iomart Group plc. Report and Financial Statements. 31 March 2003 Deloitte & Touche, Glasgow IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 CONTENTS • Officers and professional advisers • Chairman’s statement • Chief executive officer’s report • Corporate governance • Report of the board to the members on directors’ remuneration • Directors’ report • Statement of directors’ responsibilities • Board of directors • Independent 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 10 11 12 13 15 16 17 18 19 35 P a g e 1 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 OFFICERS AND PROFESSIONAL ADVISERS Non executive chairman Chief executive officer Business development director Operations director Non executive director Directors Nick Kuenssberg Angus MacSween Bill Dobbie Sarah Haran Fred Shedden Secretary Stewart Moir Registered office Fleming Pavilion Todd Campus West of Scotland Science Park Glasgow G20 0XA Nominated adviser and broker Peel Hunt plc 111 Old Broad Street London EC2N 1HP Bankers Bank of Scotland 235 Sauchiehall Street Glasgow G2 3EY Solicitors McGrigor Donald Pacific House 70 Wellington Street Glasgow G2 6SB Independent Auditors Deloitte & Touche Glasgow Registrars Capita IRG plc Bourne House 34 Beckenham Road Beckenham Kent BR3 4TU P a g e 2 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 CHAIRMAN’S STATEMENT The year 2002/03 has seen the company focusing on its two businesses of network security software and web services. The figures showing revenues of £2.2 million (2002 - £5.4 million) and a loss of £1.9 million (2002 - £7.9 million) demonstrate the effects of this focus and the impact of a more robust business model. NetIntelligence has been developed into a sophisticated tool in the growing content management market related to the increased usage of email, internet and networks by companies both large and small. The latest version 3.07, providing a full range of detailed management reports, suitable for both corporate and SME customers, has a significant sales pipeline with some forty customers to date. Potential for major announcements in the near term emphasises the validity of this product portfolio. The speed of uptake has however been disappointing and will probably remain below expectations in the current business climate. New sales initiatives should begin to create more significant sales revenue before the end of the current year. Web services are based on the iomart Internet operation with sales offices originally in Lancaster and latterly in Barrow, backed up by office and infrastructure in Glasgow and a third sales team potentially also in Glasgow. Sales are now running at £2.5 million per annum and progress will be enhanced by the introduction of new products for our customer base of c. 7,000. The ability of the existing Glasgow hosting business has been underwritten by having recently won a substantial deal from a major media group. We exited the operations in Germany early in the year, full provision having already been made at March 2002 as advised with the 2001/02 results. It is not anticipated that the 20% holding in Canbox Technologies GmbH will create any value for shareholders. Although we have looked at other companies and business opportunities to complement our offerings, our focus is clear and we have not been distracted. We retain cash balances of £4 million which will be sufficient to fund both incremental marketing spend for NetIntelligence and the further development of our web services business. The promotion of NetIntelligence demands a new director of sales who started in April. As a consequence Bill Dobbie will move from an executive to a non-executive role as at the date of the AGM with a wide-ranging remit for strategic development. Our tight cohesive board remains appropriate for the current size and shape of your company’s activities. We remain confident about both our businesses. With overhead expense running at £220,000 per month and a maturing sales platform we believe that monthly group profitability is achievable before the end of the current financial year. Nick Kuenssberg Non-executive chairman 20 May 2003 P a g e 3 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 CHIEF EXECUTIVE OFFICERS REPORT The year to end March 2003 has been one of consolidation, cost control and concentration on building our two business streams. We began April 2002 with a relatively new software product, NetIntelligence, and an embryonic web services business, having restructured our telecoms business. Whilst this has reduced revenues to £2.2 million we have dramatically improved our profit and loss account from losses of £7.9 million to a loss of £1.9 million. Our focus is on continuing to bear down on cost, whilst growing aggressively our web services business via direct sales by c. 1,000 customers a month to ensure a quality recurring revenue stream and increasing our revenues from direct and indirect sales of NetIntelligence. Whilst we attained our forecast revenue for web services, sales of NetIntelligence are still not flowing through as quickly as we had hoped. However we remain convinced that, with an ever improving product and the increasing demands around the management of internet and email, we will start to close significant sales through this year. Results Turnover for the year of £2.19 million is made up of £2.17 million from ongoing operations, network security and web services (co-location, hosting, domain names and mail), and £0.02 million from the discontinued operations in Germany. Administrative expenses totalled £3.81 million, which represents a considerable decrease on the total of £11.08 million for the previous period. In addition, restructuring costs of £0.47 million were incurred. We have continued to reduce our administrative expenses to reflect our current business. We have carried out an extensive impairment review of all tangible and intangible fixed assets and have fully written down those where we do not anticipate any recoverable value. Going forward the requirement for capital expenditure is expected to be modest. The group operating loss was £2.40 million compared with a total of £11.84 million, of which £6.98 million was attributable to continuing operations for the previous period. Bank interest receivable amounted to £0.20 million. Interest payable on finance leases and hire purchase contracts was £0.03 million. The loss for the year before taxation was £2.22 million. There is no liability to corporation tax on the results for the year and research and development tax credits totalling £0.33 million are due to be refunded to the group, resulting in a loss after taxation for the year of £1.89 million (2002 - £7.90 million). The loss per share for the year was 3.5p compared to 14.7p for the 15 months ended 31 March 2002. Cash and borrowings Cash balances at 31 March 2003 were £4.04 million. Borrowings under finance leases amounted to £0.54 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 of the holding company and the UK subsidiaries 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. P a g e 4 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 CHIEF EXECUTIVE OFFICERS REPORT (Continued) Prospects We are continuing to meet our revenue and customer acquisition forecasts in web services, focused on providing web hosting and related services to small business. We believe there are significant growth opportunities in this sector as knowledge and understanding of the internet matures within the small and micro business community. Our challenge with NetIntelligence remains to break into the security and content management market in a meaningful way. The next twelve months will be critical in this regard but we remain confident that the leadership we have in functionality will win us important reference cus- tomers in the year ahead. Angus MacSween Chief executive officer 20 May 2003 P a g e 5 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 CORPORATE GOVERNANCE While the company is listed on the Alternative Investment Market it is not required to comply with the provisions of the Combined Code. However 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 and with the further implications of both the Higgs and Smith reports is not appropriate although it intends to ensure that it observes the provisions of the Code as the group grows, 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 three 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 7 to 9. As stated in the chairman’s review there will be a change in the formal structure of the board as at the annual general meeting whereby Bill Dobbie will give up his executive role and become a non executive director in response to the changing requirements of the company. He will also become a member of both the audit and the remuneration committees. 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 three times a year 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: • 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 significant 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. P a g e 6 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 REPORT OF THE BOARD TO THE MEMBERS ON DIRECTORS’ REMUNERATION In framing its remuneration policy, the committee has given consideration to the Combined Code issued by the London Stock Exchange. While the company is listed on the Alternative Investment Market, it is not required to comply with the provisions of Schedule 7a of the Companies Act. The following disclosures are voluntary as is the resolution (1.5) to approve this report at the annual general meeting. Remuneration Committee The remuneration committee determines, on behalf of the board, the group’s policy for executive remuneration and the individual remunera- tion packages for executive directors. In setting the group’s remuneration policy, the remuneration committee considers a number of factors, including the following: • 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 executive directors The remuneration packages of the executive directors comprise the following elements: • Base salary The remuneration committee sets base salaries to reflect responsibilities and the skill, knowledge and experience of the individual. The executive directors do not receive directors’ fees. • 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. 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 are engaged under service contracts which require a notice period of 12 months given any time on or after 31 March 2003. 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. Constitution of board As noted in the chairman’s review the board has considered the requirements of the company and determined that Bill Dobbie will transfer from an executive role to the role of non executive director and a consultant with a wide-ranging strategic remit with effect from the date of the annual general meeting. He will have a letter of appointment as a non executive director on a twelve month rolling basis. P a g e 7 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 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 Executive Angus MacSween Bill Dobbie Sarah Haran Neil Finlayson (resigned 26/6/02) Non-executive Nick Kuenssberg Fred Shedden David Harrison (resigned 26/6/02) Salary or fees £ 93,500 85,000 62,083 15,750 20,000 15,000 3,750 ended Compensation 31 March 2003 Total £ for loss of office £ Year 15 months ended 31 March 2002 Total £ Pension Benefits contributions £ £ 7,200 7,200 7,200 1,800 - - - 9,350 8,500 2,561 - - - - 25,000 110,050 100,700 71,844 42,550 132,458 130,792 89,359 90,000 - - - - - - 20,000 15,000 3,750 27,500 21,250 92,869 Directors’ interests in shares The interests of the directors in the shares of the company at 31 March 2003, together with their interests at 1 April 2002 were as follows: Name of director Angus MacSween Bill Dobbie Sarah Haran Nick Kuenssberg Fred Shedden Number of ordinary shares 31 March 2003 1April 2002 17,955,000 14,410,000 218,855 585,777 457,222 17,955,000 12,010,000 10,555 132,777 107,222 P a g e 8 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 REPORT OF THE BOARD TO THE MEMBERS ON DIRECTORS’ REMUNERATION (Continued) Directors’ interests in share options The interests of the directors at 31 March 2003 in options over the ordinary shares of the company were as follows: Options over ordinary shares of 1p each Name of director 1 April 2002 Granted in the period Surr- endered Exer- cised 31 March 2003 Exercise from which Expiry date price exercisable Date Sarah Haran 159,746 159,747 159,747 100,000 - - - - - - - 50,000 50,000 50,000 - - - - - - - - - - - - - - 159,746 159,747 159,747 100,000 5p 5p 5p 9p 11/5/00 14/12/08 11/2/01 14/12/08 11/2/02 14/12/08 27/2/05 27/2/12 50,000 6.25p 26/7/02 26/7/12 50,000 6.25p 26/7/03 26/7/12 50,000 6.25p 26/7/04 26/7/12 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 5.25p and the range of prices during the period was between 14.5p and 4.0p. By order of the board Fred Shedden Chairman, remuneration committee 20 May 2003 P a g e 9 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 DIRECTORS’ REPORT The directors present their annual report on the affairs of the group, together with the financial statements and auditors’ report, for the year ended 31 March 2003. Principal activity The principal activity of the group is the provision of network security software and web services. 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 and the chief executive’s review on pages 4 and 5. Dividends No dividends have been paid or proposed for the year ended 31 March 2003 (15 month period ended 31 March 2002 - nil). Directors and their interests The present membership of the board is set out on page 2. David Harrison and Neil Finlayson resigned on 26 June 2002. In accordance with the company’s articles of association, Sarah Haran and Nick Kuenssberg will 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 7 to 9. Substantial shareholdings At 13 May 2003 the following interests in three per cent or more of the issued ordinary share capital had been notified to the company: Angus MacSween Bill Dobbie Fleming Mercantile Investment Trust Employee involvement Number of ordinary shares 17,955,000 14,410,000 3,976,116 Percentage held 33.45% 26.71% 7.39% 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. P a g e 1 0 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 DIRECTORS’ REPORT (Continued) 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 with 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 March 2003 was 40 days (31 March 2002 - 45 days). The company’s average creditor payment period at 31 March 2003 was 30 days (31 March 2002 - no 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 20 May 2003 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: • 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; and • 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. P a g e 1 1 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2003 BOARD OF DIRECTORS Angus MacSween 46, appointed 2000; after a short service commission in the Royal Navy, Angus started his first business selling telephone systems in 1984. Since selling this first business he has established, grown and sold 5 profitable businesses in the telephony and internet sector. Following the sale of Teledata, the UK’s leading telephone information services company to Scottish Power Telecommunications, Angus spent two years on the Executive of Scottish Telecom where he was responsible for the development of the Company’s Internet division. In December 1998, Angus founded iomart in conjunction with Bill Dobbie. Bill Dobbie 44, appointed 2000; Bill spent 9 years with Unisys in a number of technical, sales and marketing roles in the UK and Australasia, prior to joining Angus MacSween at Teledata in 1989. In 1996 joined Scottish Telecom as a Director, responsible for the company’s Support centre and Internet divisions. In March 1998, Bill was appointed non-executive Director for Demon Internet following its acquisition by Scottish Telecom. In December 1998, Bill founded iomart in conjunction with Angus MacSween. Previously director of several companies acquired by Scottish Telecom. Sarah Haran 37, appointed 2000; Sarah has spent her career implementing and managing operations centres for large corporations such as Microsoft Inc, Compaq Inc, Scottish Power and Prestel Limited. She joined iomart in 1998, from Scottish Telecom, and has been responsible for devel- oping the day-to-day business processes and technical operations to support iomart’s customer base. Nick Kuenssberg 60, appointed 2000; currently chairman of GAP Group Ltd, Canmore Partnership Ltd, Stac Affinity Services plc and director of Chamberlin & Hill plc and RingProp plc and previously chairman of Stoddard International plc, Dynacast International Ltd and David A Hall Ltd and other companies and director of Coats Viyella plc, Dawson International plc, ScottishPower plc, Standard Life Assurance Company and other companies. Chairman of Scotland the Brand and Scottish Networks International, deputy chairman of Scottish Environment Protection Agency and board member of Scottish Legal Aid Board and previously chairman of IoD, Scotland and ScotlandIS and visiting professor at Strathclyde Business School. Fred Shedden 58, appointed 2000; chairman of Halladale Group plc, Wisdom IT Holdings Limited and Good Practice Limited; director of Martin Currie Japan Investment Trust plc, Murray International Trust plc, Equitable Life Assurance Society and other companies; member of The Scottish Further Education Funding Council and of the management committee of Glasgow Housing Association; formerly managing partner and senior partner of McGrigor Donald. SENIOR MANAGEMENT Angus MacSween Chief executive officer Stuart Forrest Technical sales director, web services Mark Hallam Sales director, web services Sarah Haran Operations director Stewart Moir CA Financial controller and company secretary Jim Mooney Director of sales Bill Strain Chief technology officer P a g e 1 2 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF IOMART GROUP PLC We have audited the financial statements of iomart Group Plc for the year ended 31 March 2003 which comprise the profit and loss account, the balance sheets, the cash flow statement and the related notes 1 to 29. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As described in the statement of directors’ responsibilities, the company’s directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibility is to audit the financial statements in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards. 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 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 directors’ report and the other information contained in the annual report for the above year as described in the contents section and 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. P a g e 1 3 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF IOMART GROUP PLC (CONTINUED) 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 March 2003 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 Glasgow 20 May 2003 Notes: An audit does not provide assurance on the maintenance and integrity of the group’s website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial statements since first published. These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area. Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions. P a g e 1 4 IOMART GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT Year ended 31 March 2003 TURNOVER Continuing operations Discontinued operations Total turnover Cost of sales Gross profit Administrative expenses Restructuring expenses Total administrative expenses Other operating income Net operating expenses OPERATING LOSS Continuing operations Discontinued operations Operating loss Profit on sale of businesses Net interest LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION Tax on loss on ordinary activities LOSS ON ORDINARY ACTIVITIES AFTER TAXATION FOR THE YEAR/PERIOD Equity minority interests LOSS FOR THE FINANCIAL YEAR/PERIOD Loss per ordinary share (pence) Basic Note 3 3 3 3 3 3 3 3 4 6 7 19 9 Year 15 months ended 31 March 2002 £’000 ended 31 March 2003 £’000 2,174 18 1,719 3,680 2,192 5,399 (312) (3,339) 1,880 2,060 (3,809) (466) (4,275) - (11,079) (3,021) (14,100) 203 (4,275) (13,897) (2,395) - (6,976) (4,861) (2,395) (11,837) - 3,609 (2,395) 171 (8,228) 327 (2,224) (7,901) 334 - (1,890) 18 (7,901) 5 (1,872) (7,896) (3.5p) (14.7p) There have been no recognised gains and losses attributable to the shareholders other than the loss for the current financial year and preceding financial period and accordingly, no statement of total recognised gains and losses is shown. P a g e 1 5 2003 £’000 13 376 389 2002 £’000 279 1,011 1,290 793 4,042 927 6,519 4,835 7,446 (1,170) (2,513) 3,665 4,933 4,054 6,223 (292) (571) 30 12 3,792 5,664 538 1,200 19,087 (17,033) 538 1,200 19,087 (15,161) 3,792 5,664 IOMART GROUP PLC CONSOLIDATED BALANCE SHEET 31 March 2003 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 TOTAL ASSETS LESS CURRENT LIABILITIES CREDITORS: amounts falling due after more than one year EQUITY MINORITY INTERESTS NET ASSETS CAPITAL AND RESERVES Called up share capital Capital redemption reserve Share premium account Profit and loss account TOTAL EQUITY SHAREHOLDERS’ FUNDS Note 10 11 13 14 15 17 18 19 19 19 20 These financial statements were approved by the board of directors on 20 May 2003. Signed on behalf of the board of directors Angus MacSween Director P a g e 1 6 IOMART GROUP PLC COMPANY BALANCE SHEET 31 March 2003 FIXED ASSETS Investments CURRENT ASSETS Debtors Cash at bank and in hand Note 12 13 CREDITORS: amounts falling due within one year 14 NET CURRENT ASSETS NET ASSETS CAPITAL AND RESERVES Called up share capital Capital redemption reserve Share premium account Profit and loss account TOTAL EQUITY SHAREHOLDERS’ FUNDS 18 19 19 19 20 These financial statements were approved by the board of directors on 20 May 2003. Signed on behalf of the board of directors Angus MacSween Director 2003 £’000 2002 £’000 1,500 1,500 1,522 3,828 11,851 6,430 5,350 18,281 (7) - 5,343 18,281 6,843 19,781 538 1,200 19,087 (13,982) 538 1,200 19,087 (1,044) 6,843 19,781 P a g e 1 7 IOMART GROUP PLC CONSOLIDATED CASH FLOW STATEMENT Year ended 31 March 2003 Net cash outflow from operating activities Returns on investments and servicing of finance Capital expenditure and financial investment Acquisitions and disposals Cash outflow before financing Financing Decrease in cash in the year/period Reconciliation of net cash flow to movement in net funds Decrease in cash in the year/period Cash outflows from debt and lease financing Change in net funds from cash flows New hire purchase and finance leases Opening net funds Closing net funds Note 21 22 22 22 22 23 23 23 23 Year 15 months ended 31 March 2002 £’000 ended 31 March 2003 £’000 (1,822) (7,833) 171 (92) 327 (577) - 4,030 (1,743) (4,053) (734) (1,454) (2,477) (5,507) (2,477) (5,507) 734 1,454 (1,743) (4,053) - 5,244 (101) 9,398 3,501 5,244 P a g e 1 8 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 1. ACCOUNTING POLICIES The financial statements are prepared in accordance with applicable accounting standards. The particular accounting policies adopted are described below. Accounting convention The financial statements are prepared under the historical cost convention. Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and all its subsidiaries. Acquisitions & disposals 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 or up to the date of disposal. 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 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 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. Deferred taxation Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallize based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the asset, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets are recognized to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Foreign exchange Transactions denominated in foreign currencies are translated into the functional currency at the rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the rate ruling at that date. These translation differences are dealt with in the profit and loss account. The financial statements of foreign subsidiaries are translated into sterling at the closing rates of exchange and the differences arising from the translation of the opening net investment in subsidiaries at the closing rate are taken direct to reserves. P a g e 1 9 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 1. ACCOUNTING POLICIES (CONTINUED) 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 the profit and loss account in equal annual amounts over the lease term. Development expenditure Development expenditure is charged to the profit and loss account as incurred. 2. DISPOSALS The company disposed of 80% of its shareholding in Canbox Technologies GmbH on 31 May 2002 and the remaining 20% holding has been treated as a trade investment. 3. ANALYSES OF OPERATIONS Continuing year ended 31 March 2003 £’000 Dis- continued year ended 31 March 2003 £’000 Total year ended 31 March 2003 £’000 Continuing 15 months ended 31 March 2002 £’000 Dis- continued 15 months ended 31 March 2002 £’000 Total 15 months ended 31 March 2002 £’000 Turnover Cost of sales Gross profit Administrative expenses Restructuring expenses Total administrative expenses Other operating income Net operating expenses Operating loss 2,174 (303) 1,871 (3,800) (466) (4,266) - (4,266) (2,395) 18 (9) 9 (9) - (9) - (9) - 2,192 (312) 1,880 1,719 (559) 1,160 3,680 (2,780) 5,399 (3,339) 900 2,060 (3,809) (466) (6,712) (1,572) (4,367) (1,449) (11,079) (3,021) (4,275) (8,284) (5,816) (14,100) - 148 55 203 (4,275) (8,136) (5,761) (13,897) (2,395) (6,976) (4,861) (11,837) Turnover from continuing operations comprises revenue from network security and web services, excluding VAT. The results of Canbox Technologies GmbH up to 31 May 2002, the date it ceased to be a subsidiary, and the comparatives for the 15 month period ended 31 March 2002 are shown under discontinued operations. P a g e 2 0 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 4. OPERATING LOSS Operating loss is after charging/(crediting) Depreciation of tangible fixed assets: Owned assets Leased assets Impairment write down of tangible fixed assets Amortisation of intangible fixed assets Impairment write down of intangible 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 The discount rate used in assessing the fixed asset write down is 8.4%. 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 15 months ended 31 March 2002 £’000 ended 31 March 2003 £’000 214 283 230 118 148 - 261 - - 6 20 34 432 1,117 1,452 499 506 15 492 (55) (148) 10 26 134 Year 15 months ended 31 March 2002 £’000 ended 31 March 2003 £’000 343 20 101 9 560 24 132 - Included within the aggregate emoluments is £25,000 paid to Neil Finlayson as compensation for loss of office (15 month period ended 31 March 2002 - Nil) 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 7 to 9. P a g e 2 1 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 5. INFORMATION REGARDING DIRECTORS AND EMPLOYEES (CONTINUED) Average number of persons employed by the group (including directors): Technical Customer services Sales and marketing Administration Number of persons employed by the group at the year/period end Technical Customer services Sales and marketing Administration Staff costs during the year/period in respect of these employees and directors were: Wages and salaries Social security costs Other pension costs Year 15 months ended 31 March 2002 No. ended 31 March 2003 No. 21 10 58 18 30 58 31 18 107 137 22 7 83 16 128 26 8 18 12 64 Year 15 months ended 31 March 2002 £’000 ended 31 March 2003 £’000 2,406 220 20 3,599 358 24 2,646 3,981 There are no company or group pension schemes. However the group makes contributions to directors’ personal schemes as disclosed in the report of the board to the members on directors’ remuneration on pages 7 to 9. The group operates a stakeholder pension scheme for the benefit of employees who wish to participate. P a g e 2 2 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 6. NET INTEREST Investment income: Bank interest receivable Interest payable and similar charges: Bank overdraft and other borrowings Finance leases and hire purchase contracts Net interest 7. TAX ON LOSS ON ORDINARY ACTIVITIES Research and development tax credit Year 15 months ended 31 March 2002 £’000 ended 31 March 2003 £’000 204 (1) (32) (33) 171 587 (3) (257) (260) 327 Year 15 months ended 31 March 2002 £’000 ended 31 March 2003 £’000 334 - The differences between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the loss before tax is as follows. Loss on ordinary activities before tax Tax credit @ 30% Non qualifying depreciation Disallowed expenditure Deferred tax movement not provided Movement in short term timing differences Consolidation adjustments Rate differences Prior year adjustments Difference in UK/German tax Year 15 months ended 31 March 2002 £’000 ended 31 March 2003 £’000 (2,224) (7,901) (667) (2,370) 47 84 382 (47) 2 40 (175) - (334) 36 129 1,843 - 188 - - 174 - There is no tax charge in the year due to the availability of losses. Unrelieved losses of £13 million (31 March 2002 - £12 million) are carried forward and are available to reduce the tax liability in respect of suitable future trading profits. P a g e 2 3 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 7. TAX ON LOSS ON ORDINARY ACTIVITIES (CONTINUED) Research and development tax credits have been claimed in respect of expenditure incurred on the development of the group’s NetIntelligence software. These credits are at the rate of 16% of the amount of expenditure allowed as a deduction from taxable income, which is 150% of the development expenditure incurred. Deferred tax A deferred tax asset has not been recognised in respect of losses carried forward as there is insufficient evidence that the asset will be recovered. The amount of the asset not recognised is approximately £3.9 million. The asset would be recovered if suitable taxable profits were to be generated in the future. 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 year, after writing off an amount due from a subsidiary company of £13,000,000, was £12,938,000 (15 months period ended 31 March 2002 - loss £618,000). 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/period. FRS 14 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. For a loss making company with outstanding share options, net loss per share would only be increased by the exercise of out-of-the-money options. Since it seems inappropriate to assume that option holders would act irrationally and there are no other diluting future share issues, diluted EPS has not been presented. Loss for the financial period and basic earnings attributed to ordinary shareholders Weighted average number of ordinary shares Loss per share Year 15 months ended 31 March 2002 £’000 ended 31 March 2003 £’000 (1,872) (7,896) No ‘000 No ‘000 53,796 53,796 (3.5p) (14.7p) P a g e 2 4 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 10.INTANGIBLE ASSETS The group Cost At 1 April 2002 and 31 March 2003 Accumulated amortisation At 1 April 2002 Charge for the year Impairment write down At 31 March 2003 Net book value At 31 March 2003 At 31 March 2002 Goodwill £’000 Software licences £’000 977 745 98 121 964 13 232 567 520 20 27 567 - 47 The discount rate used in assessing the intangible asset write down is 8.4%. 11.TANGIBLE FIXED ASSETS The group Cost At 1 April 2002 Additions in the year Disposals At 31 March 2003 Accumulated depreciation At 1 April 2002 Disposals Charge for the year Impairment write down At 31 March 2003 Net book value At 31 March 2003 At 31 March 2002 Leasehold improvements £’000 Computer software and equipment £’000 Office equipment £’000 283 11 (101) 193 179 (101) 47 - 125 68 104 5,354 68 (1,780) 3,642 4,549 (1,780) 401 230 3,400 242 805 229 13 (12) 230 127 (12) 49 - 164 66 102 The discount rate used in assessing the fixed asset write down is 8.4%. P a g e 2 5 Total £’000 1,544 1,265 118 148 1,531 13 279 Total £’000 5,866 92 (1,893) 4,065 4,855 (1,893) 497 230 3,689 376 1,011 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 11.TANGIBLE FIXED ASSETS (CONTINUED) 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 software and equipment £’000 Office equipment and vehicles £’000 - 61 - 373 34 72 Total £’000 34 506 At 31 March 2003 At 31 March 2002 12.INVESTMENTS HELD AS FIXED ASSETS The company Cost At 1 April 2002 Disposals At 31 March 2003 Provision At 1 April 2002 Disposals At 31 March 2003 Net book value At 31 March 2003 At 31 March 2002 Shares in subsidiary undertakings £’000 1,835 (310) 1,525 335 (310) 25 1,500 1,500 All of the above investments are unlisted. The company disposed of 80% of its shareholding in Canbox Technologies GmbH on 31 May 2002 and the remaining 20% holding has been treated as a trade investment. Full provision has been made against the investment in NSL (Internet) Limited. The following subsidiaries have been consolidated in the group accounts: Country of registration and operation Scotland Scotland Activity Network security and web services Dormant Germany Messaging iomart Limited NSL (Internet) Limited Canbox Technologies GmbH (until 31 May 2002) iomart Internet Limited England Web services Portion of ordinary shares held % 100 100 100 75 P a g e 2 6 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 13.DEBTORS The group Trade debtors Other debtors Prepayments and accrued income Research and development tax credit The company Prepayments and accrued income VAT Amounts owed by subsidiary undertakings 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 The company Trade creditors Taxation and social security Other creditors Accruals and deferred income 15.CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR The group Obligations under finance leases and hire purchase contracts (note 16) P a g e 2 7 2003 £’000 259 76 124 334 793 2 2 1,518 1,522 2003 £’000 249 211 300 185 225 2002 £’000 581 254 92 - 927 - - 11,851 11,851 2002 £’000 704 831 89 32 857 1,170 2,513 2 1 2 2 7 - - - - - 2003 £’000 2002 £’000 292 571 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 16.BORROWINGS The group Obligations under finance leases and hire purchase contracts 2003 £’000 541 2002 £’000 1,275 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 17.MINORITY INTERESTS 249 292 541 704 571 1,275 The equity minority interests comprise 40 ordinary shares of £1 each, representing 25% of the total issued share capital, in iomart Internet Limited. 18.CALLED UP SHARE CAPITAL The group and company Authorised At 31 March 2002 and 31 March 2003 Called up, allotted and fully paid At 31 March 2002 and 31 March 2003 Ordinary shares of 1p each Number of shares £’000 100,000,000 1,000 53,795,614 538 The company operates an approved share option scheme, an enterprise management incentive scheme, an unapproved share option scheme and a savings related share option scheme. At 31 March 2003, 24 employees, 1 director and 85 former employees held share options as follows: Approved scheme Number of shares Exercise price per share 90.00p 90.00p 78.50p 78.50p 75.00p 44.00p 44.00p 44.00p 13.50p 13.50p 11.75p 11.75p 11.75p 9.00p 132,376 3,033 20,000 7,500 15,000 478,521 14,659 182,159 157,500 15,000 249,442 100,000 168,998 200,000 P a g e 2 8 Date from which exercisable 19/4/2003 19/4/2003 17/8/2003 4/9/2003 1/11/2003 24/1/2004 24/1/2004 24/1/2004 26/9/2004 26/9/2004 31/10/2004 31/10/2004 31/10/2004 27/2/2005 Expiry date 19/4/2010 31/12/2004 17/8/2010 4/9/2010 1/11/2010 24/1/2011 7/1/2007 31/12/2004 26/9/2011 31/12/2004 31/10/2011 7/7/2007 31/12/2004 27/2/2012 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 18.CALLED UP SHARE CAPITAL (CONTINUED) Enterprise management incentive scheme Unapproved scheme Other unapproved options Savings related scheme 19.STATEMENT OF MOVEMENT ON RESERVES The group Loss for the financial period Opening balance Closing balance The company Loss for the financial period Opening balance Closing balance Number of shares Exercise price per share Date from which exercisable 26/7/2002 26/7/2003 26/7/2004 24/1/2002 24/1/2003 24/1/2004 24/1/2002 24/1/2003 24/1/2004 24/1/2002 24/1/2003 24/1/2004 26/9/2001 31/1/2002 31/1/2003 31/10/2001 27/6/2002 27/6/2003 27/6/2004 11/5/2000 11/2/2001 11/2/2002 Expiry date 26/7/2012 26/7/2012 26/7/2012 24/1/2011 24/1/2011 24/1/2011 7/7/2007 7/7/2007 7/7/2007 31/12/2004 31/12/2004 31/12/2004 26/9/2011 26/9/2011 26/9/2011 31/10/2011 27/6/2007 27/6/2007 27/6/2007 14/12/2008 14/12/2008 14/12/2008 6.25p 6.25p 6.25p 44.00p 44.00p 44.00p 44.00p 44.00p 44.00p 44.00p 44.00p 44.00p 13.50p 13.50p 13.50p 11.75p 6.25p 6.25p 6.25p 5.00p 5.00p 5.00p 19.20p 1/10/2004 1/4/2005 Capital redemption reserve £’000 - 1,200 1,200 - 1,200 1,200 Share premium account £’000 - 19,087 19,087 Profit and loss account £’000 (1,872) (15,161) (17,033) - (12,938) 19,087 19,087 (1,044) (13,982) 367,999 429,999 350,002 40,493 40,493 40,493 15,113 15,114 15,114 3,447 3,447 3,447 226,666 26,667 26,667 50,000 33,333 33,333 33,334 596,377 596,378 596,378 56,509 P a g e 2 9 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 20.MOVEMENT IN SHAREHOLDERS’ FUNDS The group Loss for the financial period Opening shareholders’ funds Closing shareholders’ funds The company Loss for the financial period Opening shareholders’ funds Closing shareholders’ funds Year ended 31 March 2003 £’000 (1,872) 5,664 3,792 (12,938) 19,781 6,843 15 months ended 31 March 2002 £’000 (7,896) 13,560 5,664 (618) 20,399 19,781 21.RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES Operating loss Depreciation Amortisation of intangible assets Write down of tangible fixed assets Write down of intangible fixed assets Loss on sale of assets Foreign exchange translation differences Decrease in debtors Decrease in creditors Net cash outflow from operating activities Year ended 31 March 2003 £’000 15 months ended 31 March 2002 £’000 (2,395) 497 118 230 148 - - 468 (888) (1,822) (11,837) 1,549 499 1,452 506 15 18 907 (942) (7,833) P a g e 3 0 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 22.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 Capital expenditure and financial investment Payments to acquire tangible fixed assets Proceeds of disposal of fixed assets Payments to acquire intangible fixed assets Acquisitions Purchase of subsidiary undertakings Purchase of businesses Net cash acquired with subsidiary Sale of businesses Sale of dial up access Sale of ADSL Total acquisitions and disposals Financing Capital element of finance lease rentals and hire purchase contract payments P a g e 3 1 Year ended 31 March 2003 £’000 15 months ended 31 March 2002 £’000 204 (1) (32) 171 (92) - - (92) - - - - - - - - 587 (3) (257) 327 (656) 135 (56) (577) (310) (907) 310 (907) 2,960 1,977 4,937 4,030 (734) (1,454) IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 23.ANALYSIS OF CHANGE IN NET FUNDS Cash at bank and in hand Finance leases and hire purchase Net funds 24.PURCHASE OF SUBSIDIARY UNDERTAKINGS Net assets acquired: Tangible fixed assets Cash at bank and in hand Creditors Minority interest Goodwill Satisfied by: Cash 25.PURCHASE OF BUSINESSES Tangible fixed assets Debtors Goodwill Satisfied by: Cash At 31 March 2002 £’000 6,519 (1,275) 5,244 Cash flow £’000 (2,477) 734 1,743 At 31 March 2003 £’000 4,042 (541) 3,501 Year ended 31 March 2003 £’000 15 months ended 31 March 2002 £’000 - - - - - - - - 10 310 (38) 7 289 21 310 310 Year ended 31 March 2003 £’000 15 months ended 31 March 2002 £’000 - - - - - - 508 127 635 272 907 907 P a g e 3 2 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 26.SALE OF BUSINESSES Tangible fixed assets Debtors Creditors Write down of tangible fixed assets Write down of intangible assets Profit on disposal Satisfied by: Cash Year ended 31 March 2003 £’000 15 months ended 31 March 2002 £’000 - - - - - - - - - - 163 85 (51) 197 892 239 1,328 3,609 4,937 4,937 27.OPERATING LEASE COMMITMENTS At 31 March 2003 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 Land and buildings 31 March 2003 £’000 51 28 115 194 Other 31 March 2003 £’000 9 10 - 19 Land and buildings 31 March 2002 £’000 59 - 101 160 Other 31 March 2002 £’000 - 6 - 6 28.RELATED PARTY TRANSACTIONS During the period ended 31 March 2002 a subsidiary paid rent, in respect of an agreement which terminated on 30 June 2001, of £15,000 to Adabrock Broadcasting Company, a partnership in which Angus MacSween and Bill Dobbie are partners. There were no outstanding balances at 31 March 2002. There were no transactions with Adabrock Broadcasting Company in the year ended 31 March 2003. On 27 March 1999 a subsidiary entered into a ten year property rental agreement with Highlands and Islands Enterprise. The rent was £55,000 per annum with a two year rent free period. Neil Finlayson, who was a director of the company until 26 June 2002, was also a director of Highlands and Islands Enterprise. On 8 January 2002 the group’s interest as tenant under the lease was assigned to Centrica Telecommunications Limited. There were no outstanding balances at 31 March 2002. There were no transactions with Highlands and Islands Enterprise in the year ended 31 March 2003. All the above transactions were carried out at arms’ length. P a g e 3 3 IOMART GROUP PLC NOTES TO THE ACCOUNTS Year ended 31 March 2003 29.FINANCIAL INSTRUMENTS The group does not trade in financial instruments. The group has no undrawn committed borrowing facilities (31 March 2002 - 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. Interest on floating rate bank deposits is based on the Bank of Scotland base rate plus ten basis points. P a g e 3 4 IOMART GROUP PLC NOTICE OF THE 2003 ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the 2003 annual general meeting of iomart Group plc will be held at Fleming Pavilion, Todd Campus, West of Scotland Science Park, Glasgow G20 0XA on 24 June 2003 at 12 noon, 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 ended 31 March 2003; 1.2 to reappoint Sarah Haran as a director of the company; 1.3 to reappoint Nick Kuenssberg as a director of the company; 1.4 to reappoint Deloitte & Touche, Chartered Accountants, as auditors of the company and to authorise the directors to fix their remuneration; 1.5 to approve the report of the board to the members on directors’ remuneration for the year ended 31 March 2003. 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:- 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 £53,795; P a g e 3 5 IOMART GROUP PLC NOTICE OF THE 2003 ANNUAL GENERAL MEETING (CONTINUED) 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 20 May 2003 Fleming Pavilion, Todd Campus West of Scotland Science Park Glasgow G20 0XA Notes 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 on 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. P a g e 3 6 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 iomart Group 2003.