Iomart Regulatory News (IOM)

4 December 2018

iomart Group plc

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

Half Yearly Results

iomart (AIM:IOM), the cloud computing company, is pleased to report its consolidated half yearly results for the period ended 30 September 2018.

FINANCIAL HIGHLIGHTS

· Revenue growth of 8% to £50.9m (H1 2018: £47.0m)

· Adjusted EBITDA1 growth of 10% to £21.1m (H1 2018: £19.2m)

· Adjusted profit before tax2 growth of 7% to £12.4m (H1 2018: £11.6m)

· Adjusted diluted earnings per share3 increased by 6% to 9.23p (H1 2018: 8.71p)

· Period end net debt of £33.6m, less than one times annualised EBITDA

· Interim dividend of 2.45p per share (H1 2018: £2.25p)

OPERATIONAL HIGHLIGHTS

· Substantial growth in sales pipeline due to re-structuring of our sales and marketing activities

· Continued investment in cloud hosting products and services to allow us to deliver all elements of a hybrid environment

· Strong focus on efficiency and customer service which ensures market leading profitability

· Further expansion of our UK datacentre resources and points of presence across the globe

· Acquisition of Bytemark, a managed hosting business in York, for total consideration of £4.9m

Statutory Equivalents

The above highlights are based on adjusted results. A full reconciliation between adjusted and statutory results is contained within this statement. The largest variance within the adjustments relates to a net increase in the contingent consideration on 2017 acquisitions, as performance was ahead of expectations within a range of earnings which had a high multiple factor under a ratchet mechanism. Accounting standards require the £1.4m additional consideration to be recorded as a loss within the profit before tax, with no such sum in the prior period comparative. The statutory equivalents of the above results are as follows:

· Profit before tax of £7.3m (H1 2018: £7.8m)

· Basic earnings per share of 5.48p (H1 2018: 5.85p)

Angus MacSween, CEO commented,

"iomart's continued strong trading performance is a reflection of the strength of our cloud capabilities and business model, the breadth of our customer base and the ongoing growth of the cloud market. We help companies at all stages of their journey, with a wide portfolio of managed cloud services, which makes us confident about the significant and sustainable market opportunity ahead.

"The high levels of visibility within our recurring revenue business model and strong cost control provides stability to our trading performance for the second half of the year, ensuring the full year should deliver a similar overall year on year progression as we have reported in the first half. We remain very confident in the Group's long term prospects."

1 Throughout this statement adjusted EBITDA is earnings before interest, tax, depreciation and amortisation (EBITDA) before share based payment charges, acquisition costs, and non-recurring costs. 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, share based payment charges, mark to market adjustments in respect of interest rate swaps, acquisition costs, interest on contingent consideration due, (loss)/gain on revaluation of contingent consideration and non-recurring costs.

3 Throughout this statement adjusted earnings per share is earnings per share before amortisation charges on acquired intangible assets, share based payment charges, mark to market adjustments in respect of interest rate swaps, acquisition costs, interest on contingent consideration due, (loss)/gain on revaluation of contingent consideration, accelerated write-off of arrangement fees on restructuring of banking facility, and non-recurring costs and the taxation effect of these.

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

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 ("MAR"). Upon the publication of this announcement, this inside information is now considered to be in the public domain.

For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of iomart by Scott Cunningham, Chief Financial Officer.

For further information:

About iomart Group plc

For over 20 years iomart Group plc (AIM:IOM) has been helping growing organisations to maximise the flexibility, cost effectiveness and scalability of the cloud. From data centres we own and operate in the U.K., and from connected facilities across the globe, we deliver 24/7 storage and protection for data across the most complex of cloud and legacy infrastructures. Our team of over 400 dedicated staff work with our customers at the strategy stage through to delivery and ongoing management, to implement the secure cloud solutions that deliver to their business requirements.

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

Chairman's Statement

In my first interim results as Chairman, I am delighted to report a very good trading performance, with Group revenue well ahead of the previous period, having grown by 8% to £50.9m (H1 2018: £47.0m). Our adjusted EBITDA has grown by 10% to £21.1m (H1 2018: £19.2m) and adjusted profit before tax was also up by 7%, to £12.4m (H1 2018: £11.6m).

During this time, we have invested significantly in our sales and marketing engine. We are already seeing the benefits and are confident that this investment, combined with our strong customer retention, will help accelerate organic growth.

There was one acquisition during the period which saw Bytemark Holdings Limited ("Bytemark") join the Group in August 2018, bringing an additional datacentre and increasing our skillset. Strict criteria continue to be applied to potential acquisition targets to ensure that 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.

The one change to the Board saw Richard Logan stand down as Chief Financial Officer. Over his 12-year tenure Richard was integral in helping shape the Group as it achieved material revenue and profit growth year on year. I would like to thank Richard for his outstanding contribution and I wish him every future success. In his replacement, Scott Cunningham, we have found an exceptional candidate who we are confident will help drive the Group forward to the next level. Since I took up the role of Non-Executive Chairman in late August 2018 we have been conducting the search for an additional independent non-executive director. We expect to have a new appointment in place before our year end.

The Board is pleased to announce a proposed interim cash dividend to shareholders of 2.45p (H1 2018: 2.25p per share). This represents an increase of 9% on the prior year interim dividend and reflects the Board's confidence in the current financial position of the Group and future prospects.

Ian Steele

Chairman

3 December 2018

Chief Executive's Statement

MarketOver the course of the past decade, cloud computing has evolved from being something service providers like iomart told companies they should be adopting, to becoming the technological lifeblood that runs through many modern enterprises. However, many industries and sectors are only now at the start of their journey to the cloud, which means that the market opportunity remains strong and varied. The market continues to grow as technology progresses. The world has an almost insatiable appetite for more bandwidth, faster downloads, more applications, which of course creates ever more data to process, store or back up.

The choices for businesses considering a move to the cloud are ever more complex and the Group has the skills, network and infrastructure to provide solutions across the whole cloud spectrum, including private, hybrid and public cloud. We are well positioned to take advantage of these opportunities and have continued to win good levels of business from both new and existing customers in the period. The majority of our customers are trusting us to manage their webcentric platforms where they are trading or providing online services onwards to their own customers. Platforms generally need to grow in line with our customers' success. It is worth reiterating that our customers are predominantly private companies and we have no material exposure to the public sector within our customer base.

Operational Review

Cloud Services

The Cloud Services operation continues to perform well, delivering an overall revenue growth rate of 10% with organic growth contributing around 4%. We are well through the restructuring of our sales and marketing engine, which commenced at the start of the period, with the new business sales pipeline growing substantially during the first six months of the year. These efforts have included the recruitment of a new senior sales management team, changes to marketing resources, revisions to commission schemes and the rolling out of new group wide marketing toolsets, as well as the beginning of a process to change our group wide CRM system. We are also investing in further automation, customer service and network resilience to provide the best possible service to our customers.

The ecommerce acquisitions made in the previous year have performed strongly as our customers continue to require bigger platforms and we attract more customers to our proprietary Magento ecommerce platform which has been shown to lead the market in terms of robustness and speed.

Our global datacentre footprint continues to expand and we now have points of presence in over 25 locations around the world, as the demand for our services continues to increase internationally. During the period we extended our London datacentre lease until 2030. We expect to take some additional steps to consolidate our UK datacentre estate and provide additional long-term security over our infrastructure.

The acquisition of Bytemark is in line with the Group's strategy to grow via balanced investments into both organic and acquisitive growth and also gives the Group access to additional datacentre space. Bytemark owns a datacentre in York which further augments the stability of our existing datacentre estate. As part of the acquisition we have gained a strong customer base and a workforce with a valuable and complex skillset, especially around the more specific requirements of the software development community.

Our Cloud Services revenues have grown to £44.3m (H1 2018: £40.3m) as a result of our acquisitive and organic activities. The Cloud Services EBITDA (before share based payments, acquisition costs and central group overheads) was £20.2m being 46% of revenue (H1 2018: £18.0m (45% of revenue)). We continue to expect Cloud Services to be the driver of revenue and profit growth going forward.

Easyspace

Easyspace provides a range of products to the small and micro business community including an ever wider range of domain names, shared hosting, emails and dedicated servers. The Easyspace segment has performed as expected during the period. Our revenues and EBITDA (before share based payments, acquisition costs and central group overheads) from the Easyspace segment have remained consistent at £6.7m (H1 2018: £6.7m) and £3.1m (H1 2018: £3.1m), respectively.

M&A Activity

On 24 August 2018 we acquired the entire share capital of Bytemark on a no debt, no cash, normalised working capital basis.

The sale and purchase agreement included an earn-out period to 31 March 2019. During November 2018, whilst not part of the original plan, the previous director shareholders of Bytemark indicated that they wished to consider leaving the business early and a negotiated settlement on the earn-out payment of £0.2m was agreed and paid. This, along with the initial consideration of £4.7m paid at completion, results in a total final consideration of £4.9m. The initial payment was funded by a drawdown from the Group's revolving credit facility.

The M&A market continues to provide opportunities and we remain committed to complementing our organic growth through further acquisitions.

Financial Performance

Revenue

Overall revenues from our operations grew by 8% to £50.9m (H1 2018: £47.0m).

Our Cloud Services segment grew revenues by 10% to £44.3m (H1 2012: £40.3m). The increase includes the contribution for the full six month period from the acquisitions of Sonassi, Simple Servers and Dediserve during the previous financial year, along with contribution from the short period of ownership from the acquisition of Bytemark during August 2018.

Our Easyspace segment has performed in line with expectations over the period with revenues remaining static at £6.7m (H1 2018: £6.7m). Easyspace continues to deliver extremely strong cash flows and profits to the Group as a whole.

Gross Profit

The gross profit in the period, 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 datacentres, increased by 8% to £32.5m (H1 2018: £30.0m). This strong increase in absolute gross profit was a direct result of the contribution from the additional revenue generated over the period, including the impact of acquisitions. In percentage terms the gross margin was maintained at 63.8% (H1 2018: 63.9%).

Adjusted EBITDA

The Group's adjusted EBITDA grew by 10% to £21.1m (H1 2018: £19.2m). In percentage terms the adjusted EBITDA margin increased to 41.5% (H1 2018: 40.7%) with the improvement arising in the Cloud Services segment. 

Cloud Services increased its adjusted EBITDA by 12% to £20.2m (H1 2018: £18.0m). The improvement in adjusted EBITDA is due to the additional gross margin contribution arising from our organic sales growth, further complemented by a full period of contribution from Simple Servers, Sonassi and Dediserve. In percentage terms the margin increased to 45.6% (H1 2018: 44.6%), the improvement driven by a reduction in staff costs gained by efficiency improvements offset slightly by higher software licence costs.

The adjusted EBITDA of Easyspace was maintained at £3.1m (H1 2018: £3.1m). In percentage terms the margin increased slightly to 46.6% (H1 2018: 45.9%) due in part to the mix of revenue over the period.

Group overheads, which are not allocated to segments, include the cost of the Board, all the running costs of the headquarters in Glasgow, and Group led functions such as human resources, marketing, finance and design. Group overheads of £2.2m have increased modestly in the period (H1 2018: £1.9m).

Adjusted profit before tax

Depreciation charges of £7.0m (H1 2018: £6.0m) have increased due to a combination of investment in our datacentre estate and the purchase of equipment to provide services to our new and existing customers. The charge for the amortisation of intangible assets, excluding amortisation of intangible assets resulting from acquisitions ("amortisation of acquired intangible assets") has remained static at £1.1m (H1 2018: £1.1m).

Net finance costs, excluding the mark to market adjustment on interest swaps on the Company's loans and the interest charge on contingent consideration due, were £0.7m (H1 2018: £0.6m).

After deducting the charges for depreciation, amortisation, excluding the amortisation of acquired intangible assets, and finance costs, excluding the interest charges and the (loss)/gain in respect of contingent consideration due and the mark to market adjustment on interest rate swaps, from adjusted EBITDA the adjusted profit for the period before tax increased by 7% to £12.4m (H1 2018: £11.6m).

The adjusted profit before tax margin for the period remains very stable at 24.4% (H1 2018: 24.6%).

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 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:

· share based payment charges in the period which decreased to £0.2m (H1 2018: £0.4m) as a result of options granted in previous periods not vesting, offset by the issue of additional share options;

· charges for the amortisation of acquired intangible assets of £3.3m (H1 2018: £2.8m) which have increased as a result of the net impact of a full period effect of acquisitions made in previous periods;

· costs of £0.1m (H1 2018: £0.6m) as a result of acquisitions; and

· finance charges of £0.06m (H1 2018: £nil) due to the accelerated release of arrangement fees on the bank borrowing facility which was increased during the period.

A further adjusting item in this period with no comparable amount is a net loss on the revaluation of contingent consideration of £1.4m (H1 2018: £nil). As reported at the year end, 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 could result 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. As a result, the final payment due on Sonassi of £2.6m, was £1.8m higher than our previous estimate. Offsetting this loss is a gain of £0.4m on the revaluation of the Bytemark contingent consideration with settlement now paid in full.

After deducting the charges for share based payments, the amortisation of acquired intangible assets, acquisition costs, the mark to market adjustment on interest rate swaps, interest charges in respect of contingent consideration, and the (loss)/gain on revaluation of contingent consideration, the reported profit before tax is £7.3m (H1 2018: £7.8m).

Taxation and profit for the period from total operations

There is a tax charge in the period of £1.5m (H1 2018: £1.4m), which comprises a current taxation charge of £2.3m (H1 2018: £2.5m), and a deferred taxation credit of £0.8m (H1 2018: £1.1m). The tax charge for the period has increased because of the net loss recognised on the revaluation of contingent consideration of £1.4m, which is disallowable for tax purposes. This results in a profit for the period from total operations of £5.9m (H1 2018: £6.3m).

Earnings per share

Adjusted diluted earnings per share, which is based on profit for the period attributed to ordinary shareholders before share based payment charges, amortisation of acquired intangible assets, the mark to market adjustment on interest rate swaps, the interest charges in respect of contingent consideration due, acquisition costs and the tax effect of these items, and the (loss)/gain on revaluation of contingent consideration, was 9.23p (H1 2018: 8.71p), an increase of 6%.

The measure of adjusted earnings per share as described above is a non-statutory measure which is commonly used to analyse the performance of companies where M&A activity forms a significant part of their activities. Basic earnings per share from continuing operations was 5.48p (H1 2018: 5.85p). The calculation of both adjusted diluted earnings per share and basic earnings per share is included at note 3.

Cash flow

The Group generated cash from operations in the period of £14.5m (H1 2018: £17.0m). The period included a payment of £2.3m in relation to a software licence audit for which an exceptional provision was recorded at 31 March 2018. In addition, we paid £1.6m upfront for three years software maintenance, made in order to receive a discount going forward, on a product where we are seeing increasing customer demand. Excluding this triennial invoice and payment of the £2.3m software licence audit fee, cash flow from operations of 87% of our adjusted EBITDA is comparable to the previous reporting period. Expenditure on taxation in the period remained static at £2.4m (H1 2018: £2.4m), resulting in net cash flow from operating activities in the period of £12.0m (H1 2018: £14.6m).

Expenditure on investing activities of £12.9m (H1 2018: £20.9m) was incurred in the period. £5.8m (H1 2018: £8.4m) was incurred on the acquisition of property, plant and equipment, principally to provide services to our customers. We made purchases of intangible assets of £0.5m (H1 2018: £0.7m) plus £0.6m (H1 2018: £0.9m) in respect of the capitalisation of development costs during the period. In respect of M&A activity, £1.9m (H1 2018: £2.0m) was paid out for contingent consideration due on acquisitions made in previous periods and £4.2m (H1 2018: £8.9m 2018 various acquisitions) was incurred on the acquisition of Bytemark in August 2018, net of cash acquired of £0.5m.

There was net cash generated from financing activities of £0.8m (H1 2018: £4.5m net cash used). We generated £0.1m (H1 2018: £0.1m) from the issue of shares as a result of the exercise of options by staff. We made drawdowns under our bank facility of £10.0m (H1 2018: £15.0m) and we made repayments of £3.0m (H1 2018: £3.0m). We repaid £0.2m (H1 2018: £0.2m) of finance leases and incurred £0.8m (H1 2018: £0.9m) of finance charges and made a dividend payment of £5.4m (H1 2018: £6.5m). As a result, cash and cash equivalent balances at the end of the period were £9.4m (H1 2018: £7.1m).

Net Debt

The net debt position of the Group at the end of the period was £33.6m (H1 2018: £24.5m). This represents a multiple of much less than one times our annual adjusted EBITDA which we believe is a very comfortable level of debt to carry. We still have a significant undrawn amount from our £80m credit facility which matures in June 2022.

Dividend

Maintaining our progressive dividend policy, we will pay an interim dividend of 2.45p per share (H1 2018: 2.25p) on 31 January 2019 to shareholders on the register on 21 December 2018, with an ex-dividend date of 20 December 2018. This dividend represents an increase of 9% on the interim dividend of last year and a pay-out ratio of 27% of the adjusted diluted earnings per share for the interim period. 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 can be found by visiting our website at the following address www.iomart.com/investors and clicking on the Shareholder Services icon.

Current trading and outlook

iomart's continued strong trading performance is a reflection of the strength of our cloud capabilities and business model, the breadth of our customer base and the ongoing growth of our total addressable market. We help companies at all stages of their journey, with a wide portfolio of managed cloud services, which makes us confident about the significant and sustainable market opportunity ahead.

The high levels of visibility within our recurring revenue business model and strong cost control provides stability to our trading performance for the second half of the year, ensuring the full year should deliver a similar overall year on year progression as we have reported in the first half. We remain very confident in the Group's long term prospects.

Angus MacSween

CEO

3 December 2018

Consolidated Interim Statement of Comprehensive Income

Six months ended 30 September 2018

Consolidated Interim Statement of Financial Position

As at 30 September 2018

Consolidated Interim Statement of Cash Flows

Six months ended 30 September 2018

Consolidated Interim Statement of Changes in Equity

Six months ended 30 September 2018

Notes to the Half Yearly Financial Information

Six months ended 30 September 2018

1. Accounting policies

The financial information for the year ended 31 March 2018 set out in this half yearly report does not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. The figures for the year ended 31 March 2018 have been extracted from the Group financial statements for that year restated for the effects of adopting IFRS 15. Those financial statements have been delivered to the Registrar of Companies and included an independent auditor's report, which was unqualified and did not contain a statement under section 493 of the Companies Act 2006.

The half yearly financial information has been prepared using the same accounting policies and estimation techniques as will be adopted in the Group financial statements for the year ending 31 March 2019. The Group financial statements for the year ended 31 March 2018 were prepared under International Financial Reporting Standards as adopted by the European Union. These half yearly financial statements have been prepared on a consistent basis and format with the Group financial statements for the year ended 31 March 2018, with the exception of the adoption of IFRS 15 and IFRS 9. IFRS 9 has brought in changes to the measurement and disclosure of financial instruments and introduced a new expected credit loss impairment model. The adoption of IFRS 9 does not have a material impact on the Group financial statements. Full disclosure of the impact of IFRS 9 will be reported in our annual report to 31 March 2019. The impact of adopting IFRS 15 is discussed further below. The provisions of IAS 34 'Interim Financial Reporting' have not been applied in full.New accounting standards and interpretations

IFRS 15 - Revenue from Contracts with Customers

In the current financial period, the Group has adopted IFRS 15 Revenue from Contracts with Customers. The Group has elected to apply the full retrospective method and restate comparative information from prior periods upon adoption of IFRS 15. The Group has not applied any practical expedients in calculating the impact of IFRS 15 as they are not applicable to the Group's revenue streams.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to exchange for those goods or services.

During the year ended 31 March 2018, the Group carried out a detailed review of the recognition criteria for revenue on all aspects of the business and the various revenue streams applying the requirements of IFRS 15 to ensure the same principles were being applied consistently across the Group.

On application of IFRS 15, some changes in accounting policy resulted, principally in the following areas:

· Set-up fees charged on contracts, which were previously recognised upfront when the set-up was complete, are now spread over the life of the contract under IFRS 15 impacting revenue and deferred revenue disclosed within trade and other payables.

· In line with the recognition of revenue, sales commission earned on revenue was previously spread over a twelve-month period, however, is now spread over the life of the contract to which the commission relates impacting cost of sales and deferred commission costs disclosed within trade and other receivables.

· Revenue from the provision of domain names was previously recognised at the point of sale when the title to the domain name passed to the customer. Under IFRS 15, revenue is now split between the registration of the domain and the ongoing services over the period of registration of the domain impacting revenue and deferred revenue disclosed within trade and other payables.

The tables below show the effect of IFRS 15 on the consolidated income statement for the six months to 30 September 2017 and the year to 31 March 2018 and the effect on the statement of financial position as at 30 September 2017 and 31 March 2018. The table also presents the impact on the current period interim results as at 30 September 2018 on adoption of the new accounting policies under IFRS 15.

*retained earnings movement is based on the cumulative impact on adoption of IFRS 15 under the full retrospective method.

Following the adoption of IFRS 15, our revenue recognition policies in our operating segments are as follows:

Cloud Services

This operating segment provides managed cloud computing facilities and services including consultancy. Revenue from the sale of cloud computing facilities and managed services is spread evenly over the period of the agreement and only after the service has been established. Set-up fees charged on contracts are spread over the life of the contract. Any unearned portion of revenue is included in payables as deferred revenue. Consultancy services are generally provided on a "time and materials" basis and therefore revenue is recognised as these services are rendered. Revenue from the supply of hardware or software, and the provision of services in respect of installation or training, is recognised when delivery and installation of the equipment is completed. Revenue from the sale of cloud computing facilities and support services is spread evenly over the period of the agreement and only after the service has been established. Any unearned portion of revenue is included in payables as deferred revenue.

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 ongoing service associated with each domain registration is spread over the length of the registration, whilst the provision of the initial domain registration is recognised at the point of sale. Revenue from the provision of hosting services is recognised evenly over the period of the service and only after the service has been established. Any unearned portion of revenue is included in payables as deferred revenue.

2. 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. The United Kingdom is the place of domicile of the parent company, iomart Group plc. No individual country other than the United Kingdom contributes a material amount of revenue therefore revenue from outside the United Kingdom has been shown as from Rest of the World.

Analysis of Revenue by Destination

Profit by Operating Segment

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

3. 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. The calculations of earnings per share are based on the following results:

iomart Group plc assess the performance of the Group by adjusting earnings per share, calculated in accordance with IAS 33, to exclude certain non-trading items. The calculation of the earnings per ordinary share on a basis which excludes such items is based on the following adjusted earnings:

4. Acquisition costs

During the period costs of £130,000 (H1 2018: £573,000) were incurred in respect of professional fees on acquisitions and there were no costs (H1 2018: £nil) directly related to the integration of acquisitions into the Group.

5. Finance costs

6. Taxation

The headline effective rate of tax for the six months to 30 September 2018, based on the taxation charge for the period as a percentage of the profit before tax is 20% (H1 2018: 17%). The main factor which has caused the change period on period is the movement in the loss/(gain) on revaluation of contingent consideration. Excluding this item indicates that 18% would be a more representative effective tax rate for the underling business being broadly consistent with the current UK corporation tax rate.

7. Intangible assets

8. Property, plant and equipment

9. Contingent consideration due on acquisitions