Sysgroup Regulatory News (SYS)

01 June 2016

Daily Internet plc

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

Final Results for the year ended 31 March 2016

Daily Internet plc (AIM: DAIP) announces its final results for the year ended 31 March 2016.

HIGHLIGHTS

Financial

· Revenue growth of 22.4% to £4.76m (2015: £3.89m)

· Gross Profit margin increased to 63.0% (2015: 62.2%)

· Adjusted EBITDA* profit of £0.67m (2015: £0.41m)

· Profit before tax of £0.25m (2015: £(0.14m))

· Maiden profit after tax of £0.3m (2015: £(0.08m))

Operational

· Largest Managed Hosting customer upsold and renewed for a further three years

· New key contract wins in the Merchant and Distribution sector

· Strategic partnership with Epicor Software

o SaaS platform developed for a subset of Epicor customers

· Re-aligning of cost base completed which included:

o Closure of Maidenhead office

o Reduction of headcount in SME division

o Consolidation of duplicated functions across business units

o Netplan's legacy SME business transferred into the Group's SME division

o SME server estate consolidated into a common datacentre

*Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation, acquisition costs and fair value adjustments and share based payments

**Net (cash)/debt calculated as interest bearing debt, including obligations under financial leases, less cash

Chris Evans, Chief Executive commented: "Trading since the financial year-end has been in line with management expectations. During the year we repaid the remaining outstanding convertible loan notes, leaving the Group in a net cash position.

"With the continued growth in our Managed Hosting business, our cash generation and the slimming down of cost base in our SME Mass Market segment, we are well placed going into the 2016/2017 financial year with a strong foundation for future growth.

"We therefore look forward to the year ahead with confidence."

About Daily Internet

Daily Internet is a leading cloud integrator. Solutions delivered comprise best of breed technologies, tailored and delivered to ensure customers benefit from the vast array of solutions and ever advancing hosting technologies. The Daily Group team keeps customers at the forefront of technology, enabling them to free up resources so they can focus on growing their core business without the distractions or complexity of the ever-changing hosting landscape.

The Group has offices in Liverpool, Nottingham and Coventry.

For more information, visit http://www.dailyplc.com

Chairman's Statement

I am pleased to report another year of substantial progress in which we reported positive profitability after tax for the first time. This follows on from us reporting our maiden adjusted EBITDA profit last year. The strong results delivered by the Group for the year ended 31 March 2016 highlight the substantial organic growth we have achieved, coupled with the successful integration of two acquisitions. Both of these acquisitions have now been fully integrated and continue to perform well.

The acquisition of Q4Ex Limited alongside the appointment of Chris Evans as CEO, in December 2014, was an important step in transitioning the business from our traditional SME Mass Market roots to one focused on Managed Hosting which is supported by longer term contracts and is consequently higher margin and more profitable.

Group revenues grew by 22% to £4.76m (2015: £3.91m). Growth was driven by our Managed Hosting division which increased revenues 36%, whilst the SME Mass Market division experienced steady revenue growth of 10%. Managed Hosting now represents the majority of Group revenues. In the SME Mass Market business we have focused on efficiencies through cost reductions to drive profitability.

During the year the balance of the outstanding convertible loan notes has been repaid. Consequently at the year end the Group had a net cash position of £0.21m. The strengthening of our balance sheet alongside investment in our capabilities provides the Group with a good platform for future growth.

Our dedicated staff have continued to work tirelessly and diligently to continue the growth in the business led by the example set by CEO Chris Evans and we believe this will ensure we can increase our growth in the coming year.

Michael Edelson

Chairman

31 May 2016

Chief Executive Officer's Report

Introduction

On entering this financial year we set ourselves a number of objectives, including the restructuring of our SME Mass Market division and an increased focus on growing our higher margin Managed Hosting division, while extending the average contract length of our larger Managed Hosting customers.

I am pleased to report that we have been successful in delivering on all of our objectives. The re-organisation was completed in the second half of our financial year and the Managed Hosting division now forms the majority of our revenues and remains the primary focus going forward. We also succeeded in ensuring our larger customers were contracted for longer term periods (the majority of which for three years). This has provided the Group with improved visibility of earnings and improved margins.

Our SME Mass Market division delivered an EBITDA contribution to the Group of £0.56m (2015: £0.28m) whilst Managed Hosting contributed £0.74m (2015: £0.57m). Group adjusted EBITDA was £0.67m, (after central costs of £0.63m) an increase of 62.0% (2015: £0.41m).

Operational Review

Managed Hosting division

Our Managed Hosting division has maintained its strength in Payment Card Industry Data Security Standard hosting ("PCI DSS"). We are a Level 1 Visa certified Service Provider and we consider this a strong differentiator to many of our peers. The PCI DSS business has continued to perform well with an overall trend of increasing customer spend. In particular, our largest customer renewed and extended the scope of its contract to bring in additional projects and add 'compute and storage' capacity to existing resources. This contracted revenue provides considerable forward visibility. We are also seeing an increase in consulting revenue as more of our customers seek help with their overall IT solution, this has in turn assisted in driving further contracted managed services.

The specialist Merchant and Distribution division of our Managed Hosting business delivered solid growth with a number of key strategic client wins in its sector. We furthered our partnership with Epicor software which, the Directors' believe, provides the most advanced Enterprise Resource Planning ("ERP") solution to the Merchant and Distribution industry in the form of their BisTrack suite of products. Our knowledge of this software application has driven consulting revenue and has assisted in creating the differentiator in this sector for our managed services providing a relatively unique one-stop specialist service to this vertical.

We developed a platform for a subset of Epicor customers effectively allowing them to purchase BisTrack application in a Software as a Service ("SaaS") model. Work with Epicor is continuing to build a joint sales pipeline for this SaaS product and other managed services.

Our technical team has also developed a cost effective disaster recovery solution. This solution utilises the Amazon Web Services ("AWS") public cloud platform allowing our customers to benefit from the 'pay as you use' elements of public cloud. We continue to work on other offerings which can leverage a basket of technologies to bring best of breed solutions to our clients in a cost effective manner.

We have continued to invest in our Managed Hosting business adding a number of key recruits to expand our technical capabilities. In addition, we continue to invest in our staff, providing technical training and certification. Alongside this we are tracking commercial trends so that we can continue to evolve and capitalise on changes within the Managed Hosting landscape.

SME Mass Market division

During the second half of the financial year we completed the re-organisation of our SME Mass Market business. This included the closure of one of our offices; the centralisation of a number of functions, including the removal of some duplicated roles across the Group; and a simplification of management reporting lines. The overall effect was to reduce staff numbers to a level more appropriate to the lower levels of growth expected from this segment. This re-organisation improved overall EBITDA margin and ensured we could focus our efforts on capitalising on the growing opportunities in the more profitable Managed Hosting division, where gross profit is higher and contracts are typically longer term.

Acquisitions

The businesses acquired in the previous financial year, being Evohosting and Q4Ex (which now trades as Netplan), have been fully integrated and continue to perform well.

The Board continues to evaluate acquisitions opportunities to supplement our organic growth but these must fit the board's stringent acquisition criteria.

Current trading and outlook

Trading since the financial year-end has been in line with management expectations. During the year we repaid the remaining outstanding convertible loan notes, leaving the Group in a net cash position.

With the slimming down of cost base in our SME Mass Market segment, the continued growth in our Managed Hosting business along with our cash generation we are well placed going into the 2016/2017 financial year with a strong foundation for future growth.

We therefore look forward to the year ahead with confidence.

Chris Evans

Chief Executive Officer

31 May 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2016

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2016

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 MARCH 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2016

1. Accounting policies

Basis of preparation

These accounts have been prepared in accordance with the accounting policies set out in the Annual Report and Financial Statements of Daily Internet plc for the year ended 31 March 2015.

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group's accounting policies. The areas where significant judgements and estimates have been made in preparing the Financial Statements and their effect are disclosed in note 2.

Going concern

The Directors have prepared the Financial Statements on a going concern basis which assumes that the Group and the company will continue to meet liabilities as they fall due.

The directors have reviewed forecasts prepared for the period ending 31 March 2018 and considered the projected trading forecasts and resultant cash flows together with confirmed loan facilities and other sources of finance.

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group can continue to operate within the current facilities available to it.

The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

2. Significant accounting estimates and judgements

The preparation of this financial information requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities at the period end date and the amounts reported for revenues and expenses during each period. However the nature of estimation means that actual outcomes could differ from those estimates. The key sources of estimation that have a significant impact on the carrying value of assets and liabilities are discussed below.

Impairment of goodwill and other intangibles

The Group tests goodwill for impairment on an annual basis in line with the accounting policy noted above. This involves judgement regarding the future development of the business and the estimation of the level of future profitability and cash flows to support the carrying value of goodwill. An impairment review has been performed at the reporting date and no impairment has been identified. More details including carrying values are included in note 10.

Impairment of other assets

The Group reviews the carrying value of all other assets for indications of impairment at each period end. If indicators of impairment exist, the carrying value of the asset is subject to further testing to determine whether its carrying value exceeds its recoverable amount.

Valuation of intangibles acquired in business combinations

Determining the fair value of customer relationships acquired in business combinations requires estimation of the value of the cash flows related to those relationships and a suitable discount rate in order to calculate the present value. More details including carrying values are included in note 10.

Valuation of contingent consideration

When valuing the contingent consideration still payable on acquisitions, the Group considers various factors including the performance of the acquired entity since acquisition together with its expected performance to the end of the earn-out period. Following the adoption of IFRS 3 (revised) - Business Combinations, contingent consideration is recognised at, and carried thereafter at, fair value. All changes in fair value (other than measurement period adjustments) are reflected in the income statement.

Useful economic lives of intangible assets

Intangible asset are amortised over their useful economic lives. Useful lives are based on management's estimates of the period over which the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in changes in the carrying values and hence amounts charged to the income statement in particular periods which could be significant.

3. Financial instruments - risk management

The Group's financial instruments comprise cash and liquid resources, convertible bonds and various items such as trade receivables and trade payables that arise directly from its operations.

There have been no substantive changes in the Group's objectives, policies and processes for managing those risks or the methods used to measure them from previous periods.

The Group's objective is to ensure adequate funding for continued growth and expansion.

All of the Group's financial instruments are carried at amortised cost with the exception of contingent consideration. There is no material difference between the carrying and fair value of its financial instruments, in the current or prior year, due to the instruments bearing interest at fixed rates or being of short term nature.

A summary of financial instruments held by category is shown below:

Per the fair value hierarchy classifications under IFRS 7 Financial Instruments the contingent consideration due on acquisitions shown above are considered to be level 3 financial liabilities as there are no observable inputs for valuation.

The fair value adjustment relates to the change in fair value calculation of the contingent consideration expected to be payable on the Q4Ex acquisition completed in the year.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group's policy is to prepare periodic working capital forecasts, allowing an assessment of the cash requirements of the Group and Company, to manage liquidity risk. Cash resources are managed in accordance with planned expenditure forecasts and the directors have regard to the maintenance of sufficient cash resources to fund the Group and Company's immediate operating requirements and capital expenditure.

The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities:

Interest rate risk

The Group seeks to minimise exposure to interest rate risk by borrowing at fixed interest rates.

Credit risk

The Group's exposure to credit risk is limited as the majority of services provided within the SME Mass Market segment are under terms whereby payment is due on delivery or in advance of services provided. The managed hosting division gives 30 day terms and historically has had no requirement for doubtful debts. For cash and cash equivalents, the Group only uses recognised banks with high credit ratings.

Capital Disclosures

The Group monitors "adjusted capital" which comprises all components of equity (i.e. share capital, share premium, non-controlling interest, retained earnings, and revaluation reserve).

The Group's objective when maintaining capital are:

· to safeguard the entity's ability to continue as a going concern, so that it can provide returns for shareholders in future periods and benefits for other stakeholders, and

· to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

4. Segmental analysis

The chief operating decision maker for the Group is the Board of Directors. The Group reports in two segments:-

· SME Mass Market - this segment provides a range of VPS, shared hosting, email and domain registration services to individuals and SME's.

· Managed Hosting - this segment provides all forms of Cloud hosting to larger customers. This segment was created on the acquisition of Netplan in November 2013. Q4Ex which provides Cloud and professional services was acquired during the prior year has been included in this segment since acquisition and now trades as Netplan.

Information regarding the operation of the reportable segments is included below. The performance of each operating segment is based on revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) before any allocation of Group overheads, share based payments, fair value adjustments or acquisition costs, as the Board believe this is the best measure for performance. The Groups Adjusted EBITDA has been calculated after deducting Group overheads which include the cost of the Board, Group marketing, legal and professional fees, share based payments, fair value adjustments and acquisition costs.

Assets and liabilities are not reviewed on a segmental basis. All segments are continuing operations. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. Transactions between segments are accounted for using an arms length commercial basis.

5. Expenses

6. Finance expense

7. Staff numbers and costs

Key Management Personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the Directors of the Company.

The emoluments of the highest paid director Christopher Evans were £96,000 (2015: Mr Abby Hardoon £68,000).

The Group does not operate a defined benefits pension scheme and executive Directors who are entitled to receive pension contributions may nominate a defined contribution scheme into which the Company makes pension contributions. No pension contributions have been made in 2016 or 2015, though provision has been made in the accounts for pensions due of £8,700.

The fees relating to non-executive Directors are in some cases payable to third parties in connection with the provision of their services.

8. Share based payments and warrants

The Company has granted a number of EMI options. The Directors have the discretion to grant options to subscribe for ordinary shares up to a maximum of 10 per cent of the Company's issued share capital. Options can be granted to any employee of the Group. There is no performance criteria associated with the options. The weighted average exercise price is 1.76p per share.

Rights to options over ordinary shares of the Company are summarised as follows:

At 31 March 2016 there were 5,600,000 outstanding warrants to subscribe for the ordinary share capital of the Company as follows:

The fair value of the convertible loan warrants has been calculated at 0.009p based on the following assumptions - share price at granting 1.25p, annual risk free rate 0.5%, and volatility 20%. No provision has been made for the convertible loan note warrants in shared based payments.

9. Earnings per share

10. Intangible assets

The Company held no Intangible assets at 31 March 2016 or 31 March 2015.

All amortisation and impairment charges are included in the depreciation, amortisation and impairment of non-financial assets classification, which is disclosed as administrative 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 arose as a result of this review.

The recoverable amount is determined based on discounted cash flow basis and is allocated to individual cash generating units. The calculation uses pre-tax cash flow projections based on financial budgets approved by the Board covering a two year period. Cash flows beyond the two year period are extrapolated using the estimated growth rates stated below. The growth rates and margins used to estimate future performance are based on past performance and the experience of growth rates.

The carrying value of each CGU is as follows:-

The assumptions used for the impairment reviews are as follows

The Group had no contractual liability for development costs at 31st March 2016. As a result of the impairment testing carried out on the basis of these estimates and assumptions, no impairment provisions are required.

11. Property Plant and Equipment

Included in the net book value of £450,000 (2015: £592,000) for furniture and equipment are assets held under finance leases with a NBV of £151,000 (2015: £269,000).

The depreciation for the year on these assets was £77,000 (2014: £107,000).

The Company held no finance leases at 31 March 2016 or 31 March 2015.

12. Investments

*Netplan LLC is a wholly owned subsidiary of Netplan Internet Solutions Ltd

The recoverable amounts have been determined from discounted cash flow calculations based on cash flow projections from approved budgets covering a one-year period to 31 March 2017. The major assumptions can be found in note 10.

13. Loans and borrowings

The book value and fair value of loans and borrowings are as follows:

Convertible Loan notes

During the year twenty-two £5,000 convertible loan notes were redeemed, there are no further convertible loan notes outstanding as at 31 March 2016.

14. Leases

Group finance leases

The Company has no finance leases.

Group operating leases

The Company has no operating leases.

15. Share capital