27th Nov 2007 07:01
KCom Group PLC27 November 2007 27 November 2007 KCOM GROUP PLC (KCOM.L) ANNOUNCES UNAUDITED INTERIM RESULTS TO 30 SEPTEMBER 2007 KCOM Group PLC (KCOM.L) ("KCOM" or the "Group") today announces its unauditedinterim results for the half year ended 30 September 2007. Summary - continuing operations Six months ended Six months ended Change 30 Sept 07 30 Sept 06 over (£ million) (£ million) prior year (%)Results before exceptional items (1) Revenue 261.3 241.9 8.0 Operating margin (2) 96.3 88.0 9.4 EBITDA 35.9 33.7 6.5 Adjusted Group profit from operations (3) 19.4 19.1 1.6 Profit before tax and amortisation (4) 13.0 14.2 (8.4) Net cash flow from operations 22.1 20.6 7.3 EBITDA less capital expenditure 19.3 19.8 (2.5) Adjusted basic earnings per share pence)(5) 2.52 2.76 (8.7)Dividend per share (pence) 0.94 0.65 44.6 Reported resultsProfit before tax 5.3 10.3 (48.5)Basic earnings per share (pence) 1.41 2.17 (35.0) (1) A reconciliation of results before exceptional items to reported results is given in note 1. (2) Operating margin represents gross margin before the deduction of depreciation and amortisation and excludes gross overheads and general and administration expenses (3) Adjusted Group profit from operations excludes amortisation of intangible assets arising on acquisitions of £6.5 million (2006: £2.9 million) (4) A reconciliation of reported to adjusted results is given in note 4. (5) Adjusted basic earnings per share excludes discontinued operations, exceptional items, amortisation of intangible assets relating to acquisitions and taxation Highlights---------- • Revenue up 8.0 per cent to £261.3 million (2006: £241.9 million) primarily reflecting the benefits of prior year acquisitions, and leading to growth in EBITDA of 6.5 per cent to £35.9 million (2006: £33.7 million) • Adjusted Group profit from operations, which was impacted by higher depreciation and amortisation on increased investment in shorter life assets, increased to £19.4 million (2006: £19.1 million) • All business segments continue to deliver positive EBITDA less capital expenditure, with the Group delivering £19.3 million (2006: £19.8 million) • Adjusted basic earnings per share declined by 8.7 per cent to 2.52 pence per share with the combined effect of higher depreciation and amortisation together with an increase in interest charges diluting adjusted basic earnings by 0.65 pence per share • Interim dividend increased by 44.6 per cent to 0.94 pence per share (2006: 0.65 pence per share) reflecting confidence in the prospects for the Group Chief Executive, Malcolm Fallen said, "The Group has now established three clearbusiness segments with differing strategic challenges and distinct operationaland financial profiles. "Our Telecoms & Internet Services segment, together with our InformationServices segment, benefit from having established, cash generative businessmodels based on leading regional market positions. Progress across both Telecoms& Internet Services and Information Services has been strong, supported by thecontinued strength of our regional franchise and the impact of the Mistralacquisition. "The Integration & Managed Services segment operates in developing andcompetitive national markets. The business is less capital intensive and on astandalone basis is able to support the relatively low levels of ongoing capitalinvestment it requires to grow. "As we highlighted in our Trading Statement on 30 September, the currentuncertainty in the financial services vertical sector of the market could havean effect upon our Integration & Managed Services segment in the short term.Nonetheless, we remain confident our focus on operational effectiveness willsupport stronger second half results in this area of the business. "Our commitment to increase the level of dividends reflects our confidence in the medium and longer term prospects for the Group." Chairman, Michael Abrahams said: "The business has performed in line with ourexpectations over the first six months of the year as we have pursued ourstrategy of continuing to develop our Telecoms & Internet Services segmentwhilst building our Integration & Managed Services segment. "We are confident about the future of our business which continues to beunderpinned by the strong performance of our Telecoms & Internet Servicessegment and, as a result, we will be increasing our interim dividend by 44.6 percent to 0.94 pence per share." Michael Abrahams also said "I am delighted to welcome to the Board Paul Renucci,Managing Director of our Affiniti business and Graham Holden, Chief ExecutiveOfficer of Marshalls plc, who joins as a non-executive director. I would like tothank Peter Halls and Sean Christie, who are leaving the Board, for theircontribution and commitment to the development of the Group." For further information please contact: Corporate Communications & Investor Relations KCOM Group PLC: Anita Pace Tel: 01482 602666 Mobile: 07770 744322 The Maitland Consultancy: Colin Browne Tel: 020 7379 5151 Mobile: 07733 103800 Business and Operating Review----------------------------- At the start of the financial year we completed the re-alignment of the Group'soperations into three areas consistent with both the markets we serve and howthe business is managed: • Integration & Managed Services (I&MS) for corporate and public sector organisations, delivered by Affiniti, Smart421 and JAM IP • Telecoms & Internet Services (T&IS) primarily for medium and small businesses delivered by Kingston Communications and Eclipse • Information Services The individual business segments have very distinct financial profiles. We arereporting in line with these business segments for the first time: - Our T&IS and Information Services segments benefit from having established business models based on leading regional market positions, together with growth potential through extending into adjacent markets. These parts of the Group produce good margins and significant operating cash flows and are well positioned to take advantage of growth opportunities in areas such as internet hosting services. - Our I&MS segment is less capital intensive and on a standalone basis is able to support the relatively low levels of capital investment it requires to grow. This part of our business is in a period of significant transition as it moves away from commoditising enterprise and carrier network services and focuses on the delivery of higher quality revenues from consulting, professional and managed services. This change is a continuing process which the Board believes will deliver improving returns over the medium to long term as we build both on the depth of skills we have assembled and on the quality of our customer relationships. The acquisitions of Smart421, JAM IP and Mistral Internet, made in the secondhalf of the prior year, are playing an important part in the execution of ourstrategy. During the first half of this year we have worked to ensure they arepositioned within the business in a way that maximises their benefit to theGroup. The performance of the T&IS segment of the Group has been strong, reflecting thecontinued strength of our East Yorkshire business, organic growth from broadbandand the impact of the acquisition of Mistral Internet. The I&MS segment has performed in line with our expectations. Our first halffocus in this area of the business has been on establishing a sound platform forimproved operating performance in the medium term. Across the Group we have made significant operating progress during the firsthalf, with a number of projects being completed that will deliver futureefficiencies. These include progress to integrate systems that will improve theefficiency with which we manage our large enterprise and public sectorcustomers, investments in our inbound and outbound contact infrastructure thatwill lead to future productivity gains and the rationalisation of financesystems. We have implemented changes to the senior management team that willlead to a flatter structure leading in to 2008. This will see our seniorleadership team reduce from 13 to nine executives by April next year. Board Changes------------- Paul Renucci, who joined the Group in April 2007 as Managing Director ofAffiniti, our national communications integration business, joined the Board ofKCOM on 26 November 2007 with responsibility for Affiniti. Paul (44) has 20years of industry experience including roles at Damovo UK as Managing Directorand as President of Nortel's Enterprise division in EMEA. Peter Halls, thecurrent Executive Director for Affiniti, will step down from the Board on 20December 2007. Graham Holden, currently Chief Executive of Marshalls plc, was appointed to theBoard as a Non-Executive Director on 26 November. Formerly Finance Director ofMarshalls, he will replace Sean Christie who retired from the Board on 26November 2007 after almost nine years as a non-executive director and will chairthe Audit Committee. We confirm that there are no details requiring notificationin accordance with s.9.6.13 (2) to (6). Following the retirement of John Bailey, Company Secretary, Paul Simpson, ChiefFinancial Officer, will assume responsibility for company secretariat withimmediate effect. Financial Overview------------------ Group revenue for the half year has increased 8.0 per cent year on year to£261.3 million (2006: £241.9 million) and Group EBITDA, before exceptionalitems, has increased by 6.1 per cent to £35.9 million (2006: £33.7 million). Thedrivers of growth were the acquisitions made in the second half of the prioryear and broadband growth within the T&IS element of the Group, offsetting lowerrevenue and EBITDA within the I&MS segment. Adjusted profit for the Groupincreased nearly 2 per cent to £19.4 million (2006: £19.1 million), reflectingoverall growth in EBITDA offset by higher depreciation and amortisation chargeson higher levels of investment in short life assets. Group profit before tax decreased to £5.3 million from £10.3 million as a resultof an increase in both interest and the amortisation of intangible assetsrelating to acquisitions. This has resulted in a decrease in reported basicearnings per share to 1.41 pence per share (2006: 2.17 pence). Adjusted basicearnings per share of the Group are 2.52 pence (2006: 2.76 pence). The interim dividend will increase by 44.6 per cent to 0.94 pence per share(2006: 0.65 pence per share). Business review--------------- Telecoms & Internet Services---------------------------- Results before exceptional items Change over 2007 2006 prior year (£ million) (£ million) (%) Revenue 122.3 110.0 11.2Operating margin (1) 70.9 65.4 8.4EBITDA 30.8 27.1 13.7 (1) Operating margin represents gross margin before the deduction of depreciation and amortisation and excludes gross overheads and general and administration expenses The Group's T&IS operation comprises the Kingston Communications East Yorkshirebusiness together with our UK wide regional small and medium enterprise ("SME")business, partner channel and Eclipse Internet. Results for the first halfinclude a six month contribution from the Mistral Internet acquisition. TheMistral brand is now being phased out as we complete the integration ofMistral's hosting services into the service portfolio sold to SME businesses. T&IS has delivered strong organic growth from most areas during the first half.Revenue increased 11.2 per cent from £110.0 million to £122.3 million,reflecting continued growth in the broadband base from 140,851 to 195,255. Thisgrowth in broadband numbers has more than offset the declining revenues fromwholesale voice services, retail dial-up services and legacy premium rateservices. Our broadband base now reflects 81,400 'on net' customers and 113,900'off net', within which we are now delivering 45 per cent of our servicesthrough wholesale local loop unbundling. This has contributed to operatingmargin improvement. In addition we now have over 53 per cent of our totalrevenue within this segment subscription-based compared with 45 per cent in theprior year, providing us with increased future visibility of revenues. EBITDA for this area of the business increased by 13.7 per cent to £30.8 million(2006: £27.1 million). This growth has been driven by strong broadband demand,operating efficiencies and Mistral, and has been achieved despite the ongoingand anticipated decline in legacy voice revenues. Our approach to driving continued value in the T&IS segment will be tocapitalise on our connected base within the SME sector by providing hosting andrelated services, creating higher value relationships with existing customers.At the same time these combined capabilities will help drive new customeracquisition as we are able to offer a broader integrated access and hostedservices package to SMEs. At the same time we are continuing to achieve productivity gains in this area ofthe Group through the deployment of new IT and communications infrastructurethroughout our own customer contact centres. Cost efficiencies are also beingdelivered through the ongoing transfer of national broadband customers to awholesale unbundled local loop service. The outsourcing of the operation andmanagement of our carrier network to Nortel will also drive longer termefficiencies. The underlying resilience of the regional franchise in East Yorkshire combinedwith opportunities we are beginning to see for our combined access and hostingproposition into the SME market provide confidence that we can continue todeliver growth and consistent earnings and cash flow from this segment of theGroup. Over the medium term we will continue to build on the efficiency gains weare starting to deliver from the investments made over the last six months. Integration & Managed Services------------------------------ Results before exceptional items Change over 2007 2006 prior year (£ million) (£ million) (%) Revenue 139.9 134.5 4.0Operating margin (2) 27.3 27.0 1.11EBITDA 4.6 6.9 (33.3) (2) Operating margin represents gross margin before the deduction of depreciation and amortisation and excludes gross overheads and general and administration expenses The I&MS sector of the Group comprises the following lines of business: • Unified communications and managed network services delivered by Affiniti • IP contact centre solutions delivered by JAM IP • Storage and Data Management solutions delivered by DMS (Data Management Solutions) • Applications integration and applications managed services delivered by Smart421 During the first half, we have established Affiniti as the partner of choice forour three specialist 'centres of excellence' (JAM IP, DMS and Smart421) in a waythat ensures they can maximise growth opportunities that arise throughexploiting the breadth of the Affiniti client base and at the same timecapitalise on opportunities to work independently with customers and otherpartners. The order profile experienced in the first half was broadly as anticipated. Asreported in 2006, the first half last year benefited from a number of largeenterprise network upgrade projects, particularly around the financial servicesmarket, that were both ordered and delivered in the same period last year. We have seen some important new customer orders in the first half, includingPhones4U and FFastfill, with Yorkshire Water and Marshalls being amongst thecustomers that have extended the scope of their contracts. Overall, revenues increased 4.0 per cent to £139.9 million (2006: £134.5million). Revenue growth has arisen as a result of the contributions made by theacquisition of Smart421 and JAM IP. Underlying revenues reduced by 3.0 per centprimarily as result of prior year revenues benefiting from some major networkupgrade projects. The EBITDA reduction to £4.6 million (2006: £6.9 million) reflects: • The lower network upgrade project revenues in the first half of this year compared to the prior year reducing gross contribution by £1.7 million. • A £0.8 million year on year reduction in the value of one of our long-term managed services contracts consistent with the stage of the contract life cycle. As the contract has moved into the phase of providing ongoing services, the gross contribution reduced along with the level of capital expenditure incurred whilst building the customer's network. • The impact of implementing new 'in life' support arrangements for customers using Cisco technology has resulted in a £2.2 million increase in operating expenditure. As disclosed in 2006, this support model was introduced as it is more efficient from a cash perspective over the life cycle of a customer contract. • The balance of the year on year EBITDA improvement relates to a positive £2.4 million contribution from trading and acquisitions. During the second half the earnings performance for the I&MS segment is expectedto be stronger than that of the first half based on: • Higher order backlog of £194.8 million (2006: £183.6 million), an increase of 6.0 per cent year on year • Benefits of the investment in the development of our sales resource • Impact of operational improvements around our systems investment programmes. Over the course of the second half we will look to maintain tight operationalcontrol across all parts of this business area mindful of the uncertainty thatdoes exist in the financial services market, an important vertical market forus. Outside of the financial services market, the applications integrationservices team have experienced lower demand for services from one key customeron the back of major restructuring of their business resulting in a materialreduction in IT-related expenditure. Our confidence for the longer term remains strong as we continue to improve theoperational platform of the business, and seek to benefit from the new skillsacquired in the second half of 2006/7. The business is increasingly capable ofoperating in higher growth segments of the market. Our expectation is that the I&MS segment will report full year revenue in the range of £285-305 million withEBITDA and EBITA margins of between 3-5 per cent and 1-3 per cent respectively.We are targeting improved EBITA margins of 3-6 per cent in 2008/09 and 5-8 per cent in 2009/10. This reflects our revenue growth expectations of 5-10 per cent per annum and planned operational efficiencies in the medium-term. Information Services-------------------- Results before exceptional items Change over 2007 2006 prior year (£ million) (£ million) (%) Revenue 9.9 9.5 4.2Operating margin (3) 5.9 5.7 3.5EBITDA 4.2 3.8 10.5 (3) Operating margin represents gross margin before the deduction of depreciation and amortisation and excludes gross overheads and general and administration expenses Our Information Services segment has performed well in the first half. Revenueincreased by 4.2 per cent to £9.9 million (2006: £9.5 million) with EBITDAincreasing by 10.5 per cent to £4.2 million (2006: £3.8 million). These results reflect a strong sales campaign for Hull Colour Pages, continuedsuccess in the outsourced directory enquiries market and the expansion of anexisting outsourced contact centre contract for the provision of outboundtelesales capacity. The launch of Information Services' local businessdirectories, 'Know', throughout parts of Lincolnshire and Yorkshire has showninitial promise, with 10 directories launched in the first campaign. The secondsales cycle has now started. The resilience of our Hull Colour Pages brand, combined with the growthopportunity that Know offers and the consistent and accurate delivery ofinformation to end users through our outsourced directory services proposition,leave the business well placed to deliver improving future performance. Group Earnings-------------- EBITDA------ Group EBITDA before exceptional items has increased by 6.5 per cent to £35.9million from £33.7 million. This increase has been driven by the acquisitions ofSmart421, JAM IP and Mistral in the second half of last year. The increase inEBITDA delivered within the Information Services and T&IS segments has offsetthe decline reported within the I&MS segment. Group EBITDA includes a loss on other activities of £3.7 million in the currentyear (2006: £4.3 million) and represents the unallocated corporate andoperational costs. The Group has incurred exceptional items of £1.2 million in 2007 (2006: £1.0million) as a consequence of redundancy costs relating to restructuring. GroupEBITDA, after exceptional items, has increased by 6.3 per cent to £34.8 millionfrom £32.7 million. Depreciation and amortisation----------------------------- Depreciation and amortisation amounted to £23.0 million in the current year(2006: £17.5 million). Included in this amount is £6.5 million in respect of theamortisation of intangible assets arising on acquisitions which has increased onthe prior year amount of £2.9 million as a consequence of the inclusion of anamortisation charge in relation to the assets arising on the acquisitions ofSmart421, JAM IP and Mistral in the prior period. Depreciation of tangible fixed assets has increased from £11.0 million to £12.2million, reflecting increased investment in T&IS in the last twelve monthperiod. Group profit from operations---------------------------- Adjusted Group profit from operations, excluding the amortisation of intangibleassets arising on acquisitions, has increased 1.6 per cent to £19.4 million(2006: £19.1 million) reflecting the increased EBITDA generated in the period. Group profit from operations before exceptional items is £12.9 million (2006:£16.2 million), a decrease of 20.3 per cent reflecting a £3.6 million increasein the charge for the amortisation of intangible assets arising on acquisitions. Finance costs------------- Group financing costs of £6.5 million (2006 £4.9 million) reflect a higher levelof borrowings consistent with the financing in respect of the acquisitionscompleted in the prior year. In addition average LIBOR rates have been higherthan in the prior year. Profit before tax----------------- Group profit before taxation has decreased 48.5 per cent to £5.3 million (2006:£10.3 million) reflecting the combined impact of increased depreciation,amortisation and interest costs. Taxation-------- The taxation credit of £1.9 million (2006: £0.9 million) arises as a consequenceof the taxation amortisation benefit associated with intangible assets arisingon acquisitions. Profit for the period from continuing operations------------------------------------------------ Profit for the period from continuing operations is £7.2 million (2006: £11.2million). Earnings per share------------------ The Group reported an Adjusted profit for the period from continuing operationsof £13.0 million (2006: £14.2 million) producing an Adjusted basic earnings pershare of 2.52 pence (2006: 2.76 pence). Basic earnings per share amounted to 1.41 pence (2006: 2.17 pence). Adjustedbasic earnings per share amounted to 2.52 pence (2005: 2.76 pence). Group Financing and Investment------------------------------ Group net debt at 30 September 2007 was £173.2 million (2006: £150.8 million),reflecting the acquisitions made for cash during the second half of last year. Net cash inflow from operations of £22.1 million has increased 7.3 per cent(2006:£20.6 million). With movement in working capital being comparable year onyear, this is due to an improvement in overall operating performance. The purchase of tangible and intangible assets amounted to £19.5 million (2006:£14.7 million). The increase in this cash amount reflects a combination of highinvestment in the first half relative to the prior year plus the cash impact ofhigh investment levels in the second half of last year. The cash cost of dividends in 2007 was £6.7 million (2006: £4.0 million)reflecting the increased level of final dividend declared in the prior yearfinancial results. The cash cost of financing Group debt in the period amounted to £4.9 million(2006: £4.5 million). The increase in the profit and loss expense is greater asa consequence of the facility fee associated with the cash cost of refinancingbeing paid during the second half of the prior year. In accordance with IAS 19, the Group now recognises the liabilities associatedwith its defined benefit pension scheme in the financial statements. As at 30September 2007, the Group had a net liability in respect of its pension schemeobligations of £2.7 million (2006: £19.3 million). The triennial valuation ofthe Kingston Communications Defined Benefit Pension Scheme is currently beingperformed as at 1 April 2007, the results of which will be reflected in theresults from the period to 31 March 2008 During the period to 30 September 2007 the net retirement benefit liability hasreduced from £12.7 million at 31 March 2007 to £2.7 million at 30 September2007. The principal reason for this reduction is the higher yield on corporatebonds which is used to discount the value of the scheme liabilities. Over theperiod the discount rate increased from 5.4 per cent at 31 March 2007 to 5.9 percent at 30 September 2007. Dividend Policy--------------- The Board has considered carefully the options to maximise value forshareholders and has concluded that in the near term it is preferable to alignthe distribution policy of the Company more closely to the performance of the T&IS and Information Services segments, being the more mature segments within the Group. This will have the effect of significantly improving the distribution of the Company's earnings. The Board expects to continue to pay dividends split in the ratio of one third / two thirds between the interim and final dividend. As a result of implementing this approach, the Board will pay an interimdividend of 0.94 pence per share, representing an increase of 44.6 per cent onthe prior year (2006: 0.65 pence per share), payable on 2 February 2008 toshareholders registered at the close of business on 21 December 2007. Principal risks--------------- The Group has identified key strategic, operational and financial risks. Theserisks, and principal actions to mitigate them, include: • Pursuit and execution of appropriate strategies - managed by regular operational management and Board strategy performance reviews • Retaining and recruiting the right staff - managed through the development of clear grading structures, reward strategies benchmarked against other businesses and targeted learning and development programmes • Meeting customer expectations - managed by an appropriate customer-facing business structure, a commitment to certification and compliance with recognised standards (i.e. ISO 15000), the undertaking and analysis of regular customer feedback and a direct link in reward structures to achieving customer satisfaction. Outlook------- The T&IS segment has increasing levels of recurring revenue and this, togetherwith its growth prospects and strong margin profile, provides assurance of thefuture financial performance of this segment in the second half and beyond. The I&MS segment currently has less forward visibility due to the mix of itsrevenues. However, the continued development of our capabilities and ongoingability to secure new customers, combined with the fact that it is now cashgenerative, leaves us confident that our medium-term targets are achievable. These factors are reflected in our increased interim dividend and demonstrateour confidence in the future growth of our business. Forward-looking statements-------------------------- Certain statements in this interim report are forward-looking. Although theGroup believes that the expectations reflected in these forward-lookingstatements are reasonable, we can give no assurance that these expectations willprove to have been correct. Because these statements involve risks anduncertainties, actual results may differ materially from those expressed orimplied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether asresult of new information, future events or otherwise. ENDS Consolidated Interim Income Statement------------------------------------- Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 2007 30-Sep 2006 31-Mar 2007 Note £'000 £'000 £'000Continuing OperationsRevenue 1 261,346 241,870 483,120 Operating expenses (249,601) (226,645) (459,543) Group operating profit 1 11,745 15,225 23,577 Analysed as:Group EBITDA 1 34,746 32,701 63,146Depreciation of property, plant and equipment 1 (12,227) (11,035) (24,192)Amortisation of intangible assets 1 (10,774) (6,441) (15,377) Finance costs (6,499) (4,991) (13,220)Finance income 35 52 261Share of profit of associates 5 - 12 Profit before taxation 2 5,286 10,286 10,630 Taxation 4 1,941 867 13,339 Profit for the period from continuing operations 7,227 11,153 23,969 Discontinued OperationsLoss for the period from discontinued operations - (670) (578) Profit for the period attributableto equity holders of the Company 7,227 10,483 23,391 Earnings per share from continuing operations Basic 5 1.41p 2.17p 4.66pDiluted 5 1.41p 2.17p 4.66p Earnings per share from total operations Basic 5 1.41p 2.04p 4.55pDiluted 5 1.41p 2.04p 4.55p Consolidated Interim Statement of Recognised Income and Expense--------------------------------------------------------------- Unaudited Unaudited Audited Six Six Year months months ended ended Ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 £'000 £'000 £'000 Exchange differences on translation of foreign operations - - 12Cash flow hedges (53) 520 895Actuarial gains/(losses) on retirement benefit obligation 8,720 (6,547) (3,166)Tax on items taken directly to equity (2,988) 801 (1,201)Net income/(expense) recognised directly in equity 5,679 (5,226) (3,460)Profit for the period 7,227 10,483 23,391 Total recognised income and expense for the period 12,906 5,257 19,931 Consolidated Interim Balance Sheet---------------------------------- Unaudited Unaudited Audited As at As at As at 30-Sep 30-Sep 31-Mar 2007 2006 2007 £'000 £'000 £'000Non-current assetsGoodwill 193,245 179,838 192,754Other intangible assets 40,793 36,072 48,511Property, plant and equipment 133,625 127,846 132,385Investments 860 857 854Deferred tax assets 24,331 20,413 25,378 392,854 365,026 399,882Current assetsInventories 15,621 15,901 9,866Trade and other receivables 98,447 85,771 88,087Cash and cash equivalents 26,298 19,223 30,110 140,366 120,895 128,063Total assets 533,220 485,921 527,945 Current liabilitiesTrade and other payables (141,885) (126,211) (138,234) Non-current liabilitiesBank loans (198,800) (169,867) (193,383)Retirement benefit obligations (2,709) (19,339) (12,665)Long term provisions and other payables (5,670) (4,601) (6,062) Total liabilities (349,064) (320,018) (350,344) Net assets 184,156 165,903 177,601 Capital and reserves, attributable to equity holders of the CompanyShare capital 51,526 51,480 51,493Share premium account 352,657 352,360 352,450Hedging and translation reserve 811 490 877Retained earnings (220,838) (238,427) (227,219) Total equity 184,156 165,903 177,601 Consolidated Interim Cash Flow Statement---------------------------------------- Unaudited Unaudited Audited Six months Six months Year ended ended Ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 Note £'000 £'000 £'000Net cash flow from operating activitiesOperating profit 6 11,745 15,189 23,564Adjustments for:Depreciation and amortisation 23,001 17,476 39,569Increase in working capital (12,641) (12,166) (4,114)Employee share schemes 100 128 393Gain on sale of property, plant and equipment (125) - -Income taxes paid - (76) (284) Net cash inflow from operations 22,080 20,551 59,128 Cash flows from investing activitiesPurchase of businesses (319) (20,110) (43,064)Purchase of property, plant and equipment (16,424) (11,593) (23,721)Proceeds from sale of property, plant & equipment 250 22 12Purchase of intangible assets (3,046) (3,062) (6,495)Purchase of investments - - (13)Net cash used in investing activities (19,539) (34,743) (73,281) Cash flows from financing activitiesDividends paid (6,691) (4,012) (7,356)Issue costs of long term loans (230) (86) (1,416)Interest paid (4,687) (4,574) (11,496)Interest received 35 118 261Capital element of finance lease repayments (280) (115) (301)Repayment of bank loans - - (13)New loans 5,500 30,000 52,500 Net cash (used in)/from financing activities (6,353) 21,331 32,179 (Decrease)/increase in cash and cash equivalents (3,812) 7,139 18,026 Cash and cash equivalents at the beginning of the period 30,110 12,084 12,084 Cash and cash equivalents at the end of the period 26,298 19,223 30,110 1. Segmental Analysis--------------------- With effect from 1 April 2007, the Group has carried out an operationalreorganisation of the business, in order to align the reported activities ofeach business segment with the markets which they serve. As a result, thefollowing segmental analysis for the period to 30 September 2006 and 31 March2007 has been restated to reflect this reorganisation. Unaudited Unaudited Audited Six months ended Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 As restated As restated £'000 £'000 £'000 Revenue Integration and managed services 139,889 134,549 270,959Telecoms and internet services 122,258 110,087 222,666Information Services 9,881 9,486 13,630Other (4) (10,682) (12,252) (24,135)Total - continuing activities 261,346 241,870 483,120Discontinued activities - 75 75 261,346 241,945 483,195 Operating margin Operating margin represents gross margin before the deduction of depreciationand amortisation and excludes overheads and general and administration expenses.This additional information is an operational measure used by the Board inmanaging the financial performance of the business. Integration and managed services 27,298 27,038 59,852Telecoms and internet services 70,946 65,445 133,066Information Services 5,906 5,664 7,322Other (4) (7,859) (10,149) (19,532)Total - continuing activities 96,291 87,998 180,708Discontinued activities - 45 45 96,291 88,043 180,753 Group EBITDA Integration and managed services 4,611 6,884 19,030Telecoms and internet services 30,804 27,127 58,421Information Services 4,190 3,840 3,684Other (4) (3,690) (4,156) (10,163)Total - continuing activities before 35,915 33,695 70,972exceptional itemsExceptional items:Integration and managed services (520) - (57)Telecoms and internet services (187) (54) (1,781)Information Services (30) (64) (91)Other (4) (432) (876) (5,897) (1,169) (994) (7,826)Total - continuing activities 34,746 32,701 63,146Discontinued activities - (36) (36) 34,746 32,665 63,110 (4) Other includes head office costs, shared services and eliminations. 1. Segmental Analysis (continued)--------------------------------- Unaudited Unaudited Audited Six months ended Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 As restated As restated £'000 £'000 £'000 Depreciation Integration and managed services 4,383 4,428 9,263Telecoms and internet services 6,836 6,003 13,735Information Services 236 249 502Other (5) 772 355 692Total - continuing activities 12,227 11,035 24,192Discontinued activities - - - 12,227 11,035 24,192 Amortisation Integration and managed services 4,603 2,900 7,734Telecoms and internet services 5,680 2,841 5,828Information Services 65 59 100Other (5) 426 641 1,715Total - continuing activities 10,774 6,441 15,377Discontinued activities - - - 10,774 6,441 15,377 (Loss)/profit from operations Integration and managed services (4,375) (444) 2,033Telecoms and internet services 18,288 18,283 38,858Information Services 3,889 3,532 3,082Segment result - continuing activities 17,802 21,371 43,973before exceptional itemsExceptional items:Integration and managed services (520) - (57)Telecoms and internet services (187) (54) (1,781)Information Services (30) (64) (91)Other (5) (432) (876) (5,897) (1,169) (994) (7,826)Segment result - continuing 16,633 20,377 36,147activitiesHead office and other unallocated (4,888) (5,152) (12,570)costsProfit from continuing operations 11,745 15,225 23,577Share of profit of associate 5 - 12Profit from continuing operations 11,750 15,225 23,589Segment result - discontinued - (670) (578)activities 11,750 14,555 23,011 (5) Other includes head office costs, shared services and eliminations. 1. Segmental Analysis (continued)--------------------------------- Unaudited Unaudited Audited Six months ended Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 As restated As restated £'000 £'000 £'000Capital expenditure on property,plant and equipment and intangibleassets Integration and managed services 2,013 3,264 4,851Telecoms and internet services 12,901 9,681 25,714Information Services 71 95 299Other (6) 1,671 828 2,198Total - continuing activities 16,656 13,868 33,062Discontinued operations - - - 16,656 13,868 33,062 The split of total revenue between external customers and inter-segment revenueis as follows: Unaudited Unaudited Audited Six months ended Six months ended Year ended 30-Sep 30-Sep 31-Mar 2006 2006 2007 As restated As restated £'000 £'000 £'000 Revenue from external customers Integration and managed services 139,158 134,549 270,863Telecoms and internet services 113,059 99,062 200,737Information Services 8,778 8,236 11,472Other (6) 351 23 48Discontinued operations - 75 75Total 261,346 241,945 483,195Inter-segment revenueIntegration and managed services 731 - 96Telecoms and internet services 9,199 11,025 21,929Information Services 1,103 1,250 2,158Other (6) (11,033) (12,275) (24,183)Total - - - 261,346 241,945 483,195 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 Unaudited Audited Six months ended Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 £'000 £'000 £'000Geographical analysis of revenue United Kingdom 259,088 239,447 468,288Continental Europe 2,151 2,382 12,946Other 107 116 1,961 261,346 241,945 483,195 (6) Other includes head office costs, shared services and eliminations. 2. Exceptional items-------------------- Exceptional items are separately disclosed by virtue of their size or incidenceto enable a full understanding of the Group's financial performance.Restructuring costs arise as a result of organisational changes following theintegration of acquisitions. Onerous lease provisions arise as a result ofcontinued rationalisation of the Group's property portfolio. Unaudited Unaudited Audited Six months ended Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 £'000 £'000 £'000 Exceptional items:- Restructuring costs 1,169 232 2,033- Onerous lease provision - 762 5,770- Amounts written off investments - - 23 Charged to operating profit 1,169 994 7,826 - Accelerated loan fee amortisation - - 1,918 Charged to profit before taxation 1,169 994 9,744 3. Taxation----------- The taxation credit on continuing activities is set out below: Unaudited Unaudited Audited Six months ended Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 £'000 £'000 £'000Corporation tax - - 122Deferred tax 1,941 867 13,217Group total 1,941 867 13,339 There is an unprovided deferred tax asset in respect of accelerated capitalallowances, which has decreased from approximately £20m at 31 March 2007(calculated at 30%) to £13m at 30 September 2007 (calculated at 28%). 4. Earnings/(loss) per share---------------------------- Unaudited Unaudited Audited Six months ended Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007Weighted average number of shares No. No. No. For basic earnings/(loss) per share 514,135,201 513,917,990 513,941,128Share options in issue 78,159 751,874 171,636For diluted earnings/(loss) per share 514,213,360 514,669,864 514,112,764 Earnings/(loss) £'000 £'000 £'000 Profit for the period attributable to 7,227 10,483 23,391equity holders of the Company Adjustment to exclude loss for theperiod from discontinued operations - 670 578 Profit for the periodfrom continuing operations 7,227 11,153 23,969 Adjustments:Exceptional items 1,169 994 7,826Accelerated loan fee amortisation - - 1,918Amortisation of intangible assets arisingOn acquisitions 6,503 2,891 8,015Taxation (1,941) (867) (13,339) Adjusted profit for the periodfrom continuing operations 12,958 14,171 28,389 Earnings per share fromcontinuing operations pence pence pence Basic 1.41 2.17 4.66Diluted 1.41 2.17 4.66 Adjusted basic 2.52 2.76 5.52Adjusted diluted 2.52 2.75 5.52 Loss per share fromdiscontinued operations Basic - (0.13) (0.11)Diluted - (0.13) (0.11) Total earnings per sharefrom continuing and discontinuedoperations Basic 1.41 2.04 4.55Diluted 1.41 2.04 4.55 5. Dividends------------ Unaudited Unaudited Audited Six months ended Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 £'000 £'000 £'000Amounts recognised as distributionsto equity holders in the period:Final dividend for the year ended - 4,012 4,01231 March 2006 of 0.78 pence per shareInterim dividend for the year ended - - 3,34431 March 2007 of 0.65 pence per shareFinal dividend for the year ended 6,691 - -31 March 2007 of 1.30 pence per shareTotal 6,691 4,012 7,356 The proposed interim dividend for the six months ended 30 September 2007 is 0.94pence per share. In accordance with IAS 10 "Events after the balance sheetdate", dividends declared after the balance sheet date are not recognised as aliability in this set of interim financial information. 6. Reconciliation of operating profit------------------------------------- Unaudited Unaudited Audited Six months ended Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 £'000 £'000 £'000 Group operating profit from 11,745 15,225 23,577continuing operationsLoss from discontinued operations - (36) (36)Loss on write down of fixed asset - - 23investmentsTotal operating profit 11,745 15,189 23,564 7. Consolidated Interim Statement of Changes in Shareholders' Equity-------------------------------------------------------------------- Hedging Share and Share Premium Translation Retained Capital Account Reserve Earnings Total £'000 £'000 £'000 £'000At 1 April 2006 51,480 352,360 (30) (239,280) 164,530Employee share schemes - - - 128 128Total income and expenserecognised directly in equity - - 520 (5,746) (5,226)Profit for the period - - - 10,483 10,483Dividends - - - (4,012) (4,012)At 30 September 2006 51,480 352,360 490 (238,427) 165,903Employee share schemes - - - 265 265Shares issued in the period 13 90 - - 103Total income and expenserecognised directly in equity - - 387 1,379 1,766Profit for the period - - - 12,908 12,908Dividends - - - (3,344) (3,344)At 31 March 2007 51,493 352,450 877 (227,219) 177,601Employee share schemes - - - 100 100Shares issued in the period 33 207 - - 240Reclassification - - (13) 13 -Total income and expenserecognised directly in equity - - (53) 5,732 5,679Profit for the period - - - 7,227 7,227Dividends - - - (6,691) (6,691)At 30 September 2007 51,526 352,657 811 (220,838) 184,156 8. Basis of preparation and Publication of interim results---------------------------------------------------------- This interim financial information comprises the consolidated balance sheets at30 September 2007, 30 September 2006 and 31 March 2007 and the consolidatedstatements of income, recognised income and expense and cash flows for theperiods then ended and related notes of KCOM Group PLC, (hereinafter referred toas "the financial information"). This interim financial information has been prepared in accordance with theDisclosure and Transparency Rules of the Financial Services Authority and withIAS 34, 'Interim financial reporting' as adopted by the European Union. Inpreparing this information management have used the accounting policies set outin the Group's 2007 financial statements. The following new standards, amendments to standards or interpretations aremandatory for the financial year ending 31 March 2008: • IFRIC 7, 'Applying the restatement approach under IAS 29', effective for annual periods beginning on or after 1 March 2006. This interpretation is not relevant for the Group. • IFRIC 8, 'Scope of IFRS 2', effective for annual periods beginning on or after 1 May 2006. This interpretation has not had any impact on the recognition of share-based payments in the Group. • IFRS 7, 'Financial instruments: Disclosures', effective for annual periods beginning on or after 1 January 2007. IAS 1, 'Amendments to capital disclosures', effective for annual periods beginning on or after 1 January 2007. IFRS 4, 'Insurance contracts', revised implementation guidance, effective when an entity adopts IFRS 7. As this interim report contains only condensed financial statements, and as there are no material financial instrument related to transactions in the period, full IFRS 7 disclosures are not required at this stage. The full IFRS 7 disclosures, including the sensitivity analysis to market risk and capital disclosures required by the amendment of IAS 1, will be giving in the annual financial statements. The following new standards, amendments to standards or interpretations havebeen issued, but are not effective for the financial year ending 31 March 2008and have not been adopted early: • IFRIC 12, 'Service concession arrangements', effective for annual periods beginning on or after 1 January 2008. Management do not expect this interpretation to be relevant for the Group. • IFRS 8, 'Operating segments', effective for annual periods beginning on or after 1 January 2009, subject to EU endorsement. Management do not currently foresee any changes to the Group's segmental analysis. This interim financial information does not constitute a set of statutoryaccounts under s.240 of the UK Companies Act 1985 and is unaudited. Thecomparative figures for the financial year ended 31 March 2007 are an extractfrom the Group's 2007 financial statements, which have been reported on by thecompany's auditors and delivered to the Registrar of Companies. Thesecomparative figures have been restated where necessary for the operationalreorganisation on 1 April 2007 The report of the auditors was unqualified anddid not contain statements under section 237(2) or (3) of the UK Companies Act1985. This document (the Interim Report 2007/08) will be published on the company'swebsite in addition to the normal paper version. The maintenance and integrityof the KCOM Group PLC website is the responsibility of the directors and thework carried out by the auditors does not involve consideration of thesematters. Legislation in the UK governing the preparation and dissemination ofaccounts may differ from legislation in other jurisdictions. 9. Statement of directors' responsibilities------------------------------------------- The directors confirm that this condensed set of interim financial statementshas been prepared in accordance with IAS 34 as adopted by the European Union,and that the interim management report herein includes a fair review of theinformation required by DTR 4.2.7 and DTR 4.2.8. The directors of KCOM Group PLC are listed in the KCOM Group Annual Report for31 March 2007, with the exception of the following changes: • Paul Renucci has joined the Board as Managing Director of Affiniti with effect from 26 November 2007. • Peter Halls, the current Executive Director for Affiniti, will step down from the Board on 20 December 2007. • Graham Holden has been appointed to the Board as a Non-Executive Director with effect from 26 November 2007, replacing Sean Christie as Chairman of the Audit Committee. Sean Christie is retiring from the Board with effect from 26 November 2007. • Paul Simpson, Chief Financial Officer, has, with effect from 26 November 2007, assumed responsibility for company secretarial matters following the retirement of John Bailey. • John Carrington has taken on the role of Senior Independent Non-Executive Director with effect from 26 November 2007. • Gordon Wilson retired from the Board on 4 June 2007. • John Robinson retired from the Board on 5 June 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
KCOM