Final Results

Iomart Group PLC 21 June 2007 IOMART GROUP PLC ('iomart' or the 'Company') Final Results for the year ended 31 March 2007 iomart Group plc, the web-services and hosting company, is pleased to report its preliminary results for the year ended 31 March 2007. Financial Highlights (accounts presented under IFRS convention) • Turnover of £21.1m (2006: £18.0m), an increase of 16.9% • Operating profit of £565,000 (2006: £140,000) • Pretax profit of £218,000 (2006: loss £74,000) • Profit after tax including deferred tax credit £2,180,000 (2006: £11,000) Corporate Highlights • Entry into the datacentre market through successful acquisition of Easyspace Datacentres, funded by £11m placing • Reduced cost of option to buy minority stake in Easyspace Datacentres • Ufindus and Easyspace performing well Angus MacSween, Chief Executive Officer commented, 'Our timely entry into the datacentre market and the very encouraging response we have had so far to our initial marketing reinforces our view that there is significant growth potential which can be delivered in the medium term. We have generated substantial interest, mainly from large enterprises interested in long term commitments which should form the backbone of future sales revenues. Additionally our core business continues to perform in line with expectations and we look forward to a very rewarding year.' For further information: iomart Group plc Tel. 0141 931 6400 Angus MacSween, Chief Executive Nick Kuenssberg, Non-executive Chairman KBC Peel Hunt Tel. 020 7418 8900 Oliver Scott Richard Kauffer ICIS Tel. 020 7651 8688 Tom Moriarty Caroline Evans-Jones CHAIRMAN'S STATEMENT This has been a pivotal year in our development, particularly with the raising of £11m through a share placement to acquire a controlling stake in significant datacentre assets. The Group is now well positioned to take advantage of the exciting market opportunities in colocation and complex hosting more easily facilitated by the datacentre business. Boosted by the reduced cost of the option to acquire the minority stake, this will deliver significant shareholder returns in the medium term. You will note that our figures are presented under the new IFRS convention, introduced one year earlier than required; while the figures may look different, your Group has performed generally in line with expectations. Sales revenue was up 16.9% at £21,086,000 and profit before tax increased to £218,000 (2006 - loss of £74,000). The effect of the deferred tax credit through the recovery of losses increased profit after tax to £2,180,000 (2006 - £11,000). We have not recommended a dividend. The management team under Angus MacSween has successfully improved internal systems and processes. Ufindus is increasingly self-sufficient, collection methods are better, Easyspace is more robust and the welcome appointment of Richard Logan as finance director has been effective. Dominic Marrocco, the previous owner and managing director of the datacentre business, resigned on 20 June 2007 with immediate effect, but we have a new highly experienced team under the leadership of Sarah Haran driving the integrated Easyspace and Easyspace Datacentres business. On a personal note, having been chairman of your Group since the AIM flotation in April 2000, I believe that it is appropriate that I plan to step down. We have therefore commissioned a search firm to identify suitably experienced candidates with a view to appointing a non-executive director who will take over as chairman in due course. The Group is now poised to deliver significant shareholder returns and I look forward to the increasing value which Angus and his team will deliver. Nick Kuenssberg Chairman 20 June 2007 CHIEF EXECUTIVE'S REVIEW Easyspace Datacentres Ltd The highlight of 2006/7 has been our entry into the datacentre marketplace with the successful placing and acquisition of a controlling interest in Easyspace Datacentres (UK) Ltd (formerly Ezee DSL Limited). Since the acquisition we have made good progress in making the datacentres operational and recruiting key senior personnel. The reaction to our initial marketing of the London datacentre has been very encouraging and we remain convinced that our strategic move into the datacentre market at this stage of the cycle will provide additional growth and profit for the Group. I am also pleased to report that, as a result of 186k Ltd, the vendor, not funding their share of the working capital requirement; iomart group will acquire 100% of the equity for a maximum payment of £4.8m in 2 years time. Since we had expected to pay up to £20m to acquire the 49%, based on the business plan and formula in the purchase agreement we believe this represents significant additional value for shareholders. Having our own datacentre capacity allows us to reshape our strategy in the hosting environment , building on our existing experience, to be able to deliver the complete set of vertical components in the hosting arena from domain names, virtual webspace, websites, dedicated servers through to complex managed hosting solutions, colocation space, power, cooling and bandwidth. As more and more mission critical business applications move on to the web, so organisations need more resilience, security and 24 hour management; the market for managed hosting services and datacentre capacity is expected to grow significantly over the next few years. We will leverage the skills and experience within Easyspace to provide a comprehensive set of services. Easyspace The existing Easyspace business continued to provide a solid platform of revenue, cash generation and profit providing £1.9m of operating profit from revenues of £6.6m. Whilst we have seen some downward pressure on pricing at the very low end of the market, gross margins remain good at 60% and we are winning higher margin business in the corporate hosting market where business continuity is becoming ever more important. Ufindus The continuing shift from traditional media advertising and paper directory services to internet driven services is, if anything, accelerating and our online directory business UfindUs is benefiting from that with a growing number of users generating 9 million searches and visits to customer websites per month. Despite the impact on revenues of the adoption of IFRS, explained in the Finance Directors report and in the notes to the financial statements, we have seen UfindUs revenues grow 30% from £10.9m to £14.1m providing an operating profit of £1.5m. Gross margins have also improved. The business is in much better shape operationally than was the case six months ago with well established and more robust systems around billing and collections and over 75% of new customers signing up to pay by direct debit. UfindUs is gaining credibility in the search and directory market and, with a number of initiatives ready to launch to improve the product, is set to provide more and more business opportunities for our customers. Netintelligence Netintelligence is a highly developed leading edge product set in the 'Software as a Service' arena. We have had a disappointing year with Netintelligence but continue to develop the IPR to ensure that we remain competitive and can exploit potential opportunities. The strategy is to use indirect channels to market and we have taken steps to ensure our costs going forward are in line with our revenues. Results Revenue increased in the year by 16.9% to £21,086,000 (2006 - £18,032,000) principally due to the continued growth achieved by our internet directory business Ufindus. Encouragingly, our gross profits increased by 20% to £16,400,000 (2006 - £13,671,000) meaning our gross margin percentage in the year of 78% was higher than the 76% achieved in 2006. Again the main reason for this was the increase in gross margin delivered by Ufindus due to the favourable impact of recurring revenue from customers for which there is very little cost of sale to be recognised. Administrative expenses were 17% higher at £15,835,000 (2006 - £13,531,000). The major reason for the increase is staff costs reflecting the additional personnel we have employed to service our growing Ufindus business and also increased sales resources for part of the year in both Ufindus and Netintelligence. In addition, due to debt collection issues at Ufindus there has been an increased level of bad debt expense charged in the current year. Operating profit for the year of £565,000 was four times greater than that achieved in 2006. After financing costs, which have increased this year due to the additional debt that we have serviced, pre-tax profits for the year were £218,000 compared to a loss for last year of £74,000. The deferred taxation credit of £1,962,000 is primarily due to the recognition of a deferred tax asset in respect of tax losses relating to Ufindus which we now expect to utilise against the future profits of that operation. As a result our profit for the year from continuing operation is £2,180,000 compared to a profit in 2006 of £11,000. Basic earnings per share for the year of 2.78p compared to 0.01p in 2006. Cash There was a cash inflow for the year of £245,000 from operating activities. During the year the Group invested £464,000 in acquiring property plant and equipment and £311,000 on developing and acquiring software. We also made dividend payments of £1,284,000, bank loan repayments of £865,000, net interest payments of £347,000, finance lease repayments of £109,000 and net corporation tax of £18,000. To fund this, after receiving proceeds of £43,000 from the issue of shares, the Group increased its net bank overdraft by £3,111,000 over the year. At the year end cash balances were £999,000 borrowings under finance leases amounted to £373,000, bank loans totalled £1,308,000 and overdrafts totalled £4,151,000 resulting in an overall net borrowings position of £4,833,000 which has increased by £2,555,000 over the year. The cash position of the Group changed significantly immediately after the year end with the receipt, net of expenses, of £10,466,000 from the issue of shares to fund the acquisition a majority stake in Ezee DSL Limited. Acquisitions On 30 March 2007 we acquired a controlling interest of 51% in Ezee DSL Limited for £4,890,000 including certain costs of acquisition. This was funded by the issue of 20 million shares which raised a total of £10,466,000 net of expenses and we received these funds, which had been underwritten by KBC Peel Hunt, on 2 April. The book value of the Ezee DSL datacentre assets at the time of acquisition was £8,870,000 and based on a report on the London datacentre, commissioned immediately prior to acquisition, we would estimate the replacement cost of such assets to be in the region of £28,000,000. Financial Position With funding raised through the share placement, the availability of our committed overdraft facility and the anticipated cash generation from the existing operations the Group's financial position is sufficient to fund our current business plans. We believe we are now entering an important growth phase in our continued development which will place demands on our cash resources including the obligation to fully fund the Easyspace Datacentres (UK) operation and we have not recommended a dividend be paid at this time. We will continue to review this position and intend to be in a position to re-establish dividend payments in future years. International Financial Reporting Standards Once the impact of the introduction of IFRS had been assessed we made the decision to adopt IFRS as we felt in the circumstances it was the most appropriate basis for the preparation of these accounts. Consequently IFRS has been implemented one year ahead of our original plan and indeed one year ahead of its mandatory adoption. In note 8 there is an explanation of the impact of adopting IFRS on the Group's results including the impact on prior years the results of which have been restated and I would encourage you to review the details of that note to gain a full understanding of the position. The major impact has been in relation to the revenues of our internet directory business Ufindus. Under UK GAAP we recognised Ufindus revenue at the time of sale, on the basis that the service had been delivered and all significant obligations of the sale fulfilled. Since the vast majority of our customers take advantage of the deferred payment terms which we offer our revenue was recognised in advance of actual invoicing to customers. Under IFRS we are required to recognise revenue from the customers' perspective and therefore spread the revenue over the period of use by the customer. For a Group experiencing substantial growth in revenues, such as iomart, the impact of this has been to reduce revenues and profitability previously reported. Under IFRS the Group will continue to invoice and recognise as revenue the remaining sums due from customers in respect of contractual commitments. Current trading and outlook Across the group we have taken steps to strengthen and deepen the senior management team. Our timely entry into the datacentre market and the very encouraging response to our initial marketing reinforces our view that there is significant growth potential which can be delivered in the medium term. We have generated substantial interest, mainly from large enterprises interested in long term commitments, which should form the backbone of future sales revenues. Additionally our core business continues to perform in line with expectations and we look forward to a rewarding year. Angus MacSween Chief Executive Officer 20 June 2007 CONSOLIDATED INCOME STATEMENT Year ended 31 March 2007 Continuing Note 2007 2006 £'000 £'000 -------- -------- ------- Revenue 2 21,086 18,032 Cost of sales 3 (4,686) (4,361) ------------------------- -------- -------- ------- Gross profit 16,400 13,671 Administrative expenses 3 (15,835) (13,531) ------------------------- -------- -------- ------- Operating profit 565 140 Finance income 11 29 Finance costs (358) (243) ------------------------- -------- -------- ------- Profit/(loss) before taxation 218 (74) Taxation 4 1,962 85 ------------------------- -------- -------- ------- Profit for the year from continuing operations 2,180 11 ------------------------- -------- -------- ------- Basic and diluted earnings per share Basic 6 2.78p 0.01p Diluted 6 2.72p 0.01p ------------------------- -------- -------- ------- CONSOLIDATED BALANCE SHEET As at 31 March 2007 2007 2006 Note £'000 £'000 ------- -------- -------- ASSETS Non-current assets Intangible assets - goodwill 14,475 14,289 Intangible assets - development costs 310 116 Intangible assets - software 39 35 Deferred tax asset (non-current element) 5 1,137 - Property, plant and equipment 10,615 883 --------------------- ------- -------- -------- 26,576 15,323 Current assets Trade and other receivables 2,989 2,531 Deferred tax asset (current element) 5 848 - Amount due from share placing 10,466 - --------------------- ------- -------- -------- 14,303 2,531 ------- -------- -------- Total assets 40,879 17,854 LIABILITIES Non-current liabilities Deferred grants - (26) Minority interest payable (4,800) - Non-current borrowings 7 (649) (1,347) --------------------- ------- -------- -------- (5,449) (1,373) Current liabilities Cash and cash equivalents (3,152) (41) Trade and other payables (4,336) (4,829) Current income tax liabilities - (169) Current borrowings (1,032) (890) Amount due in relation to acquisition (4,800) - --------------------- ------- -------- -------- (13,320) (5,929) ------- -------- -------- Total liabilities (18,769) (7,302) ------- -------- -------- Net assets 22,110 10,552 --------------------- ------- -------- -------- EQUITY Share capital 994 773 Capital Redemption reserve 1,200 1,200 Share premium 17,541 6,203 Profit and loss reserve 2,375 2,376 --------------------- ------- -------- -------- Total equity 22,110 10,552 --------------------- ------- -------- -------- CONSOLIDATED CASH FLOW STATEMENT As at 31 March 2007 2007 2006 £'000 £'000 --------------------- -------- -------- -------- -------- Operating profit 565 140 Depreciation 653 501 Amortisation 113 44 Share based payments 153 168 Recognition of deferred grants (48) (16) Movement in trade receivables (631) (355) Movement in trade payables (562) (13) --------------------- -------- -------- -------- -------- Cash flow from operations 243 469 Research and development tax credit received 142 123 Corporation tax paid (160) - --------------------- -------- -------- -------- -------- Net cash flow from operating activities 225 592 Cash flow from investing activities Purchase of property, plant and equipment (463) (470) Capitalisation of development costs (282) (140) Purchase of intangible assets - software (29) (8) --------------------- -------- -------- -------- -------- Net cash used in investing activities (774) (618) Cash flow from Financing Activities Issue of shares 43 101 Repayment of finance lease (109) (113) Repayment of borrowings (865) (864) Dividends (1,284) (958) Interest received 11 29 Interest paid (358) (243) --------------------- -------- -------- -------- -------- Net cash used in financing activities (2,562) (2,048) -------- -------- --------------------------- -------- -------- -------- Net decrease in cash and cash equivalents (3,111) (2,074) Cash and cash equivalents at the beginning of the year (41) 2,033 --------------------------- -------- -------- -------- Cash and cash equivalents at the end of the year (3,152) (41) -------------------------------- -------- -------- NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2007 1. The financial information set out above does not constitute the statutory accounts for the years ended 31 March 2007 and 31 March 2006. Statutory accounts for 2006 have been delivered to the Registrar of Companies and those for 2007 will be delivered following the Company's Annual General Meeting. The auditors have reported on these accounts, their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. 2. Segmental analysis As at 31 March 2007 the Group is primarily organised into three main business segments: •Ufindus - an internet Business Directory, providing a web marketing presence to the business community. •Easyspace - a range of managed web hosting services, domain name registration services and the provision of datacentres. •Netintelligence - provides 'software as a service' products for a range of internet control and security services There are no other services provided by the Group which would constitute a separately disclosable segment. Primary Reporting Segment - Business Assets and Liabilities by Primary Segment 2007 2006 ------------------------------------- ------------------------------------- Total Liabilities Net Assets Total Liabilities Net Assets Assets (Liabilities) Assets (Liabilities) £000's £000's £000's £000's £000's £000's ---------------- ------- ------- ------- ------- ------- ------- Netintelligence 468 (5,427) (4,959) 735 (4,674) (3,939) Easyspace 29,184 (6,745) 22,439 17,039 (2,216) 14,823 Ufindus 7,650 (4,992) 2,658 4,634 (3,435) 1,199 37,302 (17,164) 20,138 22,408 (10,325) 12,083 ---------------- ------- ------- ------- ------- ------- ------- Group assets/ (liabilities) 1,972 (1,531) ---------------- ------- ------- ------- ------- ------- ------- 22,110 10,552 ---------------- ------- ------- ------- ------- ------- ------- The assets and liabilities of each business segment are derived using the same classifications as management reporting, including gross inter-segment balances, but net of inter-segment dividends paid. Non-current assets acquired in the period by Primary Segment 2007 2006 ------------------------------------------ --------------------------------------- Tangible Intangible Total Tangible Intangible Total non-current non-current non-current non-current assets acquired assets acquired assets acquired assets acquired in period in period in period in period £000's £000's £000's £000's £000's £000's --------------- -------- ------- -------- --------- -------- -------- Netintelligence 82 29 111 39 4 43 Easyspace 9,554 186 9,740 13 - 13 Ufindus 799 282 1,081 494 144 638 --------------- -------- ------- -------- --------- -------- -------- 10,435 497 10,932 546 148 694 --------------- -------- ------- -------- --------- -------- -------- Revenue by Primary Segment 2007 2006 --------------------- --------------------- External Internal Total External Internal Total £000's £000's £000's £000's £000's £000's --------------- -------- -------- -------- --------- -------- -------- Netintelligence 382 520 902 669 514 1,183 Easyspace 6,609 - 6,609 6,417 - 6,417 Ufindus 14,095 - 14,095 10,946 - 10,946 --------------- -------- -------- -------- --------- -------- -------- 21,086 520 21,606 18,032 514 18,546 --------------- -------- -------- -------- --------- -------- -------- Profit by Primary Segment 2007 2006 ------------------------------- ------------------------------- EBITDA Depreciation Operating EBITDA Depreciation Operating & amortisation profit & amortisation profit £000's £000's £000's £000's £000's £000's -------------- ------- ------- ------- ------- ------- ------- Netintelligence (918) (101) (1,019) (382) (85) (467) Easyspace 2,011 (66) 1,945 2,175 (88) 2,087 Ufindus 2,056 (599) 1,457 335 (372) (37) Group overheads (1,818) - (1,818) (1,443) - (1,443) -------------- ------- ------- ------- ------- ------- ------- 1,331 (766) 565 685 (545) 140 Group interest and tax 1,615 (129) -------------- ------- ------- ------- ------- ------- ------- Profit for the year 1,331 (766) 2,180 685 (545) 11 -------------- ------- ------- ------- ------- ------- ------- Group overheads, interest and tax are not allocated to segments. 3. Operating costs Included within operating costs from continuing operations are the following items: 2007 2006 £'000 £'000 -------- -------- Staff cost 12,394 10,496 Depreciation of property plant and equipment - Owned assets 568 493 - Leased assets 85 8 Property, plant and equipment hire - Land and buildings 586 491 - Plant and machinery 192 258 Amortisation of intangible assets 113 44 R&D written to income statement 796 670 Marketing and sales 1,197 1,592 Infrastructure 348 228 Provision for doubtful debts 400 144 Premises and Office 2,033 1,420 Other expenses 1,809 2,048 -------- -------- 20,521 17,892 -------- -------- Cost of sales 4,686 4,361 Administrative expenses 15,835 13,531 --------------------------- -------- -------- 20,521 17,892 -------- -------- Included within other expenses are fees paid to the Group's auditors, an analysis of which is provided below: Auditors' remuneration 2007 2006 £'000 £'000 ---------------------------- --------- -------- - audit fees 44 39 - tax compliance fees 8 13 - corporate finance and advisory transactions 25 11 --------- -------- 77 63 ---------------------------- --------- -------- 4. Tax on profit on ordinary activities -------- -------- 2007 2006 £'000 £'000 -------- -------- Research and development tax credit - 85 Tax (charge)/credit for the current year - 85 Deferred tax credit 1,985 - Under provision in prior year (23) - ---------------------------- --------- -------- 1,962 85 ---------------------------- --------- -------- The Group has a deferred tax asset which has been recognised in respect of the totality 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: -------- -------- 2007 2006 £'000 £'000 -------- -------- Profit/(loss) on ordinary activities before tax 218 (74) --------------------------- -------- -------- Tax charge @ 30% 66 (22) Disallowed expenditure 1 (94) Deferred tax credit not recognised 345 245 Movement in short term timing differences (23) (11) Consolidation adjustments (15) (15) Utilisation of tax losses (255) (60) Rate differences 44 Depreciation in excess of capital allowances 8 (15) Statutory deductions on exercise of share options (127) (157) --------------------------- -------- -------- - (85) --------------------------- -------- -------- The weighted average applicable tax rate for the year end 31 March 2007 was 30% (2006: 30%) 5. Deferred Tax The Group had recognised deferred tax assets and potential unrecognised deferred tax assets as follows: 2007 2006 --------------------------- ----------------------- Recognised Unrecognised Recognised Unrecognised £'000 £'000 £'000 £'000 ---------- ------------ ---------- ------------ Tax losses carried forward 1,985 1,755 - 4,767 --------------------- --------- ---------- -------- --------- The deferred tax included in the balance sheet is as follows: -------- -------- 2007 2006 £'000 £'000 -------- -------- Included in non-current assets 1,137 - Included in current assets 848 - --------------------- -------- -------- 1,985 - -------- -------- The movement in the deferred tax account during the year was: Balance brought forward - - Profit and loss account movement arising during the year 1,985 - -------------------------------- -------- -------- -------- -------- Balance carried forward 1,985 - --------------------- -------- -------- The deferred tax asset is in relation to unutilised losses in the Ufindus subsidiary company. This has been recognised in line with budgets and future projections of the company over a three year period. The basis of these projections and budgets are: • The consistent success of sales teams in generating new business • The volume of traffic generated through Ufindus websites • Expectations about the retention of customers • Continuing development of the Ufindus product • Expectations of continued growth in market prospects in relation to the internet generally and online directories in particular. At 31 March 2006 it was deemed that the historic performance did not provide significant certainty to justify this recognition, but the performance of the company during the year to 31 March 2007, along with the business developments detailed above has lead to the expectation that sustainable profits are probable in the long term. Ufindus became profitable in the current year, and based on the foregoing assessment of budgets and projections and the expectation of sustainable profits in future years, the full deferred tax asset in relation to the utilisation of these losses is recognised in line with IAS 12 Income Taxes. 6. 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. 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. 2007 2006 £'000 £'000 -------- -------- Profit for the financial period and basic earnings attributed to ordinary shareholders 2,180 11 No No 000 000 Weighted average number of ordinary shares: For basic earnings per share 78,558 76,933 Exercise of share options 1,683 3,155 --------------------- -------- -------- For diluted earnings per share 80,241 80,088 --------------------- -------- -------- Basic earnings per share 2.78p 0.01p Fully diluted earnings per share 2.72p 0.01p -------------------------------- -------- -------- 7. Borrowings -------- -------- 2007 2006 £'000 £'000 -------- -------- Current: Obligations under finance leases (161) (24) Bank loan (871) (866) --------------------------- -------- -------- Current borrowings (1,032) (890) Bank overdraft (included in cash and cash equivalents note 14) (4,151) (1,320) Non-current: Obligations under finance leases (212) (40) Bank loan (437) (1,307) --------------------- -------- -------- Total non-current borrowings (649) (1,347) -------- -------- Total borrowings (5,832) (3,557) --------------------- -------- -------- The obligations under finance leases are secured by the related assets and are repayable as follows: 2007 2006 ---------------- ---------------- Capital Interest Total Capital Interest Total £'000 £'000 £'000 £'000 £'000 £'000 -------------------- ------ ------- ------- ------- ------- ------ Due within one year 161 20 181 24 4 28 Due between one and five years 212 10 222 40 2 42 -------------------- ------ ------- ------- ------- ------- ------ 373 30 403 64 6 70 -------------------- ------ ------- ------- ------- ------- ------ 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 7.3% (2006: 8.0%). Lease payments are made on a monthly basis. The future lease obligation of £403,000 (2006: £70,000) has present value of £363,000 (2006: £65, 000). The bank loan and overdrafts are secured by debentures and floating charges over all the assets of the company and each of its subsidiaries and by cross guarantees by all Group companies and are repayable as follows: -------- -------- 2007 2006 £'000 £'000 -------- -------- Due within one year (5,022) (2,186) Due between one and two years (437) (871) Due between two and three years (436) --------------------- -------- -------- (5,459) (3,493) -------- -------- The bank overdrafts are repayable on demand. The bank loan and the bank overdrafts bear interest between 2.5% and 2.75% above the Bank of Scotland base rate. 8. Adoption of IFRS As of 1 April 2005, the Group's accounting policies have been changed to comply with International Financial Reporting Standards (IFRS). The date of transition is 1 April 2005 and all comparative figures at 1 April 2005 and for the year ended 31 March 2006 have been restated. The Group has taken the optional exemption available under IFRS 1 First time adoption of IFRS, and has not reclassified business combinations that took place before 1 April 2005, the date of transition. Therefore purchase price in excess of assets and liabilities acquired previously recorded as goodwill has not been reclassified into goodwill and other intangible assets. The adoption of IFRS results in changes to the accounting policies in the following areas: (a) Revenue recognition Previously under UK GAAP revenue relating to Ufindus was recognised once the service had been delivered and all significant obligations in relation to the sale had been fulfilled. Under this policy revenue was recognised in advance of invoice and recorded as an amount due on deferred payment terms and was included within debtors in the balance sheet. Under IAS 18 Revenue, revenue is recognised over the period which the customer uses the service and only where it is probable that future economic benefit will flow from the transaction. This has the effect of removing the debtor balance representing the amount due on deferred payment terms from the balance sheet and reducing the amount of trade debtors recorded in the balance sheet in both cases net of any applicable provisions for doubtful debts which had been established. (b) Share-based payments In accordance with IFRS 2 Share-based payments, the fair value of employee services received in exchange for the grant of share based compensation plans is recognised as an expense, and allocated over the vesting period. (c) Share based payments prior to November 2002 The Group operates a variety of share-based employee incentive arrangements which typically include the grant of share options. Under UK GAAP, the intrinsic value of an award under the Group's share plans was charged as an operating cost over the period of performance of the employee receiving the award. Inland Revenue approved SAYE schemes (and their overseas equivalents) were outside the scope of UITF Abstract 17, and a charge was therefore not recorded in respect of these schemes even where the options were granted at a discount to the market price at the date of invitation. IFRS 2 Share Based Payments requires that an expense is recognised in the income statement based on the fair value of an award at the date of grant for all share-based incentive schemes. The expense is spread over the period for which services are received from employees, which is assumed to be the vesting period of the award. The impact of adopting IFRS is to increase the share-based payment charge in the income statement, primarily because IFRS 2 Share Based Payments covers market value schemes and schemes which were outside the scope of UITF 17. In line with the provisions of IFRS 2 Share Based Payments a separate share based payment reserve has not been set up, and the credit is instead taken to Profit and Loss reserves. (d) Development costs Under UK GAAP the Group elected to expense development costs of Ufindus directory products to the profit and loss, but in accordance with IAS38 Intangible Assets, these are now capitalised on the Balance Sheet as intangible assets. (e) Income taxes In accordance with both UK GAAP and IFRS the Group recognises a deferred tax asset in respect of tax losses to the extent that it is probable that these losses will be utilised. The deferred tax asset at March 2005 and March 2006 previously reported on the basis of the expected tax loss utilisation arising from profitability measured under UK GAAP, have been restated to reflect the expected utilisation arising from profitability measured under IFRS. (f) Business combinations IFRS 3 Business combinations prohibits merger accounting and the amortisation of goodwill. The standard requires goodwill to be carried at cost with impairment reviews both annually and when there are indications that the carrying value may not be recoverable. IFRS 3 requires certain intangible assets to be recognised at the date of acquisition and to be amortised on a systematic basis over their economic lives. As required by IFRS 1, goodwill recognised under previous UK GAAP has been tested for impairment at the date of transition to IFRS. No impairment loss was required to be recognised. In accordance with IFRS 1, this amount has been considered the carrying amount of goodwill in the opening IFRS balance sheet. (g) Fair Value of Property, Plant and Equipment Under UK GAAP computer software was classified as property, plant and equipment, however under IAS 38 this is to be classified as an Intangible Asset. This reclassification is the only change in the figures as a result of the adoption of IAS 16 Property, Plant and Equipment. (h) Software Costs of software and software licences purchased for internal use have been reclassified from property, plant and equipment to intangible assets. (i) IFRS cash flow statement adjustments The overall cash flows of the Group do not change as a result of adopting IFRS. The IFRS cash flow format includes various cash flows in different categories and in a different order to UK GAAP. Development costs which were written-off as operating costs under UK GAAP are capitalised and amortised under IFRS and are classified as investing activities in the cash flow statement. Dividends and interest are reported as financing costs. Tax is reported as an operating cash flow. Certain leasehold properties accounted for as operating leases under UK GAAP are accounted for as finance leases under IFRS. The cash flow categorisation changes accordingly. Reconciliation of profit reported under UK GAAP for the year ended 31 March 2006 to profit reported under IRFS Year ended 31 March 2006 -------------------------------------------------------------------- UK GAAP Revenue Amortisation Tax Development Share based IFRS Recognition costs payments £'000 £'000 £'000 £'000 £'000 £'000 £'000 ---------------- ------- -------- --------- ------- -------- -------- ------- Turnover 24,306 (6,274) - - - - 18,032 Cost of sales (4,361) - - - - - (4,361) ---------------- ------- -------- --------- ------- -------- -------- ------- Gross profit 19,945 (6,274) - - - - 13,671 Admin expenses (15,547) 1,249 819 - 116 (168) (13,531) ---------------- ------- -------- --------- ------- -------- -------- ------- Operating profit 4,398 (5,025) 819 - 116 (168) 140 Net interest (214) - - - - - (214) ---------------- ------- -------- --------- ------- -------- -------- ------- (Loss)/profit before tax 4,184 (5,025) 819 - 116 (168) (74) Tax (170) - - 255 - - 85 ----------- ----- ------- -------- --------- ------- -------- -------- ------- Profit after tax 4,014 (5,025) 819 255 116 (168) 11 ----- ------- -------- --------- ------- -------- -------- ------- To ensure complete focus on the appropriate revenue whilst the Group could have continued to recognise Ufindus revenue under UK GAAP on the basis previously used it has decided to alter UK GAAP revenue recognition to a basis consistent with IFRS. The accounts of Ufindus Limited have been prepared on the basis of the revised revenue recognition policy. As at 1 April 2005 --------------------------------- Reported Revenue Software Share based Tax Restated under recognition intangible payments under UK GAAP asset IFRS £'000 £'000 £'000 £'000 £'000 £'000 ------------------ -------- ------- -------- ------- ------- -------- Non-current assets Intangible assets 14,289 - 47 - - 14,336 Tangible assets 885 - (47) - - 838 ------------------ -------- ------- -------- ------- ------- -------- 15,174 - - - - 15,174 Current assets Debtors 5,256 (3,042) - - - 2,214 Deferred tax 1,200 - - - (1,200) - Cash at bank and in hand 2,033 - - - - 2,033 ------------------ -------- ------- -------- ------- ------- -------- 8,489 (3,042) - - (1,200) 4,247 Current liabilities (5,933) (57) - - - (5,990) Bank overdraft - - - - - ------------------ -------- ------- -------- ------- ------- -------- (5,933) (57) - - - (5,990) Total assets less current liabilities 17,730 (3,099) - - (1,200) 13,431 Non-current liabilities (2,201) - - - - (2,201) ------------------ -------- ------- -------- ------- ------- -------- Net assets 15,529 (3,099) - - (1,200) 11,230 ------------------ -------- ------- -------- ------- ------- -------- Capital and reserves Share capital 767 - - - - 767 Redemption reserve 1,200 - - - - 1,200 Share premium 6,108 - - - - 6,108 Share based payments 69 69 Profit and loss account 7,454 (3,099) - (69) (1,200) 3,086 ------------------ -------- ------- -------- ------- ------- -------- Total equity 15,529 (3,099) - - (1,200) 11,230 ------------------ -------- ------- -------- ------- ------- -------- As at 31 March 2006 ---------------------------------------------------------------------------------------------- Reported Revenue Share Software Amortisation Development Tax Restated under recognition based intangible of goodwill costs under UK GAAP payments IFRS £'000 £'000 £'000 £'000 £'000 £'000 ------------ ------- ------ ------- ------- ------ ------- ------ ------- Non-current assets Intangible assets 13,470 - - 35 819 116 - 14,440 Tangible assets 918 - - (35) - - - 883 ------------ ------- ------ ------- ------- ------ ------- ------ ------- 14,388 - - - 819 116 - 15,323 Current assets Debtors 10,614 (8,083) - - - - 2,531 Deferred tax 945 - - - - - (945) 0 Cash at bank and in hand 1,279 - - - - - - 1,279 ------------ ------- ------ ------- ------- ------ ------- ------ ------- 12,838 (8,083) - - - - (945) 3,810 Current liabilities (5,847) (41) - - - - - (5,888) Bank overdraft (1,320) - - - - - - (1,320) ------------ ------- ------ ------- ------- ------ ------- ------ ------- (7,167) (41) - - - - - (7,208) Total assets less current liabilites 20,059 (8,124) - - 819 116 (945) 11,925 Non-current liabilities (1,373) - - - - - - (1,373) ------------ ------- ------ ------- ------- ------ ------- ------ ------- Net assets 18,686 (8,124) - - 819 116 (945) 10,552 ------------ ------- ------ ------- ------- ------ ------- ------ ------- Capital and reserves Share capital 773 - - - - - - 773 Redemption reserve 1,200 - - - - - - 1,200 Share premium 6,203 - - - - - - 6,203 Share based payments - 237 - - - - 237 Profit and loss account 10,510 (8,124) (237) - 819 116 (945) 2,139 ------------ ------- ------ ------- ------- ------ ------- ------ ------- Total equity 18,686 (8,124) - - 819 116 (945) 10,552 ------------ ------- ------ ------- ------- ------ ------- ------ ------- 9. The Annual Report and Accounts for 2007 will be posted to shareholders 4 July 2007 and will also be available free of charge on request from the Company's registered office; Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP. 10. The Annual General Meeting of the Company will be held at 2.30pm on 27 July 2007 at the Company's registered office. This information is provided by RNS The company news service from the London Stock Exchange

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