Final Results

RNS Number : 6142H

Iomart Group PLC

01 June 2011

iOMART GROUP PLC

("iomart" or the "Group" or the "Company")

Final Results for the year ended 31 March 2011

iomart (AIM:IOM), the cloud computing and managed hosting services company, is pleased to report its consolidated final results for the year ended 31 March 2011.

Financial Highlights

· Adjusted EBITDA ¹ growth of 113% to £6.6m (2010: £3.1m)

· Profit before tax growth of 618% to £2.8m (2010: £0.4m ²)

· Revenue growth of 38% to £25.3m (2010: £18.3m)

· Cashflow from operations of £7.1m (2010: £3.9m)

· Basic earnings per share from operations increased by 137% to 2.91p (2010: 1.23p ³)

· Proposed final dividend increased by 63% to 0.65p per share (2010: 0.4p per share)

Operational Highlights

· iomart Hosting customer base increased by over 60% with substantial increase in sales of cloud based solutions

· Additional 7,000 sq ft of space fully fitted out in Maidenhead datacentre

· Acquisition of Titan Internet Limited for £4.2m in October 2010 adds strong customer base and additional virtualisation expertise

· Introduction of additional cloud products to address back up, storage, email and archiving

· Acquisition of Switch Media Limited for £1.2m post year end, adding customers to Easyspace

Angus MacSween, Chief Executive Officer commented,

"We have enjoyed an excellent year and consolidated our position within the UK cloud computing and hosting market. We have continued to invest in our datacentre infrastructure, our people and our products giving us an ideal platform from which to move forward. We are in a market that is growing and that is here to stay and we fully expect to participate strongly in that growth."

iomart Group plc	Tel: 0141 931 6400
Angus MacSween, Chief Executive
Richard Logan, Finance Director

Peel Hunt (Nominated Adviser and Broker)	Tel: 020 7418 8900
Richard Kauffer
Daniel Harris

Threadneedle Communications	Tel: 020 7653 9850
Caroline Evans-Jones
Hilary Millar

¹ Throughout this statement adjusted EBITDA for March 2011 is earnings before interest, tax, depreciation and amortisation (EBITDA) before share based payment charges and acquisition related costs and for March 2010 is EBITDA before share based payment charges and net gain on reduction of deferred consideration.

² Profit before tax of £1.3m in 2010 included a net gain on reduction in deferred consideration of £0.9m. Excluding this gain, the profit before tax would have been £0.4m in 2010.

³ Reported basic earnings per share of 2.12p in 2010 was based on profit after tax of £2.1m which included a net gain on reduction of deferred consideration of £0.9m. Excluding this gain, earnings per share would have been 1.23p in 2010.

CHAIRMAN'S STATEMENT

The Group has enjoyed another very successful year. That success is a result of a great deal of hard work and consolidates our position as one of the UK's leading managed hosting operators.

Having moved into profitability in the previous financial year we have seen that level of profitability more than double over this year and we have now laid very firm foundations for continued growth. Our organic growth, especially from our Hosting segment, has been very pleasing and we have added to that with the acquisition of Titan Internet Limited during the year and also with the acquisition of Switch Media Limited after the year end. We are confident that both will be excellent acquisitions for our Group.

The increasing demand for cloud services plays firmly to our strengths with our extensive experience in the successful provision of a wide range of hosting, virtual computing, storage and security services over many years. We are in the position of owning and operating our own datacentre infrastructure and networks which we believe provides us with a significant advantage over our competitors.

As ever the commitment, enthusiasm and energy of our senior management team and all of our employees is essential in delivering this success. I thank them all on behalf of the Board and the shareholders.

As I indicated last year we are committed to rewarding shareholders with dividends as we deliver improved performance. Accordingly, the Board is proposing to pay a final dividend of 0.65p per share on 5 October 2011 to shareholders on the register on 10 June 2011 an increase of 63% over the dividend last year. We have decided that we will offer shareholders the option to participate in a Dividend Reinvestment Plan (DRIP) as an alternative to receiving cash. Details of the DRIP scheme will be distributed with the Annual Accounts in due course. I can also reconfirm that it is our intention, depending on the underlying profitability and cash generation of the business, to continue to pay annual dividends.

We begin the 2012 financial year in a strong position and I look forward to another exciting year of growth, both organically and through acquisition, for the Group. We can look ahead with considerable confidence.

Ian Ritchie

Chairman

31 May 2011

CHIEF EXECUTIVE'S REVIEW

Introduction

I am once again delighted to report another excellent year of trading for the Group. Having broken into profitability in our last financial year, we have more than doubled our profitability in this year with adjusted EBITDA of £6.6m (2010: £3.1m) which is at the top end of the upgraded market expectations. This significant increase in profitability resulted from increased sales to both new and existing customers, with revenues growing by 38% to £25.3m (2010: £18.3m). In addition we substantially increased our cash generation in the year with cashflow from operations totalling £7.1m (2010: £3.9m).

We continue to see a growing trend for the outsourcing of infrastructure and services to reliable suppliers with cloud computing expertise and experience. We are now recognised as a leading player in the hosting/cloud/managed services arena.

Whilst cloud computing and cloud-based services have become the buzzwords du jour, it is important to understand the realities beyond the hype. Many companies are adding the 'cloud' tag to whatever they do in the hope of some halo effect but many do not have reliable or well tested delivery mechanisms and are trying to shoehorn legacy technology into some form of online delivery. At iomart we have built our technologies from the ground up specifically to be delivered via the cloud and are ideally positioned to take advantage of the shift to cloud computing. We are continuing to expand our range of services to meet the market demand through the introduction of products to provide back up; storage; email and archiving as cloud based services.

During the year the Group grew through both organic and acquisitive means. We were delighted to welcome Titan Internet to the Group in October 2010. The acquisition provides the Group with an excellent customer base and a highly skilled and motivated workforce with particular expertise in virtualisation technology. After the year-end on 26 April 2011 we acquired Switch Media, an organisation that provides similar services to our Easyspace segment concentrating on providing services to newly created companies in the UK and the Republic of Ireland. We expect both to contribute to the ongoing profit growth of the Group as we fully exploit the integration synergies available.

Operational Review

Whilst all of our activities involve the provision of managed hosting services we are organised into two segments.

Hosting

The Hosting segment has performed very well over the year. Its revenue growth has led to a substantial increase in adjusted EBITDA due to the operational gearing we are able to leverage. The adjusted EBITDA for the year from the Hosting segment was £6.2m (2010: £2.8m) an increase of 124%. This increase includes the impact of the acquisition of Titan without which the increase would have been 106%.

Our hosting segment provides a range of managed hosting services, increasingly with an element of cloud or virtual computing, to SMEs and corporate customers. We address different market segments with different brands but all 'sweating' the same physical infrastructure and network. Complex hosting solutions to corporate customers are provided by iomart Hosting in a consultative sales process; dedicated server hosting to SMEs is marketed online by Rapidswitch and cloud security services to the large corporate and education sector through Netintelligence. In addition, Titan has been fully integrated into our Hosting segment providing managed hosting solutions, with a high degree of virtualisation, to SMEs and corporate customers.

The Hosting segment has seen revenue growth of 61% to £17.7m including the impact of the acquisition of Titan for the last five months of the year. The organic growth in this segment excluding Titan was an impressive 47% with the majority of this growth coming from the activities of iomart Hosting. We have won over 400 new orders in the year, many of which were additional orders from existing customers. Increasingly, these orders contain some aspects of cloud or virtual computing within the overall solution and we are becoming recognised as an authority on the provision of cloud hosting solutions as that market opportunity evolves.

We have continued to invest in our datacentre estate over the year. We clearly have a competitive advantage through the ownership of our own datacentre capacity and we completed the fit out of a further 7,000 square feet of datacentre space in Maidenhead during the year.

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 continued to perform well against its peers.

In a competitive market we have continued to increase revenues and profitability. Revenues have grown by 3% over the year to £7.6m and the adjusted EBITDA margin has increased from 35% last year to 37% this year, having been 30% in the year before last. The margin increase is largely as a result of the continued implementation of operational efficiencies within this segment.

Financial Review

Trading Results

Revenues for the year of £25.3m (2010: £18.3m) have grown by 38% with both of our operating segments having contributed to this growth.

The majority of the revenue growth was delivered by our Hosting segment. Revenues in the year from this segment of £17.7m (2010: £11.0m) grew by 61%. This growth was helped by the contribution from Titan Internet Limited which we acquired at the end of October. The growth in Hosting segment revenues excluding the impact of Titan was 47%. In the last two financial years the Hosting segment has grown revenues, through both organic and acquisitive means, from £4.6m in the year to March 2009 to £17.7m this year, an almost four fold increase.

Our Easyspace segment continues to perform well in a very competitive market and revenues from this segment of £7.6m (2010: £7.4m) grew by 3%.

Our gross margin, which is calculated by deducting our variable cost of sales such as domain name costs, power charges and sales commission and the relatively fixed costs of operating our datacentres from revenue, was £15.6m (2010: £10.5m). This very significant increase was substantially a direct result of the contribution made from the additional revenues delivered by our Hosting segment. In percentage terms the gross margin improved to 62% (2010: 57%) demonstrating the high operational leverage of the Hosting segment. Easyspace has maintained its gross margin percentage at a similar level to the previous year. The Hosting segment continues to deliver an improved gross margin percentage through increased sales revenues whilst its fixed costs of operations remain unchanged. The addition of Titan into the Hosting segment for the last five months of the financial year has helped to improve the absolute level of gross margin and in percentage terms has contributed at a similar level to the rest of the Hosting segment operations.

The adjusted EBITDA for the year of £6.6m (2010: £3.1m) has also shown a very high level of growth. Our percentage adjusted EBITDA margin has also significantly improved to 26% (2010: 17%). Once again both of our operating segments have contributed to both the absolute growth and the improvement in the percentage margin in adjusted EBITDA.

The Hosting segment's adjusted EBITDA was £6.2m (2010: £2.8m) an increase of 124%. In percentage terms the adjusted EBITDA margin has improved to 35% (2010: 25%).This greatly improved performance is a direct result of the additional gross margin delivered by the increase in sales revenue from the Hosting segment offset by an increase in administrative expenses. Administrative expenses have increased as we have continued to invest in additional resources within the Hosting segment during the year to support the high level of revenue growth that has been achieved. As a result we have increased these costs, mainly through the introduction of additional headcount, especially in sales and technical roles. The contribution from Titan since November has contributed to the improvement in the adjusted EBITDA in absolute terms and has helped maintain the percentage margin improvement.

The Easyspace segment's adjusted EBITDA was £2.8m (2010: £2.6m) an increase of 8%. In percentage terms the adjusted EBITDA margin has improved to 37% (2010: 35%). The improvement in adjusted EBITDA is the result of the additional gross margin contributed from the increased sales revenues together with reduced administrative expenses as we continue to run the operation more efficiently.

Group overheads, which are not allocated to segments, include the cost of the Board; the running costs of the headquarters in Glasgow, Group marketing, human resource, finance and design functions and legal and professional fees for the year. These overhead costs have increased slightly to £2.3m (2010: £2.2m).

Share based payment charges in the period of £0.3m (2010: £0.4m) have decreased as a result of both the lapsing of share options and share options issued in previous periods having been fully charged to the statement of comprehensive income. Under IFRS 3 (revised) it is no longer permissible to include costs incurred on professional fees during an acquisition as part of the overall cost of the balance sheet investment. Consequently, during the period we incurred costs of £0.2m (2010: £nil) in respect of professional fees for the acquisition of both Titan Internet Limited and Switch Media Limited.

Depreciation charges of £2.7m (2010: £1.8m) have increased largely as a result of charges for the additional equipment bought to provide services to the additional Hosting segment customers and also as a consequence of the acquisition of Titan.

The charge for amortisation of intangibles of £0.7m (2010: £0.5m) has increased as a result of the acquisition of Titan which has resulted in the recognition of additional intangible assets which are being amortised over their estimated useful lives.

Finance income in the period of £0.2m (2010: £0.1m) includes interest earned on the deferred consideration due to the Group from a disposal in a previous year which was received during the period and also interest due on a lease rental deposit. Finance costs of £0.2m (2010: £0.1m) includes interest on bank loans used to fund the Titan acquisition and also interest on finance leases which are used to fund the purchase of some of the capital equipment needed to provide services to customers.

After deducting the charges for share based payments, acquisition related costs, depreciation, amortisation and finance costs and crediting the finance income from the adjusted EBITDA the Group's profit before tax was £2.8m (2010: £1.3m, including a net gain of £0.9m arising from the renegotiation of deferred consideration payable).

There is a tax credit for the year of £0.1m (2010: £0.8m) arising from a deferred tax credit of £0.2m (2010: £0.8m) offset by a corporation tax charge of £0.1m (2010: £nil) resulting in a profit for the year from total operations of £2.9m (2010: £2.1m, including a net gain of £0.9m arising from the renegotiation of deferred consideration payable and a tax credit of £0.8m).

Earnings Per Share

Basic earnings per share from continuing operations was 2.91p (2010: 2.12p) an increase of 37% over the year. However, in the year to March 2010 the earnings per share calculation included the effect of the exceptional net gain arising from the renegotiation of deferred consideration payable of £0.9m. Excluding this from the calculation would result in a revised basic earnings per share of 1.23p for March 2010 and thus a 137% increase over this financial year.

Acquisitions

In October 2010 the company acquired Titan Internet Limited for a maximum consideration of £4.2m of which £3.6m was paid during the year. On 26 April 2011, post year end, the company acquired Switch Media Limited for a maximum consideration of £1.2m, of which £1.0m was paid at the time of the acquisition.

Cash flow and net cash

Net cash flows from operating activities

The Group continued to generate high levels of operating cash over the year. Cash flow from operations was £7.1m (2010: £3.9m) with the significant increase over the previous year's level largely due to the improvement in adjusted EBITDA and also helped by cash received from the provision of Netintelligence in the Universal Home Access project. It is a feature of our operations that in many instances the Group generates cash in advance of revenue recognition and consequently carries a substantial amount of deferred revenue in its statement of financial position. After deducting a small cash payment for corporation tax in respect of the operations of Rapidswitch the net cash flow from operating activities was £7.0m (2010: £3.7m).

Cashflow from investing activities

In line with our strategy the Group continues to spend substantial sums on investing activities, having invested a total of £7.1m (2010: £11.0m) in the period. Of this amount a net sum of £3.3m (2010: £8.3m) was incurred in relation to acquisition activities. The single biggest investment related to the acquisition of Titan Internet Limited in October 2010 for a net initial amount of £3.1m being the payment of £3.6m made at the time of the acquisition net of the £0.5m bank balance held in Titan at that time. In addition the Group settled the final amount of deferred consideration due on the acquisition of iomart Datacentres Limited (formerly known as Ezee DSL Limited) of £1.0m and received the amount of deferred consideration due in respect of the disposal of Ufindus Limited in July 2008 of £0.8m, net of related costs.

The Group continues to invest in both its datacentre infrastructure and in the equipment required to provide managed services to both its existing and new customers. During the year the Group invested £3.4m (2010: £2.3m) in such activities, net of related finance lease drawdown, including the fit out of 7,000 sq ft of datacentre space in Maidenhead at a cost of £1.2m.

Expenditure was also incurred on development costs of £0.4m (2010: £0.3m) and the purchase of software of £0.2m (2010: £0.1m).

Finally, the Group received interest in the period of £0.2m (2010: £0.2m) which included interest on the deferred consideration received during the period.

Cashflow from financing activities

The Group's financing activities generated a net cash inflow of £1.2m (2010: expenditure of £0.9m) over the year. The issue of new shares, due to the exercise of share options by staff generated £0.5m (2010: £nil) and the Group also drew down £2.0m of bank loans to help fund the purchase of Titan. The Group spent £0.8m (2010: £0.4m) repaying finance leases, £0.4m (2010: £0.3m) on dividends and £0.1m (2010: £0.1m) on interest.

Net cashflow

As a consequence our overall cash generation during the year was £1.1m (2010: expenditure of £8.2m) which resulted in cash and cash equivalent balances at the end of the year of £6.9m (2010: £5.7m). After recognising bank loans of £2.0m (2010: £nil) and finance lease obligations of £1.8m (2010: £1.3m) net cash balances at the end of the period stood at £3.1m (2010: £4.4m).

Financial position

The Group is now in a position where it is generating substantial amounts of operating cash. The generation of that cash flow together with the bank loan facility for acquisitions and capital expenditure of £10m, of which £3.0m has been drawn down, including the £1.0m drawn down after the year end and finance lease facilities for capital expenditure, provide the Group with the liquidity it requires to continue its growth through both organic and acquisitive means.

Current Trading and Outlook

The first two months of trading in the new financial year have been good and in line with expectations.

We are in a market that is both growing and we believe is here to stay. Combining the strength and resilience of our strong asset base with our technical expertise and commitment to customer uptime we fully expect to continue the growth we have seen in the last two years which we will achieve through both organic expansion and through the acquisition of businesses which we consider to be complimentary to the Group.

I look forward with confidence to the year ahead.

Angus MacSween

Chief Executive Officer

31 May 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 March 2011

	Note	2011 £'000	2010 £'000
Revenue		25,252	18,327

Cost of sales		(9,699)	(7,830)

Gross profit		15,553	10,497

Administrative expenses		(12,780)	(10,119)

Operating profit		2,773	378

Analysed as:
Earnings before interest, tax, depreciation, amortisation, share based payments, acquisition costs and net gain on reduction of deferred consideration		6,644	3,112
Share based payments		(290)	(379)
Acquisition costs		(195)	-
Depreciation		(2,689)	(1,846)
Amortisation		(697)	(509)

Gain on reduction of deferred consideration on business combination		-	1,000
Associated costs on gain on reduction of deferred consideration		-	(135)
Finance income		197	77
Finance costs		(178)	(66)

Profit before taxation		2,792	1,254

Taxation	3	70	816

Profit for the year from total operations		2,862	2,070


Total comprehensive income for the year		2,862	2,070


Attributable to equity holders of the parent		2,862	2,070



Basic and diluted earnings per share

Total operations
Basic	6	2.91 p	2.12 p
Diluted	6	2.85 p	2.12 p

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2011

		2011	2010
	Note	£'000	£'000
ASSETS
Non-current assets
Intangible assets - goodwill		23,952	20,723
Intangible assets - other		1,978	1,008
Deferred tax asset	4	619	604
Lease deposit		2,016	1,216
Property, plant and equipment		14,788	12,276
		43,353	35,827
Current assets
Cash and cash equivalents	7	6,864	5,715
Deferred consideration receivable on disposal		-	914
Trade and other receivables		3,100	2,937
		9,964	9,566

Total assets		53,317	45,393

LIABILITIES
Non-current liabilities
Non-current borrowings	8	(920)	(834)
		(920)	(834)

Current liabilities
Deferred and contingent consideration due on acquisitions	9	(600)	(1,000)
Trade and other payables		(10,047)	(7,489)
Current borrowings	8	(2,846)	(480)
		(13,493)	(8,969)

Total liabilities		(14,413)	(9,803)

Net assets		38,904	35,590

EQUITY
Share capital	10	1,038	1,028
Own shares		(2,464)	(2,464)
Capital redemption reserve		1,200	1,200
Share premium		19,977	19,514
Retained earnings		19,153	16,312
Total equity		38,904	35,590

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended 31 March 2011

	Note	2011 £'000	2010 £'000

Profit before taxation		2,792	1,254
Gain on reduction of deferred consideration - net		-	(865)
Finance income - net		(19)	(11)
Depreciation		2,689	1,846
Amortisation		697	509
Share based payments		290	379
Movement in lease deposits		(800)	(332)
Movement in trade receivables		194	(63)
Movement in trade payables		1,211	1,169
Cash flow from operations		7,054	3,886
Taxation paid		(12)	(164)
Net cash flow from operating activities		7,042	3,722

Cash flow from investing activities
Purchase of property, plant and equipment		(3,419)	(2,341)
Capitalisation of development costs		(351)	(281)
Purchase of intangible assets - software		(197)	(69)
Payment for acquisition of business net of cash acquired	5	(3,144)	(5,303)
Repayment of borrowings on acquisition of business		-	(226)
Deferred consideration paid on prior period acquisition	9	(1,000)	(2,935)
Receipt from disposal of discontinued operation		795	-
Interest received		237	172
Net cash used in investing activities		(7,079)	(10,983)

Cash flow from financing activities
Issue of shares		473	41
Bank loans		2,000	-
Repayment of finance leases		(759)	(396)
Repayment of borrowings		-	(222)
Interest paid		(137)	(66)
Dividends paid		(391)	(291)
Net cash received from / (used in) financing activities		1,186	(934)

Net increase/(decrease) in cash and cash equivalents		1,149	(8,195)

Cash and cash equivalents at the beginning of the year		5,715	13,910

Cash and cash equivalents at the end of the year		6,864	5,715

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 March 2011

Changes in equity	Share capital	Own shares JSOP	Own shares treasury	Capital redemption reserve	Share premium account	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000

Balance at 1 April 2009	1,002	-	(678)	1,200	17,583	14,284	33,391

Profit in the year and total comprehensive income	-	-	-	-	-	2,070	2,070

Dividends - final (paid)	-	-	-	-	-	(291)	(291)
Share based payments	-	-	-	-	-	379	379
Issue of own shares for option redemption	-	-	171	-	-	(130)	41
Issue of own shares to Joint Share Ownership Plan	-	-	507	-	712	-	1,219
Issue of new shares to Joint Share Ownership Plan	26	(2,464)	-	-	1,219	-	(1,219)
Total transactions with owners	26	(2,464)	678	-	1,931	(42)	129



Balance at 31 March 2010	1,028	(2,464)	-	1,200	19,514	16,312	35,590

Profit in the year and total comprehensive income	-	-	-	-	-	2,862	2,862


Dividends - interim (paid)	-	-	-	-	-	(391)	(391)
Share based payments	-	-	-	-	-	290	290
Deferred tax on share based payments	-	-	-	-	-	80	80
Issue of shares for option redemption	10	-	-	-	463	-	473
Total transactions with owners	10	-	-	-	463	(21)	452


Balance at 31 March 2011	1,038	(2,464)	-	1,200	19,977	19,153	38,904

NOTES TO THE FINAL RESULTS

Year ended 31 March 2011

1. BASIS OF PREPARATION

These final statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared under the historical cost convention.

The financial information set out in the announcement does not constitute the group's statutory accounts for the years ended 31 March 2011 and 31 March 2010 within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 March 2010 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 March 2011 will be delivered following the Company's Annual General Meeting. The auditors reported on those accounts; their report was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

2. 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 shared 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, Titan Internet and iomart Cloud Services (formerly known as Netintelligence). Titan Internet Limited was acquired during the year and has been 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 adjusted EBITDA. Segment adjusted 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 adjusted EBITDA for the year has been calculated after deducting Group overheads from the adjusted EBITDA of the two segments as reported internally. 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.

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. 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

	2011			2010
	External	Internal	Total	External	Internal	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Easyspace	7,558	-	7,558	7,363	-	7,363
Hosting	17,694	896	18,590	10,964	717	11,681
	25,252	896	26,148	18,327	717	19,044

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.

Analysis of Revenue by Destination

	2011	2010
	£'000	£'000
United Kingdom	22,585	17,142
Rest of the World	2,667	1,185
Revenue from operations	25,252	18,327

Profit by Operating Segment

	2011			2010
	EBITDA before share based payments and acquisition costs	Share based payments, acquisition costs, depreciation & amortisation	Operating profit/(loss)	EBITDA before share based payments	Share based payments, acquisition costs, depreciation & amortisation	Operating profit/(loss)
	£'000	£'000	£'000	£'000	£'000	£'000
Easyspace	2,794	(35)	2,759	2,579	(35)	2,544
Hosting	6,178	(3,351)	2,827	2,763	(2,320)	443
Group overheads	(2,328)	-	(2,328)	(2,230)	-	(2,230)
Acquisition costs	-	(195)	(195)	-	-	-
Share based payments	-	(290)	(290)	-	(379)	(379)
	6,644	(3,871)	2,773	3,112	(2,734)	378
Net gain on business combination			-			865
Group interest and tax			89			827
Profit for the year	6,644	(3,871)	2,862	3,112	(2,734)	2,070

Group overheads, acquisition costs, share based payments, interest and tax are not allocated to segments.

3. TAXATION

	2011 £'000	2010 £'000

Tax charge for the year	(183)	(12)
Adjustment relating to prior year	33	20
Deferred tax credit	220	808
Taxation	70	816

The Group has a deferred tax asset which has been recognised in respect of tax losses within three subsidiary companies, which have generated taxable profits and are 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:

	2011 £'000	2010 £'000

Profit before tax	2,792	1,254

Tax charge @ 28% (2010 - 28%)	782	351

Expenses disallowed for tax purposes	25	23
Adjustments in respect of prior periods	(33)	(20)
Effect of research and development tax reliefs	(50)	(44)
Tax effect of share based remuneration	(191)	50
Non-taxable gain on reduction of deferred consideration on business combination	-	(242)
Effect of intangible asset tax reliefs	(7)	(24)
Movement in unprovided deferred tax related to fixed assets	130	(99)
Movement in unprovided deferred tax related to other timing differences	9	(8)
Increase in tax losses recognised	(735)	(803)

Taxation credit for the year	(70)	(816)

The weighted average applicable tax rate for the year ended 31 March 2011 was 28% (2010: 28%). The total current tax charge of £183,000 (2010: £12,000) on operations represents 6.6% (2010: 1.0%) of the Group profit before tax of £2,792,000 (2010: £1,254,000).

4. Deferred tax

The Group had recognised deferred tax assets and liabilities as follows:

	2011		2010
	Deferred tax Recognised £'000	Deferred tax Unrecognised £'000	Deferred tax Recognised £'000	Deferred tax Unrecognised £'000

Tax losses carried forward	1,971	1,386	2,187	2,427
Share based remuneration	354	-	72	-
Deferred tax on acquired assets with no capital allowances	(1,367)	-	(1,504)	-
Deferred tax on customer relationships	(339)	-	(151)	-
Deferred tax	619	1,386	604	2,427

At the year end, the Group has unused tax losses of £13.2m (2010: £16.5m) available for offset against future profits. A deferred tax asset has been recognised in respect of £7.7m (2010: £7.8m) of such losses. No deferred tax asset has been recognised in respect of the remaining £5.5m (2010: £8.7m) as these losses are not currently expected to be used up by taxable profits by the end of the period covered by future projections.

The movement in the deferred tax account during the year was:

	Tax losses carried forward £'000	Share based remuneration £'000	Deferred tax on acquired assets with no capital allowances £'000	Customer relationships £'000	Total £'000

Opening balance	2,187	72	(1,504)	(151)	604
Acquired on acquisition of subsidiary	-	-	-	(285)	(285)
Credited to equity	-	80	-	-	80
(Charged)/credited to statement of comprehensive income	(216)	202	137	97	220
Closing balance	1,971	354	(1,367)	(339)	619

The deferred tax asset in relation to tax losses carried forward arises from the unutilised tax losses in the hosting segment. The deferred tax asset has been recognised in line with future projections 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 certain companies within the hosting segment, 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 iomart Datacentres Limited (formerly known as 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 assets recognised on the acquisitions of Rapidswitch Limited on 11 May 2009 and Titan Internet Limited on 29 October 2010, which are being amortised over an estimated useful life of 5 years and on which there are no capital allowances or other tax deductions available.

5. ACQUISITION

The Group acquired 100% of the issued share capital of Titan Internet Limited ("Titan") on 29 October 2010. This transaction has been accounted for by the acquisition method of accounting.

Titan delivers managed hosting solutions to its client base and the acquisition is in line with the group's strategy to grow both organically and by acquisition.

The acquired business contributed revenues of £1,625,000 and profit after tax of £216,000 to the group for the period from 30 October 2010 to 31 March 2011. The following unaudited pro forma summary presents consolidation information of the group as if the business combination had occurred on 1 April 2010:

	Pro forma year ended 31 March 2011
	£'000
Revenue	27,107

Profit after taxation	2,985

These amounts have been calculated after applying the group's accounting policies and after adjusting the results of Titan to reflect the additional amortisation that would have been charged assuming the fair value adjustments to intangible assets had been applied from 1 April 2010, together with the consequential tax effects.

As a consequence of the acquisition of Titan, the company incurred £117,000 of third party acquisition related costs. These expenses are included in administrative expenses in the company's consolidated statement of comprehensive income for the year ended 31 March 2011.

The following table summarises the consideration transferred to acquire Titan Internet Limited and the amounts of identified assets acquired and liabilities assumed at the acquisition date:

	£'000
Fair value of consideration transferred:
Cash	3,645
Contingent consideration	600
Total consideration	4,245

Recognised amounts of net assets acquired and liabilities assumed:
Cash and cash equivalents	501
Trade and other receivables	396
Property, plant and equipment	572
Intangible assets	1,119
Trade and other payables	(1,287)
Deferred tax liability	(285)
Total identifiable assets	1,016

Goodwill	3,229
	4,245

The acquisition of Titan Internet Limited includes a contingent consideration arrangement that requires additional consideration to be paid by the company for Titan subject to the transfer of Titan's server estate to the group's datacentres. The directors consider that the maximum value of contingent consideration will be payable and therefore have accrued the balance in full.

The goodwill arising on the acquisition of Titan Internet Limited is attributable to the specialised, industry specific knowledge of the management and staff, the benefits to the Group in merging the business with its existing infrastructure and the anticipated future operating synergies from the combination. The goodwill is not expected to be deductible for tax purposes.

The fair value of the assets acquired includes trade receivables of £125,000. The gross amount due under contracts is £125,000 and there are no amounts which are expected to be uncollectable. The fair value of the acquired customer relationships intangible asset is £1,119,000.

To estimate the fair value of the customer relationship intangible asset, 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 13.8% was used for the valuation. Customer relationships are being amortised over an estimated useful life of 5 years.

The name, Titan Internet Limited, is not legally protected in any way and is not actively advertised or promoted, with the majority of Titan's business being generated from existing customers or by word of mouth. The terms and conditions of Titan specifically prohibit the sharing of information held about customers with third parties. No value has therefore been attributed to either the trade name/brand or to the customer lists acquired at the acquisition date.

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, after deducting any own shares held by an Employee Benefit Trust in a Joint Share Ownership Plan ("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, after deducting any own shares (JSOP), and adjusting for the dilutive potential ordinary shares relating to share options, including the dilutive effect of JSOP shares that have vested.

Total operations	2011 £'000	2010 £'000
Profit for the financial year and basic earnings attributed to ordinary shareholders	2,862	2,070

	No	No
Weighted average number of ordinary shares:	000	000

Called up, allotted and fully paid at start of year	102,753	100,239
Shares held by Employee Benefit Trust	(4,977)	-
Own shares held in treasury	-	(3,294)
New shares issued during year (weighted average)	674	632
Weighted average number of ordinary shares - basic	98,450	97,577

Dilutive impact of share options	958	230
Dilutive impact of JSOP shares	1,026	-
Weighted average number of ordinary shares - diluted	100,434	97,807

Basic earnings per share	2.91 p	2.12 p
Fully diluted earnings per share	2.85 p	2.12 p

Adjusted earnings per share	2011 £'000	2010 £'000

Profit for the financial year and basic earnings attributed to ordinary shareholders	2,862	2,070
Less: net gain on reduction of deferred consideration	-	(865)
Adjusted profit for the financial year and adjusted earnings attributed to ordinary shareholders	2,862	1,205

Adjusted basic earnings per share	2.91 p	1.23 p
Adjusted fully diluted earnings per share	2.85 p	1.23 p

7. cash and cash equivalents

	2011 £'000	2010 £'000

Cash at bank and on hand	6,864	5,715
Cash and cash equivalents	6,864	5,715

8. borrowings

	2011 £'000	2010 £'000

Current:
Obligations under finance leases	(846)	(480)
Bank loans	(2,000)	-
Current borrowings	(2,846)	(480)

Non-current:
Obligations under finance leases	(920)	(834)
Total non-current borrowings	(920)	(834)


Total borrowings	(3,766)	(1,314)

9. DEFERRED and contingent CONSIDERATION

	2011 £'000	2010 £'000

Deferred consideration due on acquisition:
- iomart Datacentres Limited (formerly known as Ezee DSL Ltd)	-	(1,000)

Contingent consideration due on acquisition:
- Titan Internet Limited	(600)	-

Total deferred and contingent consideration due on acquisitions	(600)	(1,000)

On 27 August 2010, the final instalment of deferred consideration of £1,000,000 was paid in relation to the acquisition of iomart Datacentres Limited (formerly known as Ezee DSL Limited). The single share in iomart Datacentres Limited that had been placed in escrow was transferred to iomart Group plc on payment of this final instalment and consequently iomart Group plc now owns 100% of the share capital of this company.

The contingent consideration due on the acquisition of Titan Internet Limited is subject to a successful transfer of Titan's server estate to the Group's datacentres and is expected to be completed within 12 months.

10. SHARE CAPITAL

	Ordinary shares of 1p each
	Number of shares	£'000
Authorised
At 31 March 2009, 2010, and 2011	200,000,000	2,000
Called up, allotted and fully paid
At 31 March 2009	100,239,302	1,002
Issued to Employee Benefit Trust	2,513,297	26
At 31 March 2010	102,752,599	1,028
Exercise of options	1,087,244	10
At 31 March 2011	103,839,843	1,038

During the year the company issued 1,087,244 (2010: nil) ordinary shares of 1p each in respect of the exercise of share options by employees for which a net total of £473,000 (2010: £nil) was received.

As at 31 March 2011 the company held 4,977,184 shares (2010: 4,977,184) 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 (2010: £49,772).

11. POST BALANCE SHEET EVENT

The Group acquired 100% of the issued share capital of Switch Media Limited and its subsidiaries ("Switch Media") on 26 April 2011. This transaction will be accounted for by the acquisition method of accounting.

Switch Media supplies domain registration, web hosting and web design services to its client base primarily in the UK and in the Republic of Ireland and the acquisition is in line with the group's strategy to grow both organically and by acquisition.

The acquired business did not contribute to the revenues or profit of the Group during the year ended 31 March 2011.

During the year the group incurred £78,000 of third party acquisition related costs in respect of this acquisition. These expenses are included in administrative expenses in the Group's consolidated statement of comprehensive income for the year ended 31 March 2011. After the year end a further £9,000 of third party acquisition related costs are expected to be incurred and these will be included in administrative expenses in the group's consolidated statement of comprehensive income for the year ending 31 March 2012.

The following table summarises the consideration transferred to acquire Switch Media Limited and its subsidiaries and the amounts of identified assets acquired and liabilities assumed at the acquisition date:

	£'000
Fair value of consideration transferred:
Cash	1,025
Contingent consideration	225
Total consideration	1,250

Recognised amounts of net assets acquired and liabilities assumed (provisional):
Cash and cash equivalents	126
Trade and other receivables	75
Current deferred tax asset	52
Property, plant and equipment	47
Intangible assets	395
Trade and other payables	(464)
Current deferred tax liability	(40)
Non-current deferred tax liability	(61)
Total identifiable assets	130

Goodwill	1,120
	1,250

The acquisition of Switch Media includes a contingent consideration arrangement that requires additional consideration to be paid by the group for Switch Media subject to the successful integration of the business of Switch Media into the Group, the successful transfer of Switch Media's provisioning platforms to existing group platforms and the successful transfer of Switch Media's server estate to the Group's datacentres.

The goodwill arising on the acquisition of Switch Media is attributable to the specialised, industry specific knowledge of the management and staff, the benefits to the Group in merging the business with its existing infrastructure and the anticipated future operating synergies from the combination. The goodwill is not expected to be deductible for tax purposes.

All services supplied by Switch Media are payable in advance and the fair value of the assets does not include any trade receivables. The fair value of the acquired customer relationships intangible asset of £394,000 is provisional pending a final valuation.

The name, Switch Media Limited, is not actively advertised or promoted, with the majority of Switch Media's business being generated from existing customers or by mail shots to newly registered companies. Switch Media has given a commitment to customers not to share information held about them with third parties. No value has therefore been attributed to either the trade name/brand or to the customer lists acquired at the acquisition date.

12. ANNUAL REPORT AND ACCOUNTS

The Annual Report and Accounts for 2011 will be posted to shareholders on 29 June 2011 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 and on the Group's web-site at www.iomart.com.