iomart
Annual Report 2010

Plain-text annual report

iomart group plc Annual Report 2010 Annual Report and Accounts 2010 We are deploying cloud services to our customers and using a range of virtualization technologies to deliver high availability services to organisations who expect 100% uptime. iomart group plc Annual Report 2010 Financial Statements for year ended 31March 2010 Highlights Financial • Adjusted EBITDA of £3.1m (2009: loss of £0.3m) • Revenue growth of 55% to £18.3m (2009: £11.8m) • Cashflow from operations of £3.9m (2009: £0.3m) • Earnings per share from continuing operations of 2.12p (2009: negative earnings per share of 1.95p) • Dividend up 33% to 0.4p per share (2009: 0.3p per share) • Initial acquisition facility of £10m provided by Lloyds Banking Group Operational • Robust demand in internet usage and cloud computing ensuring high visibility of recurring revenues • Inflexion point reached such that future sales will contribute high levels of profitability - iomart Hosting customer base more than doubled in size since March 2009 • RapidSwitch integrated into Group and operations completely migrated into own datacentre in Maidenhead £3.1M EBITDA 55% Increase in Revenue 33% Increase in Dividend £3.9M Cashflow from Operations iomart group plc Annual Report 2010 “We needed a disaster recovery facility that could meet our requirements for continuity of service, accessibility, security, environmental considerations and best practice. iomart Hosting came out on top. Our aim is to ensure that our learners can access their learning around the clock when they need to. ” Fiona Benoist, Technology Services Manager for learndirect iomart group plc Annual Report 2010 Contents Chairman’s statement Chief executive officer’s report Finance director's report Corporate governance Report of the board to the members on directors’ remuneration Directors' report Statement of directors' responsibilities Board of directors Independent auditor's report to the members of iomart Group plc Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated cash flow statement Consolidated statement of changes in equity Notes to the financial statements Holding company financial statements Notice of annual general meeting Officers and professional advisers 1 3 4 6 9 11 15 17 19 20 21 22 23 24 25 27 56 64 69 www.iomart.com “When we met with iomart hosting they understood our world which is a great head start. We’re moving such a lot of digital media content around the world and we wanted our hosting partner to have a grasp of our business. We immediately felt that we could trust iomart Hosting.” Ben Smith, Chief Technical Officer, ChilliBean iomart group plc Annual Report 2010 “the highlight of the year is our move into profitability after two years of investment whilst establishing our managed hosting operation.” Ian Ritchie, Chairman Once again I am delighted to report that iomart has enjoyed another very successful year. Focussing on our core strategic goal of becoming one of the UK’s leading managed hosting operators with owned datacentres has undoubtedly driven that success. The highlight of the year is our move into profitability especially in the face of particularly demanding economic conditions. This has been achieved following two years of investment in establishing our managed hosting operation. The move into profitability has been achieved by both continued organic growth and through the successful acquisition and integration of Rapidswitch during the year. We remain keen to grow the company through further acquisitions and were delighted to secure a facility from our bank to finance future growth. The success which has been achieved over the year is completely due to the dedication and commitment of the senior management team and all employees of the Group. On behalf of the Board and all shareholders I am pleased to have this opportunity to acknowledge the contribution they have all made to our achievements this year. I indicated in my statement last year, when I advised of the re-introduction of a dividend payment, that your Board intended, depending on the underlying profitability and cash generation of the Group, to continue to pay dividends going forward. Due to our success during the year we have already declared an interim dividend of 0.4p per share which was paid to shareholders on 1 April 2010. The Board intends to continue to reward shareholders with an increasing dividend stream as profitability and liquidity grows. Each year since I became Chairman of the Group, I have been in the fortunate position of advising you, in my statement, of the excellent progress which we have made over the year under review. Likewise, each year, as I have considered our future prospects, I have advised you of the confidence we have felt regarding our continued success. This year I can once again assure you that we are convinced that we will deliver another strong performance in the year to come. Ian Ritchie Chairman 1 June 2010 3 Chairman's Statement “We are convinced that we will deliver another strong performance in the year to come.” www.iomart.com 4 Chief Executive Officer's Report “We continue to deliver on the strategic goal of being the UK leader in the managed hosting market and I am delighted to report an excellent year of trading for the Group.” Angus MacSween, Chief Executive Officer Introduction We continue to deliver on the strategic goal of becoming one of the UK’s leading managed hosting Groups and I am delighted to report an excellent year of trading for the Group. Revenues have grown 55% to £18.3m and we have moved through the inflexion point from losses into profitability. Accordingly, the Group’s adjusted EBITDA* went from a loss of £0.3m in 2009 to a profit of £3.1m in 2010. In addition we were significantly cash generative producing cashflow from operations of £3.9m in the year. The acquisition of our own datacentre capacity at the end of March 2007 exposed the Group to a planned period of losses as we absorbed the high level of fixed costs of the datacentres whilst taking up the challenge of growing revenues from a zero base. As a consequence we have recorded adjusted EBITDA losses in the past two years whilst making excellent progress in establishing our managed hosting operation. We have always retained a very strong belief that the ownership of our own datacentre capacity is an essential element in delivering on our strategic goal. This short period of loss making was necessary as we laid the foundations for a highly profitable managed hosting business. A feature of this model is the contracted nature of the services provided giving excellent forward visibility of revenues and profits. Easyspace, which services the micro and SME market through its website has continued to provide the Group with strong levels of profits and cash generation and has helped underpin our ability to grow our managed hosting operation in the way we had planned. The acquisition of Rapidswitch in May has helped accelerate our move into profitability. We are very happy with the performance of the business since acquisition and it has now been fully integrated into our Hosting segment enhancing our ability to provide a spectrum of managed hosting services to any size of company. We continue to look for opportunities to acquire companies that will enhance our position in the managed hosting market and we are pleased to announce an initial acquisition facility of £10m with our bank, Lloyds Banking Group. At a time when the lack of availability of debt finance is a constant topic of debate in the corporate world it shows the belief that the bank has in both our business model and our ability to continue to grow successfully. Operational Review Whilst all our activities involve the provision of managed hosting services we are organised into two segments. iomart group plc Annual Report 2010 “We are now more established, with more credibility and with a growing reputation for good service. We look forward to delivering another year of growth and enhanced profitability.” 5 Chief Executive Officer's Report Hosting Our Hosting segment provides managed hosting services to a wide range of SME and corporate customers. This includes the provision of complex hosting solutions to the corporate market through iomart Hosting; dedicated server hosting services to the SME market through Rapidswitch and cloud security services to the large corporate and education sector through Netintelligence. iomart Hosting has been the driver of most of the organic growth. We have won over 300 new orders in the period almost half of which were from new customers and the balance were additional orders from existing customers. We are very pleased that our customers continue to show confidence in our provision of services in this way and we believe that additional orders from existing customers will form an important part of our future growth provided we maintain the level of service that we currently offer. The introduction of our cloud product offerings during the year have been well received and has helped maintain our leading technological position in the marketplace. We have a highly experienced and innovative technology team, and we are currently testing or using all the flavours of virtualisation technologies to develop ‘private clouds’ for mission critical applications which we provide under our 100% uptime guarantee. Using our multiple datacentres we can provide an enviable level of resilience and backup/disaster recovery. Rapidswitch has continued to grow revenues at a similar rate in absolute terms under the ownership of the Group as it did before being acquired. One of the major tasks in the period since acquisition was to move all servers from a rented datacentre facility to our own datacentre in Maidenhead. This major project was successfully achieved whilst continuing to deliver revenue growth and has resulted in the Group being free from any external datacentre rental costs going forward. We also continued with the fit out of the Maidenhead datacentre adding a further 3,500 square feet of new space during the year. Netintelligence has focussed on the education market over the period. After a successful trial period at the start of the year, our “Software as a Service” internet security product was chosen by all of the suppliers to be part of the UK government’s Universal Home Access (UHA) laptop provision programme towards the end of the year. Our revenues in the Hosting segment have grown from £4.6m at the last year end to £11.0m for this year, an overall increase of £6.4m (139%) which has led to a substantial increase in profitability. Easyspace Our Easyspace segment, which serves the micro and SME market with a range of products including domain names, shared hosting and dedicated and virtual servers has performed well. We have continued to drive operational efficiencies over the year as we seek to increase the profitability of Easyspace. Despite a competitive marketplace and an exposure to a strengthening US Dollar as a result of these efficiencies we have managed to improve the overall profitability of this segment. Easyspace revenues for the year were £7.4m an increase of 2% over the previous year whilst the adjusted EBITDA profit margin has increased from 30% to 35%. Current trading and outlook We are now more established, with more recognition of our presence in the market and with a growing reputation for excellent service. We are also in a fragmented and fast growing market where more and more companies are looking to outsource their web facing infrastructure to a trusted supplier. We intend to be leaders in that market. We are deploying leading edge cloud services to our customers and using a range of virtualisation technologies to deliver high availability services to organisations who expect 100% uptime. We look forward to another exciting year of delivering significant growth and profitability. Angus MacSween, Chief Executive Officer. 1 June 2010 * Throughout the Chief Executive Officer, Finance Director and Directors' reports adjusted EBITDA for March 2010 is earnings before interest, tax, depreciation and amortisation (EBITDA) before share based payment charges and gain on reduction of deferred consideration and for March 2009 is EBITDA before share based payment charges. www.iomart.com 6 Finance Director's Report “With the net cash balance at the end of the year and the availability of the new bank facility we are very well funded to continue our growth through both organic and acquisitive means.” Richard Logan, Finance Director Trading results Revenues for the year of £18.3m (2009: £11.8m) have grown by 55% with both of our operating segments having contributed to this growth. The Hosting segment grew revenues to £11.0m (2009: £4.6m) which is an increase of 139%. This, of course, includes the contribution from Rapidswitch which was acquired in May 2009. The growth in the Hosting segment revenues over the previous year excluding the impact of Rapidswitch was 37%. Easyspace grew revenues by 2% to £7.4m (2009: £7.2m) in challenging market conditions. Our gross margin, which is calculated by deducting variable cost of sales such as domain costs and sales commission and the relatively fixed costs of operating our datacentres from revenue, was £10.5m (2009: £6.1m). This substantial increase in gross margin was as a direct result of higher revenues in the Hosting segment. In percentage terms the gross margin improved to 57% (2009: 52%). Despite a continued exposure to a stronger US Dollar, Easyspace has maintained its gross margin percentage over the year through the introduction of selective price increases. Hosting continues to show an improved gross margin percentage as it generates additional sales revenues whilst its fixed costs of operation remain unchanged. The inclusion of Rapidswitch within the Hosting segment has also helped to improve the gross margin over the year in both absolute and percentage terms. The Group’s adjusted EBITDA for the year of £3.1m (2009: adjusted EBITDA loss of £0.3m) showed a very significant improvement over last year. Both of our segments have helped to deliver this expected improvement. Our Hosting segment’s adjusted EBITDA was £2.8m (2009: adjusted EBITDA loss of £0.2m). This significant improvement is a direct result of the generation of sufficient sales revenues to cover the fixed cost base which was in place when our datacentre operations were established. New sales in the year have therefore contributed at a high margin level to the adjusted EBITDA for the period. We have also continued to invest in our Hosting operation through increases in both sales and technical staff headcount and marketing expenditure thereby increasing overhead expenditure. The Rapidswitch operation which was acquired in the year and which was integrated into the Hosting segment during the year also contributed significantly to the improvement in adjusted EBITDA performance. Easyspace improved its adjusted EBITDA to £2.6m (2009: £2.2m) and most encouragingly in a very competitive market environment also achieved a substantial improvement in its adjusted EBITDA margin to 35% from 30%. This margin improvement has been achieved through operational efficiencies predominantly in the areas of staffing and marketing. Group overheads, which are not allocated to segments, includes the cost of the Board, all the running costs of the premises in Glasgow, Group marketing, human resource, finance and design functions and legal and professional fees for the year of £2.2m has reduced from £2.3m in 2009. Depreciation charges of £1.8m (2009: £1.0m) have increased as we acquire equipment to provide hosting services to our customers and also as a result of the acquisition of Rapidswitch. The charge for amortisation of intangibles of £0.5m (2009: £0.1m) has increased as a consequence of the acquisition of Rapidswitch which has resulted in the recognition of additional intangible assets. The iomart group plc Annual Report 2010 charge for share based payments in the year of £0.4m (2009: £0.2m) has increased as a result of the issue of additional share options. As a consequence of the reduction in the amount due for the deferred consideration, details of which are given in Note 20, on the acquisition of Ezee DSL Limited through which we acquired our datacentres an exceptional gain of £1.0m, offset by associated costs of £0.1m, has been credited to the Income Statement in the year. Net finance income was nil (2009: £0.4m receipt) and has reduced from the level last year due to the reduction in cash balances, the reduction in interest rates and the use of finance leases to fund the acquisition of equipment for customers. As a result the profit for the year before tax was £1.3m (2009: loss of £1.2m). The taxation credit for the year of £0.8m (2009: taxation charge of £0.7m) relates to the recognition of a deferred tax asset in respect of accumulated tax losses which the Group now expects to use up quicker than previously expected. The profit for the year from continuing operations after taxation was £2.1m (2009: loss of £1.9m). Earnings per share Basic earnings per share from continuing operations was 2.12p (2009: negative earnings per share of 1.95p). Acquisition In May 2009 the company acquired Rapidswitch Limited for a total consideration of £5.5m, including £0.2m of costs related to the acquisition. Full details of this acquisition are given in note 10. Cash flow and net cash The Group enjoyed strong operating cash generation over the year resulting in a cash flow from continuing operations of £3.9m (2009: £0.3m). The improvement over the prior year was a direct consequence of the improved adjusted EBITDA recorded in the year. After deducting a tax payment of £0.2m relating to the operations of Rapidswitch the net cashflow from operating activities was £3.7m (2009: £0.8m). Over the year, in total, the Group spent £11.0m (2009: £13.0m receipt) in investing activities. The biggest single element of this was the acquisition of Rapidswitch which cost £5.5m, including related costs. In addition, £2.9m was spent in the part settlement of the deferred consideration, together with related costs, due on the acquisition of Ezee DSL Limited. We also invested £2.3m (2009: £1.5m), net of related finance lease drawdown, in the purchase of property plant and equipment primarily in acquiring the equipment to provide services to our Hosting customers and also in the fit out of additional datacentre space. Expenditure was incurred on development costs £0.3m (2009: £0.2m), purchase of intangible software assets £0.1m (2009: nil). There were two items related to the acquisition of Rapidswitch including the repayment of borrowings of £0.2m and the cash balance acquired of £0.2m. Finally, we received £0.2m of interest on our deposits over the year. Our financing activities absorbed £0.9m of cash (2009: £1.3m). This included sums spent on repayment of borrowings and finance leases and dividends. As a consequence, our overall cash expenditure over the year was £8.2m (2009: £13.2m receipt) which resulted in cash and cash equivalent balances at the end of the year of £5.7m (2009: £13.9m). After recognising finance lease obligations of £1.3m (2009: £0.2m) net cash at the end of the period was £4.4m (2009: £13.7m). Subsequent to the year-end we have secured a £10m facility with our bankers for the purposes of funding acquisitions and capital expenditure. 7 Finance Director's Report www.iomart.com 8 Finance Director's Report Financial position Having generated a cash flow from operations of £3.9m we are now generating significant amounts of operating cash which will be available to fund the continuing need to invest in capital expenditure for the equipment required to provide services for new managed hosting customers. With the net cash balance at the end of the year and the availability of the new bank facility we are very well funded to continue our growth through both organic and acquisitive means. Principal risks and uncertainties Section 417(3) of the Companies Act 2006 provides that the business review must contain a description of the principal risks and uncertainties. The board has established a formal process to identify risks and uncertainties through the production and maintenance of a risk register. There are a number of potential risks and uncertainties which have been identified as a result of this process which could have a material impact on the Group’s future performance. These are not all the risks which the board has identified but those that the Directors currently consider to be the most material. In addition to these risks Note 27 contains details of financial risks. Staff As with any service organisation iomart is dependent on the skill, experience and commitment of its employees and especially a relatively small number of senior staff. The Group seeks to recruit and retain suitably skilled and experienced staff by offering a challenging and rewarding work environment. This includes competitive and innovative reward packages and a strong commitment to training and development. Datacentre operation Any downtime experienced at our datacentres would immediately have an impact on our ability to provide customers with the level of service they demand. Our ongoing investment in preventative maintenance and lifecycle replacement programme ensures our datacentres continue to deliver operational efficiency and effectiveness. Customers The Group provides an essential service to an extensive client base many of whom rely on the provision of that service for their major internet presence. Any diminution in the level of service could have serious consequences for customer acquisition and retention. Our high level of recurring revenue and our low level of customer attrition are evidence of our ability to provide the level of service required. Key suppliers The Group is dependent on certain key suppliers for the continued operation of its business. The most significant of which are those for electricity, bandwidth and servers. In all cases these supplies are obtained from reputable organisations chosen after a thorough selection process. After selection, the Group actively seeks to maintain good relationships with the chosen suppliers. The Group also seeks to maintain either several sources of supply or in the case of electricity alternative sources of power. Search engine optimisation A significant amount of the Group’s sales revenues are generated through consumers using internet search engines to acquire goods and services. The Group continually monitors the position of its websites with respect to these search engines. Through the engagement of expert consultants and the allocation of experienced staff the Group seeks to maintain or enhance the position of its websites for detection by internet search engines. Richard Logan Finance Director 1 June 2010 iomart group plc Annual Report 2010 9 Corporate Governance As 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. Your board considers that at this stage in the Group’s development, the expense of full compliance with the Combined Code and with the further provisions of the Revised Combined Code is not appropriate. Directors and the board The board directs the Group's activities in an effective manner through regular monthly board meetings and timely and relevant through monitors performance reporting procedures. Where it deems it necessary the board requests reports on specific areas outwith the normal reporting regime. All directors have access to advice from the company secretary and independent professionals at the company’s expense. Training is available for new and other directors as necessary. The board at present comprises three executive and three non-executive directors. The size of the board is considered to be appropriate to the current size and character of the Group. The non-executive directors are independent of management and any business or other relationships which could interfere with the exercise of their independent judgement. The roles of chairman and chief executive are separate appointments and it is board policy that this will continue. The board has established three committees, the audit committee, the remuneration committee and the nominations committee. Membership of both the audit committee and the remuneration committee is exclusively non-executive while membership of the nominations committee comprises the chairman, two non-executive directors and the chief executive officer. Ian Ritchie is chairman of the nominations committee, Fred Shedden of the remuneration committee and Chris Batterham of the audit committee. Under the company’s articles of association, the nearest number to one third of the board shall retire each year by rotation. 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 has meetings, at which the executive directors also have the right to attend, at least three times a year with the external auditors. The audit committee reviews the independence and objectivity of the external auditors. The committee reviews the nature and amount of the non-audit work undertaken by the auditors to satisfy itself that there is no effect on their independence. The committee is satisfied that Grant Thornton UK LLP are independent. Risk management The board established a risk register in 2006 which is formally reviewed during each calendar year. Going concern On the basis of a review of facilities available to the Group together with a review of forecasts, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. 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: A separate report on directors’ remuneration is set out on pages 11 to 14, this to be approved by the shareholders at the annual general meeting. • 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 www.iomart.com 10 Corporate Governance Group as a whole and each business segment 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. Relations with shareholders The company values the views of its shareholders and recognises their interest in the Group’s strategy and performance, board membership and quality of management. The annual general meeting is used to communicate with all shareholder and investor groups, and they are encouraged to participate. The chairmen of the audit, remuneration and nominations committees are available to answer questions. Separate resolutions are proposed on each issue so that they can be given proper consideration and there are resolutions to receive the annual report and accounts and the report on directors’ remuneration. The company counts all proxy votes and will indicate the level of proxies lodged on each resolution, after it has been dealt with by a show of hands. The company uses its website, www.iomart.com, as a means of providing information to shareholders and other related parties. The company’s annual report and accounts, interim reports and other relevant announcements are maintained on the website. iomart group plc Annual Report 2010 Report of the board to the members on directors' remuneration 11 • 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. • Share options Executive directors are entitled to participate in share option schemes. • Joint Share Ownership Plan During the year the Company established a Joint Share Ownership Plan (JSOP) to provide additional incentives to executive directors. • Other benefits The executive directors are entitled to life insurance cover and to participate in the Group’s Private Medical Insurance scheme. All the executive directors are engaged under service contracts which require a notice period of 6 or 12 months. Remuneration of non-executive directors The fees paid to the non-executive directors are determined by the board. They are not entitled to receive any bonus or other benefits. Non-executive directors’ letters of appointment are on a 6 month rolling basis. The remuneration committee has given consideration to the Combined Code issued by the Financial Services Authority in framing its remuneration policy. As the company is listed on the Alternative Investment Market, it is not required to comply with the provisions of Section 412 of the Companies Act 2006. The following disclosures are voluntary as is resolution 2 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 remuneration 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; and • the continued commitment of executives to the Group’s success through appropriate incentive schemes. The committee meets at least twice a year. 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 on top of their basic salary dependent on individual and Group performance at the discretion of the remuneration committee. Performance conditions are set individually for each director to ensure they are relevant and stretching. www.iomart.com 12 Report of the board to the members on directors' remuneration Directors’ remuneration Details of individual directors’ emoluments for the year are as follows: Name of director Angus MacSween Chris Batterham Sarah Haran Richard Logan Ian Ritchie Fred Shedden Salary or fees £ 159,490 30,000 116,850 116,850 50,000 30,000 Bonus £ 150,000 - 105,000 93,500 - - Benefits £ 1,557 - 412 1,409 - - Pension contributions £ 15,949 - 11,685 11,685 - - Year ended Year ended 31 March 31 March 2009 Total £ 321,717 30,000 219,812 232,809 50,000 30,000 2010 Total £ 326,996 30,000 233,947 223,444 50,000 30,000 503,190 348,500 3,378 39,319 894,387 884,338 Directors’ interests in shares The interests of the directors in the shares of the company at 31 March 2010, together with their interests at 1 April 2009 were as follows: Name of director Angus MacSween Chris Batterham Sarah Haran Richard Logan Ian Ritchie Fred Shedden Number of ordinary shares 31 March 2010 At 1 April 2009 19,686,304 90,621 1,224,944 135,500 151,400 764,588 19,686,304 45,621 745,704 135,500 107,000 744,588 The shareholdings for Angus MacSween, Sarah Haran and Richard Logan exclude shares held under the Company’s Joint Share Ownership Plan (JSOP) which was established during the year, to replace certain share option arrangements, in which the directors are beneficial co-owners of shares. Details of such shareholdings are given overleaf. iomart group plc Annual Report 2010 Report of the board to the members on directors' remuneration 13 Directors’ interests in shareholdings of Joint Share Ownership Plan The interests of the directors in the JSOP shares are as follows:- Name of director Angus MacSween Sarah Haran Richard Logan Market Award price at date Participation price of award date Vesting date Number of shares Date from which exerciseable Expiry date 31/03/2010 31/03/2010 31/03/2010 31/03/2010 31/03/2010 31/03/2010 31/03/2010 31/03/2010 31/03/2010 31/03/2010 31/03/2010 31/03/2010 31/03/2010 49.5p 49.5p 49.5p 49.5p 49.5p 49.5p 49.5p 49.5p 49.5p 49.5p 49.5p 49.5p 49.5p 49.5p 78.5p 49.5p 49.5p Already vested Already vested 31/03/2011 31/03/2012 356,990 322,612 350,000 450,000 31/03/2010 06/10/2018 31/03/2010 17/11/2014 31/03/2011 06/10/2018 31/03/2012 06/10/2018 1,479,602 50.5p 78.5p 49.5p 49.5p 49.5p Already vested Already vested Already vested 31/03/2011 31/03/2012 414,018 177,867 357,087 350,000 450,000 31/03/2010 27/09/2017 31/03/2010 17/11/2014 31/03/2010 06/10/2018 31/03/2011 06/10/2018 31/03/2012 06/10/2018 1,748,972 49.5p 50.5p 49.5p 49.5p Already vested Already vested 31/03/2011 31/03/2012 221,505 500,000 350,000 450,000 31/03/2010 06/10/2018 31/03/2010 27/09/2017 31/03/2011 06/10/2018 31/03/2012 06/10/2018 1,521,505 The JSOP shares are held jointly between the director and the iomart Group plc Employee Benefit Trust. Under the terms of the JSOP rules the directors are eligible to receive the excess of any disposal proceeds received for the JSOP shares over the participation price. The participation price is subject to a 3% per annum escalation until the JSOP shares are sold. The JSOP shares do not carry dividend or voting rights whilst they are jointly held by the director and the iomart Group plc Employee Benefit Trust. The JSOP shares which vest for Angus MacSween, Sarah Haran and Richard Logan at 31 March 2011 and 2012 are subject to continuous employment criteria. Under the rules of the scheme should the market price of a vested JSOP share exceed the participation price the director has the option to convert the value of any such excess into a number of wholly owned shares within the JSOP. If a director exercises this right then the wholly owned shares subsequently held within the JSOP by the director shall be eligible for both dividend and voting rights. www.iomart.com 14 Report of the board to the members on directors' remuneration Directors’ interests in share options The interests of the directors at 31 March 2010 in options over the ordinary shares of the company were as follows: Name of director At 1 April 2009 Exercised Surrendered Lapsed At 31 March Exercise price 2010 Date of Date from which Grant exerciseable Expiry date Angus MacSween 450,000 12,302 150,000 250,000 350,000 450,000 1,662,302 - - - - - - - (322,612) - (12,302) - - - - - 127,388 - 43,010 - - - (106,990) (250,000) (350,000) (450,000) 78.5p 17/11/2004 76.0p 01/03/2006 46.5p 06/10/2008 46.5p 06/10/2008 46.5p 06/10/2008 46.5p 06/10/2008 17/11/2007 17/11/2014 01/03/2009 01/09/2009 31/03/2009 06/10/2018 31/03/2010 06/10/2018 31/03/2011 06/10/2018 31/03/2012 06/10/2018 (1,479,602) (12,302) 170,398 Sarah Haran 159,746 159,747 159,747 250,000 4,921 500,000 150,000 250,000 350,000 450,000 (159,746) (159,747) (159,747) - - - - - - - - - - (177,867) - (414,018) (107,087) (250,000) (350,000) (450,000) - - - - (4,921) - - - - - - - - 72,133 - 85,982 42,913 - - - 5.0p 11/05/2000 5.0p 11/02/2001 5.0p 11/02/2002 78.5p 17/11/2004 76.0p 01/03/2006 50.5p 27/09/2007 46.5p 06/10/2008 46.5p 06/10/2008 46.5p 06/10/2008 46.5p 06/10/2008 11/05/2000 29/03/2010 11/02/2001 29/03/2010 11/02/2002 29/03/2010 17/11/2007 17/11/2014 01/03/2009 01/09/2009 27/09/2010 27/09/2017 31/03/2009 06/10/2018 31/03/2010 06/10/2018 31/03/2011 06/10/2018 31/03/2012 06/10/2018 2,434,161 (479,240) (1,748,972) (4,921) 201,028 Richard Logan 50,000 500,000 150,000 250,000 350,000 450,000 1,750,000 - - - - - - - - (500,000) - (221,505) (350,000) (450,000) 50,000 - - - - 150,000 28,495 - - - - - 74.0p 24/08/2006 50.5p 27/09/2007 46.5p 06/10/2008 46.5p 06/10/2008 46.5p 06/10/2008 46.5p 06/10/2008 24/08/2009 24/08/2016 27/09/2010 27/09/2017 31/03/2009 06/10/2018 31/03/2010 06/10/2018 31/03/2011 06/10/2018 31/03/2012 06/10/2018 (1,521,505) - 228,495 On 19 June 2009, Sarah Haran exercised 479,240 share options under the Company’s Unapproved Share Option Scheme at an exercise price of 5.0p. The market price on the date of exercise was 32.0p resulting in a gain on exercise of £129,395. No share options were exercised by directors in the previous year and no new share options were granted to directors during the year. There have been no variations to the terms and conditions or performance criteria for share options during the year. The market price of the company’s shares at the end of the financial period was 49.5p and the range of prices during the period was between 31.0p and 52.5p. By order of the board Fred Shedden, Chairman, Remuneration committee 1 June 2010 iomart group plc Annual Report 2010 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 2010. Principal activity The principal activity of the Group is the provision of webhosting and managed hosting services through a network of owned data centres. Business review The chairman’s statement, chief executive officer’s and finance director’s reports contain a review of trading. The Group is focused on building a managed hosting business using its own carrier neutral datacentre capacity to allow the full set of vertical components from domain names through space, power and bandwidth to complex application hosting. The principal risks and uncertainties faced by the business are described in the Finance Director’s Report. Key performance indicator review Revenue 2010 55% increase 2009 45% increase Revenue from continuing operations grew by 55% over the year compared to a growth of 45% in the previous year. The Hosting segment grew revenues by 139% (2009: 155%) and the Easyspace segment by 2% (2009: 14%). Adjusted EBITDA margin 2010 17% 2009 -3% The adjusted EBITDA margin has shown a substantial improvement as a result of the Hosting segment both continuing to win new business and the inclusion of Rapidswitch which was acquired during the year. Easyspace has also contributed to the adjusted EBITDA margin improvement through operational efficiencies. 15 Financial instruments The Group’s financial instruments comprise cash and liquid resources and finance leases together with 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. The Group’s borrowings at 31 March 2010 comprise finance leases totalling £1.3m (2009: £0.2m). The interest rates on the finance leases are fixed for the term of the lease at between 5.0% and 12.2%. The Group has exposure to movements in the exchange rate of the US dollar as certain domain name purchases are transacted in this currency. To protect cash flows against the level of exchange rate risk, the Group entered into forward exchange contracts to hedge foreign exchange exposures arising on the forecast payments. The majority of transactions of the holding company and the UK subsidiaries are in UK sterling and, with the exception of forward foreign exchange contracts, the Group does not use derivative instruments. Additional information on financial instruments is included in Note 27. Dividend The directors declared an interim dividend on 22 February 2010, for the year ended 31 March 2010, of 0.4p per share (2009: nil) which was paid on 1 April 2010. The directors do not recommend a final dividend for the year ended 31 March 2010 (2009: 0.3p). Directors and their interests The present membership of the board is set out on page 19. In accordance with the company’s Articles of Association, Ian Ritchie and Fred Shedden will 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 11 to 14. www.iomart.com 16 Directors' Report Substantial shareholdings At 18 May 2010 the following interests in 3% or more of the issued ordinary share capital, excluding shares held by the iomart Group plc Employee Benefit Trust, had been notified to the company: Shareholder Shares Percentage held Gartmore Investment Limited 27,401,453 Angus MacSween 19,686,304 28.02% 20.13% Majedie Asset Management Legal & General Investment Management Universities Superannuation Scheme British Steel Pension Scheme 8,278,001 8.47% 4,785,000 4.89% 4,737,000 4.84% Bill Dobbie 3,361,369 4,653,000 4.76% 3.44% Transactions in own shares At 31 March 2009 the company held 3,294,547 shares in treasury and during the year the company issued 830,660 shares from treasury in respect of the exercise of share options by employees and 2,463,887 shares from treasury to the iomart Group plc Employee Benefit Trust. At 31 March 2010 no shares were held in treasury. The company also issued 2,513,297 ordinary shares to the iomart Group plc Employee Benefit Trust. Therefore, at 31 March 2010 the iomart Group plc Employee Benefit Trust held 4,977,184 shares (2009: nil) which are accounted for as Own shares. Employee involvement The Group regularly communicates with all staff 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. Staff are eligible to receive share options or Joint Share Ownership Plan shares in the company under the Group’s share incentive schemes and it is the board’s policy to make specific awards as appropriate to attract and retain the best available people. 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 with those terms, subject to the terms and conditions of the relevant transaction having been met by the supplier. Trade creditor days of the Group at 31 March 2010 were 23 days (2009: 25 days), and of the company were 4 days (2009: 6 days). This represents the ratio, expressed in days, between the amounts invoiced to the company in the year by its suppliers and the amounts due, at the year end, to trade creditors falling due for payment within one year. Political and charitable donations The Group did not make any charitable or political donations in either the current or the previous year. Awareness of relevant audit information So far as each of the directors, at the time the report is approved, is aware: • there is no relevant audit information of which the auditors are unaware, and • the directors have taken all the steps they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. Website disclaimer The maintenance and integrity of the iomart Group plc website is the responsibility of the directors. The work carried out by the auditor does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in the other jurisdictions. Auditors Grant Thornton UK LLP 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 Employment of disabled persons Full and fair consideration is given to applications for employment made by disabled persons having regard to Bruce Hall, Company secretary 1 June 2010 iomart group plc Annual Report 2010 Statement of Directors' Responsibilities 17 The directors are responsible for preparing the Annual Report and the Group and the Parent Company Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the Parent Company Financial Statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). The Group and Parent Company Financial Statements are required by law to give a true and fair view of the state of affairs of the Company and the Group 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; 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 adequate 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 2006. 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. www.iomart.com “Corporate responsibility has long been a part of the Group's values and how we operate. We recognise that our long-term success depends on our ability to develop and offer innovative services that encourage both our clients and our shareholders to invest in us with confidence.” iomart group plc Annual Report 2010 The Easyspace sponsored elephant, ‘Cosmos’, outside the Royal Exchange. One of 258 individually designed elephants that formed the London Elephant Parade 2010. Board of Directors Ian Ritchie 59, appointed 2008; currently Chairman of Computer Application Services Ltd, Caspian Learning Ltd and Interactive Design Institute Ltd. He is also a past President of the British Computer Society. Ian was founding chairman of several technology companies, including Voxar Ltd (now part of Toshiba), Orbital Software Group plc (now part of Sopheon plc), Digital Bridges Ltd (now part of Oberon Inc) and Sonaptic Ltd (now part of Wolfson Microelectronics plc). Angus MacSween 53, 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 Limited, the UK’s leading telephone information services company to Scottish Telecom plc, Angus spent two years on the executive of Scottish Telecom plc where he was responsible for the development of the company's Internet division. In December 1998 Angus founded iomart. Chris Batterham 55, appointed 2005; Chris was finance director of Unipalm plc, the first internet company to IPO and stayed with the company for 5 years following its takeover by UUnet. He was CFO of Searchspace until 2005 and is currently a non executive director of SDL plc, DRS Group plc, office2office plc, DRS plc, The Risk Advisory Group and Betfair Limited. He is also chairman of Eckoh plc. Chris has also served on the boards of Staffware plc, DBS Management plc and The Invesco Techmark Enterprise Trust plc Sarah Haran 44, appointed 2000; Sarah has spent her career implementing and managing operations centres for large corporations such as Microsoft Inc, Compaq Inc, Scottish Power plc and Prestel Limited. She joined iomart in 1998, from Scottish Telecom plc and has been responsible for developing the day-to-day business processes and technical operations to support the Group’s customer base. Richard Logan 52, appointed 2006; Richard is a chartered accountant having qualified with Arthur Young in 1984. Richard then spent 7 years with Ben Line Group initially as Group treasurer and latterly as financial director of Ben Line’s main container shipping division. From 1992 to 2002 Richard served as finance director of Kingston SCL a company which provided administration and billing software to the mobile communications market during which time he was involved in a management buy-out and subsequent trade sale of the company. Immediately prior to joining iomart Richard served as finance director of ePOINT Group, a technology company based in Scotland. Fred Shedden 65, appointed 2000; independent director of Murray International Trust plc; vice-chair of Glasgow Housing Association and Glasgow School of Art; formerly chairman of Halladale Group plc and senior partner of McGrigors. 19 www.iomart.com 20 Independent auditor's report to the members of iomart Group plc We have audited the Group financial statements of iomart Group Plc for the year ended 31 March 2010 which comprise the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated cash flow statement, the consolidated statement of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditor's 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 explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/ UKNP. Opinion In our opinion the Group financial statements: • give a true and fair view of the state of the Group's affairs as at 31 March 2010 and of its profit for the year then ended; • have been properly prepared in accordance with IFRS as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the parent company financial statements of iomart Group plc for the year ended 31 March 2010. Andrew Howie Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Glasgow 1 June 2010 iomart group plc Annual Report 2010 Consolidated Income Statement Year ended 31March 2010 CONTINUING OPERATIONS Revenue Cost of sales Gross profit Administrative expenses Operating profit/(loss) Analysed as: Earnings before interest, tax, depreciation, amortisation, share based payments and gain on reduction of deferred consideration Share based payments Depreciation Amortisation Gain on reduction of deferred consideration on business combination Associated costs on gain on reduction of deferred consideration Finance income Finance costs Profit/(loss) before taxation Taxation Profit/(loss) for the year from continuing operations DISCONTINUED OPERATIONS Profit for the year from discontinued operations Profit on disposal of discontinued operations Net result from discontinued operations TOTAL OPERATIONS Profit for the year from total operations attributable to equity holders of the parent Basic and diluted earnings per share Continuing operations Basic Diluted Total operations Basic Diluted Note 4 4 24 4 4 20 20 6 6 8 11 11 11 11 21 2010 £’000 18,327 2009 £’000 11,797 (7,830) (5,718) 10,497 6,079 (10,119) (7,728) 378 (1,649) 3,112 (318) (379) (1,846) (509) 1,000 (135) 77 (66) (231) (959) (141) - - 497 (49) 1,254 (1,201) 816 (731) 2,070 (1,932) - - - 516 12,598 13,114 2,070 11,182 2.12 p 2.12 p (1.95)p (1.95)p 2.12 p 2.12 p 11.27p 11.17p www.iomart.com 22 Consolidated Statement of Comprehensive Income Year ended 31March 2010 Profit for the year from total operations Total comprehensive income for the year Attributable to equity holders of the parent 2010 £’000 2,070 2,070 2,070 2009 £’000 11,182 11,182 11,182 iomart group plc Annual Report 2010 23 Consolidated Balance Sheet 31March 2010 Note 2010 £’000 2009 £’000 ASSETS Non-current assets Intangible assets – goodwill Intangible assets – other Deferred tax asset Lease deposit Deferred consideration receivable on disposal Property, plant and equipment Current assets Cash and cash equivalents Deferred consideration receivable on disposal Trade and other receivables Total assets LIABILITIES Non-current liabilities Non-current borrowings Current liabilities Deferred consideration due on acquisition Trade and other payables Current borrowings Total liabilities Net assets EQUITY Share capital Own shares Capital redemption reserve Share premium Retained earnings Total equity These financial statements were approved by the board of directors on 1 June 2010. Signed on behalf of the board of directors Angus MacSween Director and chief executive officer 12 12 9 13 18 15 17 18 16 21 20 19 21 23 20,723 1,008 604 1,216 - 12,276 35,827 5,715 914 2,937 9,566 16,550 363 20 884 1,000 8,672 27,489 13,910 - 2,184 16,094 45,393 43,583 (834) (834) (54) (54) (1,000) (7,489) (480) (8,969) (4,800) (5,190) (148) (10,138) (9,803) (10,192) 35,590 33,391 1,028 (2,464) 1,200 19,514 16,312 35,590 1,002 (678) 1,200 17,583 14,284 33,391 www.iomart.com 24 Consolidated Cash Flow Statement Year ended 31March 2010 Profit/(loss) before taxation Gain on reduction of deferred consideration - net Finance income - net Depreciation Amortisation Share based payments Movement in deposits Movement in trade receivables Movement in trade payables Cash flow from operations Taxation paid Cash generated from discontinued operations Net cash flow from operating activities Cash flow from investing activities Purchase of property, plant and equipment Capitalisation of development costs Purchase of intangible assets - software Purchase of intangible assets – domain names Payment for acquisition of business Repayment of borrowings on acquisition of business Deferred consideration paid on prior period acquisition Receipt from disposal of discontinued operation Net cash acquired with subsidiary undertaking Interest received Investing activities of discontinued operation Net cash (used in)/from investing activities Cash flow from financing activities Issue of shares Repayment of finance leases Repayment of borrowings Purchase of own shares Interest paid Dividends paid Financing activities of discontinued operation Net cash used in financing activities Note 20 6 4 4 24 15 12 12 12 10 10 20 23 21 10 6 7 2010 £’000 1,254 (865) (11) 1,846 509 379 (332) (63) 1,169 3,886 (164) - 3,722 (2,341) (281) (69) - (5,458) (226) (2,935) - 155 172 - (10,983) 41 (396) (222) - (66) (291) - (934) 2009 £’000 (1,201) - (448) 959 141 231 - (453) 1,087 316 - 463 779 (1,519) (238) (10) (31) - - - 15,235 - 389 (99) 13,727 50 (210) (432) (678) (49) - (20) (1,339) Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year (8,195) 13,167 13,910 743 Cash and cash equivalents at the end of the year 17 5,715 13,910 iomart group plc Annual Report 2010 Consolidated Statement of Changes in Equity Year ended 31March 2010 25 Own shares JSOP £’000 - - - - - - - - - - - Changes in equity Balance at 1 April 2008 Note Share capital £’000 994 Share based payments 24 Deferred tax on share based payments Acquisition of own shares Issue of shares for option redemption Profit in the period - - - 8 - Balance at 31 March 2009 1,002 Dividends – final (paid) Share based payments Issue of own shares for option redemption Issue of own shares to Joint Share Ownership Plan Issue of new shares to Joint Share Ownership Plan Profit in the period 7 24 - - - - 26 (2,464) - - Balance at 31 March 2010 1,028 (2,464) Own Share Capital shares redemption premium account reserve £’000 £’000 treasury £’000 Retained earnings £’000 Total £’000 - - - (678) - - 1,200 17,541 2,946 22,681 - - - - - - - - 42 231 231 (75) (75) - - (678) 50 - 11,182 11,182 (678) 1,200 17,583 14,284 33,391 - - 171 507 - - - - - - - - - - - - (291) (291) 379 379 (130) 41 712 1,219 - - 1,219 (1,219) - 2,070 2,070 1,200 19,514 16,312 35,590 www.iomart.com “iomart Hosting’s central London location data centre gives us a much better power supply, huge amounts of bandwidth, the tightest security and a 100 per cent uptime guarantee that’s actually written in to the contract. We now feel a lot more comfortable than we did.” Alex Fagioli, Technical Director of Tectrade iomart group plc Annual Report 2010 27 Notes to the Financial Statements Year ended 31March 2010 1. GENERAL INFORMATION iomart Group plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given on page 69 of this report. The nature of the Group’s operations and its principal activities are set out in the Chief Executive Officer’s report, Finance Director’s report and Directors’ report. The financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which each of the Group’s subsidiaries operates. Foreign operations are included in accordance with the policies set out in note 2. 2. ACCOUNTING POLICIES Basis of preparation The consolidated financial statements have been prepared in accordance with applicable International Financial Reporting Standards (IFRS) as adopted by the EU and issued by the International Accounting Standards Board (IASB). The measurement bases and principal accounting policies of the Group are set out below. These policies have been consistently applied to all years presented unless otherwise stated. Standards, amendments, and interpretations effective in year IAS 1 (revised) Presentation of Financial Statements. This does not affect the financial position or profits of the Group but gives rise to additional disclosures. The measurement and recognition of the Group’s assets, liabilities, income and expenses is unchanged. The adoption of this standard affects the presentation of owner changes in equity and introduces a ‘Statement of Comprehensive Income’. IFRS 8 Operating Segments. This extends the scope of segmental reporting so that segments are identified by reference to the information reviewed by the Chief Operating Decision Maker. This standard does effect the Group’s financial statements and the required disclosure has been included in Note 3 to the financial statements. In addition the following standards, amendments and interpretations are effective in the year but have no material impact on the Group’s financial statements: • IAS 23 Borrowing Costs. • IAS 32 (amended February 2008) Financial Instruments: Presentation. • IAS 39 and IFRIC 9 Financial Instruments: Recognition and Measurement: Eligible Hedged Items. • IFRS 2 (amendment), Share-based Payment, vesting conditions and cancellations. • IFRS 7 (amended March 2009) Improving Disclosures about Financial Instruments. • IFRIC 13 Customer Loyalty Programme. • IFRIC 15 Agreements for the Construction of Real Estate. • IFRIC 16 Hedges of a Net Investment in a Foreign Operation. New standards and interpretations of existing standards that are not yet effective and have not been adopted early by the Group IFRS 3 Business Combinations (revised 2008). This continues to apply the acquisition method to business combinations. This standard does not have any impact on the Group’s financial statements. The standard is applicable to business combinations occurring in reporting periods beginning on or after 1 July 2009 and will be applied prospectively. This standard will be applied to any future acquisitions. In addition the following new standards and interpretations of existing standards that are not yet effective and have not been adopted early by the Group are not expected to have any impact on the Group’s consolidated financial statements: • IAS 27 Consolidated and Separate Financial Statements (revised 2008). • IFRIC 17 Distributions of Non-cash Assets to Owners. • IFRIC 18 Transfers of Assets from Customers. www.iomart.com 28 Notes to the Financial Statements. Year ended 31March 2010. Summary of Accounting Policies Goodwill Goodwill representing the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Any excess of the Group’s interest in the net fair value of the identifiable net assets acquired over cost is recognised immediately after acquisition in the income statement. Basis of consolidation The Group financial statements consolidate those of the company and all of its subsidiary undertakings drawn up to 31 March 2010. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights. Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the Group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Revenue Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow from the transaction and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on prior experience, taking into consideration the type of customer and the type of transaction. Continuing Operations Easyspace This operating segment provides domain name registration and shared hosting services. Revenue from the provision of domain names is recognised at the time the title to the domain name passes. Revenue from the provision of shared hosting is recognised evenly over the period of the service and once the service has been established. Any unearned portion of revenue is included in payables as deferred revenue. Hosting This operating segment provides managed hosting facilities and services. Revenue from the sale of facilities and services is spread evenly over the period of the agreement and once the service has been established. Any unearned portion of revenue is included in payables as deferred revenue. Interest Interest is recognised on a time-proportion basis using the effective interest method. Intangible assets Research and development Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred. Development costs incurred are capitalised when all the following conditions are satisfied: • completion of the intangible asset is technically feasible so that it will be available for use or sale • the Group intends to complete the intangible asset and use or sell it • the Group has the ability to use or sell the intangible asset • the intangible asset will generate probable future economic benefits • there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and • the expenditure attributable to the intangible asset iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 29 during its development can be measured reliably. Development costs not meeting the criteria for capitalisation are expensed as incurred. The only development costs which are deemed to meet these criteria in the Group are in relation to developments by specific teams to develop products in the hosting asset management control system and internet security. Development costs capitalised are amortised on a straight-line basis over the estimated useful life of the asset. The estimated useful life is deemed to be three years from the month of expenditure for all developments capitalised. Amortisation charges are recognised in administration expenses in the income statement. Software Software is recognised at fair value on purchase and amortised on a straight-line basis over its useful economic life, which does not generally exceed four years. Assets acquired as part of a business combination In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. Where an intangible asset might be separable, but only together with a related tangible or intangible asset, the group of assets is recognised as a single asset separately from goodwill where the individual fair values of the assets in the Group are not reliably measurable. Where the individual fair values of the complementary assets are reliably measurable, the Group recognises them as a single asset provided the individual assets have similar useful lives. Property, plant and equipment Property, plant and equipment is stated at cost net of depreciation and any provision for impairment. Leasehold property is included in property, plant and equipment only where it is held under a finance lease. Disposal of assets The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement. Depreciation Depreciation is calculated to write down the cost of all property, plant and equipment to the expected residual value by equal annual instalments over their estimated useful economic lives. All items of plant and equipment are deemed to have immaterial residual values. The rates generally applicable are (per annum): Freehold property Leasehold improvements Computer equipment Office equipment Datacentre equipment Motor vehicle 3.33% 25% Between 20% and 50% Between 10% and 25% Between 6% and 10% 25% Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill. Goodwill, other individual assets or cash-generating units that include goodwill, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Management estimate expected future cash flows from each cash generating unit and determines a suitable interest rate to determine the present value of the future cash flows. Discount factors are determined for each cash generating unit to reflect the underlying risks involved. The future cash flows used in the calculation are based on the Group’s latest approved budget. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in www.iomart.com 30 Notes to the Financial Statements. Year ended 31March 2010. the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Details of the key assumptions and judgements are shown in note 12. Leased assets In accordance with IAS 17 Leases, the economic ownership of a leased asset is deemed to have been transferred to the Group (the lessee) if the Group bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance lease liability. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the income statement over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the income statement on a straight line basis over the lease term. Lease incentives are spread over the term of the lease. Where a lease is for land and buildings there is a split between land and buildings in the consideration as to whether there is a finance lease within the lease. Income Taxes The tax expense recognised in the Income Statement comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are recognised in other comprehensive income or directly in equity (such as share based remuneration) in which case the related deferred tax is also recognised in other comprehensive income or equity respectively. Financial assets All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets other than those categorised as at fair value through profit or loss are recognised at fair value plus transaction costs on initial recognition. Financial assets categorised as at fair value through profit or loss are recognised initially at fair value with transaction costs expensed through the income statement. All income and expenses relating to financial assets that are recognised in income statement are presented within ‘finance costs’, ‘finance income’ or ‘other financial items’ except for impairment of trade receivables which is presented within ‘other expenses’. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade and other receivables are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. Provision against trade and other receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 31 is determined as the difference between the asset’s carrying amount and the present value of estimated future cash flows. An assessment for impairment is undertaken at least at each balance sheet date. Financial derivatives such as forward foreign exchange contracts are carried at fair value through the income statement. A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the Group transfers substantially all the risks and rewards of ownership of the asset, or if the Group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset. Financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities categorised as at fair value through profit or loss are recorded initially at fair value, all transaction costs are recognised immediately in the income statement. All other financial liabilities are recorded initially at fair value, net of direct issue costs. Financial liabilities categorised as at fair value through profit or loss are re-measured at each reporting date at fair value, with changes in fair value being recognised in the income statement. All other financial liabilities are recorded at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance costs in the income statement. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Financial liabilities are categorised as at fair value through profit and loss on initial recognition. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged, cancelled or when it expires. Foreign currency transactions Transactions denominated in foreign currencies are recorded at the rate ruling at the date of the transaction. Any gains or losses arising on assets and liabilities between the date of recording and the date of settlement are treated as gains or losses in the income statement. Forward foreign exchange contracts used to hedge the Group’s exposure to foreign currency transactions are fair valued at the balance sheet date and the gain or loss is recognised in the income statement for the period. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Dividends Dividend distributions payable to equity shareholders are included in the financial statements within ‘other short term financial liabilities’ when a final dividend is approved in a general meeting. Interim dividend distributions to equity shareholders approved by the Board are not included in the financial statements until paid. Scrip dividends are recognised at the fair value of the cash alternative. Equity Equity comprises the following: • “Share capital” represents the nominal value of equity shares. • “Own shares JSOP” represents the amount of the company’s own equity shares, plus attributable transaction costs, that is held by the company within the iomart Group plc Employee Benefit Trust in respect of the Joint Share Ownership Plan. • “Own shares treasury” represents the amount of the company’s own equity shares, plus attributable transaction costs, that is held by the company as treasury shares. • “Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. • “Capital redemption reserve” represents set aside reserves in relation to previous redemption of own shares. • “Retained earnings” represents retained profits. www.iomart.com 32 Notes to the Financial Statements. Year ended 31March 2010. Employee benefits The Group operates a stakeholder pension scheme and also contributes to a number of personal pension schemes on behalf of executive directors and some senior employees. The pension costs charged against operating profit are the contributions payable to the schemes in respect of the accounting period. Share-based payment The Group operates equity-settled and cash-settled share- based remuneration plans for its employees. All goods and services received in exchange for the grant of any share- based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets). Where existing share based incentives are replaced the fair value of the replacement share based incentives is calculated and compared to the current fair value of the replaced share based incentives. Where the fair value of the replaced share based incentives exceeds that of the replacement share based incentives then the share based payment charge to the income statement for the year continues to be based on the original share based incentives. All share-based remuneration plans are ultimately recognised as an expense in the income statement with a corresponding credit to ‘retained earnings’. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share based incentives expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share based incentives ultimately exercised are different to that estimated on vesting. the value of any such excess into a number of wholly owned shares within the JSOP. The JSOP scheme can therefore be either equity-settled or cash-settled at the option of the employee. Discontinued operations Profit or loss from discontinued operations, including prior year components of profit or loss, are presented as a single amount in the Income Statement. A discontinued operation is a component of the entity that either has been disposed of, or is classified as held for sale, and: • represents a major line of business or geographical area of operations; • is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or • is a subsidiary acquired exclusively with a view to resale. The Group disposed of its Ufindus operation in the prior year and consequently, Ufindus has been treated as a discontinued operation within these financial statements. The Ufindus operation has been shown as discontinued within the segmental analysis at note 3. The disclosures for discontinued operations in the prior year relate to operations that have been discontinued by the reporting date. Segmental reporting The Group provides segmental reporting on a basis consistent with the provision of internal financial information used for decision making purposed by the Chief Operating Decision Maker. Internal reports are produced on a basis consistent with the accounting policies adopted in Group’s financial statements. The Group calculates geographical information on the basis of the location of the customer. Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Upon exercise of share based incentives the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. Under the rules of the Joint Share Ownership Plan (JSOP), should the market price of a vested JSOP share exceed the participation price the employee has the option to convert Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 33 to select a suitable discount rate in order to calculate the present value. Full details of the assumptions used in the calculation are disclosed in note 12. Valuation of intangible assets and fair value adjustments on acquisition Note 10 summarises the fair value adjustments that were made in relation to the acquisition of Rapidswitch Limited. Within these adjustments consideration has been given to the valuation of intangible assets including customer relationships and brand. Recoverability of deferred consideration on disposal of subsidiary Part of the consideration due to be received in relation to the disposal of Ufindus Limited was deferred and placed into escrow against warranty claims. Under the terms of the agreement relating to the disposal the Group gave standard warranties to the purchaser. An assumption has been made that no further warranty claim will reduce the remaining amount outstanding. Estimated accruals Estimates have been made of a number of accruals relating to premises used in the Group’s operations. These estimates are based on previous experience of costs incurred in similar situations. Deferred tax The Group has substantial tax losses available to offset future taxable profits. In assessing the amount of deferred tax to be recognised as an asset the Group has estimated future profitability of the relevant operating unit. 3. SEGMENTAL ANALYSIS The chief operating decision-maker has been identified as the Chief Executive Officer (“CEO”) of the Company. The CEO reviews the Group’s internal reporting in order to assess performance and to allocate resources. The Company has determined its operating segments based on these reports. The Group currently has two reportable segments. • Easyspace – this segment provides a range of share hosting and domain registration services to micro and SME companies. • Hosting – this segment provides managed hosting facilities and services, through a network of owned datacentres, to the larger SME and corporate markets. The segment uses several routes to market and provides managed hosting services through iomart Hosting, Rapidswitch and Netintelligence. Rapidswitch Limited was acquired in the early part of the year and was fully integrated into the Hosting segment during the year. Information regarding the operation of the reportable segments is included below. The CEO assesses the performance of the operating segments based on revenue and a measure of Earnings before Interest, Depreciation and Amortisation (EBITDA) before any allocation of Group overheads or charges for share based payments. Segment EBITDA is used to measure performance as the CEO believes that such information is the most relevant in evaluating the results of the segment. The Group’s EBITDA for the year has been calculated after deducting Group overheads from the EBITDA of the two segments as reported internally. In previous years certain Group overheads were allocated at the year end to segments for segmental reporting purposes. Consequently prior year comparative figures have been presented on a basis consistent with the current year with no allocation of Group overheads. Whilst this means that the level of Group overheads reported in the segmental analysis comparative figures has increased from that reported last year likewise the level of EBITDA profitability of the two segments has also increased by the same amount and the overall Group EBITDA profitability has been unaffected. The Group overheads include the cost of the Board, all the costs of running the premises in Glasgow, the Group marketing, human resource, finance and design functions and legal and professional fees. www.iomart.com 34 Notes to the Financial Statements. Year ended 31March 2010. 3. SEGMENTAL ANALYSIS (CONTINUED) The segment information is prepared using accounting policies consistent with those of the Group as a whole. The assets and liabilities of the Group are not reviewed by the chief operating decision-maker on a segment basis. Therefore none of the Group’s assets and liabilities are segmental assets and liabilities and are all unallocated for segmental disclosure purposes. The Group has adopted early the amendment to IFRS 8 Operating Segments as detailed in the ‘Improvements to IFRS’ issued in April 2009. This amendment states that if segmental assets and liabilities are not presented to the Chief Operating Decision Maker then the Group need not disclose these in the financial statements. On this basis the Group has not disclosed details of segmental assets and liabilities. All segments are continuing operations. No customer accounts for more than 10% of external revenues. Inter-segment transactions are accounted for using an arms-length commercial basis. Operating Segments Revenue by Operating Segment Easyspace Hosting Continuing operations Discontinued operations External £’000 7,363 10,964 18,327 - 18,327 2010 Internal £’000 - 717 717 - 717 Total £’000 7,363 11,681 19,044 - 19,044 External £’000 7,224 4,573 11,797 3,321 15,118 2009 Internal £’000 - 572 572 - 572 Total £’000 7,224 5,145 12,369 3,321 15,690 Geographical Information In presenting the consolidated information on a geographical basis, revenue is based on the geographical location of customers. The United Kingdom is the place of domicile of the parent company, iomart Group plc. All of the Group’s revenue originates from the United Kingdom. No individual country other than the United Kingdom contributes a material amount of revenue therefore revenue from outside the United Kingdom has been shown as from Rest of the World. Analysis of Revenue by Destination United Kingdom Rest of the World Revenue from continuing operations Profit by Operating Segment Easyspace Hosting Group overheads Share based payments Net gain on business combination Group interest and tax Total continuing Gain on disposal Discontinued operations Profit for the year 2010 £’000 17,142 1,185 18,327 2009 £’000 11,173 624 11,797 2010 EBITDA before Share based payments EBITDA before 2009 Share based payments £’000 (35) (2,320) - (379) (2,734) payments £’000 2,579 2,763 (2,230) - 3,112 Share based depreciation & Operating amortisation profit/(loss) £’000 2,544 443 (2,230) (379) 378 865 827 2,070 - - 2,070 (2,734) - - (2,734) 3,112 - - 3,112 £’000 (38) (1,062) - (231) (1,331) payments £’000 2,203 (242) (2,279) - (318) Share based depreciation & Operating amortisation profit/(loss) £’000 2,165 (1,304) (2,279) (231) (1,649) - (283) (1,932) 12,598 516 11,182 (1,331) - (99) (1,430) (318) 12,598 615 12,895 Group overheads, share based payments, interest and tax are not allocated to segments. iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 35 4. OPERATING PROFIT/(LOSS) The profit for the year from total operations is stated after charging the following operating costs: Staff costs excluding development costs capitalised and research and development costs written off the income statement 2010 £’000 2009 £’000 6,216 9,808 Depreciation of property plant and equipment - Owned assets (2009: continuing operations: £787,000; discontinued operations: £34,000) - Leased assets Property, plant and equipment hire - Land and buildings - Plant and machinery Amortisation of intangible assets (2009: continuing operations: £141,000; discontinued operations: £66,000) R&D expensed to income statement Marketing and sales Infrastructure Provision for doubtful debts Premises and office 1,498 348 1,299 242 509 162 604 337 57 3,778 821 172 1,078 57 207 56 955 188 56 2,640 Included within other expenses are fees paid to the Group’s auditors, an analysis of which is provided below: Auditors’ remuneration - Fees payable for the audit of the consolidation and the parent company accounts - Fees payable for audit of subsidiaries, pursuant to legislation - Tax compliance fees - Corporate finance and advisory transactions 2010 £’000 2009 £’000 22 23 14 27 86 21 19 12 22 74 www.iomart.com 36 Notes to the Financial Statements. Year ended 31March 2010. 5. INFORMATION REGARDING DIRECTORS AND EMPLOYEES Directors’ emoluments Aggregate emoluments Pension contributions to personal money purchase schemes Share based payments Emoluments payable to the highest paid director are as follows: Aggregate emoluments Pension contributions to personal money purchase schemes 2010 £’000 2009 £’000 855 39 243 311 16 849 35 192 307 15 During the year the company made personal pension contributions to the personal pension schemes of 3 directors (2009: 3). The aggregate amount of gains realised by directors on the exercise of share options during the year was £129,395 (2009: £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 11 to 14. 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 end Technical Customer services Sales and marketing Administration Staff costs of the Group during the year in respect of employees and directors were: Wages and salaries Social security costs Other pension costs Share based payments No. No. 66 22 33 24 145 65 19 32 22 138 51 32 86 35 204 48 23 28 26 125 2010 £’000 2009 £’000 5,688 536 56 379 8,887 1,008 56 231 6,659 10,182 The Group operates a stakeholder pension scheme and also contributes to a number of personal pension schemes on behalf of executive directors and some senior employees. In the case of executive directors, details of the pension arrangements are given within the Directors’ Remuneration Report on pages 11 to 14. In the case of senior employees, pension contributions to individuals’ personal pension arrangements are payable by the Group at a rate equal to the contribution made by the senior employee subject to a maximum employer contribution of 5% of basic salary. The comparative figure for 2009 for staff costs during the year includes £5,145,000 relating to discontinued operations. iomart group plc Annual Report 2010 6. NET FINANCE COST Finance income: Bank interest receivable Finance expenses: Bank overdraft and other borrowings Finance leases Net finance cost 7. DIVIDENDS ON SHARES CLASSED AS EQUITY Paid during the year: Final dividend – for prior year Equity dividends on ordinary shares Notes to the Financial Statements. Year ended 31March 2010. 37 2010 £’000 2009 £’000 77 77 497 497 - (66) (66) (26) (23) (49) 11 448 2010 Pence per share 2010 £’000 2009 Pence per share 2009 £’000 0.3p 291 291 - - - The directors declared an interim dividend on 22 February 2010, for the year ended 31 March 2010, of 0.4p per share (2009: nil) which was paid after the balance sheet date. www.iomart.com 38 Notes to the Financial Statements. Year ended 31March 2010. 8. TAXATION Tax charge for the year Adjustment relating to prior year Deferred tax credit/(charge) Taxation 2010 £’000 (12) 20 808 816 2009 £’000 - - (731) (731) The Group has a deferred tax asset which has been recognised in respect of tax losses within one of the subsidiary companies, which has generated taxable profits and is expected to continue to do so. The differences between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax is as follows: Profit before tax Tax charge @ 28% (2009 – 28%) Expenses disallowed for tax purposes Adjustments in respect of prior periods Effect of research and development tax reliefs Tax effect of share based remuneration Non-taxable gain on reduction of deferred consideration on business combination Effect of intangible asset tax reliefs Movement in unprovided deferred tax related to fixed assets Movement in unprovided deferred tax related to other timing differences Gain on disposal of subsidiary undertaking not subject to corporation tax Non-taxable income on discontinued operations Movement in unprovided deferred tax related to loses (Increase)/reduction in tax losses recognised 2010 £’000 2009 £’000 1,254 11,913 351 3,336 23 (20) (44) 50 (242) (24) (99) (8) - - - (803) 25 - (36) 24 - - (12) 5 (3,527) (77) 199 794 Taxation (credit)/charge for the year (816) 731 The weighted average applicable tax rate for the year ended 31 March 2010 was 28% (2009: 28%). iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 39 9. DEFERRED TAX The Group had recognised deferred tax assets and liabilities as follows: 2010 Deferred tax Deferred tax Recognised Unrecognised £’000 £’000 2009 Deferred tax Deferred tax Recognised Unrecognised £’000 £’000 Tax losses carried forward Share based remuneration Deferred tax on acquired assets with no capital allowances Deferred tax on customer relationships Deferred tax 2,187 72 (1,504) (151) 604 2,427 - - - 2,427 1,590 79 (1,649) - 20 3,270 - - - 3,270 At the balance sheet date, the Group has unused tax losses of £16.5m (2009: £17.4m) available for offset against future profits. A deferred tax asset has been recognised in respect of £7.8m (2009: £5.7m) of such losses. No deferred tax asset has been recognised in respect of the remaining £8.7m (2009: £11.7m) since it is unlikely that these losses will be used in the foreseeable future. The movement in the deferred tax account during the year was: Tax losses carried forward £’000 Deferred tax on acquired assets Share based with no capital allowances £’000 remuneration £’000 Opening balance Acquired on acquisition of subsidiary Credited/(charged) to income statement Closing balance 1,590 - 597 2,187 79 - (7) 72 (1,649) - 145 (1,504) Customer relationships £’000 - (224) 73 (151) Total £’000 20 (224) 808 604 The deferred tax asset in relation to tax losses carried forward arises from the unutilised tax losses of the hosting trade. The deferred tax asset has been recognised in line with future projections of the hosting company over a three year period. The basis of these projections are: • The consistent success of the sales teams in generating new business • Expectations about the retention of customers • Continued success in achieving a particular product mix and maintaining price yield Based on the current profitability of the hosting company, an assessment of projections and the expectations of sustainable profits in future years, a deferred tax asset in relation to the utilisation of these losses is recognised in line with ‘IAS 12 Income Taxes’. The deferred tax asset in relation to share based remuneration arises from the anticipated future tax relief on the exercise of share options. The deferred tax on acquired assets arises from the datacentre equipment acquired through the acquisition of Ezee DSL Limited on which depreciation is charged but on which there are no capital allowances available. The deferred tax on customer relationships arises from the intangible asset recognised on the acquisition of Rapidswitch Limited on 11 May 2010 which is being amortised over an estimated useful life of 5 years and on which there are no capital allowances or other tax deductions available. www.iomart.com 40 Notes to the Financial Statements. Year ended 31March 2010. 10. ACQUISITION The Group acquired 100% of the issued share capital of Rapidswitch Limited on 11 May 2009. This transaction has been accounted for by the purchase method of accounting. The book and final fair values of the company were as follows: Intangible assets Property, plant and equipment Trade and other receivables Cash and cash equivalents Trade and other payables Deferred taxation Other loans Finance leases Bank loan Net assets Goodwill Total consideration Satisfied by: Cash Net cash outflow arising on acquisition Cash consideration Cash and cash equivalents acquired Book value £’000 51 2,226 785 155 (1,526) - (226) (425) (222) 818 Fair value adjustments £’000 753 - - - (62) (224) - - - 467 Final Fair value £’000 804 2,226 785 155 (1,588) (224) (226) (425) (222) 1,285 4,173 5,458 5,458 5,458 (155) 5,303 The goodwill arising on the acquisition of Rapidswitch Limited is attributable to the specialised, industry specific knowledge of the management and staff, the benefits to the Group in merging the business with our existing infrastructure and the anticipated future operating synergies from the combination. Fair value adjustments resulting in a net increase in net assets of £467,000 were made on acquisition. The goodwill of £47,000 within the company was written off, a provision of £58,000 was made for contracted lease payments for datacentre space in excess of the company’s ongoing requirements and £4,000 was provided for a pre-acquisition trade creditor. An intangible asset in respect of existing customer relationships has been recognised at its fair value of £800,000 with a related deferred tax liability of £224,000. The £4,000 adjustment for the pre-acquisition trade creditor is the only difference between the provisional fair value and the final fair value. To estimate the fair value of the customer relationships, a discounted cash flow method, specifically the income approach, was used with reference to the directors’ estimates of the level of revenue which will be generated from them. A post-tax discount rate of 12% was used for the valuation. Customer relationships are being amortised over an estimated useful life of 5 years. Rapidswitch acquires new customers by maintaining its position on internet search engines and as a consequence no value has been attributed to the brand name. As part of the investment agreement, other loans owed by Rapidswitch Limited of £226,000 were repaid on the date of acquisition. The Rapidswitch business contributed £4,694,000 of revenue and £994,000 of profit before tax to the Group for the period between the acquisition date and the balance sheet date. If the acquisition of the Rapidswitch business had been completed on the first day of the financial period, it would have contributed £5,235,000 of revenue and £1,059,000 of profit before tax to the Group. iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 41 11. EARNINGS 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, after deducting any own shares (treasury and JSOP). Fully diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the total of the weighted average number of ordinary shares in issue during the year and the dilutive potential ordinary shares relating to share options. Continuing operations Profit/(loss) from continuing operations for the financial year and basic earnings attributed to ordinary shareholders Weighted average number of ordinary shares: For basic earnings per share Exercise of share options For diluted earnings per share Basic earnings per share Fully diluted earnings per share Discontinued operations Profit from discontinued operations for the financial year and basic earnings attributed to ordinary shareholders Profit on disposal of discontinued operations Total profit from discontinued operations Weighted average number of ordinary shares: For basic earnings per share Exercise of share options For diluted earnings per share Basic earnings per share Fully diluted earnings per share Total operations Profit for the financial year and basic earnings attributed to ordinary shareholders Weighted average number of ordinary shares: For basic earnings per share Exercise of share options For diluted earnings per share Basic earnings per share Fully diluted earnings per share 2010 £’000 2,070 No 000 97,577 230 97,807 2.12 p 2.12 p 2010 £’000 - - - No 000 - - - - p - p 2010 £’000 2,070 No 000 97,577 230 97,807 2.12 p 2.12 p For periods where the Group made a loss, there was no dilutive effect from the potential exercise of options. 2009 £’000 (1,932) No 000 99,183 - 99,183 (1.95)p (1.95)p 2009 £’000 516 12,598 13,114 No 000 99,183 902 100,085 13.22p 13.10p 2009 £’000 11,182 No 000 99,183 902 100,085 11.27p 11.17p www.iomart.com 42 Notes to the Financial Statements. Year ended 31March 2010. 12. INTANGIBLE ASSETS Cost At 1 April 2008 Additions Development cost capitalised Derecognised on disposal of subsidiary At 1 April 2009 Additions Acquired on acquisition of subsidiary Development cost capitalised At 31 March 2010 Accumulated amortisation: At 1 April 2008 Derecognised on disposal of subsidiary Charge for the year At 1 April 2009 Charge for the year At 31 March 2010 Carrying amount: At 31 March 2010 At 31 March 2009 Goodwill £’000 Development costs £’000 Customer relationships £’000 Software £’000 Domain names £’000 18,525 - - (1,975) 16,550 4,173 - - 20,723 - - - - - - 20,723 16,550 1,028 - 318 (867) 479 - - 281 760 (359) 378 (188) (169) (209) (378) 382 310 - - - - - - 800 - 800 - - - - (261) (261) 539 - Total £’000 19,829 53 318 (2,919) 17,281 4,242 804 281 22,608 (584) 423 (207) (368) (509) (877) 276 22 - (77) 221 69 4 - 294 (225) 45 (19) (199) (30) (229) - 31 - - 31 - - - 31 - - - - (9) (9) 65 22 22 21,731 31 16,913 All amortisation and impairment charges are included in the depreciation, amortisation and impairment of non-financial assets classification, which is disclosed as administration expenses in the income statement. On 9 July 2008 the online directory business Ufindus was disposed of and the associated goodwill of £1,975,000 has been deducted from the carrying value. During the year, goodwill was reviewed for impairment in accordance with IAS 36 “Impairment of Assets”. No impairment charges (2009: nil) arose as a result of this review. For this review goodwill was allocated to individual Cash Generating Units (CGU) on the basis of the Group’s operations. The carrying value of goodwill by each CGU is as follows: Cash Generating Units (CGU) Easyspace Rapidswitch Hosting 2010 £’000 12,314 4,173 4,236 20,723 2009 £’000 12,314 - 4,236 16,550 No goodwill in the Group is attributable to Netintelligence. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 43 12. INTANGIBLE ASSETS (CONTINUED) The growth rates and margins used to estimate future performance are based on past performance and the experience of growth rates. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. The growth rates used to estimate future performance beyond the periods covered by the annual and strategic planning processes do not exceed the long-term average growth rates for similar products. The assumptions used for the CGU included within the impairment reviews are as follows: Discount rate Future perpetuity rate Forecast period for which cash flows are estimated (years) Easyspace 9% 2.5% 5 Rapidswitch 12% 2.5% 5 Hosting 12% 2.5% 5 Based on an analysis of the impairment calculation’s sensitivities to changes in key parameters (growth rate, discount rate and pre-tax cash flow projections) there was no probable scenario where the CGU’s recoverable amount would fall below its carrying amount. 13. LEASE DEPOSIT The lease deposit of £1,216,000 (2009: £884,000) is due to be repaid at the end of the lease which at the earliest is July 2020. The Group is due to receive interest on the lease deposit at the prevailing market rate and therefore it has not been discounted. 14. PRINCIPAL SUBSIDIARIES The following subsidiaries have been consolidated in the Group financial statements: Country of registration and operation Activity Ordinary share capital Owned by the company % Owned by subsidiary undertakings % iomart Limited iomart Hosting Limited Netintelligence Limited iomart Virtual Servers Hosting Limited Easyspace Datacentres (UK) Limited Easyspace Limited Rapidswitch Limited Ezee DSL Limited Internetters Limited NicNames Limited Web Genie Internet Limited Scotland Scotland Scotland Scotland Scotland England England England England England England Dormant Managed hosting services Managed hosting services Dormant Dormant Webservices Managed hosting services Datacentre services Webservices Dormant Webservices 100 100 100 100 100 100 100 100 * - - - - - - - - - - - 100 100 100 * as described in Note 20, the single share in Ezee DSL Limited, representing 0.2% of its issued share capital, has been transferred to iomart Group plc through the completion of a signed stock transfer form that has been placed in escrow until the final payment of deferred consideration is made on 27 August 2010. Until the final payment is made, under the terms of the agreement, the vendor has undertaken to vote and otherwise exercise any and all rights in respect of the single share as directed by iomart Group plc. Furthermore, the vendor has undertaken to waive any and all dividends or other distributions made or declared in respect of the single share. www.iomart.com 44 Notes to the Financial Statements. Year ended 31March 2010. 15. PROPERTY, PLANT AND EQUIPMENT Freehold Property £’000 Leasehold improve- ments £’000 Datacentre Equipment £’000 Computer equipment £’000 Office equipment £’000 Motor vehicles £’000 Total £’000 Cost: At 1 April 2008 Additions in the year Disposals At 1 April 2009 Additions in the year Acquisition of subsidiary Disposals in the year At 31 March 2010 Accumulated depreciation: At 1 April 2008 Charge for the year Eliminated on disposal At 31 March 2009 Charge for the year Disposals in the year At 31 March 2010 Carrying amount: At 31 March 2010 837 - - 837 - - - 837 - (12) - (12) (8) - (20) 544 - (184) 360 480 1,299 - 2,139 (459) (46) 159 (346) (112) - (458) 6,580 1,004 - 7,584 645 166 - 8,395 (224) (453) - (677) (652) - (1,329) 2,602 416 (1,149) 1,869 2,088 727 - 4,684 (1,846) (436) 1,036 (1,246) (1,029) - (2,275) 817 1,681 7,066 2,409 At 31 March 2009 825 14 6,907 623 850 110 (283) 677 12 21 - 710 (574) (46) 246 (374) (40) - (414) 296 303 - - - - - 14 (7) 7 - - - - (5) 5 - 7 - The net book value of computer equipment held under finance lease at 31 March 2010 was £1,204,000 (2009: £91,000). 16. TRADE AND OTHER RECEIVABLES Trade receivables Less: Provision for impairment Trade receivables (net) Other receivables Prepayments and accrued income Trade and other receivables 2010 £’000 1,382 (124) 1,258 191 1,488 2,937 11,413 1,530 (1,616) 11,327 3,225 2,227 (7) 16,772 (3,103) (993) 1,441 (2,655) (1,846) 5 (4,496) 12,276 8,672 2009 £’000 764 (67) 697 233 1,254 2,184 The carrying amount of trade and other receivables approximates to their fair value, which has been calculated based on expectations of debt recovery from historic performances feeding into impairment provision calculations. Some of the higher value trade receivables in the Hosting division are reviewed individually for impairment and judgment made as to any likely impairment based on historic trends and the latest communication with specific customers. The balance of trade receivables in the Group are individually small in terms of value, so are considered for impairment by business unit specific provision calculations and are not individually impaired. iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 45 16. TRADE AND OTHER RECEIVABLES (CONTINUED) To consider the total exposure to credit risks, the Group uses figures net of VAT. At 31 March 2010, £862,000 (2009: £317,000) of net trade receivables were fully performing. Net trade receivables of £396,000 (2009: £380,000) were past due, but not impaired. The aging below shows that almost all are less than three months old. Historic performance indicates a high probability of payment for debts in this aging. Those over three months relate to a small number of larger customers without history of default. Up to 3 months Over 3 months but less than 6 months Over 6 months but less than 1 year Total unimpaired trade receivables which are past due 2010 £’000 337 55 4 396 The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Balance at start of the year Provision for receivables impairment Eliminated on disposal of business Balance at end of year 17. CASH AND CASH EQUIVALENTS Cash at bank and on hand Cash and cash equivalents 2010 £’000 67 57 - 124 2010 £’000 5,715 5,715 2009 £’000 278 59 43 380 2009 £’000 1,608 56 (1,597) 67 2009 £’000 13,910 13,910 The credit risk on cash and cash equivalents is considered to be negligible because the counter parties are UK banking institutions. 18. DEFERRED CONSIDERATION RECEVIABLE ON DISPOSAL Deferred consideration receivable on disposal: non-current Deferred consideration receivable on disposal: current Total deferred consideration receivable on disposal 2010 £’000 2009 £’000 - (1,000) (914) - (914) (1,000) The deferred consideration is due to be received in July 2010 in respect of the disposal of Ufindus Limited in July 2008. The amount to be received has reduced over the year due to sums paid out in respect of a claim under the sale and purchase agreement. www.iomart.com 46 Notes to the Financial Statements. Year ended 31March 2010. 19. TRADE AND OTHER PAYABLES Trade payables Corporation tax Other taxation and social security Accruals Deferred income Trade and other payables 2010 £’000 (1,044) (12) (915) (2,399) (3,119) (7,489) 2009 £’000 (746) - (476) (1,923) (2,045) (5,190) The carrying amount of trade and other payables approximates to their fair value. Trade payables and accruals are non-interest bearing and generally mature within three months. 20. DEFERRED CONSIDERATION Deferred consideration due on acquisition Total deferred consideration due on acquisition 2010 £’000 2009 £’000 (1,000) (4,800) (1,000) (4,800) During the year the original deferred consideration due of £4,800,000 on the acquisition of Ezee DSL Limited was subject to a renegotiation with the vendor. As a result of that the total amount due was reduced to £3,800,000 and the Group returned certain assets to the vendor which had been fair valued to nil in the balance sheet at the time of the acquisition. The reduction in deferred consideration of £1,000,000 has been treated as a gain on reduction of deferred consideration on business combination in the income statement. Costs of £135,000 were incurred in respect of the renegotiation with the vendor. These costs have also been shown separately in the income statement. Of the total revised deferred consideration of £3,800,000, £2,800,000 was paid together with £135,000 of associated costs during the year and the remaining balance of £1,000,000 is due to be paid on 27 August 2010. As part of the settlement with the vendor, the single share in Ezee DSL Limited, representing 0.2% of its issued share capital, which had been held by the vendor, was transferred to iomart Group plc, through the completion of a signed stock transfer form which has been placed in escrow and will be released on payment of the remaining balance. The vendor has undertaken to vote and otherwise exercise any and all rights in respect of the single share as directed by iomart Group plc and to waive any and all dividends or other distributions made or declared in respect of the single share whilst it is held in escrow. iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 47 21. BORROWINGS Current: Obligations under finance leases Current borrowings Non-current: Obligations under finance leases Total non-current borrowings Total borrowings The carrying amount of borrowings approximates to their fair value. The obligations under finance leases are secured by the related assets and are repayable as follows: Due within one year Due between one and five years Capital £’000 54 1,260 1,314 2010 Interest Total £’000 £’000 55 1 149 1,409 150 1,464 2010 £’000 (480) (480) (834) (834) (1,314) Capital £’000 54 148 202 2009 £’000 (148) (148) (54) (54) (202) 2009 Interest Total £’000 £’000 55 157 212 1 9 10 The Group in its ordinary course of business enters into hire purchase and finance lease agreements to fund or re-finance the purchase of computer equipment and software. The lease agreements are typically for periods of 2 to 3 years and do not have contingent rent or escalation clauses. The agreements have industry standard terms and do not contain any restrictions on dividends, additional debt or further leasing. The finance lease liability has an effective interest rate of 6.1% (2009: 7.1%). Lease payments are made on a monthly basis. The future lease obligation of £1,464,000 (2009: £212,000) has present value of £1,367,000 (2009: £198,000). 22. OPERATING LEASES The Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: Within one year Within two to five years After five years 2010 Land and buildings £’000 1,280 4,972 5,228 11,480 Other £’000 240 347 387 974 2009 Land and buildings £’000 1,078 4,311 5,944 11,333 Other £’000 57 91 - 148 Lease terms for land and buildings Operating leases do not contain any contingent rent clauses. None of the operating leases contain renewal of purchase options or escalation clauses or any restrictions regarding further leasing or additional debt. www.iomart.com 48 Notes to the Financial Statements. Year ended 31March 2010. 23. SHARE CAPITAL Authorised At 31 March 2008, 2009, and 2010 Called up, allotted and fully paid At 31 March 2008 Exercise of options At 31 March 2009 Issued to Employee Benefit Trust At 31 March 2010 Ordinary shares of 1p each Number of shares 200,000,000 99,439,302 800,000 100,239,302 2,513,297 102,752,599 £’000 2,000 994 8 1,002 26 1,028 During the year the company issued 2,513,297 ordinary shares of 1p each to the iomart Group plc Employee Benefit Trust in relation to the Joint Share Ownership Plan (“JSOP”) (2009: nil), for which a net total of £1,244,000 was received. In the previous year, the company issued 800,000 ordinary shares of 1p each in respect of the exercise of share options by employees for which a net total of £50,000 was received At 31 March 2009 the company held 3,294,547 shares in treasury, which were accounted for in the Own Shares reserve and had a nominal value of £32,945 and a market value of £1,070,728. This represented 3.4% of the issued share capital as at 31 March 2009 excluding treasury shares. During the year the company issued 830,660 shares from treasury, with a nominal value of £8,307, in respect of the exercise of share options, for which a net total of £41,533 was received, by employees and 2,463,887 shares from treasury to the iomart Group plc Employee Benefit Trust in relation to the JSOP. At 31 March 2010 no shares were held in treasury. Due to the issue of new ordinary shares and the issue of shares held in treasury at 31 March 2010 the company held 4,977,184 shares (2009: nil) in the iomart Group plc Employee Benefit Trust in relation to the JSOP which are accounted for in the Own Shares JSOP reserve and have a nominal value of £49,772 (2009: £nil). During the year the company set up a Joint Share Ownership Plan (“JSOP”) to provide incentives to directors and employees. At 31 March 2010, 4,977,184 shares were held in the JSOP all with an initial participation price of 49.5p, which was the mid-market value of the shares at the start of trading on the day they were issued, resulting in a total market value in the Own Shares JSOP reserve of £2,463,706. The JSOP shares are held jointly between employees and the iomart Group plc Employee Benefit Trust. Under the terms of the JSOP rules employees are eligible to receive the excess of any disposal proceeds received for the JSOP shares over the participation price. The participation price is subject to a 3% per annum escalation until the JSOP shares are sold. The JSOP shares do not carry dividend or voting rights whilst they are jointly held by the employee and the iomart Group plc Employee Benefit Trust. Under the rules of the scheme should the market price of a vested JSOP share exceed the participation price the employee has the option to convert the value of any such excess value into a number of wholly owned shares within the JSOP. If an employee exercises this right then the wholly owned shares subsequently held within the JSOP by the employee shall be eligible for both dividend and voting rights. The share capital of iomart Group plc consists of ordinary shares with a par value of 1p. All shares, excluding the shares held by the iomart Group plc Employee Benefit Trust and in the prior year the treasury shares, are equally eligible to receive dividends and represent one vote at the shareholders' meetings of iomart Group plc. All shares issued at 31 March 2010 are fully paid. iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 49 24. SHARE BASED PAYMENTS The Group operated the following share based payment employee share option schemes during the year; Enterprise Management Incentive scheme, a number of other approved schemes and a number of unapproved schemes. All schemes are settled in equity only, except for the Joint Share Ownership Plan, which may be settled in either equity or cash, and are summarised below. Vesting period Maximum term Performance criteria Required to remain in employment Enterprise Management Incentive scheme Up to 3 years from grant 10 years after date of grant As set by Remuneration Committee Sharesave scheme 3 years from grant 6 months after vesting None Other approved schemes Between 1 and years from grant Unapproved schemes 3 years from grant Joint Share Ownership Plan Up to 3 years from grant 10 years after date of grant 10 years after date of grant 10 years after date of grant As set by Remuneration Committee As set by Remuneration Committee As set by Remuneration Committee Yes No Yes Yes Yes The exercise period on the Sharesave Scheme ended on 1 September 2009 with no share options being exercised and this scheme has not been replaced. The performance criteria as set by the Remuneration Committee are based on the achievement of annual objectives and continuous employment. In accordance with the transitional provisions of IFRS, the requirements of IFRS 2 Share Based Payment have not been applied to equity instruments that were granted before 7 November 2002 or equity instruments that were granted after 7 November 2002 that had vested before the date of transition, being 1 April 2005. Therefore the following disclosures relate only to awards made after 7 November 2002 that had not vested by 1 April 2005. During the year, options over 830,660 ordinary shares (2009: 800,000) were exercised and the market price at the exercise date was 32.0p (2009: 46.5p). As described in Note 23, on 31 March 2010, a total of 4,977,184 share options were surrendered and an equivalent number of shares issued to a Joint Share Ownership Plan to provide incentives to directors and employees. These have been accounted for as replacement share based incentives. As the fair value of the original share based incentives exceeds the fair value of the replacement share based incentives the share based payment charge recognised in the income statement in relation to these share based incentives continues to be based on the original share options. As disclosed in note 5, a share based payment charge of £379,000 (2009: £231,000) has been recognised in the income statement during the year in relation to the above schemes. The fair value of the employee services received is valued indirectly by valuing the options granted using the Black-Scholes option pricing model, which worked on the following assumptions for the options granted in the year. Grant date Vesting date Variables used Share price at grant date Volatility Dividend yield Number of employees holding options/units Option/award life (years) Expected life (years) Risk free rate Expectations of meeting performance criteria Fair value Exercise price per share 37.0p 55% 1.0% 2 10 3.9 2.69% 100% 15.37p 37.0p 37.0p 55% 1.0% 2 10 2.9 2.69% 100% 13.51p 37.0p 37.0p 55% 1.0% 2 10 1.9 2.69% 100% 11.11p 37.0p 44.5p 61% 1.0% 1 10 3.3 2.64% 100% 18.73p 44.5p 37.0p 55% 1.0% 2 10 0.9 2.69% 100% 7.73p 37.0p 09-Dec-09 31-Mar-13 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 11-May-09 i) Expected volatility was determined at the date of grant from historic volatility, adjusted for events that were not considered to be reflective of the volatility of the share price going forward ii) Risk free rate was calculated based on the average Bank of England zero coupon yields. Details of options and awards outstanding, and a reconciliation of movements in the year in respect of the Company’s ordinary shares of 1p each, under the various schemes are as follows: www.iomart.com 50 Notes to the Financial Statements. Year ended 31March 2010. 24. SHARE BASED PAYMENTS (CONTINUED) As at 31 March 2010 Details Options for shares outstanding Vested options for shares not yet exercisable Exercise price Grant date Exercise date Expiry date 31 March 2009 Issued Surrendered Exercised Expired 31 March 31 March 2010 2010 Enterprise management incentive scheme 6.25 02/07/2003 6.25 02/07/2003 6.25 02/07/2003 78.50 17/11/2004 74.00 24/08/2006 50.50 27/09/2007 43.50 20/12/2007 43.50 20/12/2007 43.50 20/12/2007 43.50 20/12/2007 43.50 20/12/2007 43.50 20/12/2007 46.50 29/09/2008 46.50 29/09/2008 46.50 29/09/2008 46.50 06/10/2008 46.50 06/10/2008 26.50 05/02/2009 37.00 11/05/2009 37.00 11/05/2009 37.00 11/05/2009 37.00 11/05/2009 44.50 09/12/2009 Savings related scheme 76.00 01/03/2006 Unapproved schemes 5.00 29/03/2000 5.00 29/03/2000 5.00 29/03/2000 11.75 31/10/2001 78.50 17/11/2004 50.50 27/09/2007 43.50 20/12/2007 43.50 20/12/2007 46.50 29/09/2008 46.50 29/09/2008 46.50 29/09/2008 46.50 06/10/2008 46.50 06/10/2008 46.50 06/10/2008 46.50 06/10/2008 26.50 05/02/2009 37.00 11/05/2009 37.00 11/05/2009 37.00 11/05/2009 Approved Schemes 44.00 24/01/2001 13.50 26/09/2001 11.75 31/10/2001 Total 02/07/2004 02/07/2005 02/07/2006 17/11/2007 24/08/2009 27/09/2010 20/12/2007 20/06/2008 20/12/2008 20/06/2009 20/12/2009 20/06/2010 31/03/2009 31/03/2010 31/03/2011 31/03/2009 31/03/2010 05/02/2012 31/03/2010 31/03/2011 31/03/2012 31/03/2013 31/03/2013 02/07/2013 02/07/2013 02/07/2013 17/11/2014 24/08/2016 27/09/2017 20/12/2017 20/12/2017 20/12/2017 20/12/2017 20/12/2017 20/12/2017 29/09/2018 29/09/2018 29/09/2018 06/10/2018 06/10/2018 05/02/2019 11/05/2019 11/05/2019 11/05/2019 11/05/2019 09/12/2019 44,581 47,916 47,920 224,521 50,000 85,982 150,000 160,000 160,000 160,000 99,655 10,000 345,700 216,668 211,287 235,923 28,495 100,000 - - - - - - - - - - - - - - - - - - - - - - - 250,000 124,324 25,000 25,000 200,000 01/03/2009 01/09/2009 41,579 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 44,581 47,916 47,920 224,521 50,000 85,982 150,000 160,000 160,000 160,000 99,655 10,000 345,700 216,668 211,287 235,923 28,495 100,000 250,000 124,324 25,000 25,000 200,000 44,581 47,916 47,920 224,521 50,000 - 150,000 160,000 160,000 160,000 99,655 - 345,700 216,668 - 235,923 28,495 - 250,000 - - - - - (41,579) - - 11/05/2000 11/02/2001 11/02/2002 31/10/2001 17/11/2007 27/09/2010 20/12/2009 20/06/2010 31/03/2009 31/03/2010 31/03/2011 31/03/2009 31/03/2010 31/03/2011 31/03/2012 30/09/2009 31/03/2011 31/03/2012 31/03/2013 276,886 29/03/2010 276,887 29/03/2010 276,887 29/03/2010 50,000 31/10/2011 500,479 17/11/2014 914,018 27/09/2017 60,345 20/12/2017 150,000 20/12/2017 104,304 29/09/2018 233,334 29/09/2018 238,708 29/09/2018 214,077 06/10/2018 06/10/2018 721,505 06/10/2018 1,050,000 06/10/2018 1,350,000 12,000 05/02/2019 - 11/05/2019 - 11/05/2019 - 11/05/2019 - - - - - - - - - - - - - - - - 125,676 225,000 225,000 - (276,886) - (276,887) - (276,887) - - - (500,479) - (914,018) - (20,115) - (50,000) - (23,657) - (66,667) - (66,666) - (214,077) - (721,505) - (1,050,000) - (1,350,000) - - - - - - - - 24/01/2004 26/09/2004 31/10/2004 24/01/2011 26/09/2011 31/10/2011 37,500 5,000 23,888 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 50,000 - - 40,230 100,000 80,647 166,667 172,042 - - - - 12,000 125,676 225,000 225,000 - - - 50,000 - - 40,230 - 80,647 166,667 - - - - - 12,000 - - - 37,500 5,000 23,888 37,500 5,000 23,888 8,916,045 1,200,000 (4,977,184) (830,660) (41,579) 4,266,622 2,637,311 Weighted Average Exercise price 44.45p 38.25p 50.41p 5.00p 76.00p 43.14p 44.66p iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 51 24. SHARE BASED PAYMENTS (CONTINUED) As at 31 March 2009 Details Grant date 26/07/2002 26/07/2002 26/07/2002 02/07/2003 02/07/2003 02/07/2003 17/11/2004 24/08/2006 27/09/2007 20/12/2007 20/12/2007 20/12/2007 20/12/2007 20/12/2007 20/12/2007 29/09/2008 29/09/2008 29/09/2008 06/10/2008 06/10/2008 05/02/2009 Exercise price 6.25 6.25 6.25 6.25 6.25 6.25 78.50 74.00 50.50 43.50 43.50 43.50 43.50 43.50 43.50 46.50 46.50 46.50 46.50 46.50 26.50 Savings related scheme 01/03/2006 76.00 Unapproved schemes 5.00 5.00 5.00 11.75 78.50 74.00 50.50 43.50 43.50 46.50 46.50 46.50 46.50 46.50 46.50 46.50 26.50 29/03/2000 29/03/2000 29/03/2000 31/10/2001 17/11/2004 24/08/2006 27/09/2007 20/12/2007 20/12/2007 29/09/2008 29/09/2008 29/09/2008 06/10/2008 06/10/2008 06/10/2008 06/10/2008 05/02/2009 Approved Schemes 44.00 13.50 11.75 24/01/2001 26/09/2001 31/10/2001 Options for shares outstanding Exercise date Expiry date 31 March 2008 Issued Surrenderd Exercised Expired 31 March 2009 Vested options for shares not yet exercisable 31 March 2009 26/07/2002 26/07/2012 26/07/2003 26/07/2012 26/07/2004 26/07/2012 02/07/2004 02/07/2013 02/07/2005 02/07/2013 02/07/2006 02/07/2013 17/11/2007 17/11/2014 24/08/2009 24/08/2016 27/09/2010 27/09/2017 20/12/2007 20/12/2017 20/06/2008 20/12/2017 20/12/2008 20/12/2017 20/06/2009 20/12/2017 20/12/2009 20/12/2017 20/06/2010 20/12/2017 31/03/2009 29/09/2018 31/03/2010 29/09/2018 31/03/2011 29/09/2018 31/03/2009 06/10/2018 31/03/2010 06/10/2018 05/02/2012 05/02/2019 266,666 266,666 266,668 44,583 48,583 54,251 583,818 135,135 85,982 200,000 210,000 210,000 210,000 129,540 10,000 - - - - - - - - - - - - - - - - - - - - - 345,700 216,668 211,287 235,923 28,495 100,000 - (266,666) - (266,666) - (266,668) - - - - - - - - - - - - - - - - - - (2) (667) (6,331) (359,297) (85,135) - (50,000) (50,000) (50,000) (50,000) (29,885) - - - - - - - 01/03/2009 01/09/2009 337,565 - (295,986) - - 276,886 11/05/2000 29/03/2010 - - 276,887 11/02/2001 29/03/2010 - - 276,887 11/02/2002 29/03/2010 - - 50,000 31/10/2001 31/10/2011 - (3,755,703) 17/11/2007 17/11/2014 4,256,182 (64,865) - 64,865 24/08/2009 24/08/2016 - - 914,018 27/09/2010 27/09/2017 (20,115) - 80,460 20/12/2009 20/12/2017 (50,000) - 200,000 20/06/2010 20/12/2017 - 104,304 - 31/03/2009 29/09/2018 - 233,334 - 31/03/2010 29/09/2018 - 238,708 - 31/03/2011 29/09/2018 - 214,077 - 31/03/2009 06/10/2018 - - 31/03/2010 06/10/2018 721,505 - - 1,050,000 31/03/2011 06/10/2018 - - 1,350,000 31/03/2012 06/10/2018 - 12,000 - 30/09/2009 05/02/2019 24/01/2004 24/01/2011 26/09/2004 26/09/2011 31/10/2004 31/10/2011 37,500 5,000 23,888 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 44,581 47,916 47,920 224,521 50,000 85,982 150,000 160,000 160,000 160,000 99,655 10,000 345,700 216,668 211,287 235,923 28,495 100,000 - - - 44,581 47,916 47,920 224,521 - - 150,000 160,000 160,000 - - - 345,700 - - 235,923 - - 41,579 41,579 276,886 - 276,887 - 276,887 - 50,000 - 500,479 - - - 914,018 - 60,345 - 150,000 - 104,304 - 233,334 - 238,708 - 214,077 - - 721,505 - 1,050,000 - 1,350,000 12,000 - 276,886 276,887 276,887 50,000 500,479 - - - - 104,304 - - 214,077 - - - - - - - 37,500 5,000 23,888 37,500 5,000 23,888 Total Weighted Average Exercise price 9,522,030 5,062,001 (4,867,986) (800,000) 6.25p 56.49p 75.95p 46.06p - 8,916,045 3,224,048 40.32p 44.45p n/a www.iomart.com 52 Notes to the Financial Statements. Year ended 31March 2010. 24. SHARE BASED PAYMENTS (CONTINUED) Details of options and awards outstanding, and a reconciliation of movements in the year in respect of the Company’s ordinary shares of 1p each, under the JSOP scheme are as follows: As at 31 March 2010 Details Options for shares outstanding Vested options for shares not yet exercisable Exercise price Grant date Exercise date Expiry date 31 March 2009 Issued Surrenderd Exercised Expired 31 March 2010 31 March 2010 Joint Share Ownership Plan 49.50 49.50 49.50 50.50 78.50 49.50 49.50 49.50 49.50 31/03/2010 31/03/2010 06/10/2018 31/03/2010 31/03/2011 06/10/2018 31/03/2010 31/03/2012 06/10/2018 31/03/2010 31/03/2010 27/09/2017 31/03/2010 31/03/2010 17/11/2014 31/03/2010 31/03/2010 20/12/2017 31/03/2010 20/06/2010 20/12/2017 31/03/2010 31/03/2010 29/09/2018 31/03/2010 31/03/2011 29/09/2018 - - - - - - - - 935,582 1,050,000 1,350,000 914,018 500,479 20,115 50,000 90,324 66,666 - - - - - - - - - - - - - - - - - - - - - - - - - - - 935,582 935,582 1,050,000 1,350,000 914,018 500,479 20,115 50,000 90,324 66,666 - - 914,018 500,479 20,115 - 90,324 - Total Weighted Average Exercise price 4,977,184 52.60p - n/a - n/a - n/a 4,977,184 2,460,518 55.77p 52.60p 25. RELATED PARTY TRANSACTIONS The only related party transactions in the year were the payments to key management (only directors are deemed to fall into this category) disclosed in note 5. 26. CONTINGENCIES AND COMMITMENTS (a) Contingencies The Group is a party to certain operating lease agreements for properties which have been converted into datacentres. These operating leases impose a liability on the Group, at the request of the lessor, to reinstate the properties to the condition they were in before conversion to datacentres. All of these properties are on long term leases and these leases may be extended. Consequently the Directors believe that the likelihood of these liabilities crystalising is remote. There were no other contingent assets or liabilities as at 31 March 2010 (2009: nil). (b) Commitments Capital expenditure on property, plant and equipment committed by the Group at 31 March 2010 was £249,000 (2009: £261,000). iomart group plc Annual Report 2010 Notes to the Financial Statements. Year ended 31March 2010. 53 27. RISK MANAGEMENT The Group finances its operations by raising finance through equity and bank borrowings. No speculative treasury transactions are undertaken however the Group does from time to time enter into forward foreign exchange contracts to hedge known currency exposures. Financial assets and liabilities include those assets and liabilities of a financial nature, namely cash, investments, short term receivables/ payables and borrowings. The carrying amounts of financial assets presented in the consolidated balance sheet relate to the following measurement categories as defined in IAS 39: 2010 Non-current: Lease deposit Current: Deferred consideration on disposal of subsidiary Trade receivables Cash and cash equivalents Other receivables Forward foreign exchange contracts Total for category 2009 Non-current: Lease deposit Deferred consideration on disposal of subsidiary Current: Trade receivables Cash and cash equivalents Other receivables Forward foreign exchange contracts Total for category Designated at fair value through profit or loss £’000 Loans and receivables £’000 Total for line item £’000 1,216 - 1,216 914 1,258 5,715 172 - 9,275 884 1,000 697 13,910 174 - 16,665 - - - - 19 19 - - - - - 59 59 914 1,258 5,715 172 19 9,294 884 1,000 697 13,910 174 59 16,724 www.iomart.com 54 Notes to the Financial Statements. Year ended 31March 2010. 27. RISK MANAGEMENT (CONTINUED) The carrying amounts of financial liabilities presented in the consolidated balance sheet relate to the following measurement categories as defined in IAS 39: 2010 Non-current: Finance leasing capital obligations Current: Trade payables Accruals Deferred consideration due on acquisition Finance leasing capital obligations Total for category 2009 Non-current: Finance leasing capital obligations Current: Trade payables Accruals Deferred consideration due on acquisition Finance leasing capital obligations Total for category Financial liabilities measured at amortised cost £’000 Other (non-IAS 39) £’000 Total for line item £’000 - (834) (834) (1,044) (2,399) (1,000) - (4,443) - - - (480) (1,314) (1,044) (2,399) (1,000) (480) (5,757) - (54) (54) (746) (1,923) (4,800) - (7,469) - - - (148) (202) (746) (1,923) (4,800) (148) (7,671) Liquidity risk The Group seeks to manage financial risk to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash safely and profitably. The Group reviews its cash flow requirements on a monthly basis. Interest rates The interest rate on the Group’s cash at bank is determined by reference to the base rate. Currency risk During the year the Group made payments totalling US$1.6m (2009: US$1.4m) to acquire domain names for its Easyspace division. The Group entered into forward exchange contracts to hedge its exposure to the US Dollar arising on these purchases. At the year end, the Group had outstanding forward contracts under which it was due to purchase $800,000 (2009: $500,000) for a total of £509,000 (2009: £289,000), at an average exchange rate of US$:GBP of 1.57 (2009: 1.73) over the period to September 2010. The fair value of these currency contracts is estimated to be approximately £19,000 (2009: £59,000). This has been recognised in the income statement for the year. The Group has no non-monetary assets or liabilities denominated in foreign currencies and the level of monetary assets and liabilities denominated in foreign currencies is minimal. Credit risk The majority of the Group’s customers are small businesses and a significant number of these customers take advantage of the deferred payment terms offered by the Group, however the revenue recognition policy takes account of this, so that there is no exposure from the deferred payment terms. Therefore the Group consider that the trade receivables of £1,258,000 (2009: £697,000) which are stated net of applicable provisions represent the total amount exposed to credit risk. The Group’s cash at bank is held within the UK clearing banks. Further information on financial instruments policy and procedures is given in the Directors’ Report. iomart group plc Annual Report 2010 “We’re delighted that iomart Hosting have joined us as the charity’s technology partners as their involvement removes the worry for us of having to manage our website and ensure that it’s always available to potential donors and restaurant patrons. We are left free to concentrate on running the campaign and raising vital funds to give homeless people hope and a new start in life.” Glenn Pougnet, Director of StreetSmart UK Charity StreetSmart raises money for homeless people by asking diners in the nation’s top restaurants to give an extra £1 on top of their bill during the festive period. iomart group plc Annual Report 2010 56 Holding Company Financial Statements Year ended 31March 2010 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IOMART GROUP PLC We have audited the parent company financial statements of iomart Group plc for the year ended 31 March 2010 which comprise the parent company balance sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditor’s 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. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by Respective responsibilities of directors and auditors law are not made; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the Group financial statements of iomart Group plc for the year ended 31 March 2010. Andrew Howie Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Glasgow 1 June 2010 As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/ UKNP. Opinion on financial statements In our opinion the parent company financial statements: • give a true and fair view of the state of the company's affairs as at 31 March 2010; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. iomart group plc Annual Report 2010 Holding Company Financial Statements. Year ended 31March 2010. 57 Note 2010 £’000 2009 £’000 4 5 7 8 9 9 9 9 26,630 26,630 16,039 5,224 21,263 (8,355) 12,908 39,538 1,028 (2,464) 1,200 19,514 20,260 17,129 17,129 13,081 13,577 26,658 (5,400) 21,258 38,387 1,002 (678) 1,200 17,583 19,280 FIXED ASSETS Investments CURRENT ASSETS Debtors Cash at bank CREDITORS: amounts falling due within one year NET CURRENT ASSETS NET ASSETS CAPITAL AND RESERVES Called up share capital Own shares Capital redemption reserve Share premium account Profit and loss account TOTAL EQUITY SHAREHOLDERS’ FUNDS 39,538 38,387 These financial statements were approved by the board of directors on 1 June 2010. Signed on behalf of the board of directors Angus MacSween Director and chief executive officer iomart Group plc – Company Number: SC204560 www.iomart.com 58 Holding Company Financial Statements. Year ended 31March 2010. 1. ACCOUNTING POLICIES The financial statements are prepared in accordance with applicable United Kingdom accounting standards. Investments Investments held as fixed assets are stated at cost less provision for any permanent diminution in value. As part of the acquisition strategy of the Company, the trade and net assets of subsidiary undertakings at or shortly after acquisition may be transferred at book value to fellow subsidiaries. The cost of the Company's investment in that subsidiary undertaking would have reflected the underlying fair value of its net assets and goodwill at the time of its acquisition. As a result of such a transfer, the value of the Company's investment in that subsidiary undertaking may fall below the amount at which it was stated in the Company's accounting records. Where this occurs, Schedule 4 of the Companies Act 2006 requires that the investment be written down accordingly and that the amount be charged as a loss in the Company's profit and loss account. However, the directors consider that, as there has been no overall loss to the Group, it would fail to give a true and fair view to charge the diminution to the Company's profit and loss account. Instead, the carrying value of the investment in all companies transferred will be considered together against the future cashflows and net asset position of those companies which received the trade and net assets. 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 crystallise 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 assets are recognised 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. Leases Assets obtained under finance leases, which transfer substantially all the risks and rewards of ownership, are capitalised at their fair value on acquisition and depreciated over their estimated useful economic 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. Financial instruments Financial assets are recognised in the balance sheet at the lower of cost and net realisable value. Provision is made for diminution in value where appropriate. iomart group plc Annual Report 2010 Income and expenditure on financial instruments is recognised on the accruals basis and credited or charged to the profit and loss account in the financial period to which it relates. Pension scheme arrangements The Group operates a stakeholder pension scheme and contributes to a number of personal pension schemes on behalf of executive directors and some senior employees. No other post retirement benefits are provided to employees. Pension costs are charged to the profit and loss account in the period to which they relate. Share-based payment All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 April 2005 are recognised in the financial statements. All share-based payment arrangements in the company are equity settled. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets). All equity-settled share-based payments are ultimately recognised as an expense in the profit and loss account with a corresponding credit to “Profit and loss reserve”. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. Development expenditure Development expenditure is charged to the profit and loss account as incurred. 2. PROFIT OF PARENT COMPANY As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the parent company is not presented as part of these financial statements. The parent company’s profit for the financial period after taxation was £1,022,000 (2009: £13,647,000). Holding Company Financial Statements. Year ended 31March 2010. 59 3. INFORMATION REGARDING DIRECTORS AND EMPLOYEES Staff costs of the company during the year in respect of employees and directors were: Executive directors’ remuneration Non-executive directors’ remuneration Other wages and salaries Social security costs Pension contributions to personal money purchase schemes 2010 £’000 2009 £’000 523 110 447 111 33 520 110 447 108 29 1,224 1,214 The comparatives in the above table have been restated to reflect the impact of a staff reorganisation in the prior year in which certain Group employees transferred their employment to the company. The company makes contributions to executive directors’ and some senior employees’ personal defined contribution pension schemes. These are the only pension arrangements of the holding company. 4. INVESTMENTS HELD AS FIXED ASSETS Cost At 1 April 2009 Additions Share based payment Cost at 31 March 2010 Impairment At 1 April 2009 Charge for the year Impairment at 31 March 2010 Net book value of Investments at 31 March 2010 Net book value of Investments at 31 March 2009 All of the above investments are unlisted. Shares in subsidiary undertakings £’000 18,803 9,390 122 28,315 (1,674) (11) (1,685) 26,630 17,129 www.iomart.com 60 Holding Company Financial Statements. Year ended 31March 2010. 4. INVESTMENTS HELD AS FIXED ASSETS (CONTINUED) The following subsidiaries are included in the company financial statements: Country of registration and operation Activity Ordinary share capital Owned by the company % Owned by the subsidiary undertakings % iomart Limited iomart Hosting Limited Netintelligence Limited iomart Virtual Servers Hosting Limited Easyspace Datacentres (UK) Limited Easyspace Limited Rapidswitch Limited Ezee DSL Limited Internetters Limited NicNames Limited Web Genie Internet Limited Dormant Dormant Dormant Scotland Scotland Managed hosting services Scotland Managed hosting services Scotland Scotland England Webservices England Managed hosting services England England Webservices England England Webservices Datacentre services Dormant 100 100 100 100 100 100 100 100* - - - - - - - - - - - 100 100 100 * as described in Note 20 of the Group Financial Statements, the single share in Ezee DSL Limited, representing 0.2% of its issued share capital, has been transferred to iomart Group plc through the completion of a signed stock transfer form that has been placed in escrow until the final payment of deferred consideration is made on 27 August 2010. Until the final payment is made, under the terms of the agreement, the vendor has undertaken to vote and otherwise exercise any and all rights in respect of the single share as directed by iomart Group plc. Furthermore, the vendor has undertaken to waive any and all dividends or other distributions made or declared in respect of the single share. 2010 £’000 126 918 36 72 14,887 16,039 2009 £’000 299 1,076 49 79 11,578 13,081 5. DEBTORS Prepayments and accrued income Other debtors Other taxation and social security Deferred taxation (note 6) Amounts owed by subsidiary undertakings iomart group plc Annual Report 2010 Holding Company Financial Statements. Year ended 31March 2010. 61 6. DEFERRED TAXATION The company had recognised deferred tax assets and potential unrecognised deferred tax assets as follows: Share based remuneration The movement in the deferred tax account during the year was: Balance brought forward Income statement movement arising during the year Profit and loss account reserve movement during the year Balance carried forward 2010 Recognised Unrecognised £’000 - £’000 72 2009 Recognised Unrecognised £’000 - £’000 79 2010 £’000 79 (7) - 72 2009 £’000 205 (51) (75) 79 The deferred tax asset in relation to share based remuneration arises from the anticipated future tax relief on the exercise of share options. 7. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Trade creditors Other taxation and social security Accruals and deferred income Deferred consideration Amounts owed to subsidiary undertakings 8. SHARE CAPITAL Authorised At 31 March 2008, 2009, and 2010 Called up, allotted and fully paid At 31 March 2008 Exercise of options At 31 March 2009 Issued to Employee Benefit Trust At 31 March 2010 2010 £’000 43 184 801 1,000 6,327 8,355 2009 £’000 58 169 824 - 4,349 5,400 Ordinary shares of 1p each Number of shares 200,000,000 99,439,302 800,000 100,239,302 2,513,297 102,752,599 £’000 2,000 994 8 1,002 26 1,028 During the year the company issued 2,513,297 ordinary shares of 1p each to the iomart Group plc Employee Benefit Trust in relation to the Joint Share Ownership Plan (JSOP) (2009: nil), for which a net total of £1,244,000 was received. In the previous year, the company issued 800,000 ordinary shares of 1p each in respect of the exercise of share options by employees for which a net total of £50,000 was received. www.iomart.com 62 Holding Company Financial Statements. Year ended 31March 2010. 8. SHARE CAPITAL (CONTINUED) At 31 March 2009 the company held 3,294,547 shares in treasury, which were accounted for in the Own Shares reserve and had a nominal value of £32,945 and a market value of £1,070,728. This represented 3.4% of the issued share capital as at 31 March 2009 excluding treasury shares. During the year the company issued 830,660 shares from treasury in respect of the exercise of share options by employees and 2,463,887 shares from treasury to the iomart Group plc Employee Benefit Trust in relation to the JSOP. At 31 March 2010 no shares were held in treasury. Due to the issue of new ordinary shares and the issue of shares held in treasury at 31 March 2010 the company held 4,977,184 shares (2009: nil) in the iomart Group plc Employee Benefit Trust in relation to the JSOP which are accounted for in the Own Shares JSOP reserve and have a nominal value of £49,772 (2009: £nil). During the year the company set up a Joint Share Ownership Plan (“JSOP”) to provide incentives to directors and employees. At 31 March 2010, 4,977,184 shares were held in the JSOP all with an initial participation price of 49.5p, which was the mid-market value of the shares at the start of trading on the day they were issued, resulting in a total market value in the Own Shares JSOP reserve of £2,463,706. The JSOP shares are held jointly between employees and the iomart Group plc Employee Benefit Trust. Under the terms of the JSOP rules employees are eligible to receive the excess of any disposal proceeds received for the JSOP shares over the participation price. The participation price is subject to a 3% per annum escalation until the JSOP shares are sold. The JSOP shares do not carry dividend or voting rights whilst they are jointly held by employees and the iomart Group plc Employee Benefit Trust. Under the rules of the scheme should the market price of a vested JSOP share exceed the participation price the employee has the option to convert the value of any such excess value into a number of wholly owned shares within the JSOP. If an employee exercises this right then the wholly owned shares subsequently held within the JSOP by the employee shall be eligible for both dividend and voting rights. The share capital of iomart Group plc consists of ordinary shares with a par value of 1p. All shares, excluding the shares held by the iomart Group plc Employee Benefit Trust and in the prior year the treasury shares, are equally eligible to receive dividends and represent one vote at the shareholders' meetings of iomart Group plc. All shares issued at 31 March 2010 are fully paid. 9. STATEMENT OF MOVEMENT IN RESERVES Profit for the financial period Dividends Share based payments Issue of own shares for option redemption Issue of own shares to Joint Share Ownership Plan Issue of new shares to Joint Share Ownership Plan Own shares JSOP £’000 Own shares treasury £’000 - - - - - (2,464) (2,464) - - - 171 507 - 678 Capital Share redemption premium account £’000 reserve £’000 Profit and loss account £’000 - - - - - - - - - - - 712 1,219 1,931 1,022 (291) 379 (130) - - 980 Opening balance Closing balance - (678) 1,200 17,583 19,280 (2,464) - 1,200 19,514 20,260 iomart group plc Annual Report 2010 Holding Company Financial Statements. Year ended 31March 2010. 63 2010 £’000 1,022 (291) - 41 1,219 (1,219) 379 - 1,151 38,387 39,538 2009 £’000 13,647 - (678) 50 - - 231 (75) 13,175 25,212 38,387 10. MOVEMENT IN SHAREHOLDERS’ FUNDS Profit for the financial period Dividend paid Acquisition of own shares Issue of own shares for option redemption Issue of own shares to Joint Share Ownership Plan Issue of new shares to Joint Share Ownership Plan Share based payments Deferred tax on share based remuneration Opening shareholders’ funds Closing shareholders’ funds 11. SHARE BASED PAYMENTS For details of share based payment awards and fair values see note 24 to the Group financial statements. The Company accounts recognise the charge for share based payments for the year of £379,000 (2009: £231,000) by; 1) taking the charge in relation to employees of the holding company through the holding company income statement £256,000 (2009: £152,000), 2) recording an increase to its investment in subsidiaries for the amounts attributable to directors of subsidiaries and recording a corresponding entry to the profit and loss account reserve £123,000 (2009: £79,000). 12. CONTINGENCIES AND COMMITMENTS (a) Contingencies The Company is a party to certain operating lease agreements for properties which have been converted into datacentres. These operating leases impose a liability on the Company, at the request of the lessor, to reinstate the properties to the condition they were in before conversion to datacentres. All of these properties are on long term leases and these leases may be extended. Consequently the Directors believe that the likelihood of these liabilities crystalising is remote. There were no other contingent assets or liabilities as at 31 March 2010 (2009: nil). (b) Commitments There are no commitments present as at 31 March 2010 (2009: Nil). www.iomart.com 64 Notice of the 2010 Annual General Meeting NOTICE IS HEREBY GIVEN that the 2010 annual general meeting of the Company will be held at Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP on 23 August 2010 at 2.30 pm for the purpose of considering and, if thought fit, passing the following resolutions, of which resolutions 1 to 7 (inclusive) will be proposed as ordinary resolutions and resolutions 8 to 9 (inclusive) will be proposed as special resolutions:- 1 To receive and adopt the financial statements of the Company and the directors' and auditors' reports thereon for the year ended 31 March 2010. 2 To approve the report of the board to the members on directors' remuneration for the year ended 31 March 2010. 3 To reappoint Ian Ritchie (who retires by rotation and, being eligible, offers himself for re-election) as a director of the Company. 4 To reappoint Fred Shedden (who retires by rotation and, being eligible, offers himself for re-election) as a director of the Company. 5 To reappoint Grant Thornton UK LLP, Chartered Accountants, as auditors of the Company and to authorise the directors to fix their remuneration. 6 That, in accordance with section 551 of the Companies Act 2006 (the "Act"), the Directors are generally and unconditionally authorised to allot shares in the Company or grant rights to subscribe for or convert any security into shares in the Company (the "Rights") provided that: (a) the aggregate nominal amount of shares to be allotted in pursuance of such authority is £342,508.66; and (b) this authority shall expire, unless sooner revoked or varied by the Company in general meeting, at the conclusion of the Company's annual general meeting to be held in 2011 save that the Company may, before such expiry, make an offer or agreement which would or might require shares to be allotted or Rights granted after such expiry and the Directors may allot shares in pursuance of such offer or agreement notwithstanding that the authority conferred by this resolution has expired. This authority is in substitution for all previous authorities conferred on the Directors in accordance with section 80 of the Companies Act 1985 or section 551 of the Act. 7 That for the purposes of section 551 of the Act, the Directors are generally and unconditionally authorised to exercise all powers of the Company to allot equity securities (as defined in section 560 of the Act) in connection with a rights issue in favour of the holders of ordinary shares in the capital of the Company (the "Ordinary Shareholders") where the equity securities respectively attributable to the Ordinary Shareholders are proportionate (as nearly as may be) to the respective numbers of Ordinary Shares held by them up to a maximum nominal amount of £342,508.66 provided that this authority shall expire, unless sooner revoked or varied by the Company in general meeting, at the conclusion of the Company's annual general meeting to be held in 2011 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 any such offer or agreement notwithstanding that the power conferred by this resolution has expired. 8 That subject to the passing of resolutions 6 and 7 and in accordance with section 570 of the Act and in place of all existing powers, the Directors are generally empowered to allot equity securities of the Company (as defined in section 560 of the Act) for cash pursuant to the authority conferred by resolutions 6 and 7 as if section 561 of the Act did not apply to such allotment provided that this power shall be limited to: (a) the allotment of equity securities in connection with an issue in favour of holders of ordinary shares of 1 penny each in the capital of the Company (the "Ordinary Shares") where the equity securities are offered to such holders in proportion (as nearly as may be) to the respective number of Ordinary Shares held, or deemed to be held, by that shareholder but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory; (b) the allotment of equity securities pursuant to any authority conferred upon the Directors in accordance with and pursuant to article 41 of the articles of association of the Company; and (c) the allotment (otherwise than pursuant to (a) and (b) above) of equity securities up to an aggregate nominal amount of £51,376.29; provided that this authority will expire, unless sooner revoked or varied by the Company in general meeting, at the conclusion of the Company's annual general meeting to be iomart group plc Annual Report 2010 held in 2011, save that the Company may at any time 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 notwithstanding that the power conferred by this resolution has expired. 9 That the Company be and is hereby generally and unconditionally authorised for the purposes of section 701 of the Act to make one or more market purchases (within the meaning of section 693(4) of the Act) on a recognised investment exchange (as defined in section 693(5) of the Act) of Ordinary Shares provided that: (a) the maximum number of Ordinary Shares hereby authorised to be purchased is 10,275,259 (representing 10% of the Company's issued ordinary share capital at the date of the notice of this annual general meeting); (b) the minimum price, exclusive of any expenses, which may be paid for any such Ordinary Share is 1p; (c) the maximum price, exclusive of any expenses, which may be paid for any such Ordinary Share shall be not more than 5% above the average of the middle market quotations for an Ordinary Share on the relevant investment exchange on which the Ordinary Shares are traded for the five business days immediately preceding the date on which such Ordinary Share is contracted to be purchased; (d) unless previously revoked or varied, the authority hereby conferred shall expire on the conclusion of the next annual general meeting of the Company; and (e) the Company may make a contract or contracts for the purchase of Ordinary Shares under this authority before the expiry of this authority which would or might be executed wholly or partly after the expiry of such authority, and may make purchases of Ordinary Shares in pursuance of such a contract or contracts, as if such authority had not expired. By order of the board Bruce Hall Company Secretary Lister Pavilion, Kelvin Campus, West of Scotland Science Park, 29 June 2010 Glasgow G20 0SP Notice of the 2010 Annual General Meeting 65 www.iomart.com 66 Notice of the 2010 Annual General Meeting NOTES: Appointment of Proxy 1 As a member of the Company you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at a meeting of the Company. You should have received a proxy form with this notice of meeting. You can only appoint a proxy using the procedures set out in the notes to the proxy form. A proxy need not be a member of the Company. 2 To be effective, the proxy form, and any power of attorney or other authority under which it is executed (or a duly certified copy of any such power or authority), must be deposited at the office of the Company’s registrars, Capita Registrars, PXS, 34 Beckenham Road, Beckenham, BR3 4TU, not less than 48 hours (excluding weekends and bank holidays) before the time for holding the meeting (i.e. by 2.30pm on Thursday 19 August 2010) and if not so deposited shall be invalid. Entitlement to attend and vote 3 Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered in the Company's register of members at: • 6.00pm on 19 August 2010; or • if this meeting is adjourned, at 6.00pm on the day two days prior to the adjourned meeting, shall be entitled to attend and vote at the meeting. Documents on Display 4 Copies of the service contracts and letters of appointment of the directors of the Company will be available: • for at least 15 minutes prior to the meeting; and • during the meeting. Communication 5 Except as provided above, members who wish to communicate with the Company in relation to the meeting should do so by post to the Company's registered office, details of which are below. No other methods of communication will be accepted. Address: The Company Secretary, iomart Group plc Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP EXPLANATORY NOTES TO THE NOTICE OF ANNUAL GENERAL MEETING OF IOMART GROUP PLC Ordinary Resolutions Resolutions 1 to 7 are all to be proposed as ordinary resolutions. This means that for each of those resolutions to be passed, more than half of the votes cast must be in favour of the resolution. Resolution 1 – To receive and adopt the financial statements for the year ended 31 March 2010 and the directors' and auditors' reports thereon For each financial year the directors of the Company must present the audited financial statements, the directors' report and the auditors' report on the financial statements to the shareholders at an annual general meeting. Resolution 2 – To approve the directors' remuneration report Shareholders are asked to approve the directors' remuneration report which may be found in the annual report on pages 11 to 14. This resolution is an advisory one and no entitlement to remuneration is conditional on the resolution being passed. Resolution 3 and 4 – Re-election of directors Under article 24 of the Company's articles of association one third of the directors are required to retire by rotation at each annual general meeting. Pursuant to those articles, Mr Ian Ritchie and Mr Fred Shedden are required to retire by rotation at this annual general meeting and, being eligible, offer themselves for reappointment. The Board is satisfied that the performance of Mr Ian Ritchie and Mr Fred Shedden continues to be effective and demonstrates commitment to their roles with the Company including commitment of time for Board meetings and other duties required of them. Accordingly, resolutions 3 and 4 propose the reappointment of Mr Ian Ritchie and Mr Fred Shedden. Brief biographical details of Mr Ian Ritchie and Mr Fred Shedden are given below. Ian Ritchie 59, appointed 2008; currently Chairman of Computer Application Services Ltd, Caspian Learning Ltd and iomart group plc Annual Report 2010 Notice of the 2010 Annual General Meeting 67 Interactive Design Institute Ltd. He is also a past President of the British Computer Society. Ian was founding chairman of several technology companies, including Voxar Ltd (now part of Toshiba), Orbital Software Group plc (now part of Sopheon plc), Digital Bridges Ltd (now part of Oberon Inc) and Sonaptic Ltd (now part of Wolfson Microelectronics plc). third of the issued ordinary share capital of the Company as at the date of the notice of this meeting. There is no present intention to exercise either of the authorities sought under these resolutions, which will expire at the conclusion of the Company's annual general meeting to be held in 2011. Fred Shedden 65, appointed 2000; independent director of Murray International Trust plc; vice-chair of Glasgow Housing Association and Glasgow School of Art; formerly chairman of Halladale Group plc and senior partner of McGrigors. Special Resolutions Resolutions 8 and 9 will be proposed as special resolutions. This means that for each of those resolutions to be passed, at least three-quarters of the votes cast must be in favour of the resolution. Resolution 5 – Re-appointment and remuneration of auditors Resolution 8 - Disapplication of statutory pre-emption rights The Company is required at each general meeting at which financial statements are presented to shareholders to appoint auditors who will remain in office until the next such meeting. Grant Thornton UK LLP have expressed their willingness to continue in office for a further year. In accordance with company law and corporate governance best practice, shareholders are also asked to authorise the directors to determine the auditors' remuneration. Resolution 8 gives authority to the directors of the Company to disapply the provisions of section 561 of the Act. Under that section, if the directors wish to allot any of the unissued shares for cash the directors must in the first instance offer those shares to existing shareholders in proportion to the number of shares held by such shareholders. An offer of this type is called a "rights issue" and the entitlement to be offered a new share is known as a "pre-emption right". Resolutions 6 and 7 – Authority to authorise the directors to allot shares Section 551 of the Companies Act 2006 (the "Act") requires that the authority of the directors to allot shares shall be subject to the approval of the shareholders in general meeting. These resolutions, if passed, would give the directors general authority to allot shares in the capital of the Company. Resolution 6 would give the directors the authority to allot shares up to an aggregate nominal amount of £342,508.66, being approximately one-third of the issued ordinary share capital of the Company as at the date of the notice of this meeting. In line with recent guidance issued by the Association of British Insurers, resolution 7 would give directors the authority to allot shares in connection with a rights issue in favour of ordinary shareholders up to an aggregate nominal amount equal to £342,508.66 (representing 34,250,866 Ordinary Shares). This amount represents approximately a further one There may be circumstances, however, where it is in the interests of the Company for the directors to allot some of the new shares for cash other than by way of a rights issue. This cannot be done under the Act unless the shareholders first waive their pre-emption rights. There are legal, regulatory and practical reasons why it may not always be possible to issue new shares under a rights issue to some shareholders, particularly those resident overseas. To cater for this, resolution 8 (at paragraph (a)), in authorising the directors to allot new shares by way of a rights issue, also permits the directors to make appropriate exclusions or arrangements to deal with such difficulties. Under the Company's articles of association the Board may, with the sanction of an ordinary resolution, offer the holders of shares the right to receive shares, credited as fully paid, instead of cash in respect of the whole (or some part, to be determined by the Board) of such dividend or dividends as are specified by such resolution. Paragraph (b) of resolution 8 asks shareholders to waive their pre-emption rights in respect of any such issue of shares. www.iomart.com resolution 9 to effect that buy back is 5% above the average middle market price of an Ordinary Share for the five business days immediately preceding the date on which the buy back is effected. The statutory provisions governing buy backs of own shares are currently contained in, inter alios, sections 693 and 701 of the Companies Act 2006. 68 Notice of the 2010 Annual General Meeting Resolution 8 (at paragraph (c)) asks shareholders to waive their pre-emption rights, but only for new shares equal to 5 per cent. of the Company's issued ordinary share capital as at the date of the notice of this meeting. The directors will be able to use this power without obtaining further authority from shareholders before they allot new shares covered by it. However, by setting the limit of 5 per cent., the interests of existing shareholders are protected, as their proportionate interest in the Company cannot, without their agreement, be reduced by more than 5 per cent. by the issue of new shares for cash to new shareholders. If the directors wish, other than by rights issue, to allot for cash new shares which would exceed this limit, they would first have to ask the Company's shareholders to waive their pre-emption rights in respect of that proportion of new shares which exceeds the 5 per cent. ceiling. The power given by resolution 8 will, unless sooner revoked or renewed by the Company in general meeting, last until the conclusion of the next annual general meeting of the Company to be held in 2011. Resolution 9 – Authority to purchase the Company's own shares This resolution grants authority to the Company to make purchases of up to a maximum of 10% of the issued ordinary share capital of the Company as at the date of the notice of this meeting. In certain circumstances it may be advantageous for the Company to purchase its Ordinary Shares. The directors would use the share purchase authority with discretion and purchases would only made from funds not required for other purposes and in light of market conditions prevailing at the time. In reaching a decision to purchase Ordinary Shares, your directors would take account of the Company's cash resources and capital, the effect of such purchases on the Company's business and on earnings per Ordinary Share. The directors have no present intention of using the authority. However, the directors consider that it is in the best interests of the Company and its shareholders as a whole that the Company should have flexibility to buy back its own shares should the directors in the future consider that it is appropriate to do so. In relation to any buy back, the maximum price per Ordinary Share at which the Company is authorised in terms of iomart group plc Annual Report 2010 69 Officers and Professional Advisers Ian Ritchie CBE, FREng, FRSE, FBCS, CEng, BSc Non Executive Chairman Angus MacSween Chief Executive Officer Chris Batterham MA, FCA Non Executive Director Sarah Haran Director Richard Logan BA, CA Director Fred Shedden MA, LLB Non Executive Director Bruce Hall BAcc (Hons), CA Secretary Registered office Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP Nominated adviser and broker KBC Peel Hunt Ltd, 111 Old Broad Street, London EC2N 1PH Bankers Bank of Scotland, 235 Sauchiehall Street, Glasgow G2 3EY Solicitors McGrigors LLP, 141 Bothwell Street, Glasgow G2 7EQ Independent auditors Grant Thornton UK LLP, 95 Bothwell Street, Glasgow G2 7JZ Registrars Capita IRG plc, Bourne House, 34 Beckenham Road, Beckenham, Kent BR3 4TU Company Registration Number SC204560 www.iomart.com 70 Group Contact Information iomart Group ) : + 44 (0) 141 931 6400 * : info@iomart.com www.iomart.com iomart hosting * : info@iomarthosting.com www.iomarthosting.com Easyspace * : sales@easyspace.com www.easyspace.com Rapidswitch * : sales@rapidswitch.com www.rapidswitch.com Printed by CCB, FSC certified colour printers.This report is printed on Elimental Chlorine Free (ECF) paper, from sustainable managed forests. Design by iomart group plc. All rights reserved. © iomart Group plc 2010. All other trademarks and registered trademarks are the property of their respective owners. iomart group plc Annual Report 2010 Think Publishing , the communications agency behind Kate Humble’s Stuff Your Rucksack Charitable initiative chose iomart Hosting’s Cloud solution to ensure the website could cope with sudden surges in activity at peak travelling times of the year iomart group plc Annual Report 2010 iomart group plc Annual Report 2010 iomart Group plc, Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow, G20 0SP. www.iomart.com 

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