13 June 2023, 07:00

Source - LSE Regulatory

RNS Number : 4730C

Iomart Group PLC

13 June 2023

iomart Group plc

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

Final Results

Strong increase in revenue and positive M&A activity

iomart (AIM: IOM), the cloud computing company, is pleased to report its final results for the year ended 31 March 2023 (FY2023).

FINANCIAL HIGHLIGHTS

	FY2023	FY2022	Change
Revenue	£115.6m	£103.0m	+12%
% of recurring revenue¹	92%	93%	-1pp
Adjusted EBITDA²	£36.2m	£38.0m	-5%
Adjusted profit before tax³	£14.8m	£17.1m	-13%
Profit before tax	£8.5m	£12.2m	-30%
Adjusted diluted EPS⁴	10.9p	12.0p	-9%
Basic EPS	6.4p	8.6p	-26%
Cash generation from operations	£33.8m	£37.9m	-11%
Proposed final dividend per share	3.5p	3.6p	-3%

· Sales pipeline improvement noted in H1 converting into stronger order booking levels in H2

· Revenue increased by 12% YoY to £115.6m, a record level for the Group, reflecting a combination of improved customer renewal levels, organic revenue growth within core cloud managed services, inflationary pricing adjustments (primarily for data centre energy usage), together with the acquisition of Concepta on 15 August 2022

· Concepta provided £6.2m of revenue, a positive profit contribution, and is performing well, strengthening the Group's indirect routes to market, and extending its products, skills and capabilities

· Reduction in adjusted EBITDA² and adjusted profit before tax³ reflects revenue mix, together with investment in upskilling employees' capabilities, appropriate wage increases and cost of living support. Interest expense is £0.9m higher year-on-year

· Profitability margins reflect the changes in revenue mix and the impact of inflationary price adjustments with adjusted EBITDA margin and adjusted profit before tax margin at 31.3% (2022: 36.9%) and 12.8% (2022: 16.6%) respectively

· Statutory profit before tax reduced to £8.5m from £12.2m includes consistent adjusted items, the largest being non-cash amortisation charges on acquired intangibles of £3.9m (2022: £4.0m) plus a current year £0.8m non-recurring cost associated with the interpretation of the six-month Energy Bill Relief Scheme

· Cash conversion ratio⁶ is strong at 94% (2022: 100%)

· Year-end net debt⁵ of £39.8m (2022: £41.3m), comfortable at 1.1 times annualised EBITDA⁵ (2022: 1:1 times)

OPERATIONAL HIGHLIGHTS

· iomart's robust customer arrangements have ensured that wholesale energy price rises were appropriately passed to the customer base in the year. The energy markets appear less volatile in the new financial year and the Company has a proactive hedging strategy in place

· New regional sales leadership team reshaped the sales structure in H1, with order bookings accelerating in H2

· Product management team continued to support solution portfolio development, including refinement of data security and managed Microsoft Azure offerings, plus the launch of a new multi-tenant cloud platform

· Launched a full learning management system internally to support skills development programmes

· Lucy Dimes appointed as new Independent Chair of the Board and, subsequent to the year-end, two new Independent Non-Executive Directors, Annette Nabavi and Adrian Chamberlain were appointed. All bring a wealth of industry experience

· Subsequent to the year-end, the acquisition of Extrinsica Global, announced on 5 June 2023, provides a large step forward in the Group's capabilities to support existing and new customers in their use of Microsoft's Azure cloud platform

OUTLOOK

· The first two months of the new financial year are in line with internal expectations, reporting revenues ahead of the equivalent prior period, with a mix of organic and acquisitive growth

· The two recent acquisitions have expanded the Group's capabilities and routes to market, making the solution portfolio relevant to a wider audience

· Strategic steps and the momentum achieved in the second half of the last financial year underpins the Board's confidence in the outlook for the long-term prospects for the Group

STATUTORY EQUIVALENTS

A full reconciliation between adjusted and statutory profit before tax is contained within this statement. The largest item is the consistent add back of the non-cash amortisation of acquired intangible assets of £3.9m (2022: £4.0m). The largest variance, year on year, is a £0.8m exceptional non-recurring cost recorded within cost of sales associated with the interpretation of the six-month government Energy Bill Relief Scheme.

Reece Donovan, CEO commented,

"This has been another busy year at iomart for the full team. Together, we have generated good momentum across both the commercial and operational areas. A higher level of M&A activity has also been pleasing to see, with two acquisitions having been completed in the last ten months.

These acquisitions have expanded our capabilities and routes to market, making our solution portfolio relevant to a wider audience. The increase in the effectiveness of our sales activities, the operational improvements made, the resilience of our business model and our clear focus on execution gives us a stronger foundation on which to accelerate organic growth whilst making selective acquisitions."

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

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

³ Throughout this statement adjusted profit before tax, as disclosed on page 13, is profit before tax, amortisation charges on acquired intangible assets, share based payment charges, acquisition costs, accelerated write-off of arrangement fee on bank facility and exceptional non-recurring costs

⁴ Throughout this statement adjusted diluted earnings per share, as disclosed in note 7, is earnings per share before amortisation charges on acquired intangible assets, share based payment charges, acquisition costs, accelerated write off of arrangement fee on bank facility and exceptional non-recurring costs and the taxation effect of these /weighted average number of ordinary shares - diluted (as disclosed in note 7)

⁵ Net debt being outstanding bank loans, lease liabilities less cash and cash equivalents (as disclosed on page 15). Annualised EBITDA is the last 12 months of EBITDA for the year ended 31 March 2023

⁶ Cash conversion is calculated as cash flow from operations, as disclosed in the consolidated statement of cash flows, divided by adjusted EBITDA defined above

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

For further information:

iomart Group plc	Tel: 0141 931 6400
Reece Donovan, Chief Executive Officer
Scott Cunningham, Chief Financial Officer

Investec Bank PLC (Nominated Adviser and Broker)	Tel: 020 7597 4000
Patrick Robb, Virginia Bull, Nick Prowting

Alma PR	Tel: 020 3405 0205
Caroline Forde, Hilary Buchanan, Joe Pederzolli

About iomart Group plc

iomart Group plc (AIM: IOM) is a cloud computing and IT managed services business providing hybrid cloud infrastructure, network connectivity, security, and digital workplace capability. Our mission is simple: to make our customers unstoppable by enabling them to connect, secure and scale anywhere, anytime. From our portfolio of data centres we own and operate across the UK to connected sites around the world, our 470-strong team can design and deploy the right cloud solution for our customers.

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

CHAIR'S STATEMENT

In my first period as Chair, I am delighted to report on a year in which we have delivered a number of strategically important milestones, seen a return to organic revenue growth within cloud managed services and achieved financial results in line with market expectations⁴. We have reported record revenue in the year of £115.6m and continued to deliver high levels of profitability and cash generation.

It is clear to me that the market and iomart's position within it provide the platform to scale the business as a leading provider of secure hybrid cloud services. During the last 12 months, we have made good progress against this aim with strong momentum in order bookings, and a return of customer renewal levels to long-term average rates, providing a more solid base of recurring revenues. Behind the scenes, we have refreshed our full sales team under the guidance of the new sales leadership, simplified our internal service organisation and processes, and extended a number of our managed service offerings. We have successfully navigated the significant challenges in the energy market by ensuring additional costs have been appropriately passed through to the customer base. We also recommenced our M&A activities with the acquisition of Concepta Capital Limited ("Concepta") in August 2022, and subsequent to the year end, on 2 June 2023, we successfully completed the acquisition of Extrinsica Global Limited ("Extrinsica"), a Microsoft managed service provider.

Our iomart team are at the heart of these successes and I would like to thank them all for their hard work and commitment during the year. One of the strengths of the Group is the quality of its fantastic workforce. Investing in the workforce and their further development and support is one of the central tenets of our strategy.

After invaluable service to iomart, we have seen three of our Non-Executive Directors step down, with Ian Steele (previous Chair) standing down at the AGM, Andrew Taylor leaving the Board in December 2022, and Richard Masters notifying us of his intent to step down at the forthcoming AGM in September 2023. On behalf of everyone connected with the Group, I wish to thank them all for their valuable contribution to the development of iomart. We announced two new Independent Non-Executive Director appointments in May 2023. Annette Nabavi who joined the Board on 25 May 2023 and Adrian Chamberlain who joined the Board on 1 June 2023. Annette and Adrian bring different but very relevant skills and experience to the Board, and will be extremely valuable in helping guide the execution of our growth strategy.

During the year, we paid an interim dividend of 1.94p per share to shareholders in January 2023. In addition, the Board is now proposing to pay a final dividend of 3.50p per share taking the total for the year to 5.44p being at the maximum pay-out ratio under our stated dividend policy of paying up to 50% of adjusted diluted earnings per share. We believe this is appropriate given our funding position, robust business model and strength of our balance sheet. Subject to shareholder approval this proposed final dividend would be payable on 8 September 2023 to shareholders on the register at close on 18 August 2023.

The progress we have already seen in the delivery of our strategy and the continued solid financial performance gives me and the Board confidence in a bright future for iomart.

Lucy Dimes

Non-Executive Chair

13 June 2023

CHIEF EXECUTIVE OFFICER'S REPORT

Introduction

I am encouraged by the progress we have made during the year and pleased to be reporting financial results in line with market expectations⁴, delivering revenue of £115.6m (2022: £103.0m), adjusted EBITDA¹ of £36.2m (2022: £38.0m), adjusted profit before tax² of £14.8m (2022: £17.1m) and a statutory profit before tax of £8.5m (2022: £12.2m). We continue to benefit from the highly recurring nature of our business model, with 92% (2022: 93%) of revenue in the year recurring³.

The revenue of £115.6m is a record level for the Group and is a combination of a return to long-term historic customer renewal levels with organic revenue growth within our core cloud managed services offering, and inflationary pricing adjustments, primarily for data centre energy usage, plus the successful completion of the acquisition of Concepta in August 2022. The Group's adjusted EBITDA reflects both the revenue mix effect in the year, together with investment in upskilling our employees' capabilities, alongside appropriate wage increases and cost of living support. EBITDA margin percentage of 31.3% (2022: 36.9%) in the year was heavily impacted by the pass through of much increased energy costs and to a lesser extent the lower margin business within the Concepta acquisition, primarily from their reselling activities. The increase in the UK interest rates has pushed the Group's interest expense up by £0.9m year on year but the Group's cash generation continued to be strong, with the year-end net debt standing at £39.8m (2022: £41.3 million). This represents a comfortable net debt to adjusted EBITDA ratio of 1.1 times (2022: 1.1 times).

I am pleased by how we navigated through the unexpected challenges in the energy markets, which resulted in a £7m increase in the Group's electricity costs. iomart's robust business model and customer arrangements have ensured this additional energy cost has been appropriately passed through to the customer base. While electricity costs remain high, the energy markets appear less volatile as we enter the new financial year. We have a proactive hedging strategy in place for the next two years and expect this matter to be less of a distraction for our team and customers than we have experienced in the last 12 months.

At iomart, momentum and pace are important aspects for success. Following growth in our sales pipeline, we saw this translate to improved order booking levels in the second half of the year, with the last quarter order bookings being the highest quarter in the last two years. Year on year we have seen double digit order bookings growth within the cloud managed services area, which along with healthy customer renewal levels, provides a solid foundation for growth for the new financial year. The two acquisitions completed within a ten-month period fully support our drive to broaden our service offerings across the full hybrid cloud spectrum.

Strategy

Our strategic growth plan is focussed on three main activities:

· Protect and expand the existing base of run rate revenue and EBITDA which is underpinned by our existing core private cloud infrastructure and services;

· New services focused on four new service areas - hybrid cloud, cybersecurity, the future digital workplace and secure connectivity ensuring a complete suite of solutions and services to deliver a comprehensive secure hybrid cloud offering; and

· Complementary acquisitions - to expand the customer base and to acquire new skillsets

We have made good progress on all aspects of our strategic growth plan, and start the third year of this plan in an improved position as noted in each of the areas detailed below:

Sales & Marketing

In February 2022, we strengthened our commercial leadership with the appointment of our new Chief Sales Officer. Under his leadership, we have changed the structure of our sales organisation to underpin our growth strategy, and over the last 12 months replaced a large element of the team. We have made incremental investments in these changes but all within an agreed cost envelope. We completed most of this in the first half of the year and so we start the new financial year with a well-inducted and skilled team, with momentum and confidence building as order bookings increased during the second half.

We continue to believe that our existing large customer base represents a fertile sales ground for the Group and the continued broadening of our solutions offering increases our relevance to a wider pool of new customers.

New services

Our product team continue to evolve and develop new solution offerings. These are targeted at both new customers, and upselling and cross-selling to our existing customers. Activity in the last 12 months has included:

· Continued refinement of our Managed Microsoft Azure offering launched in prior year. Even though we targeted M&A to accelerate this area of the business, it was also important that we built some element of our own capabilities and strengthened our Microsoft relationship. We have continued to see steady growth in this area with wins from both existing and new customers. Extrinsica, our recent Microsoft Azure acquisition, will take the lead on adding significant engineering capability and expertise on Azure infrastructure design, deployment and management for our customers.

· In March 2022, we announced a new security partnership with cyber security specialists, e2e-assure, to deliver proactive 24/7 security operations centre services. The move into the security market has been a long-standing ambition of iomart and is a key part of the growth strategy. We now have five customers taking this service and they provide a strong reference base for further customer wins. Globally, cyber-attacks are on the rise and we now have a highly credible offering for customers to address this everyday threat. We will continue to look to expand this cyber portfolio, with a strong focus on Microsoft via internal developments, additional partnerships and potential M&A.

· During the year, we launched an enhanced, multi-tenanted cloud platform with the latest technology from VMware. This refreshes our virtual cloud offering with the latest cloud functionality, control and scalability. We are one of the few managed service providers globally to successfully implement this leading edge vendor technology. We see private cloud remaining as a core element of any hybrid cloud offering and we are leading the way on this.

All of these new products are designed with a 24/7 service capability, as it is the service support we offer our customers and our deep technical expertise which remains at the heart of our hybrid offering.

People and Systems

We have invested in a Learning Management System ("LMS") which supports our skills development programmes and employee engagement. This is an important step, as we strongly believe a continuous learning culture will underpin our future success. In a period of skills shortages, we believe, attracting, developing and retaining our talent is critical.

In the second half, we changed the structure of our executive management team with the role of COO split between a Chief Customer Officer ("CCO") and a Chief Technology Officer ("CTO"). As well as bringing focus, it also provides greater bandwidth on execution. We were able to promote internally for the CCO role and are pleased to have recruited externally an experienced CTO for the Group who joined us in late May 2023.

Enhancing the tooling and systems in the business is an evergreen task, allowing especially our customer facing staff to work efficiently and respond well to customer requests. We replaced our telephone system with a Teams based service in the year, and we continued to consolidate asset platforms and simplify our reporting. The working environment for our staff is also important and we have recently committed to a 10-year lease for a new Glasgow office. This will see us move from our existing premises into a Grade A office in the city centre enhancing the working environment for existing staff whilst also being positive for recruitment. This was achieved without any significant cost increase.

M&A

As in the past and as reconfirmed in our strategy communications we plan to use selective M&A to augment our organic growth. It was pleasing to see a high level of activity in this area with the acquisition of Concepta in August 2022, and subsequent to the year-end, on 2 June 2023, we successfully completed the acquisition of Extrinsica, a Microsoft Azure managed service provider. We will maintain our structured and disciplined approach to M&A and remain active in evaluation of potential targets.

Market

Macroeconomic headlines such as double-digit inflation, rising debt costs, and a cost-of-living crisis, coupled with geo-political uncertainties, form a challenging backdrop for many of our customers and their planned spending levels. However, we do have the benefit of a very wide and varied customer base with no significant sector or single customer concentration, which provides some natural portfolio protection. While iomart will not be immune to this economic backdrop, the requirement for organisations to be supported on their hybrid cloud journey will continue to grow for the foreseeable future. Providing excellent customer service and deep technical expertise, related to the cloud infrastructure that is managing mission critical applications for our customers, also supports our view of sustainable growth over the medium term.

The concept of "Cloud" computing is now globally recognised across all market segments. The "public cloud" giants such as Amazon, Microsoft and Google have vastly contributed to this general awareness and consequently have seen high growth globally as many organisations look for Cloud infrastructure and capabilities. The reality of the situation is that a vast majority of the world's IT infrastructure is complex and untidy in nature which means hybrid cloud models will remain a key market feature for many use cases and many years to come. Even if businesses want to use Public Cloud infrastructure fully, many lack the detailed know-how, skills and resources required to manage all the elements. iomart is well positioned to meet this demand given our long-established capability in designing and running private clouds, supporting on-premise solutions, and with the recent acquisition of Extrinsica adding skills and capabilities for public cloud provisioning and ongoing management.

With the insatiable growth in data across all industries, the demand for the three core building blocks of compute power, storage and connectivity continues to rise. Organisations are increasingly outsourcing these requirements to experts, who can help them navigate a constantly evolving and complex technical landscape, providing high levels of reliability, customer support, flexibility, and technical know-how. These requirements increasingly come with greater security and compliance needs, particularly around data storage, protection, and transit.

No two organisations are the same, and therefore the cloud solution mix in the future will be unique and reflect the needs of an organisation at that time, especially for those organisations that are running established applications that are not public cloud compatible. Many customers are looking for a single point of accountability for all their cloud needs and iomart is well positioned to provide this service going forward, particularly for medium to large enterprises.

Commitment to ESG and sustainability

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

Environmental

Last year, we worked on establishing carbon reduction targets and identifying ways to reduce further our overall emissions as we work towards achieving carbon neutrality. This concluded with an alignment with the UK Government targets and a commitment to achieve Net Zero by 2050, or earlier, if possible. We commenced purchasing Renewable Energy Guarantees of Origin ("REGO") certified renewable electricity across our UK data centre estate in 2021, which significantly reduces our carbon emissions. As this has been in place for the whole of the financial year, this takes a significant step towards our commitment to Net Zero. We continue to look at ways to increase the energy efficiency across our UK data centre estate, and have therefore have accelerated upgrades to our battery power systems.

Social

We have undertaken a number of initiatives for our own staff wellbeing and engagement including:

· Winter cost of living allowance payments made to staff at a total cost of around £0.4m

· Launch of a learning management system '"iosmart" to support a learning culture and our skills development programmes

· Manager fundamental training completed by all managers, and completion of a leadership development programme across the Group

· UK Wide HR Roadshows held to enhance employee engagement

We have also implemented a number of external facing initiatives, the key activities being:

· Continuing to partner with local charities that align with our brand focus and employees' interests, such as SmartSTEMs and Scotland's Empowering Women to Lead Cyber Security and Digital Transformation leadership programmes

· Partnered with Generation, a charity that supports IT education to employment of people from disadvantaged socioeconomic backgrounds

· Sponsorship of Scotland IS digital technology awards

Governance

In August 2022, we saw the appointment of Lucy Dimes, our new Chair. In addition, in May 2023 we announced we would be appointing two new Independent Non-Executive Directors who bring significant sector experience to the Board to support and guide our growth strategy.

After the appointment of an external third party to lead an outsourced internal audit function, there has been an appropriate full year's worth of engagement, which has been well received by the business. In February 2023, we announced the appointment of Investec as the Company's Nominated Adviser replacing the incumbent who had been in place since our IPO.

Acquisitions

On 15 August 2022, we successfully completed and announced the first acquisition under our refreshed strategy, acquiring Concepta, a holding company for the ORIIUM and Pavilion IT brands, for an initial cash consideration of £10.8m with the potential of a further £4.0m contingent earn-out payment based on profitability for the 12-months ending 30 June 2023. It is expected, based on the current forecast that this maximum earn-out will be paid in July 2023. We also repaid £1.5m of bank debt acquired on completion. The Concepta Group consists of two brands:

· ORIIUM, established in 2007, is a channel-only organisation working with value added resellers and managed service providers to deliver best in class data and application management solutions to end users. With this acquisition, iomart gained an independent wholesale operation that understands the UK IT channel deeply, and has built trust through long-standing strategic partner relationships. Data management is a core element of the Group's hybrid cloud proposition, and ORIIUM materially strengthens iomart's indirect sales channel capabilities, while extending the Group's product and technical skills and capabilities, with an additional 45 technical engineers who joined the Group.

· Pavilion IT, a business established for over 30 years, which also includes the 2021 acquisition of P2 Technologies, a business focused on the legal & accounting professional services sector which added customer vertical specialisation. This brand has a strong direct sales organisation with over 250 customers under one unified operational delivery team offering a range of hybrid and cloud infrastructure technology solutions plus professional services and on-going customer support arrangements.

As announced on 5 June 2023, subsequent to our year-end, we completed the acquisition of Extrinsica, for an initial consideration of £4.0m, with a potential further £0.3m in cash payable on the achievement of certain key customer targets during the calendar year. Of the initial consideration, £2m was satisfied by the issue of 1,562,500 new ordinary shares in iomart, which under the terms of the Sale and Purchase Agreement are subject to a 12 month "lock in" provision and based on a fixed share price of £1.28, being the volume weighted average price for the 90 days prior to completion. The balance of £2.0m was paid in cash. We also repaid £3.7m of debt acquired on completion. A further £4.0m to £7.0m of contingent earn-out payments is included in the share purchase agreement based on the profitability for the 12 months ending 31 March 2024. Of any earn-out payment that becomes due, £1.0m will be satisfied by the issue of iomart shares (the number of shares to be issued will be based on the same share price as the initial consideration). The amount of contingent consideration payable, based on management's forecast, recognised at the date of the Acquisition, is expected to be £4.0m.

Extrinsica is a Microsoft Azure Cloud solution services provider with offerings including managed Azure Cloud, Azure solution design and implementation services, support & optimisation services and licencing. The company was incorporated in 2010 as a Cloud services provider to micro businesses. It was in 2017 that its current business model was established when it was invited by Microsoft to become one of the first 25 Microsoft Azure CSP partners worldwide. It is now solely Azure public Cloud-focused. This acquisition provides iomart with deep Microsoft Azure expertise, a highly capable team of 33 based in the UK, strong customer references and a shared value and vision for how the Microsoft Practice in iomart should be shaped to support acceleration of growth. Prior to our acquisition, Extrinsica generated revenues of £7.4m, being year on year growth of c.40%, and EBITDA of £0.1m (unaudited).

Operational Review

While all of our activities involve the provision of services from common infrastructure, we are organised into two operating segments, Cloud Services (£103.9m revenue) and Easyspace (£11.7m revenue).

Cloud Services

Within our Cloud Services division, we have three core offerings that recognise the differing complexity of the solutions designed and the level of ongoing managed services we provide being: iomart cloud managed services, self-managed infrastructure and non-recurring revenue. This means we can supply products and services across the full cloud spectrum and do so using shared resources and common platforms across the Group.

· iomart cloud managed services: £64.1m revenue (2022: £55.7m): provides fully managed, complex bespoke designs, resulting in resilient solutions involving differing infrastructures. This has a wide range of offering across the full cloud spectrum from simpler colocation data centre services to a full 24/7 managed service complemented by our back-up and disaster recovery offering. Over the long-term we anticipate this will be the highest growth area for iomart, supported by the market drivers described above. This is the part of the business on which new product service launches are focused because we believe provision of managed service is what organisations are looking for to support their business objectives and that we are well placed to offer.

· Self-managed infrastructure: £30.4m revenue (2022: £28.4m): provides dedicated, physical, self-service servers to customers. We deliver many thousands of physical servers for our customers using highly automated systems and processes which we continue to develop and improve. Our own regional data centre estate and fibre network positions us well to offer such infrastructure as a service. It is generally recognised that this activity is a lower growth area within the cloud market but continues to offer a cost competitive solution for many customer use cases and for those who have retained their own IT skills.

· Non-recurring revenue: £9.4m (2022: £7.1m): relates primarily to on-premise equipment and software reselling via our Cristie Data and Pavilion IT brands, as well as consultancy projects. By their nature this activity is lower margin but we believe it to be relevant to our ability to offer support to our existing customer base and new customer wins. It is often these non-recurring activities that provide an interesting initial introduction to the wider Group and evolve customers into a higher level of recurring services.

During the year ended 31 March 2023, Cloud Services revenues increased by £12.7m (14%) to £103.9m (2022: £91.2m). This included £6.2m of revenue for the 7.5 months of trading from the Concepta acquisition completed on the 15 August 2022, split 50/50 between recurring and non-recurring revenue.

Our recurring revenue saw the largest increase being £10.4m to £94.5m (2022: £84.1m), with the largest area being from our core cloud managed services. This is a combination of a return to long-term historic customer renewal levels, inflationary pricing adjustments, primarily for data centre energy usage, plus the successful completion of the acquisition of Concepta. The data centre sector has had to navigate the significant challenges in the energy markets and during the year the Group's electricity costs increased by approximately £7 million. iomart's robust business model and customer arrangements have ensured this additional energy cost has been appropriately passed through to the customer base.

Non-recurring revenues increased by £2.3m (31%) to £9.4m (2022: £7.1m) which include £3.1m of non-recurring revenue from the Concepta acquisition in August 2022, primarily the Pavilion IT brand. The underlying reduction in non-recurring revenue was £0.8m all of which arose in the first half of the year. The economic situation in some of our customer base has slowed down hardware refresh activity, but we are reviewing our specific product proposition to ensure it avoids the more commoditised areas, matches our deeper skills, for example in data management, and at the same time create a greater likelihood that such customers would, over time, move to iomart's core recurring services.

Cloud Services EBITDA (before share based payments, acquisition costs, central group overheads and non-recurring exceptionals) was £35.3m being 34.0% of cloud services revenue (2022: £36.6m (40.2% of cloud services revenue)). The reduction of £1.3m in Cloud Services EBITDA is a combination of many moving parts, including timing and pass through nature of costs associated with the inflationary environment, additional investment in upskilling our employees' capabilities, alongside appropriate wage increases and cost of living support, and the lower EBIDTA margin which also comes with lower CAPEX needs of some of our new offerings in comparison to the self-managed infrastructure-only deals of earlier years.

Easyspace

The global domain name and mass market hosting sector continues to grow, supported by the increasing importance of an internet presence and ecommerce for all areas of the economy, including the small and micro business community represented within our Easyspace division. This sector is increasingly dominated by a smaller number of large global operators and we recognised a long time ago that the marketing spends required to compete for new business in this specific area was not the best use of iomart's resources. The Easyspace segment has performed well during the year, delivering revenues and EBITDA (before share based payments, acquisition costs and central group overheads) of £11.7m (2022: £11.8m) and £5.6m (2022: £5.7m), respectively.

Infrastructure investment and energy pricing

Our UK-owned infrastructure is an important aspect of the delivery of our recurring revenue services and a critical differentiator in the market, allowing more of the value-add to be retained by iomart. We have a well-maintained data centre estate as this is core to ensuring a resilient service.

The data centre sector has had to navigate the significant challenges in the energy markets and during the year the Group's electricity costs increased by approximately £7 million. iomart's robust business model and customer arrangements have ensured this additional energy cost has been appropriately passed through to the customer base. While electricity costs remain high, the energy markets appear less volatile as we enter the new financial year. We have a proactive hedging strategy in place for the next two years and expect this matter to be less of a distraction for our team and customers going forward.

During the year we re-contracted our core UK fibre network. This refreshes the resilient network that securely connects our data centres, with the implementation to be undertaken during the course of 2023. We had already commenced the upgrade to our uninterruptible power systems ("UPS") in our core data centres last year. However, given the increase in energy costs we have accelerated this as the new systems offer improved energy efficiencies. Towards the end of the year, we closed our Dunsfold data centre, which had been included in the Memset acquisition of 2020. This was one of our smaller regional UK data centres. Our two largest data centres in Maidenhead and central London account for around half of our UK capacity. We will continue to look for areas to consolidate over the medium to longer term without affecting any customer needs.

Current trading and outlook

Current trading in the first two months of the new financial year are in line with internal expectations, reporting revenues ahead of the equivalent prior period, with a mix of organic and acquisitive growth.

While iomart will not be immune to any potential economic volatility in the UK and beyond, the requirement for organisations to be supported on their hybrid cloud journey will continue to grow for the foreseeable future. We support customers with their cloud infrastructure needs, around often mission critical applications, and the increasing complexity of the technical landscape will continue to see customers look for partners who can provide the solutions, capabilities, expertise and experience across the entire cloud ecosystem.

The two recent acquisitions have expanded our capabilities and routes to market, making our solution portfolio more relevant to a wider audience. The increase in the effectiveness of our sales activities, operational improvements made, and our clear focus on execution gives us a stronger foundation to accelerate growth. These factors and the momentum achieved in the second half of the last financial year underpins the Board's confidence in the outlook for the long-term prospects for the Group.

Reece Donovan

Chief Executive Officer

13 June 2023

Definition of alternative performance measures:

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

² Throughout these financial statements adjusted profit before tax (disclosed on page 11) is profit before tax, amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs, accelerated write off of arrangement fee on bank facility and exceptional non-recurring costs

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

⁴ Market expectations based on known sell-side analyst estimates for the full year ended 31 March 2023, established in or around 11 October 2022

CHIEF FINANCIAL OFFICER'S REPORT

Financial Review

Key Performance Indicators

	2023	2022
Revenue	£115.6m	£103.0m
% of recurring revenue¹	92%	93%
Gross profit %²	55.0%	59.5%
Adjusted EBITDA³	£36.2m	£38.0m
Adjusted EBITDA margin %⁴	31.3%	36.9%
Adjusted profit before tax⁵	£14.8m	£17.1m
Adjusted profit before tax margin %⁶	12.8%	16.6%
Profit before tax	£8.5m	£12.2m
Profit before tax margin %⁷	7.4%	11.8%
Basic earnings per share	6.4p	8.6p
Adjusted earnings per share (diluted) ⁸	10.9p	12.0p
Cash flow from operations / Adjusted EBITDA %⁹	94%	100%
Net debt / Adjusted EBITDA leverage ratio¹⁰	1.1	1.1

See page 16 for definition of alternative performance measures

Revenue

Overall revenue from our operations increased by 12% to £115.6m (2022: £103.0m).

We saw a consistent share of recurring revenue at 92% (2022: 93%) compared to prior years. We remain focussed on retaining our recurring revenue business model with the combination of multi-year contracts and payments in advance providing us with good revenue visibility.

Cloud Services

The following is the disaggregation of Cloud Services revenues of £103.9m (2022: £91.2m):

Disaggregation of Cloud Services revenue	2023 £'000	2022 £'000
Cloud managed services	64,115	55,745
Self-managed infrastructure	30,444	28,363
Non-recurring revenue	9,359	7,128
	103,918	91,236

Cloud managed services (recurring revenue)

The recurring revenue within cloud managed services increased strongly by £8.4m or 15% to £64.1m (2022: £55.7m). This was driven by return to organic growth aided by customer renewal levels returning to long-term historic averages, the Concepta acquisition (mainly the ORIIUM brand) contributing £3.1m and our managed service customers taking around half of the additional pricing adjustments for the energy cost increase given their services are underpinned by data centre services and availability. The customers within the self-managed infrastructure area received the balance of the energy pricing adjustments.

Self-managed infrastructure (recurring revenue)

The self-managed infrastructure revenue of £30.4m (2022: £28.4m) increased by £2.1m. This is a combination of a reduction in the number of our long tail of smaller customers, more than offset by energy price rises passed onto customers, which are more energy intensive within this area, plus higher new order bookings from an internal sales team established to retain dedicated focus on this area. We will continue to allocate resources to ensure we provide this customer base with resilient, cost effective and increasingly automated solutions.

Non-recurring revenue

Non-recurring revenue of £9.4m (2022: £7.1m) relates primarily to on premise product and licence reselling plus consultancy projects. Often these non-recurring activities provide an interesting initial introduction to the wider iomart Group and customers evolve into a higher level of recurring services. The Concepta acquisition in August 2022 included the Pavilion IT brand, which primarily undertakes similar reselling and professional services activity. This added £3.1m of non-recurring revenue post acquisition, meaning excluding acquisition impact, the underlying reduction in non-recurring revenue was £0.8m that arose in the first half of the year. The economic situation in some of our customer base has slowed down hardware refresh activity.

Easyspace

Our Easyspace segment has performed well over the year with revenues remaining broadly consistent at £11.7m (2022: £11.8m). The domain name and web hosting business is an area in which we do not invest heavily but it was pleasing to see a solid performance with high level of renewals from our base of c.60,000 customers. The activity remains highly profitable and cash generative.

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 and other assets that are necessary to create the IT infrastructure they require. These resources, along with the associated staff, are shared across most of our revenue streams. Customers pay us for the provision of that infrastructure, with the potential to add 3^rd party technology and various degrees of 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 significant proportion of our revenue is therefore recurring and the combination of multi-year contracts and payment in advance provides us with strong revenue visibility.

Gross Profit

Gross profit in the year, which is calculated by deducting from revenue variable cost of sales such as power, software licences, connectivity charges, domain costs, public cloud costs, sales commission, the relatively fixed costs of operating our data centres plus, for non-recurring revenue, the cost of hardware and software sold, increased by £2.3m to £63.6m (2022: £61.3m). In percentage terms, gross margin² is down on prior year at 55.0% (2022: 59.5%) being heavily impacted by the pass through of energy costs and to a lesser extent lower margin within the Concepta acquisition, primarily from their reselling activities. In addition as expected given the scope of the service, we typically see lower gross margin levels on some of the new business won compared to margins from some of the self-managed infrastructure only deals of earlier years.

Adjusted EBITDA³

The Group's adjusted EBITDA reduced by £1.8m to £36.2m (2022: £38.0m) which in adjusted EBITDA margin⁴ terms translates to 31.3% (2022: 36.9%). The administration expense (before depreciation, amortisation, share based payment charges, acquisition costs and exceptional non-recurring costs) of £27.4m (2022: £23.3m) is £4.1m higher than the previous year comparative. However, this includes £1.9m of administrative expenses from the Concepta acquisition meaning the underlying increase in administrative expenses is limited to £2.2m or 9%. Of this increase our annual salary award, staff winter cost of living allowance payment and national insurance levy accounts for around half. Year on year average headcount levels were broadly flat although iomart is employing a higher skilled workforce.

The Cloud Services segment saw a 3.6% reduction in adjusted EBITDA to £35.3m (2022: £36.6m). In percentage terms the Cloud Services margin decreased to 34.0% (2022: 40.2%) for the reasons noted earlier. The Easyspace segment's adjusted EBITDA was £5.6m (2022: £5.7m) reflecting the stable revenue performance in the year, which in percentage terms was again stable at 48.1% (2022: 48.2%).

Group overheads increased by £0.5m in the year to £4.8m (2022: £4.3m). 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 tax⁵

The depreciation charge of £15.9m (2022: £16.3m) fell by £0.4m in the year and as a percentage of recurring revenue is 15.0% (2022: 17.0%), driven by the profile and drivers of the higher recurring revenue in the year.

The charge for amortisation of intangibles, excluding amortisation of intangible assets resulting from acquisitions ("amortisation of acquired intangible assets"), of £2.6m (2022: £2.6m) is consistent year on year.

Finance costs of £2.9m (2022: £2.1m) has increased year on year due to the higher SONIA interest rate. Our revolving credit facility has a borrowing cost at the Group's current leverage levels of 180 basis points over SONIA.

After deducting the charges for depreciation, amortisation (excluding the charges for the amortisation of acquired intangible assets), exceptional non-recurring costs and finance costs from the adjusted EBITDA, the Group's adjusted profit before tax reduced to £14.8m (2022: £17.1m), representing an adjusted profit before tax margin⁶ of 12.8% (2022: 16.6%).

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	2023 £'000	2022 £'000
Adjusted profit before tax⁵	14,820	17,109
Less: Amortisation of acquired intangible assets	(3,880)	(4,044)
Less: Acquisition costs	(922)	(315)
Less: Share-based payments	(696)	(480)
Less: Accelerated write off of arrangement fee on bank facility	-	(102)
Less: Cost of sales - exceptional non-recurring costs	(820)	-
Profit before tax	8,502	12,168

The adjusting items in the current year are:

· charges for the amortisation of acquired intangible assets of £3.9m (2022: £4.0m);

· acquisition costs of £0.9m (2022: £0.3m) which includes a mainly non-cash charge of £0.6m in respect of the closure of our Memset Dunsfold data centre;

· share-based payment charges of £0.7m (2022: £0.5m) driven by a higher number of options lapsing in the prior year driving a lower charge; and

· exceptional non-recurring costs of sales of £0.8m which is explained below.

On 1 October 2022, iomart entered into a new three-year electricity utility supply agreement, a new hedging arrangement and participated in the Energy Bill Relief Scheme ("EBRS"). All of this was undertaken in conjunction with our long established energy consultant and broker. Around November 2022, we instigated an energy price increase across the bulk of our customer base. The basis of this price increase was the cost information we received from our energy consultant and broker. However, in March 2023 our energy consultant and broker identified an error in the previously advised fixed commodity charge due to a wrong interpretation by them of when the EBRS discount is applied within the charging regime. This meant that rather than a timing aspect only, there was a £0.8m cost impact for the 6 months to 31 March 2023. Given the timing of this notification from our energy consultant and broker we are not in a position to recover such sums from our customer base via our contractual mechanisms. We believe if we had been aware of this item we would have successfully passed this onto customers in the November 2022 exercise. As the error relates to interpretation of the EBRS then the matter does not affect financial planning for the period from April 2023 onwards. On this basis, we believe the item is exceptional and non-recurring in nature and requires to be drawn out separately to ensure a more meaningful understanding of the financial performance in the year.

After deducting these items from the adjusted profit before tax, the reported profit before tax was £8.5m (2022: £12.2m). In percentage terms the profit before tax margin⁷ was a decrease to 7.4% (2022: 11.8%) driven by the exceptional non-recurring costs and acquisition costs in the year and the impact of the lower trading result in the year.

Taxation

The tax charge for the year is £1.5m (2022: £2.8m). The tax charge for the year is made up of a corporation tax charge of £0.9m (2022: £1.1m) with a deferred tax charge of £0.6m (2022: £1.7m). The effective rate of tax for the year is 18% (2022: 23%). The future increase to a 25% UK corporation tax rate was applied to deferred tax balances in the prior year driving a higher effective tax rate in the prior year. The decrease in the effective tax rate for the year is a function of the greater impact from the tax accounting on share based payments in the prior year offset partially by the positive effect of the higher "super deduction" available for capital investments in the current year. Given iomart is very much a UK business then the UK headline corporate tax is still considered a reasonable recurring effective tax rate for underlying profits. Further explanation of the tax charge for the year is given in note 4.

Profit for the year

After deducting the tax charge for the year from the profit before tax the Group has recorded a profit for the year of £7.0m (2022: £9.4m).

Earnings per share

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

Basic earnings per share from continuing operations was 6.4p (2022: 8.6p), a reduction of 25.6%.

Adjusted diluted earnings per share⁸, based on profit for the year attributed to ordinary shareholders before amortisation charges of acquired intangible assets, acquisition costs, share-based payment charges, exceptional non-recurring costs, and the tax effect of these items was 10.9p (2022: 12.0p), a reduction of 9.2%.

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.

Dividends

Our dividend policy, which has been in place for several years now, is based on the profitability of the business in the period measured with reference to the adjusted diluted earnings per share we deliver in a financial year. For the last few years we have been paying dividends at the maximum level allowed by our stated policy. The current policy is a maximum pay-out policy of 50% of adjusted diluted earnings per share. The Directors are proposing a final dividend of 3.50p (2022: 3.60p) which is at maximum level set by the dividend policy which we believe is fully appropriate given the recurring revenue nature of the Group, the level of operating cash which we deliver and the low level of indebtedness within the Group. As a result, along with the interim dividend of 1.94p (2022: 2.42p), which was paid in January 2023, the total dividend for the year is 5.44p (2022: 6.02p), a reduction reflecting the movement in the adjusted diluted earnings per share.

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 £33.8m (2022: £37.9m) which represents a 94% conversion⁹ of adjusted EBITDA (2022: 100%). The metric in the current year is somewhat distorted by the cash element of the non-recurring adjusting items of around £0.8m which if excluded from cash flow from operations would result in a conversion ratio of 96%.

Cash payments for corporation tax in the year were limited (2022: £2.5m), due to overpayments from prior years which could be offset against our quarterly instalments and we received a tax refund resulting in a small tax inflow of £48,000, resulting in net cash flow from operating activities in the year of £33.9m (2022: £35.4m).

Cash flow from investing activities

Our strategy is to continue to reinvest some of the strong operating cash flow we generate back into the business both in the form of internal investments into our UK infrastructure but also in the continuation of our disciplined acquisition strategy. The Group invested a total of £21.2m (2022: £10.2m) during the year. In the current year, we paid equity consideration on the Concepta acquisition, paid associated professional services fees that combined with the cash acquired, results in a £10.3m net outflow. There were no payments made concerning M&A activity in the prior 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 £8.9m (2022: £9.5m) on assets. Most of the expenditure in the year was on operational items such as servers and storage to support customer deployments.

Expenditure was also incurred on development costs of £1.9m (2022: £1.4m) and on intangible assets of £0.1m (2022: £0.1m).

Cash flow from financing activities

In the current year, loan drawdowns of £10.4m (2022: £nil) were made from the revolving credit facility to support the initial equity consideration for the Concepta acquisition. We also repaid £1.5m of bank debt acquired from Concepta at completion.

Bank loan repayments of £10m (2022: £18.8m) were made in the year resulting in a closing drawn bank loan of £34.4m (2022: £34.0m). Cash received in the year from issue of shares was only £5k (2022: £4k). We also made dividend payments of £6.1m (2022: £7.6m); paid finance costs of £2.2m (2022: £2.1m) which included £0.2m of arrangement fees associated with the extension options taken within the bank facility and made lease repayments of £4.9.m (2022: £4.4m).

Net cash flow

As a consequence of the above component elements and especially the payments associated with the acquisition in the year, our overall cash position was an outflow of £1.5m (2022: £7.7m outflow) which resulted in cash and cash equivalent balances at the end of the year of £13.8m (2022: £15.3m).

Net Debt

The net debt position of the Group at the end of the year was £39.8m (2022: £41.3m) as shown below. The net debt position represents a multiple of 1.1 times¹⁰ our adjusted EBITDA (2022: 1.1 times) which we believe is a comfortable level of debt to carry given the recurring revenue business model and strong cash generation in the business.

	2023 £'000	2022 £'000
Bank revolver loan	34,400	34,000
Lease liabilities	19,180	22,623
Less: cash and cash equivalents	(13,818)	(15,332)
Net Debt	39,762	41,291

The Group has access to a £100m Revolving Credit Facility ("RCF") provided by a banking group consisting of HSBC, Royal Bank of Scotland, Bank of Ireland and Clydesdale Bank, that now matures on 30 June 2026 (2022: 30 June 2025), which also benefits from a £50m Accordion Facility. On 17 November 2022, the lenders approved the Group enactment of the extension option. The RCF has a borrowing cost at the Group's current leverage levels of 180 basis points over SONIA.

The decrease in the lease liability to £19.2m (2022: £22.6m) reflects expected payments on property arrangements and that there were no material revisions to existing leases.

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. 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

13 June 2023

Definition of alternative performance measures:

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

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

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

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

⁵ Adjusted profit before tax (as disclosed on page 11) is profit before tax, amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs, accelerated write off of arrangements fee on bank facility and exceptional non-recurring costs.

⁶ Adjusted profit before tax margin % is defined as adjusted profit before tax (as disclosed on page 11) / Revenue (as disclosed in the consolidated statement of comprehensive income) as a %

⁷ Profit before tax margin % is defined as Profit before Tax / Revenue (both as disclosed in the consolidated statement of comprehensive income) as a %

⁸ Adjusted diluted earnings per share is earnings before amortisation charges on acquired intangible assets, share-based payment charges, acquisition costs, accelerated write off of arrangement fee on bank facility and exceptional non-recurring costs and the tax impact of adjusted items /weighted average number of ordinary shares - diluted (as disclosed in note 7)

⁹ Cash flow from operations / Adjusted EBITDA % is defined as cash flow from operations (as disclosed in the consolidated statement of cash flows) / Adjusted EBITDA (as disclosed in the consolidated statement of comprehensive income) as a %

¹⁰ Net debt / Adjusted EBIDTA level ratio is defined as Net Debt (as disclosed on page 15) / Adjusted EBITDA (as disclosed in the consolidated statement of comprehensive income)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 MARCH 2023

	Note	2023 £'000	2022 £'000
Revenue	3	115,638	103,018

Cost of sales		(52,080)	(41,712)

Gross profit		63,558	61,306

Administrative expenses		(52,141)	(47,076)


Operating profit		11,417	14,230

Analysed as:
Earnings before interest, tax, depreciation, amortisation, acquisition costs, share-based payments and exceptional non-recurring costs		36,161	38,009
Share-based payments		(696)	(480)
Acquisition costs		(922)	(315)
Cost of sales- exceptional non-recurring costs		(820)	-
Depreciation	9	(15,861)	(16,296)
Amortisation - acquired intangible assets	8	(3,880)	(4,044)
Amortisation - other intangible assets	8	(2,565)	(2,644)


Finance costs		(2,915)	(2,062)

Profit before taxation		8,502	12,168

Taxation	4	(1,507)	(2,772)

Profit for the year attributable to equity holders of the parent		6,995	9,396


Other comprehensive income

Amounts which may be reclassified to profit or loss
Currency translation differences		60	30
Other comprehensive income for the year		60	30

Total comprehensive income for the year attributable to equity holders of the parent		7,055	9,426



Basic and diluted earnings per share
Basic earnings per share	7	6.4p	8.6p
Diluted earnings per share	7	6.2p	8.4p

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2023

		2023	2022
		2023	2022
	Note	£'000	£'000
ASSETS
Non-current assets
Intangible assets - goodwill	8	99,950	86,479
Intangible assets - other	8	12,981	12,852
Trade and other receivables		177	531
Property, plant and equipment	9	64,959	70,893
		178,067	170,755
Current assets
Cash and cash equivalents		13,818	15,332
Trade and other receivables		25,804	20,592
Current tax asset		987	1,658
		40,609	37,582

Total assets		218,676	208,337

LIABILITIES
Non-current liabilities
Trade and other payables		(2,666)	(2,643)
Non-current borrowings	10	(50,203)	(53,063)
Provisions		(2,755)	(2,438)
Deferred tax	5	(3,221)	(1,510)
		(58,845)	(59,654)
Current liabilities
Contingent consideration due on acquisitions		(4,000)	-
Trade and other payables		(31,898)	(26,232)
Current borrowings	10	(3,377)	(3,560)
		(39,275)	(29,792)

Total liabilities		(98,120)	(89,446)

Net assets		120,556	118,891

EQUITY
Share capital		1,106	1,101
Own shares		(70)	(70)
Capital redemption reserve		1,200	1,200
Share premium		22,495	22,495
Merger reserve		4,983	4,983
Foreign currency translation reserve		46	(14)
Retained earnings		90,796	89,196

Total equity		120,556	118,891

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED 31 MARCH 2023

	Note	2023 £'000	2022 £'000

Profit before taxation		8,502	12,168
Finance costs - net		2,915	2,062
Depreciation	9	16,492	16,296
Amortisation	8	6,445	6,688
Share-based payments		696	480
Gain on disposal of property		-	(338)
Movement in trade receivables		(3,256)	3,257 3,257
Movement in trade payables		2,045	(2,702)
Cash flow from operations		33,839	37,911
Taxation received/(paid)		48	(2,455)
Net cash flow from operating activities		33,887	35,456

Cash flow from investing activities
Purchase of property, plant and equipment	9	(8,918)	(9,492)
Proceeds received from disposal of property, plant and equipment		-	700
Development costs	8	(1,887)	(1,352)
Purchase of intangible assets	8	(44)	(91)
Payment for current period acquisitions net of cash acquired		(10,307)	-
Net cash used in investing activities		(21,156)	(10,235)

Cash flow from financing activities
Issue of shares		5	4
Drawdown of bank loans		10,400	-
Payments under lease liabilities	11	(4,902)	(4,410)
Repayment of bank loans		(10,000)	(18,840)
Repayment of debt acquired on acquisition		(1,508)	-
Finance costs paid		(1,900)	(1,100)
Refinancing costs paid		(249)	(990)
Dividends paid		(6,091)	(7,591)
Net cash used in financing activities		(14,245)	(32,927)

Net decrease in cash and cash equivalents		(1,514)	(7,706)

Cash and cash equivalents at the beginning of the year		15,332	23,038

Cash and cash equivalents at the end of the year		13,818	15,332

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 MARCH 2023

		Share capital	Own shares EBT	Foreign currency translation reserve	Capital redemption reserve	Share premium account	Merger reserve	Retained earnings	Total
	Note	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000

Balance at 1 April 2021		1,097	(70)	(44)	1,200	22,495	4,983	86,911	116,572

Profit for the year		-	-	-	-	-	-	9,396	9,396
Currency translation differences		-	-	30	-	-	-	-	30
Total comprehensive income		-	-	30	-	-	-	9,396	9,426

Dividends - final (paid)		-	-	-	-	-	-	(4,931)	(4,931)
Dividends - interim (paid)		-	-	-	-	-	-	(2,660)	(2,660)
Share-based payments		-	-	-	-	-	-	480	480
Issue of share capital		4	-	-	-	-	-	-	4
Total transactions with owners		4	-	-	-	-	-	(7,111)	(7,107)

Balance at 31 March 2022		1,101	(70)	(14)	1,200	22,495	4,983	89,196	118,891


Profit for the year		-	-	-	-	-	-	6,995	6,995
Currency translation differences		-	-	60	-	-	-	-	60
Total comprehensive income		-	-	60	-	-	-	6,995	7,055

Dividends - final (paid)		-	-	-	-	-	-	(3,957)	(3,957)
Dividends - interim (paid)		-	-	-	-	-	-	(2,134)	(2,134)
Share-based payments		-	-	-	-	-	-	696	696
Issue of share capital		5	-	-	-	-	-	-	5
Total transactions with owners		5	-	-	-	-	-	(5,395)	(5,390)

Balance at 31 March 2023		1,106	(70)	46	1,200	22,495	4,983	90,796	120,556

NOTES TO THE FINANCIAL INFORMATION

YEAR ENDED 31 MARCH 2023

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.

2. ACCOUNTING POLICIES

Basis of preparation

The financial information set out in the announcement does not constitute the Group's statutory accounts for the years ended 31 March 2023 and 31 March 2022 within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 March 2022 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 2023 is derived from the statutory accounts for that year which were approved by the Directors on 13 June 2023. The statutory accounts for the year ended 31 March 2023 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors reported on those accounts; their report was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

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

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

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

There are no new accounting policies applied in the year ended 31 March 2023 which have had a material effect on these accounts. In addition, the Directors do not consider that the adoption of new and revised standards and interpretations issued by the IASB in 2021 has had any material impact on the financial statements of the Group.

3. sEGMENTAL ANALYSIS

The Chief Operating Decision-Maker has been identified as the Chief Executive Officer ("CEO") of the Company. The Group has two operating segments and the CEO reviews the Group's internal reporting which recognises these two segments in order to assess performance and to allocate resources. The Group has determined its reportable segments are also its operating segments based on these reports.

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

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

· Cloud Services - this segment provides managed cloud computing facilities and services, through a network of owned data centres, to the larger SME and corporate markets. The segment uses several routes to market including iomart Cloud, Infrastructure as a Service (IaaS), Rapidswitch, Cristie Data, Sonassi, LDeX, Bytemark, Memset, ORIIUM, Pavilion IT and P2.

Information regarding the operation of the reportable segments is included below. The CEO assesses the performance of the operating segments based on revenue and a measure of earnings before interest, tax, depreciation and amortisation (EBITDA) before any allocation of Group overheads, charges for share-based payments, costs associated with acquisitions, any gain or loss on revaluation of contingent consideration and material non-recurring items. This segment EBITDA is used to measure performance as the CEO believes that such information is the most relevant in evaluating the results of the segment.

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

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

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

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

Operating Segments

Revenue by Operating Segment

	2023	2022
	£'000	£'000
Easyspace	11,720	11,782
Cloud Services	103,918	91,236
	115,638	103,018

Cloud Services revenue can be further disaggregated as follows:

	2023	2022
	£'000	£'000
Cloud managed services	64,115	55,745
Self-managed infrastructure	30,444	28,363
Non-recurring revenue	9,359	7,128
	103,918	91,236

The nature of these three offerings are explained within the Chief Executive Officer report on page 9.

Recurring and Non-recurring Revenue

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

	2023	2022
	£'000	£'000
Recurring - over time	106,279	95,890
Non-recurring - point in time	9,359	7,128
	115,638	103,018

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

	2023	2022
	£'000	£'000
United Kingdom	99,961	88,692
Rest of the World	15,677	14,326
Revenue from operations	115,638	103,018

Profit by Operating Segment

	2023			2022
	Adjusted EBITDA	Depreciation, amortisation, acquisition costs, share-based payments and exceptional non-recurring costs	Operating profit/(loss)	Adjusted EBITDA	Depreciation, amortisation, acquisition costs, share-based payments and exceptional non-recurring costs	Operating profit/(loss)
	£'000	£'000	£'000	£'000	£'000	£'000
Easyspace	5,638	(690)	4,948	5,674	(665)	5,009
Cloud Services	35,331	(22,436)	12,895	36,641	(22,319)	14,322
Group overheads	(4,808)	-	(4,808)	(4,306)	-	(4,306)
Acquisition costs	-	(922)	(922)	-	(315)	(315)
Share-based payments	-	(696)	(696)	-	(480)	(480)
	36,161	(24,744)	11,417	38,009	(23,779)	14,230
Group interest and tax			(4,422)			(4,834)
Profit for the year			6,995			9,396

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

4. TAXATION

	2023 £'000	2022 £'000
Corporation Tax:
Tax charge for the year	(935)	(1,333)
Adjustment relating to prior years	-	209
Total current taxation charge	(935)	(1,124)

Deferred Tax: Origination and reversal of temporary differences	(597)	(1,517)
Adjustment relating to prior years	36	(137)
Effect of different statutory tax rates of overseas jurisdictions	(11)	(4)
Effect of changes in tax rates	-	10
Total deferred taxation charge	(572)	(1,648)

Total taxation charge	(1,507)	(2,772)

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

	2023 £'000	2022 £'000

Profit before tax	8,502	12,168

Tax charge @ 19% (2022: 19%)	1,615	2,312

Expenses disallowed for tax purposes and non-taxable income	28	4
Adjustments in current tax relating to prior years	-	(209)
Tax effect of different statutory tax rates of overseas jurisdictions	11	4
Movement in tax relating to changes in tax rates	95	(10)
Tax effect of share-based remuneration	253	833
Effect of super-deduction	(505)	(377)
Movement in deferred tax related to development costs	-	72
Movement in deferred tax related to property, plant and equipment	46	6
Movement in deferred tax relating to prior years	(36)	137
Total taxation charge for the year	1,507	2,772

The weighted average applicable tax rate for the year ended 31 March 2023 was 19% (2022: 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% (2022: 23%). The effective rate of tax has decreased due to the impact of the deferred tax rate change in the prior year and the movement in the tax effect of share-based remuneration largely driven by the movement in the share price in the prior year. This has been offset by the effect of super-deduction in the current year driving a higher credit recognised in the consolidated statement of comprehensive income.

Deferred tax assets and liabilities at 31 March 2023 have been calculated based on the rate of 25% enacted at the balance sheet date (2022: 25%).

5. DEFERRED TAX

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

	2023 £'000	2022 £'000

Share-based remuneration	638	884
Capital allowances temporary differences	(319)	843
Deferred tax on acquired assets with no capital allowances	-	(19)
Deferred tax on development costs	(648)	(542)
Deferred tax on customer relationships	(2,762)	(2,499)
Deferred tax on intangible software	(130)	(177)
Deferred tax liability	(3,221)	(1,510)

At the year end, the Group had no unused tax losses (2022: £nil) available for offset against future profits.

	Share-based remuneration £'000	Capital allowances temporary differences £'000	Development costs £'000	Deferred tax on acquired assets with no capital allowances £'000	Customer relationships £'000	Intangible software £'000	Tax Losses £'000	Total £'000

Balance at 1 April 2021	1,332	1,363	-	(40)	(2,356)	(161)	-	138
Credited/(charged) to statement of comprehensive income	(869)	(947)	(542)	34	635	35	-	(1,654)
Effect of different tax rates of overseas jurisdictions	-	-	-	-	(4)	-	-	(4)
Effect of changes in tax rates	421	427	-	(13)	(774)	(51)	-	10
Balance at 31 March 2022	884	843	(542)	(19)	(2,499)	(177)	-	(1,510)
Acquired on acquisition of subsidiary (note 6)	-	(133)	-	-	(1,074)	-	68	(1,139)
Movement relating to prior year	-	36	-	-	-	-	-	36
(Charged)/credited to statement of comprehensive income	(246)	(1,065)	(106)	19	822	47	(68)	(597)
Effect of different tax rates of overseas jurisdictions	-	-	-	-	(11)	-	-	(11)
Balance at 31 March 2023	638	(319)	(648)	-	(2,762)	(130)	-	(3,221)

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

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 arose from development expenditure on which tax relief was 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.

Deferred tax on tax losses arose on acquisition in the year and has been utilised in the current year.

6. ACQUISITIONS

Concepta Capital Limited

On 15 August 2022, the Group acquired the entire issued share capital of Concepta Capital Limited ("Concepta"). Concepta is principally a holding company which owns 100% of the issued share capital of Oriium Consulting Limited ("ORIIUM"), PAV I.T. Services Limited ("Pavilion IT"), P2 Technologies Limited ("P2") Datanics Limited ("Datanics") and Add3 Limited ("Add3").

ORIIUM is a channel only IT service provider specialising in data management solutions, and Pavilion IT is a provider of cloud and hybrid infrastructure solutions and support services.

During the current year, the Group incurred £236,000 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 and in cash flow from investing activities for the year ended 31 March 2023.

The following table summarises the consideration to acquire Concepta, the amounts of identified assets acquired, and liabilities assumed at the acquisition date.

	£'000
Recognised amounts of net assets acquired and liabilities assumed:
Cash and cash equivalents	1,017
Trade and other receivables	1,603
Property, plant and equipment	1,203
Intangible assets	4,621
Borrowings	(1,742)
Trade and other payables	(4,323)
Corporation tax asset	77
Deferred tax liability	(1,139)
Identifiable net assets	1,317
Goodwill	13,471
Total consideration	14,788

Satisfied by:
Cash - paid on acquisition	10,788
Contingent consideration - payable	4,000
Total consideration to be transferred	14,788

The acquisition of Concepta was completed using a "completion accounts" mechanism, on a no cash, no debt, and normalised working capital basis. An initial payment of £10,548,000 was made at completion. At the date of acquisition, Concepta had bank debt of £1,508,000 which was taken on by iomart and settled as part of the completion process.

In line with the share purchase agreement (SPA), the total consideration payable was adjusted based on the level of cash, debt and working capital shown in the agreed set of accounts (the Completion Accounts) made up to 31 July 2022. Following agreement of the Completion Accounts an additional payment of £240,000 was paid to the former shareholders of Concepta.

The SPA included a provision requiring the Company to pay the former shareholders of Concepta an additional amount contingent on the level of profitability delivered by Concepta in the twelve months ended 30 June 2023 ("the earn-out payment").

The potential undiscounted amount of the earn-out payment that the Company could be required to pay is between £nil and £4,000,000. The amount of contingent consideration payable, which was recognised as of the acquisition date, was £4,000,000. The level of profitability for the earn-out payment was estimated taking into account. Under the Sale and Purchase Agreement, the earn-out range from £nil to £4million consideration is represented by a narrow EBITDA range of £300,000. This means for each £1 of additional EBITDA above a target EBITDA, then £13.33 consideration is earned. This means the forecasted estimate is sensitive to small variances.

The goodwill arising on the acquisition of Concepta is attributable to the premium payable for a pre-existing, well positioned business and the specialised, industry specific knowledge, including the indirect channel, of the management and staff, together with the benefits to the Group in merging the business with its existing infrastructure and the anticipated future revenue synergies from the combination. The goodwill is not expected to be deductible for tax purposes.

The trading names "ORIIUM", "Pavilion IT" and "P2" are not actively advertised or promoted. The Concepta group's standard terms and conditions restrict the ability of the Concepta Group to sell, distribute or lease any personal information it holds on customers. 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.

Included in intangible assets is the fair value included in respect of the acquired customer relationships intangible asset of £4,462,000. 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 13.06% was used for the valuation. Customer relationships are being amortised over an estimated useful life of 8 years.

The Concepta group earned revenue of £6,188,000 and generated profits, before allocation of group overheads, share based payments and tax, of £858,000 in the period since acquisition.

If the Concepta group had been part of the iomart group from 1 April 2022, revenue earned would have been £9,955,000 and profit after tax of £1,175,000 for the year ended 31 March 2023.

7. 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.

	2023 £'000	2022 £'000
Profit for the financial year and basic earnings attributed to ordinary shareholders	6,995	9,396
	No	No
Weighted average number of ordinary shares:	000	000

Called up, allotted and fully paid at start of year	110,065	109,671
Own shares held by Employee Benefit Trust	(141)	(141)
Issued share capital in the year	170	181
Weighted average number of ordinary shares - basic	110,094	109,711

Dilutive impact of share options	2,575	2,210

Weighted average number of ordinary shares - diluted	112,669	111,921

Basic earnings per share	6.4 p	8.6 p
Diluted earnings per share	6.2 p	8.4 p

Adjusted earnings per share	2023 £'000	2022 £'000

Profit for the financial year and basic earnings attributed to ordinary shareholders	6,995	9,396
Amortisation of acquired intangible assets	3,880	4,044
Acquisition costs	922	315
Cost of sales - exceptional non-recurring costs	820	-
Share-based payments	696	480
Accelerated write off of arrangement fee on bank facility	-	102
Tax impact of adjusted items	(1,025)	(879)
Adjusted profit for the financial year and adjusted earnings attributed to ordinary shareholders	12,288	13,458

Adjusted basic earnings per share	11.2 p	12.2 p
Adjusted diluted earnings per share	10.9 p	12.0 p

8. INTANGIBLE ASSETS

	Goodwill	Development costs	Acquired customer relationships	Software	Beneficial contracts	Domain names & IP addresses	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Cost
At 1 April 2021	86,479	11,904	57,263	10,827	86	336	166,895
Additions	-	-	-	91	-	-	91
Currency translation differences	-	-	36	27	-	-	63
Development cost capitalised	-	1,352	-	-	-	-	1,352
At 31 March 2022	86,479	13,256	57,299	10,945	86	336	168,401
Acquired on acquisition of subsidiary (note 6)	13,471	159	4,462	-	-	-	18,092
Additions	-	-	-	44	-	-	44
Currency translation differences	-	-	48	39	-	-	87
Development cost capitalised	-	1,887	-	-	-	-	1,887
At 31 March 2023	99,950	15,302	61,809	11,028	86	336	188,511

Accumulated amortisation:
At 1 April 2021	-	(9,819)	(45,316)	(6,829)	(62)	(289)	(62,315)
Charge for the year	-	(1,347)	(4,044)	(1,282)	(7)	(8)	(6,688)
Currency translation differences	-	-	(36)	(31)	-	-	(67)
At 31 March 2022	-	(11,166)	(49,396)	(8,142)	(69)	(297)	(69,070)
Charge for the year	-	(1,434)	(3,880)	(1,116)	(8)	(7)	(6,445)
Currency translation differences	-	-	(49)	(16)	-	-	(65)
At 31 March 2023	-	(12,600)	(53,325)	(9,274)	(77)	(304)	(75,580)

Carrying amount:

At 31 March 2023	99,950	2,702	8,484	1,754	9	32	112,931

At 31 March 2022	86,479	2,090	7,903	2,803	17	39	99,331

Of the total additions in the year of £44,000 (2022: £91,000), no amounts related to leases under IFRS 16 (note 11) (2022: £nil). There were no amounts included in trade payables at the year end (2022: £nil). Consequently, the consolidated statement of cash flows discloses a figure of £44,000 (2022: £91,000) as the cash outflow in respect of the purchase of intangible asset 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 net book values: £3.8m in relation to the acquisition of Concepta Capital Limited with a remaining useful life of 7 years, £0.9m in relation to the acquisitions of Memset Limited with a remaining useful life of 5 years, the managed private cloud business of ServerChoice Limited of £0.5m with a useful life of 5 years, Bytemark Limited with a net book value of £0.3m and LDeX Group Limited of £0.9 both with a remaining useful life of 4 years, Sonassi Limited of £1.3m, Dediserve Limited of £0.3m, SimpleServers Limited of £0.2m all three with a remaining useful life of 3 years.

During the year, goodwill was reviewed for impairment in accordance with IAS 36 "Impairment of Assets". No impairment charges (2022: £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 carrying value of goodwill by each CGU is as follows:

Cash Generating Units (CGU)	2023 £'000	2022 £'000
Easyspace	23,315	23,315
Cloud Services	76,635	63,164
	99,950	86,479

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 five 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.

The growth rates and margins used to extrapolate estimated future performance 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 which have been derived with due consideration to IAS 36. The assumptions used for the CGU included within the impairment reviews are as follows:

	Easyspace		Cloud Services
	31 March 2023	31 March 2022	31 March 2023	31 March 2022


Discount rate	14.3%	14.4%	14.3%	14.4%
Future perpetuity rate	0.0%	0.0%	2.5%	2.5%
Initial period for which cash flows are estimated (years)	5	5	5	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.

9. PROPERTY, PLANT AND EQUIPMENT

	Freehold property	Leasehold property and improve-ments	Data centre equipment	Computer equipment	Office equipment	Motor vehicles	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000

Cost:
At 1 April 2021	8,731	38,694	28,079	108,223	2,811	23	186,561
Additions in the year	-	1,834	2,890	5,907	43	-	10,674
Disposals in the year	(495)	(203)	(445)	(20)	(14)	-	(1,177)
Currency translation differences	-	99	-	158	-	-	257
At 31 March 2022	8,236	40,424	30,524	114,268	2,840	23	196,315
Acquired on acquisition of subsidiary (note 6)	-	300	872	1	30	-	1,203
Additions in the year	-	969	1,849	6,591	116	23	9,548
Disposals in the year	-	(309)	(1,402)	-	-	-	(1,711)
Currency translation differences	-	132	-	378	-	-	510
At 31 March 2023	8,236	41,516	31,843	121,238	2,986	46	205,865

Accumulated depreciation:
At 1 April 2021	(937)	(11,675)	(17,223)	(77,547)	(2,150)	(17)	(109,549)
Charge for the year	(255)	(4,481)	(1,263)	(10,101)	(190)	(6)	(16,296)
Disposals in the year	138	-	445	20	-	-	603
Currency translation differences	-	(58)	-	(122)	-	-	(180)
At 31 March 2022	(1,054)	(16,214)	(18,041)	(87,750)	(2,340)	(23)	(125,422)
Charge for the year	(241)	(4,663)	(2,072)	(9,333)	(180)	(3)	(16,492)
Disposals in the year	-	-	1,402	-	-	-	1,402
Currency translation differences	-	(74)	-	(320)	-	-	(394)
At 31 March 2023	(1,295)	(20,951)	(18,711)	(97,403)	(2,520)	(26)	(140,906)

Carrying amount:
At 31 March 2023	6,941	20,565	13,132	23,835	466	20	64,959

At 31 March 2022	7,182	24,210	12,483	26,518	500	-	70,893

Depreciation charge in the current year is comprised of £15,861,000 as disclosed in the statement of comprehensive income and £631,000 of accelerated depreciation in respect of the closure of a data centre in the year, disclosed in non-recurring acquisition integration costs.

During the year there were additions of £70,000 (2022: £249,000) in respect of reinstatement provisions and additions of £666,000 (2022: £1,491,000) in respect of leases under IFRS 16 (note 11). Of the total remaining additions in the year of £8,812,000 (2022: £8,934,000), £314,000 (2022: £420,000) was included in trade payables as unpaid invoices at the year end resulting in a net decrease of £106,000 (2022: net decrease of £558,000) in trade payables. Consequently, the consolidated statement of cash flows discloses a figure of £8,918,000 (2022: £9,492,000) as the cash outflow in respect of property, plant and equipment additions in the year.

Note 11 provides the movements in the year relating to IFRS 16 right-of-use assets as included in the above table.

10. BORROWINGS

	2023 £'000	2022 £'000

Current:
Lease liabilities (note 11)	(3,377)	(3,560)
Current borrowings	(3,377)	(3,560)

Non-current:
Lease liabilities (note 11)	(15,803)	(19,063)
Bank loans	(34,400)	(34,000)
Total non-current borrowings	(50,203)	(53,063)

Total borrowings	(53,580)	(56,623)

The carrying amount of borrowings approximates to their fair value.

Details of the Group's lease liabilities are included in note 11.

At the start of the year there was £34.0m (2022: £52.8m) outstanding on the multi option revolving credit facility and drawdowns of £10.4m (2022: £nil) were made from the facility during the year. Repayments totalling £10m (2022: £18.8m) were made in the year resulting in a balance outstanding at the end of the year of £34.4m (2022: £34.0m).

At the year end, the Group has access to a £100m multi option revolving credit facility that matures on 30 June 2026, which also benefits from a £50m Accordion Facility. On 17 November 2022, the Group enacted the extension option which was approved by the lenders. The directors are of the opinion that the Group can operate within the current facility and comply with its banking covenants. The RCF has a borrowing cost at the Group's current leverage levels of 1.8% margin over SONIA. The revolving credit facility incurs a non-utilisation fee of 35% of the 1.8% margin. The effective interest rate for the multi option revolving credit facility in the current year was 4.26% (2022: 1.78%).

The RCF and the Accordion Facility (if exercised) provide the Group with additional liquidity which will be used for general business purposes and to fund investments, in accordance with the Group's five-year strategic plan.

Given the terms of the revolving credit facility and the ability for any drawdowns made to be extended beyond 31 March 2023 at the discretion of the Group, the total amount outstanding has been classified as non-current.

The obligations under the multi option revolving credit facility are repayable as follows:

	2023			2022
	Capital	Interest	Total	Capital	Interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Due within one year	-	(540)	(540)	-	(192)	(192)
Due within two to five years	(34,400)	-	(34,400)	(34,000)	-	(34,000)
	(34,400)	-	(34,940)	(34,000)	(192)	(34,192)

The Directors estimate that the fair value of the Group's borrowing is not significantly different to the carrying value.

Analysis of change in net debt	Cash and cash equivalents £'000	Bank loans £'000	Lease liabilities £'000	Total liabilities £'000	Total net debt £'000

At 1 April 2021	23,038	(52,791)	(24,867)	(77,658)	(54,620)

Additions to lease liabilities	-	-	(1,491)	(1,491)	(1,491)
Disposals from lease liabilities	-	-	179	179	179
Settlement of commitment fee on loan	-	(49)	-	(49)	(49)
Repayment of bank loans	-	18,840	-	18,840	18,840
Currency translation	-	-	(49)	(49)	(49)
Cash and cash equivalent cash inflow	(7,706)	-	-	-	(7,706)
Lease liabilities cash outflow	-	-	3,605	3,605	3,605
At 31 March 2022	15,332	(34,000)	(22,623)	(56,623)	(41,291)

Acquired on acquisition of subsidiary	-	-	(235)	(235)	(235)
Additions to lease liabilities	-	-	(666)	(666)	(666)
Disposals from lease liabilities	-	-	449	449	449
Drawdown of bank loans	-	(10,400)	-	(10,400)	(10,400)
Repayment of bank loans	-	10,000	-	10,000	10,000
Currency translation	-	-	(33)	(33)	(33)
Cash and cash equivalent cash outflow	(1,514)	-	-	-	(1,514)
Lease liabilities cash outflow	-	-	3,928	3,928	3,928
At 31 March 2023	13,818	(34,400)	(19,180)	(53,580)	(39,762)

11. 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		Leasehold Property £'000	Data centre equipment £'000	Software £'000	Total £'000

Balance at 1 April 2022		18,187	2,809	665	21,661
Acquired on acquisition of subsidiary	123		112	-	235
Additions	269		397	-	666
Disposals		(309)	-	-	(309)
Currency translation differences		7	30	-	37
Depreciation		(2,150)	(1,535)	-	(3,685)
Amortisation		-	-	(285)	(285)

Balance at 31 March 2023		16,127	1,813	380	18,320

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 (note 9). The right-of-use assets in relation to software are disclosed as non-current assets and are disclosed within intangibles (note 8).

Lease liabilities

Lease liabilities are presented in the balance sheet within borrowings as follows:

2023

£'000

2022

£'000

Current:

Lease liabilities (note 10)

(3,377)

(3,560)

Non-current:

Lease liabilities (note 10)

(15,803)

(19,063)

Total lease liabilities

(19,180)

(22,623)

The maturity analysis of undiscounted lease liabilities are shown in the table below:

	2023 £'000	2022 £'000

Amounts payable under leases:
Within one year	(3,880)	(4,127)
Between two to five years	(8,239)	(10,244)
After more than five years	(9,780)	(11,585)

	(21,899)	(25,956)
Add: unearned interest	2,719	3,333
Total lease liabilities	(19,180)	(22,623)

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, in relation to leases under IFRS 16, the Group recognised the following amounts in the consolidated statement of comprehensive income:

	2023 £'000	2022 £'000

Short-term and low value lease expense	(1,750)	(1,784)
Depreciation charge	(3,685)	(3,433)
Amortisation charge	(285)	(285)
Interest expense	(586)	(646)

	(6,306)	(6,148)

Amounts recognised in the consolidated statement of cash flows:

	2023 £'000	2022 £'000

Amounts payable under leases:
Short-term and low value lease expense	(1,750)	(1,784)
Payments under lease liabilities within cash flows from financing activities	(4,902)	(4,410)
	(6,652)	(6,194)

12. POST BALANCE SHEET EVENTS

As announced on 5 June 2023, we acquired the entire issued share capital of Extrinsica Global Holdings Limited, the holding company of Extrinsica Global Limited (together "Extrinsica"). Extrinsica is a Microsoft Azure Cloud solution services provider with offerings including managed Azure Cloud, Azure solution design and implementation services, support & optimisation services and licencing.

The initial consideration for the acquisition is £4.0m, with a potential further £0.3m in cash payable on the achievement of certain key customer targets during the calendar year. Of the initial consideration, £2m will be satisfied by the issue of 1,562,500 new ordinary shares in iomart, which under the terms of the sale and purchase agreement are subject to a twelve month "lock in" provision and based on a fixed share price of £1.28, being the volume weighted average price for the 90 days prior to completion. The balance of £2.0m will be paid in cash. iomart will also repay £3.7m of debt acquired on completion.

The acquisition also includes a further £4.0m to £7.0m of contingent earn-out payments which are calculated based on Extrinsica's profitability for the 12 months ending 31 March 2024. Of any earn-out payment that becomes due, £1.0m will be satisfied by the issue of iomart shares (the number of shares to be issued will be based on the same share price as the initial consideration). The amount of contingent consideration payable, based on management's forecast, recognised at the date of the acquisition, is expected to be £4.0m.

Due to the proximity of the acquisition date to the financial statements being authorised for issue, IFRS 3 disclosures are not audited or presented.

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END

FR EAFKAFEKDEAA

Lucy Dimes

Non-Executive Chair

13 June 2023

Reece Donovan

Chief Executive Officer

1. GENERAL INFORMATION

2. ACCOUNTING POLICIES

Basis of preparation

3. sEGMENTAL ANALYSIS

4. TAXATION

5. DEFERRED TAX

6. ACQUISITIONS

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Lucy Dimes

Non-Executive Chair

13 June 2023

Reece Donovan

Chief Executive Officer

1. GENERAL INFORMATION

2. ACCOUNTING POLICIES

Basis of preparation

3. sEGMENTAL ANALYSIS

4. TAXATION

5. DEFERRED TAX

6. ACQUISITIONS

Related Charts

Iomart Group PLC (IOM)

Most Read

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