23rd May 2006 07:03
Kingston Communications(Hull)PLC23 May 2006 KINGSTON COMMUNICATIONS (HULL) PLC (KCOM.L) - PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS FOR YEAR ENDED 31 MARCH 2006 "The combination of clear strategy, strong management and improved businessperformance led to a much stronger second half. The Board is proposing anincreased final dividend of 0.78 pence making a total of 1.17 pence for theyear, a 30.0 per cent increase." Michael Abrahams, Chairman Kingston Communications (HULL) PLC (KCOM.L) ("Kingston" or the "Group") todayannounces its unaudited preliminary results for the year ended 31 March 2006. Summary Year ended Year ended Change 31 March 2006 31 March 2005 over (£ million) (£ million) prior year (%)Results from continuing operationsbefore exceptional items (1) Revenue 453.9 348.4 30.3 EBITDA 73.2 61.3 19.4 Group profit from operations 21.6 20.5 5.4 Adjusted Group profit fromoperations (2) 28.2 24.6 14.6 Reported results(Loss)/profit before tax (80.8) 8.0Basic (loss)/earnings per share(pence) (13.32) 3.60 Free cash flow (3) 23.4 15.4 51.9 Adjusted earnings per share(pence) (4) 3.40 3.82 (11.0)Dividend per share (pence) (5) 1.17 0.90 30.0 (1) Exceptional items are disclosed in Note 2 (2) Adjusted Group profit from operations excludes amortisation of intangibleassets relating to acquisitions (3) Free cash flow represents the movement in net debt in the year adjusted for the net proceeds/investments from acquisitions and disposals and the payment ofdividends, interest and taxation (4) Adjusted basic earnings per share excludes discontinued operations, exceptional items, amortisation of intangible assets relating to acquisitions and taxation (5) Dividend pence per share is the sum of the interim dividend of 0.39 (2005:0.36) pence per share and the proposed final dividend of 0.78 (2005: 0.54) penceper share Highlights • Business strategy and repositioning firmly on track • Revenue up 30.3 per cent to £453.9 million (2005: £348.4 million) • Group EBITDA before exceptional items of £73.2 million (2005: £61.3 million), an increase of 19.4 per cent, after adopting an approach to recognition of bundled connection income which defers £3.4 million in revenue and £2.8 million in profit into future financial periods • Adjusted Group profit from operations up 14.6 per cent to £28.2 million (2005: £24.6 million) • Stronger second half revenues and earnings with second half Adjusted earnings per share increasing 29.9 per cent on the prior year to 1.91 pence (2005: 1.47 pence) • Loss before taxation of £80.8 million (2005: £8.0 million profit) including the impact of a network impairment provision of £89.5 million, reflecting the changing business mix and increasing commoditisation of legacy network services. The network impairment provision materially impacts loss per share of 13.32 pence (2005: 3.60 pence earnings per share) • Free cash flow before financing has increased 51.9 per cent to £23.4 million (2005: £15.4 million) • Proposed final dividend of 0.78 pence per share (2005: 0.54 pence per share) resulting in growth in the full year dividend of 30.0 per cent to 1.17 pence per share (2005: 0.9 pence per share) Chairman, Michael Abrahams said, "Our strategy remains clear. The successfulrepositioning of the Group to deliver integrated converged communicationservices strengthens our position in a demanding market environment. Thecombination of clear strategy, strong management and improved businessperformance led to a much stronger second half. The Board is proposing anincreased final dividend of 0.78 pence making a total of 1.17 pence for theyear, a 30.0 per cent increase." Chief Executive, Malcolm Fallen said, "This has been a year of progress andtransition for the company. We remain in a unique position - a resilient cashgenerative incumbent that continues to grow strongly through our broadbandactivity, complemented by our growth engine, Affiniti, that is ideallypositioned to capitalise on the opportunities that convergence brings. We areflexible enough to respond positively to our customers' changing requirementsand the market challenges facing the industry. We are building long termcustomer relationships that will provide sustainable growth and continue todeliver returns to shareholders." For further information please contact: Kingston Communications (HULL) PLC:Corporate Communications & Investor Relations Kingston Communications:Anita Pace Tel: 01482 602666 Mobile: 07770 744322 Maitland:Colin Browne/Michelle Jeffery Tel: 020 7379 5151 Mobile: 07733 103800 Strategy, Business and Operating review Strategy The Group's strategy is clear and consistent. It is focused on: - growing our capabilities to meet our customers' changing needs in keyvertical markets, through the delivery of integrated communications solutions - reducing our dependency on basic voice services whilst increasing the level of direct recurring service revenues - achieving sustainable, profitable growth and delivering returns to ourshareholders Over the course of the year we have made clear progress in implementing thisstrategy through the continued repositioning of the Group. The communications services market in which we operate is converging at an everincreasing pace. With the delivery of voice and data services over IP networksbecoming increasingly widespread within our target market, there is ever moreoverlap between the telecommunications and IT service industries. We thereforeneed to continue to develop our market propositions in order to respond to theopportunities this provides. The regulatory environment, vigorous competition and a high level ofsubstitution by other services, such as mobile and internet services, continueto limit the growth in value and volume of traditional voice services. Thismarket environment and technological change mean that our business needs to beincreasingly flexible in order to respond to the changing needs of ourcustomers. The Group targets three distinct markets: - integrated converged communications solutions for medium and large enterprises - internet and regional telecommunications services aimed primarily at small and medium enterprises ('SME'); and - the provision of information to end users through a range of channels(including web-based, paper-based and person-to-person). In each of these markets our mission is to build and maintain a reputation forthe quality of the end-to end customer experience we deliver thereby buildinglong term, sustainable relationships with our customers. The capability of our business to deliver the quality of experience ourcustomers demand is critically dependent on the skills and ability of ourpeople. In this regard our strategy is underpinned by a significant ongoingcommitment to enhance the quality of our people both through investing in theirlearning and development and in the active management of their performance. Inthe course of the last year the Group passed a significant milestone byattaining Investor in People accreditation, providing recognition of theprogress we are making. Financial overview The Group's underlying financial performance has continued to improve during theyear with, as expected, stronger trading during the second half of the year.Group revenue for the year increased 30.3 per cent to £453.9 million and GroupEBITDA, before exceptional items, increased 19.4 per cent from £61.3 million to£73.2 million. The Group reported an Adjusted profit from operations of £28.2 million, anincrease of 14.6 per cent. The Group's Adjusted basic earnings per share was3.40 pence (2005: 3.82 pence). Year on year, the second half earnings per shareincreased 29.9 per cent from 1.47 pence to 1.91 pence. The reported loss before taxation of £80.8 million (2005: £8.0 million profit)includes the impact of a network impairment provision of £89.5 million,reflecting the changing business mix and increasing commoditisation of legacynetwork services. Excluding this provision, the Group reported a 8.8 per centincrease in profit before taxation of £8.7 million (2005: £8.0 million). Thenetwork impairment provision results in a loss per share of 13.32 pence (2005:3.60 pence earnings per share). Business review Affiniti Change over 2006 2005 prior (£ million) (£ million) year (%)Revenue 332.0 232.9 42.6EBITDA beforeexceptional items 34.4 23.4 47.0 Affiniti, our business-to-business communications integrator, increased revenueby 42.6 per cent to £332.0 million (2005: £232.9 million), including the fullimpact of the acquisitions of Omnetica and Technica, whilst EBITDA beforeexceptional items rose 47.0 per cent to £34.4 million (2005: £23.4 million).Indirect revenue fell from £31.5 million in the first half to £27.9 million inthe second, whilst direct revenues continued to grow from £129.8 million to£142.8 million over the same period. After including the full year contributionfrom Omnetica and Technica in 2005, the full year proforma growth in directrevenue was 4.9 per cent. Affiniti addresses the first of our target markets. Our breadth of serviceoffering and depth of skills and experience mean we are uniquely positioned toconnect our customers, enable them to communicate, support their capability tocontact their own customers, help them store their information, ensure theirnetworks are secure and provide a flexible managed service to them. This servicebreadth is an important enabler behind the proposition we offer customers whichis to deliver tangible business benefit to them through improving productivity,supporting business continuity and ensuring their business is effectivelyconnected. Much of our focus during the year has been on the business integration processand we have made good progress in managing the transition of Affiniti into aleading provider of integrated communications and managed services. Core to theAffiniti proposition is the customer experience. Significant activity has beenfocused on improvements in this area, which is essential to our ability toretain and grow existing relationships as well as win new customers. Growth within Affiniti is being driven by increased activity in the delivery ofsecure converged communications services over IP networks, both local and widearea, enabling a range of communication applications to be provided. At the sametime the opportunity to deliver managed services for our larger enterprise andpublic sector customers continues to increase, as more applications aredelivered over common infrastructure with customers looking to a partner tomanage the day-to-day tasks around their communications environment. In contrast to the strong growth in this area, Affiniti's indirect business,delivered through our Partner Services channel, is continuing to see weaknessand volatility in certain fixed line voice services, such as dial-up internetaccess and Premium Rate Services. Whilst these trends are expected to continue,we have recently invested in a mass interactive media platform, which exploitsboth our network and integration skills, to service some partner requirementsfor innovative call response solutions. Following a launch in March, we havealready secured a significant contract with an established interactive mediacompany. As stated in our trading statement on 31 March, the change in our business mixfrom traditional network services to more integrated and complex managedsolutions has resulted in longer implementation and billing cycles. This shiftalters the financial profile of the business model as it becomes less capitalintensive with a commensurate reduction in EBITDA margins. As our business model develops, the nature of contracts that we enter into withour customers is changing. This is particularly relevant in the context of theprovision of traditional network services delivered within scope of majormanaged services contracts. As a consequence, in line with our accountingpolicies, we have recognised the connection revenue within such contracts thathave arisen in the current year, as a "bundle" over the appropriate contractterm, matched with the appropriate operating costs, rather than separating theconnection income from future service revenues. The impact of this decision onthe 2006 reported results is to defer £3.4 million of revenue and £2.8 millionof profit into future financial periods. Where it is possible to identifyclearly "unbundled" services, such as the provision and installation of customerpremise equipment, we will continue to recognise revenue accordingly. Over the course of the year Affiniti order intake levels have increased,particularly through our direct channels, following completion of significantparts of the integration process. This has been more noticeable during thesecond half as the new organisation gains momentum, building on the quality andsustainability of existing customer relationships as seen through both reducedchurn and contract extensions, as well as the winning of new customers. Recentcontract wins include Morrisons, Fife Council, BSkyB, Carphone Warehouse, RoyalLiverpool & Broadgreen University Hospital Trust. Affiniti's overall capability received industry recognition during the year withthe winning of Nortel's EMEA Partner of the Year 2005 and Cisco Systems IPCPartner and Services Partner of the Year 2005 awards. Kingston Communications (including broadband) Change over 2006 2005 prior (£ million) (£ million) year (%)Revenue 109.3 98.0 11.5EBITDA beforeexceptional items 42.8 38.8 10.3 Kingston Communications, our regional consumer, business and internet servicesbusiness, has delivered a strong performance. Revenue has increased from £98.0million to £109.3 million, an increase of 11.5 per cent year on year reflectingin part the full year impact of the acquisition of Eclipse in September 2005.After including the full year contribution from Eclipse in 2005, full yearproforma revenue growth was 4.8 per cent. EBITDA rose 10.3 per cent to £42.8million (2005: £38.8 million) including the impact of the acquisition ofEclipse. Kingston Communications, together with Eclipse, addresses the second market inwhich we operate, delivering internet and regional telecommunication services,aimed primarily at SME enterprises. The business has responded to market trendspositively, rebalancing revenues, launching new services and extending itsregional network footprint. The focus on the provision of broadband has reducedits dependency on traditional services whilst at the same time opening up newopportunities for the business to grow new internet based service revenues. Broadband access has been a key area for growth. We have increased our customerbase to 120,500 at the end of March, an increase of 63 per cent year on year,with around 30 per cent being business customers. In our national broadbandbusiness, some 49 per cent are business customers contributing more than 60 percent of national broadband revenues, and we expect this percentage to increaseas we enhance the proposition for our national SME customers. Product innovationand development continues to be a priority in this area of the business as weraise the profile of Eclipse as a challenger brand in our chosen marketsegments. Recent service enhancements include an 8Mbps service, managed webhosting and a broadband teleworker service. Activity in our regional business has focused on managing the continued effectsof both mobile and internet services on traditional voice revenues. The launchof our subscription based access and usage packages ('KC Talk') for residentialcustomers in August has proved successful in rebalancing revenues away fromvariable usage charges and mitigating the trend of falling fixed call volumes.This has been followed by the introduction of more flexible business packagessubsequent to the year end. Following the expansion of our regional network into North East Lincolnshire,the provision of services to new business customers in this area has continuedwith contract wins including Business Link Humber, North Lincolnshire Council,Harry Carr and Linkwave. We are now in a strong position to build on our brandrecognition in the local region and continue to drive growth in the business. Whilst we are seeing continued competitive activity across a range of serviceofferings, the business continues to be resilient and through its focus onbroadband delivered internet services for the SME segment, offers continuedgrowth opportunities. Information Services Change over 2006 2005 prior (£ million) (£ million) year (%)Revenue 13.2 18.1 (27.1)EBITDA beforeexceptional items 3.5 7.5 (53.3) Our Information Services business performed well during the year. The fall inrevenue, from £18.1 million to £13.2 million, and fall in EBITDA from £7.5million to £3.5 million, reflects the full impact of the end of the BT directoryproduction contract. The underlying business remains strong. The Information Services business targets markets requiring the provision ofinformation to end users through a range of channels from web-based topaper-based and delivered person-to-person. The paper-based and online directorybusiness delivered strong sales growth with successful campaigns in Hull and, onbehalf of Manx Telecom, in the Isle of Man. The strategy of exploiting both expertise and infrastructure within our contactcentre to enter the outsourced directory enquiry market has seen the businesscontinue to win new wholesale customers and move in to profit. To build on thissuccess, we acquired the business of 118 800 Limited in March which will enableus to increase our retail presence in the provision of number informationservices and further exploit our call handling capabilities. Our quality of service in this market was recognised during the year with thewinning of Best Wholesale Directory Enquiry Service 2005. Group Earnings EBITDA Group EBITDA before exceptional items has increased by 19.4 per cent to £73.2million from £61.3 million, benefiting from improved performance within KingstonCommunications and a full year's contribution from the acquisitions of Omnetica,Technica and Eclipse. The recognition of connection revenue in respect oftraditional network services as a "bundle" with future service revenues, hasreduced our reported EBITDA by £2.8 million in the current year and will berecognised in future financial periods. The Group has incurred exceptional items of £91.7 million in 2006 (2005: £3.8million) including a network impairment provision of £89.5 million (2005: nil).The remaining £2.2 million of this primarily relates to provisions in respect ofliabilities associated with the Group's property portfolio. The rationalisationof the Group's commitments in respect of properties continues. After exceptional items, Group EBITDA has increased 23.7 per cent to £71.1million in 2006 (2005: £57.5 million). Depreciation and amortisation Depreciation and amortisation of the Group's tangible and intangible fixedassets (excluding the provision for the network impairment of £89.5 million)totalled £51.6 million (2005: £40.9 million). Depreciation of £40.1 million(2005: £32.6 million) has increased due to a combination of the full yearinclusion of the Omnetica business within Affiniti and an increase withinKingston Communications. The Kingston Communications increase from £9.6 millionin 2005 to £13.7 million in 2006 is primarily a result of the growth that hasbeen experienced within broadband, including the capitalisation of free ofcharge modems provided to customers and depreciated over 12 months. In light of the change in our business mix towards a service-based model,together with the increased commoditisation of legacy network services, andgreater flexibility in the market for wholesale network delivery options, theGroup has made an impairment provision of £89.5 million against the carryingvalue of its network assets. Amortisation of intangible fixed assets (excluding the impairment provision) was£11.5 million (2005: £8.3 million) reflecting the amortisation of the intangiblefixed assets acquired through the acquisitions of Eclipse, Omnetica and Technicain the previous financial year. Group profit from operations Group Adjusted profit from operations has increased 14.6 per cent to £28.2million (2005: £24.6 million). Group profit from operations before exceptional items is £21.6 million (2005:£20.5 million), an increase of 5.4 per cent. The significant impact from the impairment of £89.5 million means that the Grouphas reported an operating loss from operations of £70.1 million (2005: profit of£16.6 million). Profit and loss before tax Group finance costs of £10.8 million (2005: £8.6 million) reflect a higher levelof borrowings consistent with the financing in respect of the Eclipse, Omneticaand Technica acquisitions undertaken in 2005. The Group has reported a loss before taxation of £80.8 million (2005: profit of£8.0 million) including the network impairment provision of £89.5 million.Excluding this provision, the Group reported a 8.8 per cent increase in profitbefore taxation of £8.7 million (2005: £8.0 million). Taxation During the year we have recorded a net taxation credit of £12.4 million (2005:£7.1 million). This credit arises as a consequence of the recognition of anadditional deferred tax asset during the year and is reflective of our currentview as to the anticipated utilisation of unclaimed capital allowances in theGroup. Discontinued operations The loss from discontinued operations of £2.8 million (2005: profit of £2.4million) arises on the disposal of Arche Communications SAS undertaken in thefirst half of the year. Earnings per share Basic earnings per share amounted to a loss of 13.32 pence (2005: profit of 3.6pence) reflecting the network impairment provision of £89.5 million. Adjustedbasic earnings per share amounted to 3.40 pence per share (2005: 3.82 pence).The £2.8 million reduction in Group profit arising as a consequence ofrecognising connection revenue as a "bundle" with future service revenues, hasreduced our Adjusted earnings per share from 3.95 pence (3.4 per cent increaseon prior year) to the reported 3.40 pence. Earnings per share 2006 2005 Change over (pence) (pence) prior year (%) H1 1.49 2.35 (36.6)H2 1.91 1.47 29.9 Total 3.40 3.82 (11.0) Group Financing and Investment Group net debt at 31 March 2006 was £127.7 million (2005: £163.6 million). Cash inflow from operations of £68.7 million has increased 37.7 per cent on aninflow of £49.9 million in 2005. The purchase of tangible and intangible assets amounted to £46.1 million (2005:£37.0 million). This investment has been driven by specific customer-drivenactivity, expansion of our network footprint into North Lincolnshire and furtherinvestment in our IT infrastructure. Free cash flow before financing has increased 51.9 per cent to £23.4 million(2005: £15.4 million). The Group received net proceeds from acquisitions and disposals of £26.2 millionreflecting the disposal of Arche Communications SAS in June 2005 net of cashpayments in respect of acquisitions undertaken. The cash cost of financing Group debt amounted to £8.7 million (2005: £7.8million). The increase on the 2005 cost is consistent with higher Group debtlevels arising on the acquisitions undertaken in 2005. The cash cost ofdividends in 2006 was £4.8 million (2005: £1.4 million). In accordance with IAS 19, the Group now recognises the liabilities associatedwith its defined benefit pension scheme in the financial statements. As at 31March 2006, the Group had a net liability in respect of its pension schemeobligations of £11.7 million (2005: £21.0 million). The gross deficit withinthis net balance has fallen to £16.7 million as at 31 March 2006 from £30.0million at 31 March 2005. The 44.3 per cent reduction in this gross liabilityreflects the improved equity returns experienced within the main Kingstondefined benefit pension scheme. Dividend In light of the financial performance of the Group and the improvement in theGroup cash flow, the Board is proposing a final dividend of 0.78 pence pershare, resulting in a full year dividend payment of 1.17 pence per sharerepresenting growth of 30.0 per cent. Subject to shareholder approval at theCompany's Annual General Meeting on 28 July, the final dividend will be payableon 4 August to shareholders registered at the close of business on 30 June 2006. Approach Further to the announcement made on 10 November 2005, we announced on 31 Marchthat the discussions relating to an unsolicited potential offer for the Companyended because the parties failed to agree on price and structure. Outlook The successful repositioning of the Group to deliver integrated convergedcommunication services strengthens our position in a demanding marketenvironment. The Board believes that the combination of clear strategy, strongmanagement and the improved business performance in the second half provides afirm basis for continued growth in the current year, where trading is in linewith our expectations. Consolidated Income Statement Unaudited Audited Year Year ended ended 31-Mar 31-Mar 2006 2005 Note £'000 £'000Continuing OperationsRevenue 1 453,891 348,426 Group EBITDA before exceptional items 73,240 61,346Exceptional items 2 (2,180) (3,836) Group EBITDA 1 71,060 57,510 Group profit from operations before exceptional 21,649 20,461itemsExceptional items 2 (91,701) (3,836) Group (loss)/profit from operations 1 (70,052) 16,625 Finance costs (10,766) (8,638) (Loss)/profit before taxation 2 (80,818) 7,987 Taxation 3 12,394 7,051 (Loss)/profit for the period from continuing (68,424) 15,038operations Discontinued Operations(Loss)/profit for the period from discontinuedoperations 6 (2,808) 2,446 (Loss)/profit for the period attributableto equity holders of the Company (71,232) 17,484 (Loss) /earnings per share from continuingoperations Basic 4 (13.32)p 3.60pDiluted 4 (13.32)p 3.59p Adjusted basic 4 3.40p 3.82pAdjusted diluted 4 3.40p 3.81p (Loss) / earnings per share from total operations Basic 4 (13.87)p 4.19pDiluted 4 (13.87)p 4.18p Consolidated Balance Sheet Unaudited Audited Year Year ended ended 31-Mar 31-Mar 2006 2005 £'000 £'000Non-current assetsGoodwill 159,551 184,352Other intangible assets 39,450 43,333Property, plant and equipment 127,857 222,599Investments 840 1,087Deferred tax assets 18,952 9,924 -------- ------- 346,650 461,295 -------- -------Current assetsInventories 13,228 13,042Trade and other receivables 99,636 123,340Cash and cash equivalents 12,084 28,189 -------- ------- 124,948 164,571 -------- -------Total assets 471,598 625,866 -------- ------- Current liabilitiesTrade and other payables (149,322) (169,422) -------- -------Net current liabilities (24,374) (4,851) -------- ------- Non-current liabilitiesBank loans (139,535) (191,280)Retirement benefit obligation (16,670) (30,000)Long term provisions and other payables (1,541) (3,072) -------- -------Total liabilities (307,068) (393,774) -------- ------- Net assets 164,530 232,092 -------- ------- EquityShare capital 51,480 51,454Share premium account 352,360 352,229Hedging and translation reserve (30) 210Retained earnings (239,280) (171,801) -------- -------Total equity 164,530 232,092 -------- ------- Consolidated Statement of Recognised Income and Expense Unaudited Audited Year Year ended ended 31-Mar 31-Mar 2006 2005 £'000 £'000 Exchange differences on translation of foreign operations 1 210Currency translation difference on foreign currency netinvestments - (534)Currency translation difference on related borrowings - 534Cash flow hedges (note 7) (241) 0Actuarial gains / (losses) on defined benefit pensionschemes 11,782 (3,500)Tax on items taken directly to equity (3,999) 1,050 -------- -------Net income/(expense) recognised directly in equity 7,543 (2,240)(Loss)/profit for the period (71,232) 17,484 -------- ------- Total recognised income and expense for the period (63,689) 15,244 -------- ------- Consolidated Statement of Changes in Equity Unaudited Audited Year Year ended ended 31-Mar 31-Mar 2006 2005 £'000 £'000 (Loss)/profit for the period (71,232) 17,484Dividends (4,784) (1,390)Exchange movements 1 210Issue of ordinary shares (net of issue costs) 26 13,421Employee share schemes 754 (860)Actuarial gains / (losses) on defined benefit pensionschemes 11,782 (3,500)Tax on actuarial gains / losses on defined benefitpension schemes (3,999) 1,050Share premium arising on issue of new ordinary shares 131 69,855Cash flow hedges (note 7) (241) - -------- -------(Decrease) / increase in equity (67,562) 96,270Opening equity 232,092 135,822 -------- -------Closing equity 164,530 232,092 -------- ------- Consolidated Cash Flow Statement Unaudited Audited Year Year ended ended 31-Mar 31-Mar 2006 2005 £'000 £'000Net cash flow from operating activities(Loss)/profit from operations (note 8) (71,691) 16,003Adjustments for:Depreciation, amortisation and impairment 141,511 41,916Gain on sale of property, plant & equipment - (300)Increase in working capital (1,487) (6,795)Employee share schemes 754 (860)Income taxes paid (399) (101) -------- ------- Cash inflow from operations 68,688 49,863 -------- ------- Cash flows from investing activitiesPurchase of businesses (4,024) (108,894)Sale of businesses 30,201 36,667Purchase of property, plant and equipment (38,202) (27,747)Proceeds from sale of property, plant & equipment 1,108 402Purchase of intangible assets (7,896) (9,280)Purchase of investments (14) (266)Proceeds from sale of investments - 939 -------- ------- Net cash used in investing activities (18,827) (108,179) -------- ------- Cash flows from financing activitiesDividends paid (4,784) (1,390)Issue costs of long term loans (18) (3,467)Interest paid (8,673) (7,838)Interest received 219 173Capital element of finance lease repayments (279) (142)Repayment of bank loans (52,431) (22,000)New loans - 114,500Proceeds from new share issue - 80 -------- ------- Net cash (used in)/from financing activities (65,966) 79,916 -------- -------(Decrease)/increase in cash and cash equivalents (16,105) 21,600 Cash and cash equivalents at the beginning of theperiod 28,189 6,589 -------- -------Cash and cash equivalents at the end of the period 12,084 28,189 -------- ------- Analysis of Net Debt Cash and short term deposits 12,084 28,189Bank loans (139,535) (191,280)Finance leases (229) (508) -------- ------- (127,680) (163,599) -------- ------- 1. Segmental Analysis Unaudited Audited Year ended Year ended 31-Mar 31-Mar 2006 2005 £'000 £'000Revenue Affiniti 331,983 232,946Kingston Communications 109,280 98,015Information Services 13,240 18,110Other including eliminations (612) (645) ----------- ---------Total - continuing activities 453,891 348,426Discontinued activities 9,944 18,111 ----------- ---------Group total 463,835 366,537 ----------- --------- Group EBITDA Affiniti 34,435 23,376Kingston Communications 42,838 38,799Information Services 3,494 7,486Other (7,527) (8,315) ----------- ---------Total - continuing activities before exceptional items 73,240 61,346Exceptional items:Affiniti (1,200) (3,794)Kingston Communications (577) -Information Services - (212)Other (403) 170 ----------- --------- (2,180) (3,836) ----------- ---------Total - continuing activities 71,060 57,510Discontinued activities (1,637) 579 ----------- ---------Group total 69,423 58,089 ----------- --------- Depreciation Affiniti 25,646 22,035Kingston Communications 13,673 9,557Information Services 445 788Other 341 209 ----------- ---------Total - continuing activities before exceptional items 40,105 32,589Exceptional items:Affiniti 79,134 -Kingston Communications 9,403 - ----------- --------- 88,537 - ----------- ---------Total - continuing activities 128,642 32,589Discontinued activities 126 1,031 ----------- ---------Group total 129,044 33,620 ----------- --------- 1. Segmental Analysis (continued) Unaudited Audited Year ended Year ended 31-Mar 31-Mar 2006 2005 £'000 £'000 Amortisation Affiniti 9,722 7,092Kingston Communications 1,763 1,204 ----------- ---------Group total before exceptional 11,485 8,296itemsExceptional items:Affiniti 984 - ----------- --------- 984 - ----------- ---------Group total 12,469 8,296 ----------- --------- (Loss)/profit from operations Affiniti (933) (5,751)Kingston Communications 27,402 28,038Information Services 3,048 6,698Segment result - continuing activities before ----------- ---------exceptional items 29,517 28,985Exceptional items:Affiniti (81,318) (3,794)Kingston Communications (9,980) -Information Services - (212)Other (403) 170 ----------- --------- (91,701) (3,836) ----------- ---------Segment result - continuing activities (62,184) 25,149Head office and other unallocated costs (7,868) (8,524) ----------- ---------(Loss)/profit from continuing operations (70,052) 16,625Segment result - discontinued activities (3,042) 2,446 ----------- ---------Group total (73,094) 19,071 ----------- --------- Assets Affiniti 190,117 341,495Kingston Communications 120,333 107,849Information Services 5,315 4,028Other 123,958 117,806Unallocated assets 31,875 54,688 ----------- ---------Total assets 471,598 625,866 ----------- ---------Liabilities Affiniti 98,660 123,173Kingston Communications 37,037 31,380Information 4,733 4,511ServicesOther 26,723 12,701Unallocated liabilities 139,915 222,009 ----------- ---------Total liabilities 307,068 393,774 ----------- --------- 1. Segmental Analysis (continued) Unaudited Audited Year ended Year ended 31-Mar 31-Mar 2006 2005 £'000 £'000Capital expenditure on property, plant and equipment and intangible assets Affiniti 28,200 20,426Kingston Communications 17,439 12,422Information Services 156 285Other 327 210 ----------- ---------Total - continuing activities 46,122 33,343Discontinued operations 277 629 ----------- ---------Group total 46,399 33,972 ----------- --------- The split of total revenue between revenue from external customers andinter-segment revenue is as follows: Unaudited Audited Year ended Year ended 31-Mar 31-Mar 2006 2005 £'000 £'000Revenue from external customers Affiniti 331,619 232,946Kingston Communications 106,254 95,437Information Services 11,545 16,329Other 4,473 3,714Discontinued operations 9,944 18,111 ----------- --------- Total 463,835 366,537Inter-segment revenueAffiniti 364 -Kingston Communications 3,026 2,578Information Services 1,695 1,781Other including eliminations (5,085) (4,359) ----------- --------- Total - - ----------- ---------Group total 463,835 366,537 ----------- --------- None of the revenue, operating profit or net operating assets arising outsidethe United Kingdom are material to the Group. The geographical analysis ofrevenue by destination is given below. Unaudited Audited Year ended Year ended 31-Mar 31-Mar 2006 2005 £'000 £'000Geographical analysis of revenue United Kingdom 448,846 349,860Europe 12,384 15,734Other 2,605 943 ----------- ---------Group total 463,835 366,537 ----------- --------- 1. Segmental Analysis (continued) The analysis of the Group's revenue between sale of goods and services is asfollows: Unaudited Audited Year ended Year ended 31-Mar 31-Mar 2006 2005 £'000 £'000Continuing operations Sale of goods 87,132 42,953Provision of services 366,759 305,473 ----------- ---------Total - continuing operations 453,891 348,426 ----------- ---------Discontinued operationsSale of goods and services 9,944 18,111 ----------- ---------Group total 463,835 366,537 ----------- --------- 2. Profit from continuing operations The profit before taxation from continuing operations is stated after charging/(crediting): Unaudited Audited Year ended Year ended 31-Mar 31-Mar 2006 2005 £'000 £'000Exceptional items:Restructuring costs 1,810 4,006Loss on disposal of business 108 -Amounts written off investments 262 141 ----------- --------- 2,180 4,147Profit on sale of investments - (311)Impairment of property, plant and equipment 88,537 -Impairment of intangible assets 984 - ----------- --------- 91,701 3,836 Depreciation 40,105 32,589Amortisation of intangible assets- Intangible assets arising on acquisitions 6,599 4,111- Software and development costs 4.886 4,185 ----------- --------- 11,485 8,296 Release of prior year network operating accruals (3,201) (2,378) Restructuring costs relate to redundancy and excess property costs. 3. Taxation The taxation charge/(credit) on continuing activities is set out below: Unaudited Audited Year ended Year ended 31-Mar 31-Mar 2006 2005 £'000 £'000Corporation tax 625 21Deferred tax (13,019) (7,072) ----------- ---------Group total (12,394) (7,051) ----------- --------- 4. Earnings per share Unaudited Audited Year ended Year ended 31 March 2006 31 March 2005 Weighted average number of shares No. No. For basic earnings per share 513,659,129 417,503,168Exercise of share options 838,079 1,046,401 --------- --------For diluted earnings per share 514,497,208 418,549,569 --------- -------- Earnings £'000 £'000 (Loss)/profit for the period attributable toequity holders of the Company (71,232) 17,484 Adjustment to exclude loss/(profit) for theperiod from discontinued operations 2,808 (2,446) --------- --------(Loss)/profit for the period fromcontinuing operations (68,424) 15,038 Adjustments:Exceptional items 91,701 3,836Amortisation of intangibles 6,599 4,111Tax and deferred taxation (12,394) (7,051) Adjusted profit for the periodfrom continuing operations --------- -------- 17,482 15,934 --------- -------- (Loss)/earnings per share fromcontiuing operations pence pence Basic (13.32) 3.60Diluted (13.32) 3.59 Adjusted basic 3.40 3.82Adjusted diluted 3.40 3.81 (Loss)/earnings per share fromdiscontinued operations Basic (0.55) 0.59Diluted (0.55) 0.58 Total (loss)/earnings per sharefrom continuing and discontinuedoperations Basic (13.87) 4.19Diluted (13.87) 4.18 For the year ended 31 March 2006, the impact of share options on unadjustedearnings per share is anti-dilutive and these have therefore been excluded fromthe calculation of dilutive weighted average share capital for all unadjustedearnings per share calculations. 5. Dividends Unaudited Audited Year ended Year ended 31-Mar 31-Mar 2006 2005 £'000 £'000Amounts recognised as distributions to equity holdersin the period: Interim dividend for the year ended 31 March 2005 of0.36 pence per share 1,390 ----------- -----------Final dividend for the year ended 31 March 2005 of0.54 pence per share 2,778 - ----------- -----------Interim dividend for the year ended 31 March 2006 of0.39 pence per share 2,006 - ----------- -----------Total 4,784 1,390 ----------- ----------- The proposed final dividend for the year ended 31 March 2006 is 0.78 pence pershare. In accordance with IAS 10 "Events after the balance sheet date",dividends declared after the balance sheet date are not recognised as aliability in these financial statements. 6. Acquisitions and disposals On 28 April 2004, the Group disposed of its Satellite and Broadcast division fora cash consideration of £34,000,000. On 31 May 2005, the Group disposed ofArche, the French operations acquired with Omnetica, for a cash consideration of£30,336,000. The results of discontinued operations, which have been included in consolidatedincome statement, were as follows: Unaudited Audited Year ended Year ended 31-Mar 31-Mar 2006 2005 £'000 £'000 Revenue 9,944 18,111Expenses excluding finance costs (11,844) (18,563) ----------- -----------Loss from operations (1,900) (452)Finance costs (43) - ----------- -----------Loss before tax (1,943) (452)Attributable tax 276 - ----------- -----------Loss after tax (1,667) (452)(Loss)/profit on sale of discontinued operations (1,141) 2,898 ----------- -----------Net (loss)/profit attributable to discontinuedoperations (2,808) 2,446 ----------- ----------- During the current period, Arche contributed £634,000 to the Group's netoperating cash flows, paid £301,000 in respect of investing activities and paid£42,000 in respect of financing activities. The effect of discontinued operations on segment result is shown in note 1. 6. Acquisitions and disposals (continued) 118800 Limited On 30 March 2006, the Group acquired 118800 Limited. The consideration paid was£1,188,000, including acquisition costs. Book value of Fair value Provisional assets adjustments fair value to acquired the Group of assets acquired £'000 £'000 £'000Goodwill 80 (80) -Intangible fixed assets - 689 689Trade and other receivables 151 (12) 139Bank loans and overdraft (27) - (27)Trade and other payables (223) 27 (196) --------- --------- ----------Net assets acquired (19) 624 605Goodwill 583 --------- --------- ----------Total consideration 1,188Satisfied by:Cash 982Kingston Communications (HULL) PLCshares 152Acquisition costs 54 --------- --------- ----------Total consideration 1,188 --------- --------- ---------- 7. Reconciliation of profit from operations Unaudited Audited Year ended Year ended 31-Mar 31-Mar 2006 2005 £'000 £'000 Group (loss)/profit from continuing operations (70,052) 16,625Loss from discontinued operations (1,900) (452)Profit on sale of fixed asset investments - (311)Loss on write down of fixed asset investments 261 141 ----------- -----------Group (loss)/profit from operations (71,691) 16,003 ----------- ----------- 8. Contingent Liabilities Contingent liabilities existed at 31 March 2006 in respect of guarantees givenby the Parent Company on behalf of subsidiary undertakings, together withcontingencies arising in the normal course of the Group's business in respect ofthe overdraft facilities. None of these guarantees are considered material inthe context of the net assets of the Group. As reported previously, the Company has responded to the European Commission(EC) in connection with its investigation into a third party complaint that theGovernment's rating of the Company's network infrastructure (and that of BT)constitutes illegal state aid. The Company has submitted a robust response tothe EC and based on external advice the Board considers the complaint is withoutfoundation. The EC continues to review the case and the Company's response butas at 31 March 2006 no claim has been made against the Company. Accordingly noprovision has been made in the accounts for the year ended 31 March 2006. 9. Basis of preparation The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRSs) and their interpretationsadopted by the International Accounting Standards Board (IASB). These are the Group's first consolidated financial statements prepared underIFRS and IFRS1 has been applied. Comparatives for 31 March 2005 have beenrestated to reflect the transition. Disclosures required by IFRS1 concerning thetransition from UK GAAP to IFRS are given in note 35 of the Report and Accounts. The financial information has been prepared on the historical cost basis. Theprincipal accounting policies are set out in the Report and Accounts. IFRS 1permits those companies adopting IFRS for the first time to take certainexemptions from the full requirement of IFRS in the transition period. KingstonCommunications (HULL) PLC has taken advantage of the following exemptions: i) IFRS 3 "Business Combinations" - Kingston Communications (HULL) PLC haselected not to apply IFRS 3 retrospectively to acquisitions that took placebefore 31 March 2004. ii) IFRS 2 "Share-based payments" - Kingston Communications (HULL) PLC haselected to apply IFRS 2 only to those share-based payment options that weregranted after 7 November 2002 and remained unvested at 1 January 2005. iii) IAS 21 "The effects of changes in foreign exchange rates" - KingstonCommunications (HULL) PLC has elected to reset the hedging and translationreserve to zero at 1 April 2004. iv) IAS 32 "Financial instruments: Disclosure and presentation" and IAS 39"Financial instruments: Recognition and measurement" - Kingston Communications(HULL) PLC has elected to apply UK GAAP to its comparative accounts (i.e. 1April 2004 to 31 March 2005) and implement IAS 32 and IAS 39 at 1 April 2005. On1 April 2005, in accordance with IAS 32 and IAS 39, all derivative financialinstruments were recorded at their fair value. The difference between the fairvalue and book value of all derivative financial instruments at 1 April 2005 hasbeen recorded in 2005 through the Consolidated Statement of Recognised Incomeand Expense. 10.Note to the preliminary announcement The financial information set out in the announcement does not constitute thecompany's statutory accounts for the year ended 31 March 2006 or 2005. Thefinancial information for the year ended 31 March 2005 is derived from thestatutory accounts for that year, which have been delivered to the Registrar ofCompanies. The auditors reported on those accounts; their report was unqualifiedand did not contain a statement under s237 (2) or (3) of the Companies Act 1985.The statutory accounts for the year ended 31 March 2006 will be finalised on thebasis of the financial information presented by the Directors in thispreliminary announcement and will be delivered to the Registrar of Companiesfollowing the Annual General Meeting. The financial information contained within this Preliminary Announcement wasapproved by the Board on 22 May 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
KCOM