Sysgroup Regulatory News (SYS)

22 October 2013

Daily Internet plc

("Daily Internet" or "the Group" or "the Company")

Proposed acquisition of Netplan Internet Solutions Limited

 Placing to raise £3.0 million

Debt for equity swap

and Notice of General Meeting

Daily Internet, the AIM listed web hosting provider, is pleased to announce a number of proposals including the acquisition of the entire issued share capital of Netplan Internet Solutions Limited, a placing to raise £3.0 million (before expenses) and the capitalisation of £762,126 of debt to strengthen the Company's balance sheet.

In summary:

• acquisition of the entire issued share capital of Netplan Internet Solutions Limited for a consideration of at least £2.5 million;

• Placing to raise £3.0 million (before expenses) at a price of 1.5 pence per share to, inter alia, fund the cash consideration payable in respect of the Acquisition; and

• Debt for new equity swap by certain directors, an existing shareholder and Hawkstone Capital Limited amounting to £762,126 to remove certain debts owed by the Company and strengthen the Company's balance sheet.

Further details of the proposals are set out below.

The Directors believe that the Acquisition will significantly expand the Company's product reach and provide it with a strong foothold in its target markets. The Directors also believe that the Acquisition will provide Daily Internet with significant dedicated server expertise in the form of Netplan's key employees, which will reduce the Company's risk in expanding into these markets. The Acquisition is the first step to creating a one-stop supplier of reliable, scalable, high performance and resilient infrastructure based hosting products within the fast-growing UK and European markets with a multi-brand and multi-location strategy.

The Company currently does not have the necessary authorities to issue the Placing Shares and the Debt Capitalisation Shares and to allot such shares free of any pre-emption rights. Accordingly, the Placing and the Debt Capitalisation and, hence, the Acquisition are conditional, inter alia, on the passing of the Resolutions at the General Meeting and Admission. If the Resolutions are approved by Shareholders, it is expected that Admission will become effective and dealings in the Placing Shares and the Debt Capitalisation Shares will commence on AIM on 19 November 2013.

Information on Daily Internet

Daily Internet is an established internet hosting services provider focused on delivering a broad range of reliable, cost effective and scaleable hosting services to small and medium sized businesses and individuals in the UK. The Group provides hosting services to more than 50,000 customers throughout the UK and is currently ranked as the 12th largest supplier of .uk domain registrations out of over 2,500 suppliers (source: Nominet). The Group has historically focused on mass-market web hosting products, which has driven a high recurring revenue model, with 63 per cent. of customers currently bringing repeat business, and has delivered continued organic growth over a number of years.

As set out in the Company's AIM admission document in January 2013, Daily Internet has initiated the Group's Phase II development, which has expanded the Group's reach up the value chain into cloud hosting and dedicated servers together with complementary managed solutions, which the Directors believe will allow the Group to become a complete one-stop outsourcing partner. These developments were initiated with a view to bringing higher revenue per customer and increasing gross margin.

Earlier this year, the Company announced the launch of the Group's planned range of dedicated server packages, including fully customisable options, aimed at high volume online businesses. The Group's investment in dedicated servers offers the Group access to a far wider share of the UK web hosting industry and accordingly the Group is able to provide comprehensive hosting solutions to individual consumers all the way through to high-turnover, web orientated businesses.

The Group's dedicated server packages offer:

• high specification, brand new Dell hardware located in a purpose built, high security UK data centre;

• 99.99 per cent. uptime guarantee;

• fully customisable servers and choice of operating systems, RAM, hard disk choices and managed solutions for specific requirements;

• 4 hour hardware replacement guarantee; and

• 24/7 personal support from skilled on-site Daily Internet engineers.

In tandem with this organic growth strategy, it is the Company's stated intention to pursue a 'buy and build' strategy to allow it to increase critical mass more rapidly and have greater penetration of the market place. Accordingly, the Company has identified Netplan as its first acquisition.

Current trading andprospects for the Group

Your attention is drawn to the announcement made on 30 September 2013 of the Group's preliminary results for the year ended 31 March 2013. During the year ended 31 March 2013 the Group achieved an underlying EBITDA loss of £169,000 (2012: loss of £88,000), on turnover of £1.56 million (2012: £1.45 million).

Information on Netplan

Netplan, which was established in 2000, is a UK based internet infrastructure as a service (IaaS) provider focused on high security, e-commerce and cloud based infrastructure and specialises in VMware cloud hosting, PCI hosting and managed dedicated hosting services. Netplan became an accredited VMware Enterprise Service Provider in 2011 and became a VISA certified PCI Level One Service Provider in 2012. Netplan is an internet service provider with over 12 years' experience in offering hosting solutions at all levels from single websites to large, complex, high availability clusters and was nominated in 2012 for "Best SME Business Hosting" and "Best Large Business Hosting" by the Internet Service Provider Association.

Netplan's primary co-location facility is based in Telehouse West, London Docklands, which is a nine storey, state of the art datacentre with high levels of security, power, cooling and technical support.

In addition to Telehouse West, Netplan has Points of Presence (PoP) and co-location available in multiple locations including the following datacentres:

Global Switch (London Docklands);

Next Generation Data (Newport);

Central Switch (Coventry);

Interxction (London); and

Telecity (Manchester).

Customers

Netplan has a database of 840 customers from a wide range of sectors due to the demand for high level security, PCI hosting and cloud hosting services. The majority of Netplan's customers are located throughout the UK; however, 10 per cent. of the business' sales are to customers located within the EU and Russia.

Accreditations/Partnerships

Netplan has the following accreditations and partnerships:

ISO9001:2008 Quality Management System;

ISO27001:2005 Information Security Management;

2012 ISPA (The Internet Service Providers' Association) finalist;

VMware Enterprise Service Provider;

VEEAM Silver Service Provider;

Cisco accredited;

Microsoft Partner - Silver Hosting; and

VISA Certified PCI Level 1 Service Provider

Background to and reasons for theAcquisition

During 2012, global mobile data traffic grew by 70 per cent, reaching 885 petabytes per month, by the end of the year, in comparison to 520 petabytes per month at the end of 2011. Global IP traffic has increased more than fourfold in the last five years and is expected to increase threefold over the next five years. (Source: Cisco Visual Networking Index). Overall, IP traffic is expected to grow at a CAGR of 23 per cent. from 2012 to 2017 and it is expected that, at this forecast rate of growth, annual global IP traffic will surpass the zettabyte level (1.4 zettabytes) by the end of 2017, being 120.6 exabytes per month.

This confirms to the Board that the Group's target market is growing and should continue to do so for the foreseeable future and that the Board believes that the Group is ideally positioned to leverage this opportunity for growth. As such, Daily Internet continues with its stated strategy to achieve strong organic growth for the Group by maximising revenue opportunities through its current product range and to expand and develop the Group's portfolio of services by seeking complementary acquisition opportunities which enhance market penetration and provide access to new markets as well as improve product usability and function.

The acquisition of Netplan is the first of such opportunities for the Company, offering a complementary fit of products and services. The Group's current base services include: (i) domain registration & email services; (ii) shared server hosting, eCommerce and instant website building tools; and (iii) virtual private services which usually generate between approximately £5 and £280 average revenue per customer per annum ("ARPU"). The Group's recently introduced dedicated server packages generate between £850 and £3,800 ARPU and infrastructure as a service, the Group's next target area, generates between £5,000 and £200,000 ARPU. Although the higher APRU products and services have a longer sales process and require increased data centre usage, along with increased staff requirements, resulting in higher capital expenditure, the revenues generated from these products and services are notably larger and have a greater repeat business percentage. This, in the Directors' opinion, should ultimately lead to improved quality revenues generated by the Group.

Netplan's services include dedicated services and IaaS, being the highest ARPU generating products. These products are an ideal fit with the Group's current offering, offering minimum overlap in the dedicated services market, although some synergies can be achieved. In addition, as Netplan has its own datacentres facilities, this should reduce certain datacentre costs for the Enlarged Group and the Group's risk upon entering into this market.

Accordingly, completion of the Acquisition will provide the Group with access to established products, clients and complementary services. That established product range will include products which are new to the Group and already profitable with higher ARPU hosting revenues. In addition, the combination with Netplan will reduce the Group's risk in the managed dedicated servers and dedicated servers market by adding strategic critical mass and will bring technically experienced employees within the managed cloud and dedicated servers market into the Group.

Furthermore, the Acquisition should offer opportunities for cross-selling and synergies, along with cost rationalisations which the Board believes should increase Daily Internet's gross margin.

The Directors consider that the Acquisition is a further step to achieving its goal of becoming a top 10 infrastructure based internet hosting solutions provider in Europe to SMEs.

Historic financial results and current trading of Netplan

During the year ended 30 September 2012, the audited accounts show Netplan achieved an EBITDA (after excluding non-recurring items) of £320,264 and an EBIT (after excluding non-recurring items) of £221,428, on turnover of £1.08 million. Netplan's EBITDA for the year ended 30 September 2013 is expected to be approximately £425,000 per Netplan's management accounts. The net assets of Netplan as at 30 September 2012 were £110,794.

Principal terms of the Acquisition

Daily Internet has entered into the Acquisition Agreement pursuant to which Daily Internet has conditionally agreed to acquire the entire issued share capital of Netplan, for a consideration of at least £2.5 million. The consideration will be satisfied by the payment of: £2.5 million initial cash consideration upon Admission; and a further £750,000 earn-out consideration, payable after September 2014 subject to Netplan's EBIT being £500,000 or greater for the year ended September 2014. Such earn-out consideration will be satisfied as to two-thirds in cash and as to one third in Ordinary Shares (subject to a maximum of £250,000 in Ordinary Shares at the Placing Price). In addition, the earn-out consideration will be increased by £3 for every £1 by which the 2014 EBIT exceeds £525,000 or decreased by £6 for every £1 by which the 2014 EBIT is less than £500,000 subject to a maximum reduction of £750,000.

In addition, a further amount of £230,000 will be payable to the Netplan vendors relating to the surplus cash in the business. This amount will be offset by completion adjustments including vendor loans and other related matters totalling approximately £173,000.

Completion of the Acquisition, the Placing and the Debt Capitalisation is conditional, inter alia, on the passing of the Resolutions and Admission becoming effective by not later than 8.00 a.m. on 19 November 2013. Subject to the conditions being satisfied, completion is expected to take place upon Admission.

Irrevocable undertakings to approve the Resolutions

Each of the Directors have irrevocably undertaken to the Company to vote in favour of the Resolutions to be proposed at the General Meeting, in respect of their aggregate legal and beneficial holdings totalling 24,396,615 Existing Ordinary Shares, representing approximately 20.50 per cent. of the Existing Ordinary Shares.

The Board

Following completion of the Acquisition, the Board will remain as currently constituted.

Reasons for the Placing and use ofproceeds

The net proceeds of the Placing receivable by the Company will be approximately £3.0 million which will be used to finance the cash consideration for the Acquisition, to fund the transaction costs and for working capital generally.

Details ofthe Placing

Sanlam Securities UK Limited as brokers to the Placing has conditionally placed a total of 200,000,000 new Ordinary Shares at the Placing Price on behalf of the Company, to raise £3.0 million before expenses. The net cash proceeds of the Placing receivable by the Company will be approximately £2.7 million. The Placing is not underwritten. It is conditional, inter alia, on Admission.

Pursuant to the Placing, Michael Edleson, a director of the Company has subscribed for 3,333,333 Placing Shares at the Placing Price.

The Placing Shares will, in aggregate, represent approximately 54.1 per cent. of the Enlarged Issued Share Capital. The Placing Shares will, on Admission, rank equally in all respects with the Existing Ordinary Shares.

It is expected that Admission will become effective and dealings in the Placing Shares will commence on 19 November 2013.

Debt Capitalisation

Conditional on Admission, certain of the Directors, have agreed to capitalise loans (together with accrued interest, where applicable) and certain existing convertible loans notes, totalling £170,966. The debts will be satisfied through the issue by the Company of 11,397,734 Ordinary Shares to these directors at the Placing Price. The number of Ordinary Shares to be issued as a result of the Debt Capitalisation and the resulting aggregate shareholding of each Director is as follows:

Furthermore, Hawkstone Capital Limited has also agreed to capitalise certain existing loans, totalling £503,660 by subscribing for 33,577,333 Ordinary Shares at the Placing Price.

In addition, John Thompson, an existing shareholder, has agreed to capitalise certain loans due to him totalling £65,000 by subscribing for 4,333,333 Ordinary Shares at the Placing Price.

Convertible Loan Note

John Thompson, has also agreed to extend the maturity date of his £105,000 nominal convertible loan note (9 per cent.) from January 2015 to January 2016. The Company has agreed to issue John Thompson 1,500,000 Ordinary Shares at the Placing Price in respect of this extension.

It is expected that Admission will become effective and dealings in the 50,808,400 Ordinary Shares arising from the Debt Capitalisation will commence on 19 November 2013.

Following the Placing and the Debt Capitalisation, the Company will have 369,793,292 Ordinary Shares in issue and admitted to trading on AIM.

Related Party Transaction

Abby Hardoon and Michael Edelson, as directors of the Company, are related parties for the purposes of the Placing and the Debt Capitalisation. The independent directors (being Julie Joyce and Robert Khalastchy) having consulted with SSUK, the Company's Nominated Adviser, consider the terms of the Placing and the Debt Capitalisation to be fair and reasonable insofar as the Company's shareholders are concerned. In advising the independent directors, SSUK has taken into account the commercial judgement of the independent directors.

Admission and dealings

Application will be made to the London Stock Exchange for the Placing Shares and the Debt Capitalisation Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the Placing Shares and the Debt Capitalisation Shares will commence on 19 November 2013.

Circular and General Meeting

The circular to shareholders and Notice of General Meeting will be posted shortly and will be available from the Company's website www.daily.co.uk. The General Meeting of the Company has been convened for 10.00 a.m. on 18 November 2013 at the registered office of the Company at Number 14, Riverview, Vale Road, Heaton Mersey, Stockport, Cheshire SK4 3GN.

-ENDS-

For further information please contact:

Definitions

The following definitions apply throughout this announcement unless the context requires otherwise: