26th Sep 2005 07:00
Fonebak plc26 September 2005 FONEBAK PLC ("Fonebak") PRELIMINARY RESULTS FOR THE PERIOD ENDED 30 JUNE 2005 Fonebak Plc, the leading outsource provider for refurbishment, resale orrecycling, and repair of mobile phone handsets and related products andservices, today announces its maiden preliminary results as a public company forthe statutory period from incorporation to 30 June 2005* and the twelve monthsended 30 June 2005. Financial Highlights • Year on Year turnover increased from £27.0 million for 2004 to £37.7 million for 2005. Statutory turnover for the period to 30 June 2005 was £30.3 million • Year on Year operating profit before goodwill amortisation up from £2.5 million in 2004 to £3.2 million in 2005. On a statutory basis, operating before goodwill amortisation was £2.89 million and operating profit was £2.15 million • Profit before tax, goodwill amortisation and exceptional items increased from £2.5 million in 2004 to £2.7 million in 2005. Statutory profit before tax, goodwill amortisation and exceptional items was £2.4 million. Operational Highlights • Acquired Intec Group Limited, one of the leading UK's leading mobile phone repair specialists in July 2005 • Processed over 2 million mobile phone handsets in the year • Launch of high profile on-line mobile phone trade-in services • Acquired 100% ownership of mobile phone refurbishment facility in Romania • New contracts won include: Argos, Body Shop, and Children in Need Corporate Highlights • Listed on AIM in March 2005 raising £5 million through a placing and open offer • Awarded the 2005 Queen's Award for Enterprise in the International Trade category Overseas Highlights • Extended European network for used mobile phone collection to Portugal, Italy, Denmark, Greece and Malta giving Fonebak coverage in the majority of Europe with over 10,000 return locations across Europe • Continued development within Eastern Europe, Africa and Asia of Fonebak's branded reprocessed mobile phone resale operation • Expansion of Fonebak services to Egypt and Scandinavia • Launched a new logistics hub in Lille and two marketing offices in Portugal and Italy \* The Company was incorporated on 27 April 2004 and acquired the Fonebak businesson 15 September 2004. The Statutory accounts (PART B of this preliminaryannouncement) cover the period from 27 April 2004 to 30 June 2005 and include 91/2 months of activity of the Fonebak business. Unaudited pro forma financialdata has also been presented in order to provide shareholders with more usefulinformation (PART A of this preliminary announcement). The Fonebak Annual General Meeting will be held on 27 October 2005 at 4.00 p.m.at the offices of KBC Peel Hunt Ltd, 111 Old Broad Street, London EC2N 1PH. Kathy Woodward, Chief Executive of Fonebak Plc, commented: "We are pleased to report that the company's financial performance has more thanmet market expectations since listing on AIM in March 2005. "Fonebak's commitment to Corporate Social Responsibility including theenvironment continues to be an important part of both the Company's culture andour service offering to our client "Operationally, the acquisition of Intec, new contract wins and Fonebak'soverseas expansion highlights the progress made since listing on AIM. However webelieve that we are still in the early stages of the development of our business" Enquiries: Fonebak PlcKathy Woodward, Chief Executive Officer 01708 683400Pelham Public RelationsJames Henderson 020 7743 6673Charles Vivian 020 7743 6672 Notes to Editors Fonebak plc Fonebak is the UK based leader in the refurbishment, resale and end of lifeprocessing of mobile phones. It has contracts with mobile phone operators,major retailers and handset manufacturers across Europe to provide services torepair refurbish and either remarket and/or recycle the millions of handsetsreplaced each year (it is estimated that over eighteen million handsets arereplaced each year in the UK alone). Fonebak not only provides environmental compliance for its clients and deliversaffordable communications to the populations of developing economies (themajority of whom are unable to afford the price of even the cheapest newhandset), but through its World recycling support scheme it also raisesinternational environmental awareness and through revenues generated on behalfof its clients (much of which is donated to charity) supports over 1,000charitable activities. Its combination of business success in internationaltrade and its contribution to corporate social responsibility have won it anumber of accolades including Business in the Community Award for Excellence andQueens Award for Enterprise 2005. Fonebak's clients include: The mobile phone operators, retailers, mobile phone manufacturers, andcharities. Intec Group Limited Intec is an established and leading specialist in the after sale support ofmobile phone handsets. The group comprises two divisions: Intec Distribution andIntec Cellular Services. Intec is recognised in the mobile phone industry forits outstanding levels of quality, customer service and innovation. It has forthe last three years won the industry award for repair centre excellence. Intec Cellular Services has accreditations to carry out repairs for the majorityof handset manufacturers and provides complete repair solutions for insurers,network service providers, manufacturers, and retail organisations. Intec Distribution provides a range of supply services, including sourcing,specialist fulfillment and logistics services. CHAIRMAN'S STATEMENT Market place The global mobile phone market place continues to expand as the GSM Associationpredicts the next billion global handset users. In the UK alone, as technology,fashion and network competition influence consumers, over 13 million handsetsare replaced each year. Against this market backdrop, Fonebak continues to make progress in developingits UK and European footprint. It has become the outsource partner of choicefor mobile phone network operators, an increasing number of handsetmanufacturers and retailers as they each respond to growing environmentalawareness of their subscribers and prepare to meet the requirements of theforthcoming Waste Electrical and Electronic Equipment Directive. This EuropeanUnion-wide legislation is now due for implementation in the UK at the end ofthis calendar year after many years of debate. Business review We have been working in partnership with all of the UK mobile phone networkoperators and several of the major mobile phone retailers for close to fiveyears to develop the bespoke logistics, software tracking, cost effectiverefurbishing, export remarketing, recycling and data reporting processes thatnot only discharge their legal commitments but also dove tail into theirmarketing, retail and customer service systems. We have continued throughout the year to represent many of our clients'interests in both UK and international forums, bringing our environmentalexpertise to influence the scope and implementation of proposed legislationincluding developing best practice codes. Many of our clients look beyond the requirements of the legislation or therevenues generated from handset resale and regard handset re-use and recyclingas key platforms in developing their corporate social responsibilitycredentials. We have worked closely with them to ensure that the mobile phonesector is visible in the media and is seen to have in place environmentalsolutions for used products. We have also shared our expertise via Fonebak'sWorld Recycling Support Programme, encouraging the development of environmentalsolutions in those geographies where refurbished handsets are re-marketed. Financial results Our sales for the statutory period ended 30 June 2005 were £30.3 million. Oursales for the full year* ended 30 June 2005 of £37.7 million (up from £27.0million for the full year* to 30 June 2004) reflect both the strong relationshipthat we have with our current clients and increased trading activity as wedemonstrate our remarketing capabilities to our new clients, which includeretailers and handset manufacturers both in the UK and Europe. Our statutoryoperating profit before goodwill amortisation for the period was £2.89 millionand our statutory operating profit for the period was £2.15 million. Our fullyear* operating profit before goodwill amortisation for 2005 at £3.2 million isin line with forecast and shows a 28% growth on the full year* to 30 June 2004.(* Full year figures are taken from the unaudited pro forma data in PART A). Operations We have continued to invest in our European infrastructure, including ourrefurbishing operation in Romania. During the year we acquired the remainingminority interest in the Romanian repair and refurbishing company that weacquired in 2003. That company relocated in mid 2004 to a purpose builtfacility on the outskirts of Bucharest and has continued to build its repair andrefurbishing capability. We have opened a new logistics hub in Lille, Franceand two new marketing offices in Portugal (Lisbon) and Italy (Rome). Outbound markets Our reputation for supplying quality products in regular volumes has providedthe foundation for our continuing ability to remarket our refurbished productsin our outbound markets, which include Eastern Europe, Africa and the Far East.We were delighted that during 2005 we received the Queens Award for Enterprisein recognition of both our export and environmental activities. We also werehighly commended by the GSM Association (the Global Trade Association of theNetwork Operators) for the role we have played in providing affordablecommunication to developing economies, where handsets are often not subsidisedand where the price of new handsets is prohibitively expensive for a majority ofthe population. Acquisition Many of the handsets that we process are under twelve months old. It was feltthat a relationship with an accredited UK repair centre would provide valuabletechnical support as we are increasingly called upon to service the latesthandset technologies. After several months of discussion, in July 2005 we werepleased to finalise the acquisition of Intec Group Limited, which has anoutstanding reputation as one of the UK's leading repair centres. Board and AIM Undoubtedly a highlight in the year was the flotation of the Company on theAlternative Investment Market of the London Stock Exchange. Prior to theflotation we were delighted to announce the appointment of David Holland asnon-executive Director to the Board. David brings a wealth of both UK andinternational operating experience. Outlook The Board and management team are of the opinion that we go into the coming yearwith a sound foundation to continue to grow in terms of both sales and scope ofservice offered to our clients and customers. Employees Our thanks go to our worldwide employees who have embraced change withenthusiasm, who have held true to our environmental values and have contributedso much to our continuing success. Gordon ShieldsChairman26 September 2005 CHIEF EXECUTIVE'S REVIEW Overview The financial performance of the company is in line with the business plan with2005 full year operating profit before amortisation of goodwill at £3.2 millionshowing a 28% improvement on the previous full year (full year figures are takenfrom the unaudited pro forma data in PART A). The statutory operating profitbefore goodwill amortisation for the period was £2.89 million and the statutoryoperating profit was £2.15 million. Our UK operations continue to increase thescope of the services they provide and this has enabled us to deliver additionalsupport to our current clients and has also contributed to our gaining a numberof new contracts during the year which include Argos and Bodyshop. Our European operations have made steady progress and now account forapproximately 30% of the volume of inbound handsets. We have opened two newmarketing support offices in Rome and Lisbon and relocated our French logisticshub to new premises in Lille. A considerable amount of management time during the year has been focused on thefinancial restructuring of the business leading up to flotation in March on TheAlternative Investment Market of the London Stock Exchange. This was followedshortly afterwards by the acquisition of Intec Group Limited, one of the UK'sleading mobile phone repair and fulfilment companies. Fonebak and Intec haveworked closely together during the year on a number of projects, which hasassisted the integration of the two organisations. The acquisition wascompleted on 29 July 2005. These combined actions strengthen the financial and operating capabilities ofthe business by providing more cost efficient financing and opportunities foreconomies of scale. They also represent a significant enhancement to thetechnical competence of Fonebak's operations with particular reference to latesthandset technologies. Fonebak's strategy Fonebak's strategy continues to be the provision of a portfolio of services tothe mobile phone sector that, while harnessing and maximising the financialreturns of the very large number of handsets that are exchanged each year, alsoprovides our clients (who are principally the mobile phone networks, retailersand an increasing number of manufacturers) with the environmental managementsystems that allow them to comply with both local and internationalenvironmental legislation. Our clients increasingly see the management of returned handsets as beingbusiness critical in terms of both the requirements of the forthcoming WasteElectrical and Electronic Equipment Directive and their environmental andcorporate social responsibility branding. Many mobile phone network operatorsnow include the volume of returned handsets as a specific business measure andidentify the management of returned handsets as a specific business and brandrisk. Our objective is to be the outsourced service provider of choice for networkoperators, retailers, manufacturers and corporate organisations, providing anend-to-end service for all returned mobile handsets. Developing in-bound Markets Fonebak has developed its service portfolio to provide an end-to-end solutionfor our clients. Our information and processing systems are developed from our considerableunderstanding of environmental regulations and requirements and whilst generic,these can be adapted to dovetail into our clients marketing, retail andlogistics requirements. During the year we have supported our clients retail marketing requirements witha number of high profile campaigns including launching a number of on-linemobile phone trade-in services. A constant opportunity and challenge is to work with our clients to encourageconsumers to return the many millions of handsets that are exchanged each year.Many mobile phone networks and retailers offer their clients specific incentivesto return products, while others promote the environmental and corporate socialresponsibility benefits of reuse and recycling. Our specialist marketing, design and client development teams are available tosupport our clients' initiatives throughout Europe. Our expansion strategy isbased on supporting our major clients in those territories in which they operatewith local in-country customer development and logistics support as appropriate. Repair and refurbishing operations Our priorities are to provide our clients with best value processes andprocedures that allow them to fully meet the requirements of both current andforthcoming environmental legislation. A requirement of the legislation is thatconsumers have in place mechanisms to return products and we now manage thereturn logistics from over ten thousand European locations. Product is initially processed via our Lille or West Thurrock evaluation centresprior to streaming for repair, refurbishing or recycling. In 2003 we acquiredan 87% holding in a Romanian repair centre to create the foundations of a lowcost repair and refurbishing centre. Over the last two years we have investedin the Romanian business, including relocating to a purpose built centre on theoutskirts of Bucharest, recruiting and training from the well educated Bucharestgraduate population and acquiring ISO quality and environmental accreditations.The new facility has met expectations in terms of volume, quality and costeffectiveness. In March of this year we acquired the remaining minorityinterest in the Romanian business, which is now 100% owned by Fonebak. The acquisition of Intec compliments our current facilities in the UK andRomania. Intec is based in close proximity to our West Thurrock facility andhas repair accreditations from twelve major handset manufacturers. It providesrepair and fulfilment services for a number of mobile phone network operators,manufacturers, retailers and insurance companies. Their technical expertise asone of the leading UK repair specialists has been invaluable in supporting ourtechnical development in Romania, particularly as we handle an increasing numberof latest technology handsets. Remarketing The GSM Association is the global trade association formed to promote, protectand enhance the interests of its GSM mobile operator members worldwide. The GSMAssociation notes that the milestone of one billion customer connections waspassed in Q1 of 2004 and a further 250 million connections were made during 2004towards the next billion connections as access to mobile services becomesavailable throughout developing geographies. In most of these countries handsets are not subsidised and the cost of newhandsets are prohibitively expensive for the majority of the population.Fonebak has now built a brand reputation, particularly in Africa, Asia-Pacificand Eastern Europe, as a leading supplier of quality refurbished products, oftenat prices considerably below even the lowest priced new handset. Our exportinitiatives received recognition during the year with the receipt of the QueensAward for Enterprise, and Fonebak was Highly Commended in the GSM AssociationAwards 2005 for "Mobility in the Environment" for our contribution to developingcommunications in regions often not serviced by fixed line alternatives. World Recycling Support Programme Fonebak's systems and expertise have developed from over twenty years experiencein managing recycling services for the telecommunications industry. Throughoutthe year we have participated in a full range of consultation forums, often onbehalf of our clients, to influence the implementation of legislation. Whilstthis can be demanding in terms of resources and time, we consider it to be acritical service that we provide to our clients. Our environmental systems are at the heart of our business. On behalf of ourclients, we manage recycling processes and information reporting systems thatallow them to comply with the onerous requirements of the WEEE Directive, whichis now due for implementation in the UK in 2005 to 2006. In addition to the operating aspects of our business, we are committed toraising environmental understanding and providing environmental support in thosegeographies where we operate and we are determined to take an active role indemonstrating corporate social responsibility. Our sponsorship activities are across the spectrum from local woodlands in Essexto the "WEEE Man" statue in central London, Students at Bucharest University toArtisan projects in Senegal and Educational Programmes in Nigeria. We activelypromote media coverage to raise environmental awareness and have featured inmany UK and international television documentaries and in news coverage againthis year. We are delighted that many of our clients use the revenues returned from Fonebakto support their own Corporate Social Responsibility Programmes. The outlook There is still significant opportunity for growth in the number of handsets thatwe process as technology, fashion and competition from network operators,manufacturers and retailers drive new handset sales while our clients look to usto provide a combination of remarketing and recycling services to meet theirenvironmental commitments. Whilst the UK is still our primary source ofhandsets, we also look to Europe to continue to increase in-bound volumes. Ourexperienced international client development team will be focused on workingwith our clients to develop market initiatives to increase the number ofhandsets received. We do not envisage significant increases in Fonebak's overheads and consider ouroperations to be robust. The acquisition of Intec Group Limited will provideopportunities for some synergies as the two organisations work closely togetheron best practice repair techniques. Our Romanian operation has considerablescope for expansion giving greater economies of scale. We now have a strong position in our international outbound sales activities.Our ability to provide a constant supply of quality product in high volumesacross the full product range has created strong repeat customer relationships.The opportunities in the outbound markets continue to develop and we do notanticipate any significant changes to our outbound client base or our ability toremarket product. Summary We have a strong and stable management team that have been together since theearliest days of Fonebak. We operate in an exciting and fast developing marketplace, and our service offering and our success clearly demonstrates that it ispossible, with the cooperation and support of our clients and customers, tocreate a fast growing business that is profitable, cash generative andcontributes positively to raising environmental awareness and corporate socialresponsibility. The whole team at Fonebak are looking forward to the comingyear. Kathy WoodwardChief Executive26 September 2005 FINANCE DIRECTOR'S REVIEW Acquisition of Fonebak business and Admission to trading on AIM The Fonebak business originally formed part of Shields Environmental Group plc("SEG"). It was initially developed as an unincorporated division of SEG's UKsubsidiary in 2001. SEG then acquired two subsidiaries and formed two others.The four subsidiaries and the unincorporated division comprised the Fonebakbusiness that was de-merged from SEG on 15 September 2004 and acquired byFonebak plc on the same date in exchange for the issue of shares. Prior to thatdate, Fonebak plc had been a dormant company since its incorporation on 27 April2004. Fonebak plc was admitted to trading on AIM on 31 March 2005 In accordance with UK GAAP, the acquisition of the Fonebak business is accountedfor at fair value under acquisition accounting. Consequently, the statutoryaccounts contained in this annual report cover the statutory accounting periodof Fonebak plc from 27 April 2004 to 30 June 2005, and only contain the resultsof the Fonebak business since 15 September 2004 (turnover £30.3 million,operating profit of £2.15 million, and loss after tax of £0.23 million). In order to provide shareholders with more useful information the followinghighlights compare the unaudited pro forma combined profit and loss account andunaudited pro forma combined cash flow statement for the year ended 30 June 2005with the combined financial information of the Fonebak business for the yearended 30 June 2004 as presented in the Admission Document dated 24 March 2005.The unaudited pro forma combined financial information for both 2004 and 2005has been prepared on the basis set out in the Admission Document and under theaccounting policies of the financial statements. Turnover Turnover, which is all from continuing operations, rose from £27.0 million to£37.7 million. A significant element of the increase arose from relatively lowmargin trading activity, which the company enters into in order to build newrelationships with clients. Gross profit Gross profit was £6.0 million (a margin of 22%) in 2004 and £6.6 million (amargin of 18%) in 2005. This reflects the higher proportion of trading typeactivity in 2005 (33.5% of total sales) compared to 2004 (20.8% of total sales). Operating profits Operating profit prior to goodwill amortisation rose from £2.5 million to £3.2million. Overheads have been marginally reduced year on year. The goodwill amortisation charge increased significantly from £52,000 in 2004 to£753,000 in 2005 principally due to the effect of acquisition accounting for theFonebak business. Operating profit after goodwill amortisation in 2005 was £2.43 million,virtually the same as the operating profit of £2.44 million in 2004. Financing costs As a result of the changes in capital structure following the de-merger from SEGand the Admission to AIM, there have been significant changes in the financingcosts in 2005 compared to 2004. In 2004, net interest income of £14,000 wasrecorded. On de-merger on 15 September 2004, £8.9 million of debt was drawndown and assumed by Fonebak plc. Two repayments of £250,000 each were made inthe period prior to Admission to AIM, whereupon the debt was partiallyrefinanced and reduced to £4.0 million. As a result of the increased amount ofdebt, net interest charges for 2005 stand at £448,000. In addition, exceptionalfinancing costs relating to the negotiation of bank facilities on de-mergeramounted to £1,385,000 in 2005. Profit before tax Profit before tax, goodwill amortisation, and exceptional items increased from£2.5 million in 2004 to £2.7 million in 2005. Profit before tax in 2004 was£2.5 million and declined to £0.6 million in 2005 as a result of the goodwillamortisation and exceptional items. Taxation The effective tax rate for 2004 was 32% on profits before taxation, goodwillamortisation and exceptional items and was 33% in 2005 on the same basis. Due to the non-deductibility of goodwill amortisation and of part of theexceptional financing charge, the effective tax rate on profit before taxincreased from 33% in 2004 to 106% in 2005. The effective rate is expected todecline in the future as the non-deductible exceptional finance charges are notexpected to recur. Earnings per share and dividend Earnings per share before goodwill amortisation and exceptional items was 11.20pence per share in 2004 and 11.25 pence per share in 2005. Earnings per shareafter these costs was 10.86 pence per share in 2004 and a loss of 0.23 pence pershare in 2005. Adjusted earnings per share is calculated and shown in order to demonstrateearnings per share before goodwill amortisation and exceptional items, as thisfigure reflects the performance of the group before these significant items. As indicated in the Admission Document, the company is not currently in aposition to pay a dividend, but it remains the Directors' intention to do so inthe future when, in the view of the Directors, the company has sufficient cashfor this purpose and is permitted to do so by the Companies Act. Cash Flow The group continued to generate substantial cash at an operating level (£3.8million in 2004 and £3.7 million in 2005). Significant uses of cash in 2005 include the financing costs of servicing thedebt in the group (£0.5 million), the exceptional financing costs (£0.9million), taxation (£0.8 million), the purchase of the minority stake in FonebakServicii srl (£0.6 million) and £0.5 million of costs related to the acquisitionof the Fonebak business by Fonebak plc. Funding Prior to 15 September 2004 the Fonebak business was funded by SEG. Uponde-merger, £8.9 million of term debt was drawn down and assumed by Fonebak plc.£150,000 was also subscribed for new shares at the date of de-merger. Two tranches of term debt of £250,000 each were repaid prior to Admission to AIMon 31 March 2005. The company raised £5.0 million gross (£3.7 million net of expenses) from theplacing of 4.0 million new shares at Admission to AIM. Following Admission to AIM, the company refinanced its remaining term debt andreduced it to £4.0 million. Since the year-end, the company has further restructured its banking facilities,increasing the term loan to £6.0 million in connection with the acquisition ofIntec Group Limited. The company has an interest rate swap, which is linked to the bank facilities.The effect of the swap is to replace floating rate LIBOR with a fixed rate of4.95%. The initial principal amount of the swap was set at 60% of thefacilities then outstanding (£8.65 million), being £5.2 million, and thisdeclines in line with the repayment profile of the original loan. The swapexpires at 31 December 2005. When the initial £8.9 million loan was refinancedat IPO, it was decided to allow the swap to run to its maturity date of 31December 2005 rather than terminate it. Upon termination of this swap, theBoard anticipates replacing it with a similar instrument linked to borrowings ofthe group to hedge against the group's interest rate exposure. Balance Sheet Intangible assets principally relate to the acquisition of the Fonebak businessat a fair value of £17.4 million and the acquisition of the minority interest inthe Romanian subsidiary, Fonebak Servicii srl for £0.6 million. Stock at 30 June 2005 was £4.5 million compared with £3.6 million at 30 June2004. Debtors at 30 June 2005 were £3.4 million compared with £1.8 million at 30 June2004. The increase is primarily due to the trade debtors balance at 30 June2004 being comparatively low and that at 30 June 2005 relatively high due tosales made very shortly before the year end, and an increased amount of VATrecoverable. Creditors at 30 June 2005 were £8.2 million compared with £5.3 million at 30June 2004. The increase is principally due to significantly increased accrualsrelating to client returns owing on sales of revenue share product. Post balance sheet events On 29 July 2005, the company acquired 100% of Intec Group Limited for an initialcash consideration of £1.7 million with a maximum additional cash considerationof £2.5 million payable on delivery of certain performance criteria over amaximum of two years to 30 June 2007. The acquisition was financed by a mixtureof existing cash resources and enlarged banking facilities. International financial reporting standards ("IFRS") The deadline for compliance with IFRS has been deferred by one year for AIMlisted groups to periods commencing on or after 1 January 2007. The group'sfirst required reporting under IFRS will be its half yearly report at 31December 2007. Nevertheless, some preliminary work was carried out in 2005 tofamiliarise the Board with the implications of implementing IFRS and willcontinue in 2005-06. Arthur CrockerFinance Director26 September 2005 PART A Unaudited Pro Forma Consolidated Profit and Loss Account for the year ended 30June 2005 Unaudited pro forma consolidated profit and loss account and unaudited pro formaconsolidated cash flows for the year to 30 June 2005 and the year to 30 June2004 and an unaudited pro forma balance sheet at 30 June 2004 have been providedto provide a better understanding of the trading performance of the groupfollowing the de-merger of the Fonebak business from SEG and its acquisition byFonebak plc on 15 September 2004. Year ended 30 June 2005 Year ended 30 June 2004 Before Before Goodwill goodwill Goodwill goodwill amortisation amortisation amortisation amortisation and and and and exceptional exceptional exceptional exceptional items Total items items Total items Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Note £'000 £'000 £'000 £'000 £'000 £'000 Turnover 37,728 - 37,728 26,953 - 26,953 Cost of sales (31,082) - (31,082) (20,993) - (20,993) Gross Profit 6,646 - 6,646 5,960 - 5,960 Distribution costs (1,552) - (1,552) (1,300) - (1,300)Administrative expenses (1,915) (753) (2,668) (2,169) (52) (2,221) Operating profit 3,179 (753) 2,426 2,491 (52) 2,439 Financing costs (448) (1,385) (1,833) 14 - 14 Profit on ordinaryactivities beforetaxation 2,731 (2,138) 593 2,505 (52) 2,453 Tax on profit onordinaryactivities (900) 270 (630) (803) - (803) (Loss)/profit for the financial year & retained (loss)/profit 1,831 (1,868) (37) 1,702 (52) 1,650 (Loss)/earnings per share: aBasic (0.23) p 10.86 pDiluted (0.23) p 10.86 pAdjusted basic 11.25 p 11.20 pAdjusted diluted 11.25 p 11.20 p Consolidated Balance Sheet at 30 June 2005 with unaudited pro forma comparativebalance sheet at 30 June 2004 30 June 2005 30 June 2004 Audited Audited Unaudited Unaudited £'000 £'000 £'000 £'000 Fixed assetsIntangible assets 17,045 612Tangible assets 558 581Investments - - 17,603 1,193 Current assetsStock 4,527 3,589Debtors 3,384 1,806Cash at bank and in hand 1,155 3,129 9,066 8,524 Creditors - amounts falling due withinone year (8,181) (5,258) Net current assets 885 3,266 Total assets less current liabilities 18,488 4,459 Creditors - amounts falling due afterone year (3,200) (175)Equity minority interests - (3) Net assets 15,288 4,281 Capital and reservesCalled up share capital 384 -Share premium account 15,076 -Profit and loss account (172) -SEG's net investment in the Fonebak - 4,281business Equity shareholders' funds 15,288 4,281 Unaudited Pro Forma Cash Flow Statement for the year ended 30 June 2005 Year ended 30 Year ended 30 June 2005 June 2004 Unaudited Unaudited £'000 £'000 Net cash inflow from operating activities 3,692 3,838 Returns on investments and servicing of financeInterest received 64 20Interest paid (511) (6)Exceptional financing charges paid (900) - Net cash (outflow)/inflow from returns on investments andservicing of finance (1,347) 14 Taxation (831) (626) Capital expenditure and financial investmentPurchase of tangible fixed assets (202) (360)Sale of tangible fixed assets 1 20 Net cash outflow from capital expenditure and financialinvestment (201) (340) AcquisitionsPurchase of subsidiary undertakings (562) (326)Cash acquired with subsidiary undertakings (net of overdrafts) - 3Reorganisation costs (508) - Net cash outflow from acquisitions (1,070) (323) Net cash inflow before financing 243 2,563 FinancingIncrease in share capital 5,150 -Costs associated with issue of shares (990) -New borrowings 8,400 -Repayment of borrowings (4,900) -Repayment of loan note (162) -Net movement in funding balances with Shields Environmental Group plc and its remaining subsidiaries (9,707) 44 Net cash (outflow)/inflow from financing (2,209) 44 (Decrease)/increase in net cash (1,966) 2,607 Note to the unaudited Pro Forma Consolidated Profit and Loss Account for theyear ended 30 June 2005 a. (Loss)/earnings per share The calculation of the basic (loss)/earnings per share is based on the (loss)/earnings attributable to ordinary shareholders divided by the weighted averagenumber of shares in issue on the assumption that the capital structure followingthe reorganisation of SEG and the acquisition of the Fonebak business by theCompany on 15 September 2004 had been in place since the beginning of the periodof the pro forma information on 1 July 2003, adjusted for the effects of thebonus issue that took place on 21 March 2005. The calculation of diluted (loss)/earnings per share is based on the basic(loss)/earnings per share, adjusted to allow for the issue of shares on theassumed conversion of all dilutive options. Reconciliations of the (loss)/earnings and weighted average number of sharesused in the calculations are set our below: Year ended 30 June 2005 Year ended 30 June 2004 Weighted Weighted Earnings average no. Earnings average Earnings of shares per no. per share Earnings of shares share £'000 Number Pence £'000 Number Pence Basic (loss)/earnings per share:(Loss)/earningsattributable to ordinaryshareholders (37) 16,197,255 (0.23) p 1,650 15,199,995 10.86 p Effect of dilutive options - - - - - - Diluted earnings per share (37) 16,197,255 (0.23) p 1,650 15,199,995 10.86 p Anadjusted earnings per share has also been presented, based on adjustments inrespect of exceptional items and the amortisation of goodwill. The effects ofthe adjustments are as follows: Year ended 30 June 2005 Year ended 30 June 2004 Weighted Weighted average no. Earnings average no. Earnings Earnings of shares per Earnings of shares per share share £'000 Number Pence £'000 Number Pence Basic (loss)/earnings (37) 16,197,255 (0.23) p 1,650 15,199,995 10.86 p per sharePost tax effect ofexcludingamortisation ofgoodwill andexceptional items 1,868 - 11.48 p 52 - 0.34 p Adjusted basic earnings per share 1,831 16,197,255 11.25 p 1,702 15,199,995 11.20 p Diluted (loss)/earnings (37) 16,277,919 (0.23) p 1,650 15,199,995 10.86 p per shareEffect of dilutive 80,664options - - - - -Post tax effect ofexcludingamortisation ofgoodwill andexceptional items 1,868 - 11.48 p 52 - 0.34 p Adjusted diluted earnings per share 1,831 16,277,919 11.25 p 1,702 15,199,995 11.20 p Part B Consolidated Profit and Loss Account for the period ended 30 June 2005 14 month period ended 30 June 2005 Before goodwill Goodwill amortisation amortisation and and exceptional exceptional items items Total Note £'000 £'000 £'000 Turnover 1 30,298 - 30,298 Cost of sales (24,655) - (24,655) Gross Profit 5,643 - 5,643 Distribution costs (1,255) - (1,255)Administrative expenses (1,503) (736) (2,239) Operating profit 2,885 (736) 2,149 Net interest payable 2 (458) (1,385) (1,843) Profit on ordinary activitiesbefore taxation 2,427 (2,121) 306 Tax on profit on ordinary 3 (809) 270 (539)activities Loss for the financial period &retained loss 1,618 (1,851) (233) (Loss)/earnings per share: 4Basic (2.11) pDiluted (2.11) pAdjusted basic 14.64pAdjusted diluted 14.55p All the results reported above arise from acquired operations. There are no differences between the profit on ordinary activities beforetaxation or the retained loss for the period stated above and its historicalcost equivalent. Consolidated Statement of Total Recognised Gains and Losses for the period ended30 June 2005 14 month period ended 30 June 2005 £'000 Loss for the financial period (233)Exchange adjustments offset in reserves (14) Total recognised losses for the period (247) Reconciliation of movements in consolidated shareholders' funds for the periodended 30 June 2005 14 month period ended 30 June 2005 £'000 Loss for the financial period (233) Exchange adjustments offset in reserves (14)New shares issued 15,460UITF 17 share option credit 75 Net increase in equity shareholders' funds 15,288 Opening equity shareholders' funds - Closing equity shareholders' funds 15,288 Consolidated Balance Sheet at 30 June 2005 30 June 2005 Note £'000 £'000 Fixed assetsIntangible assets 17,045Tangible assets 558Investments - 17,603 Current assetsStock 4,527Debtors 3,384Cash at bank and in hand 1,155 9,066 Creditors - amounts falling due withinone year (8,181) Net current assets 885 Total assets less current liabilities 18,488 Creditors - amounts falling due afterone year (3,200) Net assets 15,288 Capital and reservesCalled up share capital 384Share premium account 15,076Profit and loss account (172) Equity shareholders' funds 15,288 Consolidated Cash Flow Statement for the period ended 30 June 2005 14 month period ended 30 June 2005 Note £'000 Net cash inflow from operating activities 5 2,738 Returns on investments and servicing of financeInterest received 52Interest paid (511)Exceptional financing charges paid 2 (900) Net cash inflow from returns on investments andservicing of finance (1,359) Taxation (749) Capital expenditure and financial investmentPurchase of tangible fixed assets (154)Sale of tangible fixed assets 1 Net cash outflow from capital expenditure andfinancial investment (153) AcquisitionsPurchase of interest in subsidiary undertaking (562)Costs associated with acquisition of Fonebak (508)Cash acquired with subsidiary undertakings (net of overdrafts) 2,649 Net cash inflow from acquisitions 1,579 Net cash inflow before financing 2,056 FinancingIncrease in share capital 5,150Costs associated with issue of shares (990)Repayment of borrowings 6 (4,900)Repayment of loan note 6 (162) Net cash outflow from financing (902) Increase in net cash 6, 7 1,154 Notes to the Financial Statements - 30 June 2005 1. Segmental reporting The Company has only one class of business, that of the refurbishment and resaleor recycling of mobile phones, accessories and related products, and relatedservices. All turnover originates from the United Kingdom. A geographicalanalysis of turnover by destination, based on the address to which the invoiceis sent to the customer, is as follows: Turnover by geographical destination: 14 month period ended 30 June 2005 £'000 United Kingdom 1,538Continental Europe 1,759Africa 7,618Asia Pacific 19,383 Total 30,298 Profit before tax by geographical origin: 14 month period ended 30 June 2005 Before After goodwill goodwill amortisation amortisation & exceptional & exceptional items items £'000 £'000Operating profitUnited Kingdom 2,793 2,128Continental Europe 92 21 Total operating profit 2,885 2,149Financing charges (458) (1,843) Profit before tax 2,427 306 Net assets by geographical origin: At 30 June 2005 £'000 United Kingdom 15,101Continental Europe 187 Total 15,288 Impact of acquisitions The company was dormant from incorporation on 27 April 2004 until the de-mergerof the Fonebak business from Shields Environmental Group plc ("SEG") and itsacquisition by the company on 15 September 2004. In addition, the 17% minorityinterest in Fonebak Servicii srl was acquired in April 2005. Consequently, allreported results in the period ended 30 June 2005 arose from acquiredactivities, which are ongoing. There were no other acquisitions or disposalsbetween 15 September 2004 and 20 June 2005. 2. Exceptional financing cost As a result of entering into new financing arrangements as part of the de-mergerof the Fonebak business from SEG and its acquisition by Fonebak plc, thefollowing financing costs were incurred: a facility fee of £300,000; the issueof shares to the lender at a discount of £485,000 to the Directors' estimate oftheir fair value; and a redemption premium of £600,000, payable upon therepayment of a £2.5 million tranche of the debt. As the Company had the optionof repaying the debt at any time following initial drawn down, the entire amountof these costs (£1,385,000) was charged to the profit and loss account in theperiod to 31 December 2004, and is disclosed as an exceptional financing cost.The relevant debt, together with the redemption premium, was repaid uponAdmission to trading on AIM. The payment of the facility fee and theredemption premium totaling £900,000 is separately disclosed in the cash flowstatement. 3. Tax on profit on ordinary activities Analysis of charge in the period: 14 month period ended 30 June 2005 £'000 UK Corporation tax: - current tax on income for the period 500 Overseas tax 39 Total current tax 539 Deferred tax: - current year - Tax on profit on ordinary activities 539 The current tax charge for the period is higher than the standard rate ofcorporation tax in the United Kingdom as explained below: 14 month period ended 30 June 2005 £'000 Profit on ordinary activities before tax 306 Profit on ordinary activities before tax at thestandard rate of UK Corporation tax of 30% 92 Effects of:Adjustment in respect of foreign tax rates 4Non-deductible goodwill amortisation 220Non-deductible finance costs 146Other expenses non-deductible for tax purposes 54 Movement in deferred tax asset not recognised 23 Current tax charge for the period 539 The Company has a potential deferred tax asset of £23,000 at 30 June 2005arising as a result of depreciation exceeding capital allowances, which has notbeen recognised in these financial statements on the grounds that itsrecoverability is not sufficiently certain in view of the de-merger of theFonebak business from SEG and its acquisition by the Company on 15 September2004. 4. (Loss)/earnings per share The calculation of the basic loss per share is based on the loss attributable toordinary shareholders divided by the weighted average number of shares in issueduring the period. The calculation of diluted loss per share is based on the basic loss per share,adjusted to allow for the issue of shares on the assumed conversion of alldilutive options. Reconciliations of the loss and weighted average number of shares used in thecalculations are set out below: 14 month period ended 30 June 2005 Weighted average no. Earnings Earnings of shares per share £'000 Number PenceBasic loss per share:Loss attributable to ordinaryshareholders (233) 11,052,748 (2.11) p Effect of dilutive options - - - Diluted earnings per share (233) 11,052,748 (2.11) p An adjusted earnings per share has also been presented, based on adjustments inrespect of exceptional items and the amortisation of goodwill. The effects ofthe adjustments are as follows: 14 month period ended 30 June 2005 Weighted average no. Earnings Earnings of shares per share £'000 Number Pence Basic loss per share 11,052,748 (2.11) p (233)Post tax effect of excludingamortisation of goodwill andexceptional items 1,851 - 16.75 p Adjusted basic earnings per share 1,618 11,052,748 14.64 p Diluted loss per share (233) 11,052,748 (2.11) pEffect of dilutive options - 68,331 0.01 pPost tax effect of excludingamortisation of goodwill andexceptional items 1,851 - 16.65 p Adjusted diluted earnings per share 1,618 11,121,079 14.55 p 5. Reconciliation of operating profit to net cash inflow from operating activities 14 month period ended 30 June 2005 Group £'000 Operating profit 2,149Depreciation charge 207Amortisation of goodwill 736Share option scheme 75Increase in stock (1,271)Decrease in debtors (1,658)Increase in creditors 2,500 Net cash inflow from operating 2,738activities 6. Reconciliation of net cash flow to movement in net debt 14 month period ended 30 June 2005 Group £'000 Net cash at beginning of period -Increase in net cash 1,154Borrowings acquired (including loannote) (9,062)Borrowings repaid 4,900Loan note repaid 162 Net debt at end of period (2,846) 7. Analysis of net debt Cash in Total Debt due Debt due hand and net within after Total Net at bank Overdrafts cash one year one year debt Debt £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 27 April 2004 - - - - - - -Cash flow 1,155 (1) 1,154 5,062 - 5,062 6,216Acquisition excludingcash & overdrafts) - - - (9,062) - (9,062) (9,062)Non-cash changes - - - 3,200 (3,200) - - At 30 June 2005 1,155 (1) 1,154 (800) (3,200) (4,000) (2,846) 8. Post balance sheet events On 29 July 2005, the Company acquired 100% of Intec Group Limited for an initialcash consideration of £1.7 million with a maximum additional cash considerationof £2.5 million payable on delivery of certain performance criteria over amaximum of two years to 30 June 2007. The acquisition was financed by a mixtureof existing cash resources and enlarged banking facilities. The term loan of£4.0 million at 30 June 2005 was extended to £6.0 million and the overdraftfacility of £3.5 million was extended to £4.5 million. Intec's turnover for the year ending September 2004 was £15 million withoperating profit of £660,000, profit before tax of £634,000 and gross assets at30 September 2004 of £4.1 million. Part C Publication of non-statutory accounts The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in Section 240 Companies Act 1985. The consolidated balance sheet at 30 June 2005 and the consolidated profit andloss account, consolidated statement of total recognised gains and losses,consolidated cash flow statement and associated notes for the period then endedhave been extracted from the 30 June 2005 statutory financial statements forFonebak plc upon which the auditor's opinion is unqualified and does not includeany statement under Section 237 of the Companies Act 1985. Copies of this announcement will be available from the Company's registeredoffice at Unit 2, Eurocourt, Oliver Close, West Thurrock, Essex RM20 3EE. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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