Preliminary Results 2011

Group NBT plc

(“Group NBT”, “the Group” or “the Company”)

Group NBT is a leading global supplier of domain name management and associated services

Preliminary results for the year ended 30 June 2011

Highlights

• Revenue
• Revenue up 13% to £49.5 million
• Organic* revenue up 4% at £45.7 million and up 5% excluding revenues from our domain name acquisitions business (6% in constant currency)  
• NetNames Platinum Service revenue up 13% in constant currency to £15.5 million
• Managed hosting revenue up 10% in constant currency to £7.0 million
• Brand protection revenue up by 28% in constant currency to £2.1 million  
• Underlying** profit before tax
• Underlying** profit before tax at £9.6 million up 18%
• Organic* underlying** profit before tax was up 9% to £8.9 million, and excluding domain acquisitions profit was up 15% (16% in constant currency)
• Indom, acquired 14 December 2010, has traded well with revenue of £3.8 million and underlying** pre-tax profit of £0.7 million  
• Underlying** diluted EPS was up 11% to 26.22 pence and on an organic* basis, excluding domain acquisitions, up 9%
• Net cash at year end £6.2 million
• Recommended Cash Offer from Newton Bidco Limited, an investment vehicle owned indirectly by certain funds managed by HgCapital LLP
• An interim dividend of 1.68 pence, up 20% was paid in April 2011. As a result of the Cash Offer, no final dividend is proposed

* excluding the results of Indom SAS, acquired on 14 December 2010

**excluding amortisation, restructuring costs, acquisition related expenses and an unexpected financial loss (see cash flow section)

Geoff Wicks, Chief Executive Officer, commented: “We have experienced another good year and although growth is not back to levels seen before economic conditions deteriorated we have seen some improvement. The acquisition of Indom during the year supports our position as a market leader for domain name management services in Europe and we will continue to look for similar acquisition possibilities.”

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Business Review

Group NBT is pleased to announce another year of good growth. The Group continued to grow revenue both organically and through acquisition and at the same time maintained its margins, despite markets remaining difficult throughout the year. Our domain name management business was a key focus for development and we are particularly pleased with the excellent revenue growth achieved in our brand protection business. There are signs of improving market conditions especially for domain name management where the potential for new domain name extensions is being pursued vigorously.

In another announcement issued today, the Board is pleased to report that it has agreed terms with Newton Bidco Limited, an investment vehicle owned indirectly by certain funds managed by HgCapital LLP, in respect of a recommended Cash Offer for the Company at a price of 550 pence per share, valuing the entire issued and to be issued share capital at approximately £153 million.  The Cash Offer values the Company’s shares at an attractive premium to both the current and recent closing prices at which the shares have been traded and exceeds the highest price at which the shares have traded at any time in the last ten years.  The Cash Offer is to be implemented by means of a scheme of arrangement (“the Scheme”).  Investors will be invited to approve the Scheme at a Court Meeting and General Meeting, details of which will be posted to shareholders in due course. 

Since commencing the strategy of developing a corporate domain name management and hosting business nearly a decade ago, the Company has made good progress in establishing itself as a market leader in Europe. In HgCapital the Board believes it has found a partner which will support Group NBT in achieving its commercial and strategic objectives and will help it grow both organically by investment and through securing acquisition opportunities that would otherwise be beyond its current financial resources as a quoted company.

Strategy

Our strategy is to build recurring revenue by delivering excellent products with a high service content. This strategy has served us well and will remain in place while the markets continue to grow and companies need to outsource the management of the services we provide. This model has been a key part of sustaining the steady progress we have made over a number of years. In the year under review we achieved good growth in Continental Europe and in the US, while maintaining steady growth in our home market.  

Market conditions

Higher levels of new business, combined with lower levels of cancellations, indicate some improvement in certain areas of our business although economic conditions remain uncertain.  As a result, customer activity has not yet reached the levels we have seen in previous years. In the domain name management market there has been a great deal of interest in the new domain name extensions which were finally agreed by ICANN in June. Whilst this did not have any impact on revenue during the year it did serve to raise awareness of the need to manage what are increasingly valuable domain name assets.

Financial overview

Revenue for the Group was £49.5 million for the year to 30 June 2011, up 13% on the previous year including the impact of the acquisition of Indom, a French competitor, in December 2010.  Excluding the impact of this acquisition, Group revenue was £45.7 million, up 4% year-on-year and up 5% on a constant currency basis.

Underlying profit before tax was £9.6 million, up 18% on the previous year and, excluding the impact of Indom, up 9% year-on-year and up 10% on a constant currency basis.

Cash generation was particularly good during the year and at the end of the financial year the Group had £6.2 million net cash before unamortised facility fees. This compares with £11.4 million at the end of the previous year and includes the subsequent acquisition of Indom for £12.0 million in net cash.

Corporate Brand Services

Group NBT, through its subsidiary NetNames, provides a range of services to manage and protect companies’ online activities. Companies are able to register domain names in over 250 jurisdictions around the world and frequently build significant sized portfolios of domain names which, like trademarks, often form part of their valuable intellectual property assets. NetNames manages these portfolios for many companies to ensure that they are registered properly, renewed in a timely manner and used appropriately.

Additionally, Group NBT helps its customers to protect their brands against online fraud, digital piracy, counterfeiting and other online infringements. This range of products is provided by the NetNames and Envisional brands.

Revenue for Corporate Brand Services for the year under review was £23.6 million, up 7% on last year, or 9% at constant currency rates and excluding domain acquisitions, revenue was up 10% on last year, or 11% at constant currency rates. Within these numbers, revenue for domain name management was £21.5 million and revenue for brand protection services was £2.1 million. Revenue for NetNames Platinum Service, the Group’s flagship domain name management product, grew 12% during the year, 13% at constant currency rates.

Growth for domain name management has improved on the previous year as we have seen better levels of new sales and lower levels of cancellations. Overall growth was held back by lower revenue from domain acquisitions, where we act for our customers to buy names for them in the secondary market. Domain acquisitions experienced exceptional sales in the year ending 30 June 2010 which, as we noted in previous communications, was unlikely to be repeated in the year under review.

Envisional’s brand protection services did particularly well with revenue for the year to 30 June 2011 up 28% on the previous year. Not only have we acquired some excellent new customers but we have also improved customer retention. Growth is also, in part, due to an enhanced product offering, allowing customers the ability to remove infringing websites and auctions.

Managed Hosting

Managed hosting services are provided to companies in the UK and France. Revenue for the year under review was £7.0 million, up 10% on the previous year. Technology has played an important role in the improvement of our performance as much of our new revenue comes from our new cloud based services. We have also experienced an improvement in market conditions which is reflected in higher levels of new business.

Partner and reseller services

Ascio is our partner and reseller brand which offers other ISPs the ability to register a wide range of domain names using our technology and systems. Revenue for the year was £9.0 million, up 6% on last year, or 9% at constant currency rates. Some of our larger partners have experienced lower growth as a result of the prevailing market conditions which, in turn, affects our revenue. We have, however, continued to add new partners at a similar rate to last year and this will help to maintain growth rates in the future.

We continue to be focused on Continental Europe where we have a resilient customer base and we have extended this focus into Eastern Europe in order to drive new business.

Online Services

Group NBT’s online services register and renew domain names and provide hosting and email services through the websites of several of our brands, primarily the Easily brand in the UK and Speednames in Europe.  Revenue for these services for the year under review was £6.1 million, 14% down on last year, or 13% at constant currency rates. The previous year’s result benefited from the transfer of some revenue within the Group which did not recur this year. However, we expect to experience decline in this segment of the market as we continue to concentrate on our managed services.

Indom

Indom, a market leader for the provision of domain name management services in France, was acquired by the Group on 14 December 2010. Since the acquisition Indom has continued to perform ahead of initial expectations. We have embarked on restructuring and integration which will take up to two years to complete. Over time Group NBT France and Indom will be merged and the Indom business will be transferred to the Group’s systems. This project is progressing well and we are already experiencing some of the benefits of the acquisition. This acquisition also brings significant expertise into the Group, Stéphane Van Gelder who will manage the Group’s business in France is an expert in the domain name market and is the Chairman of a key ICANN committee.

Profit

The overall gross margin of 73.3% decreased from 73.6% last year. Excluding Indom, gross margin was 72.6%, below last year’s rate as the result of relatively small changes to the revenue mix.       

Underlying operating profit at £9.6 million, increased 19% year-on-year and the margin at 19.5% was up from 18.5% last year. Excluding Indom, underlying operating profit was up 10% at £8.9 million at a margin of 19.6%. Excluding both Indom and domain acquisitions, the underlying operating profit grew strongly at 16% year-on-year with a margin of 18.0%, up from 16.3% as overheads remained largely flat and revenues grew.  

On a statutory basis: operating profit was £7.3 million, up 2% from £7.1 million last year and profit before tax was £7.2 million, up 1% from last year. The amounts by which these statutory profit measures were adjusted to arrive at the underlying profit measures used, comprise: amortisation of intangible assets acquired through acquisitions of £1.3 million (2010: £1.0 million) which increased as a result of the acquisition of Indom; advisory and professional fees in respect of the acquisition of Indom of £0.4 million (2010: nil) which were expensed instead of being capitalised in accordance with the revised accounting standard on accounting for acquisitions; technical and other one-off costs relating to the integration of Indom of £0.3 million (2010: nil); and the unexpected financial loss arising from our Danish bank as described below of £0.3 million (2010: nil).                

Basic EPS was 20.04 pence, down 7% from 21.48 pence last year and diluted EPS was 19.46 pence, down 7% from 20.99 pence last year. Both these measures were impacted by the adjusting items mentioned above, namely, amortisation, restructuring costs, acquisition related expenses and the financial loss, which in total amounted to £2.3 million compared to £1.0 million last year.

Taxation

A tax charge of £2.0 million (2010: £1.7 million) arose in the year representing an effective tax rate of 28.3% (2010: 23.2%).

The effective tax rate on underlying profit before tax (excluding amortisation, restructuring costs, acquisition related expenses, and the financial loss together with associated tax credits) was 27.0% (2010: 23.5%). There were numerous factors that drove up the effective rate of tax from last year including the addition of Indom.  The main factors were; non-UK regions where the effective tax rates moved towards higher statutory rates as anticipated; and the proportion of UK profits, taxed at a relatively higher rate, increasing within the mix.                 

Cash flow

At 30 June 2011, the Group had net cash balances of £6.2 million (2010: £11.4 million) before unamortised facility fees. This comprised cash balances of £12.4 million (2010: £13.4 million) and debt, before unamortised facility fees, of £6.2 million (2010: £2.0 million).    

Cash conversion remained strong over the year with cash generated from operations increasing to £10.7 million including Indom, up from £9.4 million last year. Free cash flow, comprising cash flows from operations, interest, tax and capital expenditure, was up 9% to £7.8 million from £7.1 million last year with tax payments increasing by 68% to £1.9 million.      

Net cash outflow in connection with the acquisition of Indom was £12.0 million. While this was funded mostly through existing cash resources, a £4.5 million three-year term loan together with a three-year revolving credit facility of £1.5 million, currently undrawn, was secured in December 2010. This is in addition to the existing debt of £1.0 million which is repayable by July 2012.

In February 2011, an unexpected financial loss was arose from our primary Danish clearing bank filing for bankruptcy following which, after a distribution of 66%, £0.3 million of our cash balances were lost. The bank, which is now under state ownership, has announced that the eventual distribution may increase to 84% in total but this is subject to a legal process and therefore no further recovery has been provided for in the financial statements. The Group’s policy in respect of surplus funds is to distribute them amongst various banks and this policy was in place at the time of the bankruptcy.

Dividend

An interim dividend of 1.68 pence was paid on 15 April 2011. As a result of the Cash Offer, no final dividend is proposed.

Directors’ Responsibilities

The Directors confirm to the best of their knowledge that:

a) these unaudited preliminary results have been prepared in accordance with DRT 4.2.4R of the Disclosure and Transparency Rules of the Financial Services Authority;

b) the Business Review includes a fair review of the information required by DRT 4.2.7R and DRT 4.2.8R of the Disclosure and Transparency Rules of the Financial Services Authority.

By order of the Board

Geoff Wicks

Chief Executive

Consolidated Statement of Comprehensive Income

for the year ended 30 June 2011

The deferred tax credits in relation to share-based payments, previously shown in this statement, have now been removed and is part of the Consolidated Statement of Changes in Equity.

Consolidated Statement of Financial Position

as at 30 June 2011

Consolidated Statement of Changes in Equity

for the year ended 30 June 2011

Consolidated Statement of Cash Flows

for the year ended 30 June 2011