ANNUAL
REPORT AND
ACCOUNTS
2020
INFRASTRUCTURE
DATA PROTECTION
SECURITY
CONNECTIVITY
CONSULTANCY
PARTNER PROGRAMME
We offer a wide portfolio of services to support our customers
on-premise, in our data centres and in the HyperCloud.
1
iomart Group plc Annual Report and Accounts 2020 Contents
OVERVIEW
About us
Highlights
STRATEGIC REPORT
Chairman’s statement
Chief executive officer’s report
Chief financial officer's report
Principal risks and uncertainties
Stakeholder engagement
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 the 2020 Annual General Meeting
OFFICERS AND PROFESSIONAL ADVISERS
Officers and professional advisers
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10
11
14
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25
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43
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114
120
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iomart Group plc Annual Report and Accounts 2020
About us
ANNUAL REPORT AND ACCOUNTS 2020
ABOUT US
iomart provides the secure, mission-critical, managed services that enable businesses and
organisations to innovate and grow in a digital world.
Established in 1998 and headquartered in Glasgow, Scotland, we have built up the skills,
knowledge, infrastructure and technology partnerships to be able to help our customers at all
stages of their IT journey.
We design, deliver and manage the technology and cloud solutions that help them to transform
the way they deliver their services and we work with them to solve the many and complex
challenges they face around data management, security and connectivity. As a trusted partner
we support them through every phase of their digital transformation.
Strong
Secure
Skilled
iomart has been listed on the Alternative Investment Market for over
20 years, with a track record of continuous growth and profitability.
We protect our customers against cyber threats, from the data centre
to the desktop, and guarantee service uptime from infrastructure that
we own, manage and operate 24/7.
We have a workforce of over 400 people, 300 of whom are technical
specialists in infrastructure, cloud, network and security.
Our Global
Reach
Oslo
Stockholm
Amsterdam
Copenhagen
Warsaw
Frankfurt
Vienna
Munich
Luxembourg
Madrid
Sacramento
Los Angeles
Denver
Dallas
& Garland
Dublin
Guernsey
& Jersey
Paris
Chicago
Toronto
Boston
Buffalo
Ashburn
Miami
São Paulo
3
3
Glasgow
Manchester
St. Asaph
York
Nottingham
Leicester
Maidenhead
Gosport
London
Dunsfold
Dubai
Hong Kong
Tokyo
Singapore
Jakarta
Sydney
Melbourne
iomart Group plc Annual Report and Accounts 2020 Our Business
Values
Our core values reflect our commitment to deliver service excellence
and peace of mind to our customers.
We are proud of the talented people who work across our business
and who strive every day to deliver their best.
We are focused on leading the way in our sector by delivering
innovative solutions to the highest standards.
#weareiomart
ONE TEAM
we work together
to achieve great things
ACCOUNTABLE
we take ownership
of what we do
CUSTOMER FIRST
our customers are at the heart
of everything we do
INNOVATIVE
we are always striving
to improve
AMBITIOUS
we are proud and passionate
about our work
4
iomart Group plc Annual Report and Accounts 2020 Supporting
customers
during
Covid-19
The Covid-19 pandemic forced many businesses to change the way
they worked and their plans for the months ahead.
While we were able to move our non-data centre staff to work from
home overnight, this was a completely new situation for many of our
customers. We were able to deliver the technologies, security and
solutions to support them in this sudden shift to remote working.
One customer in particular needed extra help.
RHS/Georgi Mabee
RHS/Suzanne Plunkett
5
At a time when people were turning to gardening to help them through the
crisis, The Royal Horticultural Society was forced to cancel all its shows,
including its showcase event The Chelsea Flower Show.
Happily we were able to work with their digital and IT teams to turn it into
Virtual Chelsea – their first completely online show.
"
We often talk about OneRHS, where teams come together to create a
collaborative, united front. Bringing iomart into that loop just felt like we were all
one team.
- Matt Rooke, Digitech Director, Royal Horticultural Society
"
Virtual Chelsea was a huge success attracting more visitors to the RHS
website than ever before.
There were other ways that we helped. Some of our consultants became
part of our customers’ executive pandemic planning teams and as a
company we donated over 50 servers to support Folding@Home, a global
computing project helping scientists search for a vaccine.
iomart Group plc Annual Report and Accounts 2020 Our Business
Model
Through the combination of a broad range of cloud services
and products, our own physical assets and our skills we aim to
deliver excellent outcomes for our customers and value for all our
stakeholders.
SERVICES
consultancy, design and deployment of bespoke
cloud solutions which we secure and manage for
our customers 24/7
RESOURCES
data centres, servers, network, global PoPs and
connectivity to ensure customers' systems and
applications perform in all locations
PEOPLE
a highly skilled permanent workforce that
benefits from and is invested in the success of
our business
DELIVERING VALUE
for our customers, partners, staff,
shareholders and the economy
TECHNOLOGY
partnerships with world leading vendors allowing
us to select best-in-class products for our
solutions
CUSTOMERS
serving a wide range of customers and sectors,
often with bespoke solutions, and supporting
their requirements 24/7
REVENUE
monthly recurring revenue streams that generate
strong and consistent returns for us, our vendor
partners, our staff and our shareholders
6
iomart Group plc Annual Report and Accounts 2020 REVENUE
ADJUSTED EBITDA*
£112.6m
+9%
£43.5m
+3%
2019 : £103.7m
2019 : £42.2m
ADJUSTED PROFIT
BEFORE TAX
£22.8m
-11%
PROFIT BEFORE TAX
£16.8m
+4%
2019 : £25.5m
2019 : £16.2m
ADJUSTED DILUTED
EARNINGS PER SHARE
16.3p
-12%
2019 : £18.6p
CASHFLOW FROM
OPERATIONS*
£41.3m
+6%
BASIC EPS
12.5p
+5%
2019 : 11.9p
DIVIDEND
6.53p per share
-12%
2019 : £39.1m
2019 : 7.46p
*Adjusted EBITDA and cashflow from operations at 31 March 2020 benefitted by £3.0m from transition to IFRS 16 ‘Leases’
7
iomart Group plc Annual Report and Accounts 2020 ANNUAL REPORT AND ACCOUNTS 2020
HIGHLIGHTS
Financial Highlights
Operational Highlights
» Revenue up by 9% to £112.6m, with the
majority of the growth derived organically in
the year
» Adjusted EBITDA1 benefitted by £3.0m from
transition to IFRS 16 ‘Leases’
» Adjusted profit before tax2 and adjusted
earnings per share 3 reflects over £1m
annualised investment in sales engine and
broader mix of revenue
» Cash generated from operations in the year
of £41.3m (2019: £39.1m before exceptional
items) which retains the consistently
strong profit-to-cash conversion ratio (95%
conversion of adjusted EBITDA) (2019: 93%)
» Year-end cash position of £15.5m (2019:
£10.1m) with net debt of £57.6m (£37.3m
pre the adoption of IFRS 16) (2019: £39.2m),
at a comfortable level of 1.3 times EBITDA4
» Cloud Services organic growth rate increased
to 6% in the year (2019: 2%)
» Increased investment in sales engine has led
to several multi-million pound, multi-year
contracts being secured, adding to future
revenue visibility
» Continued market leading profitability and
low customer attrition
» Acquisitions of ServerChoice in February
2020 and Memset Limited in March 2020,
provide good quality customer base, with
integration already underway
» Appointment of Reece Donovan as Chief
Operating Officer to prepare Group for next
stage of growth
Statutory equivalents
A full reconciliation between adjusted and statutory profit before tax is contained within the financial statements. The
largest variance year on year within the adjustments relates to the £1.9m reduction in contingent consideration on the
2018 LDeX acquisition which translates to a gain within the consolidated statement of comprehensive income. In the
prior year a similar accounting entry was recorded for the 2017 Sonassi acquisition but in that situation it was a loss of
£1.4m on the finalisation of the earn-out final payment which was higher than previously expected.
1 Throughout these financial statements adjusted EBITDA (disclosed in the consolidated statement of comprehensive income) is earnings before interest, tax, depreciation and amortisation (EBITDA) before share-based
payment charges, acquisition costs and gain/(loss) on the revaluation of contingent consideration. Throughout these financial statements acquisition costs are defined as acquisition related costs and non-recurring
acquisition integration costs.
2 Throughout these financial statements adjusted profit before tax (disclosed on page 14) is profit before tax, amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs,
accelerated write off of arrangement fees on bank facility and gain/(loss) on revaluation of contingent consideration.
3 Throughout these financial statements adjusted diluted earnings per share (disclosed in note 12) is earnings per share before amortisation charges on acquired intangible assets, share-based payment charges,
acquisition costs, accelerated write off of arrangement fees on bank facility and gain/(loss) on revaluation of contingent consideration.
4 EBITDA is earnings before interest, tax, depreciation and amortisation.
8
iomart Group plc Annual Report and Accounts 2020 Supporting
customer
growth
We design, build and deliver managed services that help our
customers overcome their biggest challenges. Where there is
underperforming legacy infrastructure we work with them to
consolidate; where they need to deliver innovation we work with
them to transform. By solving their problems, we help them to grow.
"
Global employment law consultancy Peninsula selected iomart to help
transform the way it delivers services to customers in the UK and Ireland.
We are turning their fragmented on premise IT infrastructure into a
scalable and resilient private cloud environment, as well as providing the
data management, wide area network and public cloud connectivity needed
to support the biggest part of their global operation.
The partnership with iomart minimises our business risk and empowers
us to be more strategic. It will free up investment for new initiatives
that improve our business agility and our ability to deliver even better
services to our clients
- Peter Done, Founder and Group Managing Director, Peninsula
"
With our services and expertise we help organisations like Peninsula to
realise the benefits that a move to the cloud will bring.
9
iomart Group plc Annual Report and Accounts 2020 ANNUAL REPORT AND ACCOUNTS 2020
Chairman's
Statement
I am pleased to report that iomart (the “Group”) has delivered another year of revenue growth, strong profitability and cash generation,
in line with expectations. Due to the timing of the year end, the Group experienced minimal impact on trading in the year from the effects
of Covid-19.
As we publish this report, Covid-19 continues to impact people and economies around the world. In times such as these, our purpose
as a Board comes into clear focus: to ensure all employees are safe and supported; to ensure that the business continues to operate to
the highest standards for the benefit of all stakeholders; and to protect and enhance the long-term future of the business. I am pleased
to report that during these challenging times, this has indeed been the case. Having implemented remote working across our sites
from early March 2020, the Group has continued to operate to its customary high standards, ensuring 100% uptime and high levels of
customer support while continuing to develop prospects for future growth. The teams have responded positively to the changes asked
of them, and I and the Board wish to thank them for their increased efforts in what have been challenging times for all.
iomart is a well-funded, well-managed, profitable and cash-generative business with high levels of recurring revenue. The cash position
at year end has increased to £15.5m, up from £10.1m at the prior year end, demonstrating the financial strength of the business.
The management team has run reasonable downside scenario tests and is confident we have the resources to withstand a significant
economic downturn. We will continue to be vigilant in terms of monitoring business levels and the Group’s cash position, however with
greater than 85% of the Group’s revenue recurring in nature, a wide customer base across multiple industry sectors and our offering
delivering mission critical infrastructure, the Board is confident iomart is in a strong and robust position to address any future broader
economic concerns.
During the year we paid an interim dividend of 2.60p per share which was paid to shareholders in January. In addition, the Board is now
proposing to pay a final dividend of 3.93p per share. With this final dividend payment, the total for the year will be 6.53p, equivalent
to the maximum pay-out ratio under our current policy of 40% of adjusted diluted earnings per share. We are aware of the focus from
the wider community on dividend payments in the current economic situation, but believe that, given our funding position, our decision
not to apply for the government’s furlough scheme, our robust business model and our focus on being as fair and supportive as we can
be to all stakeholders during the recent unprecedented events, including employees, customers and suppliers, we should recognise the
support from our shareholders by continuing our dividend policy.
On 30 March 2020, we were delighted to welcome Reece Donovan to the Board as Chief Operating Officer. Reece has significant
experience in the technology and telecommunication industries, with a demonstrable track record of achievement in roles both in the
UK and internationally. Given the growth of the business and our plans for the future it was important to strengthen our executive team
and we welcome Reece to the Group.
The progress we have made this year and the continued strong financial performance is a result of a great deal of hard work by our
executives and staff and I thank them all on behalf of the Board and the shareholders for their efforts over the year.
Ian Steele
Non-Executive Chairman
24 June 2020
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iomart Group plc Annual Report and Accounts 2020 ANNUAL REPORT AND ACCOUNTS 2020
Chief Executive
Officer's Report
Introduction
This is the twelfth consecutive year of growth since the transition of the business to cloud services in 2008 with the acquisition of our
first data centres. Since that time, revenues and profits have grown considerably, with revenue reaching £112.6m (2019: £103.7m), an
increase of 9% on the prior year through the combination of continued organic growth and the impact of acquisitions.
A key point of focus in the last 18 months has been the refresh of our sales and marketing operations to ensure we have the right mix
of skills, processes and tools to deliver the next stage of growth. We have been encouraged by the early signs of success, securing
several multi-million pound contracts in the year, which add to our long-term visibility of revenues. While adjusted EBITDA margins have
naturally reduced as a result of this investment and the specific mix of revenues in the current year, we retain market leading adjusted
EBITDA margins of above 38%, strong cash generation and high levels of customer retention. Our statutory profit before tax increased
by 4% to £16.8m.
Covid-19
In the three months since the response to the Covid-19 pandemic was initiated in the UK, there has been limited impact on iomart’s
trading. We take great comfort from the resilience of our business model, especially the diversity and limited concentration of our
customer base. We are not significantly exposed to industries that are suffering the worst effects. The level of customer churn across
all segments of the business has been low, renewal levels high and cash collection in line with our typical profile. However, we remain
vigilant to the economic impact the ongoing situation may create, particularly on the SME segment of the market.
Our priority has been the wellbeing and health of our staff and our teams have responded fantastically to the changes placed upon them.
iomart has always had the technological capability to enable home working and implemented this mode of operation with no disruption
from 9 March, while mission critical on-site roles, such as in data centres, have been manned in compliance with social distancing rules.
As a result, our business has continued to operate 24/7 as near to normal as possible. Each of our data centres remains operational to
high standards of security and resilience and all customer support has been maintained.
We have increased the monitoring of cash flow, and cash management has been strong. We have not applied for any support from the
government’s furlough scheme, preferring instead to continue to pay the salaries of the small number of the team whose roles are not
currently required, while encouraging them to offer their time to the support of their communities.
Market and Strategy
We operate in a dynamic market with new products and solutions being developed at an ever-increasing pace. We are focussed on
ensuring our product portfolio remains relevant to support customers in the journey to cloud based solutions, be that of a public, private,
hybrid nature or indeed “on premise”, as a substantial number of organisations still continue to acquire elements of what they need in
this way.
The growth in data requirements sees no slow down, with the number of users, devices, content rich data and applications increasing
demand for computer power, storage and connectivity. Development around such areas as machine learning, internet of things and big
data will ensure this is a long-term trend. The complexity of hosting environments is putting pressure on resourcing and capabilities of
in-house IT teams, driving outsourcing demand. The market for cloud computing solutions which we identified in 2007 presents us with
as much opportunity now as it did then and our strategy is well positioned to deliver continued success. The current situation around
Covid-19 may see the acceleration in the adoption of digital transformation and remote working, both of which are likely to be long-term
drivers to the Cloud.
Overall, our market continues to grow strongly. As has been well documented, a large part of this growth is dominated by the ‘hyper-
scalers’, primarily Amazon, Microsoft and Google. These organisations are now established parts of the landscape and what has been
shown, especially given the trend to multiple cloud architectures, is that there is plenty of space for organisations like iomart and the
hyper-scalers to coexist. We strongly believe our differentiation is that we provide advice, help, great customer service and flexibility. In
addition, for organisations with a stable baseload of computer power, iomart’s bespoke cloud solutions can compete head to head on full
life costs. The untidy nature of the vast majority of the world’s legacy IT infrastructure provides us with the reassurance that there will
always be customers who are looking for a trusted advisor in this space.
11
iomart Group plc Annual Report and Accounts 2020 Strategic Report - Chief Executive Officer's Report
Market and Strategy (continued)
We have already established a strong position as a leading provider of managed cloud computing services which has customer
relationships and excellence in service at the heart of the business. We plan to build on this position by focussing on:
• Growing our managed cloud services by excelling in customer service and ensuring innovation in our customer offering continues
to match the needs of the market;
• Growing our self-managed infrastructure brands by differentiating with products, solutions and support which add value and help
solve business problems;
• Retaining our presence in the mass consumer domain name and web hosting market via selective marketing and dynamic pricing;
Building a high performance team supported by best in class systems, processes and tools;
• Continued optimisation of our data centre estate with cost efficiency achieved via asset planning, procurement and automation;
Ensuring robust and resilient infrastructure, connectivity and security at all times; and
• Continuation of our disciplined acquisition strategy, with earning enhancing deal valuations and clear integration to the existing
business.
Acquisitions
We again augmented our overall growth during the year through the acquisition of:
•
The managed private cloud division of privately owned ServerChoice Limited (“ServerChoice”) on 28 February 2020, seeing the
transfer of around 30 customers, some equipment and a small number of staff into our core managed Cloud Services business; and
• Memset Limited (“Memset”) on 12 March 2020. Memset is a well-established business providing dedicated and virtualised private
cloud infrastructure to around 2,000 customers from a team and data centre based in Dunsfold, Surrey.
The timing of these acquisitions means they had no material impact on revenue and profit in the year ended 31 March 2020 and planning
for integration is already underway as we enter the new financial year. Strict criteria continue to be applied to any potential acquisition
target, ensuring they enhance our overall strategy and are accretive to the financial strength of the Group. We expect M&A activity will
continue as an important growth driver for the Group in what remains a highly fragmented market.
Operational Review
While all of our activities involve the provision of services from common infrastructure, we are organised into two operating segments,
Cloud Services (£99.8m revenue) and Easyspace (£12.8m revenue).
Cloud Services
Revenues in this segment have grown by 10% to £99.8m (2019: £90.6m). While the full year contribution from the prior year acquisitions
was a positive factor, it was pleasing to see organic growth being the largest element of our overall growth in the current year. Revenue
growth in the Cloud Services segment, excluding the impact of acquisitions, was 6% (2019: 2%). The Cloud Services adjusted EBITDA
(before share-based payments, acquisition costs and central group overheads) was £42.3m being 42.4% of revenue (2019: £40.4m being
44.6% of revenue), or £39.3m on a like-for-like basis, excluding the impact of IFRS 16 ‘Leases’. We continue to expect Cloud Services to
be the driver of revenue and profit growth for the Group going forward.
Within our Cloud Services division, we have three core offerings, recognising the differing complexity of the solutions designed and the
level of ongoing managed services we provide. This means we are able to supply products and services across the full cloud spectrum and
do so using shared resources and common platforms across the Group:
•
•
iomart Cloud Services: provides fully managed, complex bespoke designs, resulting in resilient solutions involving private, public and
hybrid cloud infrastructure. This can range from the provision of managed online backup and disaster recovery solutions, trough
to an entity’s entire online live presence where all revenue generated by the entity’s activities are transacted through the cloud
infrastructure we provide, delivered with the reassurance of a full 24/7 management service.
Infrastructure as a Service (IaaS): delivers dedicated, physical, self-service servers to customers. We provide many thousands of
physical servers for our customers using highly automated systems and processes which we continue to develop and improve. Over
the last few years we have been a consolidator of the UK market within this area, via our M&A activity, including for example our
most recent acquisition of Memset. In a considered manner, ensuring minimum disruption to the customer experience, we continue
to consolidate legacy brands.
12
iomart Group plc Annual Report and Accounts 2020 Strategic Report - Chief Executive Officer's Report
Cloud Services (continued)
• Cristie Data: supplies computer equipment to customers’ premises along with associated support services. The continued revenue
growth of this brand, including a higher mix of recurring business, confirms the move to the consumption of computing power
in the cloud by established organisations is happening over a long period and establishing relationships at this early stage has
allowed us to support customers as they start the journey to the cloud.
The improvement in the revenue in the current year benefited from a strong performance by Cristie Data. The provision of IaaS saw
some reductions in revenue primarily from the smaller customers, which while not material to the overall net revenue growth achieved,
is high margin business. We achieved improved momentum in new business wins within the Cloud Services division, where the highest
level of management effort and investment has been in the last year. Two large enterprise wins were achieved in the year which are both
around £1m of annual recurring revenue. These were great examples of the full utilisation of our capability and service to support the
move from fragmented on-premise IT infrastructure into a scalable, resilient and secure private cloud environment needed to support
global operations.
We believe controlling our own infrastructure is important to delivering high quality, secure and robust solutions to customers. In June
2020, subsequent to the year end, we extended our London data centre property lease to June 2035. Following this, we plan to upgrade
the main cooling and the electrical systems on the site over the coming 18 months, improving resilience but also adding to our energy
efficiency.
Easyspace
The Easyspace segment which provides a range of products to the micro and SME markets including domain names, shared, dedicated
and virtual servers and email services, saw a small reduction in revenue in the year to £12.8m (2019: £13.1m). To grow Easyspace
significantly would mean competing in a more commoditised market with the need for a high marketing budget. As a result, our target for
Easyspace is to retain our existing presence in the UK market via selective marketing and responding to market conditions with dynamic
pricing. As in the past, Easyspace delivered strong profitability with an adjusted EBITDA (before share-based payments, acquisition costs
and central group overheads) of £5.6m being 44.2% of revenue (2019: £6.2m being 47.1% of revenue). The business benefits from use
of the Group infrastructure meaning this profitability translates to strong cash flow for the Group.
Current trading and outlook
The first two months of the new financial year have performed in line with our expectations, consistent with our high recurring revenue
business model. As evidenced by our robustness during the Covid-19 period, our current cash balances remain at a similar level to the
year end. Business development continues, with good discussions with both new and existing customers, although timing of new projects
is likely to be more uncertain for the remainder of this calendar year.
While visibility of sales pipeline conversion remains less clear, we believe the medium-term impact of the social distancing measures
implemented across the world will prompt the acceleration in the adoption of digital transformation and remote working, both of which
are long-term drivers to the cloud. Our high levels of recurring revenues, breadth of customer base, industry leading profit margins
and strong cash generation, mean we are confident iomart is well positioned to withstand the current challenges and deliver long-term
growth.
Angus MacSween
Chief Executive Officer
24 June 2020
1 Throughout these financial statements adjusted EBITDA (disclosed in the consolidated statement of comprehensive income) is earnings before interest, tax, depreciation and
amortisation (EBITDA) before share-based payment charges, acquisition costs and gain/(loss) on the revaluation of contingent consideration. Throughout these financial statements
acquisition costs are defined as acquisition related costs and non-recurring acquisition integration costs.
2 Throughout these financial statements adjusted profit before tax (disclosed on page 14) is profit before tax, amortisation charges on acquired intangible assets, share-based
payment charges, acquisition costs, accelerated write off of arrangement fees on bank facility and gain/(loss) on revaluation of contingent consideration.
3 Throughout these financial statements adjusted diluted earnings per share (disclosed in note 12) is earnings per share before amortisation charges on acquired intangible assets,
share-based payment charges, acquisition costs, accelerated write off of arrangement fees on bank facility and gain/(loss) on revaluation of contingent consideration.
13
iomart Group plc Annual Report and Accounts 2020 ANNUAL REPORT AND ACCOUNTS 2020
Chief Financial
Officer's Report
Financial Review
Key Performance Indicators
Revenue
Gross Profit %
Adjusted EBITDA
Adjusted EBITDA margin %
Adjusted profit before tax
Adjusted profit before tax margin %
Profit before tax
Profit before tax margin %
Basic earnings per share
Adjusted earnings per share (diluted)
Cash flow from operating activities before exceptional costs / Adjusted EBITDA %
Net debt / Adjusted EBITDA leverage ratio
2020
£112.6m
60.8%
£43.5m
38.6%
£22.8m
20.2%
£16.8m
14.9%
12.5p
16.3p
95%
1.3
2019
£103.7m
64.4%
£42.2m
40.7%
£25.5m
24.6%
£16.2m
15.6%
11.9p
18.6p
93%
0.9
Revenue
Revenue for the year grew by 9% to £112.6m (2019: £103.7m) through the combination of continued organic growth and the full year
impact of acquisitions made in the prior year.
Our Cloud Services segment grew revenues by 10% to £99.8m (2019: £90.6m), 6% excluding the impact of acquisitions (2019: 2%).
A full year contribution from Bytemark and LDeX, acquired in August 2018 and late December 2018, respectively, contributed to the
overall growth rate. The timing of our latest two acquisitions, completed in February and March 2020 means they made no material
impact to the trading results in the year. The segment benefited from a strong performance by our hardware reseller brand, Cristie Data,
with revenue from our higher margin Infrastructure as a Service offerings being slightly down. We achieved improved momentum in
new business wins within the managed cloud services, where the highest level of management effort and investment has been in the last
year, with the majority of revenue from these multi-year contracts being recognised in future years, increasing our monthly run-rate of
revenue.
Our Easyspace segment has performed in line with expectations over the year with revenues reducing only slightly to £12.8m (2019:
£13.1m).
Business model
Our business model in both segments generally involves the provision of cloud and managed hosting services from our data centres,
delivering the computing power, storage, and network capability our customers require for the operation of their own businesses. We
have invested in an estate of data centres, an extensive fibre network and for each customer the servers, routers, firewalls etc that are
necessary to create the IT infrastructure they require. Customers pay us for the provision of that infrastructure, with the potential to
add a managed services wrapper.
Larger customers tend to have multi-year contracts for complex cloud solutions, which are invoiced and paid on a monthly basis. Many of
our smaller customers pay in advance for the provision of services which results in a substantial sum of deferred revenue, which is then
recognised over the period of the service provision. A very large proportion of our revenue is therefore recurring and the combination of
multi-year contracts and payment in advance provides us with excellent revenue visibility.
Gross Profit
Gross profit in the year, which is calculated by deducting from revenue variable cost of sales such as domain costs, public cloud costs, the
cost of hardware and software sold, power, sales commission and the relatively fixed costs of operating our data centres, increased by 3%
to £68.5m (2019: £66.7m). In percentage terms, gross margin has reduced to 60.8% (2019: 64.4%) due primarily to two factors. Sales
by Cristie Data are typically lower gross margin given the inclusion of the reselling element of their solutions, plus some of the larger
managed cloud solutions recently signed have initial contribution levels lower than the smaller infrastructure only deals from the past,
although we anticipate their gross profit margin will increase over time. We have not seen any significant individual price change in any
of the components of the purchased cost base in the 12 months.
Gross profit within our Easyspace segment reduced slightly from the previous year due to the specific bundle of packages sold to hosting
customers in the year.
14
iomart Group plc Annual Report and Accounts 2020
Strategic Report - Chief Financial Officer's Report
Adjusted EBITDA
Our adjusted EBITDA performance in the year reflects the increased investments we have made in the organisation to provide us with
the right platform for accelerated future growth, plus the impact of the revenue mix described above. While our adjusted EBITDA margin
has decreased to 38.6%, we retain market leading margins and are confident this level is now sustainable, striking the right balance
between investment in the organisation to better align the business with higher growth areas of the market and high levels of profit
generation.
Adjusted EBITDA for the year was £43.5m (2019: £42.2m) an increase of 3% which in EBITDA margin terms translates to 38.6% (2019:
40.7%). The adoption of IFRS 16 ‘Leases’ (“IFRS 16”), which reclassifies previous operating lease rentals to a depreciation and interest
charge, has a benefit of £3.0m in the year to the adjusted EBITDA metric. The previously flagged investment in our commercial operation,
combined with the overhead base of the prior year acquisitions, resulted in a £3.4m increase in our administrative expenses versus the
prior year. This, along with the broader mix of revenue, has reduced our underlying EBITDA generation in the year.
Adjusted EBITDA in the Cloud Services segment was £42.3m (2019: £40.4m), an increase of 5%. This reported result includes the impact
from the adoption of IFRS 16, the specific mix of business and our investment into our commercial operations previously mentioned
which are all solely applicable to the Cloud Services segment. We do not anticipate any more significant increases in investments into the
overheads moving forward as the reorganisation of our commercial operation is complete. These factors mean that in percentage terms,
the full year adjusted EBITDA margin in the Cloud Services segment has decreased to 42.4% (2019: 44.6%).
The Easyspace segment’s adjusted EBITDA was £5.6m (2019: £6.2m) reflecting the impact of slightly lower revenue this year plus some
reduction in gross margin due to specific products sold. In percentage terms the adjusted EBITDA margin is reduced to 44.2% (2019:
47.1%).
Group overheads remained stable at £4.4m (2019: £4.4m). These are costs which are not allocated to segments, including the cost of
the Board, the running costs of the headquarters in Glasgow, Group marketing, human resource, finance and design functions and legal
and professional fees for the year.
Adjusted profit before tax
Excluding the impact of additional depreciation of £2.9m following the adoption of IFRS 16, depreciation charges have remained broadly
consistent with prior year at £15.6m (2019: £13.1m). There were no material project type investments made in the year with most of the
CAPEX spend being on operational items such as servers and storage to support customer deployments and growth.
The charge for amortisation of intangibles, excluding amortisation of intangible assets resulting from acquisitions (“amortisation of
acquired intangible assets”), of £2.9m (2019: £2.5m) has increased as a result of an increase in the level of software investment.
Finance costs of £2.2m (2019: £1.2m), has increased primarily due to the adoption of IFRS 16, which reclassifies previous operating lease
rentals to a depreciation and interest charge. The new interest charge created by this was £0.6m.
After deducting the charges for depreciation, amortisation (excluding the charges for the amortisation of acquired intangible assets) and
finance costs (excluding the accelerated write off of arrangement fees on bank facility) from the adjusted EBITDA, the Group’s adjusted
profit before tax reduced by 11% to £22.8m (2019: £25.5m), representing an adjusted profit before tax margin of 20.2% (2019: 24.6%).
Profit before tax
The measure of adjusted profit before tax is an alternative profit measure which is commonly used to analyse the performance of
companies particularly where M&A activity forms a significant part of their activities.
A reconciliation of adjusted profit before tax to reported profit before tax is shown below:
Reconciliation of adjusted profit before tax to profit before tax
Adjusted profit before tax
Less: Amortisation of acquired intangible assets
Less: Acquisition costs
Less: Share-based payments
Add/(Less): Gain/(loss) on revaluation of contingent consideration
Less: Accelerated write off of arrangement fees on bank facility
Profit before tax
2020
£’000
22,768
(6,159)
(438)
(1,243)
1,856
-
16,784
2019
£’000
25,524
(6,492)
(351)
(1,008)
(1,394)
(63)
16,216
15
iomart Group plc Annual Report and Accounts 2020
Strategic Report - Chief Financial Officer's Report
Profit before tax (continued)
The adjusting items are: charges for the amortisation of acquired intangible assets of £6.2m (2019: £6.5m) which is the net impact of the
acquisitions made in the year and the specific amortisation profile of items from acquisitions made in previous years; acquisition costs
of £0.4m (2019: £0.4m) as a result of professional fees associated with acquisitions made and share-based payment charges of £1.2m
(2019: £1.0m) an increase due to the issue of additional share options.
In addition, the adjusting items also include a gain on the revaluation of contingent consideration of £1.9m (2019: £1.4m net loss). The
current year gain relates to the reduction in the earn-out payment on the LDeX acquisition. This contingent payment relates to the
EBITDA achieved during the 12 months to 31 December 2019 for which a multiple of six is applied. As a result, the reduction represents
a £0.3m EBITDA variance to previous forecasts. In prior year, the final payment due on the Sonassi acquisition was £1.8m higher than the
previous estimate. The structure of the Sonassi earn-out arrangement, with a high multiple factor under a ratchet mechanism, meant that
a modest change in profitability within a certain range resulted in a substantial change in the amount due under the earn-out terms. The
brand’s performance exceeded management expectations in the final months of the earn-out period to July 2018. Offsetting this loss in
prior year was a gain of £0.4m on the revaluation of the Bytemark contingent consideration with settlement paid in full.
In the prior year comparatives there was one additional adjustment: non-cash accelerated write off of previously capitalised
arrangements fees of £0.1m following the Group entering into a new banking facility on 6 June 2018.
After deducting these items from the adjusted profit before tax; the reported profit before tax was £16.8m (2019: £16.2m) an increase
of 4%. In percentage terms the profit before tax margin was a slight reduction to 14.9% (2019: 15.6%) with favourable movement on the
gain/(loss) on contingent consideration offsetting trading result reductions.
Taxation
The tax charge for the year is £3.1m (2019: £3.3m). The tax charge for the year is made up of a corporation tax charge of £3.6m (2019:
£5.0m) with a deferred tax credit of £0.5m (2019: £1.7m). The effective rate of tax for the year is 18.7% (2019: 20.6%). The movement
in the year is heavily influenced by three main factors being: the swing in the tax charge in the current year from the non-taxable gain
on revaluation of contingent consideration compared to the non-taxable deductible loss in prior year, tax effect from share-based
remuneration and adjustments in the current year tax relating to prior period. We believe 19%, being the UK headline corporation tax
rate, is considered a reasonable recurring effective tax rate for underlying profits. Further explanation of the tax charge for the year is
given in note 9.
Profit for the year
After deducting the tax charge for the year from the profit before tax the Group has recorded a profit for the year from total operations
of £13.7m (2019: £12.9m) an increase of 6%.
Earnings per share
The calculation of both adjusted earnings per share and basic earnings per share is included at note 12.
Basic earnings per share from continuing operations was 12.5p (2019: 11.9p), an increase of 5%.
Adjusted diluted earnings per share, based on profit for the year attributed to ordinary shareholders before amortisation charges of
acquired intangible assets, acquisition costs, share-based payment charges, the gain/(loss) on the revaluation of contingent consideration,
accelerated write off of arrangement fees on the bank facility, and the tax effect of these items was 16.3p (2019: 18.6p), a reduction of
12%.
The measure of adjusted diluted earnings per share as described above is a non-statutory measure which is commonly used to analyse
the performance of companies particularly where M&A activity forms a significant part of their activities.
Acquisitions
On 28 February 2020, iomart acquired the managed private cloud division of privately owned ServerChoice Limited, for an initial
consideration of £2.0m after a deduction of £0.1m for working capital, with a further maximum consideration of £0.9m. The initial
payment was funded from a drawdown from the Company’s revolving credit facility. The contingent consideration will be based on
achievement of certain monthly recurring revenue targets in June 2020 and September 2020. Based on estimates of the probabilities of
various levels of revenue, we expect the amount to be paid in respect of the final contingent consideration due will be £0.8m (note 20).
The business purchase agreement saw the transfer of around 30 customers, £0.3m of fixed assets and a small number of staff based in
Stevenage into our core managed cloud services business.
On 12 March 2020, iomart completed the acquisition of Memset Limited for an initial consideration of £2.7m, with a further maximum
consideration of £1.0m. This initial payment included a deduction of £0.6m to settle the adjustments required to the locked box
accounts in respect of the cash, debt and working capital position. The initial payment was funded from a drawdown from the Company’s
revolving credit facility. The contingent consideration will be based on achievement of certain monthly recurring revenue targets in
December 2020. Based on estimates of the probabilities of various levels of revenue, we expect the amount to be paid in respect of the
final contingent consideration due will be £0.5m (note 20). Memset is a well-established business based in Dunsfold, Surrey providing
dedicated and virtualised private cloud infrastructure to around 2,000 customers.
16
iomart Group plc Annual Report and Accounts 2020 Strategic Report - Chief Financial Officer's Report
Dividends
Our dividend policy, which has been in place for several years now, is based on the profitability of the business in the period. We have
committed to a pay-out policy of up to 40% of the adjusted diluted earnings per share we deliver in a financial year.
This year we paid an interim dividend of 2.60p (2019: 2.45p) which was paid in January 2020. We have now proposed a final dividend
payment of 3.93p per share (2019: 5.01p) which would result in a total dividend for the year of 6.53p (2019: 7.46p) representing a
pay-out ratio of 40% of the adjusted diluted earnings per share for the year. The Board has taken the decision to pay a final dividend
to shareholders as a result of the recurring revenue nature of the Group, the level of operating cash which we now deliver and the low
level of indebtedness within the Group. Should the impact of Covid-19 increase in the year ahead, the Board will keep the level of future
dividend payment under review. However, it should be noted the Group has not, to date, utilised any of the government furlough schemes
and therefore believes that there is no impediment in this respect to paying a dividend to shareholders.
Cash flow and net debt
Net cash flows from operating activities
The Group continued to generate high levels of operating cash over the year. Cash flow from operations was £41.3m (2019: £39.1m
before exceptional non-recurring costs) which represents a 95% conversion of adjusted EBITDA (2019: 93%). This strong level of cash
flow conversion has been a constant feature over the years, recognising the strength of our business model and cash cycle. The adoption
of IFRS 16, which reclassifies previous operating lease rental payments to lease repayments and interest represents a reclassification
from net cash flows from operating activities of £3.0m to net cash flows from financing activities.
Payments of taxation in the year remained reasonably stable at £4.7m (2019: £5.4m) and results in a net cash flow from operating
activities in the year of £36.6m (2019: £31.4m after paying £2.3m of non-recurring software licence fees).
Cash flow from investing activities
Given our strong position, in a growing market, we continue to invest large sums on investing activities split between both internal
investments into our global infrastructure but also in the continuation of our disciplined acquisition strategy. The Group invested a total
of £21.2m (2019: £35.3m) during the year.
The Group continues to invest in property, plant and equipment through expenditure on data centres and on equipment required to
provide managed services to both its existing and new customers. As a result, the Group spent £14.7m (2019: £10.4m) on assets, net
of related lease drawdowns, trade creditor movements and non-cash reinstatement provisions. This is broadly similar to last year after
recognising the Maidenhead freehold purchase in December 2018 for £5.4m (excluding £0.3m of fees and taxes). We remain focused on
increased automation and asset planning within the infrastructure estate with the aim of ensuring cost and utilisation efficiency.
Expenditure was also incurred on development costs of £1.4m (2019: £1.4m) and on intangible assets of £1.1m (2019: £1.1m).
In line with our strategy of accelerating our growth by acquisition the Group spent £4.2m (2019: £12.0m), net of cash acquired, in
relation to the acquisitions of the managed private cloud division of privately owned ServerChoice Limited and Memset Limited, as
described above. In the current year, the Group did not incur any expenditure in respect of contingent consideration due on previous
acquisitions (2019: £4.7m).
Cash flow from financing activities
Drawdowns of £6.2m (2019: £25.9m) were made from the revolving credit facility in the year to fund the purchase of the acquisitions.
Bank loan repayments of £2.0m (2019: £12.2m) were made in the year. We received £0.6m (2019: £0.3m) from the issue of shares as
a result of the exercise of options by employees. We also made dividend payments of £8.3m (2019: £8.0m) (note 8); paid finance costs
of £1.7m (2019: £1.1m); and made lease repayments of £4.7m (2019: £0.5m). The adoption of IFRS 16, which reclassifies previous
operating lease rentals appearing within cash flow from operations to repayment of lease liabilities and additional finance costs paid is
the reason for the increase in these related cash outflows within financing activities.
Net cash flow
As a consequence, our overall cash generated during the year was £5.4m (2019: £0.6m) which resulted in cash and cash equivalent
balances at the end of the year of £15.5m (2019: £10.1m).
17
iomart Group plc Annual Report and Accounts 2020 Strategic Report - Chief Financial Officer's Report
Net Debt
The net debt position of the Group at the end of the period was £57.6m (2019: £39.2m) as shown below, of which nearly £20m is as a
result of the adoption of IFRS 16. This represents a multiple of 1.3 times our annual adjusted EBITDA which we believe is a comfortable
level of debt to carry given the recurring revenue business model and strong cash generation in the business. The level of net debt has
increased purely as the result of the introduction of £20.3m of lease liability on the adoption of IFRS 16 (note 23).
Bank revolver loan
Lease liabilities
Less: cash and cash equivalents
Net Debt
2020
£’000
52,791
20,347
(15,497)
57,641
2019
£’000
48,536
777
(10,069)
39,244
The banking facility, which provides an £80m revolving credit facility, matures in September 2022.
Exposure to credit and liquidity risks
Disclosures relating to our exposure to credit and liquidity risks are outlined in note 29.
Financial position
The strength of our business model, with high recurring revenue, low customer concentration across wide sectors and a positive
cash cycle is well established and creates a very strong financial position, even in the current challenging environment caused by the
Covid-19 virus. The Group continues to generate substantial amounts of operating cash. The generation of that cash flow together
with the committed bank loan facility for acquisitions, capital expenditure and general business purposes, means that the Group has the
liquidity it requires to continue its growth through both organic and acquisitive means.
Scott Cunningham
Chief Financial Officer
24 June 2020
Definition of alternative profit measures:
Gross profit margin % is defined as Gross Profit / Revenue as a % (both as disclosed in the consolidated statement of comprehensive income)
Adjusted EBITDA margin % is defined as adjusted EBITDA (as defined on page 14) / Revenue (as disclosed in the consolidated statement of comprehensive income) as a %
Adjusted PBT margin % is defined as adjusted PBT (as defined on page 14) / Revenue (as disclosed in the consolidated statement of comprehensive income) as a %
Profit before tax margin % is defined as Profit before Tax / Revenue (both as disclosed in the consolidated statement of comprehensive income) as a %
Cash flow from operating activities before exceptional costs / Adjusted EBITDA % is defined as cash flow from operating activities before exceptional costs (as disclosed in the
consolidated statement of cash flows) / Adjusted EBITDA (as defined on page 14) as a %
Net debt / Adjusted EBIDTA level ratio is defined as Net Debt (as disclosed on page 14) / Adjusted EBITDA (as defined on page 14)
18
iomart Group plc Annual Report and Accounts 2020
Strategic Report - Principal Risks and Uncertainties
The Board of directors, who are responsible for the Group’s system of risk management and internal controls, have established systems
to ensure that an appropriate level of oversight and control is provided to manage principal risks and uncertainties identified that could
have a material impact on the Group’s performance. The Group’s systems of risk management and internal controls, which are reviewed
for effectiveness by the Audit Committee and the Board, are designed to help the Group meet its business objectives by appropriately
managing, rather than eliminating, the risks relating to those objectives.
In the prior year, the Group, supported by external advisors, updated its risk management framework and risk assessment to identify
and address all relevant risks in order to execute and deliver the Group’s strategy. 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. There are a number of potential risks and uncertainties which have been identified as material
as a result of this process. Details of financial risks are outlined in note 29.
As we finish the year, the impact of Covid-19 on our business required us to reassess the impact of the global pandemic on our business
risk and internal control environment. As highlighted in the Chairman’s statement and the Chief Executive Officer’s statement, we take
great comfort from the resilience of our business model, especially the diversity and limited concentration of our customer base. We
are not significantly exposed to industries that are suffering the worst effects. We have the tools and technology which have allowed
us to implement remote working across our sites from early March 2020 and to continue to operate effectively and meet customers’
requirements. Taking all of this into account, while we remain very vigilant on the potential further impact of Covid-19, we believe our
previous risk assessment still remains valid and our new modes of operation have not diluted the strength of our control environment.
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. The Group also has the ability to manage and recruit resource across multiple locations which creates, to some degree,
flexibility on where we recruit and how we deploy our resources.
Data centre operation
Any downtime experienced at our data centres 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 data centres continue to operate at their optimum parameters. We also continually look at new
innovations and technology within the sector that can help to deliver operational efficiency and effectiveness in line with our ISO50001
energy management system, and our obligations within the CRC Energy Efficiency Scheme.
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 diverse fibre network which
connects our data centre 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 data centre 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.
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 to promote a culture within the
organisation which embeds security across all of our operations. iomart continues to develop our security portfolio to equip our
customers with the means to counter the types of security threats our clients face. We are enhancing our internal process improvement,
security awareness and training to ensure we provide solutions which customers can rely on. The Group also carries specific insurance in
relation to cyber related crime. Our contracts and associated schedules with customers make it clear where responsibilities lie in relation
to the roles and responsibilities of each party for the Security of Data and Data Protection in general.
Competition
iomart operates in a competitive and fluid marketplace and while the directors believe the Group enjoys significant strengths and
advantages in competing for business, some of the competitors are significantly larger, allowing them to offer similar services for
lower prices than the Group would be prepared to match, or launching new product offerings with significantly enhanced features.
Consequently these competitors could materially adversely impact the scale of the Group’s revenues and its profitability. In response to
this, we maintain a broad customer base, with currently no single customer with more than 2% of our annual revenue. We also mitigate
the risk by establishing strong relationships with our customers, developing tailor-made and value-creating solutions and delivering
excellent service performance while being cost competitive in our day to day business. Our development team are continually working
towards both enhancing, and augmenting, the services we currently offer. Our Product Board meets regularly to keep abreast of the new
technology which could enhance the Group’s service portfolio.
19
iomart Group plc Annual Report and Accounts 2020 Strategic Report - Principal Risks and Uncertainties
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.
Growth management
The Group is experiencing high levels of growth through a combination of 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, an 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 an integration and migration
plan which includes the participation of the vendor to ensure successful integration of the acquired business into the Group’s
operations; and
• 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 cash flow. For each
acquisition diligence and integration planning is undertaken and all potential synergies identified.
20
iomart Group plc Annual Report and Accounts 2020 Strategic Report - Stakeholder Engagement
During the year, the Board and its directors confirm they have acted in a way that promotes the success of iomart Group for the benefit
of its members as a whole, and in doing so have had regard to the stakeholders and key matters set out in Section 172 of the Companies
Act 2006.
The Board considers that the Group’s key stakeholders are its shareholders, employees, customers, suppliers and key partners and the
environment. The directors recognise that they are expected to take into account the interests of those stakeholders whilst prioritising
the long term success of the Group. This can mean that the interests of certain stakeholder groups in the short-term may need to be
balanced against such long term success.
The Board view the key stakeholders and principal methods of engagement as shown in the table below. In all cases, the level of
engagement informs the Board, both in relation to stakeholder concerns and the likely impact on decision-making.
Stakeholder
Group
Shareholders
Principal Methods of Engagement
The Board engages with shareholders throughout the year through the annual and half year results and trading
updates, the Annual General Meeting, the investor roadshows and the investor pages on the iomart Group
website. Throughout the year the Board engages with major shareholders and investors as required and receives
detailed feedback reports via our various advisors, on views of shareholders and covering analysts.
Employees
Our culture defines the behaviours we expect from all our employees and helps drive our strategy of building a
high performance team. In the current year, we have redefined the Group’s values to focus on:
•
Customer First – to ensure our customers are at the heart of everything that we do and that we anticipate
their needs and exceed their expectations to deliver service excellence;
• One team – we work together to achieve great things and treat each other with respect;
•
•
•
Innovative thinking – we will always strive to improve and challenge the status quo;
Be Accountable – we take ownership of what we do and how we do it. We will deliver on our promises and
are open to feedback; and
Be Ambitious – we take pride in and are passionate about our work and we insist on the highest standards
from ourselves and others.
The Board engages with employees through the receipt of monthly HR reports, by maintaining a rotational
schedule which sees department heads present at Board meetings and regular internal staff publications and
newsletters.
Customers
The Group places customers at the heart of our business and strategy. All our teams are focussed on regular
communication with customers to ensure we fulfil our customers’ product and service requirements and to
deliver excellent customer service. We ensure that our customers have the opportunity to speak to their support
team, account manager or a member of senior management throughout each stage of their customer journey with
iomart.
Suppliers and
key partners
Open and honest engagement and relationships with our suppliers and subcontractors is critical to the delivery
of our business. The Group has a number of key strategic partners that we engage with to support delivery of our
business in a number of key areas including IT infrastructure and communication products and services, software,
provision of power and our landlords on leased property. Our teams and employees interact with our strategic
partners and all other suppliers on a regular basis to strengthen trading relationships and to ensure that the supply
chain function continues to operate well to support the business.
Environment
The Group recognises the environmental impacts arising from our business activities and is committed to reducing
these through effective environmental management. The Group operates a number of data centres throughout the
UK and we operate our data centres in a way intended to reduce the impact on our local environment, including the
usage of energy and carbon dioxide emissions.
21
iomart Group plc Annual Report and Accounts 2020 Strategic Report - Stakeholder Engagement
The Board held ten board meetings in the year to address and meet its obligations under Section 172 of the Companies Act 2006. The
following table covers the key decisions made during the year and the stakeholder group(s) impacted by these decisions.
Key Impact
Key Decisions Made
L o n g Te r m
Strategy and
Acquisitions
Each year, the Board approves the budget of the Group and reviews the Group’s strategy
and growth plans for the next three years.
In February and March 2020, the Board approved the purchase of the managed private
cloud division of privately owned ServerChoice Limited and the acquisition of Memset
Limited, respectively. The Board considers that these transactions are in line with the
acquisition strategy of the Group and the achievement of the long term growth plans.
Performance
of the Group
Financing and
capital spend
Employees and
Culture
On a monthly basis, the Board reviews the trading performance of the Group with
detailed Board reports provided by the CFO covering trading in the month and year to
date, with performance monitored against budget and the previous financial year.
At each Board meeting, the Board also receives detailed Board reports covering
commercial, operational and HR matters prepared by senior managers of the business.
These reports cover sales and forecast pipeline, customers and suppliers, data
centre activity and various aspects of operational performance, compliance with ISO
requirements and key employee activity.
In the year, the Board reviewed a survey of our top customers’ feedback on performance
and service delivery. In addition, the Group implemented a new CRM system to give
greater insight into customer data and performance to ensure that our customer’s
journey is in line with the strategic direction and growth plans of the Group.
During the year, the CEO and CFO met with a number of key strategic partners to
ensure we monitor the quality of our suppliers to optimise operational efficiency, ensure
we receive the best level of service and continue to contract on favourable terms to
support the business.
The Board approves the terms and conditions of the Group’s multi revolving credit
facility. As part of the monthly Board report, the board receives monthly reporting on
compliance with bank covenants.
The Board approves major capital expenditure in excess of £1m to support the capital
investment in our infrastructure and data centres. During the year, the Board approved
the cooling system replacement project at our main London data centre and the
extension of the data centre property lease to 2035.
The Board reviews the dividend policy and approves the interim and annual dividends
taking into account the results and financial position of the Group, including the impact
of Covid-19.
The Board seeks to ensure that the Group’s staff policies and processes are aligned with
the Company’s core values and promote the long term strategy of the Group.
The Board continues to make decisions that encourage improvements in systems,
processes and benefits which impact the wellbeing of our employees. The Board
approved the introduction of a flexible benefits portal in the year, which saw around
25% of our workforce take up such options in the initial period, and in the coming year
the Group is launching a new performance management system to enhance career
development.
The Remuneration Committee makes recommendations to the Board on the
remuneration packages, including annual bonuses and salary increase, for the Executive
Directors and long term incentive plans.
As part of the monthly board meetings, the Board receives an HR report covering key
employee matters and developments.
Key Stakeholder
Group’s impacted
Shareholders,
Employees,
Customers, Suppliers
Shareholders,
Employees,
Customers, Suppliers,
Environment
Shareholders,
Employees
Shareholders,
Employees
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iomart Group plc Annual Report and Accounts 2020 Strategic Report - Stakeholder Engagement
Key Stakeholder
Group’s impacted
Shareholders,
Employees,
Customers,
Suppliers,
Environment
Key Impact
Key Decisions Made
Governance,
Regulatory
requirements and
Risk
The Board reviews and approves the results announcements and trading updates, the
half year report and annual report and the AGM statement. The Board receives regular
briefings from the Chairman, Chief Executive Officer and Chief Financial Officer and the
Company’s brokers and public relations advisers.
Through the half year and annual year end results process and the investor roadshows,
the Board are in communication with analysts and advisors to help understand
shareholder views which contributes to the Group’s strategy and decision making.
The CFO presents investor feedback results from the roadshows to the Board. A
range of corporate information (including Company announcements) are available to
all shareholders, investors and the public on the Company website www.iomart.com/
investors.
In the current year, the Board, in line with our corporate governance framework,
agreed to re-tender the external audit. The Board accepted the Audit Committee’s
recommendation to appoint Deloitte LLP as external auditor.
The Board takes regulatory responsibilities seriously and is committed to ensuring
that it is open and transparent with regulators. In the current year, the Board met with
our nominated adviser to obtain an update on changes to AIM rules and market abuse
regulations to ensure iomart’s compliance with requirements.
The Board undertakes a formal and rigorous evaluation of its own performance annually
and that of its Committees and individual directors. The Board reviews the Nomination
Committees assessment of the current and future composition of the Board, with a focus
on diversity, skills and succession planning. On 30 March 2020, the Board approved the
appointment of Reece Donovan as Chief Operating Officer.
Governance,
Regulatory
requirements and
Risk (continued)
In the current year, the Board has received updates on the internal control framework
and the Group risk register which was updated in the prior year via a process supported
by external risk management advisors. Risk control documents are presented at Board
meetings on the Group’s key risks which include an updated assessment of controls
and improvement actions required in respect of each major risk. As noted in the Chief
Executive Officer’s report on page 11, Principal Risks and Uncertainties on page 19 and
the Corporate Governance report on page 34, the Board has formally considered the
emerging risks as a result of Covid-19 on the business.
Shareholders,
Employees,
Customers,
Suppliers,
Environment
23
iomart Group plc Annual Report and Accounts 2020 Strategic Report - Stakeholder Engagement
Key Impact
Key Decisions Made
Environment
The Board is committed to demonstrating clear environmental and social policies and
to minimising the impact of our business operations on the local environment. The
Company participates in the Energy Saving Opportunities Scheme (ESOS) and meets
the requirements of the Streamlined Energy and Carbon Reporting (SECR) regulations.
The Board receive regular management reports on energy performance and outputs of
our data centres to demonstrate our commitment to ESOS and SECR and is committed
to developing the reporting of emissions across the Group with the intention to further
improve environmental performance of our key data centre locations.
The Board receive updates on compliance with ISO standards, environmental and energy
efficiency management policies and updates on improvement activities through the
Operational Report of the monthly Board pack. In the current year, the Board approved
significant capital spend to improve energy efficiency including the installation of
upgraded cooling systems in our London data centre and replacement of IT equipment
with new more energy efficient servers and storage devices.
The Strategic Report on pages 10 to 24 has been approved by the Board and is signed on its behalf:
Key Stakeholder
Group’s impacted
Employees,
Customers,
Suppliers,
Environment
Scott Cunningham
Chief Financial Officer
24 June 2020
24
iomart Group plc Annual Report and Accounts 2020 Corporate Governance - Board of Directors
Angus
MacSween
Chief Executive Officer
Scott
Cunningham
Chief Financial Officer
Reece
Donovan
Chief Operating Officer
Date of appointment
March 2000
Date of appointment
September 2018
Date of appointment
March 2020
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.
Background and experience
Scott is a chartered accountant
having trained with Arthur Andersen
where he became a senior manager
providing audit and transaction
support services to both public and
private companies. Leaving Arthur
Andersen in 2001 Scott joined Clyde
Blowers and performed a number
of roles including Group Financial
Controller for the Clyde Bergemann
Power Group from 2003 to 2006.
He became Director of Corporate
Finance and Company Secretary
for AIM listed InterBulk Group
plc in February 2006 and in April
2007 Scott became Group Finance
Director for InterBulk Group plc
until it was successfully sold to Den
Hartogh in March 2016. Immediately
prior to joining iomart he was an
Investment Director at Clyde
Blowers Capital.
Background and experience
R e e c e h a s o v e r 2 3 y e a r s ’
experience in the technology and
telecommunication industries,
with a demonstrable track record
of achievement in roles both in the
UK and internationally. Reece’s
most recent position was Chief
Executive Officer at Nomad Digital, a
provider of IP connectivity and digital
solutions to the global transportation
sector. Previous positions include
S e n i o r V i c e - P r e s i d e n t G l o b a l
Services for CSG International,
a provider of software solutions
to over 400 customers located
in 120 countries and a number
of management and operational
r o l e s a c r o s s t h e t e c h n o l o g y,
communications and consumer
packaged goods industries at Steria
plc, Xansa plc and Druid plc.
25
iomart Group plc Annual Report and Accounts 2020 Corporate Governance - Board of Directors
Ian
Steele
Non-Executive Chairman
Richard
Masters
Non-Executive Director
Date of appointment
June 2016 (appointed Chairman
August 2018)
Date of appointment
June 2017
Karyn
Lamont
Non-Executive Director
Date of appointment
February 2019
Committee Membership
Audit, Remuneration and Nomination
(Chair)
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.
In his final eight years before leaving
Deloitte LLP in 2015, Ian sat on
the UK board and fulfilled the role
of senior partner for Scotland and
Northern Ireland, as well as Head
of Global Advisory Services for the
Firm.
Ian took over the Chairmanship of
iomart in August 2018.
External appointments
Ian is a Non-Executive Director of
STV Group plc and a member of the
Advisory Board of Visible Capital
Limited. He is also a member of
the Constitutional Panel of The
Institute of Chartered Accountants
of Scotland.
Committee Membership
Audit, Remuneration (Chair) and
Nomination
Background and experience
R i c h a r d h a s o v e r 3 0 y e a r s ’
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.
Richard was Chair of Scotland and
Northern Ireland for Pinsent Masons
from September 2017 until October
2019 when he retired.
Committee Membership
Audit (Chair), Remuneration and
Nomination
Background and experience
Karyn is a chartered accountant
a n d f o r m e r a u d i t p a r t n e r a t
PricewaterhouseCoopers LLP. She
has over 25 years of experience,
13 years as an audit partner, and
provided audit and other services
to a range of clients across the UK’s
financial services sector, including
outsourcing providers. Her specialist
k n o w l e d g e i n c l u d e s f i n a n c i a l
reporting, audit and controls,
r i s k m a n a g e m e n t , r e g u l a t o r y
compliance and governance. Karyn
left PricewaterhouseCoopers LLP in
2016.
External appointments
Karyn is a Non-Executive Director,
and Audit Committee Chair, for
The Scottish Investment Trust plc,
Scottish Building Society, North
American Income Trust plc and
Scottish American Investment
Trust plc.
26
iomart Group plc Annual Report and Accounts 2020 Corporate Governance Report
Chairman’s introduction to Corporate Governance
As Chairman of the Board, it is my responsibility, working closely with my fellow Board colleagues, to ensure that the highest standards
of corporate governance are embraced throughout the Group. In addition, it is my role to manage the Board in the best interests of the
Group’s many stakeholders and be responsible for ensuring the Board’s integrity and effectiveness.
The Group adopts the Quoted Companies Alliance (“QCA”) Code which the Board feel is the most appropriate code for iomart at this
point in time. We believe that the QCA Code provides us with the right governance framework; a flexible but rigorous outcome-oriented
environment in which we can continue to develop our governance model to support our business. The remainder of this corporate
governance report records how the Company addresses the governance principles defined in the QCA Code plus other corporate
governance related matters.
We are confident that our approach to corporate governance will underpin the development of a strong organisation, well positioned to
take the business to the next phase of growth.
Ian Steele
Non Executive Chairman
24 June 2020
Board commitment to Corporate Governance
The Board is committed to maintaining high standards of corporate governance and has established governance procedures and policies
that are considered appropriate to the nature and size of the Group. We have continued to enhance our governance framework to
strengthen our commitment to continuous improvement in corporate governance across the business.
QCA code
In the prior year, we reported that that the Group would comply with the QCA code, the corporate governance code tailored for small
and mid-size quoted companies and this is reflected in the annual report and financial statements for the year ending 31 March 2020.
The QCA code helps companies put in place an effective and flexible governance model and encourages positive engagement between
companies and their stakeholders to deliver results. The QCA code adopts a principles-based approach and is constructed around ten
broad principles. The Board is committed to complying with these ten principles and have applied these during the year as follows:
27
iomart Group plc Annual Report and Accounts 2020 Corporate Governance Report
QCA code (continued)
1
Establish a strategy and business model to promote long-term value for shareholders
We are a leading provider of managed cloud computing services, helping companies at all stages of their IT journey with a wide and
flexible portfolio of services and products. We deliver these from our own infrastructure using a team with deep sector expertise.
Customer relationships and excellence in service are at the heart of our business. We plan to build on this position by focussing on:
• Growing our managed cloud services by excelling in customer service and ensuring innovation in our customer offering
continues to match the needs of the market;
• Grow our self-managed products by differentiating with solutions & support which add value and help solve problems;
• Retain our presence in the mass consumer market via selective marketing and dynamic pricing;
• Build a high performance team supported by best in class systems, processes and tools;
• Continued optimisation of our data centre estate with cost efficiency achieved via asset planning, procurement and
automation;
•
Ensure robust and resilient infrastructure, connectivity and security at all times; and
• Continuation of our disciplined acquisition strategy with earning enhancing deal valuations and clear integration to the
existing business.
2
Seek to understand and meet shareholders’ needs and expectations
As noted in our Stakeholder Engagement report on pages 21 to 24, iomart is committed to listening to and communicating openly
with its shareholders to ensure that the strategy, business model and performance are clearly understood. The Chief Executive
Officer and Chief Financial Officer have regular dialogue with shareholders and analysts to discuss strategic and other issues
including the Company’s financial results. Following major periods of communications, our advisers consolidate feedback, on an
anonymised basis, from the relevant parties which then forms the basis of a briefing pack for the Board to ensure awareness of
shareholder opinions.
The Group engages in full and open communication with both institutional and private investors and responds promptly to all
queries received. The Group does this via investor roadshows, attending investor conferences and regular financial reporting and
through the regulatory news service (“RNS”) announcements. In conjunction with the Group’s brokers and other financial and
public relations advisers all relevant news is distributed in a timely fashion through appropriate channels to ensure shareholders
are able to access material information on the Group’s progress. The Group’s website has a section for investors, which contains all
publicly available financial information and news on the Group.
The Board recognises the AGM as an important opportunity to meet shareholders who are given notice of the AGM at least 21
days prior to the meeting. The Chairman aims to ensure that the directors, including the Non-Executive Directors, are available at
Annual General Meetings to answer questions.
28
iomart Group plc Annual Report and Accounts 2020 Corporate Governance Report
QCA code (continued)
3
Take into account wider stakeholder and social responsibilities and their implications for long-term
success
Our Stakeholder Engagement report on pages 21 to 24 details how we have engaged with key stakeholders in the year. The Group
recognises that long-term success is underpinned by good relations with its key stakeholders, both internal and external, and seeks
to take into account the interests of all its stakeholders as well as the environment in which it operates.
The Group seeks to be honest and fair in all relationships with customers and encourages feedback from our customers through
account managers and engagement with individual customers through customer support teams. On a regular basis we perform
customer surveys to both keep abreast of customers’ plans for the future and obtain feedback on our performance.
We are committed to attracting and retaining the highest level of personnel. We seek to achieve this through, amongst other things,
the application of high standards in recruitment. We are aware of the importance of good communication in relationships with
staff and we have 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 a bonus scheme.
In the current year, the Group has invested in the HR process and introduced a flexible benefits portal in the year and in the coming
year the Group is launching a new performance management system to enhance career development.
4
Embed effective risk management, considering both opportunities and threats, throughout the
organisation
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 relating to those objectives. The controls can
only provide reasonable, not absolute, assurance against material misstatement or loss.
In the prior year, the Group updated its risk management framework and risk assessment to identify and address all relevant risks
in order to execute and deliver the Group’s strategy. The process, which was supported by external advisors, reviewed financial,
operational, market and compliance areas to identify and document significant risks, the probability of those risks occurring, their
potential impact and the plans for managing and mitigating each of the risks identified. 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. In the current year, the Board has received updates on the internal control framework through risk
control documents being presented at Board meetings on the Group’s key risks which include an updated assessment of controls
and improvement actions required in respect of each major risk. 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. In the current year, the Board have also
considered the risks of Covid-19 to the Group as noted in the Chief Executive Officer’s report on page 11, Principal Risks and
Uncertainties on page 19 and the Corporate Governance report on page 34.
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.
Given the size of the Group, the Board has concluded it is not appropriate to establish a separate, independent internal audit
function and will keep this under review.
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.
29
iomart Group plc Annual Report and Accounts 2020
Corporate Governance Report
QCA code (continued)
5 Maintain the Board as a well-functioning, balanced team led by the chair
The Board takes responsibility for developing long term strategies and providing leadership to the Group as a whole, as well as
ensuring a framework of controls exist which allow for the identification, assessment and management of internal controls and
risk, ultimately taking collective responsibility for the success of the Group. The Executive Directors are directly responsible for
the running the business operations and the Non-Executive Directors are responsible for bringing independent judgement and
scrutiny to decisions taken by the Board.
Through the leadership of the Chairman, the Board sets the Group’s strategic goals; ensuring obligations to shareholders are met.
The Board meets regularly, usually monthly, to discuss and agree on the various matters brought before it, including the trading
results. Information of a sufficient quality is supplied to the Board in a timely manner. 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.
There is an approved formal schedule of matters reserved for the Board for consideration and approval which include:
•
•
•
•
•
•
approval of strategic plans, annual financial budgets and business plans;
approval of material acquisitions, contracts, acquisition of major capital expenditure and disposal of major assets;
changes relating to the Group’s structure and shares;
approval of the annual report and interim financial statements, trading statements, preliminary announcements
and accounting policies;
approving any significant funding facilities; and
approval of the dividend policy.
There is a clear division of responsibilities between the running of the Board and the Executives responsible for the Group’s
business, to ensure that no one person has unrestricted powers of decision.
Composition of and Appointments to the Board
The composition of the Board ensures an appropriate balance of Executive and Non-Executive Directors and when appointing new
directors to the Board there are formal, rigorous and transparent procedures in place.
During the year the Board comprised an independent Non-Executive Chairman, Chief Executive Officer, Chief Financial Officer
and two independent Non-Executive Directors. On 30 March 2020, recognising the growth of the business and our plans for the
future, a Chief Operating Officer was appointed. Board biographies of all Board members giving details of their experience and
other main commitments are included on pages 25 and 26.
All Non-Executive Directors serving at the year end are considered to be independent.
The Board is satisfied with the balance between Executive and independent Non-Executive Directors which operated throughout
the year. 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 which sees an independent Board
majority. Given the appointment of the Chief Operating Officer to the Executive team at the end of the year, the Board has been
considering the criteria for an additional 4th Non-Executive Director.
30
iomart Group plc Annual Report and Accounts 2020 Corporate Governance Report
QCA code (continued)
6
Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
The Board recognises that to remain effective it must ensure that it has the right balance of skills, experience, knowledge and
independence to enable it to discharge its duties and responsibilities. The Group has a highly committed and experienced Board,
which is supported by a senior management team, with the qualifications and experience necessary to run the Group.
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.
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.
The Chairman is also 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 in relation to 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.
7
Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
The Board undertakes a formal and rigorous evaluation of its own performance annually and that of its Committees and individual
directors. Each year a formal evaluation is conducted by means of a detailed questionnaire which is completed by each Director.
The results of this process are collated by the Chairman and discussed by the Board collectively. The annual evaluation includes
a review of the performance of individual directors, including the Chairman, and the Board Committees. The most recent
evaluation during the year concluded that the Board and the relevant Committee performance had been satisfactory. There are no
outstanding actions from this year’s process.
31
iomart Group plc Annual Report and Accounts 2020 Corporate Governance Report
QCA code (continued)
8
Promote a corporate culture that is based on ethical values and behaviours
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.
The Group treats all of its customers with the utmost respect and seeks to be honest and fair in all relationships with them.
Relationships with suppliers and subcontractors are based on mutual respect, honesty and fairness and we seek to honour the
terms and conditions of our agreements in place with such suppliers and subcontractors.
We ensure that everyone is aware that the giving or accepting of bribes are not acceptable business conduct. During last year we
updated and reinforced our Anti-Bribery and Corruption policies and training requirements throughout the Group. An anti-bribery
statement is on our corporate website and we ensure that all staff are aware of our anti-bribery policy. We also have an anti-slavery
and human trafficking statement which we also make sure all staff are aware of.
We recognise the importance of all of our employees and that the success of the Group is due to their efforts. We respect the
dignity and rights of all employees and provide clean, healthy and safe working conditions. An inclusive working environment and a
culture of openness are maintained by the regular dissemination of information. This includes an internal staff publication which is
distributed at least quarterly covering business updates and other news.
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 our Group. The Group does not tolerate any sexual, physical or mental harassment
of its employees and we operate an equal opportunities policy that specifically prohibits discrimination on grounds of colour, ethnic
origin, gender, age, religion, political or other opinion, disability, or sexual orientation.
We define corporate responsibility as ensuring that we have or are developing sound policies, practices or programmes that
address business transparency and ethics, workplace practices and employee relationships and customer consultation. In practice
our commitment to corporate responsibility plays out in a wide variety of ways and includes our employee engagement programme,
which is designed to foster an inclusive workplace by encouraging our people to continually improve performance in this area.
32
iomart Group plc Annual Report and Accounts 2020 Corporate Governance Report
QCA code (continued)
9 Maintain governance structures and processes that are fit for purpose and support good decision making by the Board
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 Board which additionally comprises the other executive
directors 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 26. 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.
Board Committees
The Board has established three committees to deal with specific aspects of the Board’s affairs: Remuneration, Nomination and
Audit Committees.
In the prior year, the terms of reference of the Remuneration, Nomination and Audit Committee were refreshed and approved by
the Board. The terms of reference for each Committee are available on the investor page of the Company website.
The Remuneration Committee
The Remuneration Committee is chaired by Richard Masters. Its other members are Ian Steele and Karyn Lamont.
The Executive Directors may be invited to attend meetings, where appropriate, except where matters under review by the
Committee relate to them.
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 Group’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 Group;
ensuring that remuneration is in line with current industry practice; and
reporting to the Board on all matters within its duties and responsibilities.
•
•
•
The Nomination Committee
The Nomination Committee is chaired by Ian Steele. Its other members are Richard Masters and Karyn Lamont.
The Nomination Committee terms of reference include:
•
•
•
•
•
reviewing the structure and composition of the Board;
identifying and nominating for approval candidates to fill Board vacancies;
evaluating the balance of skills, knowledge experience and diversity of the Board;
review results of the Board performance evaluation process; and
reporting to the Board on all matters within its duties and responsibilities.
The Audit Committee
The Audit Committee is chaired by Karyn Lamont. Its other members are Ian Steele and Richard Masters.
The Audit Committee has recent and relevant experience and is authorised by the Board to conduct any activity within its terms of
reference and to seek any information it requires from any employee.
33
iomart Group plc Annual Report and Accounts 2020 Corporate Governance Report
QCA code (continued)
9
Maintain governance structures and processes that are fit for purpose and support good decision making by the Board
(continued)
The Audit Committee terms of reference 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 Group and its subsidiaries;
•
the effectiveness of the Committee;
•
the risk management framework and risk assessment 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 Audit Committee in relation to the 2020 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
2020. 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 2020, the Group completed two
acquisitions(note 11). The Committee considered the calculations supporting
the fair value of assets and liabilities of any business acquired in the year and
reviewed the supporting workings to support the value of intangibles acquired
and any fair value adjustments required.
Valuation of Contingent consideration
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 20).
At an early stage, the Audit Committee assessed the impact of Covid-19 on the year end audit process and the ability to deliver an
effective and robust audit process respecting social distancing guidance. No material changes were required to the audit approach
or processes to support the generation of the financial statements. Covid-19 has also been considered in relation to the going
concern statement disclosed in note 2.
At the invitation of the Committee, meetings may be attended by the Executive Directors. As appropriate, representatives of the
external auditors also attend meetings. The Chairman of the Committee also meets separately with senior management and the
external auditors. The Company Secretary is Secretary of the Audit Committee.
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.
34
iomart Group plc Annual Report and Accounts 2020 Corporate Governance Report
QCA code (continued)
9
Maintain governance structures and processes that are fit for purpose and support good decision making by the Board
(continued)
The Audit Committee’s effectiveness is reviewed annually as part of the Board evaluation exercise.
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. In the current year, the Audit Committee completed a competitive tender process of the external audit and
Deloitte LLP were appointed as the Group’s external auditor in August 2019. The Audit Committee would like to thank
Grant Thornton UK LLP for their external audit services over the years.
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 Deloitte LLP 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. In the year ended 31 March 2020, non-audit services performed by Deloitte LLP related
to the interim review which is a permitted service.
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
Angus MacSween – Chief Executive Officer
Scott Cunningham – Chief Financial Officer
Reece Donovan – Chief Operating Officer*
Ian Steele – Non-Executive Chairman
Richard Masters – Non-Executive Director
Karyn Lamont – Non-Executive Director
10
10
1
10
10
10
10
10
1
10
10
10
-
-
-
4
4
4
-
-
-
4
4
4
-
2
-
2
2
2
-
2
-
2
2
2
*Reece Donovan was appointed to the Board on 30 March 2020
The Nomination Committee held three meetings in the year and all were attended by Ian Steele, Richard Masters and
Karyn Lamont.
Where any Board member has been unable to attend Board or Committee meetings, 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 Board will continue to review the appropriateness of the governance framework to ensure that it supports the
Group in delivering its strategy.
35
iomart Group plc Annual Report and Accounts 2020 Corporate Governance Report
QCA code (continued)
10
Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other
relevant stakeholders
The Board considers that the Group’s key stakeholders are its shareholders, employees, customers, suppliers and key partners and
the environment. During the year, the Board and its directors confirm they have acted in a way that promotes the success of iomart
Group for the benefit of its members as a whole, and in doing so have had regard to the stakeholders and key matters set out in
Section 172 of the Companies Act 2006 as disclosed in our Stakeholder Engagement report on pages 21 to 24.
Other matters
Re-election
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. The Articles of Association also stipulate that any new directors, who
were not appointed at the previous AGM, automatically retire at their first AGM and, if eligible, can seek re-appointment.
Angus MacSween, Ian Steele and Reece Donovan will retire from office at the Company’s forthcoming AGM and stand for
re-appointment.
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 10 to 24 including the potential impact of Covid-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 14 to 18.
In the three months since the response to the Covid-19 pandemic was initiated in the UK, there has been a very limited impact on
iomart’s trading from Covid-19. We take great comfort from the resilience of our business model, especially the diversity and limited
concentration of our customer base. We are not significantly exposed to industries that are suffering the worst effects. The level of
customer churn across all segments of the business has been extremely low, renewal levels high and cash collection in line with our typical
profile. However, we remain vigilant to the economic impact the ongoing situation may create, particularly on the SME segment of the
market.
Note 29 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.
The Group has access to a £80m multi option revolving credit facility that matures on 30 September 2022 of which £8m (annually) is
available to be drawn on for general business purposes should that be required. The directors are of the opinion that the Group can
operate within the current facility and comply with its banking covenants.
At the end of the financial year, the Group had net debt of £57.6m (2019: £39.2m) 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 considered the Group budgets and the cash flow forecasts for the next three financial years, and associated risks,
including the potential impact of Covid-19, and the availability of bank and leasing facilities. We have run appropriate scenario and stress
tests applying reasonable downside sensitivities and are confident we have the resources to meet our liabilities as they fall due.
After making enquiries, the directors have a reasonable expectation that the Group will be able to meet its financial obligations and has
adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going
concern basis in preparing the financial statements.
AIM Rule Compliance Report
iomart Group plc is quoted on AIM and as a result the Group has complied with AIM Rule 31 which requires the following:
• 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 Group’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 Group 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.
36
iomart Group plc Annual Report and Accounts 2020 Report of the board to the members on directors' remuneration
Directors’ Remuneration Report for the year to 31 March 2020
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. In framing its remuneration policy the Remuneration
Committee has adopted the Quoted Companies Alliance (“QCA”) Remuneration Code for Small and Mid-sized Quoted Companies
to ensure that the remuneration policy both reflects our strategy and is aligned with the QCA Remuneration code and 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.
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;
•
• alignment with our overall strategy and the continued commitment of executives to the Group’s success through appropriate
the need to attract and retain executives of an appropriate calibre; and
incentive schemes.
The Committee is chaired by Richard Masters. Ian Steele, the Company’s Non-Executive Chairman and Karyn Lamont, Non-Executive
Director are also members of the Committee. The Executive Directors 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 Company Secretary is secretary to the Committee.
The Committee normally meets at least twice per year and met four times during the current year.
Remuneration of Executive Directors
The remuneration packages of the Executive Directors comprise the following elements:
Element
Overview of policy and structure
Opportunity
Performance measures
Base salary
• 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
• T h e C o m m i t t e e g e n e ra l l y
reviews base salaries of the
Executive Directors with effect
from 1 April in each year. This
year the Committee has taken
a cautious approach as a result
of Covid-19 and has deferred a
salary review until later in the
year. The salaries from 1 April
2020 are therefore unchanged
as follows:
n/a
directors’ fees.
CEO – £365,925
CFO – £224,400
COO – £300,000
37
iomart Group plc Annual Report and Accounts 2020 Report of the board to the members on directors' remuneration
Remuneration of Executive Directors (continued)
Element
Overview of policy and structure
Opportunity
Performance measures
Annual bonus
• 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.
• The maximum annual
bonus opportunity is
135% of base salary.
• The level of Executive Directors’
discretionary bonus payments is
determined by a number of factors
including the Group’s financial
p e r f o r m a n c e ,
i t s s u c c e s s f u l
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 ended 31 March 2020 the
performance measure was based
primarily on Group adjusted EBITDA
performance, with the above criteria
taken into account by the Committee
when determining payments. A
similar approach will be adopted in
respect of the financial year ending
March 2021.
• 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 95% of target is
achieved.
38
iomart Group plc Annual Report and Accounts 2020 Report of the board to the members on directors' remuneration
Remuneration of Executive Directors (continued)
Element
Overview of policy and structure
Opportunity
Performance measures
• The maximum award
under the performance
share plan is 110% of
base salary for the CEO
and 100% of base salary
for the CFO and COO.
• The vesting of options is subject to
the achievement of performance
conditions. Normally vesting is also
subject to continued employment.
• Performance is currently assessed
b a s e d o n t h e a c h i eve m e n t o f
profit targets in three years set
with reference to our organic and
acquisitive growth strategy.
• Options awarded to the directors in
May 2019 will vest based on Group
adjusted EBITDA performance for
the March 2022 financial year to
ensure continued focus on driving
profit performance.
n/a
• T h e m a x i m u m
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.
T h e C F O a n d C O O
r e c e i v e a p e n s i o n
contribution.
n/a
n/a
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. The
performance share plan was renewed
in the year, with no significant changes
to the scheme rules, and approved by
the Board on 29 March 2020.
• Awards are granted in the form of
nominal cost, 1p options.
• Share options awarded will normally
vest after the third anniversary of the
date of grant.
• Participants have 10 years from award
to exercise.
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.
39
iomart Group plc Annual Report and Accounts 2020
Report of the board to the members on directors' remuneration
Service contracts
Executive Directors are engaged under service contracts which require the following notice periods:
Angus MacSween
Scott Cunningham
Reece Donovan
12 months
6 months
12 months
Non-Executive Directors have a 6 month notice period.
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 2020 financial year remained 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.
Directors’ Remuneration for the year ended 31 March 2020
Details of individual Director’s emoluments for the year are as follows (this information has been audited):
Name of Director
Salary or fees
Bonus
Benefits
£
£
£
365,925
224,400
212,250
130,160
4,704
2,482
Pension
contributions
£
-
22,440
Year ended
31 March
2020 3
Total
Year ended
31 March
2019
Total
£
£
582,879
379,482
617,880
234,513
75,000
45,000
45,000
-
-
-
-
-
-
-
-
-
75,000
45,000
45,000
62,500
45,000
4,269
1 Scott Cunningham was appointed to the Board on 4 September 2018
2 Karyn Lamont was appointed to the Board on 26 February 2019
3 Reece Donovan was appointed to the Board on 30 March 2020 and accordingly his salary for two days is excluded from the above table. Details of his
remuneration package are disclosed on page 37.
40
Executive Directors
Angus MacSween
Scott Cunningham 1
Non-Executive Directors
Ian Steele
Richard Masters
Karyn Lamont 2
iomart Group plc Annual Report and Accounts 2020 Report of the board to the members on directors' remuneration
Directors’ interests in shares
The directors holding office at 31 March 2020 held beneficial interests in the issued share capital of the Company as shown in the
following table:
Name of Director
Angus MacSween
Scott Cunningham 1
Reece Donovan
Ian Steele
Richard Masters 2
Karyn Lamont
Number of ordinary shares
At 31 March 2020
At 1 April 2019
17,003,409
8,000
nil
nil
6,000
nil
17,003,409
4,000
nil
nil
nil
nil
1 On 19 June 2019, Scott Cunningham’s spouse purchased 4,000 shares at a price of 325.0p taking total shareholding to 8,000 shares.
2 On 2 December 2019, Richard Masters and his spouse purchased 3,000 shares each at a price of 354.5p.
41
iomart Group plc Annual Report and Accounts 2020 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 2020 in options over the ordinary shares of the Company were as follows:
Name of
director
Angus
MacSween
Scott
Cunningham
At 1 April
2019
113,334
113,333
113,333
117,480
175,575
134,281
129,848
3,560
107,674
2,777
-
1,011,195
31,687
54,321
54,321
-
140,329
Exercised
Granted
Lapsed
At 31 March
2020
Exercise
price Date of Grant
Date
from which
exercisable
Expiry date
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
115,999
115,999
-
-
-
64,669
64,669
-
-
-
-
-
-
-
-
-
-
-
-
-
-
113,334
113,333
113,333
117,480
175,575
134,281
129,848
3,560
107,674
2,777
115,999
1,127,194
31,687
54,321
54,321
64,669
204,998
1p
1p
1p
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
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
252.8p
18/08/2017
01/10/2020
31/03/2021
1p
04/04/2018
04/04/2021
04/04/2028
324.0p
01/11/2018
01/11/2021
31/03/2022
1p
09/05/2019
09/05/2022
09/05/2029
1p
1p
1p
1p
04/09/2018
04/09/2021
04/04/2028
04/09/2018
04/09/2021
04/04/2028
04/09/2018
04/09/2021
04/04/2028
09/05/2019
09/05/2022
09/05/2029
During the year options over 180,668 ordinary shares (2019: 248,003) were granted to directors under the unapproved share option
scheme with an average exercise price of 1.0p per share (2019: 1.0p per share). No options have been granted to directors under the
Sharesave scheme in the current year (2019: 2,777 options granted at an average exercise price of 324.0p per share).
The market price of the Company’s shares at the end of the financial year was 270p (2019: 347p) and the range of prices during the year
was between 229p (2019: 308p) and 405p (2019: 475p).
By order of the Board
Richard Masters
Chairman, Remuneration Committee
24 June 2020
42
iomart Group plc Annual Report and Accounts 2020 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 2020.
Principal activity
The principal activity of the Group is the provision of managed cloud services. The Group’s principal subsidiary undertakings are listed in
note 15 to the financial statements. The Group’s registered number is SC204560.
Financial risk management objectives and policies
The Group’s financial instruments comprise cash and liquid resources, bank loans and 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.
The multi option revolving credit facility of £80m is able to be used by the Group to finance acquisitions, capital expenditure, general
business purposes (up to a maximum of £8m each year) and for the issue of guarantees, bonds or indemnities. The facility is available
until September 2022 at which point any advances made under the multi option revolving credit facility become immediately repayable.
Each drawdown made under this facility can be for either 3 or 6 months and can either be, at the discretion of the Company, repaid or
continued at the end of the period. Interest is charged on this loan at an annual rate determined by the sum of the multi option revolving
credit facility margin, LIBOR and the lender’s mandatory costs. The multi option revolving credit facility margin is fixed at 1.5% (2019:
1.5%) per annum and a non-utilisation fee of 40% (2019: 40%) of the multi option revolving credit facility margin is due on any undrawn
portion of the full £80m multi option revolving credit facility. The effective interest rate for the multi option revolving credit facility in the
current year was 2.17% (2019: 2.44%).
The Group has net debt at 31 March 2020 of £57.6m (2019: £39.2m). Net debt comprises lease liabilities, including the impact of
the adoption of IFRS 16, totalling £20.3m (2019: £0.8m), the Group bank facility totalling £52.8m (2019: £48.5m) and cash and cash
equivalent of £15.5m (2019: £10.1m).
The Group is not exposed to material movements in interest rates on its bank borrowings.
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, the Group does not use derivative
instruments. Additional information on financial instruments is included in note 29.
Dividend
The directors declared an interim dividend for the year ended 31 March 2020 of 2.60p per share (2019: 2.45p). The directors
recommend a final dividend for the year ended 31 March 2020 of 3.93p per share (2019: 5.01p per share). This final dividend, together
with the interim dividend, takes the total dividend to 6.53p per ordinary share for the 2020 financial year (2019: 7.46p). Subject to
shareholder approval this proposed final dividend would be payable on 4 September 2020 to shareholders on the register at close on
14 August 2020.
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 23 June 2020, the lease of our London data centre was extended by a further 5 years to June 2035. As part of this extension, £2.3m
of total lease deposits (note 14) will be returned to the Group post year end.
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 10 to 24.
43
iomart Group plc Annual Report and Accounts 2020 Directors' Report
Directors and their interests
The present membership of the Board is set out on pages 25 and 26 and the directors who served during the year are listed on page 41.
In accordance with the Articles of Association, Angus MacSween, Ian Steele and Reece Donovan offer themselves for re-election at the
forthcoming annual general meeting.
Details of directors’ interests in the Group’s shares are set out in the Report of the Board to the Members on Directors’ Remuneration
on 33 to 38.
Insurance for directors and officers
The Group may under the Company’s Articles of Association and subject to the provisions of the Companies Act, indemnify all directors
or other officers against liability incurred by them in the execution or discharge of their duties or exercise of their powers, including but
not limited to any liability for the costs of legal proceedings where judgement is given in their favour. This indemnity was in place during
the financial year and is ongoing up to the date of this report. In addition, the Group has purchased and maintains appropriate insurance
cover against legal action brought against directors and officers.
Donations
No political donations have been made during the year ended 31 March 2020 (2019: £nil).
Substantial shareholdings
At 26 May 2020 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
Employees
Shares
Percentage held
18,049,299
17,003,409
15,703,817
6,474,327
3,325,000
16.53%
15.57%
14.38%
5.93%
3.04%
Information on our engagement with employees and our regard to this stakeholder on the principal decisions taken by the Company
during the financial year is included in the Stakeholder Engagement report on pages 21 to 24.
Additionally, 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 (note 26) and it is the Board’s policy
to make specific awards as appropriate to attract and retain the best available people. Options in respect of directors are detailed in the
Directors Remuneration Report.
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.
The Company encourage employees to support the community and a number of charitable organisations through staff-led initiatives
and in the year has taken part in a number of key events including Sleep in the Park, Great Scottish Run and local charity football
tournaments. We sponsor the Scottish Football Association’s annual Learning Disability School Cup, which forms part of the SFA’s para-
sport community initiative. iomart encourage employees to donate to charity through a payroll Give as You Earn Scheme.
Most recently, iomart donated £50,000 of spare computers from one of our UK data centres to support Folding@Home, a worldwide
open source computing project that has been mobilised in the fight against Covid-19.
44
iomart Group plc Annual Report and Accounts 2020 Directors' Report
Suppliers and customers
Information on our engagement with suppliers and customers and our regard to these stakeholders on the principal decisions taken by
the Company during the financial year is included in the Stakeholder Engagement Report on pages 21 to 24.
Additionally, we recognise the importance to the Group and our suppliers of complying with all payment terms and we report on a half-
yearly basis on our payment practices, policies and performances in line with the Reporting on Payment Practices and Performance
Regulations 2017.
Greenhouse Gas (“GHG”) Emissions reporting
iomart seeks to minimise the impact of our operations on the environment and is committed to reducing its greenhouse gas (“GHG”)
emissions. Key sources of energy, primarily electricity to power our data centre estate, are monitored by the Group to allow us to be
continually mindful of our energy consumption. iomart applies a set of global environmental standards to all of our activities and our
environmental and energy management systems are certified to ISO 14001 and ISO 50001 (internationally accepted environmental
standards). These certifications provide a framework against which we have developed comprehensive environmental procedures and
monitoring systems. These processes have allowed us to measure our environmental performance and focus our activities on delivering
improvements.
The table below shows the total gross GHG emissions in tonnes of CO2 (“tCO2e”) in the year ended 31 March 2020:
Scope 1 - Emissions from combustion of gas
Scope 1 - Emissions from combustion of fuel for transport purposes
Scope 2 - Emissions from purchased electricity (location-based)
Scope 2 - Emissions from purchased electricity (market-based)
Scope 3 - Emissions from business travel in rental cars or employee-owned
vehicles where company is responsible for purchasing the fuel
Total gross emissions (tCO2e)
Total gross emissions (tCO2e)
Total sales (£’000)
Carbon Intensity ratio (tCO2e/£’000)
Methodology
-
-
12,549
-
29
12,578
12,578
112,581
0.00011
There are no scope 1, direct emissions from the combustion of gas. Scope 2, indirect emissions, include consumption of purchased
electricity in KwH, converting these values to CO2e using Department of Energy conversion factors. Scope 3 emissions relates to
business travel in rental cars or employee-owned vehicles were iomart are responsible for purchasing the fuel.
Using an operational approach, the Group identified its population to ensure that all activities and facilities, including data centres, are
being recorded and reported in line with the mandatory GHG protocol corporate accounting and reporting standard. Relevant data
is prepared on a monthly basis by our external energy management supplier. The validity, accuracy and completeness of the data was
checked and used to calculate the GHG for the Group. Emissions are calculated as activity data multiplied by emissions factor (sourced
from Government greenhouse gas reporting conversion factors). Acquisitions made during 2020 have not been included in GHG
reporting on the basis the acquisitions were in the last month of the financial year and their exclusion is immaterial to Group metrics.
The Group uses total turnover to calculate the intensity ratio as this allows emissions to be monitored over time taking into accounts
changes in the size of the Group. This factor provides the greatest degree of accuracy and is the metric best aligned to business growth.
45
iomart Group plc Annual Report and Accounts 2020 Directors' Report
Greenhouse Gas (“GHG”) Emissions reporting (continued)
Energy efficiency
The proactive management of our GHG emissions is central to iomart operations with a clear focus on controlling and reducing our
GHG and carbon footprint. The Group aims to improve energy efficiency of its operations and ensure continued compliance with ISO
50001:2011 as the basis for its energy management arrangements and has committed to:
•
setting targets and objectives for reducing energy use and maintaining an energy efficiency programme;
• managing and reducing energy use relating to our business premises;
•
•
•
•
respecting all existing, applicable environmental regulations and meeting all new applicable regulations;
setting targets in the form of energy performance indicators for electricity and energy consumption and power usage
effectiveness targets for each of our data centres. The Group engages an external energy management supplier who provides
regular updates through reports and face to face meetings with the Executive Board to manage ongoing performance;
providing training on good energy management practices and encouraging employee involvement in energy efficiency
improvement initiatives; and
the Group participates in the Energy Saving Opportunities Scheme (ESOS) with annual ESOS audits carried out throughout the
Group and is committed to meeting the requirements of the Streamlined Energy and Carbon Reporting (SECR) regulations.
In the year, the Board approved capital spend to install upgraded cooling and main plant systems in our central London data centre. In
addition, energy efficient fans and LED lighting have been installed at key data centres and a programme is currently underway to install
new energy efficient servers. Smart sub-metering systems have been installed across key data centres to better monitor and understand
energy use and further optimise energy and carbon performance.
For more detail on how the Board have had regard to the environment in key strategic decisions in the year, see our Stakeholder
Engagement report on pages 21 to 24.
Independent Auditor and disclosure of information to 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 2006.
Deloitte LLP were appointed as auditors on 27 August 2019 and have expressed their willingness to continue in office as auditors. A
resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.
By order of the Board
Andrew McDonald
Company Secretary
24 June 2020
46
iomart Group plc Annual Report and Accounts 2020 Directors' Responsiblities 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.
47
iomart Group plc Annual Report and Accounts 2020
Independent Auditor's Report to the Members of iomart Group Plc
Report on the audit of the financial statements
1. OPINION
In our opinion:
• the financial statements of iomart Group plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the
state of the Group’s and of the Parent Company’s affairs as at 31 March 2020 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
•
•
•
•
•
•
the consolidated statement of comprehensive income;
the consolidated and parent company statements of financial position;
the consolidated and parent company statements of changes in equity;
the consolidated statement of cash flows;
the related notes 1 to 30 for the consolidated financial statements; and,
the related notes 1 to 16 for the parent company financial statements.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and IFRSs
as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company
financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”.
2. 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 financial statements section of our
report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the Financial Reporting Council’s (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.
48
iomart Group plc Annual Report and Accounts 2020 Independent Auditor's Report to the Members of iomart Group Plc
3. SUMMARY OF OUR AUDIT APPROACH
Key audit matters
The key audit matters that we identified in the current year were:
• Completeness and valuation of deferred revenue;
• Business combinations: valuation and allocation of acquired intangible assets; and
• The impact of the Covid-19 pandemic on going concern.
Materiality
Scoping
The materiality that we used for the group financial statements was £1,254k which was determined on
the basis of 3.0% of earnings before interest, tax, depreciation and amortisation, adjusted to exclude the
gain on the revaluation of contingent consideration.
Our audit covered 93% of the Group’s revenue, 99% of the Group’s net assets, 92% of the Group’s
profit before tax, and 96% of the Group’s earnings before interest, tax, depreciation and amortisation,
adjusted for the gain on contingent consideration.
4. CONCLUSIONS RELATING TO GOING CONCERN
We are required by ISAs (UK) to report in respect of the following matters where:
•
•
the directors’ use of the going concern basis of accounting in preparation of the
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 or 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.
We have nothing to report in respect of
these matters, however have identified
the impact of the Covid-19 pandemic
on going concern as a key audit matter.
49
iomart Group plc Annual Report and Accounts 2020 Independent Auditor's Report to the Members of iomart Group Plc
5. KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the 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 which 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 financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
5.1. Completeness and valuation of deferred revenue
Key audit matter
description
The Group has deferred revenue of £13,427k split between current (£11,144k) and non-current
(£2,283k) included within trade and other payables.
How the scope of our
audit responded to the
key audit matter
A significant proportion of the Group’s services are invoiced in advance, resulting in a material deferred
revenue balance being recorded in the financial statements at the year-end.
Due to the high volume of customer balances being deferred and the fact that the deferral calculation
is performed across a range of systems and by a range of staff, we have determined there is a potential
for fraud through possible manipulation of this balance.
Deferred revenue is included within notes 2 and 19 to the financial statements.
The audit procedures we performed in respect of this matter included:
• Gaining an understanding of the process undertaken by management to calculate deferred
revenue, and testing of key controls within three of the full scope components;
•
•
•
Testing the balance through recalculating the full deferred revenue balance in each entity based
on contract start and end dates;
Selecting samples from the listing, agreeing the underlying amounts to customer contracts where
applicable;
Performing cut-off testing in each entity, selecting a sample of pre and post-year end sales and
ensuring that any deferred element was calculated correctly; and
• Recalculating current and non-current liability classification based on underlying schedules.
Key observations
We concluded that the completeness and valuation of deferred revenue recorded in the financial
statements is not materially misstated.
50
iomart Group plc Annual Report and Accounts 2020 Independent Auditor's Report to the Members of iomart Group Plc
5. KEY AUDIT MATTERS (CONTINUED)
5.1. Business combinations: valuation and allocation of acquired intangible assets
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
The Group completed two business combinations in the year, Memset Limited and the
managed private cloud service division of ServerChoice Limited for total consideration
of £3,213k and £2,817k respectively. Goodwill of £1,097k and other intangible assets of
£4,666k were recognised on acquisition.
Management performed a purchase price allocation exercise to allocate consideration in excess
of the net asset value to goodwill and other intangibles.
Given the judgement involved in valuing acquired intangible assets and in forecasting post-
acquisition performance, we have identified a risk of material misstatement in relation to the
valuation and allocation of acquired intangible assets.
Business combinations are included within notes 2 and 11 to the financial statements.
The directors’ consideration in respect of the risk is included on page 34.
The audit procedures we performed in respect of this matter included:
• Gaining an understanding of the process undertaken by management to perform the purchase
price allocation and contingent consideration calculation, and gaining an understanding of key
controls;
• Critically assessing relevant share purchase agreements to ensure that acquisitions have been
accounted for correctly in the financial statements;
• Engaging with our internal valuation specialists to understand the inputs and methodology
and forming a view on assumptions used by management;
• Challenging management’s assumptions for the inputs to the calculations with reference to
Deloitte and comparable company benchmarks;
• Challenging the accuracy of forecast revenues used in the calculations; and
• Considering management’s assessment of the presence of further intangible assets not
identified.
Key observations
We concluded that the assumptions made by management in determining the valuation and
allocation of acquired intangible assets are reasonable.
51
iomart Group plc Annual Report and Accounts 2020 Independent Auditor's Report to the Members of iomart Group Plc
5. KEY AUDIT MATTERS (CONTINUED)
5.1. The impact of the Covid-19 pandemic on going concern
Key audit matter
description
There is an unprecedented level of economic uncertainty arising from the Covid-19 pandemic.
Assessing the impact of this on going concern resulted in additional focus and time being spent by
both management and the audit team.
How the scope of our audit
responded to the key audit
matter
There is a challenge in modelling for the impact of the Covid-19 pandemic given the rapidly changing
situation in the UK and the wide-reaching changes in government policy. Management modelled
different scenarios which may occur as a result of the Covid-19 pandemic, showing drops in revenue
and EBITDA in each of the following three financial years. Whilst no material uncertainty was identified
in relation to going concern, we deemed it to be a key audit matter in the current environment.
Under the Covid-19 downside scenarios presented by management, the directors have concluded that
the going concern assumption remains appropriate based on the continued trading performance of the
group and the ability to comply with covenants linked to the group’s banking facilities.
The directors’ consideration in respect of the risk is included on page 36.
The audit procedures we performed in respect of this matter included:
• Obtaining an understanding of the processes and controls involved in management’s going concern
assessment in light of the Covid-19 pandemic;
• Testing the integrity of management’s going concern model;
• Challenging the reasonableness of the scenarios identified and key assumptions used by
management in determining the impact of the Covid-19 pandemic on going concern;
• Recalculating management’s forecast covenant compliance calculations throughout the going
concern period; and
• Assessing the adequacy of disclosures related to the impact of the Covid-19 pandemic on going
concern made in the financial statements.
Key observations
We concluded that the scenarios identified by management, testing performed and key assumptions
made in assessing the impact of the Covid-19 pandemic were reasonable and that the conclusions on
going concern are appropriate.
52
iomart Group plc Annual Report and Accounts 2020 Independent Auditor's Report to the Members of iomart Group Plc
6. OUR APPLICATION OF MATERIALITY
6.1. 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 both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent Company financial statements
Materiality
£1,254k
£627k
Basis for
determining
materiality
Rationale for
the benchmark
applied
3.0% of earnings before interest, tax, depreciation
and amortisation, adjusted to exclude gain on the
revaluation of contingent consideration.
We have used an adjusted EBITDA measure as
the benchmark for our determination of material-
ity as we consider this to be a critical performance
measure for the Group on the basis that it is a key
metric to analysts and investors and has equal
prominence to statutory measures in the Annual
Report. The gain on contingent consideration has
been deemed to be non-recurring in nature and
has therefore been excluded from the benchmark
balance.
Parent company materiality equates to 0.6% of net assets
which was capped at 50% of Group materiality.
We have used net assets as the benchmark for our
determination of materiality as the parent company
is not a trading entity and instead holds the Group’s
investments in subsidiaries. We consider net assets to be
the appropriate metric for such an entity.
We have capped materiality to be 50% of Group mate-
riality being £627k. 50% is deemed to be appropriate
based on the company only contribution to the Group.
*Adjusted EBITDA represents earnings before interest, tax, depreciation and amortisation, adjusted to exclude the gain on the
revaluation of contingent consideration.
53
iomart Group plc Annual Report and Accounts 2020 Independent Auditor's Report to the Members of iomart Group Plc
6. OUR APPLICATION OF MATERIALITY (CONTINUED)
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 60% of group
materiality for the 2020 audit. In determining performance materiality, we considered the following factors:
•
This is our first year of engagement.
• Our risk assessment, including our assessment of the Group’s overall control environment and that we consider it appropriate
to rely on controls within the revenue business process in three of the full scope components.
• Our risk assessment did not identify a disproportionate number of significant risks of material misstatement.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £63k, as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee
on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Identification and scoping of components
Our Group audit was scoped by obtaining an understanding of the Group and its environment through discussion with IT and the Group
and component finance teams and by performing walkthroughs of processes across each of these areas, including Group-wide controls,
and assessing the risk of material misstatement at a Group level.
For components deemed significant to the Group, full scope audit procedures were performed to materiality levels applicable to each
entity, which was lower than the Group materiality level. Components deemed significant are as follows:
•
•
•
iomart Hosting Limited
Easyspace Limited
iomart Cloud Services Limited
• Cristie Data Limited
• Dediserve Limited
• Bytemark Holdings Limited
• Bytemark Limited
•
•
•
LDeX Group Limited
London Data Exchange Limited
LDeX Connect Limited
Two further entities were subject to specified audit procedures based on the materiality of individual balances. Entities within this
category are:
•
•
Sonassi Holding Company Limited
Sonassi Limited
This provided audit coverage of 93% of the Group’s revenue, 99% of the Group’s net assets, 92% of the Group’s profit before tax, and
96% of the Group’s earnings before interest, tax, depreciation and amortisation, adjusted for the gain on contingent consideration.
The remaining non-significant components were subject to analytical reviews. Our audit work on these components was executed at
group materiality.
At the parent entity level, we also tested the consolidation process.
All work on the significant components and consolidation process was performed by the group engagement team.
54
iomart Group plc Annual Report and Accounts 2020 Independent Auditor's Report to the Members of iomart Group Plc
8. OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information included in the annual report
including the Chairman’s statement, the Chief Executive Officer’s report, the Chief Financial Officer’s report, the corporate governance
report, the Director’s report and the Director’s responsibilities statement, 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 financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the 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 in the 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 respect of these matters.
9. RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the 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 financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and 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 group or the parent company or to cease operations, or have no realistic alternative but to do so.
10.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the 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 financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
Report on other legal and regulatory requirements
11. OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
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 financial statements are
prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the parent Company and their environment obtained in the course of
the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
55
iomart Group plc Annual Report and Accounts 2020 Independent Auditor's Report to the Members of iomart Group Plc
12. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
12.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
•
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.
•
We have nothing to report in respect of these matters.
12.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not
been made.
We have nothing to report in respect of this matter.
13. USE OF OUR REPORT
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.
David Sweeney, CA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
Glasgow
24 June 2020
56
iomart Group plc Annual Report and Accounts 2020 Consolidated Statement of Comprehensive Income - Year ended 31 March 2020
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Analysed as:
Earnings before interest, tax, depreciation, amortisation,
acquisition costs and share-based payments
Share-based payments
Acquisition costs
Depreciation
Amortisation – acquired intangible assets
Amortisation – other intangible assets
Gain/(loss) on revaluation of contingent consideration
Finance income
Finance costs
Profit before taxation
Taxation
Note
3
2020
£’000
2019
£’000
112,581
103,709
(44,093)
(36,965)
68,488
66,744
(51,387)
(47,952)
4
17,101
18,792
26
6
4
4
4
29
7
7
43,510
42,232
(1,243)
(1,008)
(438)
(351)
(15,635)
(13,091)
(6,159)
(2,934)
(6,492)
(2,498)
1,856
(1,394)
39
21
(2,212)
(1,203)
16,784
16,216
9
(3,135)
(3,339)
Profit for the year attributable to equity holders of the parent
13,649
12,877
Other comprehensive income
Amounts which may be reclassified to profit or loss
Currency translation differences
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
Basic earnings per share
Diluted earnings per share
The following notes form part of the financial statements.
57
98
98
(8)
(8)
13,747
12,869
12
12
12.5p
12.2p
11.9p
11.6p
iomart Group plc Annual Report and Accounts 2020
Consolidated Statement of Financial Position - Year ended 31 March 2020
Note
2020
£’000
2019
£’000
ASSETS
Non-current assets
Intangible assets – goodwill
Intangible assets – other
Trade and other receivables
Property, plant and equipment
Current assets
Cash and cash equivalents
Trade and other receivables
Total assets
LIABILITIES
Non-current liabilities
Trade and other payables
Non-current borrowings
Provisions
Deferred tax
Current liabilities
Contingent consideration due on acquisitions
Trade and other payables
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
13
13
14
16
18
17
19
21
22
10
20
19
21
24
25
86,479
24,631
2,760
72,344
186,214
15,497
23,237
38,734
85,382
25,211
2,520
47,045
160,158
10,069
20,794
30,863
224,948
191,021
(2,283)
(70,109)
(1,956)
(1,146)
(75,494)
(2,480)
(31,948)
(3)
(3,029)
(37,460)
-
(48,957)
(1,115)
(939)
(51,011)
(3,009)
(30,933)
(1,315)
(356)
(35,613)
(112,954)
(86,624)
111,994
104,397
1,092
(70)
1,200
22,147
4,983
50
82,592
111,994
1,085
(70)
1,200
21,518
4,983
(48)
75,729
104,397
These financial statements were approved by the board of directors and authorised for issue on 24 June 2020.
Signed on behalf of the board of directors
Angus MacSween
Director and Chief Executive Officer
iomart Group plc – Company Number: SC204560
58
iomart Group plc Annual Report and Accounts 2020
Consolidated Statement of Cash Flows - Year ended 31 March 2020
The following notes form part of the financial statements.
Profit before taxation
(Gain)/loss 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 (before payment of exceptional non-recurring cost)
Payment of exceptional non-recurring cost
Cash flow from operations
Taxation paid
Net cash flow from operating activities
Cash flow from investing activities
Purchase of property, plant and equipment
Purchase of Maidenhead freehold
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
Drawdown of bank loans
Repayment of lease liabilities
Repayment of bank loans
Finance costs paid
Dividends paid
Net cash (used in)/generated from financing activities
Note
29
7
16
13
26
16
16
13
13
29
7
24
21
23
21
8
2020
£’000
16,784
(1,856)
2,173
15,635
9,093
1,243
2019
£’000
16,216
1,394
1,182
13,091
8,990
1,008
(1,107)
(1,226)
(627)
(1,563)
41,338
39,092
-
(2,312)
41,338
(4,719)
36,619
36,780
(5,353)
31,427
(14,688)
(10,383)
-
(1,405)
(1,065)
(5,729)
(1,412)
(1,107)
(4,156)
(11,970)
-
39
(4,688)
21
(21,275)
(35,268)
636
6,150
(4,686)
(2,000)
(1,734)
(8,282)
(9,916)
292
25,860
(471)
(12,200)
(1,075)
(7,991)
4,415
Net increase in cash and cash equivalents
5,428
574
Cash and cash equivalents at the beginning of the year
10,069
9,495
Cash and cash equivalents at the end of the year
18
15,497
10,069
The following notes form part of the financial statements.
59
iomart Group plc Annual Report and Accounts 2020 Consolidated Statement of Changes in Equity - Year ended 31 March 2020
Note
Share
capital
£'000
1,080
Own
shares
EBT
£'000
Foreign
currency
£'000
Share
premium
account
£'000
Capital
£'000
Merger
reserve
£'000
Retained
earnings
£'000
Total
£'000
(70)
(40)
1,200
21,231
4,983
70,088
98,472
-
-
-
-
-
-
5
5
-
-
-
-
-
-
-
-
-
-
(8)
(8)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
287
287
-
-
-
-
-
-
-
-
-
12,877
12,877
-
(8)
12,877
12,869
(5,336)
(5,336)
(2,655)
(2,655)
1,008
1,008
(253)
(253)
-
292
(7,236)
(6,944)
Balance at 1 April 2018
Profit for the year
Currency translation
differences
Total comprehensive
income
Dividends – final (paid)
Dividends – interim (paid)
Share-based payments
Deferred tax on share-based
payments
Issue of share capital
Total transactions with
owners
8
8
26
10
24
Balance at 31 March 2019
1,085
(70)
(48)
1,200
21,518
4,983
75,729
104,397
Profit for the year
Currency translation
differences
Total comprehensive
income
Dividends – final (paid)
Dividends – interim (paid)
Share-based payments
Deferred tax on share-based
payments
Issue of share capital
Total transactions with owners
8
8
26
10
24
-
-
-
-
-
-
-
7
7
-
-
-
-
-
-
-
-
-
-
98
98
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
629
629
-
-
-
-
-
-
-
-
-
13,649
13,649
-
98
13,649
13,747
(5,448)
(5,448)
(2,834)
(2,834)
1,243
1,243
253
-
253
636
(6,786)
(6,150)
Balance at 31 March 2020
1,092
(70)
50
1,200
22,147
4,983
82,592
111,994
The nature of equity in the statement of changes in equity is disclosed in the accounting policies (note 2).
The following notes form part of the financial statements.
60
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
1. GENERAL INFORMATION
iomart Group plc is a public listed company listed on the Alternative Investment Market (“AIM”), incorporated and domiciled in the
United Kingdom and registered in Scotland under the Companies Act 2006. The address of the registered office is Lister Pavilion, Kelvin
Campus, West of Scotland Science Park, Glasgow, G20 0SP. 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 valuation of certain financial instruments that are
measured at 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.
Audit exemption of subsidiaries
For the year ended 31 March 2020, the following subsidiaries of the Group were entitled to exemption from audit under s479A of the
Companies Act 2006.
Registered number
08903591
03771136
03751660
03629948
05532548
04091836
05338357
05958069
06813119
09248696
07715859
05642405
04510647
05212115
08903379
03651923
Subsidiary
Cloudfuel Limited
Global Gold Holdings Limited
Global Gold Network Limited
Internet Engineering Limited
iomart Datacentres Limited
Melbourne Server Hosting Limited
Open Minded Solutions Limited
ServerSpace Limited
Simple Servers Limited
Sonassi Holding Company Limited
Sonassi Limited
Switch Media (Ireland) Limited
Switch Media Limited
SystemsUp Limited
Tier 9 Limited
United Communications Limited
61
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
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 17 - Insurance Contracts;
• IFRS 10 and IAS 28 (amendments) - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture;
• Amendments to IFRS 3 - Definition of a business;
• Amendments to IAS 1 and IAS 8 - Definition of material; and
• Conceptual Framework Amendments to References to the Conceptual Framework in IFRS Standards.
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 IFRS Standards and Interpretations issued by the International
Accounting Standards Board (the Board) that are effective for an annual period that begins on or after 1 January 2019 including:
• IFRIC 23 Uncertainty over Income Tax Treatments;
• IFRS 16 Leases; and
• Annual improvements to IFRS Standards 2015-2017 cycle.
IFRIC 23 – Uncertainty over Income Tax Treatments
The Group has adopted IFRIC 23 for the first time in the current year which had no material impact on the amounts reported, and
disclosures included, in the financial statements. IFRIC 23 sets out how to determine the accounting tax position when there is
uncertainty over income tax treatments. The Interpretation requires the Group to:
• Determine whether uncertain tax positions are assessed separately or as a group; and
• Assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an
entity in its income tax filings:
• If yes, the Group should determine its accounting tax position consistently with the tax treatment used or planned to be used
in its income tax filings; and
• If no, the Group should reflect the effect of uncertainty in determining its accounting tax position using either the most likely
amount or the expected value method.
IFRS 16 – Leases
In the current year, the Group has applied IFRS 16 that is effective for annual periods that begin on or after 1 January 2019. The date
of initial application of IFRS 16 for the Group is 1 April 2019. IFRS 16 introduces significant changes to lessee accounting by removing
the distinction between operating and finance leases, requiring the recognition of a right-of-use asset and a lease liability at the
commencement of all contracts that are, or contain a lease, except for short-term leases (defined as leases with a lease term of 12 months
or less) and leases of low value (below £5,000).
Approach to transition
The Group has applied IFRS 16 using the modified retrospective adoption method, with no restatement of prior year comparatives,
and has recognised leases on balance sheet as at 1 April 2019. From 1 April 2019, the Group recognises a right-of-use asset and
corresponding lease liability on the balance sheet with respect of all lease arrangements in which it is a lessee, except for short-term
leases and low value leases. At this date, the Group has elected to measure the right-of-use assets to an amount equal to the lease liability.
For contracts in place at the date of transition, the Group has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has
not applied IFRS 16 to arrangements that were previously not identified as leases under IAS 17 and IFRIC 4.
The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at
the date of transition.
62
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Adoption of new and revised Standards - amendments to IFRS that are mandatorily effective for the current year (continued)
IFRS 16 – Leases (continued)
Instead of performing an impairment review on the right-of-use assets for operating leases in existence at the date of transition, the
Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS
16.
On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases
of low-value assets, the Group has applied the optional exemptions to not recognise the right-of-use assets but to account for the lease
expense on a straight line basis over the remaining lease term.
On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was
2.85%.
Judgements applied in the adoption of IFRS 16 include determining the lease term for those leases with termination or extension options
and determining an incremental borrowing rate where the rate implicit in a lease could not be readily determined. The directors do not
consider that there have been material judgements made.
Full details of lease liabilities are set out in note 23.
The following is a reconciliation of total operating lease commitments at 31 March 2019 to the lease liabilities recognised at 1 April 2019:
Total operating lease commitments disclosed at 31 March 2019
Discounted using the lessee’s incremental borrowing rate at the date of initial application
Less: low value and short-term leases recognised on a straight line basis as expense
Add: adjustments as a result of a different treatment of extension and termination options *
Total lease liability recognised under IFRS 16 at 1 April 2019 (note 23)
£’000
21,610
(3,126)
(1,516)
3,453
20,421
*On adoption of IFRS 16, lease extension options have been extended beyond the non-cancellable period under IAS 17 and rental payments
increased on a significant property lease following a rent review in the current period.
Leases – Accounting policy applicable from 1 April 2019 following the adoption of IFRS 16
For any new contracts entered into on or after 1 April 2019, the Group will consider whether a contract is, or contains a lease. A lease is
defined as a contract, or part of a contract, that conveys the right to use of an asset (the underlying asset) for a period of time in exchange
for consideration. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether the
contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the
time the asset is made available to the Group; the Group has the right to obtain substantially all of the economic benefits from use of the
identified asset throughout the period of use, considering its rights within the defined scope of the contract; and the Group has the right
to direct the use of the identified asset throughout the period of use.
Measurement and recognition of leases as a lessee
At the lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use
asset is measured at cost, which is made up of the initial measurement of the lease liability measured at the present value of future lease
payments, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the
lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).
The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the lease term. The Group assesses the right-of-use asset for impairment under IAS 36
‘Impairment of Assets’ where such indicators exist.
63
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Adoption of new and revised Standards - amendments to IFRS that are mandatorily effective for the current year (continued)
IFRS 16 – Leases (continued)
Measurement and recognition of leases as a lessee (continued)
The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted
using the rate implicit in the lease. If this rate cannot readily be determined, the Group applies an incremental borrowing rate. The lease
liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability and by reducing the liability
by payments made. The Group re-measures the lease liability (and adjusts the related right-of-use asset) whenever the lease term has
changed or a lease contract is modified and the modification is not accounted for as a separate lease.
Lease payments included in the measurement of the lease liability can be made up of fixed payments, variable payments based on an
index or rate, amounts expected to be payable under a residual guarantee and payments arising from options reasonably certain to be
exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is re-measured
to reflect any reassessment or modification, or if there are changes in fixed payments. When the lease liability is re-measured, the
corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.
The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of
recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a
straight line basis over the lease term.
Under IFRS 16, the Group recognises depreciation of the right-of-use asset and interest on lease liabilities in the consolidated statement
of comprehensive income over the period of the lease. On the balance sheet, right-of-use assets have been included in property, plant
and equipment and software and lease liabilities have been included in borrowings due within one year and after more than one year.
Under IFRS 16, the Group also separates the total amount of cash paid into a principal portion (presented within financing activities) and
interest (presented within financing activities) in the consolidated statement of cash flows. In the prior year, operating rental costs were
presented within operating activities.
In accordance with IAS 17 Leases, the economic ownership of a leased asset is deemed to have been transferred to the Group (the lessee)
if the Group bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at
the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus
incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a lease liability. The interest element of
leasing payments represents a constant proportion of the capital balance outstanding and is charged to profit or loss (finance costs) over
the period of the lease.
All other leases are regarded as operating leases and the payments made under them are charged to profit or loss on a straight line basis
over the lease term. Lease incentives are spread over the term of the lease.
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 2020.
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.
64
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
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.
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.
When the consideration transferred by the Group in a business combination includes a contingent consideration arrangement, the
contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business
combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from
additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts
and circumstances that existed at the acquisition date
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.
The Group will typically enter multi-element contracts where more than one service is provided such as a private cloud platform
combined with an online backup portal, and in such instances the delivery of these multi-element contracts are treated as a single
performance obligation. Revenue is then subsequently recognised over the period of service delivery when the criteria for recognition
has been met. Revenue recognised at a point in time predominantly consists of both software and hardware sales in which revenue is
recognised at the point in which the customer receives the goods. The amount of revenue recognised under each category during the
period can be summarised as follows:
Recurring - over time
Non-Recurring - point in time
Total revenue
2020
£’000
95,391
17,190
2019
£’000
93,015
10,694
112,581
103,709
65
iomart Group plc Annual Report and Accounts 2020
Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Revenue (continued)
Revenue recognition policies in our operating segments are as follows:
Cloud Services
This operating segment provides managed cloud computing infrastructure and services including consultancy. Revenue from the sale of
cloud computing infrastructure and managed services is recognised on an over time basis over the life of the agreement and only after the
service has been established. Set-up fees charged on contracts are spread over the life of the contract. Consultancy services are generally
provided on a “time and materials” basis and therefore revenue is recognised as these services are rendered. 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 on a point in time basis. Any unearned portion of revenue is included in payables as deferred revenue.
Easyspace
This operating segment provides domain name registration and hosting services. Revenue from the provision of domain names is split
between the registration of the domain and the ongoing services associated with each domain registration. The registration of the
domain is recognised on a point in time basis, whilst the ongoing service associated with each domain registration is spread over the
length of the registration. Revenue from the provision of hosting services is recognised evenly over the period of the service on an over
time basis and only after the service has been established. Any unearned portion of revenue is included in payables as deferred revenue.
Exceptional costs
The Group defines exceptional items as costs incurred by the Group which relate to material non-recurring costs. These are disclosed
separately where it is considered it provides additional useful information to the users of the financial statements.
Interest
Interest is recognised on an accruals basis using the effective interest method.
Intangible assets
Goodwill
Goodwill represents the excess of the consideration of an acquisition over the fair value of the Group’s share of the net identifiable assets
of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is
tested annually for impairment and carried at cost less accumulated impairment charges. Goodwill is allocated to cash-generating units
for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are
expected to benefit from the business combination in which the goodwill arose. Impairments to goodwill are charged to profit or loss in
the period in which they arise.
Intangible assets - 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 straight line 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.
66
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Intangible assets (continued)
Intangible assets - 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.
Intangible assets - 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 for purchased software or eight years in the case of acquired software.
Acquisition costs
In accordance with IFRS 3 Business Combinations costs incurred on professional fees and attributable internal acquisition costs
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.
Alternative performance 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. 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.
67
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
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;
•
•
• where bank facilities are restructured during the year any accelerated write off of arrangement fees;
• M&A activity including:
Professional fees;
•
• Any non-recurring integration costs;
• Any gain or loss on the revaluation of contingent consideration where it is material;
• 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.
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 consideration to the level of dividend payments.
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 IFRS 16.
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 straight
line rates generally applicable are:
Freehold property
Leasehold improvements
Data centre equipment
Computer equipment
Office equipment
Motor vehicles
Between 2.00% and 3.33% per annum
Between 6% and 10% per annum
Between 6% and 10% per annum
Between 20% and 50% per annum
Between 10% and 25% per annum
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.
68
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Impairment testing of goodwill, other intangible assets and property, plant and equipment (continued)
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.
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 IFRS 9.
Trade and other receivable - 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.
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.
69
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Taxation
The income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
Current tax is the tax currently payable based on taxable profit for the year and any adjustment to tax payable in respect of prior
years. 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. Deferred tax assets and liabilities arising
in the same tax jurisdiction are offset and the Group intends to settles its current tax assets and liabilities on a net basis.
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 instruments
Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party
to the contractual provisions of the instrument.
Financial assets
Financial assets under IFRS 9 include trade, other receivables, prepayments and accrued income, cash and cash equivalents and lease
deposits.
Classification and measurement of financial assets
The Group classifies financial assets into three categories:
•
•
•
Financial assets measured at amortised cost;
Financial assets measured at fair value through other comprehensive income (“FVTOCI”); and
Financial assets measured at fair value through profit or loss (“FVTPL”).
70
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Financial assets (continued)
Classification and measurement of financial assets (continued)
The classification of financial assets is based on the Group’s business model for managing the financial asset and the contractual cash flow
characteristics associated with the financial asset. Specifically:
• Debt instruments that are held within a business model whose objective is to collect the contractual cashflows, and that
have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, are
measured subsequently at amortised cost;
• Debt instruments that are held within a business model whose objective is to both collect the contractual cash flows and
to sell the debt instruments, and that have contractual cash flows that are solely payments of principal and interest on the
principal amount outstanding, are measured subsequently at FVTOCI; and
• All other debt investments and equity investments are measured subsequently at FVTPL.
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.
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.
Impairment of financial assets
IFRS 9 requires an expected credit loss (“ECL”) model which requires the Group to account for expected credit losses and changes in
those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. The
Group recognises an allowance for expected credit losses for all debt instruments not held at fair value through profit or loss (“FVTPL”).
The main financial asset that is subject to the new expected credit loss model is trade receivables, which consist of billed receivables
arising from contracts.
While cash and cash equivalents, accrued income and lease deposits held at amortised cost are also subject to the impairment
requirements of IFRS 9, the identified impairment loss was immaterial.
The Group has applied the IFRS 9 simplified approach to measuring forward-looking expected credit losses (“ECL”) which uses a lifetime
expected loss allowance for all trade receivables. The ECL model reflects a probability weighted amount derived from a range of possible
outcomes. To measure the ECL, trade receivables and accrued income have been grouped based on shared credit risk characteristics and
the days past due. The Group has established a provision matrix based on the payment profiles of sales over a twenty four month period
and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current
and forward-looking information that might affect the ability of customers to settle the receivables, including macroeconomic factors as
relevant.
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.
71
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Financial liabilities
Classification and measurement of 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.
Hedge accounting
The hedge accounting requirements of IFRS 9 do not impact the Group financial liabilities.
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.
72
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Equity
Equity comprises the following:
•
•
•
•
•
•
•
“Share capital” represents the nominal value of equity 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; and
“Retained earnings” represents retained profits and share-based payment reserve.
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.
73
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
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.
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 10 to 24 including the potential impact of Covid-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 14 to 18.
In the three months since the response to the Covid-19 pandemic was initiated in the UK, there has been a very limited impact on
iomart’s trading from Covid-19. We take great comfort from the resilience of our business model, especially the diversity and limited
concentration of our customer base. We are not significantly exposed to industries that are suffering the worst effects. The level of
customer churn across all segments of the business has been extremely low, renewal levels high and cash collection in line with our typical
profile. However, we remain vigilant to the economic impact the ongoing situation may create, particularly on the SME segment of the
market.
Note 29 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.
The Group has access to a £80m multi option revolving credit facility that matures on 30 September 2022 of which £8m (annually) is
available to be drawn on for general business purposes should that be required. The directors are of the opinion that the Group can
operate within the current facility and comply with its banking covenants.
At the end of the financial year, the Group had net debt of £57.6m (2019: £39.2m) 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 considered the Group budgets and the cash flow forecasts for the next three financial years, and associated risks,
including the potential impact of Covid-19, and the availability of bank and leasing facilities. We have run appropriate scenario and stress
tests applying reasonable downside sensitivities and are confident we have the resources to meet our liabilities as they fall due.
After making enquiries, the directors have a reasonable expectation that the Group will be able to meet its financial obligations and has
adequate resources to continue in operational existence for the foreseeable future (being a period extending at least twelve months
from the date of approval of these financial statements). For this reason they continue to adopt the going concern basis in preparing the
financial statements.
74
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Critical accounting judgements and key sources of estimation uncertainty
The Group do not consider that there are any critical accounting judgements in the preparation of the financial statements.
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.
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 an assessment 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. 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 an assessment 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 2020, contingent consideration relates to LDeX Group Limited, Memset Limited and ServerChoice
Limited (note 20). The final balance related to the LDeX Group Limited acquisition was agreed with the previous shareholder and paid
subsequent to the year end at the amount disclosed in note 20.
3. SEGMENTAL ANALYSIS
The chief operating decision-maker has been identified as the Chief Executive Officer (“CEO”) of the Company. The Group has two
operating segments and the CEO reviews the Group’s internal reporting which recognises these two segments in order to assess
performance and to allocate resources. The Group has determined its reportable segments which are also its operating segments based
on these reports.
The Group currently has two operating and reportable segments being Easyspace and Cloud Services.
• Easyspace – this segment provides a range of shared hosting and domain registration services to micro and SME companies.
• Cloud Services – this segment provides managed cloud computing facilities and services, through a network of owned
data centres, to the larger SME and corporate markets. The segment uses several routes to market including iomart Cloud,
Infrastructure as a Service (IaaS), SystemsUp, Cristie Data, Sonassi, LDeX, Bytemark plus Memset which was acquired in the year.
Information regarding the operation of the reportable segments is included below. The CEO assesses the performance of the operating
segments based on revenue and a measure of earnings before interest, tax, depreciation and amortisation (EBITDA) before any allocation
of Group overheads, charges for share-based payments, costs associated with acquisitions and any gain or loss on revaluation of
contingent consideration and material non-recurring items. This segment EBITDA is used to measure performance as the CEO believes
that such information is the most relevant in evaluating the results of the segment.
The Group’s EBITDA for the year has been calculated after deducting Group overheads from the EBITDA of the two segments
as reported internally. Group overheads include the cost of the Board, all the costs of running the premises in Glasgow, the Group
marketing, human resource, finance and design functions and legal and professional fees.
The segment information is prepared using accounting policies consistent with those of the Group as a whole.
75
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
3. SEGMENTAL ANALYSIS (CONTINUED)
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
Geographical Information
2020
£’000
12,792
99,789
2019
£’000
13,113
90,596
112,581
103,709
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
2020
£’000
95,333
17,248
2019
£’000
86,246
17,463
112,581
103,709
2020
Depreciation,
amortisation,
acquisition
costs and
share-based
payments
£’000
(1,459)
(23,269)
-
(438)
(1,243)
(26,409)
Adjusted
EBITDA
£’000
5,649
42,307
(4,446)
-
-
43,510
2019
Depreciation,
amortisation,
acquisition
costs and
share-based
payments
£’000
(1,595)
(20,486)
-
(351)
(1,008)
(23,440)
Operating
profit/(loss)
Adjusted
EBITDA
£’000
6,182
40,447
(4,397)
-
-
42,232
£’000
4,190
19,038
(4,446)
(438)
(1,243)
17,101
1,856
(5,308)
13,649
Easyspace
Cloud Services
Group overheads
Acquisition costs
Share-based payments
Gain/(loss) on revaluation of
contingent consideration
Group interest and tax
Profit for the year
Group overheads, acquisition costs, share-based payments, interest and tax are not allocated to segments.
Operating
profit/(loss)
£’000
4,587
19,961
(4,397)
(351)
(1,008)
18,792
(1,394)
(4,521)
12,877
76
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
4. OPERATING PROFIT
Operating profit is stated after charging/(crediting) the following:
Staff costs excluding development costs capitalised and research and development
costs written off profit or loss
Depreciation of property, plant and equipment:
- Owned assets
- Right-of-use assets
Operating lease rentals (under IAS 17):
- Land and buildings
- Other
Short-term and low value lease expense (under IFRS 16) (note 23)
Amortisation of intangibles:
- Acquired intangible assets
- Other intangible assets
- Right-of-use assets
Research and development costs expensed
Bad debt expense
Net foreign exchange gain
2020
£’000
2019
£’000
21,317
19,157
12,411
3,224
12,638
453
-
-
1,662
6,159
2,744
190
-
633
(99)
2,112
2,005
-
6,492
2,498
-
40
369
(95)
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
Total audit services fees
Non-audit services:
- Interim review
- Advisory services
- Tax advisory
- Tax compliance – UK
- Tax compliance - International
Total non-audit services fees
Total Auditors’ remuneration
*Fees in 2019 were payable to Grant Thornton LLP.
77
2020
£’000
2019*
£’000
80
121
8
209
22
-
-
-
-
22
231
74
80
9
163
14
11
24
38
21
108
271
iomart Group plc Annual Report and Accounts 2020
Notes to the Financial Statements - Year ended 31 March 2020
5. INFORMATION REGARDING DIRECTORS AND EMPLOYEES
Directors’ emoluments
Aggregate emoluments
Share-based payments
Total Directors’ emoluments
Emoluments payable to the highest paid director are as follows:
Aggregate emoluments
2020
£’000
2019
£’000
1,127
796
1,087
560
1,923
1,647
2020
£’000
2019
£’000
583
618
During the year the Company made personal pension contributions to personal pension schemes of the directors of £22,000 (2019:
£13,000).
The aggregate amount of gains realised by directors, who served during the year, on the exercise of share options during the year
was £nil (2019: £246,000).
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 43 to 36.
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
2020
No.
2019
No.
244
112
49
405
256
89
49
394
2020
£’000
2019
£’000
18,832
17,441
2,309
338
1,243
1,937
223
1,008
22,722
20,609
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 43 to 46. 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.
78
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
6. ACQUISITION COSTS
Professional fees
Total acquisition costs
2020
£’000
2019
£’000
438
438
351
351
During the year costs of £207,000 (2019: £351,000) were incurred in respect of professional fees on acquisitions. £231,000 (2019: £nil)
costs were incurred in respect of acquisition integration costs.
7. NET FINANCE COSTS
Finance income:
Bank interest receivable
Finance income for the year
Finance costs:
Bank loan
Interest on lease liabilities*
Other interest charges
Accelerated write off of arrangement fees on bank facility
Finance costs for the year
Net finance costs
2020
£’000
2019
£’000
39
39
21
21
(1,545)
(1,016)
(649)
(18)
(85)
(39)
(2,212)
(1,140)
-
(63)
(2,212)
(1,203)
(2,173)
(1,182)
*Interest on lease liabilities in 2020 includes the interest on all leases following the transition to IFRS 16 ‘Leases’ as set out in note 23.
Interest in 2019 includes the interest on finance leases under IAS 17 ‘Leases’.
8. DIVIDENDS PAID ON SHARES CLASSED AS EQUITY
Paid during the year:
Final dividend (proposed in the prior year)
Equity dividends on ordinary shares
Interim dividend
Equity dividends on ordinary shares
2020
Pence per
share
2020
£’000
2019
Pence per
share
2019
£’000
5.01p
5,448
4.93p
5,336
2.60p
2,834
2.45p
2,655
Total dividend paid in cash
8,282
7,991
The directors have recommended a final dividend for the year ended 31 March 2020 of 3.93p per share (2019: 5.01p per share). Subject
to shareholder approval this proposed final dividend would be payable on 4 September 2020 to shareholders on the register at close on
14 August 2020.
79
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
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
Total taxation charge
2020
£’000
2019
£’000
(3,976)
357
(3,619)
(4,920)
(119)
(5,039)
367
266
(13)
(136)
484
1,661
24
(8)
23
1,700
(3,135)
(3,339)
The differences between the total taxation charge shown above and the amount calculated by applying the standard rate of UK
corporation tax to the are as follows:
Profit before tax
Tax charge @ 19% (2019: 19%)
Expenses disallowed for tax purposes
Tax effect of net (loss)/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 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
Total taxation charge for the year
2020
£’000
2019
£’000
16,784
16,216
3,189
3,081
20
(353)
(357)
6
136
651
40
69
(266)
3,135
76
265
119
22
(23)
(192)
11
4
(24)
3,339
The weighted average applicable tax rate for the year ended 31 March 2020 was 19% (2019: 19%). The effective rate of tax for the year,
based on the taxation charge for the year as a percentage of the profit before tax, is 18.7% (2019: 20.6%). The net decrease of 1.9% of
the effective tax rate for the year is largely due to the following:
•
•
•
the decrease in the tax effect as a result of a net gain on revaluation of contingent consideration in the year (2019: net loss) and the
movement relating to adjustments in current tax relating to prior years;
the increase in the tax effect of share-based remuneration as a result of the decrease in the year end share price from 2019 to 2020;
and
the impact of the increase in the deferred tax rate from 17% to 19%.
A UK corporation tax rate of 19% has been applied based on the rate substantively enacted at the balance sheet date. Deferred tax assets
and liabilities at 31 March 2020 have been calculated based on the rate of 19% enacted at the balance sheet date.
80
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
10. DEFERRED TAX
The Group recognised deferred tax assets and liabilities as follows:
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
2020
£’000
1,069
1,364
-
(88)
(3,298)
(193)
(1,146)
2019
£’000
1,378
1,632
(422)
(157)
(3,173)
(197)
(939)
At the year end, the Group had no unused tax losses (2019: £nil) available for offset against future profits.
The movement in the deferred tax account during the year was:
Capital
allowances
temporary
differences
£’000
Development
costs
£’000
Deferred tax
on acquired
assets with
no capital
allowances
£’000
Share-based
remuneration
£’000
Customer
relationships
£’000
Intangible
software
£’000
Total
£’000
Balance at 1 April 2018
1,588
1,455
(329)
(235)
(3,581)
(217)
(1,319)
Acquired on acquisition of
subsidiaries
-
(226)
Credited to equity
(253)
-
-
-
Credited/(charged) to
statement of comprehensive
income
Effect of different tax rates of
overseas jurisdictions
Effect of changes in tax rates
43
394
(108)
-
-
-
9
-
15
-
-
87
-
(9)
(841)
-
-
-
(1,067)
(253)
1,249
20
1,685
(8)
8
-
-
(8)
23
Balance at 31 March 2019
1,378
1,632
(422)
(157)
(3,173)
(197)
(939)
Acquired on acquisition of
subsidiaries
Charged to equity
Credited/(charged) to
statement of comprehensive
income
Effect of different tax rates of
overseas jurisdictions
Effect of changes in tax rates
Balance at 31 March 2020
-
253
(82)
-
(724)
(373)
-
7
162
1,069
180
1,364
-
-
472
-
(50)
-
-
-
87
-
(18)
(88)
(875)
-
1,131
6
-
-
27
-
(957)
253
620
13
(387)
(23)
(136)
(3,298)
(193)
(1,146)
The deferred tax asset in relation to share-based remuneration arises from the anticipated future tax relief on the exercise of share
options.
The deferred tax on capital allowances temporary differences arises mainly from plant and equipment in the Cloud Services segment
where the tax written down value varies from the net book value.
The deferred tax on development costs arises from development expenditure on which tax relief is received in advance of the
amortisation charge.
The deferred tax on acquired assets arises from data centre equipment acquired through the acquisition of iomart Datacentres Limited
on which depreciation is charged but on which there are no capital allowances available.
The deferred tax on customer relationships and intangible software arises from permanent differences on acquired intangible assets.
81
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
11. ACQUISITIONS
On 12 March 2020, the Company acquired the entire share capital of Memset Limited, and on 28 February 2020, iomart Hosting
Limited, a 100% owned subsidiary of the Company, acquired the net assets of the managed private cloud business formerly operated by
ServerChoice Limited. Total cash paid on acquisitions, net of cash acquired, in the year ended 31 March 2020 was £4.2m.
Memset Limited
The Group acquired 100% of the issued share capital of Memset Limited (“Memset”) on 12 March 2020.
Memset provides a range of cloud VPS and dedicated servers to around 2,000 customers from its data centre in Dunsfold, Surrey and a
third party data centre in Reading.
The acquisition is in line with the Group’s strategy to grow its operations, both organically and by acquisition, and provides the Group
with additional data centre space.
During the current year, the Group incurred £172,000 of third party acquisition related costs in respect of this acquisition. These
expenses are included in administrative expenses in the Group’s consolidated statement of comprehensive income for the year ended
31 March 2020.
The following table summarises the consideration to acquire Memset, and the amounts of identified assets acquired and liabilities
assumed at the acquisition date, which are provisional.
Recognised amounts of net assets acquired and liabilities assumed:
Book value
£’000
Fair value
adjustments
£’000
Final fair
value
£’000
Cash and cash equivalents
Trade and other receivables
Property, plant and equipment
Intangible assets
Trade and other payables
Current borrowings
Borrowings due after more than 1 year
Deferred tax liability
Identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash – paid on acquisition
Contingent consideration - payable
Total consideration transferred
547
740
2,894
56
(1,427)
(1,088)
(628)
(82)
1,012
-
-
-
2,308
-
-
-
(438)
1,870
547
740
2,894
2,364
(1,427)
(1,088)
(628)
(520)
2,882
331
3,213
2,713
500
3,213
The acquisition of Memset was completed using a “locked box” mechanism, on a no cash, no debt, and normalised working capital
basis. An initial payment of £2,713,000 was made at completion. This initial payment included a deduction of £587,000 to settle the
adjustments required to the locked box accounts in respect of the cash, debt and working capital position at the locked box date.
The share purchase agreement included a provision requiring the Company to pay the former shareholders of Memset an additional
amount contingent on the level of a particular portion of the monthly recurring revenue (“MRR”) in December 2020 (“the Deferred
Payment”).
The potential undiscounted amount of the Deferred Payment that the Company could be required to pay is between £nil and
£1,000,000. The amount of contingent consideration payable, which was recognised as of the acquisition date, was £500,000. The level
of the relevant MRR was estimated by considering different scenarios based on the current level of the MRR, historic performance,
known and agreed changes to the current level, and forecasts. In addition to the minimum and maximum, those scenarios reviewed had
a range of outcomes for the amount of the Deferred Payment of £320,000 to £700,000. A weighted average, based on management
estimates of the probability of the achievement of the various levels of MRR, was then calculated to give the expected outcome of the
amount of the Deferred Payment of £500,000.
82
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
11. ACQUISITIONS (CONTINUED)
Memset Limited (continued)
The goodwill arising on the acquisition of Memset is attributable to the premium payable for a pre-existing, well-positioned business and
the specialised, industry specific knowledge of the management and staff, together with the benefits to the Group in merging the business
with its existing infrastructure and the anticipated future operating synergies from the combination. The goodwill is not expected to be
deductible for tax purposes.
The name “Memset” is not actively advertised or promoted. The standard Memset contracts restrict the ability of Memset to sell,
distribute or lease any personal information it holds on customers unless the customer’s permission is given. As a consequence, there
is no significant value in either the trade name/brand or customer lists acquired at the acquisition date and therefore no value has been
attributed to either intangible asset.
The fair value of the financial assets acquired includes trade receivables with a fair value of £740,000. The gross amount due under
contracts is £740,000 all of which is expected to be collectable.
The fair value included in respect of the acquired customer relationships intangible asset is £2,308,000.
To estimate the fair value of the customer relationships intangible asset, a discounted cash flow method, specifically the income approach,
was used with reference to the directors’ estimates of the level of revenue, which will be generated from them. A pre-tax discount rate of
11.9% was used for the valuation. Customer relationships are being amortised over an estimated useful life of 8 years.
Memset earned revenue of £282,000 and generated profits, before allocation of group overheads, share-based payments and tax, of
£25,000 in the period since acquisition.
Net assets of the managed private cloud business formerly operated by ServerChoice Limited
On 28 February 2020, the Group acquired the net assets of the managed private cloud business formerly operated by ServerChoice
Limited (“the ServerChoice assets”). The acquisition of the net assets and the transfer of employees engaged in the business, together
satisfy the criteria for the definition of a business under IFRS 3 and the acquisition has therefore been treated as a business combination.
The acquisition is in line with the Group’s strategy to grow its operations, both organically and by acquisition, and provides an additional
high quality customer base.
During the current year, the Group incurred £35,000 of third party acquisition related costs in respect of this acquisition. These expenses
are included in administrative expenses in the Group’s consolidated statement of comprehensive income for the year ended 31 March
2020.
The following table summarises the consideration to acquire the business, and the amounts of identified assets acquired and liabilities
assumed at the acquisition date, which are provisional.
Book
value
£’000
Fair value
adjustments
£’000
Final fair
value
£’000
297
-
(111)
-
186
-
2,302
-
(437)
1,865
297
2,302
(111)
(437)
2,051
766
2,817
1,990
827
2,817
Recognised amounts of net assets acquired and liabilities assumed:
Property, plant and equipment
Intangible assets
Trade and other payables
Deferred tax liability
Identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash – paid on acquisition
Contingent consideration - payable
Total consideration transferred
83
iomart Group plc Annual Report and Accounts 2020
Notes to the Financial Statements - Year ended 31 March 2020
11. ACQUISITIONS (CONTINUED)
Net assets of the managed private cloud business formerly operated by ServerChoice Limited (continued)
The business purchase agreement (“BPA”) included provisions requiring the Group to pay to ServerChoice Limited two additional
contingent amounts. These are based on the level of the total monthly recurring revenue (“MRR”) invoiced to specific customers in June
2020 and September 2020, together the “Deferred Payments”.
The potential undiscounted amounts of the Deferred Payments are between £nil and £887,000. The amount of contingent consideration
payable, which was recognised as of the acquisition date, was £827,000. The levels of the relevant MRR, expected to be invoiced in
June 2020 and September 2020, were estimated by considering different scenarios based on the current level of the MRR, historic
performance, known and agreed changes to the current level, and forecasts.
In addition to the minimum of £nil and the maximum of £887,000, those scenarios reviewed for the Deferred Consideration had a
range of outcomes for the Deferred Payment of £425,000 to £830,000. A weighted average, based on management estimates of the
probability of the achievement of the various levels of MRR, was then calculated to give the expected outcome of the amount of the
Deferred Payment of £827,000.
The goodwill arising on the acquisition of the former ServerChoice managed private cloud business is attributable principally to the
benefits to the Group in merging the business with its existing infrastructure and the anticipated future operating synergies from the
combination. The goodwill is not expected to be deductible for tax purposes.
Apart from the goodwill, the only intangible asset acquired is the customer relationships, which have been fair valued at £2,302,000.
To estimate the fair value of the customer relationships intangible asset, a discounted cash flow method, specifically the income approach,
was used with reference to the directors’ estimates of the level of revenue, which will be generated from them. A pre-tax discount rate of
13.0% was used for the valuation. Customer relationships are being amortised over an estimated useful life of 8 years.
The acquired managed private cloud business earned revenue of £139,000 and generated profits, before allocation of group overheads,
share-based payments and tax, of £67,000 in the period since acquisition.
Pro-forma full year information
The following summary presents the Group as if the businesses acquired during the year had been acquired on 1 April 2019. The
amounts include the results of the acquired business, depreciation and amortisation of the acquired property, plant and equipment plus
a post-tax amount of £691,000 in respect of the amortisation of intangible assets recognised on acquisition. The amounts do not include
any possible synergies from the acquisition. The information is provided for illustrative purposes only and does not necessarily reflect the
actual results that would have occurred, nor is it necessarily indicative of the future results of combined companies.
Revenue
Profit after tax for the year
Pro-forma year ended 31
March 2020
£’000
119,497
13,779
84
iomart Group plc Annual Report and Accounts 2020
Notes to the Financial Statements - Year ended 31 March 2020
12. EARNINGS PER ORDINARY SHARE
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the year, after deducting any own shares held in Treasury and held by the Employee Benefit Trust. Diluted
earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the total of the weighted average
number of ordinary shares in issue during the year, after deducting any own shares, and adjusting for the dilutive potential ordinary
shares relating to share options.
Total operations
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 by Employee Benefit Trust
Issued share capital in the year
Weighted average number of ordinary shares - basic
Dilutive impact of share options
2020
£’000
2019
£’000
13,649
12,877
No
000
No
000
108,510
107,990
(141)
436
(141)
396
108,805
108,245
2,861
2,909
Weighted average number of ordinary shares - diluted
111,666
111,154
Basic earnings per share
Diluted earnings per share
Adjusted earnings per share
12.5 p
12.2 p
2020
£’000
11.9 p
11.6 p
2019
£’000
Profit for the financial year and basic earnings attributed to ordinary shareholders
13,649
12,877
-
-
-
Amortisation of acquired intangible assets
Acquisition costs
Share-based payments
- Net (gain)/loss on revaluation of contingent consideration
-
-
Accelerated write off of arrangement fees on bank facility
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
6,159
438
1,243
(1,856)
-
6,492
351
1,008
1,394
63
(1,406)
(1,462)
18,227
20,723
16.8 p
19.1 p
16.3 p
18.6 p
85
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
Acquired on acquisition of subsidiaries
1,097
13. INTANGIBLE ASSETS
Cost
At 1 April 2018
Additions
Currency translation differences
Acquired on acquisition of subsidiaries
Development cost capitalised
At 31 March 2019
Additions
Currency translation differences
Disposals
Development cost capitalised
At 31 March 2020
Accumulated amortisation:
At 1 April 2018
Charge for the year
At 31 March 2019
Charge for the year
Currency translation differences
Disposals
At 31 March 2020
Carrying amount:
At 31 March 2020
Goodwill
Development
costs
Acquired
Customer
relationships
Software
Beneficial
contracts
Domain
names & IP
addresses
£’000
£’000
£’000
£’000
£’000
£’000
Total
£’000
75,837
7,781
47,999
-
-
9,545
-
85,382
-
-
-
-
86,479
-
-
-
-
-
-
-
-
-
-
1,412
9,193
-
-
-
-
1,405
10,598
(5,424)
(1,442)
(6,866)
(1,507)
-
-
-
(13)
4,780
-
52,766
-
38
4,610
-
-
6,943
1,082
-
14
-
8,039
2,490
(33)
-
(173)
-
86
280
138,926
-
-
-
-
-
-
-
-
1,082
(13)
14,339
1,412
86
280
155,746
-
-
-
-
-
-
-
56
-
-
2,490
5
5,763
(173)
1,405
57,414
10,323
86
336
165,236
(27,303)
(3,115)
(6,492)
(1,049)
(33,795)
(4,164)
(6,159)
(1,420)
-
-
(53)
173
(41)
(7)
(48)
(7)
-
-
(280)
(36,163)
-
(8,990)
(280)
(45,153)
-
-
-
(9,093)
(53)
173
(8,373)
(39,954)
(5,464)
(55)
(280)
(54,126)
86,479
2,225
17,460
4,859
31
38
56
111,110
-
110,593
At 31 March 2019
85,382
2,327
18,971
3,875
Of the total additions in the year of £2,490,000 (2019: £1,082,000), £1,425,000 was included within lease liabilities within borrowings
(2019: £nil). There were no amounts included in trade payables at the year end (2019: £nil). Consequently, the consolidated statement
of cash flows discloses a figure of £1,065,000 (2019: £1,107,000) as the cash outflow in respect of intangible asset additions in the year.
All amortisation and impairment charges are included in the depreciation, amortisation and impairment of non-financial assets
classification, which is disclosed as administrative expenses in the statement of comprehensive income.
As disclosed in note 23, on 1 April 2019, the Group adopted IFRS 16. At 31 March 2020, a total of £1.4m is recognised within additions
to software for appropriate lease transactions in the current year with a corresponding amortisation charge of £0.2m.
Included within customer relationships are the following significant items: customer relationships in relation to the acquisitions of
Memset Limited of £2.3m with a useful life of 8 years, the managed private cloud business of ServerChoice Limited of £2.3m with a
useful life of 8 years, Bytemark Limited with a net book value of £0.9m and LDeX Group Limited of £2.7m both with a remaining useful
life of 7 years. Sonassi Limited with a net book value of £3.6m and a remaining useful life of 6 years, Dediserve Limited with a net book
value of £1.4m and a remaining useful of 6 years, Simple Servers Limited with a net book value of £0.7m and a remaining useful life of 6
years, Backup Technology with a net book value of £0.8m and a remaining useful life of 2 years and United Hosting with a net book value
of £1.4m and a remaining useful life of 4 years.
86
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
13. INTANGIBLE ASSETS (CONTINUED)
During the year, goodwill was reviewed for impairment in accordance with IAS 36 “Impairment of Assets”. No impairment charges (2019:
£nil) arose as a result of this review. For this review goodwill was allocated to individual Cash Generating Units (CGU) on the basis of the
Group’s operations. The goodwill acquired in the year on all acquisitions has been allocated to the Cloud Services CGU as this is the CGU
expected to benefit from the business combination (note 3).
The carrying value of goodwill by each CGU is as follows:
Cash Generating Units (CGU)
Easyspace
Cloud Services
2020
£’000
23,315
63,164
86,479
2019
£’000
23,315
62,067
85,382
The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections
based on financial budgets approved by the Board covering a three year period. These projections are the result of detailed planning
and assume similar levels of organic growth as the Group has experienced in the previous years. As outlined previously, management
remain confident in sustaining such levels of growth despite the current situation surrounding Covid-19. The impact of the pandemic
has been considered in great detail when finalising these projections and they are perceived to be a reliable basis upon which to base our
impairment testing.
The growth rates and margins used to extrapolate estimated future performance in the two years after the initial approved three year
period continue to be based on past growth performance adjusted downwards to take into account the additional risk due to the passage
of time. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. The growth
rates used to estimate future performance beyond the periods covered by the annual and strategic planning processes do not exceed the
long-term average growth rates for similar products.
In determining the value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset.
Management continue to apply the judgement that there are two distinct CGUs within the Group, namely Cloud Services and Easyspace.
These segments have been derived with due consideration to IAS 36. The assumptions used for the CGU included within the impairment
reviews are as follows:
Discount rate
Future perpetuity rate
Initial period for which cash flows are estimated (years)
Easyspace Cloud Services
13.1%
0.0%
5
12.5%
2.0%
5
Based on an analysis of the impairment calculation’s sensitivities to changes in key parameters (growth rate, discount rate and pre-tax
cash flow projections) there was no reasonably possible scenario where the CGU’s recoverable amount would fall below its carrying
amount.
14. TRADE AND OTHER RECEIVABLES – NON-CURRENT
Non-current trade and other receivables relates to lease deposits of £2,760,000 (2019: £2,520,000) which are made up of a rental
deposit of £784,000 (2019: £544,000) and a reinstatement deposit of £1,976,000 (2019: £1,976,000). The rental and reinstatement
deposits are due to be repaid at the end of the lease which at the earliest is June 2030. Subsequent to the year, the Group has extended
the lease until June 2035 and £2,340,000 of the total lease deposit will be returned to the Group post year end (note 30).
The Group is due to receive interest on the lease deposits at the prevailing market rate and therefore they have not been discounted.
87
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
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 Limited
Bytemark Holdings Limited
Bytemark Limited
Cloudfuel Limited
Cristie Data Limited
Dediserve Limited
Easyspace Limited
Global Gold Holdings Limited
Global Gold Network Limited
Internet Engineering Limited
England
Dormant
England
Holding company
England Managed hosting services
England
Non-trading
England
Provision of hardware plus storage,
backup and virtualisation solutions
Managed hosting services
Republic
of
Ireland**
England Webservices
England
Non-trading
England
Non-trading
England
Non-trading
iomart Cloud Inc
USA***
Managed hosting services
iomart Cloud Services Limited
Scotland Managed hosting services
iomart Datacentres Limited
England
Non-trading
iomart Hosting Limited
iomart Limited
LDeX Group Limited
Scotland Managed hosting services
Scotland
Dormant
England
Holding company
London Data Exchange Limited
England Managed hosting services
LDeX Connect Limited
England Managed hosting services
Melbourne Server Hosting Limited
England Managed hosting services
Memset Limited
Netintelligence Limited
Open Minded Solutions Limited
RapidSwitch Limited
Redstation Limited
ServerSpace Limited
Simple Servers Limited
England Managed hosting services
Scotland
Dormant
England
Dormant
England
Dormant
England
Dormant
England Managed hosting services
England Managed hosting services
Sonassi Holding Company Limited
England
Holding company
Sonassi Limited
Switch Media (Ireland) Limited
Switch Media Limited
SystemsUp Limited
Tier 9 Limited
United Communications Limited
England Managed hosting services
England Webservices
England Webservices
England
Consultancy services
England
Non-trading
England Webservices
-
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
-
-
-
-
*All subsidiaries with a country of registration in England have a registered office of 3rd Floor, 11-21 Paul Street, London, EC2A 4JU.
All subsidiaries with a country of registration in Scotland have a registered office of Lister Pavilion, Kelvin Campus, West of Scotland Science Park,
Glasgow, G20 0SP.
**The registered office of Dediserve Limited is 13-18 City Quay, Dublin 2.
*** The registered office of iomart Cloud Inc is Miracle Mile Plaza, 601 21st Street, Suite 300, Vero Beach, FL 32960.
88
iomart Group plc Annual Report and Accounts 2020
Notes to the Financial Statements - Year ended 31 March 2020
16. PROPERTY, PLANT AND EQUIPMENT
Leasehold
property
and
improve-
ments
Freehold
property
Data centre
equipment
Computer
equipment
Office
equipment
Motor
vehicles
£’000
£’000
£’000
£’000
£’000
£’000
Total
£’000
8,540
22,680
70,043
2,398
31
105,754
Cost:
At 1 April 2018
Additions in the year
Acquisition of subsidiaries
Disposals in the year
Currency translation differences
At 31 March 2019
Additions in the year
Acquisition of subsidiaries
Disposals in the year
Currency translation differences
2,062
5,729
1,131
-
(12)
33
-
(630)
-
775
-
-
2
8,910
7,943
23,457
-
-
-
-
21,287
457
(16)
-
1,482
1,192
(18)
-
9,256
2,376
(67)
3
81,611
14,847
1,540
(622)
216
At 31 March 2020
8,910
29,671
26,113
97,592
38
567
(83)
-
2,920
57
-
(206)
-
2,771
-
-
-
-
31
11
2
(21)
-
23
15,831
4,074
(780)
(7)
124,872
37,684
3,191
(883)
216
165,080
Accumulated depreciation:
At 1 April 2018
Charge for the year
Disposals in the year
Currency translation differences
At 31 March 2019
Charge for the year
Disposals in the year
Currency translation differences
(306)
(112)
-
-
(418)
(279)
-
-
(570)
198
-
(3,510)
(3,610)
16
-
(3,138)
(11,755)
(1,880)
-
-
(48,123)
(10,317)
67
1
(1,725)
(209)
83
(17)
(21)
(3)
(65,068)
(13,091)
-
-
348
(16)
(13,635)
(58,372)
(1,868)
(24)
(77,827)
(1,853)
(9,625)
18
-
622
(157)
(262)
206
-
(6)
21
-
(9)
(15,635)
883
(157)
(92,736)
At 31 March 2020
(697)
(7,104)
(15,470)
(67,532)
(1,924)
Carrying amount:
At 31 March 2020
8,213
22,567
10,643
30,060
847
14
72,344
At 31 March 2019
8,492
4,433
9,822
23,239
1,052
7
47,045
Of the total additions in the year of £37,684,000, £20,421,000 relates to right-of-use assets brought on the balance at 1 April 2019
on transition to IFRS 16 (note 23). In addition, during the year there were additions of £824,000 in respect of reinstatement provisions
(note 22) and a further £119,000 in respect of leases. Of the total remaining additions in the year of £16,320,000 (2019: £15,831,000),
£3,185,000 (2019: £1,553,000) was included in trade payables as unpaid invoices at the year end resulting in a net increase of
£1,632,000 (2019: net decrease of £293,000) in trade payables. Consequently, the consolidated statement of cash flows discloses a
figure of £14,688,000 (2019: £16,112,000) as the cash outflow in respect of property, plant and equipment additions in the year.
As disclosed in note 23, on 1 April 2019, the Group adopted IFRS 16 and recognised a right-of-use asset of £20.4m. At 31 March 2020,
a total of £20.2m is recognised within additions to leasehold property and improvements in relation to the initial recognition along
with subsequent additions in relation to IFRS 16, with a corresponding depreciation charge of £2.7m. In addition, a further £1.2m is
recognised within additions to data centre equipment with a corresponding depreciation charge of £0.5m.
89
iomart Group plc Annual Report and Accounts 2020
Notes to the Financial Statements - Year ended 31 March 2020
17. TRADE AND OTHER RECEIVABLES - CURRENT
Trade receivables
Less: Expected credit loss
Trade receivables (net)
Other receivables
Prepayments
Accrued income
Trade and other receivables
2020
£’000
9,112
(421)
8,691
591
2019
£’000
9,413
(800)
8,613
448
13,106
11,421
849
312
23,237
20,794
The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
Since the adoption of IFRS 9 in the prior year, the Group has applied the simplified approach to providing for expected credit losses
prescribed, which permits the use of lifetime expected loss provision for all trade receivables. The expected credit losses on trade
receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s
current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the
debtors operate and an assessment of both the current as well as the forecast direction of economic conditions at the reporting date,
including consideration of the impact of Covid-19. There has been no change in the estimation techniques or significant assumptions
made during the current reporting period.
The following table details the risk profile of trade receivables based on the Group’s provision matrix. As the Group’s historical credit loss
experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on
past due status is not further distinguished between the Group’s different customer segments.
Risk profile category (ageing)
2020
£’000
ECL rate
%
2020 ECL
allowance
£’000
2019
£’000
ECL rate
%
2019 ECL
allowance
£’000
Current
Current
0-30 days
30-60 days
60-90 days
Over 90 days
Total
6,165
2,221
254
104
368
9,112
0.21%
2.39%
23.42%
38.02%
69.53%
13
53
59
40
256
421
0.23%
3.56%
4.39%
19.71%
87.52%
6,621
1,225
657
124
786
9,413
15
44
29
24
688
800
To consider the total exposure to credit risks, the Group uses figures net of VAT. At 31 March 2020, £6,165,000 (2019: £6,621,000) of
net trade receivables were fully performing. Net trade receivables of £2,526,000 (2019: £1,992,000) 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.
18. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Cash and cash equivalents
2020
£’000
15,497
15,497
2019
£’000
10,069
10,069
The credit risk on cash and cash equivalents is considered to be negligible because the counter parties are largely UK banking institutions.
The effective interest rate earned on short-term deposits was 0.5% (2019: 0.5%).
90
iomart Group plc Annual Report and Accounts 2020
Notes to the Financial Statements - Year ended 31 March 2020
19.
TRADE AND OTHER PAYABLES
Trade payables
Other taxation and social security
Accruals
Deferred income
Other creditors
Trade and other payables - Current
2020
£’000
2019
£’000
(11,311)
(10,123)
(2,335)
(7,137)
(927)
(8,325)
(11,144)
(11,203)
(21)
(355)
(31,948)
(30,933)
The carrying amount of trade and other payables approximates to their fair value. Current trade payables and accruals are non-interest
bearing and generally mature within three months.
Deferred income
Trade and other payables – Non-current
2020
£’000
(2,283)
(2,283)
2019
£’000
-
-
Non-current deferred income in the year predominantly relates to support contracts that span over one year. As at 31 March 2019, that
element of deferred income which would have been non-current was not material, so was not separately classified.
20.
CONTINGENT CONSIDERATION
Contingent consideration due on acquisitions within one year:
-
LDeX Group Limited
- Memset Limited
-
ServerChoice Limited
Total contingent consideration due on acquisitions
2020
£’000
2019
£’000
(1,153)
(3,009)
(500)
(827)
-
-
(2,480)
(3,009)
The final consideration due on LDeX Group Limited, agreed with the previous shareholder and paid subsequent to the year end, is
£1,153,000. This has resulted in gain on revaluation of contingent consideration of £1,856,000 recorded in the consolidated statement
of comprehensive income.
Contingent consideration for Memset Limited and ServerChoice Limited are based on the directors’ best estimate of payments due at
31 March 2020. Details of the range of possible outcomes are disclosed in note 11.
91
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
21. BORROWINGS
Current:
Lease liabilities (note 23)
Current borrowings
Non-current:
Lease liabilities (note 23)
Bank loans
Total non-current borrowings
Total borrowings
2020
£’000
(3,029)
(3,029)
2019
£’000
(356)
(356)
(17,318)
(52,791)
(70,109)
(421)
(48,536)
(48,957)
(73,138)
(49,313)
The carrying amount of borrowings approximates to their fair value.
Details of the Group’s lease liabilities are included in note 23.
At the start of the year there was £48.5m (2019: £35.2m) outstanding on the multi option revolving credit facility and drawdowns of
£6.2m (2019: £25.9m) were made from the facility during the year. Repayments totalling £2.0m (2019: £12.2m) were made resulting in
a balance outstanding at the end of the year of £52.8m (2019: £48.5m).
The multi option revolving credit facility of £80m is able to be used by the Group to finance acquisitions, capital expenditure, general
business purposes (up to a maximum of £8m each year) and for the issue of guarantees, bonds or indemnities. As at 31 March 2020,
the facility is available until September 2022 at which point any advances made under the multi option revolving credit facility become
immediately repayable. Each drawdown made under this facility can be for either 3 or 6 months and can either be repaid or continued at
the end of the period. Interest is charged on this loan at an annual rate determined by the sum of the multi option revolving credit facility
margin, LIBOR and the lender’s mandatory costs. The multi option revolving credit facility margin is fixed at 1.5% (2019: 1.5%) per annum
and a non-utilisation fee of 40% (2019: 40%) of the multi option revolving credit facility margin is due on any undrawn portion of the full
£80m multi option revolving credit facility. The effective interest rate for multi option revolving credit facility in the current year was
2.17% (2019: 2.44%).
Given the terms of the revolving credit facility and the ability for any drawdowns made to be extended beyond 31 March 2021 at the
discretion of the Group, the total amount outstanding has been classified as non-current.
92
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
21. BORROWINGS (CONTINUED)
The obligations under the multi option revolving credit facility are repayable as follows:
Due within one year
Due within two to five years
Capital
£’000
2020
Interest
£’000
-
(465)
Total
£’000
(465)
Capital
£’000
-
2019
Interest
£’000
-
Total
£’000
-
(52,791)
(52,791)
-
(52,791)
(48,536)
(192)
(48,728)
(465)
(53,256)
(48,536)
(192)
(48,728)
The directors estimate that the fair value of the Group’s borrowing is not significantly different to the carrying value. The capital
element of the bank loans is £52,791,000 (2019: £48,536,000), in the prior year this figure differs from the net amount drawn down of
£48,641,000 due to an effective interest rate adjustment.
Analysis of change in net cash/(debt)
Cash
and cash
equivalents
£’000
Bank
loans
£’000
Lease
liabilities
£’000
Total liabilities
£’000
Total net
cash/(debt)
£’000
At 1 April 2018
9,495
(35,239)
(830)
(36,069)
(26,574)
Repayment of bank loans
New bank loans
Impact of effective interest rate
Acquired on acquisition of subsidiary
Currency translation differences
Cash and cash equivalent cash outflow
Lease liabilities cash outflow
At 31 March 2019
Lease liabilities on transition to IFRS 16
Additions to lease liabilities
Repayment of bank loans
New bank loans
Impact of effective interest rate
Acquired on acquisition of subsidiaries
Cash and cash equivalent cash inflow
Lease liabilities cash outflow
At 31 March 2020
22. PROVISIONS
-
-
-
841
-
(267)
-
12,200
(25,860)
363
-
-
-
-
10,069
(48,536)
-
-
(430)
12
-
471
(777)
-
-
-
-
-
5,428
-
-
-
(20,421)
(1,544)
2,000
(6,150)
(105)
-
-
-
-
-
-
(1,705)
-
4,100
12,200
(25,860)
12,200
(25,860)
363
(430)
12
-
471
363
411
12
(267)
471
(49,313)
(39,244)
(20,421)
(20,421)
(1,544)
2,000
(6,150)
(105)
(1,705)
-
4,100
(1,544)
2,000
(6,150)
(105)
(1,705)
5,428
4,100
15,497
(52,791)
(20,347)
(73,138)
(57,641)
The Group has made provision for the reinstatement of certain leasehold properties and after initial measurement, any subsequent
adjustments to reinstatement provisions will be recorded against the original amount included in leasehold improvements with a
corresponding adjustment to future depreciation charges. As at 31 March 2020, the total reinstatement provision of the Group is
£1,956,000 (2019: £1,115,000). The utilisation of the reinstatement provision will be in line with the end of the leasehold properties
lease terms to which the provisions relate.
In 2018, the Group made a provision for non-recurring software licence fees of £2.6m. In the prior year, cash payment was made in
relation to this exceptional non-recurring item. As at 31 March 2019 and 31 March 2020, the provision is £nil.
The directors consider the carrying values of the provisions to approximate to their fair values as they have been discounted.
93
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
22. PROVISIONS (CONTINUED)
Non-current:
Reinstatement provision
Total non-current provisions
The movement in the provisions during the year was as follows:
2020
£’000
(1,956)
(1,956)
2019
£’000
(1,115)
(1,115)
2020
2019
Balance at start of the year
Reduction in provision
Increase in provision
Unwinding of discount
Reinstatement
provision
£’000
(1,115)
-
(824)
(17)
Total
£’000
(1,115)
-
(824)
(17)
709
-
(49)
(1,956)
(1,956)
(1,115)
Reinstatement
provision
£’000
Non-
recurring
software
licence fees
£’000
Total
£’000
(1,775)
(2,587)
(4,362)
2,587
3,296
-
-
-
-
(49)
(1,115)
94
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
23. LEASES
The Group leases assets including buildings, fibre contracts, colocation and software contracts. Information about leases for which the
Group is a lessee is presented below:
Right-of-use assets
Balance at 31 March 2019*
Adjustment on transition to IFRS 16
Balance at 1 April 2019 after adoption of IFRS 16
Additions
Acquired on acquisition of subsidiary
Depreciation
Amortisation
Leasehold
Property
£’000
Data centre
equipment
£’000
Software
£’000
-
19,748
19,748
47
457
(2,758)
-
509
673
1,182
72
-
(466)
-
-
-
-
1,425
-
-
(190)
Total
£’000
509
20,421
20,930
1,544
457
(3,224)
(190)
Balance at 31 March 2020
17,494
788
1,235
19,517
*net book value of leased assets under IAS 17 as at 31 March 2019
The right-of-use assets in relation to leasehold property and data centre equipment are disclosed as non-current assets and are disclosed
within property, plant and equipment at 31 March 2020 (note 16). The right-of-use assets in relation to software are disclosed as non-
current assets and are disclosed within intangibles at 31 March 2020 (note 13).
Lease liabilities
Lease liabilities are presented in the balance sheet within borrowings as follows:
2020
£’000
(3,029)
2019*
£’000
(356)
(17,318)
(421)
(20,347)
(777)
2020
£’000
2019*
£’000
(3,536)
(9,823)
(9,709)
(23,068)
2,721
(20,347)
(356)
(421)
-
(777)
-
(777)
Current:
Lease liabilities
Non-current:
Lease liabilities
Total lease liabilities
*lease liabilities under IAS 17
The maturity analysis of undiscounted lease liabilities are shown in the table below:
Amounts payable under leases:
Within one year
Between two to five years
After more than five years
Add: unearned interest
Total lease liabilities
*lease liabilities under IAS 17
95
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
23. LEASES (CONTINUED)
The Group has elected not to recognise a lease liability for short-term leases (leases with an expected term of 12 months or less) or for
leases of low value assets. Payments made under such leases are expensed on a straight line basis. During the year ended 31 March 2020,
in relation to leases under IFRS 16, the Group recognised the following amounts in the consolidated statement of comprehensive income:
Short-term and low value lease expense
Depreciation charge
Amortisation charge
Interest expense
Amounts recognised in the consolidated statement of cash flows:
Short-term and low value lease expense
Repayment of lease liabilities within cash flows from financing activities
Year ended 31
March 2020
£’000
(1,662)
(3,224)
(190)
(649)
(5,725)
Year ended 31
March 2020
£’000
(1,662)
(4,686)
(6,348)
Included in repayment of lease liabilities within cash flows from financing activities is a repayment of £1.0m in relation to the settlement
of lease liabilities on the acquisition of Memset Limited.
24. SHARE CAPITAL
Authorised
At 31 March 2018, 2019 and 2020
Called up, allotted and fully paid
At 1 April 2018
Share capital issued in the year
At 31 March 2019
Share capital issued in the year
At 31 March 2020
Ordinary shares of 1p each
Number of shares
£’000
200,000,000
2,000
107,990,341
519,407
108,509,748
650,180
109,159,928
1,080
5
1,085
7
1,092
During the year, 650,180 (2019: 519,407) ordinary shares were issued for a total consideration of £635,502 (2019: £292,040), resulting
in a premium over the nominal value of £629,000 (2019: £286,864).
96
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
24. SHARE CAPITAL (CONTINUED)
At 31 March 2020 the Company held 140,773 shares (2019: 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 (2019: £1,408) and a market value
of £380,087 (2019: £488,482). This represents 0.1% (2019: 0.1%) of the issued share capital as at 31 March 2020 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 2020 are fully paid.
25. OWN SHARES RESERVES
At 31 March 2020 and 31 March 2019
Own shares
EBT
£’000
Own shares
Total
£’000
(70)
(70)
At 31 March 2020 the Company held 140,773 shares (2019: 140,773) in the EBT with a carrying value of £69,982 (2019: £69,982)
which were accounted for in the Own Shares EBT reserve.
26. 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.
Vesting period
Maximum term
Performance criteria
Enterprise Management
Incentive scheme
Unapproved schemes
Up to 3 years
from grant
Up to 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
Sharesave scheme
3 years from grant
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 650,180 ordinary shares (2019: 517,607) were exercised and the average market price at the exercise
dates was 351.87p (2019: 394.21p). Options over 760,371 ordinary shares (2019: 671,274) were granted under the unapproved share
option scheme with an average exercise price of 1.0p (2019: 1.0p) and no options over ordinary shares (2019: 186,810) were granted
under the sharesave scheme with an average exercise price of £nil (2019: 324.0p). Options over 21,388 ordinary shares (2019: 177,199)
were forfeited under the unapproved share option scheme with an average exercise price of 1.0p (2019: 1.0p) and options over 33,655
(2019: 36,442) were forfeited under the sharesave scheme with an average exercise price of 299.4p (2019: 283.0p). Options over
75,295 ordinary shares (2019: 40,000) expired under the unapproved share option scheme with an average exercise price of 1.0p (2019:
173.0p) and options over nil (2019: 10,995) expired under the sharesave scheme with an average exercise price of nil (2019: 194.8p).
97
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
26. SHARE-BASED PAYMENTS (CONTINUED)
As disclosed in note 5, a share-based payment charge of £1,243,000 (2019: £1,008,000) 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
Share price at grant date
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
7 May 2019
19 Aug 2019
19 Aug 2019
31 Jan 2020
31 Mar 2022
31 Mar 2022
31 Mar 2020
31 Mar 2022
357.0p
62%
2.09%
2
10
3
327.5p
64%
2.28%
1
10
3
327.5p
64%
2.28%
21
10
3
380.50p
61%
2.00%
2
10
4
1.2%
0.52%
0.52%
0.53%
100%
100%
50%
100%
334.34p
304.88p
304.88p
350.27p
1.0p
1.0p
1.0p
1.0p
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:
2020
2019
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
54.05
3,280,318
Granted
Forfeited
Expired
Exercised
Outstanding at end of year
Exercisable at end of year
1.0
183.4
1.0
97.63
31.96
19.25
760,371
(55,043)
(75,295)
(650,180)
3,260,171
1,608,793
51.41
71.32
49.10
3,204,477
858,084
(213,641)
177.10
(50,995)
56.19
54.05
51.20
(517,607)
3,280,318
1,836,464
98
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
26. SHARE-BASED PAYMENTS (CONTINUED)
Summary of share options that were outstanding at the year end:
Share options – outstanding
Share options – exercisable
Range of
exercise
prices per
share (p)
Outstanding
shares
Weighted
average
exercise
price per
share (p)
Weighted
average
remaining
contractual
life (years)
Outstanding
shares
Weighted
average
exercise
price per
share (p)
Weighted
average
remaining
contractual
life (years)
Enterprise
management
incentive
scheme
Unapproved
schemes
Sharesave
scheme
As at 31 March
2020
Enterprise
management
incentive
scheme
Unapproved
schemes
Sharesave
scheme
As at 31 March
2019
46.5 – 87.5
136,510
85.5
0.6
136,510
85.5
1.0 – 146.1
2,880,786
7.1
252.8 -324.0
242,875
296.9
3,260,171
32.0
6.3
1.2
5.7
1,472,283
-
1,608,793
13.1
-
19.2
46.5 – 87.5
136,510
85.5
1.6
136,510
85.5
1.0 – 315.5
2,867,278
29.1
252.8 -324.0
276,530
296.9
6.5
2.6
1,699,954
-
3,280,318
54.0
10.7
1,836,464
48.4
-
51.2
27. 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
2020
£’000
1,127
796
1,923
Directors’ bonuses, as disclosed in the Directors’ Remuneration Report on pages 43 to 46, were paid post year end.
Dividends paid to key management during the year were as follows:
Angus MacSween
Scott Cunningham
Richard Masters
2020
£’000
1,294
-
-
0.6
4.0
-
3.7
1.6
5.0
-
4.7
2019
£’000
1,087
560
1,647
2019
£’000
1,254
-
-
Total dividends paid to directors
1,294
1,254
Dividends paid to Scott Cunningham of £401 and Richard Masters of £156 were below £1,000 which includes amounts in respect of
spouses’ shareholding.
Pinsent Masons LLP, the Group’s solicitors, were deemed a related party up to October 2019 as Richard Masters, Non-Executive
Director was a member up until his retirement at that date. Amounts paid to Pinsent Mason LLP during the period up to October 2019
were £23,000 (2019: £285,000). Richard Masters was not involved in any of the legal services provided to the Group.
99
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
28. CONTINGENCIES AND COMMITMENTS
(a) Contingencies
Excluding the contingent liabilities associated with the contingent consideration (note 20), there are no contingent assets or contingent
liabilities as at 31 March 2020 (2019: nil).
(b) Commitments
Capital expenditure on software licences and property, plant and equipment committed by the Group at 31 March 2020 was £1,128,800
(2019: £886,989).
29. RISK MANAGEMENT
The Group finances its operations by raising finance through equity, bank borrowings and finance leases. No speculative treasury
transactions are undertaken however the Group does from time to time enter into forward foreign exchange contracts to hedge 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 IFRS 9:
2020
Non-current:
Trade and other receivables
Current:
Trade receivables
Cash and cash equivalents
Other receivables
Total for category
2019
Non-current:
Trade and other receivables
Current:
Trade receivables
Cash and cash equivalents
Other receivables
Total for category
Amortised
cost
£’000
2,760
8,691
15,497
591
27,539
2,520
8,613
10,069
448
21,650
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iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
29. 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 IFRS 9:
2020
Non-current:
Lease liabilities
Bank loan
Current:
Trade payables
Accruals
Contingent consideration due on acquisitions
Lease liabilities
Total for category
2019
Non-current:
Lease liabilities
Bank loan
Current:
Trade payables
Accruals
Contingent consideration due on acquisitions
Lease liabilities
Total for category
At fair value
through profit
or loss
£’000
Financial
liabilities
measured at
amortised cost
£’000
Total
£’000
-
-
-
-
(2,480)
-
(2,480)
-
-
-
-
(3,009)
-
(3,029)
(52,791)
(3,029)
(52,791)
(11,311)
(7,137)
-
(17,318)
(91,586)
(11,311)
(7,137)
(2,480)
(17,318)
(94,066)
(421)
(48,536)
(421)
(48,536)
(10,123)
(8,325)
-
(356)
(10,123)
(8,325)
(3,009)
(356)
(3,009)
(67,761)
(70,770)
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
2020
£’000
Level in
hierarchy
Description of valuation
technique
Inputs used for valuation
model
Contingent
consideration due on
acquisitions
(2,480) 3
Based on level of future
revenue and profitability
and probability that
vendors will comply with
obligations under sale
and purchase agreement.
Management estimate on
probability and time scale
of vendors meeting revenue
and profitability targets and
complying with obligations.
Total loss
recognised in
profit or loss
£’000
1,856
Total fair value
(2,480)
Total net gain
1,856
There have been no changes to valuation techniques or any amounts recognised through ‘Other Comprehensive Income’.
101
iomart Group plc Annual Report and Accounts 2020 Notes to the Financial Statements - Year ended 31 March 2020
29. 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/(loss) on revaluation of contingent consideration
Balance at end of year
Total amount included in profit or loss on Level 3 instruments under gain/(loss) on revaluation of
contingent consideration and finance costs
2020
£’000
(3,009)
(1,327)
-
1,856
(2,480)
1,856
2019
£’000
(2,694)
(3,609)
4,688
(1,394)
(3,009)
(1,394)
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 21, the contractual maturity analysis of the Group’s multi option revolving credit facility of £52.8m (2019: £48.5m)
is shown. The Group has £27.2m (2019: £32m) available to drawdown on the £80m (2019: £80m) multi option revolving credit facility
and reviews its cash flow requirements on a monthly basis. The Group was in compliance with all covenants under its banking facility
arrangements throughout the reporting period.
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. For the year ended 31 March 2020, if interest rates on the multi option revolving
credit facility at that date had been 50 basis points higher/lower, with all other variables held constant, there would have been an
immaterial change in the post-tax profit for the year (2019: immaterial impact on post-tax profit).
Currency risk
During the year the Group made payments totalling US$8.9m (2019: US$14.8m) and EUR€1.2m (2019: EUR€1.0m) to acquire domain
names for its Easyspace segment and licences for its Cloud Services segment. In addition, the Group received US$5.8m (2019: US$7.7m)
and EUR€1.1m (2019: EUR€1.7m) from Cloud Services customers billed in foreign currency. During the year, the Group entered into
forward exchange contracts to hedge its net exposure to the US Dollar arising on these purchases but at the year end the Group had no
outstanding forward contracts in place (2019: none). Consequently, the fair value of currency contracts at the year end was £nil (2019:
£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 21) and cash and cash equivalents, and equity
attributable to owners of the parent, comprising issued share capital (note 24), 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. 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.
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 £8,691,000
(2019: £8,613,000) which are stated net of applicable provisions and which represent the total amount exposed to credit risk. The
Group manages trade receivable balances vigilantly and takes prompt action on overdue accounts. The lease deposits of £2,760,000
(2019: £2,520,000) are held in escrow accounts with the landlord’s main UK bankers. The Group’s cash at bank £15,497,000 (2019:
£10,069,000) is held within clearing banks in the UK, Republic of Ireland and United States of America with good credit ratings.
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.
30. POST BALANCE SHEET EVENT
On 23 June 2020, the lease of our London data centre was extended by a further 5 years to June 2035. As part of this extension, £2.3m
of total lease deposits (note 14) will be returned to the Group post year end.
102
iomart Group plc Annual Report and Accounts 2020 Parent Company Financial Statements - Year ended 31 March 2020
STATEMENT OF FINANCIAL POSITION
As at 31 March 2020
Note
2020
£’000
2019
£’000
ASSETS
Non-current assets
Investments
Deferred tax
Current Assets
Trade and other receivables
Cash and cash equivalents
Total assets
LIABILITIES
Non-current liabilities
Non-current borrowings
Current liabilities
Trade and other payables
Total liabilities
NET ASSETS
EQUITY
Called up share capital
Own shares
Capital redemption reserve
Share premium account
Merger reserve
Retained earnings
TOTAL EQUITY
3
5
4
8
6
9
10
155,502
152,099
1,069
1,378
156,571
153,477
7,334
12,991
20,325
6,004
7,857
13,861
176,896
167,338
(52,791)
(52,791)
(48,536)
(48,536)
(21,958)
(21,958)
(62,810)
(62,810)
(74,749)
(111,346)
102,147
55,992
1,092
(70)
1,200
22,147
4,983
72,795
102,147
1,085
(70)
1,200
21,518
4,983
27,276
55,992
As permitted by section 408(3) of the Companies Act 2006, no profit and loss account of the company is presented. The profit for the
financial year of the Company was £52,496,000 (2019: loss of £2,786,000).
These financial statements were approved by the board of directors and authorised for issue on 24 June 2020.
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
103
iomart Group plc Annual Report and Accounts 2020
Parent Company Financial Statements - Year ended 31 March 2020
STATEMENT OF CHANGES IN EQUITY
Year ended 31 March 2020
Share capital
Own
shares EBT
Note
£’000
1,080
£’000
(70)
Capital
redemption
reserve
£’000
1,200
Share
premium
account
£’000
21,231
Merger
reserve
Retained
earnings
-
-
-
-
-
-
5
5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
287
287
£’000
4,983
-
-
-
-
-
-
-
-
£’000
37,298
(2,786)
Total
£’000
65,722
(2,786)
(2,786)
(2,786)
(5,336)
(5,336)
(2,655)
(2,655)
1,008
1,008
(253)
(253)
-
292
(7,236)
(6,944)
1,085
(70)
1,200
21,518
4,983
27,276
55,992
-
-
-
-
-
-
7
7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
629
629
-
-
-
-
-
-
-
-
52,496
52,496
52,496
52,496
(5,448)
(5,448)
(2,834)
(2,834)
1,052
1,052
253
-
253
636
(6,977)
(6,341)
1,092
(70)
1,200
22,147
4,983
72,795
102,147
Balance at 1 April 2018
Loss for the year
Total comprehensive
income
Dividends – final (paid)
Dividends – interim (paid)
Share-based payments
Deferred tax on share-
based payments
Issue of share capital
Total transactions with
owners
Balance at 31 March
2019
Profit for the year
Total comprehensive
income
Dividends – final (paid)
Dividends – interim (paid)
Share-based payments
Deferred tax on share-
based payments
Issue of share capital
Total transactions with
owners
Balance at 31 March
2020
13
13
11
5
9
13
13
11
5
9
The nature of equity in the statement of changes in equity is disclosed in the accounting policies (note 2).
The following notes form part of the financial statements.
104
iomart Group plc Annual Report and Accounts 2020
Parent Company Financial Statements - Year ended 31 March 2020
1. COMPANY INFORMATION
iomart Group plc is a public listed company listed on the Alternative Investment Market (“AIM”), incorporated and domiciled in the United
Kingdom and registered in Scotland. The address of the registered office is Lister Pavilion, Kelvin Campus, West of Scotland Science Park,
Glasgow, G20 0SP. 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. On an
annual basis, 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.
105
iomart Group plc Annual Report and Accounts 2020 Parent Company Financial Statements - Year ended 31 March 2020
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
Classification and measurement of financial assets
The Company classifies financial assets into three categories:
•
•
•
Financial assets measured at amortised cost
Financial assets measured at fair value through other comprehensive income (“FVTOCI”)
Financial assets measured at fair value through profit or loss (“FVTPL”).
The classification of financial assets is based on the Company’s business model for managing the financial asset and the contractual cash
flow characteristics associated with the financial asset. Specifically:
• Debt instruments that are held within a business model whose objective is to collect the contractual cashflows, and that
have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, are
measured subsequently at amortised cost;
• Debt instruments that are held within a business model whose objective is to both collect the contractual cash flows and
to sell the debt instruments, and that have contractual cash flows that are solely payments of principal and interest on the
principal amount outstanding, are measured subsequently at FVTOCI; and
• All other debt investments and equity investments are measured subsequently at FVTPL.
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.
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’.
106
iomart Group plc Annual Report and Accounts 2020 Parent Company Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Financial assets (continued)
Classification and measurement of financial assets (continued)
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.
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.
Impairment of financial assets
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 liabilities
Classification and measurement of 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.
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 IFRS 9.
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. The pension costs charged against operating profit are the contributions payable to the
schemes in respect of the accounting period.
107
iomart Group plc Annual Report and Accounts 2020 Parent Company Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
Share-based payments
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 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.
Equity
Equity comprises the following:
•
•
•
•
•
•
“Share capital” represents the nominal value of equity 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; and
“Retained earnings” represents retained profits and share-based payment reserve.
Employee Benefit Trust
The assets and liabilities of the Employee Benefit Trust (EBT) have been included in the Group and Company financial statements. The
cost of purchasing own shares held by the EBT are shown as a deduction within shareholders’ equity. The proceeds from the sale of own
shares are recognised in shareholders’ equity. Neither the purchase or sale of own shares leads to a gain or loss being recognised in the
income statement.
Going Concern
The Company has net current liabilities of £1.6m, largely driven by £15.6m (net) of amounts due to subsidiary undertakings. The
Group has an undrawn multi-option revolving credit facility of £27.2m at 31 March 2020. After making enquiries, the directors have
a reasonable expectation that the Company will be able to meet its financial obligations and has adequate resources to continue in
operational existence for the foreseeable future (being a period extending at least twelve months from the date of approval of these
financial statements). For this reason they continue to adopt the going concern basis in preparing the financial statements.
108
iomart Group plc Annual Report and Accounts 2020 Parent Company Financial Statements - Year ended 31 March 2020
2. ACCOUNTING POLICIES (CONTINUED)
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
Shares in subsidiary undertakings
£’000
Cost
At 1 April 2019
Additions
Share-based payments (note 11)
Cost at 31 March 2020
Net book value of Investments at 31 March 2020
Net book value of Investments at 31 March 2019
All of the above investments are unlisted.
Additions in the year relate to the acquisition of Memset Limited.
Details of subsidiary undertakings are included in note 15 of the Group financial statements.
4. TRADE AND OTHER RECEIVABLES
Prepayments
Other debtors
Current income tax
Other taxation and social security
Amounts owed by subsidiary undertakings
152,099
3,212
191
155,502
155,502
152,099
2019
£’000
225
-
3,820
738
1,221
6,004
2020
£’000
517
190
3,623
464
2,540
7,334
109
iomart Group plc Annual Report and Accounts 2020
Parent Company Financial Statements - Year ended 31 March 2020
5. DEFERRED TAXATION
The Company had recognised deferred tax assets as follows:
Share-based remuneration
The movement in the deferred tax account during the year was:
Balance brought forward
Profit and loss account movement arising during the year
Effect of deferred tax rate change in the year
Profit and loss account reserve movement during the year
Balance carried forward
2020
£’000
1,069
2020
£’000
1,378
(724)
162
253
1,069
2019
£’000
1,378
2019
£’000
1,588
43
-
(253)
1,378
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
Other creditors
Accruals
Contingent consideration due on acquisitions (note 7)
Amounts owed to subsidiary undertakings
Amounts owed to subsidiary undertakings are repayable on demand and carry no interest.
7. CONTINGENT CONSIDERATION
Contingent consideration due on acquisitions within one year:
-
LDeX Group Limited
- Memset Limited
2020
£’000
2019
£’000
(470)
(89)
(32)
(1,542)
(1,653)
(18,172)
(21,958)
(237)
(97)
-
(873)
(3,009)
(58,594)
(62,810)
2020
£’000
2019
£’000
(1,153)
(500)
(3,009)
-
Total contingent consideration due on acquisitions
(1,653)
(3,009)
The final consideration due on LDeX Group Limited, agreed with the previous shareholder and paid subsequent to the year end,
is £1,153,000. This has resulted in gain on revaluation of contingent consideration of £1,856,000 recorded in the Statement of
Comprehensive Income.
Contingent consideration for Memset Limited is based on the directors’ best estimate of payments due at 31 March 2020. Details of the
range of possible outcomes are disclosed in note 11 of the Group financial statements.
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iomart Group plc Annual Report and Accounts 2020 Parent Company Financial Statements - Year ended 31 March 2020
8. BORROWINGS
Non-current:
Bank loans
Non-current borrowings
Total borrowings
2020
£’000
2019
£’000
(52,791)
(48,536)
(52,791)
(48,536)
(52,791)
(48,536)
Given the terms of the revolving credit facility and the ability for any drawdowns made to be extended well beyond 31 March 2020 at
the discretion of the Company, the total amount outstanding has been classified as non-current. The obligations under the multi option
revolving credit facility and term loan facility are repayable as follows:
Due within one year
Due within two to five years
Capital
£’000
2020
Interest
£’000
-
(465)
2019
Total
£’000
(465)
Capital
£’000
Interest
£’000
-
-
Total
£’000
-
(52,791)
(52,791)
-
(52,791)
(48,536)
(192)
(48,728)
(465)
(53,256)
(48,536)
(192)
(48,728)
The directors estimate that the fair value of the Group’s borrowing is not significantly different to the carrying value. The capital
element of the bank loans is £52,791,000 (2019: £48,536,000). In the prior year this figure differs from the net amount drawn down of
£48,641,000 due to an effective interest rate adjustment. For details of the terms of repayment and rates of interest payable see note
21 in the Group financial statements.
9. SHARE CAPITAL
Authorised
At 31 March 2018, 2019 and 2020
Called up, allotted and fully paid
At 1 April 2018
Share capital issued in the year
At 31 March 2019
Share capital issued in the year
At 31 March 2020
Ordinary shares of 1p each
Number of
shares
200,000,000
107,990,341
519,407
108,509,748
650,180
109,159,928
£’000
2,000
1,080
5
1,085
7
1,092
During the year, 650,180 (2019: 519,407) ordinary shares were issued for a total consideration of £635,502 (2019: £292,040), resulting
in a premium over the nominal value of £629,000 (2019: £286,864).
At 31 March 2020 the Company held 140,773 shares (2019: 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 (2019: £1,408) and a market value
of £380,087 (2019: £488,482). This represents 0.1% (2019: 0.1%) of the issued share capital as at 31 March 2020 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 2020 are fully paid.
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iomart Group plc Annual Report and Accounts 2020 Parent Company Financial Statements - Year ended 31 March 2020
10. OWN SHARES RESERVES
At 31 March 2020 and 31 March 2019
Own shares
EBT
£’000
Own shares
Total
£’000
(70)
(70)
At 31 March 2020 the Company held 140,773 shares (2019: 140,773) in the EBT with a carrying value of £69,982 (2019: £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 26 to the Group financial statements. The Company accounts
recognise the charge for share-based payments for the year of £1,243,000 (2019: £1,008,000) by:
1)
2)
taking the charge in relation to employees of the parent company through the parent company statement of comprehensive
income £1,052,000 (2019: £1,084,000),
recording an increase to its investment in subsidiaries for the amounts attributable to employees of subsidiaries and recording
a corresponding entry to retained earnings of £191,000 (2019: decrease of £76,000).
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
Social security costs
Pension costs
Share-based payments
2020
No.
2019
No.
8
9
31
48
10
6
28
44
2020
£’000
2019
£’000
1,939
735
38
1,052
3,764
918
160
6
1,084
2,168
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 37 to 43. 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 directors’ emoluments are disclosed within
note 5 of the Group financial statements.
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iomart Group plc Annual Report and Accounts 2020 Parent Company Financial Statements - Year ended 31 March 2020
13. DIVIDENDS PAID ON SHARES CLASSED AS EQUITY
Paid during the year:
Final dividend (proposed in the prior year)
Equity dividends on ordinary shares
Interim dividend
Equity dividends on ordinary shares
2020
Pence per
share
2020
£’000
2019
Pence per
share
2019
£’000
5.01p
5,448
4.93p
5,336
2.60p
2,834
2.45p
2,655
Total dividend paid in cash
8,282
7,991
The directors have recommended a final dividend for the year ended 31 March 2020 of 3.93p per share (2019: 5.01p per share). Subject
to shareholder approval this proposed final dividend would be payable on 4 September 2020 to shareholders on the register at close on
14 August 2020.
14. 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 27 of the Group financial statements.
15. CONTINGENCIES AND COMMITMENTS
(a) Contingencies
Excluding the contingent liabilities associated with the contingent consideration (note 7), there are no contingent assets or contingent
liabilities as at 31 March 2020 (2019: nil).
(b) Commitments
There are no capital commitments present as at 31 March 2020 (2019: nil).
16. ULTIMATE CONTROLLING PARTY
The directors have assessed that there is no ultimate controlling party.
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iomart Group plc Annual Report and Accounts 2020 Notice of the 2020 Annual General Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt as to what action to take, you should consult your stockbroker, solicitor, accountant or other appropriate
independent professional adviser authorised under the Financial Services and Markets Act 2000, as amended. If you have sold or
otherwise transferred all your shares in iomart Group plc, please forward this document and the accompanying form of proxy to the
person through whom the sale or transfer was effected, for transmission to the purchaser or transferee.
IMPORTANT INFORMATION: IMPACT OF THE COVID-19 PANDEMIC ON THE MEETING
The Board is closely monitoring the evolving Coronavirus (COVID-19) situation and public health concerns in the United Kingdom,
including the related social distancing requirements, public health guidance and legislation issued by both the UK and Scottish
Governments. At the time of publication of this notice, indoor public gatherings in Scotland remain subject to a number of restrictions.
The Board recognises that the annual general meeting represents an opportunity to engage with members, and provides a forum that
enables members to ask questions of, and speak directly with, the Board. However, in light of current restrictions, the Board hopes
that members will understand that the annual general meeting this year will be run as a closed meeting and members will not be able
to attend. The Company will make arrangements such that the legal requirements to hold the meeting can be satisfied through the
attendance of a minimum number of members and the format of the meeting will be purely functional – the meeting will comprise only
the formal votes without any business update.
Members are therefore strongly encouraged to submit a proxy vote in advance of the meeting. A form of proxy for use at this meeting
accompanies this notice. To be valid, the form of proxy must be completed and returned to Link Asset Services in accordance with
paragraphs 1 and 2 of the Notes appended to this notice (or otherwise submitted electronically in accordance with paragraph 3 of the
Notes). Given the restrictions on attendance, members are strongly encouraged to appoint the 'Chair of the Meeting' as their proxy
rather than a named person who will not be permitted to attend the meeting.
Shareholders are also invited to submit questions in advance of the meeting via email at agm2020@iomart.com by no later than 10.00am
on Friday 21 August 2020. Responses to the questions will be provided following the conclusion of the AGM.
This situation is constantly evolving, and the UK and/or Scottish Governments may change current restrictions or implement further
measures relating to the holding of general meetings during the affected period. Any changes to the arrangements for the annual general
meeting (including, without limitation, as to proxy appointments, attendance, venue, format, the business to be considered or timing, as
the case may be) will be communicated to members before the meeting through our website (www.iomart.com) and, where appropriate,
via the Regulatory News Service.
NOTICE IS HEREBY GIVEN that the 2020 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 25 August 2020 at 10.00 am for the purpose of considering and,
if thought fit, passing the following resolutions, of which resolutions 1 to 8 (inclusive) will be proposed as ordinary resolutions and
resolutions 9 to 11 (inclusive) will be proposed as special resolutions:
1. To receive and adopt the financial statements of the Company and the directors' and auditors' reports thereon for the year ended
31 March 2020.
2. To approve the report of the board to the members on directors' remuneration for the year ended 31 March 2020.
3. To reappoint Mr Angus MacSween (who retires by rotation and, being eligible, offers himself for re-election) as a director of the
Company.
4. To reappoint Mr Ian Steele (who retires by rotation and, being eligible, offers himself for re-election) as a director of the Company.
5. To elect Mr Reece Donovan, who was appointed since the last annual general meeting, as a director of the Company.
6. To declare a final dividend for the year ended 31 March 2020 of 3.93p per share payable on 4 September 2020 to shareholders on
the register of members at the close of business on 14 August 2020.
7. To reappoint Deloitte 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.
8. 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
£728,146.70 (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 £364,073.35 (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 £364,073.35),
provided that such authority, unless renewed, varied or revoked by the Company, shall expire on 25 November 2021 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.
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iomart Group plc Annual Report and Accounts 2020 Notice of the 2020 Annual General Meeting
9. THAT, subject to the passing of resolution 8, 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 8 and/or to sell ordinary shares held by the Company as treasury shares for cash in each case as if section 561 of the
Companies Act 2006 did not apply to any such allotment or sale, such authority to 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 8(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
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 £54,611.00,
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 25
November 2021) 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, subject to the passing of resolution 8, the directors of the Company are authorised in addition to any authority granted under
resolution 9 to allot equity securities (as defined in section 560(1) of the Companies Act 2006) for cash under the authority given
by resolution 8 and/or to sell ordinary shares held by the Company as treasury shares for cash in each case as if section 561 of the
Companies Act 2006 did not apply to any such allotment or sale, such authority to be:
a.
b. 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,
limited to the allotment of equity securities up to a nominal amount of £54,611.00; and
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 25
November 2021) 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.
11. 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.
the maximum number of ordinary shares hereby authorised to be purchased is 10,922,200, representing 10% of the Company's
issued ordinary share capital as at the latest practicable date prior to the publication of this notice of 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;
b.
c.
d. unless previously revoked or varied, the authority hereby conferred shall expire at the end of the next annual general meeting
e.
of the Company (or, if earlier, at the close of business on 25 November 2021); 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
24 July 2020
115
Lister Pavilion, Kelvin Campus,
West of Scotland Science Park,
Glasgow G20 0SP
iomart Group plc Annual Report and Accounts 2020
Notice of the 2020 Annual General Meeting
NOTES:
Appointment of Proxy
1. 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. In light of the COVID-19
restrictions, all shareholders are strongly encouraged and requested to only appoint the Chairman as their proxy or representative
as any other persons so appointed will not be permitted to attend the meeting.
2. To be effective (subject to paragraph 3 below), 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, PXS1, 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 21 August 2020) and if not so deposited shall be invalid.
3. Alternatively, you may instead submit your proxy vote electronically by accessing the shareholder portal at www.signalshares.com,
logging in and selecting the ‘Vote Online Now’ link. You will require your username and password in order to log in and vote. If
you have forgotten your username or password you can request a reminder via the shareholder portal. If you have not previously
registered to use the portal you will require your investor code (‘IVC’) which can be found on your share certificate. Proxy votes
should be submitted as early as possible and, in any event, not less than 48 hours (excluding weekends and bank holidays) before the
time for holding the meeting (i.e. by 10.00am on Friday 21 August 2020) and if not so submitted shall be invalid.
Entitlement to attend and vote
4. 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 21 August 2020; 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.
References in these Notes to 'attend' should however be construed in light of the COVID-19 restrictions, as summarised in
the notice of meeting, which will restrict physical attendance at the meeting in this case.
Documents on Display
5. Copies of the service contracts and letters of appointment of the directors of the Company will be available:
• for at least 15 minutes prior to the meeting; and
• during the meeting.
Communication
6. 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
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iomart Group plc Annual Report and Accounts 2020
Notice of the 2020 Annual General Meeting
EXPLANATORY NOTES TO THE NOTICE OF ANNUAL GENERAL MEETING
IOMART GROUP PLC
Ordinary Resolutions
Resolutions 1 to 8 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 2020 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 37 to 42. This
resolution is an advisory one and no entitlement to remuneration is conditional on the resolution being passed.
Resolutions 3, 4 and 5 – Election and 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 Angus MacSween and Mr Ian Steele are required to retire by rotation at this annual
general meeting and, being eligible, offer themselves for reappointment. In addition, the articles also stipulate that any director appointed
by the Board during the year must offer themselves for reappointment at the next available annual general meeting. Mr Reece Donovan
was appointed on 30 March 2020 and accordingly offers himself for reappointment.
The board of directors is satisfied that the performance of Mr Angus MacSween, Mr Ian Steele and Mr Reece Donovan 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, 4 and 5 propose the reappointment of Mr Angus MacSween, Mr Ian Steele and Mr
Reece Donovan.
Brief biographical details of Mr Angus MacSween, Mr Ian Steele and Mr Reece Donovan are given below.
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.
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. In
his final eight years before leaving Deloitte LLP in 2015, Ian sat on the UK board and fulfilled the role of senior partner for Scotland and
Northern Ireland, as well as Head of Global Advisory Services for the Firm. Ian took over the Chairmanship of iomart in August 2018.
Mr Reece Donovan, appointed 2020: Reece has over 23 years' experience in the technology and telecommunication industries, with a
demonstrable track record of achievement in roles both in the UK and internationally. Reece's most recent position was Chief Executive
Officer at Nomad Digital, a provider of IP connectivity and digital solutions to the global transportation sector. Previous positions include
Senior Vice-President Global Services for CSG International, a provider of software solutions to over 400 customers located in 120
countries and a number of management and operational roles across the technology, communications and consumer packaged goods
industries at Steria plc, Xansa plc and Druid plc.
Resolution 6 – To declare a dividend of 3.93p per ordinary share
Subject to the provisions of the Companies Act 2006, 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 3.93p
per ordinary share, to be payable to shareholders registered at close of business on 14 August 2020.
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iomart Group plc Annual Report and Accounts 2020 Notice of the 2020 Annual General Meeting
Resolution 7 – 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. Deloitte 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 8 – 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 £728,146.70 (representing 72,814,670 ordinary shares
of 1p each) 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.
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 £364,073.35 (representing 36,407,335 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 25 November 2021 or, if earlier, at the conclusion of the next annual general meeting.
Special Resolutions
Resolutions 9, 10 and 11 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 9 and 10 - 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 9 would expire at the earlier of the close of the next annual general meeting or 25 November 2021.
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
£54,611.00 (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 10, 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 a kind contemplated by the Pre-Emption Group's Statement of
Principles up to an additional aggregate nominal amount of £54,611.00 (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 or
sale.
The powers given by resolutions 9 and 10 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 25 November 2021.
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iomart Group plc Annual Report and Accounts 2020 Notice of the 2020 Annual General Meeting
Resolution 11 – 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 latest practicable date prior to the publication 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 11 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.
119
iomart Group plc Annual Report and Accounts 2020 Officers and Professional Advisers
Directors
Angus MacSween
Scott Cunningham BAcc, CA
Reece Donovan
Ian Steele BAcc, CA
Richard Masters LLB, DipLP
Karyn Lamont BAcc, CA
Secretary
Andrew McDonald BA, CA
Registered office
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
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
Pinsent Masons LLP, 141 Bothwell Street, Glasgow G2 7EQ
Independent auditor
Deloitte LLP, Level 5, 110 Queen Street, Glasgow G1 3BX
Registrars
Link Asset Services, Bourne House, 34 Beckenham Road, Beckenham, Kent BR3 4TU
Company Registration Number
SC204560
120
iomart Group plc Annual Report and Accounts 2020 www.iomart.com
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