Sysgroup Regulatory News (SYS)

30 June 2014

Daily Internet plc

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

Final Results for the Year Ended 31 March 2014

Daily Internet plc (AIM: DAIP), the hosting and cloud infrastructure as a service ("IaaS") provider, is pleased to announce its final results for the financial year ended 31 March 2014.

Financial Highlights

· Revenue increased by 49% to £2.33 million (FY 2013: £1.56 million) including £0.68 million revenue from Netplan for the 4.5 months to 31 March 2014

· Gross profit increased by 62% to £1.29 million (FY 2013: £0.79 million)

· Adjusted EBITDA loss reduced to £0.05 million (FY 2013: loss £0.17 million)

· Cash and cash equivalents £1.00 million (FY 2013: £0.37 million)

Operational Highlights

· Acquisition of Netplan Internet Solutions Limited ("Netplan") in November 2013 for a total consideration of £3.7 million (Note 8)

· Netplan performing ahead of expectations and earn-out paid early with full integration now underway

· Netplan moving Daily Internet up value chain with Group ARPU increasing to £128 (FY 2013: £87) and two largest customers now generating revenue of up to £200,000 per annum each

· Acquisition of NameHOG in January 2014 for a cash consideration of £150,000

· NameHOG already fully integrated into the Group

· Two fundraisings completed amounting to £3.625 million before expenses

Abby Hardoon, CEO of Daily Internet, commented: "I am delighted with the progress made by the Group during the year to 31 March 2014, a period in which we experienced solid growth and successfully executed a number of acquisitions. These have increased our customer base, improved our product set and resulted in higher ARPU. Looking forward we expect to benefit through extracting further synergies from these acquisitions, particularly as we are now able to fully integrate Netplan following the early payment of the earn-out.

"We will continue to target small internet hosting businesses for consolidation as well as larger acquisitions with higher revenues per customer to enhance our high-end product range and extend our reach into new markets with new brands. We hope to be able to provide further updates in this regard in due course and we are confident of delivering further growth in the year ahead."

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Chairman's Statement

I am pleased to present the financial results for the year ended 31 March 2014. The year under review has been one of significant advancement for the Group made possible by the hard work and determination of its management and employees.

Acquisitions

We acquired Netplan Internet Solutions Limited ("Netplan") in November 2013. Netplan provides dedicated servers to SMEs and PCI Level One hosting, enabling customers to securely manage financial transactions over the internet. The customer base of Netplan compliments that of Daily's and provides a higher average revenue and contribution per customer. Following the acquisition, Daily has focused its activities on the development of managed hosting and dedicated servers through the Netplan business.

As announced on 31 March 2014, in connection with an existing UK customer, Netplan concluded a six-figure agreement to provide Cloud offerings to the customer's parent company in New York. As a result, Netplan has established cloud and disaster recovery infrastructure in two New York data centres enabling us to offer our product portfolio to more companies within this customer's group as well as to other potential customers within the USA.

Netplan was acquired for a net cash consideration of £2.5 million plus an earn-out of a further £750,000, payable as to two-thirds in cash. The earn-out was subject to Netplan's EBIT achieving a minimum level of £500,000 for the year ended September 2014; and in addition it was agreed that if Netplan's EBIT for that year exceeded £525,000, then the earn-out consideration would increase by £3 for every £1 of the increase over this threshold.

Subsequent to the financial year end, and after Netplan's performance surpassed management's internal expectations, agreement was reached with the vendors to complete the payment of the earn-out consideration early through a final payment of £550,000 in cash and £300,000 in the form of 19,326,241 new ordinary shares in Daily. The early earn-out payment enabled Daily to pursue additional growth strategies within Netplan's business more quickly.

In January 2014, NameHOG was acquired for a cash consideration of £150,000. NameHOG is an established UK internet hosting provider supplying domain name registration, shared web hosting and dedicated server products to a diverse range of over 5,000 SME customers, including approximately 2,200 active customers. NameHOG now operates entirely out of Daily's existing Nottingham premises.

Placing

The Company completed two fundraisings during the year amounting to £3,625,000 before expenses, with the majority of the funds utilised in the acquisitions of Netplan and NameHOG. £3,000,000 was raised at a price of 1.5p per share in October 2013 and £625,000 was subsequently raised at 1.65p per share in January 2014. The current share price is 1.88p.

Performance Summary

The Group continued to make significant progress during the financial year under review, particularly following the two acquisitions detailed above. In the second half of the financial year, the SME hosting division reversed a £120,000 loss in the first half into a £57,000 profit, with Netplan contributing £301,000 to EBITDA during the period since its acquisition.

The Group now provides a broad portfolio of hosting products, email and domain name registration services to large and small business users as well as consumers to satisfy all their hosting requirements. Our customer base has been enhanced by the acquisition of both NameHOG and Netplan and has continued to grow.

The contribution of Netplan is reflected in an improved Average Revenue per Customer (ARPU) during the year, rising from some £87 to £128. In addition our larger customers spent at the rate of c. £140,000 with us last year, an increase of around £35,000 from the year before.

Outlook

We are now growing as a Group with synergies to be extracted through the development of our three trading brands: Daily Internet, NameHOG and Netplan. We possess a comprehensive range of products, a much larger customer base, and a robust platform to allow us to grow both organically and through acquisition. ARPU continues to grow and our larger customers are now expected to contract at over £200,000 per year with us.

We have re-examined all of our products and have started to prune those that are less profitable. This is expected to streamline Daily's operations and reduce the cost base.

Our stated buy and build strategy continues to target for consolidation small internet hosting businesses and also larger acquisitions with higher revenues per customer to enhance our high-end product range and significantly increase profitability.

Our management team continues to work hard with enthusiasm and energy, seeking out new technologies to capture further market share, increase revenue and consolidate our position. At the same time they endeavour to target and execute accretive acquisitions to enable us to extend our reach into new markets with new brands at a much faster rate than is possible through organic growth.

Conclusion

I take this opportunity to thank all our shareholders for their continued support, the Daily Group staff for their passion, dedication and commitment and of course, our customers.

Michael Edelson

Chairman

27 June 2014

Strategic Report

Performance Review

Group revenue for the year grew by 49.7% and reached £2.3 million for the year to 31 March 2014.

The majority of our revenue growth came from the managed hosting division which incorporates the Netplan acquisition from 18 November 2013. This introduced £0.7m of revenue into the Group from the acquisition date. The SME hosting division contributed 6.3% growth with revenues increasing from nearly £1.6m to nearly £1.7m

We continue to have good visibility of future revenues as many of our customers continue to pay in advance for their services and larger customers have multi-year contracts. As at 31 March 2014 there is £0.4m of deferred revenue which will be released to profit in future periods.

Gross profit for the year was £1.3m (2013: £0.8m) representing a gross margin of 55.2% (2013: 50.9%). The improvement in Gross profit being attributable to the managed hosting segment which drives much higher margins than the domain driven SME hosting division.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) for the year to 31 March 2014 is reported in the financial statements at a loss of £0.3m (2013: loss of £0.7m). Included within this figure are acquisition and integration costs, share based payment costs, fair value adjustments and in 2013 Phase II costs which related to the launch and introduction of our dedicated server product range in January 2014. The adjusted EBITDA as shown below is a loss of £0.04m (2013: loss of £0.17m), a reduction of 73.4%. The directors consider that an adjusted EBITDA figure is a more appropriate measure of the underlying performance of the business.

The managed hosting division has contributed £0.3m of adjusted EBITDA to the Group since its acquisition. The SME hosting division generated an adjusted EBITDA loss of £0.06m for the year, being split £0.12m loss for the six months to 30 September 2013 and £0.06m profit for the six month period to 31 March 2014.

Balance Sheet and Treasury

Net cash outflow from operating activities during the year amounted to £0.05m (2013: £0.68m. Cash at bank at 31 March 2014 was ahead of plan at £1.0m (2013: £0.37m).

Payables falling due within one year are reported at £2.3m (2013: £0.8m). This figure includes an amount of £0.4 (2013: £0.3m) for deferred revenue which will be released to profit in future years and an amount of £0.93m which represents the contingent consideration payable on the Netplan acquisition, of which, at the year-end, £0.33m is the fair value of the amounts payable in shares. The Directors are confident there is sufficient working capital within the Group however should accretive acquisitions' become available we would look at raising further capital.

Payables falling due after one year are reported at £0.2m (2013: £0.79m). This includes an amount of £0.1m (2013: £0.26m) representing the carrying value on convertible loan notes which were renewed on 9 January 2013 and whose expiry date was extended to Jan 2016.

KPI's

Marketing and staff costs represent the majority of our operating expenses. These costs are monitored closely by the Board and KPI's are used to ensure there is increasing efficiencies in these areas. By using the marketing budget to improve our brand recognition and increase our market reputation, customer and third party referrals have become one of the key drivers for gaining new sales and customers. Internal marketing to our existing customer base further strengthens new sales and renewal retention.

The SME hosting division monitors the number of customer sign ups on a monthly basis. During the year the customer base has increased by 15.2%. This includes the addition of 5,000 customers from the NameHOG acquisition, giving the division increased opportunities for the cross-selling of hosting and domain products. Marketing spend for the year in the SME hosting division is £0.16m (2013: £0.19m).

As the Group operates a recurring revenue model the Board need to ensure that service numbers continue to increase to protect future growth. The SME hosting division provides service number KPI's to the Board on a monthly basis. Service numbers have increased by 7.4% during the period to 204,000 (2013: 190,000).

By focusing on excellent customer service and continued systems improvements, including systems integration in our SME hosting division, we aim to drive increased revenue per operational head across the Group. Revenue per operational head has increased by 29.2% during the year to £137,000 (2013: £106,000). This KPI is monitored on a monthly basis.

Julie Joyce

Finance Director

27 June 2014

Consolidated Statement of Comprehensive Income for the Year Ended 31 March 2014

Consolidated Statement of Financial Position as at 31 March 2014

Consolidated Statement of Changes in Equity for the Year Ended 31 March 2014

Consolidated Statement of Cash Flows for the Year Ended 31 March 2014

Notes to the Consolidated Financial Statements for the year ended 31 March 2014

1. Accounting policies

Basis of preparation

The principal accounting policies adopted in the preparation of the Financial Statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The consolidated financial statements have been prepared under the historical cost basis, except for the revaluation of certain financial liabilities which have been valued in accordance with IAS 39.

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.

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 2017 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. Loss per Share

Since the conversion of potential ordinary shares to ordinary shares would decrease the net loss per share, they are not dilutive. Accordingly diluted loss per share is the same as basic loss per share.

3. Taxation

The Group recognised deferred tax assets and liabilities as follows:

The Directors have not provided for the potential deferred tax asset due to the uncertainty of future taxable profits. The tax losses available were approximately £4,638,000 at 31 March 2014 (2013: £3,760,000). The deferred tax asset on these tax losses at 20% (2013: 24%) of £928,000 (2013: £902,000) has not been recognised due to the uncertainty of the recovery.

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

4. Trade and other receivables

The Group is not exposed to any significant credit risk from trade receivables. The aging below shows that all debts are less than three months old and no impairment is required

5. Trade and other payables

6. Loans and borrowings

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

Convertible Loan note

Fifty six £5,000 convertible loan notes were issued on 4 January 2013 which expire in 2015. The 2015 Loan Notes offer a rate of interest of 9 per cent and are convertible at a conversion price of 3p per share. The Company is able to redeem a minimum of £1,000 nominal value of each New Loan Note as cash flow allows by repaying the redeemed nominal value plus six months pro rata interest, subject to the relevant holders being entitled to convert such loan notes into ordinary shares in the capital of the Company at their election at 3p per share. During the year one convertible loan note was redeemed and twenty one of the convertible loan notes were extended by 12 months, all other terms remain the same.

A warrant was also issued entitling the holder to subscribe for 100,000 ordinary shares at a price of 5p per share, exercisable at any time before 8 January 2022, provided that the Company may require the exercise of these warrants if its shares are traded at a price in excess of 8p per share for a period of 60 business days and an aggregate value of bargains exceeding £60,000 occurs over that period. The value of the convertible loan notes recognised in the balance sheet is calculated as follows:

7. Share capital

During the year the Company issued 288,687,188 ordinary shares of 0.5p each. Of this total 200,000,000 ordinary shares were issued at 1.5p per share for cash, 37,878,788 ordinary shares were issued at 1.65p per share for cash, the proceeds were used to fund the acquisitions of Netplan and NameHOG and to provide further working capital.

A further 50,808,400 ordinary shares were issued at 1.5p per share in settlement of loan balances.

Under the terms of the EMI and unapproved share options a further 34,753,000 ordinary shares could be issued with a nominal value of £173,765.

8. Acquisitions

Netplan Internet Solutions Limited

The Group acquired 100% of the share capital of Netplan Internet Solutions Limited ("Netplan") on 18 November 2013.

Netplan provides VMWare Cloud hosting, Hybrid and Private Cloud Solutions, PCIDSS Hosting and Managed Dedicated Solutions to medium and larger enterprises.

During the current period the Group incurred £240,000 of costs in relation to this acquisition. These costs are included in administrative expenses in the Groups consolidated statement of comprehensive income for the year ended 31 March 2014.

The amount of identifiable net assets assumed at the acquisition date in shown below:

The acquisition of Netplan included a contingent consideration which is payable based on the level of earnings before interest, tax and depreciation (EBITDA) achieved in the 12 month period to 30 September 2014. At the acquisition date it was expected that the consideration due would be payable by £600,000 in cash and shares to the value of £250,000 in shares at a price of 1.5p. The fair value of the shares has been estimated at £354,000 at the acquisition date. The fair value of the contingent consideration at the end of the year is £933,000. This amount is expected to be paid before the end of the next financial year.

The fair value of acquired customer relationships intangible asset has been estimated using a discounted cashflow method, based on the estimated level of profit to be generated from them. A post tax discount rate of 16% was used in the valuation. Customer relationships are being amortised over an estimated useful life of 7 years.

Since the acquisition date, Netplan Internet Solutions has contributed £676,000 to Group revenues and £166,000 to Group profit.

NameHOG Limited

The Group acquired 100% of the share capital of NameHOG Limited ("NameHOG") on 27 January 2014. NameHOG provides Domain registration, shared virtual hosting and dedicated servers to individuals and SME's.

During the current period the Group incurred £8,000 of costs in relation to this acquisition. These costs are included in administrative expenses in the Groups consolidated statement of comprehensive income for the year ended 31 March 2014.

The amount of identifiable net assets assumed at the acquisition date in shown below:

The fair value of acquired customer relationships intangible asset has been estimated using a discounted cashflow method, based on the estimated level of profit to be generated from them. A post tax discount rate of 16% was used in the valuation. Customer relationships are being amortised over an estimated useful life of 5 years.

Since the date of acquisition, NameHOG has contributed £34,000 to Group revenues and £8,000 to Group profits.

Had both acquisitions taken place on 1 April 2013, the Group's revenue would have been £3.2m and the Group's loss would have been £0.5m

9. Annual General Meeting ("AGM") and Availability of Annual Report

The AGM of the Company will be held on 25 July 2014 at 11.00 am at the Company's registered office at Number 14 Riverview, Vale Road, Heaton Mersey, Stockport, Cheshire, SK4 3GN.

Copies of the Notice of AGM and the Report and Accounts of the Company will be posted to shareholders shortly and will be available to view online on the Company's website www.daily.co.uk.