iomart Group plc Interim Report 6 months ended 30 June 2001

Transcription

1 iomart Group plc Interim Report 6 months ended 30 June 2001

2 Interim Report 6 months ended 30 June 2001 iomart Group plc ("iomart"), the Glasgow based internet services business, presents its consolidated interim results for the six month period ended 30 June Financial Highlights Six month turnover of 2.70 million, 76% increase on first half 2000 Loss for period of 3.28 million (6.1p per share) Cash balance of million at 30 June 2001 Business Development Highlights Madasafish ISP business sold for 3 million cash 2,700 installed ADSL lines including OnCue acquisition Net Intelligence software added to iomart product range German messaging company CANBOX successfully acquired Messaging products successfully launched Cost base reduced after voluntary redundancy programme Nick Kuenssberg, Chairman, commented:- "We have now completed significant moves to redirect the company. Having sold our retail ISP business Madasafish for 3m, we have restructured and reduced staff numbers, strengthened our ADSL business with the acquisition of OnCue and enhanced our capabilities with the purchase and integration of the Actis Technology Net Intelligence product. Buying CANBOX gives us both a substantial market position in Germany and a good product that complements our Thinkmail product portfolio. We believe that, despite ongoing losses, the company with cash balances of 10m to support this revised business strategy is now favourably positioned to make real progress". Page 1

3 Operational Review During 2001 we have focused on the implementation of our revised business strategy and we are pleased to report that we have made solid progress with our aim to reposition iomart as a provider of internet and messaging solutions for our business customers. An important element in this transition was the successful disposal of our consumer ISP business, Madasafish, completed on 10 May for a consideration of 3 million cash. Securing a cash deal at this price under prevailing market conditions was a considerable achievement. Under arrangements with the new owners we continued to operate the service until they were ready to take over the operation in early August. Our ADSL business has continued to grow. The overall market uptake for ADSL in the UK has been much less than predicted and many of our competitors have struggled to make progress. In July we bought the ADSL customer base of OnCue Telecommunications Ltd (in liquidation) for a price of 200,000. We now have a total of 2,700 installed lines which, we believe, makes us the second largest supplier of ADSL in the UK after BTOpenworld. A major milestone earlier this year was the successful launch of our messaging platform. We have made a substantial investment to create a first class infrastructure enabling us to offer a powerful range of messaging solutions to both large and small businesses. Experience to date indicates that this market is still relatively in its infancy in the UK and the sales cycle is proving longer than expected. Interestingly, however, the one thing that continues to grow even in these difficult times is the amount of generated. Gartner Research project that for businesses the number of mail boxes is growing at 40% a year, the amount of mail per mailbox is growing at 40% a year and the size of the average is also growing at around 40% a year. The combination is 275% growth in bytes/year for enterprises. We expect that most systems will need to be replaced or augmented in the next 2 years because of this growth and we believe our product set and services are perfectly positioned to take advantage of the weaknesses and lack of security in existing mail systems. In July we purchased the business and assets of Actis Technology Limited from the liquidator. This brought us a newly developed software product, Net Intelligence, which provides organisations with a powerful tool to implement and manage business policies around internet and usage, illegal content and behaviour, document management, and software management by monitoring and identifying activity and content on PC s within a corporate network the first sale has now been closed. Given the ever growing costs and legal responsibilities of company directors in this area we anticipate strong demand for this product set. Move into German business market We are pleased to announce that on 5 September we completed an agreement to purchase the assets and business of CANBOX of Oldenburg, Germany, a 1997 start-up providing internet based unified messaging solutions and services. The transaction will be completed through CANBOX Technologies GmbH, a newly created wholly owned subsidiary of iomart Group plc, which has signed contracts with the receivers for the two companies CANBOX Systems AG and CANBOX Europe GmbH. The purchase price of EUR 700,000 includes all intellectual property rights, the entire software developed and all related fixed assets, payable in three tranches in September, December and March. In addition iomart will acquire receivables for c. EUR 300,000 payable in September and December. The new business has a portfolio of substantial business customers which will generate initial monthly revenues in excess of EUR 100,000 with potential for further growth in a market that is more mature than UK. The two founders of CANBOX augmented by 4 directors of iomart, will constitute the board of this new company which has 23 employees. It is anticipated that this will form the technical platform for significant development of iomart s messaging products. We believe that this move to work with an experienced team focusing on the German business market with an integrated messaging offering incorporating the best of CANBOX and iomart represents an exceptional opportunity to develop our strategy. It also provides an outlet into Europe s largest market for our Net Intelligence product, which complements the messaging products and early indications are that it is an ideal product for the German market. Page 2

4 As a wholly owned subsidiary the German company will be subject to the same management and cost controls as the parent company, with focus on sales, revenues and profits. We have confidence in our new German colleagues abilities to deliver the business plan agreed for Germany. We expect further such acquisition opportunities will arise in the coming months as companies struggle to raise funding in the current climate. We remain on the lookout for suitable deals that complement our existing activities. As part of repositioning the business, we undertook a major redundancy and restructuring programme. A total of 46 staff from across the organisation accepted the offer of voluntary redundancy and we have also closed our Edinburgh office. Including the recent joiners from Actis and CANBOX, our current headcount is 129 staff. We place considerable emphasis on consulting and communicating with our staff at all levels and were pleased to receive Investors in People accreditation. Financial Results Turnover for the six months ended 30 June 2001 was 2.70 million. Compared to 2000, this is a 76% increase on the first half year and 31% on the second. Turnover split by product shows 1.26 million from the consumer ISP business, 0.62 million from ADSL and 0.82 million from web services (being co-location/hosting, domain names and messaging). The consumer business was sold on 10 May 2001; however under transitional arrangements with the new owners, iomart continued to operate the service and the turnover figure covers the full six months. The gross profit margin for the period is lower than for the previous year as a result of several factors. First, we incurred gross losses over the 6 months of 0.26 million on Timezone, our unmetered access service. This service launched late in 2000 and ceased in early August Second, after 10 May 2001, a large share of the sales of Madasafish interconnect revenue were paid to the new owners. Third, a larger proportion of our revenue this period came from ADSL on which, acting as a reseller, we make relatively lower margins. Total administrative expenses of 5.27 million comprise 2.17 million for staff costs, 0.69 million for marketing, 0.65 million for operating our network and technical infrastructure, 0.74 million for premises and administrative expenses and 1.02 million for depreciation/amortisation. In addition, we have provided 1.00 million for redundancy, restructuring and related costs. The growth in administrative expenses compared to the previous year is largely due to the introduction of our messaging infrastructure and the recruitment of a direct sales organisation. Other operating income of 0.06 million relates to grants received. The operating loss for the period was 5.31million. The sale of the Madasafish ISP business generated an exceptional profit of 1.83 million, made up of a gain on sale of 2.96 million less a charge of 1.13 million to write down assets relating to this business. The loss before tax was 3.28 million. Loss per share was 6.1 pence or 6.4 pence on a diluted basis. Cash balances at 30 June 2001 amounted to million. Our financial focus is to manage our cash religiously. We continue to strip costs out of the business, whilst developing an organisation that can grow revenues and provide great customer service. Prospects The short term outlook for the whole technology sector is undoubtedly challenging. Across the board, businesses are curtailing and deferring their spend on internet related services. Nevertheless, we believe that iomart has created a broad set of products which is attracting strong interest from the marketplace. While our revenue will take longer to grow than we had hoped, we remain convinced that iomart is well placed to weather the storm and has sufficient cash reserves to deliver our business plan. Angus MacSween Chief Executive Officer 5 September 2001 Page 3

5 Consolidated Profit and Loss Account Six months ended 30 June months ended Restated Year ended 30 June 30 June 31 December TURNOVER Continuing operations 1, ,551 Discontinued 1, ,030 Total turnover 2,696 1,530 3,581 Cost of sales (1,788) (494) (1,424) GROSS PROFIT Continuing operations Discontinued ,382 Gross profit 908 1,036 2,157 Administrative expenses (5,273) (2,747) (7,663) Restructuring expenses (998) - - Total administrative expenses (6,271) (2,747) (7,663) Other operating income Net operating expenses (6,216) (2,577) (7,444) OPERATING LOSS Continuing operations (4,334) (1,326) (4,857) Discontinued (974) (215) (430) Group operating loss (5,308) (1,541) (5,287) Profit on disposal of Madasafish 1, LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST (3,479) (1,541) (5,287) Net interest 199 (206) 185 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (3,280) (1,747) (5,102) Tax on loss on ordinary activities LOSS ON ORDINARY ACTIVITIES AFTER TAXATION FOR THE PERIOD (3,280) (1,747) (5,102) Loss per ordinary share (pence) Basic (6.1p) (4.4p) (10.9p) Diluted (6.4p) (4.4p) (11.0p) There have been no recognised gains and losses attributable to the shareholders other than the loss for the current financial period and accordingly, no statement of total recognised gains and losses is shown. Page 4

6 Consolidated Balance Sheet 30 June 2001 Restated 30 June 30 June 31 December FIXED ASSETS Intangible assets ,174 Tangible assets 2,719 1,555 3,960 3,515 1,685 5,134 CURRENT ASSETS Debtors 1, ,792 Cash at bank and in hand 10,877 16,884 12,026 12,517 17,746 13,818 CREDITORS: amounts falling due within one year (3,975) (1,999) (3,772) NET CURRENT ASSETS 8,542 15,747 10,046 TOTAL ASSETS LESS CURRENT LIABILITIES 12,057 17,432 15,180 CREDITORS: amounts falling due after more than one year (1,232) (517) (1,620) PROVISIONS FOR LIABILITIES AND CHARGES (545) ,280 16,915 13,560 CAPITAL AND RESERVES Called up share capital Capital redemption reserve 1,200 1,200 1,200 Share premium account 19,087 19,087 19,087 Profit and loss account (10,545) (3,910) (7,265) TOTAL EQUITY SHAREHOLDERS' FUNDS 10,280 16,915 13,560 The comparative figures for the financial year ended 31 December 2000 are an extract of the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act Page 5

7 Consolidated Cash Flow Statement Six months ended 30 June months ended Restated Year ended 30 June 30 June 31 December Net cash outflow from operating activities (3,151) (1,211) (4,681) Returns on investments and servicing of finance Bank interest received Charge on early redemption of loan - (333) (333) Bank and other loan interest paid - (33) (13) Finance lease and hire purchase interest paid (119) (55) (136) Net cash inflow/(outflow) from returns on investments and servicing of finance 199 (206) 185 Capital expenditure Payments to acquire tangible fixed assets (583) (230) (695) Payments to acquire intangible fixed assets (7) - (511) Net cash outflow from capital expenditure (590) (230) (1,206) Net proceeds of disposal of Madasafish 2, Acquisitions Cash outflow before financing (582) (1,647) (5,697) Financing Issue of ordinary shares - 20,073 20,073 Expenses of share issue - (748) (748) Repayment of loans - (1,000) (1,000) Repayment of hire purchase and finance leases (567) (269) (1,077) Net cash (outflow)/inflow from financing (567) 18,056 17,248 (Decrease)/increase in cash in the period (1,149) 16,409 11,551 Page 6

8 Notes to the Accounts Six months ended 30 June Accounting policies The interim results have been prepared using accounting policies consistent with those set out in the group financial statements for the year ended 31 December There has been no impact on the financial statements following the adoption of FRS Prior period adjustment The comparative figures for the six months ended 30 June 2000 have been restated to reflect an increase in share premium account of 145,000 relating to expenses now charged to the profit and loss account in connection with the listing of the company on AIM. 3. Reconciliation of operating loss to net cash outflow from operating activities 6 months ended Restated Year ended 30 June 30 June 31 December Operating loss (5,308) (1,541) (5,287) Depreciation Amortisation of intangible assets Write down of fixed assets on restructuring Loss on sale of fixed assets Decrease/(increase) in debtors 71 (492) (1,283) Increase in creditors Increase in provisions for liabilities and charges Net cash outflow from operating activities (3,151) (1,211) (4,681) 4. Reconciliation of net cash flow to movement in net funds (Decrease)/increase in cash in period (1,149) 16,409 11,551 Cash outflows from debt and lease financing 567 1,269 2,077 Change in net funds from cash flows (582) 17,678 13,628 New hire purchase and finance leases (102) (198) (2,723) Hire purchase acquired with subsidiary - - (42) Opening net funds/(debt) 9,398 (1,465) (1,465) Closing net funds 8,714 16,015 9, Analysis of change in net funds At Other At 31 December Cash non-cash 30 June 2000 flow changes Cash at bank and in hand 12,026 (1,149) - 10,877 Finance leases and hire purchase (2,628) 567 (102) (2,163) Net funds 9,398 (582) (102) 8,714 Page 7

9 INDEPENDENT REVIEW REPORT TO IOMART GROUP PLC Introduction We have been instructed by the company to review the financial information for the six months ended 30 June 2001, which comprises the profit and loss account, the balance sheet, the cash flow statement and related notes 1 to 5. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are also responsible for ensuring that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June Deloitte & Touche Chartered Accountants Lomond House 9 George Square Glasgow G2 1QQ 5 September 2001 Page 8

10 iomart Group plc Fleming Pavilion, Todd Campus West of Scotland Science Park, Glasgow, G20 0XA Tel: +44 (0) Fax: +44 (0) Secure Internet. Secure . Secure Desktop.