
(2,510)
(2,571)
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:
Profit before tax
Tax charge @ 19% (2017 – 20 %)
Expenses disallowed for tax purposes
Tax effect of net gain on revaluation of contingent consideration
Adjustments in current tax relating to prior years
Tax effect of different statutory tax rates of overseas jurisdictions
Movement in deferred tax relating to changes in tax rates
Tax effect of research and development tax reliefs
Tax effect of share based remuneration
Movement in unprovided deferred tax related to development costs
Movement in unprovided deferred tax related to property, plant and equipment
Movement in deferred tax relating to prior years
2018
£’000
2017
£’000
14,797
14,654
2,811
2,931
156
(254)
(68)
113
29
-
(231)
(68)
7
15
134
-
12
5
215
(326)
(151)
(13)
(9)
(227)
Total taxation charge for the year
2,510
2,571
The weighted average applicable tax rate for the year ended 31 March 2018 was 19% (2017: 20%). The total current corporation
tax charge for the year of £4,364,000 (2017: £4,349,000) on operations represents 29.5% (2017: 29.7%) of the Group profit
before tax of £14,797,000 (2017: £14,654,000). 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 17.0% (2017: 17.5%). The net decrease of 0.5% is due to a combination of movements
that have increased or decreased the tax charge in the year.
The decrease to the tax charge in the year is a result of the deduction in relation to tax effect of the net gain on revaluation
of contingent consideration, the increase in the tax effect of share based remuneration in the current year largely due to the
increase in share price and the movement in deferred tax relating to change in tax rates as the change in future corporation tax
rates was processed in the prior year.
The increase to the tax charge in the year is due to there being no tax deduction in the current year in respect of research
and development tax relief as the Group has moved into the large company scheme and applied a research and development
credit to profit before tax, the effect of different tax rates of overseas jurisdictions has increased deferred tax assets due to the
reduction of the US tax rate from 34% to 21% with effect from 1 January 2018 and the movement in deferred tax relating to
prior years.
Disallowed expenses of £156,000 largely relate to M&A costs incurred on the acquisitions in the year.
A number of changes to the UK Corporation tax system were announced in the March 2016 Budget Statement with the main
rate of corporation tax reduced from 18% to 17% from 1 April 2020. These changes were substantively enacted in the prior year
and therefore are included in these financial statements.
63
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
10. DEFERRED TAX
The Group recognised deferred tax assets and liabilities as follows:
2018
2017
Deferred
tax
Recognised
£’000
Deferred tax
Unrecognised
£’000
Deferred
tax
Recognised
£’000
Deferred tax
Unrecognised
£’000
Share based remuneration
Capital allowances temporary differences
Deferred tax on development costs
Deferred tax on acquired assets with no capital allowances
Deferred tax on customer relationships
Deferred tax on intangible software
Deferred tax liability
1,588
1,455
(329)
(235)
(3,581)
(217)
(1,319)
-
-
-
-
-
-
-
1,135
1,181
(311)
(326)
(2,567)
-
(888)
-
-
-
-
-
-
-
At the year end, the Group had no unused tax losses (2017: £nil) available for offset against future profits.
The movement in the deferred tax account during the year was:
Share based
remuneration
£’000
Capital
allowances
temporary
differences
£’000
Development
costs
£’000
Deferred
tax on
acquired
assets with
no capital
allowances
£’000
Customer
relationships
£’000
Intangible
Software
£’000
Total
£’000
Balance at 1 April 2016
1,010
1,103
(195)
(442)
(3,551)
Acquired on acquisition of
subsidiary
Charged to equity
Credited/(charged) to
statement of comprehensive
income
Effect of different tax rates of
overseas jurisdictions
Effect of changes in tax rates
-
(392)
546
-
(29)
Balance at 31 March 2017
1,135
Acquired on acquisition of
subsidiary
Credited to equity
Credited/(charged) to
statement of comprehensive
income
Effect of different tax rates of
overseas jurisdictions
Effect of changes in tax rates
-
143
310
-
-
Balance at 31 March 2018
1,588
(14)
-
321
-
(229)
1,181
(1)
-
304
-
(29)
1,455
-
-
-
-
(186)
-
(116)
108
1,108
-
-
-
8
27
35
(311)
(326)
(2,567)
-
-
-
-
-
-
-
(2,075)
(200)
(392)
1,967
27
(215)
(888)
-
-
(18)
-
-
-
-
91
-
-
(2,144)
(217)
(2,362)
-
1,200
(70)
-
-
-
-
-
143
1,887
(70)
(29)
(329)
(235)
(3,581)
(217)
(1,319)
The deferred tax asset in relation to share based remuneration arises from the anticipated future tax relief on the exercise of
share options.
The deferred tax on capital allowances temporary differences arises mainly from plant and equipment in the Cloud Services
segment where the tax written down value varies from the net book value.
The deferred tax on development costs arises from development expenditure on which tax relief is received in advance of the
amortisation charge.
The deferred tax on acquired assets arises from datacentre equipment acquired through the acquisition of iomart Datacentres
Limited on which depreciation is charged but on which there are no capital allowances available.
The deferred tax on customer relationships and intangible software arises from temporary differences on acquired intangible
assets.
64
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
11. ACQUISITIONS
Dediserve Limited
The Group acquired 100% of the issued share capital of Dediserve Limited, (“Dediserve”) on 17 May 2017 for €7.9m on a no
debt, no cash, normalised working capital basis.
Dediserve is a company registered in the Republic of Ireland and is based in Dublin, which provides cloud hosting services
to over 1,500 customers from 10 locations world-wide. The acquisition is in line with the Group’s strategy to grow its hosting
operations both organically and by acquisition. It also provides the Group with an additional European Union place of operation.
The Group incurred £431,000 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 2018.
The following table summarises the consideration to acquire Dediserve and the amounts of identified assets acquired and
liabilities assumed at the acquisition date,which are final:
Recognised amounts of net assets acquired and liabilities assumed:
Cash and cash equivalents
Trade and other receivables
Property, plant and equipment
Intangible assets
Trade and other payables
Borrowings
Current income tax liabilities
Deferred tax liability
Identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash – paid on acquisition
Deferred consideration - paid
Deferred consideration – paid
Total consideration transferred
£’000
250
99
791
3,680
(290)
(283)
(120)
(588)
3,539
3,130
6,669
6,485
98
86
6,669
The share purchase agreement, in respect of the acquisition of Dediserve, includes a provision, under which the total
consideration payable was 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 €7,800,000 (£6,700,000) in cash and in addition an amount of €250,000
(£215,000) was deducted 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 an additional payment of €113,000 (£98,000) was
paid in respect of the no debt, no cash, normalised working capital adjustment. An amount of €100,000 (£86,000) was deferred
and paid 6 months after the completion date in November 2017. The initial payment of €7,550,000 (£6,485,000) was funded by
a draw down from the revolving credit facility of £6,485,000.
65
iomart Group plc Annual report and accounts 2018
Notes to the financial statements. Year ended 31 March 2018
11. ACQUISITIONS (CONTINUED)
Dediserve Limited (continued)
The goodwill arising on the acquisition of Dediserve is attributable to the premium payable for a pre-existing, well positioned
business and the specialised, industry specific knowledge of the management and staff, together with the benefits to the Group
in merging the business with its existing infrastructure and the anticipated future operating synergies from the combination.
The goodwill is not expected to be deductible for tax purposes.
Dediserve did not promote or advertise its trade name or brand and the bulk of its new business comes either directly from
existing customers or from referrals or recommendations by existing customers or from marketing campaigns associated with
the launch of a new location. Dediserve’s privacy policy includes a commitment not to disclose any personal information it holds
on customers unless the customer’s permission is given. As a consequence, there is no significant value in either the trade
name/brand or customer lists acquired at the acquisition date and therefore no value has been attributed to either intangible
asset.
The fair value of the financial assets acquired includes trade receivables with a fair value of £51,000. The gross amount due
under contracts is £51,000 of which £nil are expected to be uncollectable.
The fair value included in respect of the acquired customer relationships intangible asset is £3,680,000.
To estimate the fair value of the customer relationships intangible asset, a discounted cash flow method, specifically the income
approach, was used with reference to the directors’ estimates of the level of revenue, which will be generated from them. A
post-tax discount rate of 13.6% was used for the valuation. Customer relationships are being amortised over an estimated
useful life of 8 years.
Dediserve earned revenue of £2,453,000 and generated profits, before allocation of group overheads, third party acquisition
related costs and tax of £799,000 in the period since acquisition.
Tier 9 Limited
The Group acquired 100% of the issued share capital of Tier 9 Limited (“Tier 9”) on 26 July 2017. Tier 9 Limited is a non-trading
holding company with two 100% owned subsidiaries: Cloudfuel Limited, which is also non-trading, and Simple Servers Limited
(which trades as “Simple Servers”).
Simple Servers is a Redditch based hosting company, which specialises in providing hosting solutions for the Magento eCommerce
application which is used extensively by online retailers. This is hosted on various cloud platforms for all sectors of industry from
SMEs to larger enterprises. The acquisition is in line with the Group’s strategy to grow its operations both organically and by
acquisition and gives the group access to a rapidly growing eCommerce market.
During the current period the Group incurred £106,000 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 2018.
66
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
11. ACQUISITIONS (CONTINUED)
Tier 9 Limited (continued)
The following table summarises the consideration to acquire Tier 9 and the amounts of identified assets acquired and liabilities
assumed at the acquisition date, which are final.
Recognised amounts of net assets acquired and liabilities assumed:
Cash and cash equivalents
Trade and other receivables
Property, plant and equipment
Intangible assets
Trade and other payables
Current income tax liabilities
Deferred tax liability
Identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash – paid on acquisition
Deferred consideration – paid
Contingent consideration - payable
Total consideration to be transferred
£’000
469
117
156
1,821
(287)
(94)
(363)
1,819
3,331
5,150
3,039
370
1,741
5,150
The share purchase agreement, in respect of the acquisition of Tier 9, 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 normalised 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 Tier 9 was £3,039,000 in cash. Following agreement of the Completion Accounts
a total payment of £370,000 was due by the Company in respect of the no debt, no cash, normalised working capital adjustment
and this amount was paid in cash in October 2017.
The contingent consideration arrangements require the Company to pay the former shareholders of Tier 9 an additional amount
contingent on the level of profitability delivered by Simple Servers in the year ended 31 March 2018 (“the Earn-out Payment”).
The potential undiscounted amount of the Earn-out Payment that the Company could be required to pay is between £nil and
£2,961,000. The amount of contingent consideration payable which was recognised as of the acquisition date was £1,741,000.
The level of profitability for the Earn-out Payment was estimated by applying the income approach to different scenarios
based on historic performance and forecasts. Those scenarios reviewed had a range of outcomes for the amount of the Earn-
out Payment of £1,046,000 to £2,339,000. A weighted average, based on management estimates of the probability of the
achievement of the various levels of profitability, was then calculated to give the expected outcome of the amount of the Earn-
out Payment of £1,741,000. The contingent consideration has now been agreed at £1,862,000 and £1,800,000 was paid in June
2018 with the balance due in September 2018. Consequently an amount of £121,000 has been recognised in the Statement
of Comprehensive Income during the year as a loss on revaluation of contingent consideration.
The initial payment of £3,039,000 was funded by a draw down from the revolving credit facility of £3,000,000.
The goodwill arising on the acquisition of Tier 9 is attributable to the premium payable for a pre-existing, well positioned business
and the specialised, industry specific knowledge of the management and staff, together with the benefits to the Group in merging
the business with its existing infrastructure and the anticipated future operating synergies from the combination. The goodwill
is not expected to be deductible for tax purposes.
Although the name Simple Servers is trademarked, it is not actively advertised or promoted and the bulk of Simple Servers’
new business comes either directly from existing customers, from referrals or recommendations by existing customers or from
the company’s presence on Magento forums. Simple Servers privacy policy includes a commitment not to sell, distribute or
lease any personal information it holds on customers unless the customer’s permission is given. As a consequence there is no
significant value in either the trade name/brand or customer lists acquired at the acquisition date and therefore no value has
been attributed to either intangible asset.
67
iomart Group plc Annual report and accounts 2018
Notes to the financial statements. Year ended 31 March 2018
11. ACQUISITIONS (CONTINUED)
Tier 9 Limited (continued)
The fair value of the financial assets acquired includes trade receivables with a fair value of £77,000. The gross amount due un-
der contracts is £77,000 of which £nil are expected to be uncollectable.
The fair value included in respect of the acquired customer relationships intangible asset is £1,821,000.
To estimate the fair value of the customer relationships intangible asset, a discounted cash flow method, specifically the income
approach, was used with reference to the directors’ estimates of the level of revenue, which will be generated from them. A
post-tax discount rate of 12.7% was used for the valuation. Customer relationships are being amortised over an estimated
useful life of 8 years.
Simple Servers earned revenue of £1,123,000 and generated profits, before allocation of group overheads, share based pay-
ments and tax, of £546,000 in the period since acquisition.
Sonassi Holding Company Limited
The Group acquired 100% of the issued share capital of Sonassi Holding Company Limited (“Sonassi Holding”) on 17 November
2017. Sonassi Holding is a non-trading holding company, which has a 100% owned subsidiary company, Sonassi Limited (which
trades as “Sonassi”).
Sonassi is a Manchester based hosting company, which, like Simple Servers, specialises in providing hosting solutions for the
Magento eCommerce application. The acquisition is in line with the Group’s strategy to grow its operations, both organically and
by acquisition, and increases the group access to the rapidly growing eCommerce market.
During the current period the Group incurred £197,000 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 2018.
Recognised amounts of net assets acquired and liabilities assumed (provisional):
Cash and cash equivalents
Trade and other receivables
Property, plant and equipment
Intangible assets
Trade and other payables
Current income tax liabilities
Deferred tax liability
Identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash – paid on acquisition
Deferred consideration – paid
Contingent consideration – payable
Total consideration to be transferred
£’000
3,434
386
329
7,646
(874)
(329)
(1,411)
9,181
7,376
16,557
13,217
1,000
2,340
16,557
The acquisition of Sonassi Holdings was completed using the “locked box” mechanism, on a no cash, no debt, normalised
working capital basis. An initial payment of £13,217,000 was made at completion. This initial payment included an amount
of £3,217,000 to settle the adjustments required to the locked box accounts in respect of the cash, debt and working capital
position at the locked box date and to compensate the seller for changes in net debt or cash between the locked box date
and completion. An additional amount of £1,000,000 was deferred, pending the completion of an upgrade of the software on
which Sonassi’s provisioning and customer management systems are based, and this amount was paid on 15 February 2018,
following completion of the upgrade.
68
iomart Group plc Annual report and accounts 2018
Notes to the financial statements. Year ended 31 March 2018
11. ACQUISITIONS (CONTINUED)
Sonassi Holding Company Limited (continued)
The share purchase agreement included a provision requiring the Company to pay the former shareholders of Sonassi Holdings
an additional amount contingent on the level of profitability delivered by Sonassi in the year ending 31 July 2018 (“the Earn-out
Payment”).
The potential undiscounted amount of the Earn-out Payment that the Company could be required to pay is between £nil
and £5,465,000. The amount of contingent consideration payable, which was recognised as of the acquisition date, was
£2,340,000. The level of profitability for the Earn-out Payment was estimated by applying the income approach to different
scenarios based on historic performance and forecasts. Those scenarios reviewed had a range of outcomes for the amount of
the Earn-out Payment of £461,000 to £4,309,000. A weighted average, based on management estimates of the probability of
the achievement of the various levels of profitability, was then calculated to give the expected outcome of the amount of the
Earn-out Payment of £2,340,000. We expect the amount to be paid in respect of the final contingent consideration due will be
£832,000. Consequently an amount of £1,508,000 has been recognised in the Statement of Comprehensive Income during the
year as a gain on revaluation of contingent consideration.
The goodwill arising on the acquisition of Sonassi Holdings is attributable to the premium payable for a pre-existing, well
positioned business and the specialised, industry specific knowledge of the management and staff, together with the benefits
to the Group in merging the business with its existing infrastructure and the anticipated future operating synergies from the
combination. The goodwill is not expected to be deductible for tax purposes.
The name Sonassi is not actively advertised or promoted and the bulk of Sonassi’s new business comes either directly from
existing customers, from referrals or recommendations by existing customers or from the company’s presence on Magento
forums. Sonassi’s privacy policy includes a commitment not to sell, distribute or lease any personal information it holds on
customers unless the customer’s permission is given. As a consequence there is no significant value in either the trade name/
brand or customer lists acquired at the acquisition date and therefore no value has been attributed to either intangible asset.
The fair value of the financial assets acquired includes trade receivables with a fair value of £275,000. The gross amount due
under contracts is £275,000 of which £nil are expected to be uncollectable.
The fair value included in respect of the acquired customer relationships intangible asset is £6,403,000.
To estimate the fair value of the customer relationships intangible asset, a discounted cash flow method, specifically the income
approach, was used with reference to the directors’ estimates of the level of revenue, which will be generated from them. A
post-tax discount rate of 10.4% was used for the valuation. Customer relationships are being amortised over an estimated
useful life of 8 years.
Sonassi has developed its own software, Magestack, for the provisioning of customers’ sites, to provide a control panel for
customers and for billing and customer management. To estimate the fair value of this intangible asset, a discounted cash
flow method, specifically the relief from royalty approach, was used with reference to the directors’ estimates of the level of
future cost savings, which will be generated by the use of the company’s own software rather than 3rd party software, for which
licence fees would be payable. A post-tax discount rate of 10.4% was used for the valuation. Software is being amortised over
an estimated useful life of 8 years.
Sonassi earned revenue of £892,000 and generated profits, before allocation of group overheads, share based payments and
tax, of £704,000 in the period since acquisition.
69
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
11. ACQUISITIONS (CONTINUED)
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 2017.
The amounts include the results of the acquired business, depreciation and amortisation of the acquired property, plant and
equipment and intangible assets recognised on acquisition. The amounts do not include any possible synergies from the
acquisition. The information is provided for illustrative purposes only and does not necessarily reflect the actual results that
would have occurred, nor is it necessarily indicative of the future results of combined companies.
Revenue
Profit after tax for the year
12. EARNINGS PER ORDINARY SHARE
Pro-forma year
ended 31 March
2018
£’000
100,016
12,381
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
Profit for the financial year and basic earnings attributed to
ordinary shareholders
Weighted average number of ordinary
shares:
Called up, allotted and fully paid at start of year
Own shares held in Treasury
Own shares held by Employee Benefit Trust
Issued share capital in the year
Weighted average number of ordinary shares - basic
Dilutive impact of share options
Weighted average number of ordinary
shares - diluted
Basic earnings per share
Diluted earnings per share
2018
£’000
2017
£’000
12,287
12,083
No
'000
No
'000
107,803
107,803
(28)
(141)
70
(465)
(141)
-
107,704
107,197
1,857
1,808
109,561
109,005
11.41 p
11.21 p
11.27 p
11.08 p
70
iomart Group plc Annual report and accounts 2018
Notes to the financial statements. Year ended 31 March 2018
12. EARNINGS PER ORDINARY SHARE (CONTINUED)
Adjusted earnings per share
Profit for the financial year and basic earnings attributed to ordinary shareholders
-
-
-
Amortisation of acquired intangible assets
Acquisition costs
Share based payments
- Mark to market interest adjustment
- Gain on revaluation of contingent consideration
- Non-recurring software licence fees
-
-
Finance charge on contingent consideration
Tax impact of adjusted items
Adjusted profit for the financial year and adjusted earnings
attributed to ordinary shareholders
Adjusted basic earnings per share
Adjusted diluted earnings per share
2018
£’000
2017
£’000
12,287
12,083
6,449
774
1,206
(46)
(1,335)
2,143
51
5,558
104
1,844
(84)
-
-
330
(1,850)
(1,313)
19,679
18,522
18.27 p
17.96 p
17.28 p
16.99 p
71
iomart Group plc Annual report and accounts 2018 13. INTANGIBLE ASSETS
Cost
At 1 April 2016
Additions
Currency translation differences
Acquired on acquisition of subsidiaries
Development cost capitalised
At 31 March 2017
Additions
Currency translation differences
-
-
877
-
62,000
-
-
Acquired on acquisition of subsidiaries
13,837
Disposals
Development cost capitalised
At 31 March 2018
-
-
75,837
Notes to the financial statements. Year ended 31 March 2018
Goodwill Development
costs
Customer
relationships Software
Beneficial
contracts
Domain
names & IP
addresses
£’000
£’000
£’000
£’000
£’000
£’000
Total
£’000
61,123
4,832
34,882
-
-
-
1,372
6,204
-
-
-
-
1,577
7,781
3,137
1,670
40
-
-
86
280
104,340
-
-
-
-
-
-
-
-
1,670
141
1,859
1,372
101
982
-
35,965
4,847
86
280
109,382
221
(91)
905
(42)
11,904
1,243
-
-
(10)
-
-
-
-
-
-
-
-
-
-
-
1,126
(133)
26,984
(10)
1,577
47,999
6,943
86
280
138,926
Accumulated amortisation:
At 1 April 2016
Currency translation differences
Charge for the year
At 31 March 2017
Currency translation differences
Disposals
Charge for the year
At 31 March 2018
Carrying amount:
-
-
-
-
-
-
-
-
(3,194)
(15,308)
(1,453)
-
(989)
(77)
(5,551)
(29)
(815)
(4,183)
(20,936)
(2,297)
-
-
82
-
(27)
10
(1,241)
(6,449)
(801)
(5,424)
(27,303)
(3,115)
At 31 March 2018
75,837
2,357
20,696
3,828
At 31 March 2017
62,000
2,021
15,029
2,550
(26)
-
(7)
(33)
-
-
(8)
(41)
45
53
(171)
(20,152)
-
(106)
(55)
(7,417)
(226)
(27,675)
-
-
55
10
(54)
(8,553)
(280)
(36,163)
-
102,763
54
81,707
Of the total additions in the year of £1,126,000 (2017: £1,670,000), £25,000 (2017: £122,000) was included in trade payables as
unpaid invoices at the year end resulting in a net cash outflow of £97,000 (2017: net cash outflow £175,000) in trade payables.
Consequently, the consolidated statement of cash flows discloses a figure of £1,223,000 (2017: £1,845,000) 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.
Included within customer relationships are the following significant items: customer relationships in relation to the acquisitions
of Sonassi Limited with a net book value of £5.7m and a remaining useful life of 8 years, Dediserve Limited with a net book value
of £2.8m and a remaining useful of 8 years, Simple Servers Limited with an net book value of £1.4m and a remaining useful life
of 8 years, Backup Technology with a net book value of £2.8m and a remaining useful life of 4 years; United Hosting with a net
book value of £3.2m and a remaining useful life of 6 years; Melbourne Server Hosting with a net book value of £1.4m and a
remaining useful life of 3 years; and ServerSpace with a net book value of £1.3m and remaining useful life of 5 years.
During the year, goodwill was reviewed for impairment in accordance with IAS 36 “Impairment of Assets”. No impairment
charges (2017: £nil) arose as a result of this review. For this review goodwill was allocated to individual Cash Generating Units
(CGU) on the basis of the Group’s operations. The goodwill acquired in the year on all acquisitions has been allocated to the
Hosting CGU as this is the CGU expected to benefit from the business combination.
72
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
13. INTANGIBLE ASSETS (CONTINUED)
The carrying value of goodwill by each CGU is as follows:
Cash Generating Units (CGU)
Easyspace
Cloud Services
2018
£’000
23,315
52,522
75,837
2017
£’000
(restated)*
23,210
38,790
62,000
The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow
projections based on financial budgets approved by the Board covering a two-year period. These projections are the result of
detailed planning and assume similar levels of organic growth as the Group has experienced in the previous year unless there
is a reason to alter historic growth rates and also full year contributions from acquisitions.
The growth rates and margins used to extrapolate estimated future performance in the 3 years after the initial 2 year period
continue to be based on past growth performance adjusted downwards to take into account the additional risk due to the
passage of time. The growth rate does not exceed the long-term average growth rate for the business in which the CGU
operates. The growth rates used to estimate future performance beyond the periods covered by the annual and strategic
planning processes do not exceed the long-term average growth rates for similar products.
The assumptions used for the CGU included within the impairment reviews are as follows:
Discount rate
Average growth rate in years 3 to 5
Future perpetuity rate
Initial period for which cash flows are estimated (years)
Easyspace Cloud Services
10.4%
2.5%
2.0%
2
9.7%
2.5%
2.0%
2
Based on an analysis of the impairment calculation’s sensitivities to changes in key parameters (growth rate, discount rate and
pre-tax cash flow projections) there was no reasonably possible scenario where the CGU’s recoverable amount would fall below
its carrying amount.
*As noted in note 3, in the current year the Group now includes the non-recurring cash generating unit relating to Cristie Data
reported in the prior year as part of Cloud Services cash generating unit, consequently, the prior year has been restated to
reflect this change. Prior to restatement, the Cloud Services cash generating unit in 2017 was £37,913,000.
14. LEASE DEPOSITS
The lease deposits of £2,760,000 (2017: £2,760,000) are made up of a rental deposit of £784,000 (2017: £784,000) and a
reinstatement deposit of £1,976,000 (2017 £1,976,000). The rental and reinstatement deposits are due to be repaid at the end
of the lease which at the earliest is July 2020.
The Group is due to receive interest on the lease deposits at the prevailing market rate and therefore they have not been
discounted.
73
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
15. SUBSIDIARIES
The following are subsidiaries and have all been consolidated in the Group financial statements:
Country of
registration
and
operation
Activity
Ordinary share capital
Owned by
the company
%
Owned by
subsidiary
undertakings
%
Backup Technology Holdings Limited
England
Dormant
Backup Technology Limited
Cloudfuel Limited
Cristie Data Limited
Dediserve Limited
Easyspace Limited
EQSN Limited
Global Gold Holdings Limited
Global Gold Network Limited
Internet Engineering Limited
Internetters Limited
iomart Cloud Inc
England
Dormant
England
Non-trading
England
Provision of data storage, backup
and virtualisation solutions
Republic of
Ireland
Managed hosting services
England
Webservices
Scotland
Non-trading
England
Non-trading
England
Non-trading
England
Non-trading
England
Dormant
USA
Managed hosting services
iomart Cloud Services Limited
Scotland
Managed hosting services
iomart Datacentres Limited
iomart Development Limited
iomart Hosting Limited
iomart Limited
England
Non-trading
Scotland
Dormant
Scotland
Managed hosting services
Scotland
Dormant
iomart Virtual Servers Hosting Limited
Scotland
Dormant
Melbourne Server Hosting Limited
England
Managed hosting services
My Documents Limited
Netintelligence Limited
NicNames Limited
England
Dormant
Scotland
Dormant
England
Dormant
Open Minded Solutions Limited
England
Non-trading
Rapidswitch Limited
Redstation Limited
ServerSpace Limited
Simple Servers Limited
Skymarket Limited
England
Dormant
England
Non-trading
England
Managed hosting services
England
Managed hosting services
England
Dormant
Sonassi Holding Company Limited
England
Non-trading
Sonassi Limited
England
Managed hosting services
Switch Media (Ireland) Limited
Switch Media Limited
Systems Up Limited
Tier 9 Limited
Titan Internet Limited
England
Webservices
England
Webservices
England
Consultancy services
England
Non-trading
England
Dormant
United Communications Limited
England
Webservices
Web Genie Internet Limited
England
Dormant
100
-
-
100
100
100
100
100
-
100
-
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
-
100
100
-
-
100
100
100
100
100
-
-
100
100
-
-
-
-
-
100
-
100
-
-
-
-
-
-
-
-
-
-
100
-
-
-
-
100
-
-
100
100
-
-
-
-
-
100
74
iomart Group plc Annual report and accounts 2018
Notes to the financial statements. Year ended 31 March 2018
16. PROPERTY, PLANT AND EQUIPMENT
Freehold
property
Leasehold
improve-
ments
Datacentre
equipment
Computer
equipment
Office
equipment
Motor
vehicles
£’000
£’000
£’000
£’000
£’000
£’000
Total
£’000
2,062
7,323
20,472
47,242
2,356
68
79,523
-
-
-
-
68
11
-
9,690
206
(61)
125
89,483
16,682
1,276
(48)
(1,746)
-
59
31 105,754
(55)
(13)
(43,478)
(10,972)
-
-
61
(45)
(1)
48
-
(12,536)
1,744
158
(21)
(65,068)
Cost:
At 1 April 2016
Additions in the year
Acquisition of subsidiaries
Disposals in the year
Currency translation differences
At 31 March 2017
Additions in the year
Acquisition of subsidiaries
Disposals in the year
Currency translation differences
697
8,115
-
-
-
-
647
-
(3)
-
-
-
-
2,062
7,967
21,169
-
-
-
-
767
-
(194)
-
1,511
-
-
-
179
(58)
125
55,603
14,297
1,275
(1,191)
59
231
27
-
-
2,614
96
1
(313)
-
2,398
At 31 March 2018
2,062
8,540
22,680
70,043
Accumulated depreciation:
At 1 April 2016
Charge for the year
Disposals in the year
Currency translation differences
At 31 March 2017
Charge for the year
Disposals in the year
Currency translation differences
(191)
(67)
-
-
(258)
(48)
-
-
(2,337)
(440)
3
-
(2,774)
(556)
192
-
(7,939)
(1,824)
(31,585)
(8,370)
(1,371)
(258)
-
-
(9,763)
(1,984)
-
(8)
58
(45)
-
-
(9,538)
1,191
166
(409)
313
-
At 31 March 2018
(306)
(3,138)
(11,755)
(48,123)
(1,725)
(39,942)
(1,629)
(68)
(54,434)
Carrying amount:
At 31 March 2018
1,756
5,402
10,925
21,920
At 31 March 2017
1,804
5,193
11,406
15,661
673
985
10
40,686
-
35,049
The net book value of computer equipment held under finance lease at 31 March 2018 was £234,000 (2017: £546,000) and the
net book value of datacentre equipment held under finance lease at 31 March 2018 was £375,000 (2017: £456,000).
Of the total additions in the year of £16,682,000 (2017: £9,690,000), £1,846,000 (2017: £1,256,000) was included in trade
payables as unpaid invoices at the year end resulting in a net increase of £590,000 (2017: net decrease of £499,000) in trade
payables. Consequently, the consolidated statement of cash flows discloses a figure of £16,092,000 (2017: £10,189,000) as the
cash outflow in respect of property, plant and equipment additions in the year.
75
iomart Group plc Annual report and accounts 2018
17. TRADE AND OTHER RECEIVABLES
Trade receivables
Less: Provision for impairment
Trade receivables (net)
Other receivables
Prepayments
Accrued income
Notes to the financial statements. Year ended 31 March 2018
2018
£’000
7,334
(799)
6,535
500
10,152
771
2017
£’000
7,157
(1,121)
6,036
553
7,889
602
Trade and other receivables
17,958
15,080
The carrying amount of trade and other receivables approximates to their fair value, which has been calculated based on
expectations of debt recovery from historic performances feeding into impairment provision calculations. Some of the higher
value trade receivables in the Cloud Services segment are reviewed individually for impairment and judgement made as to any
likely impairment based on historic trends and the latest communication with specific customers.
The balance of trade receivables in the Group are individually small in terms of value, so are considered for impairment by
business unit specific provision calculations and are not individually impaired.
To consider the total exposure to credit risks, the Group uses figures net of VAT. At 31 March 2018, £4,922,000 (2017:
£4,118,000) of net trade receivables were fully performing. Net trade receivables of £1,613,000 (2017: £1,918,000) were past
due, but not impaired. The credit quality of financial assets that are neither past due or impaired can be assessed by reference
to the customer type. Trade receivables consist of a large number of customers in various industries and geographical areas.
The Group is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties
having similar characteristics. The aging below shows that almost all are less than three months old and historic performance
indicates a high probability of payment for debts in this aging. Those over three months relate to customers without history of
default for which there is a reasonable expectation of recovery.
Up to 3 months
Over 3 months but less than 6 months
Over 6 months but less than 1 year
2018
£’000
1,412
42
159
2017
£’000
1,887
-
31
Total unimpaired trade receivables which are past due
1,613
1,918
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at start of the year
(Decrease)/increase in provision for receivables impairment
Fair value of trade receivable provision acquired during the year
Balance at end of year
2018
£’000
1,121
(322)
-
799
2017
£’000
850
267
4
1,121
The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
18. CASH AND CASH EQUIVALENTS
Cash at bank and on hand
Cash and cash equivalents
2018
£’000
9,495
9,495
2017
£’000
8,906
8,906
The credit risk on cash and cash equivalents is considered to be negligible because the counter parties are UK banking
institutions. The effective interest rate earned on short term deposits was 0.35% (2017: 0.33%).
76
iomart Group plc Annual report and accounts 2018
Notes to the financial statements. Year ended 31 March 2018
19. TRADE AND OTHER PAYABLES
Trade payables
Other taxation and social security
Accruals
Deferred income
Other creditors
Trade and other payables
2018
£’000
(10,451)
(2,038)
(6,272)
(10,232)
(152)
2017
£’000
(5,958)
(2,385)
(6,660)
(8,257)
(108)
(29,145)
(23,368)
The carrying amount of trade and other payables approximates to their fair value. Trade payables and accruals are non-
interest bearing and generally mature within three months.
20. NON-CURRENT TRADE AND OTHER PAYABLES
Trade payables
Non-current trade and other payables
21. CONTINGENT CONSIDERATION
Contingent consideration due on acquisitions within one year:
-
-
Sonassi Holding Company Limited
Tier 9 Limited
- United Communications Limited
2018
£’000
-
-
2017
£’000
(102)
(102)
2018
£’000
2017
£’000
(832)
(1,862)
-
-
-
(2,373)
Total contingent consideration due on acquisitions
(2,694)
(2,373)
77
iomart Group plc Annual report and accounts 2018 22. BORROWINGS
Current:
Obligations under finance leases
Bank loans
Current borrowings
Non-current:
Obligations under finance leases
Bank loans
Total non-current borrowings
Total borrowings
Notes to the financial statements. Year ended 31 March 2018
2018
£’000
2017
£’000
(327)
(233)
(35,239)
(18,639)
(35,566)
(18,872)
(503)
-
(503)
(625)
-
(625)
(36,069)
(19,497)
The carrying amount of borrowings approximates to their fair value.
The obligations under finance leases are secured by the related assets and are repayable as follows:
Due within one year
Due between two and five years
Due after more than five years
2018
Capital
Interest
£’000
£’000
327
503
-
830
71
111
-
182
Total
£’000
398
614
-
1,012
2017
Capital
Interest
£’000
£’000
Total
£’000
314
711
87
81
170
3
254
1,112
233
541
84
858
The Group in its ordinary course of business enters into hire purchase and finance lease agreements to fund or re-finance the
purchase of computer equipment and software. The lease agreements are typically for periods of 2 to 3 years and do not have
contingent rent or escalation clauses. The agreements have industry standard terms and do not contain any restrictions on
dividends, additional debt or further leasing.
The finance lease liability has an effective interest rate of 11.4% (2017: 11.2%). Lease payments are made on a monthly and
quarterly basis. The future lease obligation of £1,012,000 (2017: £1,112,000) has a present value of £830,000 (2017: £858,000).
At the start of the year there was £18.6m (2017: £34.5m) outstanding on the multi option revolving credit facility and drawdowns
of £25.0m (2017: £nil) were made from the facility during the year. Repayments totalling £8.5m (2017: £16.0m) were made
resulting in a balance outstanding at the end of the year of £35.2m (2017: £18.6m).
The £60m multi option revolving credit facility was able to be used by the Group to finance acquisitions, capital expenditure,
general business purposes and for the issue of guarantees, bonds or indemnities. The facility was available until June 2019 at
which point any advances made under the multi option revolving credit facility would have become immediately repayable. Each
draw down made under this facility could be for either 3 or 6 months and could either be repaid or continued at the end of the
period. Interest was charged on this loan at an annual rate determined by the sum of the multi option revolving credit facility
margin, LIBOR and the lender’s mandatory costs. The multi option revolving credit facility margin was fixed at 1.7% per annum
and a non-utilisation fee of 40% of the multi option revolving credit facility margin was due on any undrawn portion of the full
£60m multi option revolving credit facility. The effective interest rate for multi option revolving credit facility in the current year
was 2.70% (2017: 3.32%). Post the end of the financial year, the Group has entered into a replacement multi option revolving
facility for an amount of £80m which is available until June 2022, see post balance sheet events note 31.
78
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
22. BORROWINGS (CONTINUED)
The future loan obligations of £35,399,000 (2017: £18,722,000) equate to a present value of £34,457,000 (2017: £18,315,000).
The capital element of the bank loans is £35,239,000 (2017: £18,639,000) and this differs from the net amount drawn down of
£34,956,000 (2017: £18,500,000) due to an effective interest rate adjustment.
The obligations under the multi option revolving credit facility and term loan facility are repayable as follows:
Due within one year
Due between two and five years
Analysis of change in net cash/(debt)
Capital
£’000
35,239
-
35,239
2018
Interest
£’000
160
-
160
Total
£’000
35,399
-
35,399
Capital
£’000
18,639
-
18,639
2017
Interest
£’000
83
-
83
Total
£’000
18,722
-
18,722
Cash
and cash
equivalents
£’000
Finance
leases
and hire
purchase
£’000
Bank
loans
£’000
Total
liabilities
Total net
cash/
(debt)
£’000
At 1 April 2016
10,341
(34,525)
(1,399)
(35,924)
(25,583)
Repayment of bank loans
Impact of effective interest rate
Acquired on acquisition of subsidiary
Currency translation differences
Cash flow
At 31 March 2017
Repayment of bank loans
New bank loans
Impact of effective interest rate
Acquired on acquisition of subsidiaries
Currency translation differences
Cash flow
At 31 March 2018
23. PROVISIONS
-
-
3,104
-
(4,539)
8,906
-
-
-
4,153
-
(3,564)
9,495
16,000
(114)
-
-
-
(18,639)
8,500
(24,956)
(144)
-
-
-
(35,239)
-
-
-
(39)
580
(858)
-
-
283
21
(276)
(830)
16,000
(114)
-
(39)
580
(19,497)
8,500
(24,956)
(144)
283
21
(276)
(36,069)
16,000
(114)
3,104
(39)
(3,959)
(10,591)
8,500
(24,956)
(144)
4,436
21
(3,840)
(26,574)
The Group has made provision for the reinstatement of certain leasehold properties and after initial measurement, any sub-
sequent adjustments to reinstatement provisions will be recorded against the original amount included in leasehold improve-
ments with a corresponding adjustment to future depreciation charges.
Upon the acquisition of ServerSpace, the Group recognised an onerous lease provision for excess datacentre capacity based on
the contracted future lease rental obligations relating to datacentre capacity that is no longer required.
As noted on page 15, the Group has made a provision for non-recurring software licence fees relating to prior years of £2.1m,
together with the current year charge of £0.5m gives a total provision of £2.6m.
The directors consider the carrying values of the provisions to approximate to their fair values as they have been discounted.
Current:
Non-recurring software licence fees
Onerous lease
Total current provisions
Non-current:
Reinstatement
Total non-current provisions
Total borrowings
79
2018
£’000
2017
£’000
(2,587)
-
(2,587)
-
(38)
(38)
(1,775)
(1,775)
(1,721)
(1,721)
(4,362)
(1,759)
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
23. PROVISIONS (CONTINUED)
The movement in the provisions during the year was as follows:
Reinstatement
2018
Onerous
Non-
recurring
software
licence fees
Total
Reinstatement
2017
Onerous
Total
Non-
recurring
software
licence fees
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Balance at start of the
year
Reduction in
provision
Increase in provision
Unwinding of discount
24. OPERATING LEASES
(1,721)
-
(54)
(1,775)
(38)
38
-
-
-
-
(1,759)
(1,668)
(422)
38
-
(2,587)
-
(2,587)
(2,587)
(54)
(4,362)
-
(53)
(1,721)
384
-
-
(38)
-
-
-
-
-
(2,090)
384
-
(53)
(1,759)
The Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases, which
fall due as follows:
Within one year
Between two to five years
After five years
2018
2017
Land and
buildings
£’000
2,135
3,247
1,480
6,862
Other
£’000
71
285
65
421
Land and
buildings
£’000
1,934
4,294
1,857
8,085
Other
£’000
76
285
137
498
Lease terms for land and buildings
Operating leases do not contain any contingent rent clauses. None of the operating leases contain renewal of purchase
options or escalation clauses or any restrictions regarding further leasing or additional debt.
25. SHARE CAPITAL
Authorised
At 31 March 2016, 2017 and 2018
Called up, allotted and fully paid
At 31 March 2017
Share capital issued in the year
At 31 March 2018
Ordinary shares of 1p each
Number of
shares
£’000
200,000,000
2,000
107,803,006
187,335
107,990,341
1,078
2
1,080
At 31 March 2018 the Company held no shares (2017: 100,839) as own shares in treasury which were accounted for in the
Own Shares Treasury reserve and had a nominal value of £nil (2017: £1,008) and a market value of £nil (2017: £298,988). This
represents 0% (2017: 0.1%) of the issued share capital as at 31 March 2018 excluding own shares.
80
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
25. SHARE CAPITAL (CONTINUED)
At 31 March 2018 the Company held 140,773 shares (2017: 140,773) as own shares in the iomart Group plc Employee Benefit
Trust (“EBT”) which were accounted for in the Own Shares EBT reserve and had a nominal value of £1,408 (2017: £1,408) and a
market value of £515,933 (2017: £417,392). This represents 0.1% (2017: 0.1%) of the issued share capital as at 31 March 2018
excluding own shares.
The share capital of iomart Group plc consists of ordinary shares with a par value of 1p. All shares, excluding the shares held by
the Company in treasury and the shares held by the EBT, are equally eligible to receive dividends and represent one vote at the
shareholders’ meetings of iomart Group plc. All shares issued at 31 March 2018 are fully paid.
26. OWN SHARES RESERVES
At 1 April 2016
Issue of own shares from Treasury for option
redemption
At 31 March 2017
Issue of own shares from Treasury for option
redemption
At 31 March 2018
Own
shares
EBT
£’000
Own
shares
Treasury
£’000
Own
shares
Total
£’000
(70)
-
(70)
-
(70)
(419)
369
(489)
369
(50)
(120)
50
-
50
(70)
During the year 100,839 (2017: 745,797) own shares held in treasury at the carrying value of 49.5p each were issued following
the exercise of share options by employees for which a net total of £57,515 (2017: £1,065,018) was received. As a consequence,
at 31 March 2018 the Company held no shares (2017: 100,839) in treasury with a carrying value of £nil (2017: £49,915) which
were accounted for in Own Shares treasury reserve; and 140,773 shares (2017: 140,773) in the EBT with a carrying value of
£69,982 (2017: £69,982) which were accounted for in the Own Shares EBT reserve.
27. SHARE BASED PAYMENTS
The Group operated the following share based payment employee share option schemes during the year; an Enterprise
Management Incentive scheme, a SAYE sharesave scheme and a number of unapproved schemes. All schemes are settled in
equity only and are summarised below.
Enterprise Management
Incentive scheme
Unapproved schemes
Sharesave scheme
Vesting period
Maximum term
Performance criteria
Up to 3 years
from grant
Up to 3 years
from grant
3 years from
grant
10 years after date of
grant
As set by Remuneration
Committee
10 years after date of
grant
As set by Remuneration
Committee
6 months after vesting
period
No
Required to
remain in
employment
Yes
Yes
Yes
The performance criteria as set by the Remuneration Committee are based on the achievement of annual objectives and
continuous employment.
During the year, options over 288,174 ordinary shares (2017: 745,797) were exercised and the average market price at the
exercise dates was 362.73p (2017: 286.1p). Options over 673,884 ordinary shares (2017: 602,228) were granted under the
unapproved share option scheme with an average exercise price of 94.2p (2017: 1.0p) and 148,162 options over ordinary
shares were granted under the sharesave scheme with an average exercise price of 252.8p (2017: none). Options over 188,883
ordinary shares (2017: 473,750) lapsed under the unapproved share option scheme with an average exercise price of 1.0p
(2017: 184.3p), no options lapsed over shares under the EMI scheme (2017: none); and options over 64,042 (2017: 51,853)
lapsed under the sharesave scheme with an average exercise price of 214.7p (2017: 193.9p).
81
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
27. SHARE BASED PAYMENTS (CONTINUED)
As disclosed in note 5, a share based payment charge of £1,206,000 (2017: £1,844,000) has been recognised in the statement
of comprehensive income during the year in relation to the above schemes. The fair value of the employee services received
is valued indirectly by valuing the options granted using the Black-Scholes option pricing model, which worked on the following
assumptions for the options granted in the current and previous year:
Grant date
Vesting date
Variables used
12 Apr 2017
26 Jul 2017
27 Jul 2017
18 Aug 2017
31 Mar 2020
26 Jul 2017 30 Sep 2018
1 Oct 2020
Share price at grant date
293.75p
310.0p
313.50p
312.75p
Volatility
Dividend yield
Number of employees holding options/units
Option/award life (years)
Expected life (years)
Risk free rate
Expectations of meeting performance criteria
Fair value
Exercise price per share
63%
0.93%
2
10
3.25
1.07%
100%
284.04p
1.0p
62%
1.06%
2
10
1.00
1.26%
100%
73.31p
315.2p
62%
1.06%
18
10
1.42
1.24%
100%
62%
2.16%
69
3
3.25
1.12%
100%
307.84p
1.0p
139.31p
252.8p
i) Expected volatility was determined at the date of grant from historic volatility, adjusted for events that were not considered
to be reflective of the volatility of the share price going forward; and
ii) Risk free rate was calculated based on the average Bank of England zero coupon yields
The movement in options during the year in respect of the Company’s ordinary shares of 1p each under the various share
option schemes are as follows:
2018
2017
Weighted
average
exercise
price per
share (p)
Weighted
average
exercise
price per
share (p)
Number
of share
options
Number
of share
options
Outstanding at start of year
34.45
2,928,232
Granted
Forfeited
Expired
Exercised
Outstanding at end of year
Exercisable at end of year
122.81
55.12
191.40
77.25
51.41
22.65
822,046
(252,925)
(4,702)
(288,174)
3,204,477
1,596,216
84.55
1.00
3,597,404
602,228
185.26
(525,603)
-
-
142.80
(745,797)
34.45
33.56
2,928,232
1,764,040
82
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
27. SHARE BASED PAYMENTS (CONTINUED)
Summary of share options that were outstanding at the year end:
Share options – outstanding
Weighted
average
exercise
price per
share (p)
Weighted
average
remaining
contractual
life (years)
Outstanding
shares
Range of
exercise
prices per
share (p)
Share options – exercisable
Weighted
average
exercise
price per
share (p)
Weighted
average
remaining
contractual life
(years)
Outstanding
shares
Enterprise
management
incentive scheme
Unapproved
schemes
Sharesave scheme
As at 31 March
2018
Enterprise
management
incentive scheme
Unapproved
schemes
Sharesave scheme
As at 31 March
2017
43.5 – 87.5
250,928
67.74
1.0 – 315.5
191.4 – 252.8
2,695,850
33.47
257,699
3,204,477
223.20
51.41
43.5 – 87.5
260,813
66.92
1.0 – 173.0
2,487,258
19.44
191.4 – 194.8
180,161
2,928,232
194.68
34.45
1.6
6.6
2.0
5.9
2.6
6.9
1.9
6.2
250,928
1,345,288
-
1,596,216
67.74
14.24
-
22.65
260,813
66.92
1,496,645
6,582
1,764,040
27.05
191.40
33.56
1.6
4.8
-
4.3
2.6
5.5
0.3
5.1
28. RELATED PARTY TRANSACTIONS
Compensation paid to key management (only directors are deemed to fall into this category) during the year was as follows:
Salaries and other short-term employee benefits
Share-based payments
Dividends paid to key management were as follows:
Angus MacSween
Chris Batterham
Sarah Haran
Richard Logan
Ian Ritchie
Crawford Beveridge
2018
£’000
1,048
668
1,716
2018
£’000
1,402
-
-
80
13
-
2017
£’000
1,502
819
2,321
2017
£’000
535
3
62
31
5
1
Total dividends paid to directors
1,495
637
83
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
29. CONTINGENCIES AND COMMITMENTS
(a) Contingencies
There were no contingent assets or liabilities as at 31 March 2018 (2017: nil).
(b) Commitments
Capital expenditure on software licences and property, plant and equipment committed by the Group at 31 March 2018 was
£613,391 (2017: £1,146,980).
30. RISK MANAGEMENT
The Group finances its operations by raising finance through equity, bank borrowings and finance leases. No speculative trea-
sury transactions are undertaken however the Group does from time to time enter into forward foreign exchange contracts to
hedge known currency exposures. Financial assets and liabilities include those assets and liabilities of a financial nature, namely
cash, short term receivables/payables and borrowings.
The carrying amounts of financial assets presented in the statement of financial position relate to the following measurement
categories as defined in IAS 39:
2018
Non-current:
Lease deposit
Current:
Trade receivables
Cash and cash equivalents
Other receivables
Total for category
2017
Non-current:
Lease deposit
Current:
Trade receivables
Cash and cash equivalents
Other receivables
Total for category
Loans and
receivables
£’000
2,760
6,535
9,495
500
19,290
2,760
6,036
8,906
553
18,255
84
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
30. RISK MANAGEMENT (CONTINUED)
The carrying amounts of financial liabilities presented in the statement of financial position relate to the following measurement
categories as defined in IAS 39:
2018
Non-current:
Finance leasing capital obligations
Current:
Trade payables
Accruals
Bank loan
Contingent consideration due on acquisitions
Finance leasing capital obligations
Total for category
2017
Non-current:
Trade payables
Finance leasing capital obligations
Current:
Trade payables
Accruals
Bank loan
Contingent consideration due on acquisitions
Finance leasing capital obligations
Interest rate swap contract
Total for category
At fair value
through profit
or loss
£’000
Financial
liabilities
measured at
amortised
cost
£’000
Other (non-
IAS 39)
£’000
Total
£’000
-
-
(503)
(503)
-
-
-
(2,694)
-
(2,694)
(10,451)
(6,272)
(35,239)
-
-
(51,962)
-
-
(102)
-
-
-
-
(2,373)
-
(44)
(2,417)
(5,958)
(6,616)
(18,639)
-
-
-
(31,315)
-
-
-
-
(327)
(830)
-
(625)
-
-
-
-
(233)
-
(858)
(10,451)
(6,272)
(35,239)
(2,694)
(327)
(55,486)
(102)
(625)
(5,958)
(6,616)
(18,639)
(2,373)
(233)
(44)
(34,590)
The Group’s financial liabilities per the fair value hierarchy classifications under IFRS 13 ‘Financial Instruments: Disclosures’ are
described below:
Category of financial
liability
Fair value
at 31
March
2018
£’000
Level in
hierarchy
Description of valuation
technique
Inputs used for valuation
model
Contingent consideration
(2,694)
3
due on acquisitions
Interest rate swap contracts
-
2
Based on level of future
revenue and profitability
and probability that
vendors will comply with
obligations under sale and
purchase agreement.
Interest rate swap
contracts are not traded
in active markets.
Fair valued using
observable interest rates
corresponding to the
maturity of the contracts.
Management estimate on
probability and time scale
of vendors meeting revenue
and profitability targets and
complying with obligations.
Observable interest rates
corresponding to the
maturity of the contracts.
Effects of non-observable
inputs are not significant for
interest rate swaps.
Total gains
recognised
in profit or
loss
£’000
1,335
46
Total fair value
(2,694)
Total net gains
1,381
There have been no changes to valuation techniques or any amounts recognised through ‘Other Comprehensive Income’.
The £46,000 (2017: £84,000) gain recognised in profit or loss on interest rate swap contracts is included in finance costs. The
interest rate swap contracts matured in October 2017.
85
iomart Group plc Annual report and accounts 2018 Notes to the financial statements. Year ended 31 March 2018
30. RISK MANAGEMENT (CONTINUED)
The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows:
Contingent consideration
Balance at start of the year
Acquired through business combination
Settled in cash during the year
Recognised in profit or loss under:
-
-
Gain on revaluation of contingent consideration
Finance costs
Balance at end of year
Total amount included in profit or loss on Level 3 instruments under gain on revaluation of contingent
consideration and finance costs
2018
£’000
(2,373)
(4,080)
2,475
1,335
(51)
(2,694)
1,284
2017
£’000
(3,203)
-
1,160
-
(330)
(2,373)
(330)
Liquidity risk
The Group seeks to manage financial risk to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash
safely and profitably. In note 22, the contractual maturity analysis of the Group’s total borrowings of £36.1m (2017: £19.5m) is
shown. The Group has £25m (2017: £41.5m) available to draw down on the revolving credit facility and reviews its cash flow
requirements on a monthly basis.
Interest rates
The interest rate on the Group’s cash at bank is determined by reference to the base rate and the interest rate on the Group’s
revolving credit loan facilities is based on LIBOR plus a margin. The Group has entered into an interest rate swap in respect
of £10m which has been drawn under the revolving credit facility from April 2015 which reduces by £2m every 6 months until
October 2017 and as a consequence the interest rate on that amount of borrowing is fixed at 2.03% from April 2015 until
maturity. As a consequence, at 31 March 2018, the interest rate swap has matured in October 2017 and £nil of the amount
drawn under the multi option revolving credit facility was covered by interest rate swap arrangements (2017: £2m). The fair value
of the interest rate swap contracts is estimated to be a gain of £46,000 (2017: gain of £84,000) which has been recognised in
profit or loss for the year.
Currency risk
During the year the Group made payments totalling US$8.4m (2017: US$5.5m) and EUR€0.4m (2017: EUR€0.1m) to acquire
domain names for its Easyspace segment and licences for its Cloud Services segment. In addition, the Group received US$5.8m
(2017: US$3.5m) and EUR€2m (2017: EUR€0.4m) from Cloud Services customers billed in foreign currency. The increase in
the year in Euro receipts is driven by the acquisition of Dediserve. During the year, the Group entered into forward exchange
contracts to hedge its exposure to the US Dollar arising on these purchases but at the year end the Group had no outstanding
forward contracts in place (2017: none). Consequently, the fair value of currency contracts at the year end was £nil (2017: £nil).
The level of non-monetary and monetary assets and liabilities denominated in foreign currencies in the Group are minimal.
Capital risk
The capital structure of the Group consists of net debt, which includes borrowings (note 22) and cash and cash equivalents, and
equity attributable to owners of the parent, comprising issued share capital (note 25), other reserves and retained earnings. The
Group currently has net debt due to its acquisition activities. The Group seeks to maintain a level of gross cash which the Board
considers to be adequate for the size of the Group’s operations which is around £10m. Consequently, the Group makes use
of both banking facilities and finance lease arrangements to help fund the acquisition of companies and capital expenditure in
order to maintain that level of gross cash. The Group’s current policy is to pay interim and final dividends depending on the level
of adjusted diluted earnings per share. The Group was in compliance with all covenants under its banking facility arrangements
throughout the reporting period.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial losses to the
Group. The Group provides standard credit terms (normally 30 days) to some of its customers which has resulted in trade
receivables of £6,535,000 (2017: £6,036,000) which are stated net of applicable provisions and which represent the total amount
exposed to credit risk. The lease deposits of £2,760,000 (2017: £2,760,000) are held in escrow accounts with the landlord’s main
UK bankers and the landlord is a major UK plc. The Group’s cash at bank £9,495,000 (2017: £8,906,000) is held within clearing
banks in the UK, Republic of Ireland and United States of America.
In respect of trade receivables, lease deposits and cash at bank the directors consider the risk of exposure to credit is minimal
due to the reasons given above.
31. POST BALANCE SHEET EVENT
On 6 June 2018, the Group entered into a new banking facility which provides an £80m revolving credit facility that matures in
June 2022.
On 30 May 2018, the Group extended the London datacentre lease to June 2030.
86
iomart Group plc Annual report and accounts 2018 Parent Company Financial Statements 2018
Independent auditor’s report to the members of iomart Group plc
Opinion
Our opinion on the parent company financial statements is unmodified
We have audited the parent company financial statements of iomart Group plc for the year ended 31 March 2018, which
comprise the statement of financial position, the statement of changes in equity and notes to the financial statements,
including a summary of significant accounting policies. The financial reporting framework that has been applied in their
preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101
‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice).
In our opinion the parent company financial statements:
•
•
•
give a true and fair view of the state of the parent company’s affairs as at 31 March 2018;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the parent
company financial statements section of our report. We are independent of the parent company in accordance with the
ethical requirements that are relevant to our audit of the parent company financial statements in the UK, including the FRC’s
Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Who we are reporting to
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you
where:
the directors’ use of the going concern basis of accounting in the preparation of the parent company financial statements
is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least
twelve months from the date when the financial statements are authorised for issue.
Overview of our audit approach
• Overall materiality: £1.345m, which represents 2% of the company’s total assets capped at 75% of
group materiality. This benchmark is considered the most appropriate because the parent company
operates as a cost centre for the group.
• No key audit matters were identified within the parent company
• Our audit was scoped by obtaining an understanding of the company and its environment, including
its internal controls, and assessing the risks of material misstatement
•
•
87
iomart Group plc Annual report and accounts 2018 Key audit matters
The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement
impact and the extent of management judgement.
Parent Company Financial Statements 2018
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the parent
company financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the parent company financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Within the parent company audit we have identified no key audit matters.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature,
timing and extent of our work and in evaluating the results of that work.
We determined materiality for the audit of the parent company financial statements as a whole to be £1.345m, which is 2% of
total assets, capped at 75% of group materiality. This benchmark is considered the most appropriate because the company is a
holding company with no trading revenue. Given the primary purpose of this company is to hold the investments in the group’s
subsidiaries, we determined total assets to be the most appropriate benchmark.
Materiality for the current year is higher than the level that we determined for the year ended 31 March 2017 to reflect the
acquisitions of Dediserve, Simpleservers and Sonassi.
We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 75% of
financial statement materiality.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential
uncorrected misstatements.
88
iomart Group plc Annual report and accounts 2018 Parent Company Financial Statements 2018
Our application of materiality (continued)
We also determine a lower level of specific materiality of £67,400 for directors’ remuneration, which is based on 5% of the prior
year aggregate emoluments of £1.348m.
We determined the threshold at which we will communicate misstatements to the audit committee to be £67,000. In addition
we will communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the company’s business, its
environment and risk profile and in particular included:
•
•
•
obtaining an understanding of the company and its environment, including its internal controls, and assessing the risks of
material misstatement;
focusing our work on the carrying value of investments as the largest balance and most significant judgement in the
financial statements; and
there were no material changes in the overview of the scope of the current year audit from the scope of that of the prior
year.
Other information
The directors are responsible for the other information. The other information comprises the information included in the
annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements
does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the parent company financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the parent company financial statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine whether there is a material misstatement of the parent
company financial statements or a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors’ report for the financial year for which the parent
•
company financial statements are prepared is consistent with the parent company financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal
•
requirements.
Matter on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the directors’ report.
89
iomart Group plc Annual report and accounts 2018 Parent Company Financial Statements 2018
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
•
•
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 35, the directors are responsible for the
preparation of the parent company financial statements and for being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable the preparation of parent company financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the parent company financial statements, the directors are responsible for assessing the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the parent company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the parent company financial statements
Our objectives are to obtain reasonable assurance about whether the parent company financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these parent company financial statements.
A further description of our responsibilities for the audit of the parent company financial statements is located on the Financial
Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters
We have reported separately on the group financial statements of iomart Group plc for the year ended 31 March 2018. That
report includes details of the group key audit matters; how we applied the concept of materiality in planning and performing
our audit; and an overview of the scope of our audit.
Robert Hannah
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Glasgow
11 June 2018
90
iomart Group plc Annual report and accounts 2018 Parent Company Financial Statements 2018
STATEMENT OF FINANCIAL POSITION
As at 31 March 2018
ASSETS
Non-current assets
Investments
Current Assets
Trade and other receivables
Cash at bank balances
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Net current liabilities
Total assets less current liabilities
NET ASSETS
EQUITY
Called up share capital
Own shares
Capital redemption reserve
Share premium account
Merger reserve
Retained earnings
TOTAL EQUITY
Note
2018
£’000
2017
£’000
3
4
6
9
10
136,069
136,069
107,374
107,374
6,368
6,120
12,488
4,785
7,195
11,980
148,557
119,354
(82,835)
(46,153)
(82,835)
(34,173)
65,722
73,201
65,722
73,201
1,080
(70)
1,200
21,231
4,983
37,298
1,078
(120)
1,200
21,067
4,983
44,993
65,722
73,201
As permitted by section 408(3) of the Companies Act 2006, no profit and loss account of the company is presented. The loss
for the financial year, dealt with in the profit and loss account of the company, was £167,000 (2017: profit of £3,759,000).
These financial statements were approved by the board of directors and authorised for issue on 11 June 2018.
Signed on behalf of the board of directors
Angus MacSween
Director and chief executive officer
iomart Group plc – Company Number: SC204560
The following notes form part of the financial statements
91
iomart Group plc Annual report and accounts 2018
Parent Company Financial Statements 2018
STATEMENT OF CHANGES IN EQUITY
Year ended 31 March 2018
Changes in equity
Share
capital
Own
shares
EBT
Own
shares
Treasury
Capital
redemption
reserve
Share
premium
account
Merger
reserve
Retained
earnings
Note
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Total
£’000
Balance at 1 April 2016
1,078
(70)
(419)
1,200
21,067
4,983
42,462
70,301
Profit for the year
Total comprehensive
income
Dividends – final (paid)
Share based payments
Deferred tax on share based
payments
Issue of own shares for
option redemption
Total transactions with
owners
17
11
5
10
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
369
369
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,759
3,759
3,759
3,759
(3,375)
(3,375)
1,844
1,844
(392)
(392)
695
1,064
(1,228)
(859)
Balance at 31 March 2017
1,078
(70)
(50)
1,200
21,067
4,983
44,993
73,201
Loss for the year
Total comprehensive
income
Dividends – interim (paid)
Dividends – final (paid)
Share based payments
Deferred tax on share based
payments
Issue of share capital
Issue of own shares for
option redemption
Total transactions with
owners
17
17
11
5
9
10
-
-
-
-
-
-
2
-
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50
50
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
164
-
164
-
-
-
-
-
-
-
-
-
(167)
(167)
(167)
(167)
(2,426)
(2,426)
(6,459)
(6,459)
1,206
1,206
143
-
8
143
166
58
(7,528)
(7,312)
Balance at 31 March 2018
1,080
(70)
-
1,200
21,231
4,983
37,298
65,722
The following notes form part of the financial statements.
92
iomart Group plc Annual report and accounts 2018
Parent Company Financial Statements 2018
1. COMPANY INFORMATION
iomart Group plc is a company incorporated and domiciled in the United Kingdom under the Companies Act 2006. The address
of the registered office is given on page 108 of this report. The nature of the Company’s operations and its principal activity is
that of a holding company.
2. ACCOUNTING POLICIES
Statement of compliance
These separate financial statements of the Company are presented as required by the Companies Act 2006. The Company
meets the definition of a qualifying entity under FRS 100 ‘Application of Financial Reporting Requirements’ issued by the Financial
Reporting Council (FRC). Accordingly, these financial statements have been prepared in accordance with applicable accounting
standards and in accordance with Financial Reporting Standard 101 – ‘The Reduced Disclosure Framework’ (FRS 101). The
principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have all
been applied consistently throughout the year unless otherwise stated.
The financial statements have been prepared on a historical cost basis and are presented in Sterling (£).
Disclosure exemptions adopted
The principal accounting policies adopted are the same as those set out in note 2 to the consolidated financial statements,
however, in preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by
FRS 101. Therefore, these financial statements do not include:
•
•
•
•
•
•
•
•
•
a statement of cash flows and related notes;
the requirement to produce a statement of financial position at the beginning of the earliest comparative period;
the requirement of IAS 24 related party disclosures to disclose related party transactions entered into between two
or more members of the iomart Group as they are wholly owned within the iomart Group;
disclosure of key management personnel compensation;
capital management disclosures;
certain share based payments disclosures;
business combination disclosures;
disclosures in respect of financial instruments; and
the effect of future accounting standards not adopted.
Investments
Investments held as fixed assets are stated at cost less provision for any permanent diminution in value. As part of the acquisition
strategy of the Company, the trade and net assets of subsidiary undertakings at or shortly after acquisition may be transferred
at book value to fellow subsidiaries. Where a trade is hived across to a fellow subsidiary undertaking, the cost of the investment
in the original subsidiary, which then becomes a non-trading subsidiary, is added to the cost of the investment in the entity to
which the trade has been hived. In order to accurately assess any potential impairment of investments, the carrying value of the
investment in all companies transferred is considered together against the future cash flows and net asset position of those
companies which received the trade and net assets.
Contingent consideration
Where an acquisition involves a potential payment of contingent consideration the estimate of any such payment is based on
its fair value. To estimate the fair value an assessment is made as to the amount of contingent consideration which is likely to
be paid having regard to the criteria on which any sum due will be calculated and is probability based to reflect the likelihood
of different amounts being paid. Where a change is made to the fair value of contingent consideration within the initial
measurement period as a result of additional information obtained on facts and circumstances that existed at the acquisition
date then this is accounted for as a change in goodwill. Where changes are made to the fair value of contingent consideration
as a result of events that occurred after the acquisition date then the adjustment is accounted for as a charge or credit to profit
or loss.
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iomart Group plc Annual report and accounts 2018
Parent Company Financial Statements 2018
2. ACCOUNTING POLICIES (CONTINUED)
Income taxes
The tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other
comprehensive income or directly in equity.
Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the
liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts
of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on
the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting
profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary
differences can be controlled by the Company and it is probable that reversal will not occur in the foreseeable future. In addition,
tax losses available to be carried forward as well as other income tax credits to the Company are assessed for recognition as
deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is
probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current
and deferred tax assets and liabilities are calculated at tax rates and laws that are expected to apply to their respective period
of realisation, provided they are enacted or substantively enacted at the period end.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Statement of Comprehensive
Income, except where they relate to items that are recognised directly in other comprehensive income or equity (such as
share based remuneration) in which case the related deferred tax is also recognised in other comprehensive income or equity
accordingly.
Financial assets
All financial assets are recognised when the Company becomes a party to the contractual provisions of the instrument. Financial
assets other than those categorised as at fair value through profit or loss are recognised at fair value plus transaction costs on
initial recognition. Financial assets categorised as at fair value through profit or loss are recognised initially at fair value with
transaction costs expensed through profit or loss.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest
method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Company’s
cash and cash equivalents and most other receivables fall into this category of financial instruments.
Provision against other receivables is made when there is objective evidence that the Company will not be able to collect all
amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as
the difference between the asset’s carrying amount and the present value of estimated future cash flows. An assessment for
impairment is undertaken at least at each reporting date.
Financial derivatives such as forward foreign exchange contracts and interest rate swaps are carried at fair value through profit
or loss subsequent to initial recognition.
Financial liabilities
Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Company becomes a
party to the contractual provisions of the instrument. Financial liabilities categorised as at fair value through profit or loss are
recorded initially at fair value, all transaction costs are recognised immediately in profit or loss. All other financial liabilities are
recorded initially at fair value, net of direct issue costs.
Financial liabilities categorised as at fair value through profit or loss are re-measured at each reporting date at fair value, with
changes in fair value being recognised through profit or loss. All other financial liabilities are recorded at amortised cost using
the effective interest method, with interest-related charges recognised as an expense in finance costs through profit or loss.
A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged, cancelled
or when it expires. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are
charged to profit or loss on an accruals basis using the effective interest method and are added to the carrying amount of the
instrument to the extent that they are not settled in the period in which they arise.
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iomart Group plc Annual report and accounts 2018 Parent Company Financial Statements 2018
2. ACCOUNTING POLICIES (CONTINUED)
Leases
In accordance with IAS 17 Leases, the economic ownership of a leased asset is deemed to have been transferred to the Company
(the lessee) if the Company bears substantially all the risks and rewards related to the ownership of the leased asset. The related
asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the
minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as
a finance lease liability.
The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to
profit or loss over the period of the lease.
All other leases are regarded as operating leases and the payments made under them are charged to profit or loss on a straight
line basis over the lease term. Lease incentives are spread over the term of the lease. Where a lease is for land and buildings,
these are considered separately as to whether there is a finance lease within the lease.
Borrowings
Borrowings are initially stated at fair value after deduction of any issue costs. The carrying amount is increased by the finance
costs in respect of the accounting period and reduced by payments made in the period. Borrowings are subsequently stated at
amortised cost, any difference between the periods (net of transaction costs) and the redemption value is recognised through
profit or loss over the period of the borrowings using the effective interest method. Where borrowings are repaid early and
new loan facilities agreed the terms of each loan facility are compared. Where the terms of the new borrowings are significantly
different from those of the previous borrowings, the previous borrowings are treated as extinguished rather than modified as
prescribed under IAS 39.
Pension scheme arrangements
The Company contributes to an auto-enrolment pension scheme and also to a number of personal pension schemes on behalf
of executive directors and some senior employees. Pension costs are charged to profit or loss in the period to which they relate.
Share-based payment
All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2005 are
recognised in the financial statements. All share-based payment arrangements in the company are equity settled. All goods and
services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees
are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the
fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of
non-market vesting conditions (for example, profitability and sales growth targets).
All equity-settled share-based payments are ultimately recognised as an expense through profit or loss with a corresponding
credit to “Profit and loss reserve” unless the share based payment arrangement relates to an employee of a subsidiary company
where in such instances the share based payment is added to the cost of investment in that subsidiary as a capital contribution.
If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on
the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is
any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment
prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share
options ultimately exercised are different to that estimated on vesting.
Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and
where appropriate share premium.
Cash at bank and in hand
Cash at bank and in hand comprise cash on hand and demand deposits, together with other short-term, highly liquid investments
that are readily convertible into known amounts of cash with maturities of three months or less from inception and which are
subject to an insignificant risk of changes in value.
95
iomart Group plc Annual report and accounts 2018 Parent Company Financial Statements 2018
2. ACCOUNTING POLICIES (CONTINUED)
Dividends
Dividend distributions payable to equity shareholders are included in the financial statements within ‘other short term financial
liabilities’ when a final dividend is approved in a general meeting. Interim dividend distributions to equity shareholders approved
by the Board are not included in the financial statements until paid.
Equity
Equity comprises the following:
•
•
•
•
•
•
•
“Share capital” represents the nominal value of equity shares.
“Own shares Treasury” represents the amount of the Company’s own equity shares, plus attributable transaction costs,
that is held by the Company as treasury shares.
“Own shares EBT” represents the amount of the Company’s own equity shares, plus attributable transaction costs, that
is held by the Company within the iomart Group plc Employee Benefit Trust.
“Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares,
net of expenses of the share issue.
“Merger reserve” represents the excess over nominal value of the fair value of consideration received for equity shares,
net of expenses of the share issue, when ordinary share capital is included in the consideration for business acquisitions.
“Capital redemption reserve” represents set aside reserves in relation to previous redemption of own shares.
“Retained earnings” represents retained profits.
Key judgements and sources of estimation uncertainty
There were no critical accounting judgements that would have a significant effect on the amounts recognised in the parent
company financial statements or key sources of estimation uncertainty at the balance sheet date that would have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
3. INVESTMENTS HELD AS FIXED ASSETS
Cost
At 1 April 2017
Additions
Share based payment (note 11)
Cost at 31 March 2018
Net book value of Investments at 31 March 2018
Net book value of Investments at 31 March 2017
All of the above investments are unlisted.
Shares in subsidiary undertakings
£’000
107,374
28,375
320
136,069
136,069
107,374
96
iomart Group plc Annual report and accounts 2018
Parent Company Financial Statements 2018
3. INVESTMENTS HELD AS FIXED ASSETS (CONTINUED)
The following subsidiaries are included in the Company financial statements:
Country of
registration and
operation
England
England
England
England
Republic of
Ireland
England
Activity
Dormant
Dormant
Non-trading
Provision of data
storage, backup and
virtualisation solutions
Managed hosting
services
Webservices
Scotland
Non-trading
England
England
England
England
Non-trading
Non-trading
Non-trading
Dormant
USA
Scotland
England
Scotland
Scotland
Scotland
Scotland
England
England
Scotland
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Managed hosting
services
Managed hosting
services
Non-trading
Dormant
Managed hosting
services
Dormant
Dormant
Managed hosting
services
Dormant
Dormant
Dormant
Non-trading
Dormant
Non-trading
Managed hosting
services
Managed hosting
services
Dormant
Non-trading
Managed hosting
services
Webservices
Webservices
Consultancy services
Non-trading
Dormant
Webservices
Dormant
Backup Technology Holdings Limited
Backup Technology Limited
Cloudfuel Limited
Cristie Data Limited
Dediserve Limited
Easyspace Limited
EQSN Limited
Global Gold Holdings Limited
Global Gold Network Limited
Internet Engineering Limited
Internetters Limited
iomart Cloud Inc
iomart Cloud Services Limited
iomart Datacentres Limited
iomart Development Limited
iomart Hosting Limited
iomart Limited
iomart Virtual Servers Hosting Limited
Melbourne Server Hosting Limited
My Documents Limited
Netintelligence Limited
NicNames Limited
Open Minded Solutions Limited
Rapidswitch Limited
Redstation Limited
ServerSpace Limited
Simple Servers Limited
Skymarket Limited
Sonassi Holding Company Limited
Sonassi Limited
Switch Media (Ireland) Limited
Switch Media Limited
Systems Up Limited
Tier 9 Limited
Titan Internet Limited
United Communications Limited
Web Genie Internet Limited
97
Ordinary share capital
Owned by
the company
%
Owned by
subsidiary
undertakings
%
100
-
-
100
100
100
100
100
-
100
-
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
-
100
100
-
-
100
100
100
100
100
-
-
100
100
-
-
-
-
-
100
-
100
-
-
-
-
-
-
-
-
-
-
100
-
-
-
-
100
-
-
100
100
-
-
-
-
-
100
iomart Group plc Annual report and accounts 2018
4. TRADE AND OTHER RECEIVABLES
Prepayments and accrued income
Deferred taxation (note 5)
Current income tax
Other taxation and social security
Amounts owed by subsidiary undertakings
Parent Company Financial Statements 2018
2018
£’000
2017
£’000
222
1,588
2,697
652
1,209
209
1,135
2,207
612
622
6,368
4,785
5. DEFERRED TAXATION
The Company had recognised deferred tax assets and potential unrecognised deferred tax assets as follows:
2018
2017
Recognised
£’000
Unrecognised
£’000
Recognised
£’000
Unrecognised
£’000
Share based remuneration
1,588
-
1,135
-
The movement in the deferred tax account during the year was:
Balance brought forward
Profit and loss account movement arising during the year
Profit and loss account reserve movement during the year
Balance carried forward
2018
£’000
1,135
310
143
1,588
2017
£’000
1,010
517
(392)
1,135
The deferred tax asset in relation to share based remuneration arises from the anticipated future tax relief on the exercise of
share options.
6. TRADE AND OTHER PAYABLES
Trade creditors
Other taxation and social security
Accruals and deferred income
Contingent consideration due on acquisitions (note 7)
Current borrowings (note 8)
Amounts owed to subsidiary undertakings
Amounts owed to subsidiary undertakings are repayable on demand and carry no interest.
2018
£’000
2017
£’000
83
75
594
2,694
35,239
44,150
82,835
96
76
1,038
2,373
18,639
23,931
46,153
98
iomart Group plc Annual report and accounts 2018 Parent Company Financial Statements 2018
7. CONTINGENT CONSIDERATION
Contingent consideration due on acquisitions within one year:
-
-
Sonassi Holdings Limited
Tier 9 Limited
- United Communications Limited
2018
£’000
2017
£’000
(832)
(1,862)
-
-
-
(2,373)
Total contingent consideration due on acquisitions
(2,694)
(2,373)
8. BORROWINGS
Current:
Bank loans
Current borrowings
Non-current:
Bank loans
Total non-current borrowings
2018
£’000
2017
£’000
(35,239)
(18,639)
(35,239)
(18,639)
-
-
-
-
Total borrowings
(35,239)
(18,639)
The carrying amount of borrowings approximates to their fair value.
The future loan obligations of £35,399,000 (2017: £18,722,000) equate to a present value of £34,457,000 (2017: £18,315,000).
The capital element of the bank loans is £35,239,000 (2017: £18,639,000) and this differs from the net amount drawn down of
£34,956,000 (2017: £18,500,000) due to an effective interest rate adjustment. For details of the terms of repayment and rates of
interest payable see note 22 in the consolidated financial statements.
The obligations under the multi option revolving credit facility and term loan facility are repayable as follows:
2018
Capital
Interest
£’000
2017
Total
£’000
Capital
Interest
£’000
£’000
Total
£’000
18,722
-
18,722
83
-
83
Due within one year
Due between two and five years
£’000
35,239
-
160
35,399
18,639
-
-
-
35,239
160
35,399
18,639
99
iomart Group plc Annual report and accounts 2018 9. SHARE CAPITAL
Authorised
At 31 March 2016, 2017 and 2018
Called up, allotted and fully paid
At 31 March 2017
Share capital issued in the year
At 31 March 2018
Parent Company Financial Statements 2018
Ordinary shares of 1p each
Number of
shares
£’000
200,000,000
2,000
107,803,006
187,335
107,990,341
1,078
2
1,080
At 31 March 2018 the Company held no shares (2017: 100,839) as own shares in treasury which were accounted for in the
Own Shares Treasury reserve and had a nominal value of £nil (2017: £1,008) and a market value of £nil (2017: £298,988). This
represents 0% (2017: 0.1%) of the issued share capital as at 31 March 2018 excluding own shares.
At 31 March 2018 the Company held 140,773 shares (2017: 140,773) as own shares in the iomart Group plc Employee Benefit
Trust (“EBT”) which were accounted for in the Own Shares EBT reserve and had a nominal value of £1,408 (2017: £1,408) and a
market value of £515,933 (2017: £417,392). This represents 0.1% (2017: 0.1%) of the issued share capital as at 31 March 2018
excluding own shares.
The share capital of iomart Group plc consists of ordinary shares with a par value of 1p. All shares, excluding the shares held by
the Company in treasury and the shares held by the EBT, are equally eligible to receive dividends and represent one vote at the
shareholders’ meetings of iomart Group plc. All shares issued at 31 March 2018 are fully paid.
10. OWN SHARES RESERVES
At 1 April 2016
Issue of own shares from Treasury for option redemption
At 31 March 2017
Issue of own shares from Treasury for option redemption
At 31 March 2018
Own
shares EBT
£’000
Own
shares
Treasury
£’000
Own
shares
Total
£’000
(70)
-
(70)
-
(70)
(419)
369
(489)
369
(50)
(120)
50
-
50
(70)
During the year 100,839 (2017: 745,797) own shares held in treasury at the carrying value of 49.5p each were issued following
the exercise of share options by employees for which a net total of £57,515 (2017: £1,065,018) was received. As a consequence,
at 31 March 2018 the Company held no shares (2017: 100,839) in treasury with a carrying value of £nil (2017: £49,915) which
were accounted for in Own Shares treasury reserve; and 140,773 shares (2017: 140,773) in the EBT with a carrying value of
£69,982 (2017: £69,982) which were accounted for in the Own Shares EBT reserve.
11. SHARE BASED PAYMENTS
For details of share based payment awards and fair values see note 27 to the Group financial statements. The Company
accounts recognise the charge for share based payments for the year of £1,206,000 (2017: £1,844,000) by;
1)
2)
taking the charge in relation to employees of the parent company through the parent company statement of
comprehensive income £886,000 (2017: £942,000),
recording an increase to its investment in subsidiaries for the amounts attributable to employees of subsidiaries and
recording a corresponding entry to the profit and loss account reserve £320,000 (2017: £902,000).
100
iomart Group plc Annual report and accounts 2018 Parent Company Financial Statements 2018
12. INFORMATION REGARDING PARENT COMPANY EMPLOYEES
Average number of persons employed by the Company (including directors):
Technical
Sales and marketing
Administration
Staff costs of the Company during the year in respect of
employees and directors were:
Wages and salaries
Staff costs recharged to other group companies
Social security costs
Pension costs
Share based payments
2018
No.
2017
No.
8
5
24
37
8
6
23
37
2018
£’000
2017
£’000
1,888
(221)
293
(17)
886
2,025
(354)
265
19
942
2,829
2,897
The company operates a stakeholder pension scheme and also contributes to a number of personal pension schemes on behalf
of executive directors and some senior employees. In the case of executive directors, details of the pension arrangements
are given within the Report of the Board to the Members on Directors’ Remuneration on pages 27 to 32. In the case of senior
employees, pension contributions to individuals’ personal pension arrangements are payable by the Group at a rate equal to
the contribution made by the senior employee subject to a maximum employer contribution of 5% of basic salary. Details of
director’s emoluments are disclosed within note 5 of the Group financial statements.
13. RELATED PARTY TRANSACTIONS
As permitted by FRS 101 related party transactions with wholly owned members of the Group have not been disclosed. Related
party transactions regarding remuneration and dividends paid to key management (only directors are deemed to fall into this
category) of the Company have been disclosed in note 28 of the Group financial statements.
14. CONTINGENCIES AND COMMITMENTS
(a) Contingencies
There were no contingent assets or liabilities as at 31 March 2018 (2017: nil).
(b) Commitments
There are no commitments present as at 31 March 2018 (2017: nil).
15. POST BALANCE SHEET EVENT
On 6 June 2018, the Group entered into a new banking facility which provides an £80m revolving credit facility that matures in
June 2022.
On 30 May 2018, the Group extended the London datacentre lease to June 2030.
16. ULTIMATE CONTROLLING PARTY
The Directors have assessed that there is no ultimate controlling party.
101
iomart Group plc Annual report and accounts 2018
17. DIVIDENDS ON SHARES CLASSED AS EQUITY
Paid during the year:
Interim dividend
Parent Company Financial Statements 2018
2018
Pence per
share
2018
£’000
2017
Pence per
share
2017
£’000
Equity dividends on ordinary shares
2.25p
2,426
-
-
Final dividend
Equity dividends on ordinary shares
6.00p
6,459
3.15p
3,375
Total dividend paid
8,885
3,375
The directors have recommended a final dividend for the year ended 31 March 2018 of 4.93p per share (2017: 6.00p per share).
Subject to shareholder approval this proposed final dividend would be payable on 6 September 2018 to shareholders on the
register at close on 17 August 2018.
102
iomart Group plc Annual report and accounts 2018 Notice of the 2018 Annual General Meeting
NOTICE IS HEREBY GIVEN that the 2018 annual general meeting of iomart Group plc (the “Company”) will be held at Lister
Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP on 28 August 2018 at 10.00 am for the purpose
of considering and, if thought fit, passing the following resolutions, of which resolutions 1 to 7 (inclusive) will be proposed as
ordinary resolutions and resolutions 8 to 10 (inclusive) will be proposed as special resolutions:-
1
2
3
4
5
6
7
To receive and adopt the financial statements of the Company and the directors’ and auditors’ reports thereon for
the year ended 31 March 2018.
To approve the report of the board to the members on directors’ remuneration for the year ended 31 March 2018.
To reappoint Mr Ian Steele (who retires by rotation and, being eligible, offers himself for re-election) as a director of
the Company.
To reappoint Mr Angus MacSween (who retires by rotation and, being eligible, offers himself for re-election) as a
director of the Company.
To declare a final dividend for the year ended 31 March 2018 of 4.93p per share payable on 6 September 2018 to
shareholders on the register of members at the close of business on 17 August 2018.
To reappoint Grant Thornton UK LLP, Chartered Accountants, as auditors of the Company from the conclusion of
this meeting until the conclusion of the next general meeting at which accounts are laid before shareholders and to
authorise the directors to fix the auditors’ remuneration.
THAT the directors of the Company are generally and unconditionally authorised pursuant to section 551 of the
Companies Act 2006 to exercise all powers to allot shares in the Company and to grant rights to subscribe for or to
convert any security into shares in the Company:
(a)
comprising equity securities (as defined in section 560(1) of the Companies Act 2006) up to an aggregate
nominal amount of £721,910.24 (including within such limit any shares issued or rights granted under
paragraph (b) below) in connection with an offer by way of rights issue:
(i)
(ii)
to ordinary shareholders in proportion (as nearly as may be practicable) to their existing
holdings;
to the holders of other equity securities as required by the rights of those securities or as the
directors otherwise consider necessary,
and subject to such exclusions or other arrangements as the directors consider expedient in relation to fractional
entitlements, legal, regulatory or practical problems under the laws of, or the requirements of any regulatory body
or stock exchange in, any territory, or any other matter; and
(b)
in any other case up to an aggregate nominal amount of £360,955.12 (such amount to be reduced by the
nominal amount of any equity securities allotted pursuant to the authority in paragraph (a) above in excess
of £360,955.12),
provided that such authority, unless renewed, varied or revoked by the Company, shall expire on 28 November 2019
or, if earlier, the date of the next annual general meeting of the Company after the passing of this resolution save that
the Company may, before such expiry, make an offer or agreement which would or might require equity securities to
be allotted after such expiry and the directors may allot equity securities in pursuance of such an offer or agreement
as if the authority conferred hereby had not expired.
This resolution revokes and replaces all unexercised authorities previously granted to the directors to allot shares
in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company but is
without prejudice to any allotment of shares or grant of rights already made, offered or agreed to be made pursuant
to such authorities.
8.
THAT, subject to the passing of resolution 7, the directors of the Company are authorised pursuant to section 570 of
the Companies Act 2006 to allot equity securities (as defined in section 560(1) of the Companies Act 2006) for cash
under the authority given by resolution 7 and/or to sell ordinary shares held by the Company as treasury shares
for cash as if section 561 of the Companies Act 2006 did not apply to any such allotment or sale, such authority be
limited:
(a)
to the allotment of equity securities in connection with an offer of equity securities (but, in the case of
the authority granted under resolution 7(b), by way of a rights issue only) to:
(i)
(ii)
the ordinary shareholders made in proportion (as nearly as may be practicable) to their existing
respective holdings; and
to the holders of other equity securities as required by the rights of those securities or as the
directors otherwise consider necessary,
and subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation
to treasury shares, fractional entitlements, record dates, legal or practical problems in or under the laws of any
territory or the requirements of any regulatory body or stock exchange; and
103
iomart Group plc Annual report and accounts 2018 Notice of the 2018 Annual General Meeting
(b)
(c)
to the allotment of equity securities pursuant to any authority conferred upon the directors in accordance
with and pursuant to article 41 of the articles of association of the Company; and
to the allotment of equity securities or sale of treasury shares (otherwise than pursuant to paragraphs (a)
and (b) above) up to an aggregate nominal amount of £54,143.26,
such authority to expire at the end of the next annual general meeting of the Company (or, if earlier, at the close of
business on 28 November 2019) but, in each case, prior to its expiry the Company may make offers, and enter into
agreements, which would, or might, require equity securities to be allotted (and treasury shares to be sold) after the
authority expires and the board of directors may allot equity securities (and sell treasury shares) under any such offer
or agreement as if the authority had not expired.
9.
THAT, subject to the passing of resolution 7, the directors of the Company are authorised in addition to any authority
granted under resolution 8 to allot equity securities (as defined in section 560(1) of the Companies Act 2006) for cash
under the authority given by resolution 7 and/or to sell ordinary shares held by the Company as treasury shares for
cash as if section 561 of the Companies Act 2006 did not apply to any such allotment or sale, such authority to be:
(d)
(e)
limited to the allotment of equity securities up to a nominal amount of £54,143.26; and
used only for the purposes of financing (or refinancing, if the authority is to be used within six months
after the original transaction) a transaction which the board of directors of the Company determines to
be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on
Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of
this notice,
such authority to expire at the end of the next annual general meeting of the Company (or, if earlier, at the close of
business on 28 November 2019) but, in each case, prior to its expiry the Company may make offers, and enter into
agreements, which would, or might, require equity securities to be allotted (and treasury shares to be sold) after the
authority expires and the board of directors may allot equity securities (and sell treasury shares) under any such offer
or agreement as if the authority had not expired.
10.
That the Company be and is hereby generally and unconditionally authorised for the purposes of section 701 of the
Companies Act 2006 to make one or more market purchases (within the meaning of section 693(4) of that Act) of
ordinary shares of 1 pence each in the Company provided that:
(a)
(b)
(c)
(d)
(e)
the maximum number of ordinary shares hereby authorised to be purchased is 10,828,653, representing
10% of the Company’s issued ordinary share capital at the date of the notice of this annual general meeting);
the minimum price (exclusive of any expenses) which may be paid for each ordinary share is 1 pence;
the maximum price (exclusive of any expenses) which may be paid for each ordinary share shall be not
more than 5% above the average of the middle market quotations for an ordinary share on the relevant
investment exchange on which the ordinary shares are traded for the five business days immediately
preceding the date on which such ordinary share is contracted to be purchased;
unless previously revoked or varied, the authority hereby conferred shall expire on the conclusion of the
next annual general meeting of the Company; and
the Company may make a contract or contracts for the purchase of ordinary shares under this authority
before the expiry of this authority which would or might be executed wholly or partly after the expiry of such
authority, and may make purchases of ordinary shares in pursuance of such a contract or contracts, as if
such authority had not expired.
By order of the board
Andrew McDonald
Company secretary
20 July 2018
Lister Pavilion, Kelvin Campus,
West of Scotland Science Park,
Glasgow G20 0SP
104
iomart Group plc Annual report and accounts 2018
Notice of the 2018 Annual General Meeting
NOTES:
Appointment of Proxy
1
2
As a member of the Company you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak
and vote at a meeting of the Company. You should have received a proxy form with this notice of meeting. You can
only appoint a proxy using the procedures set out in the notes to the proxy form. A proxy need not be a member of
the Company.
To be effective, the proxy form, and any power of attorney or other authority under which it is executed (or a duly
certified copy of any such power or authority), must be deposited at the office of the Company’s registrars, Link
Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, not less than 48 hours (excluding weekends
and bank holidays) before the time for holding the meeting (i.e. by 10.00am on Friday 24 August 2018) and if not so
deposited shall be invalid.
Entitlement to attend and vote
3
Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered in the
Company’s register of members at:
•
•
close of business on 24 August 2018; or
if this meeting is adjourned, at close of business on the day two days prior to the adjourned meeting, shall
be entitled to attend and vote at the meeting.
Documents on Display
4
Copies of the service contracts and letters of appointment of the directors of the Company will be available:
•
•
Communication
for at least 15 minutes prior to the meeting; and
during the meeting.
5
Except as provided above, members who wish to communicate with the Company in relation to the meeting should
do so by post to the Company’s registered office, details of which are below. No other methods of communication
will be accepted.
Address:
The Company Secretary
iomart Group plc
Lister Pavilion
Kelvin Campus
West of Scotland Science Park
Glasgow
G20 0SP
105
iomart Group plc Annual report and accounts 2018
Notice of the 2018 Annual General Meeting
EXPLANATORY NOTES TO THE NOTICE OF ANNUAL GENERAL MEETING
IOMART GROUP PLC
Ordinary Resolutions
Resolutions 1 to 7 are all to be proposed as ordinary resolutions. This means that for each of those resolutions to be passed,
more than half of the votes cast must be in favour of the resolution.
Resolution 1 – To receive and adopt the financial statements for the year ended 31 March 2018 and the directors’ and
auditors’ reports thereon
For each financial year the directors of the Company must present the audited financial statements, the directors’ report and
the auditors’ report on the financial statements to the shareholders at an annual general meeting.
Resolution 2 – To approve the directors’ remuneration report
Shareholders are asked to approve the directors’ remuneration report which may be found in the annual report on pages 27
to 32. This resolution is an advisory one and no entitlement to remuneration is conditional on the resolution being passed.
Resolutions 3 and 4 – Re-election of directors
Under article 24 of the Company’s articles of association one third of the directors are required to retire by rotation at each
annual general meeting. Pursuant to those articles, Mr Ian Steele and Mr Angus MacSween are required to retire by rotation
at this annual general meeting and, being eligible, offer themselves for reappointment. The board of directors is satisfied that
the performance of Mr Ian Steele and Mr Angus MacSween continues to be effective and demonstrates commitment to their
roles with the Company including commitment of time for board meetings and other duties required of them. Accordingly,
resolutions 3 and 4 propose the reappointment of Mr Ian Steele and Mr Angus MacSween.
Brief biographical details of Mr Ian Steele and Mr Angus MacSween are given below.
Mr Ian Steele, appointed 2016; Ian is a chartered accountant with over 35 years’ experience in the corporate finance and
corporate advisory sector. During a 16-year career with Deloitte LLP, Ian undertook roles within corporate finance and global
advisory services. For the past eight years, Ian sat on the UK board of Deloitte LLP and fulfilled the role of senior partner for
Scotland and Northern Ireland. Ian is a member of the Council of the Institute of Chartered Accountants of Scotland. He is a
Non-Executive Director of STV Group plc and a Non-Executive Director of Killinchy Aerospace Holdings Limited, the principal
trading subsidiary of which is Martin-Baker Aircraft Company Limited.
Mr Angus MacSween, appointed 2000; Angus founded iomart in December 1998 following 15 years spent creating and selling
businesses in the telephony and internet sector. In 1984, after a short service commission in the Royal Navy, Angus started
his first business selling telephone systems. He then grew and sold five profitable businesses – including Prestel, an online
information division of BT, which he turned into one of the UK’s first internet service providers. Following the sale of Teledata
Limited, the UK’s leading telephone information services company, to Scottish Telecom plc, Angus then spent two years on the
executive of Scottish Telecom plc where he was responsible for the development of the company’s internet division.
Resolution 5 – To declare a dividend 4.93p per ordinary share
Subject to the provisions of the Companies Acts, the Company may by ordinary resolution declare dividends, but no dividend
shall exceed the amount recommended by the board of directors. The board of directors recommends the payment of a final
dividend of 4.93p per ordinary share, to be payable to shareholders registered at close of business on 17 August 2018.
Resolution 6 – Re-appointment and remuneration of auditors
The Company is required at each general meeting at which financial statements are presented to shareholders to appoint
auditors who will remain in office until the next such meeting. Grant Thornton UK LLP have expressed their willingness to
continue in office for a further year. In accordance with company law and corporate governance best practice, shareholders
are also asked to authorise the directors to determine the auditors’ remuneration.
Resolution 7 – Authority to allot shares
Under section 551 of the Companies Act 2006, the directors of a company may only allot shares or grant rights to subscribe
for, or to convert any security, into shares in the Company if authorised to do so.
In line with guidance issued by the Investment Management Association (now the Investment Association), the authority
contained in paragraph (a) of this resolution will (if passed) give the directors authority to allot ordinary shares in connection
with a rights issue in favour of ordinary shareholders up to an aggregate nominal amount equal to £721,910.24 (representing
72,191,024 ordinary shares) as reduced by the nominal amount of any shares issued under paragraph (b) of this resolution.
This amount (before any reduction) represents approximately two-thirds of the issued ordinary share capital (excluding treasury
shares) of the Company as at the latest practicable date prior to publication of the notice of the meeting.
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iomart Group plc Annual report and accounts 2018 Notice of the 2018 Annual General Meeting
The authority contained in paragraph (b) of this resolution will (if passed) give the directors the authority to allot ordinary
shares up to an aggregate nominal value of £360,955.12 (representing 36,095,512 ordinary shares of 1p each). This amount
represents approximately one-third of the issued ordinary share capital (excluding treasury shares) of the Company as at the
latest practicable date prior to the publication of the notice of the meeting. This authority will expire on 28 November 2019 or,
if earlier, at the conclusion of the next annual general meeting.
Special Resolutions
Resolutions 8, 9 and 10 will be proposed as special resolutions. This means that for each of those resolutions to be passed, at
least three-quarters of the votes cast must be in favour of the resolution.
Resolutions 8 and 9 - Disapplication of statutory pre-emption rights
The Companies Act 2006 gives holders of ordinary shares, with limited but important exceptions, certain rights of pre-emption
on the issue for cash of new ordinary shares or on the sale of any shares which the Company may hold in treasury following
a purchase of its own shares. The directors of the Company believe that it is in the best interests of the Company that, as
in previous years, the board of directors of the Company should have limited authority to allot some shares for cash or sell
treasury shares without first having to offer such shares to existing shareholders. The directors’ current authority expires at
the close of the forthcoming annual general meeting. The authority sought by way of resolution 8 would expire at the earlier
of the close of the next annual general meeting or 28 November 2019. The authority, if granted, will relate to the allotment of
new ordinary shares or the sale of treasury shares in respect of (a) rights issues and similar offerings, where difficulties arise in
offering shares to certain overseas shareholders, and in relation to fractional entitlements and certain other technical matters,
(b) the right to receive shares, credited as fully paid, instead of cash in respect of the whole (or some part, to be determined
by the board of directors) of such cash dividend or dividends (if the Company offers shareholders the option of making an
election of that nature and if relevant shareholders make such an election), and (c) generally to allotments (other than in respect
of pre-emptive offerings) of ordinary shares or the sale of treasury shares having an aggregate nominal value not exceeding
£54,143.26 (being equal to 5% of the issued ordinary share capital (excluding treasury shares) of the Company as at the latest
practicable date prior to the publication of the notice of the meeting).
Resolution 9, if approved, would give the directors of the Company an additional authority to issue ordinary shares, or sell
treasury shares, for cash in connection with an acquisition or capital investment of kind contemplated by the Pre-Emption
Group’s Statement of Principles up to an additional aggregate nominal amount of £54,143.26 (being equal to 5% of the issued
ordinary share capital (excluding treasury shares) of the Company as at the latest practicable date prior to the publication of the
notice of the meeting). The directors confirm that they will only allot shares pursuant to this authority where the allotment is in
connection with an acquisition or specified capital investment (as defined in the Pre-Emption Group’s Statement of Principles)
which is announced contemporaneously with the allotment or sale, or which has taken place in the preceding six-month period
and is disclosed in the announcement of the allotment of sale.
The powers given by resolutions 8 and 9 will, unless sooner revoked or renewed by the Company in a general meeting, last until
the earlier of the close of the next annual general meeting or 28 November 2019.
Resolution 10 – Authority to purchase the Company’s own shares
This resolution grants authority to the Company to make purchases of up to a maximum of 10% of the issued ordinary share
capital of the Company as at the date of the notice of this meeting.
In certain circumstances it may be advantageous for the Company to purchase its ordinary shares. The directors would use
the share purchase authority with discretion and purchases would only made from funds not required for other purposes and
in light of market conditions prevailing at the time. In reaching a decision to purchase ordinary shares, your directors would
take account of the Company’s cash resources and capital, the effect of such purchases on the Company’s business and on
earnings per ordinary share.
The directors have no present intention of using the authority. However, the directors consider that it is in the best interests of
the Company and its shareholders as a whole that the Company should have flexibility to buy back its own shares should the
directors in the future consider that it is appropriate to do so.
In relation to any buy back, the maximum price per ordinary share at which the Company is authorised in terms of resolution 10
to effect that buy back is 5% above the average middle market price of an ordinary share for the five business days immediately
preceding the date on which the buy back is effected.
The statutory provisions governing buy backs of own shares are currently contained in, inter alios, sections 693 and 701 of the
Companies Act 2006.
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iomart Group plc Annual report and accounts 2018 Officers and Professional Advisers
Directors
Ian Ritchie CBE, FREng, FRSE, FBCS, CEng, BSc
Angus MacSween
Ian Steele BAcc, CA
Richard Masters LLB, DipLP
Richard Logan BA, CA
Secretary
Andrew McDonald, CA (appointed 2 February 2018)
Non executive chairman
Chief executive officer
Non executive director
Non executive director
Chief financial officer
Registered office
Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP
Nominated adviser and broker
Peel Hunt LLP, Moor House, 120 London Wall, London EC2Y 5ET
Principal Bankers
Bank of Scotland Plc, 110 St Vincent Street, Glasgow G2 5ER
Solicitors
Shepherd & Wedderburn LLP, 5th Floor, 1 Exchange Crescent, Conference Square, Edinburgh EH3 8UL
Pinsent Masons LLP, 141 Bothwell Street, Glasgow G2 7EQ
Independent auditor
Grant Thornton UK LLP, Level 8, 110 Queen Street, Glasgow G1 3BX
Registrars
Link Asset Services, PXS, Bourne House, 34 Beckenham Road, Beckenham, Kent BR3 4TU
Company Registration Number
SC204560
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iomart Group plc Annual report and accounts 2018
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iomart Group plc Annual report and accounts 2018