(cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 CONTENTS (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Officers and professional advisers Chairman’s statement Chief executive’s review Financial review Corporate governance Report of the board to the members on directors’ remuneration Directors' report Statement of directors' responsibilities Auditors' report Consolidated profit and loss account Consolidated balance sheet Company balance sheet Consolidated cash flow statement Notes to the accounts Notice of annual general meeting Page 2 3 4 6 7 8 11 13 14 15 16 17 18 19 35 Page 1 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 OFFICERS AND PROFESSIONAL ADVISERS Directors Nick Kuenssberg (Non-executive Chairman) Angus MacSween (Chief Executive Officer) Bill Dobbie (Business Development Director) David Harrison (Finance Director) Neil Finlayson (Technical Director) Sarah Haran (Customer Service Director) Fred Shedden (Non-executive Director) Secretary Stewart Moir Registered office Fleming Pavilion Todd Campus West of Scotland Science Park Glasgow G20 0XA Nominated adviser and broker Peel Hunt plc 62 Threadneedle Street London EC2R 8HP Bankers Bank of Scotland 235 Sauchiehall Street Glasgow G2 3EY Solicitors McGrigor Donald Pacific House 70 Wellington Street Glasgow G2 6SB Auditors Deloitte & Touche Lomond House 9 George Square Glasgow G2 1QQ Registrars Capita IRG plc Bourne House 34 Beckenham Road Beckenham Kent BR3 4TU Company Registration No SC 204560 Page 2 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 CHAIRMAN’S STATEMENT While iomart Limited was founded in late 1998 and revenues began in August 1999 the calendar year 2000 is the first real period of trading. Gross profit for the period was £2.2 million. Turnover was £3.6 million with a loss of £4.4 million before non-recurring expenses of £0.7 million are included to give a loss for the year of £5.1 million. Shareholders’ funds at year end were £13.6 million of which £12 million was cash. The prospects for both consumer and business markets in early 2000 justified the successful flotation of the group in April, as a result of which £19 million net of expenses was raised through the placing and public offer at a price of 90p per share. Both the financial markets for the so called "new economy" sector and the economic conditions for telecoms companies have been highly volatile, characterised by downward pressure on prices and traffic under performing anticipated activity levels. The introduction of perceived free services have undermined the ISP sector while DSL broadband demand has disappointed. Your board believes that there are many companies whose business models are far from robust; indeed many of them have been seeking additional funding. For our part we have reviewed this turbulent scene and determined that the future will be based on the business sector rather than on the consumer sector where current aggressive pricing and weaker volume expectations make profitability a tentative long term prospect. We have accordingly reduced our marketing spend and cut back on the additional consumer services planned. This has culminated with the sale today of our Madasafish ISP business for £3 million cash. These funds will be invested in increasing our activity in the business market. This has focused on DSL and in particular on the recently announced ThinkMail, our high volume, high security e-messaging service allied to mass storage capacity, which we believe is the leading product in the UK in this fast-growing sector. At the year-end cash reserves were £12 million compared with a current monthly cash requirement of approximately £0.5 million. Our cash position has been further enhanced by the sale of Madasafish and this gives us comfort as well as capacity for the acquisition of businesses which will add value and revenue to the group in complementary sectors. We reviewed a number of such businesses and indeed have invested resource up to the due diligence stage. However we decided not to proceed with any project other than NSL in the belief that the prices asked were excessive under the emerging market conditions. NSL is a web hosting and co-location business in Edinburgh acquired in September 2000 which has been fully integrated into the company. During the year we completed our executive team including David Harrison as finance director and three experienced and talented senior executives covering sales, DSL and messaging services. We now have a solid platform well placed to deliver service to our customers at levels amongst the best available in the UK. The directors are working to build a solid long-term business rather than looking for quick results. Your board is confident that, after first quarter revenues broadly in line with expectations, the group will make real progress in the current year with a redefined strategy, innovative business products, a reduced cash burn and a clear focus on profitability in the first half of 2002. Nick Kuenssberg Non-executive chairman 10 May 2001 Page 3 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 CHIEF EXECUTIVE’S REVIEW Our maiden year as a public company was certainly exhilarating. The internet seemed to advance and retreat like a tsunami and there were some spectacular highs and lows along the way. In this report, I will give a brief commentary on the business as it was at the start of the year, an insight into our strategic thinking as we progressed through the year and a view of where iomart is being positioned for the future. iomart launched with two distinct business streams; internet dial access for consumers with our Madasafish brand and easybuild websites for small businesses marketed via the Virgin group and its Virgin Biznet brand. We believed these two business streams would enjoy solid growth. On the consumer front Madasafish showed strong growth through the spring of 2000 until late May when the whole industry was ambushed by companies with naive and inexperienced management teams clambering over one another to announce ever more "free" services to the consumer. Our business plan was founded on many years experience of the telecoms business and the economic realities therein. That plan did not factor in our competitors subsidising individual consumers at a rate of up to £30 per month per user. We had neither the inclination nor the resources to go down this road and the number of ISP casualties and lower valuations we have seen over the last six months has vindicated that policy. This climate was also compounded by ill-informed commentators who were bemoaning the high cost of internet access in the UK. In fact for average users of around 400 minutes per month or less the UK has had probably the cheapest internet access in the world. Inevitably our growth slowed as consumers moved to subsidised packages and we awaited market clarity and a fixed price package that was economically viable. The regulator has singularly failed to create a regime whereby internet traffic is provided at a fixed cost to BT’s competitors, thereby making it impossible for them to provide fixed price packages at a known cost with a known margin. Despite this background and a reduced marketing spend we attracted close to 200,000 registrations during the year, a creditable performance. Notwithstanding this apparent success the business model was not sufficiently robust and we decided to dispose of the Madasafish ISP activity. It has been sold as of today at a price of £3 million in cash. This generates funds which will be targeted more sensibly towards our business to business activities in line with our revised strategy. Our Virgin biznet business also came up against the "free" market share at any cost mentality, with the availability of many such competing offers confusing the market. However we have continued to work hard with Virgin to build this business and whilst it has not achieved the forecast numbers, we believe that we jointly manage the strongest, most successful business of its type in the UK today. During 2000 we had also intimated our intentions to enter the broadband market with ADSL. We spent significant time and effort on plans to take advantage of the competitive environment we were led to believe was being created by the "local loop unbundling" process managed by OFTEL. We quickly learned that building any competing network to BT under the scenario envisaged by OFTEL was untenable, as the economics are fundamentally flawed by the BT price structure agreed by OFTEL. In the absence of a major policy shift we believe BT will retain a de facto national monopoly for the foreseeable future. Our ADSL deployment is therefore based on reselling BT’s wholesale product with the addition of iomart value-added services. Today we believe we are currently No. 3 or 4 in the UK in terms of installed ADSL lines and our sales continue to grow. In each area of business where we have been active over the year we have as a team punched above our weight and this reflects the strong management team we have in place. In September 2000 we acquired NSL, an Edinburgh based web hosting company. This fitted with our requirement to provide business class web hosting services alongside business access. It gives us a solid platform in a good Edinburgh office from which to grow this business and fits with our revised strategy. As the year progressed and the difficulties in our chosen markets became apparent we worked hard to create a strategy which will maintain and enhance shareholder value longer term. We believed that it was important to target the business marketplace, as businesses recognise the need to pay for products and services. Further we needed to introduce value-added products alongside the access and simple hosting products. Page 4 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 CHIEF EXECUTIVE’S REVIEW (Continued) My experience in the internet arena has led me to a strongly held view that e-mail has been the main driver of internet growth and is the original and ongoing ‘killer application’. It remains the strongest growing element of the internet today. Every business or organisation will need to have it. We concluded that we should develop a set of products around e-mail. As well as being compelling products in their own right, they should: (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) create recurring revenue streams be highly scalable be in large and growing markets with global potential have a significant element of own intellectual property suffer nil or minimal regulatory burdens enjoy good margins have appropriate barriers to entry. I believe our new Thinkmail product set meets all these criteria. Every business or organisation will need e-mail and it is predicted that a large proportion of the market will move to outsource e-mail and messaging requirements as those become mission critical to the organisation and the difficulties of running ever more complex services internally become increasingly apparent. Many PCs in business today are in effect e-mail terminals, and the e-mail software programme is quickly becoming the document storage repository of virtually every document. This, combined with growing requirements for virus scanning, security, webmail, mobile services and archiving means we are in an area set to grow significantly over the next two to three years. As our experience in the business market grows it is becoming clear that business customers often require more than single products or services. We are finding clear evidence of strong demand for bundled packages that provide broadband access, e-mail services and web hosting as a combined offering. This is being driven by the need for organisations to simplify the management of their DNS / IP address, e-mail servers and web servers. To deliver these services we have developed effective and strong business processes around sales, provisioning, billing and customer service that would be the envy of many larger companies. During 2001 we have continued to implement this plan, refocusing the group away from the consumer sector towards an outsourced messaging business. As we move into the second half of the year iomart’s strategy will be to become a world class messaging company, investing in its own product development and intellectual property alongside other messaging software, whilst providing the complementary access (ADSL and dial) and web hosting services being demanded by the market today. Your board and management team recognise that old fashioned valuation criteria are coming back into vogue and earnings growth is the key driver once again. We welcome that and you can be assured that we are keenly focused on taking iomart through breakeven to profitability. Angus MacSween Chief Executive Officer 10 May 2001 Page 5 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 FINANCIAL REVIEW Turnover Turnover for the year of £3.58 million is made up of £2.03 million from dial up access revenue, £0.16 million from ADSL and £1.39 million from web services (co-location, hosting and domain names). Turnover from NSL (Internet) Ltd, acquired on 27 September 2000, is included for three months and amounts to £0.14 million, all in respect of web services. Gross profit Gross profit margin for the year was 60%. Net operating expenses Administrative expenses of £7.66 million comprise £2.74 million for salaries and other staff costs, £1.52 million for marketing, £0.52 million for the costs of operating the group’s telecom network and related technical infrastructure, £1.52 million for premises and office expenses, £1.04 million for depreciation and amortisation and £0.32 million for items regarded by the board as being outside the normal operations of the business. This amount of £0.32 million includes £0.15 million for professional fees relating to the stock exchange listing, £0.11 million for fees and other costs in connection with potential merger and acquisition opportunities not completed and £0.06 million in connection with the local loop unbundling process. Other operating income of £0.22 million relates primarily to grants received. Operating loss The total operating loss of £5.29 million is attributable to £5.14 million from continuing operations and £0.15 million from NSL. Net interest Bank interest receivable amounted to £0.67 million. Interest payable on borrowings was £0.15 million. Interest expense also includes a charge of £0.33 million in respect of the early redemption of a loan. Loss on ordinary activities The loss for the year was £5.1 million including £0.7 million for the loan redemption fee and other costs outside normal operations. Excluding these items the adjusted loss is £4.4 million. No tax charge arises in respect of the group’s trading. Cash and borrowings Cash balances at 31 December 2000 were £12.03 million. Borrowings under finance leases amounted to £2.63 million. The group had no other debt outstanding. Financial instruments The group’s financial instruments comprise cash and liquid resources and various items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to provide finance for the group’s operations. The main risk to the group is interest rate risk arising from floating rate interest rates. All transactions are in UK sterling and the group does not use derivative instruments. Financial Position The group’s financial position remains strong with sufficient cash reserves to fund the current business plan and take the group through to profitability. David Harrison Finance Director 10 May 2001 Page 6 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 CORPORATE GOVERNANCE While the company is listed on the Alternative Investment Market and is therefore not required to comply with the provisions of the Combined Code, the board is committed to ensuring that proper standards of corporate governance operate and has established governance procedures and policies that are considered appropriate to the nature and size of the group. The board considers that at this stage in the group’s development, the expense of full compliance with the Combined Code is not appropriate although it intends, as the group grows, to ensure that it observes the provisions of the Code, so far as is practicable. Directors and the board The board directs the group's activities in an effective manner through regular monthly board meetings and monitors performance through timely and relevant reporting procedures. Where it deems it necessary the board requests reports on specific areas outwith the normal reporting regime. The board comprises five executive and two non-executive directors. The roles of chairman and chief executive are separate appointments and it is board policy that this will continue. The board has established two committees, the audit committee and the remuneration committee, membership of both being exclusively non-executive. Nick Kuenssberg is chairman of the audit committee and Fred Shedden chairman of the remuneration committee. A separate report on directors’ remuneration is set out on pages 8 to 10. Accountability and audit The board considers that the annual report presents a balanced and understandable assessment of the group’s performance and prospects. The audit committee has written terms of reference setting out its authority and duties and meets at least twice per annum with the external auditors. Internal financial control The group has established policies covering the key areas of internal financial control and the appropriate procedures, controls, authority levels and reporting requirements which must be applied throughout the group. The key procedures that have been established in respect of internal financial control are as follows: (cid:2) (cid:2) Financial reporting; there is in place a comprehensive system of financial reporting based on the annual budget which the board approves. The results for the group as whole and each business sector are reported monthly, along with an analysis of key variances. Year-end forecasts are updated on a regular basis. Investment appraisal; applications for capital expenditure are made in a prescribed format which places emphasis on the commercial and strategic as well as the financial justification. All larger projects require specific board approval. No system can provide absolute assurance against material misstatement or loss but the group's systems are designed to provide reasonable assurance as to the reliability of financial information, ensuring proper control over income and expenditure, assets and liabilities. Page 7 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 REPORT OF THE BOARD TO THE MEMBERS ON DIRECTORS’ REMUNERATION Remuneration Committee The remuneration committee determines, on behalf of the board, the group’s policy for executive remuneration and the individual remuneration packages for executive directors. In setting the group’s remuneration policy, the remuneration committee considers a number of factors, including the following: (cid:2) (cid:2) (cid:2) salaries and benefits available to executive directors of comparable companies; the need to attract and retain executives of an appropriate calibre; continued commitment of executives to the group’s success through appropriate incentive schemes. Remuneration of non-executive directors The fees paid to the non-executive directors, who do not receive any bonus or other benefits, are determined by the board. Non-executive directors’ letters of appointment are on a twelve month rolling basis. Remuneration of executive directors The remuneration packages of the executive directors comprise the following elements: (cid:2) (cid:2) (cid:2) (cid:2) Base salary The remuneration committee sets base salaries to reflect responsibilities and the skill, knowledge and experience of the individual. Bonus scheme The executive directors are eligible to receive a bonus of up to 50% of basic salary dependent on individual and group performance at the discretion of the remuneration committee. Car allowance and other benefits The executive directors are entitled to a car allowance. However only one director received this allowance in the year ended 31 December 2000. No other benefits were provided. Pensions Pension contributions to individuals’ personal pension arrangements are payable by the group at the rate of twice the contribution made by the director subject to a maximum employer contribution of 10% of basic salary. All the executive directors other than David Harrison are engaged under service contracts which require a notice period of 12 months given any time on or after 31 March 2002. David Harrison’s contract is terminable on 12 months notice at any time. Page 8 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 REPORT OF THE BOARD TO THE MEMBERS ON DIRECTORS’ REMUNERATION (Continued) Directors’ remuneration Details of individual directors’ emoluments for the year are as follows: Name of director Salary and fees £ Bonus £ Benefits £ Pension contributions £ Year ended 31 December 2000 Total £ 18 month period ended 31 December 1999 Total £ Executive Bill Dobbie Neil Finlayson Sarah Haran David Harrison Angus MacSween Non-executive Nick Kuenssberg Fred Shedden 82,500 54,583 49,167 47,283 82,500 18,750 14,977 Directors’ interests in shares - 3,000 3,000 4,000 - - - - - 4,800 - - - - - - 1,250 - - - - 82,500 57,583 58,217 51,283 82,500 18,750 14,977 37,500 48,718 47,150 - 37,500 - - The interests of the directors in the shares of the company at 31 December 2000, together with their interests at 1 January 2000 were as follows: Name of director Bill Dobbie Neil Finlayson Sarah Haran David Harrison Nick Kuenssberg Angus MacSween Fred Shedden Number of ordinary shares 31 December 2000 1 January 2000 11,970,000 - 5,555 10,000 35,277 17,955,000 22,222 12,000,000 - - - - 18,000,000 - The shares held by Bill Dobbie and Angus MacSween at 1 January 2000 were at that time shares in iomart Limited, the relevant respective holdings being 600,000 and 900,000 ordinary shares which represented 100% of the ordinary share capital at that time. The figures given above for 1 January 2000 are the equivalent number of shares in the company represented by these iomart Limited shares. Page 9 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 REPORT OF THE BOARD TO THE MEMBERS ON DIRECTORS’ REMUNERATION (Continued) Directors’ interests in share options The interests of the directors at 31 December 2000 in options over the ordinary shares of the company were as follows: Name of director Neil Finlayson Sarah Haran David Harrison Nick Kuenssberg Fred Shedden 1 January 2000 159,746 (1) 159,747 (1) 159,747 (1) 159,746 (1) 159,747 (1) 159,747 (1) - - - - - - - - - Options over ordinary shares of 1p each Granted in the year Exercised 31 December 2000 Exercise price Date from which exercisable Expiry date - - - - - - 88,889 88,889 122,222 26,900 26,900 26,901 17,933 17,934 17,934 - - - - - - - - - - - - - - - 159,746 159,747 159,747 159,746 159,747 159,747 88,889 88,889 122,222 26,900 26,900 26,901 17,933 17,934 17,934 5p 5p 5p 5p 5p 5p 90p 90p 90p 90p 90p 90p 90p 90p 90p 11/5/00 11/2/01 11/2/02 14/12/08 14/12/08 14/12/08 11/5/00 11/2/01 11/2/02 14/12/08 14/12/08 14/12/08 30/5/01 30/5/02 30/5/03 19/4/01 19/4/02 19/4/03 19/4/01 19/4/02 19/4/03 30/5/10 30/5/10 30/5/10 19/4/10 19/4/10 19/4/10 19/4/10 19/4/10 19/4/10 (1) These options were originally granted over shares in iomart Limited and were exchanged for options in shares of the company on 29 March 2000 on the basis of 20 shares in the company for each share in iomart Limited. The figures stated at 1 January 2000 show the equivalent number of shares in the company represented by the then existing number of iomart Limited shares. In addition to the options shown, Angus MacSween and Sarah Haran have 13,454 and 8,072 options respectively under the company’s savings related share option scheme. These options were granted on 1 July 2000 at a price of 72p and are exercisable during the period of six months following the third anniversary of commencement of the relevant savings contract. No options lapsed during the period. No other directors have been granted share options in the shares of the company or other group companies. The market price of the company’s shares at the end of the financial period was 64.5p and the range of prices during the period from flotation on 19 April 2000 to the end of the financial period was between 94.0p and 64.5p. By order of the board Stewart Moir Company Secretary 10 May 2001 Page 10 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 DIRECTORS’ REPORT The directors present their annual report and the audited financial statements for the year ended 31 December 2000. Principal activity iomart Group plc was incorporated on 28 February 2000 and on 14 March 2000 it acquired all of the issued share capital of iomart Limited by way of a share for share exchange. The principal activity of the group is the provision of internet services, including access, domain names, web hosting and e-mail management. Business review and future developments A review of the results and development of the business for the year and of future developments in the business is contained within the chair- man’s statement on page 3, the chief executive’s review on pages 4 and 5 and the financial review on page 6. Placing and public offer and admission to AIM On 19 April 2000 shares in the company were admitted to and issued on the Alternative Investment Market raising £19 million net after expenses through a placing and public offer. Dividends No dividends have been paid or proposed for the year ended 31 December 2000 (1999 – nil). Directors and their interests The present membership of the board is set out below together with their dates of appointment. In accordance with the company’s articles of association, all the directors are required to resign and offer themselves for re-election at the forthcoming annual general meeting. Details of directors’ interests in the company’s shares are set out in the report of the board to the members on directors remuneration on pages 8 to 10. Bill Dobbie (1) Neil Finlayson (1) Sarah Haran (1) David Harrison Nick Kuenssberg Angus MacSween (1) Fred Shedden Business development director Technical director Customer service director Finance director Non-executive chairman Chief executive officer Non-executive director (appointed 14 March 2000) (appointed 14 March 2000) (appointed 14 March 2000) (appointed 15 May 2000) (appointed 29 March 2000) (appointed 14 March 2000) (appointed 29 March 2000) (1) The directors noted above were all directors of iomart Limited prior to their appointment as directors of iomart Group plc. Page 11 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 DIRECTORS’ REPORT (Continued) Substantial shareholdings At 25 April 2001 the following interests in three per cent or more of the issued ordinary share capital had been notified to the company: Number of ordinary shares Angus MacSween Bill Dobbie Henderson Smaller Companies Investment Trust The Fleming Mercantile Investment Trust Plc Axa Sun Life Schroder UK Growth Fund plc Donations 17,955,000 11,970,000 4,398,269 3,932,730 3,050,000 1,800,000 During the year the group made donations of £1,244 for charitable purposes. Employee involvement An employee forum meets regularly to consult with staff and to provide feedback to management on any issues raised by employees. A newsletter is sent to all staff every two months, providing information on developments within the group including updates on the group’s strategy and details of new products and services provided by the group. All staff are eligible to receive share options in the company under the group’s share option schemes and it is the board’s policy to make regular option awards to all levels of staff to encourage staff involvement in and commitment to the group’s performance. Employment of disabled persons Full and fair consideration is given to applications for employment made by disabled persons having regard to their particular aptitudes and abilities. Appropriate training is arranged for disabled persons, including retraining for alternative work of employees who become disabled, to promote their career development within the organisation. Supplier payment policy and practice The company and its subsidiaries agree the terms of payment when negotiating the terms and conditions for their transactions with their suppliers. Payment is made in compliance of those terms, subject to the terms and conditions of the relevant transaction having been met by the supplier. The group’s average creditor payment period at 31 December 2000 was 49 days (1999 – 54 days). The company did not have any transactions with suppliers. Auditors Deloitte & Touche have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming annual general meeting. By order of the board Stewart Moir Company Secretary 10 May 2001 Page 12 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 STATEMENT OF DIRECTORS’ RESPONSIBILITIES Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and the group as at the end of the financial year and of the profit or loss of the group for that period. In preparing those financial statements, the directors are required to: (cid:2) (cid:2) (cid:2) (cid:2) select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for the group’s system of internal financial control, for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Page 13 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2000 AUDITORS' REPORT TO THE MEMBERS OF IOMART GROUP PLC We have audited the financial statements on pages 15 to 34 which have been prepared under the accounting policies set out on pages 19 and 20. Respective responsibilities of directors and auditors The directors are responsible for preparing the annual report, including as described on page 13 preparation of the financial statements, which are required to be prepared in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established by statute, the Auditing Practices Board, the UK Listing Authority and by our profession’s ethical guidance. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions with the company and other members of the group is not disclosed. We read the other information contained in the annual report, including the corporate governance statement, and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Basis of audit opinion We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the company and the group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the company and the group as at 31 December 2000 and of the loss of the group for the year then ended and have been properly prepared in accordance with the Companies Act 1985. Deloitte & Touche Chartered Accountants and Registered Auditors Lomond House 9 George Square Glasgow G2 1QQ 10 May 2001 Page 14 IOMART GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT Year ended 31 December 2000 TURNOVER Continuing operations Acquisitions Total turnover Cost of sales Gross profit Administrative expenses Other operating income Net operating expenses OPERATING LOSS Continuing operations Acquisitions Group operating loss Net interest LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION Tax on loss on ordinary activities LOSS ON ORDINARY ACTIVITIES AFTER TAXATION FOR THE PERIOD Loss per ordinary share (pence) Basic Diluted Note Year ended 31 December 2000 £’000 Restated 18 months ended 31 December 1999 £’000 3 3 3 3 3,4 3 6 7 9 9 3,443 138 3,581 (1,424) 2,157 (7,663) 219 283 - 283 (225) 58 (2,308) 151 (7,444) (2,157) (5,135) (152) (2,099) - (5,287) (2,099) 185 (64) (5,102) - (2,163) - (5,102) (2,163) (10.9p) (11.0p) (11.0p) (11.0p) There have been no recognised gains and losses attributable to the shareholders other than the loss for the current financial year and accordingly, no statement of total recognised gains and losses is shown. Page 15 IOMART GROUP PLC CONSOLIDATED BALANCE SHEET 31 December 2000 FIXED ASSETS Intangible assets Tangible assets CURRENT ASSETS Debtors Cash at bank and in hand CREDITORS: amounts falling due within one year NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES Note 10 11 13 14 2000 £’000 1999 £’000 1,174 3,960 5,134 1,792 12,026 13,818 198 1,291 1,489 370 475 845 (3,772) (1,387) 10,046 15,180 (542) 947 CREDITORS: amounts falling due after more than one year 15 (1,620) (1,610) NET ASSETS/ (LIABILITIES) CAPITAL AND RESERVES Called up share capital Capital redemption reserve Share premium account Profit and loss account TOTAL EQUITY SHAREHOLDERS’ FUNDS/ (DEFICIT) 13,560 (663) 538 1,200 19,087 (7,265) 13,560 1,500 - - (2,163) (663) 17 18 18 18 19 These financial statements were approved by the board of directors on 10 May 2001. Signed on behalf of the board of directors Angus MacSween Director Page 16 IOMART GROUP PLC COMPANY BALANCE SHEET 31 December 2000 FIXED ASSETS Investments CURRENT ASSETS Debtors Cash at bank and in hand CREDITORS: amounts falling due within one year NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES CREDITORS: amounts falling due after more than one year NET ASSETS CAPITAL AND RESERVES Called up share capital Capital redemption reserve Share premium account Profit and loss account TOTAL EQUITY SHAREHOLDERS’ FUNDS Note 12 13 17 18 18 18 19 These financial statements were approved by the board of directors on 10 May 2001. Signed on behalf of the board of directors Angus MacSween Director Page 17 2000 £’000 1,525 6,756 12,118 18,874 - 18,874 20,399 - 20,399 538 1,200 19,087 (426) 20,399 IOMART GROUP PLC CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2000 Net cash outflow from operating activities Returns on investments and servicing of finance Capital expenditure Acquisitions Cash outflow before financing Financing Increase in cash in the period Reconciliation of net cash flow to movement in net funds Increase in cash in the period Cash outflows/(inflows) from debt and lease financing Change in net funds/(debt) from cash flows New hire purchase and finance leases Hire purchase and finance leases acquired with subsidiary Opening net debt Closing net funds/(debt) Note 20 21 21 21 21 22 22 22 22 22 Year ended 31 December 2000 £’000 18 months ended 31 December 1999 £’000 (4,681) (1,001) 185 (1,206) 5 (64) (497) - (5,697) (1,562) 17,248 11,551 11,551 2,077 13,628 (2,723) (42) (1,465) 2,037 475 475 (537) (62) (1,403) - - 9,398 (1,465) Page 18 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 1. ACCOUNTING POLICIES The financial statements are prepared in accordance with applicable accounting standards. There has been no impact on the financial statements, following the adoption of Financial Reporting Standard Numbers 15 and 16. The particular accounting policies adopted are described below. Accounting convention The financial statements are prepared under the historical cost convention. Restatement Cost of sales and administrative expenses of the prior period have been restated to align them with the revised reporting structure of the group. The effect of this restatement amounts to a transfer of cost of sales to administrative expenses of £1.312 million in the period to 31 December 1999. Basis of consolidation iomart Group plc was incorporated on 28 February 2000 and on 14 March 2000 it acquired all of the issued share capital of iomart Limited by way of a share for share exchange. The group financial statements consolidate the financial statements of iomart Group plc and its subsidiary, iomart Limited, under merger accounting principles as if the company had always owned iomart Limited and as though iomart Group plc had always existed. There was no difference between the nominal value of the shares issued by the company and the nominal value of the shares acquired in the purchase of iomart Limited. The results of NSL (Internet) Limited have been incorporated under acquisition accounting principles. Acquisitions On the acquisition of a business fair values are attributed to the group’s share of net separable assets. Where the cost of acquisition exceeds the fair values attributable to such net assets, the difference is treated as purchased goodwill and is capitalised in the group balance sheet in the year of acquisition. The results and cash flows relating to a business are included in the consolidated profit and loss account and the consolidated cash flow statement from the date of acquisition. Goodwill and intangible fixed assets Purchased goodwill arising on the acquisition of a business is capitalised in the year in which it arises and amortised over the directors’ estimate of its useful life. The purchased goodwill arising in the year is being amortised over 3 years, which is the directors’ estimate of its useful life. Software licences are capitalised as intangible assets and amortised over the period of the licence. Tangible fixed assets Depreciation is provided on cost in equal annual instalments over the estimated useful lives of the assets. The rates of depreciation are as follows: Short-term leasehold improvements Computer software and equipment Office equipment and vehicles 25% per annum Between 20% and 50% per annum 25% per annum Investments Investments held as fixed assets are stated at cost less provision for any permanent diminution in value. Grants Amounts receivable as capital grants are treated as deferred income and credited to the profit and loss account by instalments on a basis consistent with the depreciation policy. Revenue grants are credited to the profit and loss account in line with the expenditure to which they relate. Page 19 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 1. ACCOUNTING POLICIES (CONTINUED) Deferred taxation Deferred taxation is provided on timing differences, arising from the different treatment of items for accounts and taxation purposes, which are expected to reverse in the future, calculated at rates at which it is estimated that tax will arise. Leases Assets obtained under finance leases and hire purchase contracts are capitalised at their fair value on acquisition and depreciated over their estimated useful lives. The finance charges are allocated over the period of the lease in proportion to the capital element outstanding. Operating lease rentals are charged to income in equal annual amounts over the lease term. Development expenditure Development expenditure is charged to the profit and loss account as incurred. 2. ACQUISITIONS On 27 September 2000 the whole issued share capital of NSL (Internet) Limited was acquired for a consideration of £1. This acquisition has been accounted for using the acquisition method of accounting. The amount of goodwill arising as a result of the acquisition is £684,000 (see note 23), which is being amortised over 3 years. 3. ANALYSES OF CONTINUING OPERATIONS AND ACQUISITIONS Continuing Year ended 31 December 2000 £’000 Acquisitions Year ended 31 December 2000 £’000 Total Year ended 31 December 2000 £’000 Restated continuing 18 months ended 31 December 1999 £’000 283 (225) 58 138 (63) 75 3,581 (1,424) 2,157 (227) - (7,663) 219 (2,308) 151 (227) (7,444) (2,157) (152) (5,287) (2,099) Turnover Cost of sales Gross profit Administrative expenses Other operating income Net operating expenses Operating loss 3,443 (1,361) 2,082 (7,436) 219 (7,217) (5,135) Turnover comprises revenue from dial up access, ADSL and web services, excluding VAT. Page 20 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 4. OPERATING LOSS Operating loss is after charging/(crediting) Depreciation of tangible fixed assets: Owned assets Leased assets Amortisation of intangible fixed assets Loss on sale of assets Rentals under operating leases Revenue grants Amortised deferred grant income Auditors’ remuneration - company audit fees - group audit fees - other services Year ended 31 December 2000 £’000 18 months ended 31 December 1999 £’000 117 709 219 24 145 (120) (89) 10 26 134 118 293 - - 58 (99) (18) 15 - - Included within administrative expenses are exceptional items totalling £318,000, made up of £151,000 in relation to professional fees for admission to the Alternative Investment Market, £107,000 for professional fees in respect of aborted acquisitions and £60,000 in connection with the local loop unbundling process. There is also an exceptional bank redemption fee as shown in note 6. 5. INFORMATION REGARDING DIRECTORS AND EMPLOYEES Directors’ emoluments Aggregate emoluments Pension contributions to money purchase schemes Emoluments payable to the highest paid director are as follows: Aggregate emoluments Pension contributions to money purchase schemes Year ended 31 December 2000 £’000 18 months ended 31 December 1999 £’000 365 1 83 - 171 - 49 - The detailed numerical analysis of directors’ remuneration and share options is included in the report of the board to the members on directors’ remuneration on pages 8 to 10. Page 21 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 5. INFORMATION REGARDING DIRECTORS AND EMPLOYEES (CONTINUED) Average number of persons employed by the group: Technical Customer services Sales and marketing Administration Staff costs during the year in respect of these employees were: Wages and salaries Social security costs Other pension costs 6. NET INTEREST Investment income: Bank interest receivable Interest payable and similar charges: Bank overdraft and other borrowings Finance leases and hire purchase contracts Exceptional charge on early redemption of loan Net interest 7. TAX ON LOSS ON ORDINARY ACTIVITIES Year ended 31 December 2000 No 18 months ended 31 December 1999 No 23 70 25 15 133 £’000 2,500 244 1 2,745 10 18 4 4 36 £’000 637 59 - 696 Year ended 31 December 2000 £’000 18 months ended 31 December 1999 £’000 667 (13) (136) (333) (482) 185 21 (13) (72) - (85) (64) There is no tax charge in the period due to the availability of losses. Unrelieved losses of £7,472,000 are carried forward and are available to reduce the tax liability in respect of future trading profits. 8. LOSS OF PARENT COMPANY As permitted by Section 230 of the Companies Act, the profit and loss account of the parent company is not presented as part of these accounts. The parent company’s loss for the financial period was £426,000. Page 22 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 9. LOSS PER ORDINARY SHARE Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is calculated by adjusting the weighted average number of shares in issue on the assumption of conversion of all dilutive potential ordinary shares. The group has only one category of dilutive potential ordinary shares, being those share options granted where the exercise price is more than the average price of the company’s ordinary shares during the year. Loss for the financial year and basic and diluted earnings attributed to ordinary shareholders Weighted average number of ordinary shares Effect of dilutive share options Loss per share Diluted loss per share 10. INTANGIBLE ASSETS The group Cost At 1 January 2000 Additions in year At 31 December 2000 Accumulated amortisation At 1 January 2000 Charge for year At 31 December 2000 Net book value At 31 December 2000 At 31 December 1999 Year ended 31 December 2000 £’000 18 months ended 31 December 1999 £’000 (5,102) (2,163) No ‘000 46,709 (134) 46,575 (10.9p) (11.0p) Goodwill £’000 Software licences £’000 - 684 684 - 57 57 627 - 282 511 793 84 162 246 547 198 Page 23 No ‘000 19,651 - 19,651 (11.0p) (11.0p) Total £’000 282 1,195 1,477 84 219 303 1,174 198 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 11. TANGIBLE FIXED ASSETS The group Cost At 1 January 2000 Additions in year Disposals At 31 December 2000 Accumulated depreciation At 1 January 2000 Charge for the period Disposals At 31 December 2000 Net book value At 31 December 2000 At 31 December 1999 Leasehold improvements £’000 Computer Office software equipment and vehicles £’000 and equipment £’000 Total £’000 50 196 - 246 10 36 - 46 200 40 1,553 3,119 (23) 4,649 316 756 (1) 1,071 3,578 1,237 16 204 (2) 1,619 3,519 (25) 218 5,113 2 34 - 36 328 826 (1) 1,153 182 3,960 14 1,291 The net book value of the group’s tangible fixed assets includes the following amounts in respect of assets held under finance leases and hire purchase contracts: Leasehold improvements £’000 Computer Office software equipment and vehicles £’000 and equipment £’000 Total £’000 At 31 December 2000 At 31 December 1999 95 - 2,933 1,096 145 3,173 - 1,096 Page 24 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 12. INVESTMENTS HELD AS FIXED ASSETS The company Cost Additions in year Net book value At 31 December 2000 Shares in subsidiary undertakings £’000 1,525 1,525 All of the above investments are unlisted. Included within the additions in the year is £1,500,000 in respect of iomart Limited and £25,000 in respect of NSL (Internet) Limited. The details of the share for share exchange between iomart Limited and iomart Group plc are included within the accounting policies on page 19. The following subsidiaries have been consolidated in the group accounts: Country of registration and operation Activity Portion of ordinary shares held % iomart Limited Scotland Internet services NSL (Internet) Limited Scotland Web services 13. DEBTORS The group Trade debtors Other debtors Prepayments and accrued income The company Amounts owed by subsidiary undertakings 100 100 1999 £’000 127 140 103 370 - 2000 £’000 557 520 715 1,792 6,756 Included within other debtors is £40,500 in respect of an amount overpaid to Adabrock Broadcasting Company, a partnership owned by Bill Dobbie and Angus MacSween. This amount was repaid after the year end. This represents the maximum amount outstanding during the year and attracted no interest. Page 25 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 14. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR The group Obligations under finance leases and hire purchase contracts (note 16) Trade creditors Taxation and social security Other creditors Accruals and deferred income 15. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR The group Bank loan Obligations under finance leases and hire purchase contracts (note 16) Deferred income 2000 £’000 1,097 1,373 149 30 1,123 3,772 2000 £’000 - 1,531 89 1,620 1999 £’000 422 713 23 - 229 1,387 1999 £’000 1,000 518 92 1,610 The bank loan was repayable in full on the earlier of either an admission to the Stock Exchange, or in October 2004. The bank loan was repaid in full on 19 April 2000, the date of admission to the Alternative Investment Market. 16. BORROWINGS The group Bank loan Obligations under finance leases and hire purchase contracts The obligations under finance leases and hire purchase contracts are secured by the related assets and are repayable as follows: Due within one year Due between two and five years 2000 £’000 - 2,628 2,628 1,097 1,531 2,628 1999 £’000 1,000 940 1,940 422 518 940 Page 26 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 17. CALLED UP SHARE CAPITAL The group and company Authorised On incorporation Sub-division Shares redeemed Increase in year Number of shares Ordinary shares of £1 Deferred shares of 1p Ordinary shares of 1p 2000 £’000 1,500,000 (1,500,000) - - - 120,000,000 (120,000,000) - - 30,000,000 - 70,000,000 1,500 - (1,200) 700 At 31 December 2000 - - 100,000,000 1,000 Called up, allotted and fully paid Allotted on acquisition of subsidiary Sub-division Shares redeemed Allotted in placings and public offer Shares cancelled 1,500,000 (1,500,000) - - - - 120,000,000 (120,000,000) - - - 30,000,000 - 23,801,169 (5,555) 1,500 - (1,200) 238 - At 31 December 2000 - - 53,795,614 538 On 28 February 2000 the company issued 2 ordinary shares at £1 per share on incorporation. On 14 March 2000 the company issued 1,499,998 ordinary shares at £1 per share and entered into a share exchange with iomart Limited, on a share for share basis at par value. On 21 March 2000 the company subdivided the 1,500,000 ordinary shares of £1 into 150,000,000 ordinary shares of 1p and converted 120,000,000 of such ordinary shares into deferred shares of 1p. On 21 March 2000 the company repurchased the 120,0000,000 deferred shares for a nil consideration and reduced the share capital accordingly. On 19 April 2000 the company issued 1,578,947 ordinary shares of 1p each on the exercise of an option, as part of an arrangement for the early settlement of a bank loan, for cash consideration of £78,947. On 19 April 2000, the company issued 22,222,222 ordinary shares of 1p in a placing and public offer for a cash consideration of £20,000,000. 5,555 ordinary shares of 1p were subsequently cancelled following non payment of the cash consideration of £5,000. The company operates an approved share option scheme, an unapproved share option scheme and a savings related share option scheme. Page 27 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 17. CALLED UP SHARE CAPITAL (Continued) At 31 December 2000, 90 employees and directors held share options as follows: Approved scheme Unapproved scheme Other unapproved options Number of shares Exercise price per share Date from which exercisable Expiry date 384,550 33,333 95,000 17,500 88,000 91,130 91,130 91,130 88,889 88,889 88,889 21,111 21,111 21,111 649,623 649,628 649,629 90.0p 90.0p 78.5p 78.5p 75.0p 90.0p 90.0p 90.0p 90.0p 90.0p 90.0p 78.5p 78.5p 78.5p 5.0p 5.0p 5.0p 19/4/2003 30/5/2003 17/8/2003 4/9/2003 1/11/2003 19/4/2010 30/5/2010 17/8/2010 4/9/2010 1/11/2010 19/4/2001 19/4/2002 19/4/2003 30/5/2001 30/5/2002 30/5/2003 17/8/2001 17/8/2002 17/8/2003 19/4/2010 19/4/2010 19/4/2010 30/5/2010 30/5/2010 30/5/2010 17/8/2010 17/8/2010 17/8/2010 11/5/2000 11/2/2001 11/2/2002 14/12/2008 14/12/2008 14/12/2008 Savings related scheme 229,773 72.0p 1/7/2003 1/1/2004 Page 28 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 18. STATEMENT OF MOVEMENT ON RESERVES The group Loss for the financial period Shares redeemed New share capital subscribed Expenses of share issue Net increase/(reduction) Opening balance Closing balance The company Loss for the financial period Shares redeemed New share capital subscribed Expenses of share issue Net increase Opening balance Closing balance 19. MOVEMENT IN SHAREHOLDERS’ FUNDS The group Loss for the financial period Shares issued – net of expenses Net increase/(reduction) in shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds Page 29 Capital redemption reserve £’000 - 1,200 - - Share premium account £’000 - - 19,835 (748) Profit and loss account £’000 (5,102) - - - 1,200 19,087 (5,102) - - (2,163) 1,200 19,087 (7,265) - 1,200 - - - - 19,835 (748) (426) - - - 1,200 19,087 (426) - - - 1,200 19,087 (426) Year ended 31 December 2000 £’000 18 months ended 31 December 1999 £’000 (5,102) (2,163) 19,325 1,500 14,223 (663) (663) - 13,560 (663) IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 19. MOVEMENT IN SHAREHOLDERS’ FUNDS (CONTINUED) The company Loss for the financial period New share capital subscribed Closing shareholders’ funds 20. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES Year ended 31 December 2000 £’000 (426) 20,825 20,399 Operating loss Depreciation Amortisation of intangible assets Loss on sale of assets Increase in debtors Increase in creditors Year ended 31 December 2000 £’000 18 months ended 31 December 1999 £’000 (5,287) 826 219 24 (1,283) 820 (2,099) 327 84 - (370) 1,057 Net cash outflow from operating activities (4,681) (1,001) 21. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT Returns on investments and servicing of finance Other interest receivable Bank overdraft and other borrowings Finance leases and hire purchase contracts Charge on early redemption of bank loan Capital expenditure and financial investment Payments to acquire tangible fixed assets Payments to acquire intangible fixed assets Page 30 Year ended 31 December 2000 £’000 18 months ended 31 December 1999 £’000 667 (13) (136) (333) 185 (695) (511) (1,206) 21 (13) (72) - (64) (215) (282) (497) IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 21. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT (CONTINUED) Acquisitions Purchase of subsidiary undertaking Net cash acquired with subsidiary Financing Issue of ordinary shares Expenses of share issue New borrowings Repayment of borrowings Capital element of finance lease rental and hire purchase contract payments 22. ANALYSIS OF CHANGE IN NET FUNDS/ (DEBT) Year ended 31 December 2000 £’000 18 months ended 31 December 1999 £’000 (25) 30 5 20,073 (748) - (1,000) (1,077) - - - 1,500 - 1,000 - (463) 17,248 2,037 At 31 December 1999 £’000 Acquisitions excluding cash £’000 Other non-cash changes £’000 At 31 December 2000 £’000 Cash flow £’000 Cash at bank and in hand 475 11,551 Bank loan Finance leases and hire purchase Total debt Net funds/(debt) (1,000) (940) (1,940) 1,000 1,077 2,077 (1,465) 13,628 - - (42) (42) (42) - 12,026 - (2,723) - (2,628) (2,723) (2,628) (2,723) 9,398 Page 31 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 23. PURCHASE OF SUBSIDIARY UNDERTAKING On 27 September 2000, the company acquired the entire issued shareholding of NSL (Internet) Limited. Net assets acquired, were as follows: Tangible fixed assets Debtors Cash at bank and in hand Creditors Hire purchase contracts Goodwill Satisfied by: Cash £’000 101 140 30 (888) (42) (659) 684 25 25 The directors are satisfied that the net assets acquired are equivalent to the fair values. The summarised profit and loss account of NSL (Internet) Limited for the period from 1 April 2000 to 27 September 2000 is as follows: Turnover Operating loss Loss before and after taxation £’000 246 (522) (522) The loss after tax for NSL (Internet) Limited for the period from 1 April 1999 to 31 March 2000 was £323,000. The subsidiary undertaking acquired during the year contributed £24,000 to the group’s net operating cash flows, paid £1,000 in respect of returns on investments and servicing of finance, paid £17,000 for capital expenditure and utilised £7,000 for financing. 24. CAPITAL COMMITMENTS The group Contracted for but not provided 2000 £’000 140 1999 £’000 - Page 32 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 25. OPERATING LEASE COMMITMENTS At 31 December 2000 the group was committed to making the following payments during the next year in respect of operating leases: Leases which expire: Within one year Within two to five years After five years 26. RELATED PARTY TRANSACTIONS Land and buildings 2000 £’000 Other 2000 £’000 Land and buildings 1999 £’000 30 284 267 581 - 7 - 7 30 - 44 74 Other 1999 £’000 - - - - During the year the group purchased services of £255,000 (1999 - £72,000) from Abovenet Limited in respect of bandwidth usage and recharged them £33,000. Angus MacSween and Bill Dobbie were directors and shareholders in Abovenet Limited for part of the period. At the year end there is an amount due to Abovenet Limited of £53,000 (1999 - £51,000) and an amount due from Abovenet Limited of £33,000 (1999 – nil). During the year the group paid rent of £30,000 (1999 - £17,500) to Adabrock Broadcasting Company, a partnership in which Angus MacSween and Bill Dobbie are partners. There was also an overpayment made to Adabrock Broadcasting Company amounting to £41,000 which remained outstanding at the year end. The amount has been repaid after the year end. On 27 March 1999 iomart Limited entered in to a ten year property rental agreement with Highlands and Islands Enterprise. The rent is £55,000 per annum with a two year rent free period. Neil Finlayson, a director of the company, is also a director of Highlands and Islands Enterprise. There are no outstanding balances at the year end (1999 - £nil). Fred Shedden was still a partner in McGrigor Donald for a period after being appointed as a non-executive director of the company. During the year the group purchased services of £162,476 from McGrigor Donald. At the year end there was an amount due to McGrigor Donald of £51,856 (1999 - £36,437). All of the above transactions were carried out at arms’ length. 27. FINANCIAL INSTRUMENTS The group’s policies as regards financial instruments are set out in the financial review on page 6. The group does not trade in financial instruments. The group has no undrawn committed borrowing facilities (1999 – nil). Short-term debtors and creditors have been omitted from all disclosures other than the currency profile. The fair value of the group’s cash balances is the same as the carrying values as disclosed in the balance sheets on pages 16 and 17. Page 33 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 December 2000 28. SUPPLEMENTARY PROFIT AND LOSS ACCOUNT The consolidated profit and loss account for the period from 28 February 2000, the date of incorporation, to 31 December 2000, which represents the parent company’s accounting reference period, is as follows: Turnover Cost of sales Gross profit Administrative expenses Other operating income Net operating expenses Group operating loss Net interest Loss before taxation Taxation Loss after taxation 29. POST BALANCE SHEET EVENT On 10 May 2001 the group sold its dial up access business for a cash consideration of £3 million. £’000 3,287 (1,345) 1,942 (7,036) 200 (6,836) (4,894) 214 (4,680) - (4,680) Page 34 IOMART GROUP PLC NOTICE OF 2001 ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the 2001 annual general meeting of iomart Group plc will be held at Fleming Pavilion, Todd Campus, West of Scotland Science Park, Glasgow G20 0XA on 19 June 2001 at 4pm, for the purpose of considering and, if thought fit, transacting the following business:- 1 Ordinary Business 1.1 to receive and adopt the accounts of the company and the directors' and auditors' reports thereon for the year ending 31 December 2000; 1.2 to reappoint William Dobbie as a director of the company (a "Director"); 1.3 to reappoint Neil Finlayson as a Director; 1.4 to reappoint Sarah Haran as a Director; 1.5 to reappoint David Alexander Harrison as a Director; 1.6 to reappoint Nicholas Christopher Dwelly Kuenssberg as a Director; 1.7 to reappoint Angus MacSween as a Director; 1.8 to reappoint Alfred Charles Shedden as a Director; 1.9 to reappoint Deloitte & Touche, Chartered Accountants, as auditors of the company and to authorise the directors to fix their remuneration; 2 Special Business to consider and, if thought fit, pass the following resolution as an ordinary resolution:- that the directors be and they are hereby empowered generally and unconditionally authorised to exercise all of the powers of the company to allot relevant securities (within the meaning of Section 80(2) of the Companies Act 1985) subject always to the provisions of the articles of association of the company provided that:- the maximum nominal amount of relevant securities to be allotted in pursuance of such authority shall be £225,781; and this power shall expire, unless sooner revoked or varied by the company, on the conclusion of the next annual general meeting of the company or the expiry of the period of 15 months from the date of the passing of this resolution whichever is the earlier, save that the company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of such offer or agreement as if the power conferred hereby had not expired. (a) (b) And to consider and, if thought fit, pass the following resolution as a special resolution:- Page 35 IOMART GROUP PLC NOTICE OF 2001 ANNUAL GENERAL MEETING (Continued) 3 that the directors be and are hereby empowered pursuant to section 95(1) of the Companies Act 1985 (the "Act") to allot equity securities (within the meaning of Section 94 of the Act) pursuant to the authority conferred by resolution 2 above as if Section 89(1) of the Act did not apply to such allotment provided that this power shall be limited to:- (a) an offer and allotment of equity securities by way of rights in favour of holders of ordinary shares where the equity securities respectively attributable to the interest of all such holders are proportionate (as nearly as may be) to the respective number of ordinary shares held, or deemed to be held, by them but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to fractional entitlements or any legal or practical problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory; and (b) the allotment (otherwise than pursuant to (a) above) of equity securities up to an aggregate nominal amount of £80,693; provided that this authority shall expire, unless sooner revoked or varied by the company, on the conclusion of the next annual general meeting of the company or the expiry of the period of 15 months from the date of the passing of this resolution whichever is the earlier, unless sooner revoked or varied by the company in general meeting and save that the company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such offer or agreement as if the authority conferred hereby had not expired. By order of the board Stewart Moir Company Secretary 10 May 2001 Notes Fleming Pavilion, Todd Campus West of Scotland Science Park Glasgow, G20 0XA 1. 2. 3. The register of directors’ interests in the share capital of the company and copies of directors’ service contracts or letters of appointment with the company will be available for inspection at the registered office of the company during usual business hours on any weekday (public holidays excluded) from the date of this notice until the date of the meeting. A member of the company entitled to attend and vote at the above meeting may appoint one or more proxies (whether a member or not) to attend and on a poll vote instead of him. A form of proxy is enclosed. To be effective this form of proxy must be deposited, together with the power of attorney or other authority under which it is executed or a notarially certified copy of such power or authority, at the office of the company’s registrars, Capita IRG plc, Bourne House, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, not later than 48 hours before the time of the meeting or any adjournment thereof. Completion of a form of proxy will not preclude a member from attending and voting in person. For the purposes of determining who is entitled to attend and vote (whether on a show of hands or as a poll) at the meeting a person must be entered on the register of members not later than 48 hours before the time of the meeting, or any adjournment thereof. Page 36 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) iomart Group plc Fleming Pavilion, Todd Campus West of Scotland Science Park, Glasgow, G20 0XA Tel: +44 (0)141 931 7000 Fax: +44 (0)141 931 7001 www.iomart.com