Iomart Regulatory News (IOM)

13 June 2017

iomart Group plc

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

Final Results for the Year ended 31 March 2017

iomart (AIM:IOM), the cloud computing company, is pleased to report its consolidated final results for the year ended 31 March 2017.

FINANCIAL HIGHLIGHTS

· Revenue growth of 17% to £89.6m (2016: £76.3m)

o Cloud Services segment organic revenue growth of 10% (2016: 9%)

· Adjusted EBITDA1 growth of 13% to £36.6m (2016: £32.3m)

· Adjusted profit before tax growth2 of 18% to £22.4m (2016: £19.0m)

· Adjusted diluted earnings per share3 from operations increased by 18% to 16.99p (2016: 14.44p)

· Cashflow from operations increased by 22% to £37.8m (2016: £30.9m)

· Adjusted profit before tax2 margins maintained at 25% (2016: 25%)

· Proposed final dividend increased by 90% to 6.00p per share (2016: 3.15p per share)

OPERATIONAL HIGHLIGHTS

· Acquisition of Cristie Data during the year for a net consideration of £0.7m

· Acquisition of Dediserve post year end for a consideration of €7.9m

· Further investment in skills and accreditations to support broadening service offering

· Strengthened relationships with Hypercloud vendors

Statutory Equivalents

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

· Profit before tax growth of 13% to £14.7m (2016: £13.0m)

· Basic earnings per share from operations increased by 9% to 11.27p (2016: 10.32p)

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

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

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

Angus MacSween, CEO commented,

"This has been another year of strong growth and trading since the year end remains good.

"The long term opportunity and runway for success remains large and long. iomart remains well positioned to take advantage of that opportunity and to deliver further significant growth.

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

For further information:

About iomart Group plc

iomart Group PLC (AIM: IOM) helps organisations maximise the flexibility, cost effectiveness and security of the cloud. From strategy to delivery, our 300+ consultants and solutions architects provide the cloud expertise to transform your business. With a dynamic range of managed cloud services that integrate with the public clouds of AWS and Azure, our agnostic approach delivers solutions tailored to your exact needs. iomart is a long term supplier to G-Cloud and our infrastructure and cloud and backup services are designed to meet the requirements of the UK public sector.

To find out more about our managed cloud services visit www.iomart.com 

CHAIRMAN'S STATEMENT

We have once again seen another year of excellent performance for our shareholders. Not only have we maintained our relative level of organic growth in our Cloud Services segment, our Easyspace segment has also returned to organic growth after declining a little last year.

Both of those elements of organic growth plus the acquisition of Cristie during the year, which we have allocated to a new Non-recurring Revenue segment, together with the full year contributions of SystemsUp and United Hosting has meant we have maintained our overall level of revenue growth for the year. In May, after the end of our financial year we purchased Dediserve and we believe that there will be other opportunities to allow us to continue to add to our organic growth through acquisition.

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

All of this progress is a result of a great deal of hard work by our executives and staff and I thank them all on behalf of the Board and the shareholders for their efforts over the year.

Sarah Haran, who has served as an executive director of iomart throughout the time the Group has been listed on AIM, decided to step down from the Board at the end of this financial year. She has given many years of loyal and valuable service to the Group and on behalf of all shareholders I thank her warmly for her service.

After nearly 6 years of first class commitment and service, Crawford Beveridge has chosen not to stand for re-election as Non-Executive Director at our forthcoming Annual General Meeting. Both personally and on behalf of everyone connected with the Group, I want to thank him for his valuable contribution to the development of iomart over the years. The search for a replacement for Crawford is at an advanced stage and we expect to be in a position to make an announcement about this in the near future.

As we indicated in our trading update which was issued at the end of March we have decided to improve our dividend policy to reflect the ongoing growth that we have been delivering, the level of cash we generate, and the confidence we continue to have in our future prospects. We had previously committed to paying up to 25% of our adjusted diluted earnings per share by way of dividend and last year our pay-out ratio was 22%. We have now increased the upper limit of dividend pay-out to 40% and the Board is proposing to pay a final dividend of 6.0p per share on 6 September 2017 to shareholders on the register on 11 August 2017, based on an ex-dividend date of 10 August 2017. This represents an increase of 90% over the dividend last year and equivalent to a pay-out ratio of 35% of adjusted diluted earnings per share. We continue to offer shareholders the option to participate in a Dividend Reinvestment Plan (DRIP) as an alternative to receiving cash. Details of the DRIP scheme will be distributed with the annual accounts in due course.

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

Ian Ritchie

Chairman

12 June 2017

CHIEF EXECUTIVE'S REVIEW

Introduction

We have again enjoyed another very successful year with revenues and profits growing to record levels both organically and through acquisition as we continue to deliver an ever broader range of cloud solutions.

Our revenues in the year were £89.6m, an increase of 17% over the previous year, our adjusted EBITDA of £36.6m showed a 13% increase over the previous year and our profit before tax also increased by 13% to £14.7m.

The opportunity remains to continue to grow both organically and through a disciplined acquisition strategy.

Market

The market for cloud services continues to grow and evolve. There is still a long runway of opportunity as the 'IT as a service' philosophy and delivery unfolds. There is an inevitability around this fundamental change in how IT is delivered but there is also a built in delay mechanism as systems, processes and applications are dealt with on a 'one by one' basis rather than in one full organisation wide swoop, as applications and workloads are individually considered for an upgrade, refresh or rewrite.

Security has again been in the headlines and it serves to show that on premise infrastructure is far more difficult to keep secure and available on a 24x7x365 basis than those in the cloud, in specialist datacentres, with 24x7x365 monitoring and management and with all the required perimeter defences in place.

We believe that iomart is one of the most compliant organisations with regard to security and certification in the sector. This will drive more opportunity for us, with our long experience of security whether it be infrastructure and network protection, detection and response to threats, access control, log management, or compliance with various standards.

We are now less than a year away from the introduction of the new regulations around data security, the EU General Data Protection Regulation (GDPR). Our plans for the introduction of these regulations are well advanced both for the Group's own needs and to help other organisations understand the implications for their own business and thereby to become compliant.

Organisations today are confronted by an increasingly complex set of cloud decisions in terms of cost, value, effectiveness, complexity, security, data protection and compliance. Whatever the cloud challenge iomart can assist all organisations in moving to the cloud, whether it be private, public or hybrid approach. The long term recurring revenue opportunity for iomart remains compelling. We are well established as a major player in providing the flexible cloud solutions that businesses require.

The future success of cloud companies will be driven by their ability to address further towards the application layer as well as the underlying infrastructure. There is growing evidence of different market segments with distinct hosting and cloud requirements and characteristics. This is leading to a growing trend in specialisation in various verticals such as e-commerce or financial software and this is one reason why the hosting and cloud markets will be served by a wide variety of vendors and vendor types.

Our challenge is to continue to navigate through these early days of the further evolution of cloud adoption and to ensure we build the skills and resources necessary to be successful in that ever more complex space.

Acquisitions

We again augmented our organic growth through the acquisition of Cristie Data Limited ("Cristie") in August and after the year-end, in May, through the acquisition of Dediserve Limited ("Dediserve"), a Dublin based provider of Cloud solutions in ten locations around the world. To date we have not seen any impact from the UK's decision to leave the European Union other than the weakening of Sterling. The Board has considered the impact on the Group of the UK's decision to leave and whilst there are still many issues to be resolved we believe we will be able to deal with them as they arise. The acquisition of Dediserve gives us a Cloud operation in geographical areas where we do not currently have a presence, including another base in the European Union.

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

Operational Review

We have previously reported in two operating segments (Cloud Services and Easyspace) both of which involve the provision of services from common infrastructure delivering a very high level of recurring revenue. During the year we acquired Cristie and we have decided to report that in a separate segment as it predominantly involves the provision of IT infrastructure on customers' premises with little by the way of recurring revenue. We have designated this segment as Non-recurring Revenue.

Cloud Services

Revenues in this segment have grown by 11% to £72.7m (2016: £65.4m) partly as a result of the continued organic growth and as a result of acquisitions. Organic growth in the year was 10%, slightly above the level of 9% we have delivered in our last two financial years and our adjusted EBITDA percentage margin continues to be amongst the highest in the industry.

Through our iomart Cloud unit we provide complex hosting solutions, involving private, public and hybrid cloud solutions with customers typically paying for these services on a monthly basis on contracts ranging from one to three years in length. Our churn levels in this unit have stabilised and are in line with that experienced last year.

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

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

SystemsUp provides consultancy services to organisations, particularly in the public sector, helping them to decide on their cloud strategy with an emphasis on the public cloud. Having a consultancy division within the Group allows us to engage at an earlier stage with organisations considering their cloud strategy and provides the opportunity to leverage the provision of those consultancy services to gain recurring revenue through the deployment of cloud solutions. However, unlike our other activities within the Cloud Services segment there is less recurring revenue generated from consultancy services and this area has not performed as predicted during the year and in future we will be more prudent in projecting the revenues which we expect to generate to recognise the difficulty in estimating revenue levels. We have made some changes to senior management within the consultancy unit and have also refined its strategic approach to focus on the delivery of a set of core cloud technologies. This is with a view to ensuring that as often as possible projects that are delivered will ultimately have a managed service and recurring revenue element.

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

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

We are now an Advanced Partner of AWS and moving towards the next level. We are one of Microsoft's most respected Cloud Service Providers in the UK and we are being presented with a growing number of Microsoft Azure opportunities.

We continue to build on our skills and accreditations and see constant improvement across the Group's skillset.

Easyspace

In line with our expectations the Easyspace segment has performed well over the year, returning to a position of organic revenue growth.

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

Revenues in the segment have grown by 22% to £13.2m (2016: £10.9m) mainly as a result of the acquisition of United Hosting in the previous year. Organic growth in the year was 4% against a decline of 8% in the previous year.

Non-recurring revenue

The non-recurring revenue segment contains the results of Cristie since we acquired that business in August 2016. In just over 7 months of ownership the revenue generated was £3.6m.

Cristie primarily provides solutions similar to those provided by the Cloud Services segment with the exception that they would tend to be less complex in nature and predominantly installed on the customers' own premises rather than from a datacentre location. These solutions would involve, for example, the provision of storage and back-up infrastructure. Cristie has a substantial number of public sector customers in areas such as health and education and we welcome its activities into the Group.

Trading Results

Revenue

Revenues for the year grew by 17% to £89.6m (2016: £76.3m) through the combination of continued organic growth and the impact of acquisitions.

Our Cloud Services segment grew revenues by 11% to £72.7m (2016: £65.4m). This growth was helped by a full year contribution from SystemsUp which we acquired in June 2015. Revenue growth in the Cloud Services segment excluding the impact of acquisitions was 10% (2016: 9%).

Revenues within the Easyspace segment grew by 22% to £13.2m (2016: £10.9m). This growth was helped by a full year contribution from United Hosting which we acquired in November 2015. Revenue growth in the Easyspace segment excluding the impact of acquisitions was 4% (2016: decline of 8%). As expected the decline in the organic revenue levels in this segment has stopped as new sales and churn levels have moved into balance, largely due to revised pricing in the domain market and the introduction of new products. As a result, the segment has returned to an encouraging level of organic growth.

During the year we acquired Cristie which is largely a non-recurring revenue operation. Given that the vast majority of our revenue in our Cloud Services and Easyspace segments is recurring in nature we have decided to review the performance of this unit separately and as a consequence we will report this in a separate segment which we have called our Non-recurring Revenue segment. Revenues of £3.6m (2016: £nil) were generated in this segment in the year.

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

Gross Margin

Our gross profit for the year was £57.3m (2016: £51.6m) increasing as a result of the additional revenues we generated as explained above. In percentage terms our margin reduced to 64.0% (2016: 67.7%). This expected reduction in percentage has arisen partly due to the changing nature of the provision of some of our cloud infrastructure and partly due to the impact of the acquisition of Cristie.

The provision of Public Cloud solutions by our Cloud Services segment results in a charge from the Public Cloud service provider within our cost of sales. This is offset by savings in our costs for power, which is included within cost of sales, and some support services which are provided by the Public Cloud service provider, which is included within our overheads and depreciation. Whilst our gross margin percentage has reduced our adjusted profit before tax percentage margin has been maintained partly due to the offsetting savings when providing Public Cloud solutions.

The gross margin within our traditional private and hybrid cloud solutions continues to rise due to our relatively static datacentre costs which to some extent are fixed in nature and therefore do not rise in line with revenue growth.

Cristie predominantly sells hardware and software to its customers on which it incurs a substantial cost of sale and therefore a lower gross margin percentage contribution than in the other segments.

The gross margin within our Easyspace segment improved over the year due largely to the impact of the acquisition of United Hosting.

Adjusted EBITDA

The adjusted EBITDA for the year was £36.6m (2016: £32.3m) an increase of 13%. As expected, our adjusted EBITDA margin has reduced to 40.8% (2016: 42.4%). The Cloud Services segment increased its absolute level of margin over the period whilst experiencing a modest reduction in its percentage margin, the Easyspace segment increased both its absolute and percentage margin and the Non-recurring Revenue segment has a lower adjusted EBITDA contribution than the other segments which contributed to the overall adjusted EBITDA percentage margin reduction.

Adjusted EBITDA in the Cloud Services segment was £33.7m (2016: £31.1m), an increase of 8.4%. This improved performance is mainly a direct result of the additional gross margin delivered by the increase in sales revenue, from both organic and acquired sources, offset by a modest increase in administrative expenses which has been helped by an exchange gain. In percentage terms the adjusted EBITDA margin has reduced to 46.3% (2016: 47.5%). This reduction is due to the impact of the reduced gross margin percentage as previously explained together with the full year effect of SystemsUp which has a lower adjusted EBITDA margin than the rest of the segment's operations but which, unlike the rest of the segment, has no depreciation charges. This was offset by administrative expenses rising at a slower rate than revenue which improved the segment's EBITDA percentage margin.

The Easyspace segment's adjusted EBITDA was £6.2m (2016: £5.1m) an increase of 22.6%. This improvement in adjusted EBITDA is almost entirely due to the full year impact of United Hosting which was acquired in the previous year. Excluding the acquisition, adjusted EBITDA increased slightly as a result of the increase in organic revenue. In percentage terms the adjusted EBITDA margin has improved to 47.1% (2016: 46.8%). Excluding the acquisition of United Hosting the Easyspace segment maintained its adjusted EBITDA percentage margin. The improvement in percentage margin is therefore entirely due to the impact of the previous year's acquisition.

The Non-recurring segment's adjusted EBITDA was £0.3m (2016: £nil). In percentage terms the adjusted EBITDA margin was 9.0%.

Group overheads, which are not allocated to segments, include the cost of the Board, the running costs of the headquarters in Glasgow, Group marketing, human resource, finance and design functions and legal and professional fees for the year. These overhead costs have reduced slightly to £3.6m (2016: £3.8m) mainly due to staff related costs.

Adjusted profit before tax

Depreciation charges of £11.0m (2016: £10.9m) have remained at the same level as previous years as a result of charges for the equipment bought to provide services to the additional Cloud Services segment customers being offset by equipment purchased in previous periods becoming fully depreciated and thereby no longer impacting the depreciation charge in the year.

The charge for amortisation of intangibles, excluding amortisation of intangible assets resulting from acquisitions ("amortisation of acquired intangible assets") of £1.9m (2016: £1.2m) has increased over the year as a result of an increase in the level of software acquired over the year and the advance purchase of some software licences.

Finance income in the period was £nil (2016: £0.1m). Finance costs of £1.6m (2016: £1.4m), excluding the mark to market adjustment in respect of interest swaps on the Company's loans, the interest charge on the contingent consideration due in respect of acquisitions and in the previous year the accelerated write off of arrangement fees on the restructuring of the bank facility, remained static over the period.

After deducting the charges for depreciation, amortisation, excluding the charges for the amortisation of acquired intangible assets, and finance costs, excluding the mark to market adjustment in respect of interest swaps on the Company's loans, the interest charge on the contingent consideration due in respect of acquisitions and in the previous year the accelerated write off of arrangement fees on the restructuring of the bank facility, and crediting the finance income from the adjusted EBITDA, the Group's adjusted profit before tax was £22.4m (2016: £19.0m) an increase of 18%.

The adjusted profit before tax margin for the year was 25.0% (2016: 24.9%). This modest margin improvement of 0.1% has two largely offsetting components. The adjusted EBITDA margin reduced by 1.6% as previously explained. Depreciation charges as a percentage of revenue have fallen by 2.0% partly due to tangible assets becoming fully depreciated, partly due to the provision of Public Cloud not incurring a depreciation charge and partly due to some of our activities not needing the purchase of tangible assets in the provision of their services.

Profit before tax

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

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

The adjusting items are: charges for the amortisation of acquired intangible assets of £5.6m (2016: £5.4m) which have increased slightly mainly as a result of the acquisitions made in the year and the full year effect of acquisitions made in previous years; acquisition costs of £0.1m (2016: £0.1m) as a result of acquisitions made; share based payment charges of £1.8m (2016: £1.1m) which have increased as a result of the award of share options in the year; a mark to market credit adjustment in respect of interest rate swaps on the Company's loans of £0.08m (2016: £0.06m); the accelerated write off of arrangement fees on the restructuring of the bank facility during the previous year of £nil (2016: £0.2m); the charge of interest, at the weighted average cost of capital rate of 15.5%, on the contingent consideration expected to be paid for the acquisition of United Hosting of £0.3m (2016: £0.2m); and in the previous period the gain on the revaluation of the contingent consideration to be paid for SystemsUp of £nil (2016: £0.9m).

After deducting these items from the adjusted profit before tax; the reported profit before tax was £14.7m (2016: £13.0m) an increase of 13%. In percentage terms the profit before tax margin was 16% (2016: 17%). The reduction in percentage margin is for the same reasons as the adjusted profit before tax percentage margin change and also due to the gain on revaluation of contingent consideration recorded in the previous year which improved the percentage margin last year.

Taxation

There is a tax charge for the year of £2.6m (2016: £2.0m). The tax charge for the year is made up of a corporation tax charge of £4.4m (2016: £3.6m) with a deferred tax credit of £1.8m (2016: £1.6m). The effective rate of tax for the year is 17.5% (2016: 15.4%) and an explanation of this increase in given in note 4. At the year end, the Group has no unused tax losses available for offset against future profits (2016: £nil).

Profit for the year from total operations

After deducting the tax charge for the year from the profit before tax the Group has recorded a profit for the year from total operations of £12.1m (2016: £11.0m) an increase of 10% which has been significantly adversely affected by the gain on revaluation on contingent consideration recorded in the previous year.

Earnings per share

Adjusted diluted earnings per share, based on profit for the year attributed to ordinary shareholders before share based payment charges, amortisation charges of acquired intangible assets, mark to market adjustments in respect of interest rate swaps, the charge of interest on contingent consideration due, acquisition costs and in the previous year the accelerated write off of arrangement fees on the restructuring of the bank facility and the gain on the revaluation of the contingent consideration to be paid for SystemsUp and the tax effect of these items was 16.99p (2016: 14.44p), an increase of 18%.

The measure of adjusted diluted earnings per share as described above is a non-statutory measure which is commonly used to analyse the performance of companies particularly where M&A activity forms a significant part of their activities.

The calculation of both adjusted earnings per share and basic earnings per share is included at note 6.

Basic earnings per share from continuing operations was 11.27p (2016: 10.32p), an increase of 9% which has been significantly adversely affected by the gain on contingent consideration recorded in the previous year.

Acquisitions

On 25 August 2016 the Company acquired the entire share capital of Cristie on a no debt, no cash, normalised working capital basis. At completion a payment of £3.8m in cash, including adjustments required in respect of normalised working capital, was made to acquire Cristie which at the time had net debt/cash of £3.1m resulting in a net outflow of funds of £0.7m to acquire the company.

After the end of the financial year, on 17 May 2017 we completed the acquisition of the entire share capital of Dediserve on a no debt, no cash, normalised working capital basis for a total purchase price of €7.9m. An initial payment was made at completion of €7.8m (£6.7m) in cash less the sum of €0.25m (£0.21m) in cash as an interim settlement of the expected amount due by the vendors in respect of the no debt, no cash, normalised working capital adjustment. The initial payment was funded by a draw down from the Group's revolving credit facility. A further sum of €0.1m has been deferred and is due to be paid on the earlier of the completion of the handover of certain operational tasks or 6 months after the original purchase date.

Dividends

We have proposed a 90% increase in the level of dividend pay-out for this year thereby raising the rate to 6.00p per share (2016: 3.15p). We have also committed to an improved pay-out ratio in the future based on the level of adjusted diluted earnings per share we deliver. The Board has taken the decision to increase the dividend return 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. We have continued with our acquisition activity having brought Cristie into the Group during the year and Dediserve post the year end and we are confident that we can make additional acquisitions in the future. The proposed change to dividends will have no impact on our ability to continue to make acquisitions of the like we have to date.

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 £37.8m (2016: £30.9m) with the significant increase of 22% over the previous year's level due to a combination of the increase in adjusted EBITDA and improvements in working capital management. After deducting payments for corporation tax of £3.9m (2016: £4.3m) the net cash flow from operating activities was £33.9m (2016: £26.6m).

Cash flow from investing activities

In line with our strategy of accelerating our growth by acquisition the Group continued to incur substantial sums on investing activities, spending a total of £15.2m (2016: £32.6m) in the year. Of this amount, £0.7m (2016: £15.9m), net of cash acquired of £3.1m (2016: £4.5m), was incurred in relation to the acquisition of Cristie as described above. In addition, the Group incurred expenditure of £1.16m (2016: £1.65m) in respect of contingent consideration due on acquisitions.

The Group continues to invest in property, plant and equipment through expenditure on datacentres and on equipment required to provide managed services to both its existing and new customers. As a result, the Group spent £10.2m (2016: £12.4m) on assets, net of related finance lease drawdown, trade creditor movements and non-cash reinstatement provisions.

Expenditure was also incurred on development costs of £1.4m (2016: £1.1m), on intangible assets of £1.8m (2016: £1.2m) and on property lease deposits of £nil (2016: £0.3m).

Cash flow from financing activities

There were no drawdowns of the bank loan in the year (2016: £16.5m) to fund the purchase of the acquisitions. Bank loan repayments of £16.0m (2016: £3.5m) were made in the year. We received £1.1m (2016: £0.1m) from the issue of shares as a result of the exercise of options by employees. We also made a dividend payment of £3.4m (2016: £2.7m); incurred finance costs of £1.2m (2016: £1.5m); and made lease repayments of £0.6m (2016: £1.0m).

Net cash flow

As a consequence, our overall cash expenditure during the year was £1.4m (2016: £2.0m cash generated) which resulted in cash and cash equivalent balances at the end of the year of £8.9m (2016: £10.3m). After recognising bank loans of £18.6m (2016: £34.5m) and finance lease obligations of £0.9m (2016: £1.4m) net debt balances at the end of the period stood at £10.6m (2016: £25.6m) a level the Board is comfortable with given the strong cash generation of the Group.

Financial position

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

Current trading and outlook

This has been another year of strong growth and trading since the year end remains good.

The long term opportunity and runway for success remains large and long. iomart remains well positioned to take advantage of that opportunity and to deliver further significant growth.

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

Angus MacSween

Chief Executive Officer

12 June 2017

Consolidated Statement of Comprehensive Income

Year ended 31 March 2017

Consolidated Statement of Financial Position

As at 31 March 2017

Consolidated Statement of Cash Flows

Year ended 31 March 2017

Consolidated Statement of Changes in Equity

Year ended 31 March 2017

Notes to the Yearly Financial Information

Year ended 31 March 2017

1. GENERAL INFORMATION

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

2. BASIS OF PREPARATION

These financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the Companies Act 2006 applicable to companies reporting under IFRS.

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

The financial information set out in the announcement does not constitute the Group's statutory accounts for the years ended 31 March 2017 and 31 March 2016 within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 March 2016 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The financial information for the year ended 31 March 2017 is derived from the statutory accounts for that year which were approved by the Directors on 12 June 2017. The statutory accounts for the year ended 31 March 2017 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors reported on those accounts; their report was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

3. SEGMENTAL ANALYSIS

The chief operating decision-maker has been identified as the Chief Executive Officer ("CEO") of the Company. The Group has three operating segments and the CEO reviews the Group's internal reporting which recognises these three 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 three operating and reportable segments. In the previous year there were only two segments. During the year the Group acquired Cristie Data. Unlike the other operations in the Group, Cristie Data has largely non-recurring revenue and therefore this has been included in a separate segment.

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

· Cloud Services - this segment provides managed cloud computing facilities and services, through a network of owned datacentres, to the larger SME and corporate markets. The segment uses several routes to market including iomart Cloud, RapidSwitch, Redstation, Backup Technology and SystemsUp.

· Non-recurring - this segment provides data storage, backup and virtualisation solutions across a range of sectors, from SMEs to large enterprises, encompassing both public and private sector.

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. 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 three segments as reported internally. Group overheads include the cost of the Board, all the costs of running the premises in Glasgow, the Group marketing, human resource, finance and design functions and legal and professional fees.

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

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

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

Operating Segments

Revenue by Operating Segment

Geographical Information

In presenting the consolidated information on a geographical basis, revenue is based on the geographical location of customers. There is no single country where revenues are individually material other than the United Kingdom. The United Kingdom is the place of domicile of the parent company, iomart Group plc.

Analysis of Revenue by Destination

Profit by Operating Segment

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

4. TAXATION

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

The weighted average applicable tax rate for the year ended 31 March 2017 was 20% (2016: 20%). The total current corporation tax charge for the year of £4,349,000 (2016: £3,663,000) on operations represents 29.7% (2016: 28.1%) of the Group profit before tax of £14,654,000 (2016: £13,024,000). The effective rate of tax for the year, based on the taxation charge for the year as a percentage of the profit before tax, is 17.5% (2016: 15.4%). The increase of 2.1% is mainly due to the reduction in future corporation rates which has had an adverse impact on the deferred tax charge relating to our deferred tax assets, a prior year adjustment in deferred tax relating to the lower availability of capital allowances than previously anticipated and the absence of non-taxable income in the year when in the previous year the gain on the revaluation of contingent consideration was non-taxable. This has been partially offset by a prior year adjustment in deferred tax relating to share based payments and the absence of a deferred tax charge relating to development costs in the current year following the initial recognition of a deferred tax liability in the prior year.

A number of changes to the UK Corporation tax system were announced in the March 2016 Budget Statement with the main rate of corporation tax reduced from 18% to 17% from 1 April 2020. These changes were substantively enacted at the period end and therefore are included in these financial statements.

5. DEFERRED TAX

The Group recognised deferred tax assets and liabilities as follows:

At the year end, the Group had no unused tax losses (2016: £nil) available for offset against future profits.

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

6. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, after deducting any own shares held in Treasury and held by the Employee Benefit Trust. Diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the total of the weighted average number of ordinary shares in issue during the year, after deducting any own shares, and adjusting for the dilutive potential ordinary shares relating to share options.

7. ACQUISITIONS

Cristie Data Limited

The Group acquired 100% of the issued share capital of Cristie Data Limited ("Cristie") on 25 August 2016.

Cristie is a Stroud based data storage, backup and virtualisation solutions provider, which has operated across all sectors of industry from SMEs to large enterprises, and public sector to private sector for over 40 years. Cristie is particularly active in the education and health sectors, which offers the opportunity for the Group to increase its presence in these areas. The acquisition is in line with the Group's strategy to grow its operations both organically and by acquisition.

During the current period the Group incurred £99,000 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 2017.

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

The agreed purchase price for the shares, on a cash-free, debt-free, normalised working capital basis was £1,250,000. On the date of the acquisition a payment of £3,779,000 was made in cash, including an amount of £2,529,000 in settlement in respect of the additional debt assumed, cash acquired and normalised working capital position of Cristie at completion.

Provisional fair values of the acquired assets and liabilities, including goodwill, were reported in the interim report for the 6 months ended 30 September 2016. Following a detailed review of Cristie's accounting policies in respect of revenue recognition, the policy relating to the sale of third party maintenance and support contracts was changed to defer the revenue over the life of the contract, in compliance with FRS 101, rather than recognising it in full when the sale was completed. The treatment of the cost of purchasing the third party maintenance and support contracts, which was previously expensed in full when paid, has also been changed to spread the costs over the life of the contract, with the deferred element of the cost being included in receivables.

These adjustments have been reflected in the table of net assets acquired and liabilities assumed with trade and other payables being increased by £1,997,000, offset by an increase of £1,655,000 in trade and other receivables, and a reduction in current income tax liabilities of £66,000, to give an increase in goodwill of £276,000.

The fair values of the acquired assets and liabilities, including goodwill, are now final.

Cristie earned revenue of £3,639,000 and generated profits before allocation of group overheads, share based payments and tax of £235,000 in the period since acquisition.

United Communications Limited

The fair values of acquired assets and liabilities, including goodwill, previously disclosed as provisional for United Communications Limited have been finalised in the current period with no changes to the fair values disclosed in the Annual Report and Accounts 2016.

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 2016. The amounts include the results of the acquired business, depreciation and amortisation of the acquired property, plant and equipment and intangible assets recognised on acquisition. The amounts do not include any possible synergies from the acquisition. The information is provided for illustrative purposes only and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of the future results of the combined companies.

8. INTANGIBLE ASSETS

Of the total additions in the year of £1,670,000 (2016: £1,020,000), £122,000 (2016: £297,000) was included in trade payables as unpaid invoices at the year end resulting in a net cash outflow of £175,000 (2016: net cash outflow £187,000) in trade payables. Consequently, the consolidated statement of cash flows discloses a figure of £1,845,000 (2016: £1,207,000) as the cash outflow in respect of intangible asset additions in the year.

All amortisation and impairment charges are included in the depreciation, amortisation and impairment of non-financial assets classification, which is disclosed as administrative expenses in the statement of comprehensive income.

Included within customer relationships are the following significant items: customer relationships in relation to the acquisitions of Backup Technology with a net book value of £4.1m and a remaining useful life of 5 years; United Hosting with a net book value of £4.3m and a remaining useful life of 7 years; Melbourne Server Hosting with a net book value of £2.0m and a remaining useful life of 4 years; and ServerSpace with a net book value of £1.7m and remaining useful life of 6 years.

During the year, goodwill was reviewed for impairment in accordance with IAS 36 "Impairment of Assets". No impairment charges (2016: £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 Cristie Data acquisition has been allocated to the Non-recurring CGU as this is the CGU expected to benefit from the business combination.

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

9. PROPERTY, PLANT AND EQUIPMENT

Of the total additions in the year of £9,690,000 (2016: £11,883,000), none (2016: £97,000) were funded by finance leases and £1,256,000 (2016: £1,755,000) was included in trade payables as unpaid invoices at the year end resulting in a net decrease of £499,000 (2016: net decrease of £599,000) in trade payables. Consequently, the consolidated statement of cash flows discloses a figure of £10,189,000 (2016: £12,385,000) as the cash outflow in respect of property, plant and equipment additions in the year.

10. BORROWINGS

11. ANALYSIS OF CHANGE IN NET DEBT