Iomart Regulatory News (IOM)

29 May 2013

iomart Group plc

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

Final Results for the Year ended 31 March 2013

iomart (AIM:IOM), the cloud computing company, is pleased to report its consolidated final results for the year ended 31 March 2013.

FINANCIAL HIGHLIGHTS

·; Revenue growth of 29% to £43.1m (2012: £33.5m)

·; Adjusted EBITDA1 growth of 48% to £16.5m (2012: £11.2m)

·; Adjusted profit before tax growth2 of 56% to £10.7m (2012: £6.9m)

·; Adjusted basic earnings per share3 from operations increased by 21% to 8.46p (2012: 6.99p)

·; Cashflow from operations increased by 54% to £14.8m (2012: £9.6m)

·; Adjusted EBITDA1 margins increased to 38% (2012: 33%)

·; Proposed final dividend increased by 56% to 1.40p per share (2012: 0.90p per share)

OPERATIONAL HIGHLIGHTS

·; Acquisition of Melbourne Server Hosting Limited for a total consideration of £6.7m

·; Acquisition of Skymarket Limited for a maximum consideration of £1.4m

·; Acquisition of Internet Engineering Limited for a maximum consideration of £1.4m

·; Deployment of resilient UK fibre network across all datacentres

·; Commencement of fit out of additional 600 racks of datacentre space

Statutory Equivalents

The above highlights are based on adjusted results. A full reconciliation between adjusted and statutory results is contained within this statement. The statutory equivalents of the above results are as follows:

·; Profit before tax growth of 49% to £8.7m (2012: £5.8m)

·; Basic earnings per share from operations increased by 11% to 6.91p (2012: 6.22p)

1 Throughout this statement adjusted EBITDA is earnings before interest, tax, depreciation and amortisation (EBITDA) before share based payment charges and acquisition costs. Throughout this statement acquisition costs are defined as acquisition related costs and non-recurring acquisition integration costs.

2 Throughout this statement adjusted profit before tax is profit before tax, amortisation charges on acquired intangible assets, shared based payment charges, mark to mark adjustments in respect of interest rate swaps and acquisition costs.

3 Throughout this statement adjusted earnings per share is earnings per share before amortisation charges on acquired intangible

assets, shared based payment charges, mark to mark adjustments in respect of interest rate swaps and acquisition costs, including the taxation effect of these.

4 At the start of the financial year some of the customers of Titan Internet Limited, which was acquired in October 2010, were transferred from the Hosting segment to the Easyspace segment. All of the appropriate comparative figures for the previous financial year for both segments have been restated to reflect that transfer. Details of the comparative figures before the effect of the transfer have been included in the Segmental Analysis note.

Angus MacSween, CEO commented,

"This has been another excellent trading period for iomart, delivering substantial growth both organically and through successful acquisitions. Trading since the year end remains encouraging and in line with our expectations. We continue to be well placed to deliver an ever wider range of cloud services and with our growing credibility and strength we expect to be able to penetrate further into the corporate environment. Our experience and skills are growing and we continue to improve and invest in our systems and people to support further significant growth. I look forward once again with confidence to the year ahead."

For further information:

About iomart Group plc

iomart Group plc (AIM:IOM) is one of the UK's leading providers of cloud computing and managed hosting services. From a single server through to private cloud networks, iomart specialises in the delivery and management of mission-critical hosting services, enabling customers to reduce the costs, complexity and risks associated with maintaining their own web and online applications.

By physically owning and managing its own network infrastructure, including eight data centre locations across the UK, iomart offers world-beating levels of service to its customers. The Group offers a unique 100% uptime guarantee with all hosting services being engineered to ensure no single point of failure.

Services offered include: Managed Hosting, Cloud Computing (Infrastructure as a Service), Colocation, Complex Hosting solutions, Content Delivery Networks, IP Transit and Data Centre Services.

For further information about the Group, please visit www.iomart.com

CHAIRMAN'S STATEMENT

I am very pleased to be able to report on another extremely strong performance by iomart over this financial year. We continue to make excellent progress as we execute on our combined strategy of growing through both organic and acquisitive means and our reputation as one of the UK's leading cloud computing companies continues to develop.

We have again enjoyed a substantial increase in profitability over the year, driven both by organic and acquisitive growth. During the year we welcomed Skymarket Limited, Melbourne Server Hosting Limited and Internet Engineering Limited into the Group. All are performing as expected and have been integrated into iomart's operations. As a result of these acquisitions we increased our datacentre estate with the addition of three datacentres taking the total to eight datacentres spread across the UK.

All of this progress is a result of a great deal of hard work by our staff and I thank them all on behalf of the Board and the shareholders for their efforts over the year. External acknowledgement of our performance is always gratefully received and we were delighted to be chosen as Scottish AIM/Mid cap plc of the year for the second year in succession at the recent 2013 Scotland PLC Awards.

We have a commitment to pay annual dividends as our profitability and cash generation grows. This year the Board is proposing to pay a final dividend of 1.40p per share on 3 September 2013 to shareholders on the register on 16 August 2013, representing an increase of 56% over the dividend last year. We have decided that we will continue to 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. It is our intention to continue to pay annual dividends in future years in line with the underlying profitability and cash generation of the Group.

With the high level of revenue visibility we enjoy, we have begun the 2014 financial year in a strong position. I look forward to another exciting year of growth, both organically and through acquisition and look ahead with considerable confidence.

Ian Ritchie

Chairman

28 May 2013

CHIEF EXECUTIVE'S REVIEW

Introduction

Once again I'm delighted to report on a very good year for iomart. Revenues and profits have grown substantially over the year, both organically and through acquisition.

Firstly I thought it worth reflecting on the progress we have made over the last few years. Only three years ago, in the March 2010 financial year, we reported our first year of profit under our current strategy of building the UK's leading Cloud company. Our revenues in that year were £18.3m, our adjusted EBITDA £3.1m and our adjusted profit before tax £1.0m, excluding an exceptional gain that was recorded in that year. Over the subsequent three years we have grown our revenues by 135% to £43.1m, our adjusted EBITDA by 430% to £16.5m and our adjusted profit before tax by 970% to £10.7m.

Whilst we are clearly extremely pleased with the development of the company over that period we believe we are still in the early stages of providing solutions to the cloud computing market and are confident that we can continue to grow our operations significantly over the coming years.

Market

The market we address is growing and evolving, with the fundamental shift towards products and services delivered over the internet continuing unabated. In our view, this is driven by three big trends:

One is the mobile world we now inhabit. Consumers and businesses alike are increasingly accessing, processing and interacting with data over the internet through mobile devices while on the move.

The second is the demand for faster and more reliable connectivity, making it easier to access and operate in the cloud.

The third is the inevitable growth in volume of data being created which needs to be stored and managed securely.

These three overarching trends are interlinked, driving more and more internet traffic and usage, which will only keep growing exponentially. For example, it would take over 6 million years to watch the amount of video that will cross global IP networks each month in 2016.

This reality is clearly evident in any local electronics shop where anyone can witness the staggering array of internet devices that have proliferated over the last year or so. This is driving the fragmentation of how people now access the internet for both work and leisure and this borderless access model means that the only way to deliver services securely and efficiently is from central points through the cloud. iomart's datacentres and cloud computing expertise are at the heart of this cloud delivery service capability.

The growth in data means that all businesses are confronted with having to make more investment in storage and computing power, and as a result, are looking to outsource their requirements in a flexible, scalable way with a predictable pricing model. We are able to invest in the infrastructure required to bring these economies of scale to bear for our customers.

iomart is at the forefront of this transformational shift and I expect the move to the cloud to continue for many years to come.

Acquisitions

We again augmented our organic growth through the acquisition of three operations during the year. In July 2012 we acquired Skymarket Limited ("Skymarket"), in August, Melbourne Server Hosting Limited ("Melbourne") and in October, Internet Engineering Limited which trades as HostingUK ("HostingUK"). All three have proven to be good additions to the Group and have now been integrated into the business. We will continue to look for businesses that fit our acquisition criteria with a view to making further acquisitions in the coming year.

Operational Review

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

Hosting

Our Hosting segment, which now includes Melbourne, continued to perform well over the year.

We provide a wide range of managed hosting services to both SMEs and corporate customers. All our solutions are delivered from our eight datacentres located throughout the UK. The more complex managed hosting solutions are delivered by iomart Hosting and customers typically pay for these services on a monthly basis on contracts ranging between one and three years in length. We address the dedicated physical server market through our RapidSwitch brand largely through online marketing. Melbourne delivers complex managed hosting solutions and provides us with a strong presence in the North West of England with a particular emphasis on the creative sector.

We secured additional space at our Maidenhead datacentre earlier in the year and signed contracts to develop that space into a datacentre in March 2013. This fit out, which we expect to be completed towards the end of this calendar year, will increase our datacentre capacity by around 600 racks, thereby increasing our overall capacity by approximately one quarter.

A new fibre network was established during the year in partnership with Geo Networks which provides the Group with significantly increased connectivity capacity within our datacentre estate thus addressing the need for faster connectivity which the market is demanding.

Revenues in this segment have grown by 37% to £32.0m partly a result of the continued organic growth of iomart Hosting and in part due to the acquisitions of EQSN and Melbourne. iomart Hosting has won almost 800 new orders in the year, including a substantial amount of additional orders from existing customers.

Easyspace

The Easyspace segment's activities have been significantly increased over the year due to the acquisition of Skymarket and HostingUK. Both have now been integrated into the operations of the segment.

Our activities within this segment provide a range of products to the micro and SME markets including domain names, shared, dedicated and virtual servers and email services.

Revenues have increased by 9% over the year to £11.1m, due to the contribution from the companies acquired in the last two years.

Trading Results

Revenue

Revenues for the year grew by 29% to £43.1m (2012: £33.5m) 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 grew by 37% to £32.0m (2012: £23.3m 4). This growth was helped by a full year contribution from EQSN which we acquired in November 2011 and Melbourne which we acquired in August 2012. The growth in the Hosting segment revenues excluding the impact of acquisitions was 20%.

Our Easyspace segment also delivered a good level of revenue growth in the period with revenues of £11.1m (2012: £10.2m 4) showing a 9% increase. As anticipated this growth was entirely as a result of the acquisitions of Switch Media in April 2011 and Global Gold in the previous financial year and the contribution of HostingUK and Skymarket which were acquired in this financial year.

We continue to have good revenue visibility and high levels of recurring revenue. With our larger customers we have multi-year contracts for the provision of complex managed hosting solutions. Many of our smaller customers pay in advance for the provision of hosting services resulting in a substantial sum of deferred revenue which we then recognise during the period over which we provide our services.

Gross Margin

Our gross profit for the year was £28.9m (2012: £22.4m) representing a gross margin of 67.2% (2012: 66.9%) with both operating segments contributing to this improvement in both absolute and relative terms. The improvement in our Hosting segment is a result of the operational leverage of the operation together with the impact of acquisitions. In our Easyspace segment it has been as a result of the impact of acquisitions.

Adjusted EBITDA

The adjusted EBITDA for the year of £16.5m (2012: £11.2m) has increased by 48%. Our percentage adjusted EBITDA margin has also significantly improved to 38.3% (2012: 33.4%). Once again both of our operating segments have contributed to the absolute level of growth and the improvement in the percentage margin.

The Hosting segment's adjusted EBITDA was £14.3m (2012: £9.7m 4), an increase of 48.0%. In percentage terms the adjusted EBITDA margin has improved to 44.7% (2012: 41.4% 4).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. The increased costs, mainly relate to the introduction of additional headcount, especially in sales, customer service and technical roles. The contribution from EQSN for the full year has contributed to the improvement in the adjusted EBITDA in absolute terms and has helped maintain the percentage margin improvement and similarly the contribution from Melbourne since August has added to the growth in adjusted EBITDA.

The Easyspace segment's adjusted EBITDA was £5.0m (2012: £4.0m 4) an increase of 23.1%. In percentage terms the adjusted EBITDA margin has improved to 44.9% (2012: 39.7% 4). The improvement in adjusted EBITDA is primarily due to the impact of the synergies achieved through the integration of the acquisitions made in both this and the previous financial years.

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 to £2.8m (2012: £2.5m) mainly due to increased payroll costs.

Adjusted profit before tax

Depreciation charges of £4.9m (2012: £3.7m) have increased largely as a result of charges for the equipment bought to provide services to the additional Hosting segment customers, the investment in the new fibre network, additional expenditure on our datacentres and also as a consequence of the acquisitions made in the year.

The charge for amortisation of intangibles, excluding amortisation of intangible assets resulting from acquisitions ("amortisation of acquired intangible assets") of £0.5m (2012: £0.5m) has remained fairly static over the year.

Finance income in the period was £0.1m (2012: £0.1m) and finance costs of £0.5m (2012: £0.3m), excluding the mark to market adjustment in respect of an interest swap on one of the Company's loans, include interest and charges on bank loans used to fund acquisitions 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 depreciation, amortisation, excluding the charges for the amortisation of acquired intangible assets, and finance costs, excluding mark to market adjustments on the interest rate swap, and crediting the finance income from the adjusted EBITDA, the Group's adjusted profit before tax was £10.7m (2012: £6.9m) an increase of 56%.

Profit before tax

The measure of adjusted profit before tax is a non-statutory measure which is commonly used to analyse the performance of companies particularly where M&A activity forms a significant part of their activities.

A reconciliation of adjusted profit before tax to reported profit before tax is shown below:

The adjusting items are: share based payment charges in the period of £0.3m (2012: £0.1m) which have increased as a result of additional share options granted in the year; costs of £0.4m (2012: £0.3m) as a result of acquisition costs; charges for the amortisation of acquired intangible assets of £1.3m (2012: £0.6m) which have increased substantially as a result of the acquisitions made in the year and the full year effect of acquisitions made in previous years; and a mark to market adjustment in respect of an interest rate swap relating to a company loan of £0.05m (2012: £nil).

After deducting the charges for share based payments; charges for the amortisation of acquired intangible assets; acquisition costs and the mark to market adjustment in respect of the interest rate swap from the adjusted profit before tax; the reported profit before tax was £8.7m (2012: £5.8m) an increase of 49%.

Taxation

There is a tax charge for the year of £1.7m (2012: tax credit of £0.4m). This significant change in the impact of taxation on the income statement is a direct consequence of the favourable trading which the Group has enjoyed over the last few years. Prior to that the Group had built up considerable tax losses which as it began to trade profitably over the last few years were used up resulting in tax credits in prior periods in respect of deferred tax relating to these losses. At the end of the last financial year all of these tax losses had been fully recognised in this way. Consequently, the Group is now in a position where it requires to make provision for tax on its profits and the tax charge for the year is made up of a corporation tax charge of £1.5m (2012: £0.4m) with a deferred tax charge of £0.2m (2012: credit of £0.7m). At the year end, the Group has unused tax losses of £5.1m (2012: £9.0m) available for offset against future profits, which have been provided for in full within deferred tax.

Profit for the year from total operations

After deducting the tax charge for the year from the profit before tax the Group has recorded a profit for the year from total operations of £6.9m (2012: £6.2m).

Earnings per share

Adjusted earnings per share is based on profit for the year attributed to ordinary shareholders before share based payment charges, amortisation charges of acquired intangible assets, mark to market adjustments in respect of the interest rate swap, acquisition costs and the tax effect of these items was 8.46p (2012: 6.99p) an increase of 21%.

The measure of adjusted earnings per share as described above is a non-statutory measure which is commonly used to analyse the performance of companies particularly where M&A activity forms a significant part of their activities.

The calculation of both adjusted earnings per share and basic earnings per share is included at note 8.

Basic earnings per share from continuing operations was 6.91p (2012: 6.22p), an increase of 11% over the year.

Acquisitions

In July 2012 the Company acquired Skymarket for a maximum consideration of £1.4m, of which £1.2m was paid during the year, in August 2012 the Company acquired Melbourne for a total consideration of £6.7m and in October 2012 the Company acquired HostingUK for a maximum consideration of £1.4m, of which £1.2m was paid during the year. The remaining amounts due on the acquisitions of both Skymarket and HostingUK are both expected to be settled in full during the next financial year.

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 £14.8m (2012: £9.6m) with the significant increase over the previous year's level largely due to the improvement in adjusted EBITDA. After deducting a cash payment for corporation tax of £1.2m (2012: £0.6m) the net cash flow from operating activities was £13.6m (2012: £9.0m).

Cash flow from investing activities

In line with our strategy of accelerating our growth by acquisition the Group continued to incur substantial sums on investing activities, spending a total of £13.6m (2012: £7.4m) in the period. Of this amount, £9.0m (2012: £4.5m) was incurred in relation to acquisition activities. As well as the investment in the year to acquire Skymarket, Melbourne and HostingUK the Group also paid the contingent consideration due on the acquisitions of EQSN and Global Gold in the previous financial year.

The Group continues to invest in property, plant and equipment through expenditure on its datacentres, on the equipment required to provide managed services to both its existing and new customers and in the establishment of a fibre network. During the year the Group spent £4.1m (2012: £2.4m) on such assets, net of related finance lease drawdown.

Expenditure was also incurred on development costs of £0.5m (2012: £0.5m) and the purchase of software of £nil (2012: £0.1m).

Cash flow from financing activities

The Group's financing activities generated a net cash inflow of £2.5m (2012: £0.5m) over the year. The issue of new shares, due to the exercise of share options by staff, generated £0.6m (2012: £0.5m) and the Group also drew down £9.0m of bank loans to help fund acquisitions and to repay bank borrowings of £4.0m. The Group spent £1.4m (2012: £1.2m) repaying finance leases, £0.9m (2012: £0.6m) on dividends, £0.6m (2012: £0.2m) on interest and repaid £0.2m (2012: £nil) of borrowings in acquired businesses.

Net cash flow

As a consequence, our overall cash generation during the year was £2.5m (2012: £2.1m) which resulted in cash and cash equivalent balances at the end of the year of £11.4m (2012: £8.9m). After recognising bank loans of £8.8m (2012: £4.0m) and finance lease obligations of £3.0m (2012: £2.5m) net debt balances at the end of the period stood at £0.4m (2012: net cash of £2.5m).

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 committed bank loan facility for acquisitions and capital expenditure of £20.0m, of which £9.0m has been drawn down and finance lease facilities which are available to fund capital expenditure, the Group has the liquidity it requires to continue its growth through both organic and acquisitive means.

Current trading and outlook

Trading since the year end remains encouraging and in line with our expectations.

We continue to be well placed to deliver an ever wider range of cloud services and with our growing credibility and strength we expect to be able to penetrate further into the corporate environment. Our experience and skills are growing and we continue to improve and invest in our systems and people to support further significant growth.

I look forward once again with confidence to the year ahead.

Angus MacSween

Chief Executive Officer

28 May 2013

Consolidated Statement of Comprehensive Income

Year ended 31 March 2013

Consolidated Statement of Financial Position

As at 31 March 2013

Consolidated Statement of Cash Flows

Year ended 31 March 2013

Consolidated Statement of Changes in Equity

Year ended 31 March 2013

Notes to the Yearly Financial Information

Year ended 31 March 2013

1. GENERAL INFORMATION

iomart Group plc is a company incorporated and domiciled in Scotland. The company has a primary listing on the AIM stock exchange. The address of its registered office is Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP.

2. 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 2013 and 31 March 2012 within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 March 2012 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The financial information for the year ended 31 March 2013 is derived from the statutory accounts for that year which were approved by the Directors on 28 May 2013. The statutory accounts for the year ended 31 March 2013 will be delivered to the Registrar of Companies 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.

3. SEGMENTAL ANALYSIS

The chief operating decision-maker has been identified as the Chief Executive Officer ("CEO") of the Company. The Group has two operating segments and the CEO reviews the Group's internal reporting which recognises these two segments in order to assess performance and to allocate resources. The Group has determined its reportable segments which are also its operating segments based on these reports.

The Group currently has two operating and reportable segments.

·; Easyspace - this segment provides a range of shared hosting and domain registration services to micro and SME companies. Skymarket and HostingUK were acquired during the year and have been reported as part of the Easyspace segment since acquisition.

·; 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, EQSN and iomart Cloud Services. Melbourne was acquired during the year and has been reported as part of the Hosting segment since acquisition.

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, Tax, Depreciation and Amortisation (EBITDA) before any allocation of Group overheads, charges for share based payments or costs associated with acquisitions. This 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. 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. For that reason 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

At the start of this financial year a restructuring of the Titan Internet business resulted in the transfer of its trades to different legal entities within the Group and this also altered the makeup of our operating segments. The impact of which was to increase Easyspace revenue and profits and decrease Hosting revenue and profits by a similar amount. The comparative figures for the year to March 2012 have been restated to reflect this change. Prior to the restatement, external revenue for the 12 months to 31 March 2012 was £9,131,000 for Easyspace and £24,345,000 for Hosting; adjusted EBITDA for the 12 months to 31 March 2012 was £3,600,000 for Easyspace and £10,097,000 for Hosting; and operating profit for the 12 months to 31 March 2012 was £3,250,000 for Easyspace and £5,693,000 for Hosting.

Revenue by Operating Segment

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

Profit by Operating Segment

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

4. ACQUISITION COSTS

5. TAXATION

The Group has a deferred tax asset which has been recognised in respect of tax losses within one subsidiary company, 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 are as follows:

The weighted average applicable tax rate for the year ended 31 March 2013 was 24% (2012: 26%). The total current tax charge of £1,423,000 (2012: £249,000) on operations represents 16.3% (2012: 4.3%) of the Group profit before tax of £8,698,000 (2012: £5,842,000). A number of changes to the UK Corporation tax system were announced in the March 2012 Budget Statement with the main rate of corporation tax reduced from 24% to 23% from 1 April 2013. These changes were substantively enacted at the balance sheet date and, therefore, are included in these financial statements. Further reductions to the main rate have been proposed in the March 2013 Budget Statement to reduce the rate to 20% by 1 April 2015. These changes had not been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements. It is expected that the effect of these changes will have an immaterial impact on the deferred tax asset currently recognised.

6. DEFERRED TAX

The Group recognised deferred tax assets and liabilities as follows:

At the year end, the Group has unused tax losses of £5.1m (2012: £9.0m) available for offset against future profits. A deferred tax asset has been recognised in respect of £5.1m (2012: £9.0m) of such losses as these losses are 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:

The deferred tax asset in relation to tax losses carried forward arises from unutilised tax losses in the Hosting operating segment. The deferred tax asset has been recognised in line with future projections over a three year period. The basis of these projections is:

·; 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 operating segments, 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 capital allowances timing differences arises mainly from plant and equipment in the Hosting segment where the tax written down value varies from the net book value.

The deferred tax on acquired assets arises from datacentre equipment acquired through the acquisition of iomart Datacentres Limited on which depreciation is charged but on which there are no capital allowances available.

The deferred tax on customer relationships arises from timing differences on acquired intangible assets.

7. ACQUISITIONS

Skymarket Limited

The Group acquired 100% of the issued share capital of Skymarket Limited ("Skymarket") on 20 July 2012.

Skymarket provides hosting and domain registration services principally to SMEs and the acquisition is in line with the Group's strategy to grow its hosting operations both organically and by acquisition.

During the current period the Group incurred £69,000 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 2013.

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

The acquisition of Skymarket includes contingent consideration arrangements that require additional consideration to be paid dependent on the level of net working capital and cash held by the company at the acquisition date, together with a maximum of £232,000 to be paid subject to the successful migration and integration of the company's operations into the Group. The level of net working capital and cash held by the company at the acquisition date has been established and agreed with the vendors and an additional payment of £160,000 was made to the vendors prior to the year end. The migration and integration of the company's operations is still in progress and it is expected that the maximum value of the balance of the contingent consideration will be paid subsequent to the year end and therefore £232,000 has been accrued in respect of this contingent consideration. This amount is expected to be paid before the end of the next financial year.

Skymarket earned revenue of £543,000 and generated profits before tax of £258,000 in the period since acquisition.

Melbourne Server Hosting Limited

The Group acquired 100% of the issued share capital of Melbourne Server Hosting Limited ("Melbourne") on 15 August 2012.

Melbourne is a Manchester based provider of managed hosting solutions to over 600 customers. Melbourne operates its own datacentres in Manchester, providing the group with additional datacentre capacity. As well as the addition of spare capacity, this fills a geographical gap in the iomart datacentre estate and provides a sales platform to address the North of England market. The acquisition is in line with the Group's strategy to grow its hosting operations both organically and by acquisition.

During the current period the Group incurred £86,000 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 2013.

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

The acquisition of Melbourne includes contingent consideration arrangements that required additional consideration of up to £500,000 to be paid by the Group to the vendors contingent on the successful hand over of the operations of Melbourne into the Group and on the amount of net debt and working capital of Melbourne at completion. The handover of the operations of Melbourne into the Group has been successfully completed and the levels of working capital and net debt at the date of acquisition have been quantified and agreed with the vendors at an amount of £306,000 payable by the vendors. Consequently the agreed amount of net contingent consideration of £194,000 has been paid.

Melbourne earned revenue of £2,602,000 and generated profits before tax of £517,000 in the period since acquisition.

Internet Engineering Limited

The Group acquired 100% of the issued share capital of Internet Engineering Limited, which trades as HostingUK on 1 October 2012.

HostingUK is based in St Asaph in North Wales where it operates its own datacentre and provides hosting and domain registration services principally to SMEs. The acquisition is in line with the Group's strategy to grow its hosting operations both organically and by acquisition.

During the current period the Group incurred £65,000 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 2013.

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

The acquisition of HostingUK included contingent consideration arrangements that required additional consideration to be paid dependent on the level of net working capital and cash held by the company at the acquisition date, together with a maximum of £125,000 to be paid subject to the successful migration and integration of the company's operations into the Group. The level of net working capital and cash held by the company at the acquisition date has been established and agreed with the vendors and an additional payment of £19,000 was made to the vendors prior to the year end. The migration and integration of the company's operations is now substantially complete and it is expected that the maximum value of the balance of the contingent consideration will be paid subsequent to the year end and an amount of £125,000 has been accrued in respect of this contingent consideration.

HostingUK earned revenue of £503,000 and generated profits before tax of £119,000 in the period since acquisition.

EQSN Limited and Global Gold Holdings Limited

The fair values of acquired assets and liabilities, including goodwill, previously disclosed as provisional for EQSN Limited and Global Gold Holdings Limited have been finalised in the current period with no changes to the fair values disclosed in the Annual Report and Accounts 2012.

Pro-forma full year information

The following summary presents the Group as if the businesses acquired during the year had all been acquired on 1 April 2012. The amounts include the results of the acquired businesses and depreciation and amortisation of the acquired fixed assets and intangible assets recognised on acquisition. The amounts do not include any possible synergies from the acquisitions. The information is provided for illustrative purposes only and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of the future results of the combined companies.

8. 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"). 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.

9. INTANGIBLE ASSETS

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 statement of comprehensive income.

During the year, goodwill was reviewed for impairment in accordance with IAS 36 "Impairment of Assets". No impairment charges (2012: 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 goodwill acquired in the Skymarket and HostingUK acquisitions in the current year has been allocated to the Easyspace CGU and the goodwill acquired in the Melbourne Server Hosting acquisition has been allocated to the Hosting CGU, as these are the CGUs expected to benefit from the respective business combinations. As described in note 3, at the start of this financial year a restructuring of the Titan Internet business resulted in the transfer of its trades to different legal entities within the Group and this altered the makeup of the CGUs. The impact of which was to increase the carrying value of the Easyspace CGU by £420,000 and to reduce the carrying value of the Hosting CGU by the same amount.

The carrying value of goodwill by each CGU is as follows:

10. PROPERTY, PLANT AND EQUIPMENT