Half Yearly Report

29 November 2011

iomart Group plc

("iomart" or the "Group")

Half Yearly Results

iomart Group plc (AIM:IOM), the cloud computing and managed hosting services company, is pleased to report its consolidated half yearly results for the period ended 30 September 2011.

FINANCIAL HIGHLIGHTS

·; Revenue growth of 36% to £15.4m (H1 2011: £11.4m)

·; Adjusted EBITDA1 growth of 85% to £5.0m (H1 2011: £2.7m)

·; Profit before tax growth of 106% to £2.4m (H1 2011: £1.2m)

·; Basic earnings per share from operations increased by 112% to 2.23p (H1 2011: 1.05p)

·; Cashflow from operations of £4.1m (H1 2011: £3.1m)

·; Net cash at end of period of £3.5m (H1 2011: £5.3m)

OPERATIONAL HIGHLIGHTS

·; Acquisition of Switch Media Group for maximum of £1.2m in April 2011

·; Acquisition of EQSN Limited for maximum of £2.5m in November 2011

·; Titan server estate migrated into Group datacentres eliminating third party datacentre costs

·; Continuing rationalisation programme for previously acquired businesses

1 Adjusted EBITDA means earnings before interest, tax, depreciation, amortisation charges, share based payment charges, acquisition related costs and non recurring acquisition integration costs

Angus MacSween, CEO commented,

"The market opportunities available to us continue to grow as more and more organisations take advantage of the benefits of outsourcing their infrastructure needs to a strong and trusted supplier such as iomart. We continue to expand our skills, product sets and infrastructure to deliver an increasing range of cloud services and expect to continue the growth we have recently enjoyed."

For further information:

About iomart Group plc

iomart Group is one of the UK's leading providers of managed hosting and cloud computing 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 five state-of-the-art data centres in 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, Colocation, Complex Hosting solutions, Content Delivery Networks, IP Transit, Data Centre Services and Cloud Computing.

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

Chief Executive's Statement

Introduction

I am very pleased to report on another excellent period of trading for the Group. We are now established as one of the UK's leading managed hosting and cloud services providers, with organisations continuing to choose iomart for the provision of their web facing infrastructure and the services that surround that. We have built on the success of the previous period and continue to demonstrate the effectiveness of the business model we are executing.

Our profitability at adjusted EBITDA level has almost doubled in the period from £2.7m to £5.0m with both of our operating segments having contributed to this high level of profit growth. Our Hosting segment has continued to win substantial amounts of new and repeat business across all of our brands and the Easyspace segment has also contributed strongly, helped by the acquisition of Switch Media during the period.

Financial Performance

Overall revenues from our operations grew 36% to £15.4m (H1 2011 £11.4m), with both of our operating segments contributing to the growth.

The Easyspace segment grew revenues by 8% to £4.2m (H1 2011 £3.9m) over the period largely due to the acquisition of Switch Media Group in April 2011.

Our Hosting segment grew revenues by 50% to £11.3m (H1 2011 £7.5m) mainly through the sustained acquisition of managed hosting contracts together with the contribution of Titan Internet Limited which was acquired in November 2010.

The gross profit in the period, which is calculated by deducting variable cost of sales such as domain costs, power and sales commission and the relatively fixed costs of operating our datacentres, from revenue, increased by 52% to £10.3m (H1 2011 £6.8m). This substantial increase in gross profit was a direct result of the contribution from the revenue growth delivered by both segments. In percentage terms the gross margin improved to 67% (H1 2011 60%) with again both segments recording improved gross margin percentages in the period. In the Easyspace Segment this was due to an improved sales mix with a greater proportion of sales coming from higher margin products. In Hosting, due to the fixed nature of some of the operating costs, the contribution from increased revenues improved the percentage margin together with a reduction in the level of some of our other cost of sales as our purchasing power improves with our growth.

The Group's adjusted EBITDA grew by 85% to £5.0m (H1 2011 £2.7m) reflecting a significantly improved performance with again both segments contributing to the improvement.

Easyspace improved its adjusted EBITDA to £1.6m (H1 2011 £1.4m) and also its margin to 39% from 36%. The increase in our adjusted EBITDA percentage margin is mainly due to the effect of the improved sales mix which in turn produced an improved gross margin percentage performance.

Hosting improved its adjusted EBITDA to £4.6m (H1 2011 £2.4m) and also its margin to 41% from 32%. This significant improvement is largely due to the increased gross margin contribution arising from our sales growth together with the cost savings achieved from moving Titan's server estate to our own datacentre from rented datacentre space after acquisition. Over the period we have continued to incur additional administrative expenditure on resources for the Hosting segment to provide the high level of service our growing customer base has come to expect, and to increase our sales force to further exploit the opportunities afforded by the growing market for our services.

Group overheads, which are not allocated to segments, include the cost of the Board, all the running costs of the headquarters in Glasgow, and Group led functions such as human resources, marketing, finance and design. Group overheads increased slightly in the period to £1.2m (H1 2011 £1.1m).

Depreciation charges of £1.8m (H1 2011 £1.2m) have increased as we depreciate the equipment purchased to provide services to our new customers and also due to additional datacentre capacity being brought into operation in Maidenhead. The charge for the amortisation of intangible assets has increased to £0.5m (H1 2011 £0.3m) as we amortise the intangible assets acquired through the acquisitions of both Titan and Switch Media. The share based payment charge is unaltered at £0.1m (H1 2011 £0.1m). In the period we have continued to incur costs related to acquisitions in respect of professional fees of £0.1m (H1 2011 £0.1m) and also incurred non-recurring costs related to the integration of acquisitions in the period of £0.2m (H1 2011 £nil).

Finance income in the period was £Nil (H1 2011 £0.2m) and finance costs were £0.1m (H1 2011 £0.1m).

As a result the profits for the period before tax more than doubled to £2.4m (H1 2011 £1.1m).

There is a small tax charge in the period of £0.2m (H1 2011 £0.1m) resulting in a profit for the period from total operations of £2.2m (H1 2011 £1.0m).

The Group generated cash from operating activities in the period of £4.0m (H1 2011 £3.1m). Net expenditure on investing activities of £3.1m (H1 2011 £1.3m) included payments of £1.0m to acquire Switch Media in April 2011 and £0.6m in respect of the deferred consideration due from the acquisition of Titan Internet in November 2010. There was net cash generated from financing activities of £0.8m (H1 2011 £0.5m net expenditure) including £0.5m from the issue of shares as a result of the exercise of options by employees and £1.0m from the drawdown of a bank loan to help fund the acquisition of Switch Media. As a result cash and cash equivalent balances at the end of the period were £8.6m (H1 2011 £7.1m).

The net cash position of the Group at the end of the period was £3.5m (H1 2011 £5.3m).

In November 2011 the company acquired EQSN Limited for a maximum consideration of £2.5m of which £2.3m was paid on completion and Global Gold Limited for a maximum consideration of £1.2m of which £0.7m was paid on completion.

Operational Review

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

Hosting

The hosting operation has performed well over the period. We are continuing to win business from new and existing customers providing a mix of managed hosted services, both physical and virtual as the trend to outsource to the cloud continues.

We are continuing to integrate our acquisitions to ensure an efficient delivery mechanism to customers no matter which brand or avenue they buy through. This has seen continued success and improved profitability across the board. A lot of effort has been put into ensuring a higher customer touch to make sure we miss no opportunity to increase sales to customers which has been rewarded during the period with an increase in additional orders from existing customers. We are again delighted that our customers have chosen to reward us in this way. In return and also more generally in response to market needs we have widened and deepened our product set to maximise the opportunities both within our existing customer base and in the market overall.

All of this activity contributed to an increase in the Hosting segment revenue of 50% to £11.3m (H1 2011 £7.5m).

Easyspace

During the period we expanded our Easyspace operation through the acquisition of Switch Media. One of the main advantages of this acquisition is the focus on new corporate entities thereby improving the overall quality of the underlying customer base. Easyspace continues to provide a range of products and services to the micro and SME markets, including the adoption of many of the services and processes from Hosting, to broaden and deepen the services we deliver to customers. One of the processes adopted from Hosting is the increase in customer touch and as a result we have seen a healthy increase in renewal rates over the comparable period. Additionally, as a consequence there is less of a distinction in what we now sell between the two segments.

As a consequence of our activities in the period the Easyspace segment revenue has increased by 8% to £4.2m (H1 2011 £3.9m).

Acquisitions after the period end

In accordance with our strategy to grow by both organic and acquisitive means we are delighted to have completed the purchase of EQSN Limited after the end of the period as announced on 24 November 2011. This is an excellent acquisition for the Group with an impressive customer base and we look forward to integrating its operations into the Group over the coming months. In addition, also in November, we purchased a small web hosting company, Global Gold Holdings Limited, that provides a variety of hosting and domain packages to a large number of SMEs in the UK. Whilst small, this business adds a good set of customers and will be similarly integrated into the Group in the coming months.

Current trading and outlook

Trading in the second half of the year has begun well and our pipeline of opportunities continues to strengthen.

The market opportunities available to us continue to grow as more and more organisations take advantage of the benefits of outsourcing their infrastructure needs to a strong and trusted supplier such as iomart. We continue to expand our skills, product sets and infrastructure to deliver an increasing range of cloud services and expect to continue the growth we have recently enjoyed.

We look forward with confidence.

Consolidated Interim Statement of Comprehensive Income

Six months ended 30 September 2011

Consolidated Interim Statement of Financial Position

As at 30 September 2011

Consolidated Interim Statement of Cash Flows

Six months ended 30 September 2011

Consolidated Interim Statement of Changes in Equity

Six months ended 30 September 2011

Notes to the Half Yearly Financial Information

Six months ended 30 September 2011

1. Accounting policies

The financial information for the year ended 31 March 2011 set out in this half yearly report does not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. The figures for the year ended 31 March 2011 have been extracted from the Group financial statements for that year. Those financial statements have been delivered to the Registrar of Companies and included an independent auditors' report, which was unqualified and did not contain a statement under section 493 of the Companies Act 2006.

The half yearly financial information has been prepared using the same accounting policies and estimation techniques as will be adopted in the Group financial statements for the year ending 31 March 2012. The Group financial statements for the year ended 31 March 2011 were prepared under International Financial Reporting Standards as adopted by the European Union. These half yearly financial statements have been prepared on a consistent basis and format with the Group financial statements for the year ended 31 March 2011. The provisions of IAS 34 'Interim Financial Reporting' have not been applied in full.

2. Operating segments

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. No individual country other than the United Kingdom contributes a material amount of revenue therefore revenue from outside the United Kingdom has been shown as from Rest of the World.

Analysis of Revenue by Destination

2. Operating segments (continued)

Profit by Operating Segment

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

3. Earnings per share

The calculations of earnings per share are based on the following results and numbers:

4. Acquisition costs

During the period costs of £73,000 (H1 2011 £60,000) were incurred in respect of professional fees on various acquisitions. In addition to these professional fees, one-off costs of £150,000 (H1 2011 £nil) directly related to the integration of successful acquisitions into the Group were also incurred.

5. Taxation

The Group has a deferred tax asset which has been recognised in respect of tax losses within three subsidiary companies, which have generated taxable profits and are expected to continue to do so. At the period end, the Group has unused tax losses of £11.8m (H1 2011 £15.4m) available for offset against future profits. A deferred tax asset has been recognised in respect of £5.4m (H1 2011 £8.8m) of such losses.

6. Intangible assets

Goodwill is allocated to individual Cash Generating Units ("CGU") on the basis of the Group's operations. The carrying value of goodwill by each CGU is as follows:

7. Property, plant and equipment

8. Contingent consideration due on acquisitions

On 14 July 2011, the final instalment of contingent consideration of £600,000 was paid in relation to the acquisition of Titan Internet Ltd. The criteria for paying the contingent consideration of £225,000 due on the acquisition on Switch Media Limited are listed in Note 10 and are expected to be completed within 12 months of the acquisition.

9. Analysis of change in net cash/(debt)

10. Acquisition

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

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

During the current period the Group incurred £9,000 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 period ended 30 September 2011. In the prior year, £76,000 of third party acquisition related costs were incurred and these were included in administrative expenses in the Group's consolidated statement of comprehensive income for the year ending 31 March 2011. 

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

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

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

All services supplied by Switch Media are payable in advance and the fair value of the assets does not include any trade receivables. The fair value of the acquired customer relationships intangible asset of £388,000 is provisional pending a final valuation.

To estimate the fair value of the customer relationship intangible asset, a discounted cash flow method, specifically the income approach, was used with reference to the directors' estimates of the level of revenue which will be generated from them. A post-tax discount rate of 13.8% was used for the valuation. Customer relationships are being amortised over an estimated useful life of 3 years.

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

11. Post balance sheet events

On 23 November 2011, the Group acquired the entire issued share capital of EQSN Limited for a total cash consideration of up to £2.5m. Of the total consideration of £2.5m, £2.3m was paid on completion and a further amount of up to £0.2m is payable subject to the successful integration of the operations of EQSN Limited into the Group. In addition, at the date of acquisition, EQSN Limited had approximately £0.2m of net cash. On 24 November 2011, the Group acquired the entire issued share capital of Global Gold Holdings Limited for a total cash consideration of up to £1.2m. Of the total consideration of £1.2m, £0.7m was paid on completion and a further amount of up to £0.5m is payable subject to certain performance and other criteria being met.

12. Availability of half yearly reports

Half yearly reports will be sent to all shareholders on 16 December 2011. Copies of the half yearly report will be available for collection from the offices of Peel Hunt LLP, 120 London Wall, London, EC2Y 5ET, for a period of one month from the date of despatch and in accordance with Rules 20 and 26 of the AIM Rules, available from the company's website at www.iomart.com.

INDEPENDENT REVIEW REPORT TO IOMART GROUP PLC

Introduction

We have been engaged by the company to review the financial information in the half-yearly financial report for the six months ended 30 September 2011 which comprises the consolidated interim statement of comprehensive income, the consolidated interim statement of financial position, the consolidated interim statement of cash flows, the consolidated interim statement of changes in equity and the related notes 1 to 12 set out on pages 6 to 16. We have read the other information contained in the half yearly financial report which comprises only the interim results announcement and the chief executive's statement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial information.

This report is made solely to the company in accordance with guidance contained in ISRE (UK and Ireland) 2410, "Review of Interim Financial Information performed by the Independent Auditor of the Entity". Our review work has been undertaken so that we might state to the company those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusion we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The AIM rules of the London Stock Exchange require that the accounting policies and presentation applied to the interim figures are consistent with those which will be adopted in the annual accounts having regard to the accounting standards applicable for such accounts.

As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The financial information in the half-yearly financial report has been prepared in accordance with the basis of preparation in Note 1.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the financial information in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial information in the half-yearly financial report for the six months ended 30 September 2011 is not prepared, in all material respects, in accordance with the basis of accounting described in Note 1.

GRANT THORNTON UK LLP

REGISTERED AUDITOR

CHARTERED ACCOUNTANTSGlasgow

28 November 2011