25th Nov 2008 07:00
25 November 2008
KCOM GROUP PLC (KCOM.L) ANNOUNCES
UNAUDITED INTERIM RESULTS TO 30 SEPTEMBER 2008
KCOM Group PLC (KCOM.L) ("KCOM" or the "Group") today announces its unaudited interim results for the half year ended 30 September 2008.
Summary - continuing operations
|
Six months ended 30 Sept 08 (£ million) |
Six months ended 30 Sept 07 (£ million) |
Change over prior year (%) |
|
|
Results before exceptional items (1) |
|||
|
Revenue |
243.6 |
261.3 |
(6.8) |
|
Operating margin (2) |
100.5 |
104.5 |
(3.8) |
|
EBITDA |
34.4 |
35.9 |
(4.2) |
|
Profit before tax and amortisation ("PBTA") (3) |
14.0 |
13.0 |
7.7 |
|
Net cash in flow from operations |
20.9 |
22.1 |
(5.4) |
|
EBITDA less capital expenditure |
20.8 |
19.3 |
7.8 |
|
Adjusted basic earnings per share (pence) (4) |
2.71 |
2.52 |
7.5 |
|
Dividend per share (pence) |
0.50 |
0.94 |
(46.3) |
|
Reported results |
|||
|
(Loss)/Profit before tax |
(103.0) |
5.3 |
|
|
Basic (loss)/earnings per share (pence) |
(19.7) |
1.4 |
(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) PBTA represents profit before taxation excluding exceptional items and the amortisation and impairment of intangible assets relating to acquisitions.
(4) Adjusted basic earnings per share excludes exceptional items, taxation and amortisation and impairment of intangible assets relating to acquisitions.
Group overview
Overall Group performance has been resilient in challenging economic conditions as evidenced by the improvement in PBTA and the stability of cash flow produced. This performance is underpinned by the continuing strong performance of the Telecoms and Internet Services ("T&IS") and Information Services businesses.
Performance of the Integration and Managed Services business ("I&MS") has been adversely impacted by difficult market conditions. Following a strengthening of the senior management team in this business, coupled with a reduced cost base, improved second quarter order intake and the improving quality of the public sector pipeline, we anticipate stronger performance in the second half of the year.
In response to the current market conditions, the Group will remain focused on the reduction to its cost base and the appropriate prioritisation of its ongoing investment opportunities.
The Group remains well financed with a committed non amortising bank facility in place until March 2012. Group net debt of £180.2 million at the period end (2007: £173.2 million) is anticipated to reduce over the second half of the year following the August peak associated with the payment of the prior year final dividend. Opportunities exist to improve the working capital profile within Affiniti.
The Board, supported by advisors JPMorgan Cazenove and Oakley Capital Corporate Finance, is undertaking a strategic review. The review is looking at all aspects of the Group's current operations to determine how best to enhance shareholder value.
Consistent with a focus on reducing Group indebtedness, the Board has reviewed its dividend policy and envisages paying a total full year dividend not less than 1.5 pence per share subject to the outcome of the strategic review. In line with previous practice, this will result in the Board paying an interim dividend of 0.5 pence per share.
Financial highlights
Revenue declined 6.8 per cent to £243.6 million (2007: £261.3 million) primarily on a lower volume of project sales within I&MS.
Overall operating margin on revenue has increased to 41.3 per cent (2007: 40.0 per cent) on stronger mix of higher margin business.
Group EBITDA before exceptional items of £34.4 million (2007: £35.9 million) underpinned by strength of T&IS performance.
Group EBITDA margin improving to 14.1 per cent (2007: 13.7 per cent).
Adjusted basic EPS increased 7.5 per cent to 2.71 pence (2007: 2.52 pence) as lower capital expenditure over the last 24 months has reduced depreciation.
Exceptional impairment of £106.9 million to the carrying value of goodwill relating to I&MS results in reported Group loss before taxation of £103.0 million (2007: profit of £5.3 million) leaving a residual carrying value of goodwill and intangible assets of £72.5 million for I&MS.
Exceptional loss following the collapse of Lehman Brothers materially reduced to £1.0 million from previously communicated upper limit of £3.0 million.
Net cash inflow from operations resilient at £20.9 million (2007: £22.1 million).
Group net debt total at £180.2 million (2007: £173.2 million) includes the £8.6 million cash impact of exceptional items over the last 12 months. The Group had a net debt to EBITDA ratio of 2.65 following payment of the prior year final dividend in August and remains comfortably within the facility limit of 3.0.
Interim dividend of 0.5 pence per share (2007: 0.94 pence) represents one third of envisaged minimum full year dividend of 1.5 pence per share (2007: 2.82 pence).
Management change
The Group is today announcing changes to its management structure. Over the course of the last five years the Group has made a significant transformation to a business that is increasingly less dependent on capital investment in network infrastructure. We have now established two increasingly autonomous and distinct business units with their own strengthened management teams. Malcolm Fallen, having overseen the transformation as Chief Executive Officer, is now standing down from the Board.
Bill Halbert, currently the Group's Senior Independent Director, becomes Executive Deputy Chairman, taking responsibility for the Group's continuing development and operational performance. The existing management teams will now report to Bill Halbert, who was the founding CEO of BT's IT services subsidiary, Syntegra.
Michael Abrahams, who has served as Chairman since 1999, has indicated that he will retire from the Board at the next Annual General Meeting in July 2009. A search is underway to find a replacement.
Chairman, Michael Abrahams said, "Overall, the Group financial performance has been resilient in challenging market conditions. The Group remains well financed with committed banking facilities in place until March 2012. The Board is determined to make further improvements to all aspects of the Group's performance and is undertaking a strategic review of Group activities with its advisors to that effect.
"It is with regret that we announce that Malcolm Fallen, our Chief Executive is standing down. He has demonstrated great leadership within the business through his ability and energy, and leaves behind him an established, strong team that, under the guidance of Bill Halbert, can continue to take the business forward. We wish him every success in the future."
For further information please contact:
KCOM Group PLC:
Paul Simpson, CFO Tel: 01924 882952 (PA: Annette Watling)
The Maitland Consultancy:
Colin Browne Tel: 020 7379 5151
Mobile: 07733 103800
Business and Operating Review
Financial Overview
Group revenue decreased in line with our expectations by 6.8 per cent to £243.6 million (2007: £261.3 million). The most significant factor behind this was the reduction in I&MS project and product revenue on account of current market conditions.
Operating margins improved to 41.3 per cent (2007: 40.0 per cent) reflecting a stronger mix of higher margin services. Group EBITDA before exceptional items reduced to £34.4 million (2007: £35.9 million) due to lower revenue.
The Group continues to have a strong focus on managing its overall cost base. Group overhead expense has fallen to £66.1 million in the period (2007: £68.6 million). There are a number of contributing factors to this 3.6 per cent reduction including a 8.3 per cent reduction in the total Group headcount from the end of September 2007 to September 2008 (from 2,729 to 2,519 employees respectively).
Depreciation and amortisation of software licenses decreased following lower capital expenditure in the last 24 months, resulting in Group PBTA before exceptional items increasing 7.7 per cent to £14.0 million (2007: £13.0 million).
The carrying value of goodwill and intangible assets relating to I&MS has been reviewed. Whilst the Board believes that the current financial performance will improve in the future, it has, in accordance with IAS 36 (Impairment of Assets), taken an exceptional impairment charge to the carrying value of the I&MS goodwill of £106.9 million. This impairment reflects the impact that current market conditions have had on the financial performance of I&MS. The residual carrying value of the goodwill and intangible assets in I&MS is £72.5 million. As a consequence of this impairment, the Group reported a loss before tax of £103.0 million (2007: profit of £5.3 million).
The focus on reducing the capital intensity of the business has seen the level of EBITDA less capital expenditure increase 7.8 per cent to £20.8 million (2007: £19.3 million) following a reduction in capital expenditure to £13.6m (2007: £16.7m).
Business review
Telecoms & Internet Services
|
Results before exceptional items |
2008 (£ million) |
2007 (£ million) |
Change over prior year (%) |
|
Revenue |
119.8 |
122.3 |
(2.0) |
|
Operating margin |
71.7 |
70.8 |
1.3 |
|
EBITDA |
32.8 |
30.8 |
6.5 |
The T&IS business has performed strongly in the period. Despite reporting a 2.0 per cent reduction in revenue year over year, EBITDA grew by 6.5 per cent and operating margins improved 1.3 per cent, reflecting a stronger mix of revenue and the benefit of certain targeted margin enhancing operational actions.
The major year on year movements in revenue and operating margin are driven by:-
a 3.1 per cent increase in broadband revenue to £26.4 million (2007: £25.6 million) with operating margins improved by reducing end user access costs from our partners, BT and Tiscali.
a 12.0 per cent growth in high margin bandwidth related revenue to £20.6 million (2007: £18.4 million).
an overall decline in voice and dial up revenue due to continued substitution of these services.
revenue within the Licensed Area declined 1.1 per cent to £47.1 million (2007: £47.6 million) reflecting a reduction in voice calls.
The business has continued to benefit from a reduction in overheads to £38.9 million (2007: £40.0 million) despite increased power and pension costs. The reduction reflects further operational synergies delivered from the integration of the various components of the T&IS business.
The overall business focus in T&IS will remain consistent as we develop our portfolio of services to the SME market. We believe there remains a significant opportunity within the UK SME market and have a number of specific short term focus areas for the T&IS business:-
to build on our proven ability to manage SME and consumer relationships efficiently in terms of the overall customer experience.
to increase the penetration of hosting and hosted services within our existing customer base.
We remain confident that the strong operational focus of the business, combined with the quality of our existing customer base, provides sufficient opportunity to continue to deliver improved financial returns over the medium term.
Integration & Managed Services
|
Results before exceptional items |
2008 (£ million) |
2007 (£ million) |
Change over prior year (%) |
|
Revenue |
124.1 |
139.9 |
(11.3) |
|
Operating margin |
24.2 |
29.3 |
(17.4) |
|
EBITDA |
0.2 |
4.6 |
(95.7) |
The first half of the year was challenging for I&MS as revenue declined by 11.3 per cent resulting in an overall EBITDA before exceptional items of £0.2 million (2007: £4.6 million).
The phasing of our programmes targeted at reducing the ongoing fixed costs of the business did not yield sufficient benefit to offset the decline in gross contribution in the first six months. The specific movements, year on year reflect:
a £3.9 million operating margin decrease arising due to reduced project and product based activity within Affiniti and lowering operating margin.
a £2.0 million reduction in the operating margin generated from the managed services in Affiniti. This includes a £0.5 million reduction on a specific managed service contract which renewed on a multi year basis at the end of March 2008. The balance of the reduction reflects a drop in the value of basic network support services, in part consistent with lower project related activity, partially offset by growth in certain managed services contracts.
specific cost efficiency initiatives resulting in a £0.7 million reduction in overheads offsetting increased power and pension costs.
a further £1.1 million reduction in the internal and third party cost of delivering project related services.
As stated in our Interim Management Statement in September, we have implemented a range of initiatives to reduce the cost base of the business which will be key to an improvement in the profitability of I&MS. The impact of these initiatives is already positively impacting the run rate cost base as we exit the half year and should improve overall performance in the second half. They include, amongst other things:-
a progressive reduction in total headcount within the Affiniti business. As at the end of September 2008, total headcount had decreased 8.3 per cent to 1,024 employees (2007: 1,117 employees). The most significant reductions occurred during the second quarter of the financial year, and therefore will have a positive impact in the second half.
a consolidation of our network operating centres from three down to two units. This initiative will be completed in the second half of the financial year with anticipated annualised savings of £0.7 million.
Whilst we remain cautious about the prospects of a significant revenue improvement in the short to medium term, we have seen specific areas where recent performance has been encouraging:-
following the reduction in business with one specific customer, Smart421 has seen a quarter on quarter improvement in revenue over the period.
the incremental order intake within Affiniti improved significantly in the second quarter of the financial year compared to the first quarter. Second quarter order intake was the highest it has been since the corresponding quarter twelve months ago.
our outlook for public sector business in the second half of the year remains strong, reflecting the positive impact from the restructuring of the public sector sales team in June 2007. We currently have opportunities where preferred supplier status has been achieved with a first year contract value exceeding £20 million and where contracts are now being negotiated. Recent contract wins in the public sector include Forensic Science Services, Health Informatics Service and Derbyshire Police.
The overall contracted order book as at 30 September 2008 of £185.6 million is consistent with the position as at the end of March 2008.
Looking forward to the second half of the year, we anticipate that the trading environment in the IT services market will remain challenging. Our focus remains on tight management and reduction of the overall cost base and the pursuit of incremental profitable business, whilst reducing operating working capital consistent with lower activity levels. Consequently, our current expectation is that, notwithstanding the current difficult trading environment, the combination of the contracted order book at 30 September, together with the cost reduction initiatives and focus on pursuing incremental profitable business, will deliver an improvement in the second half performance of I&MS.
Information Services
|
Results before exceptional items |
2008 (£ million) |
2007 (£ million) |
Change over prior year (%) |
|
Revenue |
9.4 |
9.9 |
(5.1) |
|
Operating margin |
5.3 |
5.9 |
(10.2) |
|
EBITDA |
3.7 |
4.2 |
(11.9) |
Our Information Services business continues to benefit from strong performance from the Hull Colour Pages online and published directories supported by a base of recurring service contracts from the delivery of outsourced contact centre services.
The reduction in revenue and profitability reflect the termination of one outbound telesales contract coupled with the sale of the retail directory enquiry service 118800 to Connectivity Limited in April 2008.
During the current financial year, the business has successfully retained its largest contact centre contract with Hull City Council, despite strong competition, reflecting the quality of the service offering within the business.
Other
The loss before exceptional items reported within the Other segment has reduced to £2.3 million (2007: £3.7 million). This primarily arises as a consequence of a reduction of £1.5 million in respect of provisions for Group long term incentive plans.
Group Earnings
Group Operating (Loss)/Profit
The Group Operating Loss for the period is £96.5 million (2007: profit of £11.7 million). The year over year reduction reflects:-
a £1.5 million reduction in Group EBITDA before exceptional items.
a £106.9 million exceptional cost in respect of the impairment of goodwill.
a £4.4 million increase in other exceptional costs.
a £1.4 million reduction in Group depreciation expense.
a £3.2 million reduction in the amortisation of intangible assets.
The Group exceptional operating costs arise as a consequence of:
an amount of £106.9m (2007: Nil) in respect of the impairment of the carrying value of I&MS goodwill.
costs of £2.5 million (2007: £1.2 million) in respect of restructuring activities undertaken in the period. £1.6 million of this amount has been incurred in the I&MS business.
£1.0 million (2007: £Nil) in respect of a loss incurred in respect of the collapse of Lehman Brothers. This material loss arose through a combination of the loss incurred on specific project work in progress and the write off of outstanding trade receivables.
an increase in the onerous lease provision of £2.1 million (2007: £Nil). This increase relates to two specific properties. In respect of the largest exposure, the provision reflects our current view of a potential settlement currently under negotiation.
Group depreciation expense amounted to £10.8 million (2007: £12.2 million). The reduction in respect of this expense reflects the reduced capital intensity of the Group's activities over the last 24 months.
Amortisation of intangible assets amounted to £7.6 million (2007: £10.8 million). Of this, £3.1 million (2007: £4.3 million) relates to the amortisation of intangibles arising on the capitalisation of software licences. The remaining £4.5 million (2007: £6.5 million) reflected the amortisation of intangible assets arising on acquisition and has reduced as a number of assets have now been fully written down.
Finance costs
Group financing costs of £6.8 million (2007: £6.5 million) reflect a combination of higher levels of debt year on year, plus the increase in LIBOR.
(Loss)/Profit before tax
The Group has incurred a loss in the period of £103.0 million (2007: profit of £5.3 million) reflecting the impairment of goodwill and higher Other exceptional costs.
Taxation
The taxation credit of £1.2 million (2007: £1.9 million) arises as a consequence of the taxation benefit associated with intangible assets arising on acquisition.
(Loss)/Earnings per share
Basic loss per share amounted to 19.71 pence (2007: profit of 1.41 pence). This loss reflects the impairment of the I&MS goodwill referred to above. Adjusted basic earnings per share amounted to 2.71 pence (2007: 2.52 pence), and has increased as a consequence of the reduction in depreciation expense year over year.
Group Financing and Investment
Group Net Debt
Group net debt at 30 September 2008 was £180.2 million (2007: £173.2 million). This equated to a net debt to EBITDA ratio of 2.65 (2007: 2.37).
Over the course of the last twelve months, the cash impact of Group exceptional costs has totalled some £8.6 million, accounting for the increase in net debt reported.
Net cash inflow from operations in the period has decreased 5.4 per cent to £20.9 million (2007: £22.1 million). This net cash inflow reflects an increase of working capital of £7.7 million over the six month period comprising:-
£0.9 million in respect of the difference between cash payments and profit and loss account charge for pensions.
a non-cash credit to the profit and loss account of £1.5 million in respect of surplus LTIP provisions.
a £4.7 million increase in inventories consistent with an increased backlog in I&MS for projects completed after the period end. This inventory is customer specific and has been shipped subsequent to the period end.
Capital expenditure on tangible and intangible assets amounted to £15.9 million (2007: £19.5 million). This reduction reflects the less capital intensive activities of I&MS where capital expenditure fell to £0.8 million (2007: £2.0 million).
Cash flow in the second half of the year will benefit from the differential between the level of the interim and final dividend. The Group anticipates, consistent with previous years, that both the absolute debt level and the key net debt to EBITDA ratio are expected to improve at the end of the financial year.
Dividends
The cash cost of dividends in the period was £9.7 million (2007: £6.7 million) reflecting the increased final dividend declared with the 2008 results.
Financing
The cash cost of financing Group debt amounted to £7.9 million (2007: £4.7 million).
Pensions
As at 30 September 2008, the Group had a liability in respect of its pension scheme obligations of £12.9 million (2007: £2.7 million). This reflects assets of £156.0 million and a liability of £168.9 million.
The triennial valuation of the Kingston Communications Pension Scheme, as at 1 April 2007 was completed in June 2008. The funding deficit arising at the date of the valuation amounted to £20.6 million (previous triennial valuation as at 1 April 2004: £17.7 million). Following this valuation, the Group agreed a deficit recovery plan with the Trustees of the scheme that entails the Group paying annual cash contributions in respect of the deficit of £2.9 million over 10 years. The length of this recovery period is reflective of the quality of the Group's financial covenant.
The triennial valuation of the Group's second defined benefit scheme, the Kingston Communications (Data) Pension Scheme, as at 1 April 2008, is currently being performed. The IAS 19 deficit in respect of this scheme was £4.5 million as at 30 September 2008.
During the period to 30 September, the Group has paid cash contributions totalling £2.9 million (2007: £1.4 million) in respect of its defined benefit obligations.
The amount represents:-
£0.8 million in respect of future service accrual
£1.4 million in respect of deficit recovery and
£0.7 million in respect of past service.
Dividend
Consistent with a focus on reducing Group indebtedness, the Board has reviewed its dividend policy. The Board envisages paying a full year dividend not less than 1.5 pence per share subject to the outcome of this strategic review. In line with previous practice, this will result in the Board paying an interim dividend of 0.5 pence per share, payable on 2 February 2009 to shareholders registered at the close of business on 19 December 2008.
Management change
The Group is today announcing changes to its management structure. Over the course of the last five years the Group has made a significant transformation to a business that is increasingly less dependent on capital investment in network infrastructure. We have now established two increasingly autonomous and distinct business units with their own strengthened management teams. Malcolm Fallen, having overseen the transformation as Chief Executive Officer, is now standing down from the Board.
Bill Halbert, currently the Group's Senior Independent Director, becomes Executive Deputy Chairman, taking responsibility for the Group's continuing development and operational performance. The existing management teams will now report to Bill Halbert, who was the founding CEO of BT's IT services subsidiary, Syntegra.
Michael Abrahams, who has served as Chairman since 1999, has indicated that he will retire from the Board at the next Annual General Meeting in July 2009. A search is underway to find a replacement.
Outlook
The Group anticipates that the trading environment will continue to remain challenging. The Board has already undertaken a number of steps to reduce the Group cost base and the second half performance will benefit from these actions. Meanwhile, we are undertaking with our advisors a strategic review of the Group and the Board is determined to take the actions required to enhance shareholder value.
Forward-looking statements
Certain statements in this interim report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.
We undertake no obligation to update any forward-looking statements whether as result of new information, future events or otherwise.
Principal Risks and Uncertainties
The risks and uncertainties faced by the Group as disclosed on pages 7 and 8 of the Annual Report and Accounts to 31 March 2008 are still valid.
In addition to these risks and uncertainties, the Group's current trading prospects, particularly in the I&MS business, are strongly correlated to the outlook for the UK economy. In the current environment, the challenge for the Group is to ensure that its enterprise customers are willing to continue to invest in the services that the Group can provide. Whilst this creates a challenging trading environment, the Group continues to take appropriate action to mitigate the risks and uncertainties where possible.
ENDS
Consolidated Interim Income Statement
|
Unaudited |
Unaudited |
Audited |
||
|
Six months |
Six months |
Year |
||
|
ended |
ended |
ended |
||
|
30-Sep 2008 |
30-Sep 2007 |
31-Mar 2008 |
||
|
|
Note |
£'000 |
£'000 |
£'000 |
|
Revenue |
1 |
243,571 |
261,346 |
517,297 |
|
Operating expenses |
(340,026) |
(249,601) |
(499,624) |
|
|
|
|
|
|
|
|
Group operating (loss)/profit |
1 |
(96,455) |
11,745 |
17,673 |
|
Analysed as: |
|
|
|
|
|
Group EBITDA |
1 |
34,421 |
35,915 |
69,300 |
|
Exceptional items - impairment of goodwill |
2 |
(106,890) |
- |
- |
|
Exceptional items - other |
2 |
(5,595) |
(1,169) |
(3,988) |
|
Depreciation of property, plant and equipment |
1 |
(10,773) |
(12,227) |
(24,023) |
|
Amortisation of intangible assets |
1 |
(7,618) |
(10,774) |
(23,616) |
|
Finance costs |
(6,751) |
(6,499) |
(13,467) |
|
|
Finance income |
156 |
35 |
200 |
|
|
Share of profit of associates |
|
6 |
5 |
17 |
|
(Loss)/profit before taxation |
(103,044) |
5,286 |
4,423 |
|
|
Taxation |
3 |
1,216 |
1,941 |
14,353 |
|
(Loss)/profit for the period |
(101,828) |
7,227 |
18,776 |
|
|
|
|
|
|
|
|
(Loss)/profit for the period attributable |
||||
|
to equity holders of the Company |
|
(101,828) |
7,227 |
18,776 |
|
(Loss)/earnings per share |
||||
|
|
||||
|
Basic |
4 |
(19.71p) |
1.41p |
3.65p |
|
Diluted |
4 |
(19.71p) |
1.41p |
3.64p |
Consolidated Interim Statement of Recognised Income and Expense
|
Unaudited |
Unaudited |
Audited |
||
|
Six months |
Six months |
Year |
||
|
ended |
ended |
Ended |
||
|
30-Sep |
30-Sep |
31-Mar |
||
|
2008 |
2007 |
2008 |
||
|
|
|
£'000 |
£'000 |
£'000 |
|
Exchange differences on translation of foreign operations |
- |
- |
(2) |
|
|
Cash flow hedges |
836 |
(53) |
(2,177) |
|
|
Actuarial (losses)/gains on retirement benefit obligation |
(4,542) |
8,720 |
524 |
|
|
Tax on items taken directly to equity |
|
153 |
(2,988) |
550 |
|
Net (expense)/income recognised directly in equity |
(3,553) |
5,679 |
(1,105) |
|
|
(Loss)/profit for the period |
|
(101,828) |
7,227 |
18,776 |
|
Total recognised (expense) and income for the period |
|
(105,381) |
12,906 |
17,671 |
Consolidated Interim Balance Sheet
|
Unaudited |
Unaudited |
Audited |
||
|
As at |
As at |
As at |
||
|
30-Sep |
30-Sep |
31-Mar |
||
|
2008 |
2007 |
2008 |
||
|
|
|
£'000 |
£'000 |
£'000 |
|
Non-current assets |
||||
|
Goodwill |
85,520 |
193,245 |
193,191 |
|
|
Other intangible assets |
25,802 |
40,793 |
31,286 |
|
|
Property, plant and equipment |
131,833 |
133,625 |
131,407 |
|
|
Investments |
846 |
860 |
860 |
|
|
Deferred tax assets |
40,960 |
24,331 |
39,384 |
|
|
|
|
284,961 |
392,854 |
396,128 |
|
Current assets |
||||
|
Inventories |
12,460 |
15,621 |
7,699 |
|
|
Trade and other receivables |
108,533 |
98,447 |
118,006 |
|
|
Cash and cash equivalents |
20,391 |
26,298 |
31,231 |
|
|
|
|
141,384 |
140,366 |
156,936 |
|
Total assets |
|
426,345 |
533,220 |
553,064 |
|
Current liabilities |
||||
|
Trade and other payables |
(140,240) |
(141,885) |
(156,683) |
|
|
Non-current liabilities |
||||
|
Bank loans |
(199,063) |
(198,800) |
(198,969) |
|
|
Retirement benefit obligations |
(12,858) |
(2,709) |
(9,138) |
|
|
Long term provisions and other payables |
(4,205) |
(5,670) |
(3,589) |
|
|
Total liabilities |
|
(356,366) |
(349,064) |
(368,379) |
|
Net assets |
|
69,979 |
184,156 |
184,685 |
|
Capital and reserves, attributable to equity holders of the Company |
||||
|
Share capital |
51,660 |
51,526 |
51,627 |
|
|
Share premium account |
353,232 |
352,657 |
353,111 |
|
|
Hedging and translation reserve |
133 |
811 |
(703) |
|
|
Retained earnings |
(335,046) |
(220,838) |
(219,350) |
|
|
Total equity |
|
69,979 |
184,156 |
184,685 |
Consolidated Interim Cash Flow Statement
|
Unaudited |
Unaudited |
Audited |
||
|
Six months |
Six months |
Year |
||
|
Ended |
ended |
Ended |
||
|
30-Sep |
30-Sep |
31-Mar |
||
|
2008 |
2007 |
2008 |
||
|
|
£'000 |
£'000 |
£'000 |
|
|
Net cash flow from operating activities |
||||
|
Operating (loss)/profit |
(96,455) |
11,745 |
17,691 |
|
|
Adjustments for: |
||||
|
Depreciation and amortisation |
18,391 |
23,001 |
47,639 |
|
|
Impairment of goodwill |
106,890 |
- |
- |
|
|
Increase in working capital |
(7,716) |
(12,641) |
(15,337) |
|
|
Employee share schemes |
233 |
100 |
158 |
|
|
Loss on sale of property, plant and equipment |
(437) |
(125) |
(154) |
|
|
Income taxes paid |
|
(53) |
- |
- |
|
Net cash inflow from operations |
|
20,853 |
22,080 |
49,997 |
|
Cash flows from investing activities |
||||
|
Proceeds from sale of businesses |
1,450 |
- |
- |
|
|
Purchase of businesses |
- |
(319) |
(700) |
|
|
Purchase of property, plant and equipment |
(12,944) |
(16,424) |
(25,029) |
|
|
Proceeds from sale of property, plant & equipment |
- |
250 |
250 |
|
|
Purchase of intangible assets |
(3,040) |
(3,046) |
(6,381) |
|
|
Purchase of investments |
- |
- |
(12) |
|
|
Net cash used in investing activities |
|
(14,534) |
(19,539) |
(31,872) |
|
Cash flows from financing activities |
||||
|
Dividends paid |
(9,712) |
(6,691) |
(11,540) |
|
|
Issue costs of long term loans |
(153) |
(230) |
(450) |
|
|
Interest paid |
(7,857) |
(4,687) |
(10,913) |
|
|
Interest received |
156 |
35 |
199 |
|
|
Capital element of finance lease repayments |
(649) |
(280) |
(583) |
|
|
Capital element of new finance leases |
1,056 |
- |
783 |
|
|
New loans |
- |
5,500 |
5,500 |
|
|
Net cash used in financing activities |
(17,159) |
(6,353) |
(17,004) |
|
|
|
|
|||
|
(Decrease)/increase in cash and cash equivalents |
(10,840) |
(3,812) |
1,121 |
|
|
Cash and cash equivalents at the beginning of the period |
31,231 |
30,110 |
30,110 |
|
|
Cash and cash equivalents at the end of the period |
|
20,391 |
26,298 |
31,231 |
Notes to the unaudited interim financial information
1. Segmental Analysis
|
Unaudited |
Unaudited |
Audited |
||
|
Six months ended |
Six months ended |
Year ended |
||
|
30-Sep |
30-Sep |
31-Mar |
||
|
2008 |
2007 |
2008 |
||
|
£'000 |
£'000 |
£'000 |
||
|
Revenue |
||||
|
Telecoms and internet services |
119,757 |
122,258 |
244,356 |
|
|
Integration and managed services |
124,114 |
139,889 |
278,431 |
|
|
Information Services |
9,383 |
9,881 |
14,132 |
|
|
Other (1) |
(9,683) |
(10,682) |
(19,622) |
|
|
Total |
243,571 |
261,346 |
517,297 |
|
Operating margin
Operating margin represents gross margin before the deduction of depreciation and amortisation and excludes overheads and general and administration expenses. This additional information is an operational measure used by the Board in managing the financial performance of the business.
|
Telecoms and internet services |
71,672 |
70,803 |
143,324 |
|
|
Integration and managed services |
24,230 |
29,335 |
54,435 |
|
|
Information Services |
5,272 |
5,906 |
7,605 |
|
|
Other (1) |
(707) |
(1,522) |
(1,920) |
|
|
Total |
100,467 |
* 104,522 |
203,444 |
|
|
Group EBITDA |
||||
|
Telecoms and internet services |
32,840 |
30,804 |
62,849 |
|
|
Integration and managed services |
151 |
4,611 |
8,649 |
|
|
Information Services |
3,734 |
4,190 |
4,065 |
|
|
Other (1) |
(2,304) |
(3,690) |
(6,263) |
|
Total - before exceptional items |
34,421 |
35,915 |
69,300 |
|
|
Exceptional items: |
||||
|
Telecoms and internet services |
(241) |
(187) |
(549) |
|
|
Integration and managed services |
(109,487) |
(520) |
(2,532) |
|
|
Information Services |
(171) |
(30) |
(201) |
|
|
Other (1) |
(2,586) |
(432) |
(706) |
|
|
Total exceptional items |
(112,485) |
(1,169) |
(3,988) |
|
|
EBITDA post exceptional items |
(78,064) |
34,746 |
65,312 |
(1) Other includes head office costs, shared services and eliminations.
* Operating margin restated for consistent treatment of direct costs, administration and general overhead costs with current period and year end 31 March 2008.
|
Unaudited |
Unaudited |
Audited |
||
|
Six months ended |
Six months ended |
Year ended |
||
|
30-Sep |
30-Sep |
31-Mar |
||
|
2008 |
2007 |
2008 |
||
|
£'000 |
£'000 |
£'000 |
||
|
Depreciation |
||||
|
Telecoms and internet services |
7,258 |
6,836 |
15,063 |
|
|
Integration and managed services |
2,531 |
4,383 |
6,715 |
|
|
Information Services |
200 |
236 |
452 |
|
|
Other (2) |
784 |
772 |
1,793 |
|
|
10,773 |
12,227 |
24,023 |
|
Amortisation |
||||
|
Telecoms and internet services |
3,507 |
5,680 |
10,524 |
|
|
Integration and managed services |
3,845 |
4,603 |
11,416 |
|
|
Information Services |
4 |
65 |
84 |
|
|
Other (2) |
262 |
426 |
1,592 |
|
|
7,618 |
10,774 |
23,616 |
||
|
(Loss)/profit from operations |
||||
|
Telecoms and internet services |
22,075 |
18,288 |
37,262 |
|
|
Integration and managed services |
(6,225) |
(4,375) |
(9,482) |
|
|
Information Services |
3,530 |
3,889 |
3,529 |
|
|
Segment result - before exceptional items |
19,380 |
17,802 |
31,309 |
|
|
Exceptional items: |
||||
|
Telecoms and internet services |
(241) |
(187) |
(549) |
|
|
Integration and managed services |
(109,487) |
(520) |
(2,532) |
|
|
Information Services |
(171) |
(30) |
(201) |
|
|
Other (2) |
(2,586) |
(432) |
(706) |
|
(112,485) |
(1,169) |
(3,988) |
||
|
Segment result |
(93,105) |
16,633 |
27,321 |
|
|
Head office and other unallocated costs |
(3,350) |
(4,888) |
(9,648) |
|
|
Group operating (loss)/profit |
(96,455) |
11,745 |
17,673 |
|
|
Share of profit of associate |
6 |
5 |
17 |
|
|
(Loss)/profit from operations |
(96,449) |
11,750 |
17,690 |
|
Capital expenditure on property, plant and equipment and intangible assets |
||||
|
Telecoms and internet services |
12,615 |
12,901 |
24,936 |
|
|
Integration and managed services |
787 |
2,013 |
3,717 |
|
|
Information Services |
45 |
71 |
143 |
|
|
Other (2) |
146 |
1,671 |
1,495 |
|
|
Total |
13,593 |
16,656 |
30,291 |
|
(2) Other includes head office costs, shared services and eliminations.
The split of total revenue between external customers and inter-segment revenue is as follows:
|
Unaudited |
Unaudited |
Audited |
||
|
Six months ended |
Six months ended |
Year ended |
||
|
30-Sep |
30-Sep |
31-Mar |
||
|
2008 |
2007 |
2008 |
||
|
£'000 |
£'000 |
£'000 |
||
|
Revenue from external customers |
||||
|
Telecoms and internet services |
111,700 |
113,059 |
227,421 |
|
|
Integration and managed services |
123,283 |
139,158 |
277,610 |
|
|
Information Services |
8,564 |
8,778 |
12,220 |
|
|
Other (3) |
24 |
351 |
46 |
|
|
Total |
243,571 |
261,346 |
517,297 |
|
|
Inter-segment revenue |
||||
|
Telecoms and internet services |
8,057 |
9,199 |
16,935 |
|
|
Integration and managed services |
831 |
731 |
820 |
|
|
Information Services |
819 |
1,103 |
1,913 |
|
|
Other (3) |
(9,707) |
(11,033) |
(19,668) |
|
|
Total |
- |
- |
- |
|
|
243,571 |
261,346 |
517,297 |
None of the revenue, operating profit or net operating assets arising outside the United Kingdom are material to the Group. The geographical analysis of revenue by destination is given below:
|
Unaudited |
Unaudited |
Audited |
||
|
Six months ended |
Six months ended |
Year ended |
||
|
30-Sep |
30-Sep |
31-Mar |
||
|
2008 |
2007 |
2008 |
||
|
£'000 |
£'000 |
£'000 |
||
|
Geographical analysis of revenue |
||||
|
United Kingdom |
239,888 |
259,088 |
512,884 |
|
|
Continental Europe |
2,321 |
2,151 |
3,885 |
|
|
Other |
1,362 |
107 |
528 |
|
|
243,571 |
261,346 |
517,297 |
(3) Other includes head office costs, shared services and eliminations
2. Exceptional items
Exceptional items are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's financial performance. Restructuring costs arise as a result of organisational changes following the integration of acquisitions. Onerous lease provisions arise as a result of continued rationalisation of the Group's property portfolio.
|
Unaudited |
Unaudited |
Audited |
||
|
Six months ended |
Six months ended |
Year ended |
||
|
30-Sep |
30-Sep |
31-Mar |
||
|
2008 |
2007 |
2008 |
||
|
£'000 |
£'000 |
£'000 |
||
|
Exceptional items: |
||||
|
- Restructuring costs |
2,507 |
1,169 |
3,970 |
|
|
- Loss on Lehman Brothers |
1,000 |
- |
- |
|
|
- Onerous lease provision |
2,088 |
- |
- |
|
|
- Write down of unlisted fixed asset investment |
- |
- |
18 |
|
|
Exceptional items - other |
5,595 |
1,169 |
3,988 |
|
|
Exceptional items - impairment of goodwill |
106,890 |
- |
- |
|
|
Charged to operating (loss)/profit |
112,485 |
1,169 |
3,988 |
|
|
Charged to (loss)/profit before taxation |
112,485 |
1,169 |
3,988 |
The loss of £1.0m on Lehman Brothers arose through a combination of the loss incurred on specific project work in progress and the write off of outstanding trade receivables following their bankruptcy in the period.
The goodwill impairment is an impairment of the carrying value of the I&MS division.
|
3. Taxation |
The taxation credit on activities is set out below:
|
Unaudited |
Unaudited |
Audited |
||
|
Six months ended |
Six months ended |
Year ended |
||
|
30-Sep |
30-Sep |
31-Mar |
||
|
2008 |
2007 |
2008 |
||
|
£'000 |
£'000 |
£'000 |
||
|
Corporation tax |
(53) |
- |
617 |
|
|
Deferred tax |
1,269 |
1,941 |
13,736 |
|
|
Group total |
1,216 |
1,941 |
14,353 |
There are no unprovided deferred tax assets in respect of accelerated capital allowances at 30 September 2008 or 31 March 2008. At 30 September 2007 there was an unprovided deferred tax asset of £13m (calculated at 28%).
4. (Loss)/earnings per share
|
Unaudited |
Unaudited |
Audited |
|||
|
Six months ended |
Six months ended |
Year ended |
|||
|
30-Sep |
30-Sep |
31-Mar |
|||
|
2008 |
2007 |
2008 |
|||
|
Weighted average number of shares |
No. |
No. |
No. |
||
|
For basic (loss)/earnings per share |
516,569,976 |
514,135,201 |
514,551,645 |
||
|
Share options in issue |
2,990,773 |
78,159 |
1,026,446 |
||
|
For diluted (loss)/earnings per share |
519,560,749 |
514,213,360 |
515,578,091 |
||
|
(Loss)/earnings |
£'000 |
£'000 |
£'000 |
||
|
(Loss)/profit for the period attributable to equity holders of the Company |
(101,828) |
7,227 |
18,776 |
||
|
Adjustments: |
|||||
|
Exceptional items |
112,485 |
1,169 |
3,988 |
||
|
Amortisation of intangible assets arising |
|||||
|
on acquisitions |
4,534 |
6,503 |
15,044 |
||
|
Taxation |
(1,216) |
(1,941) |
(14,353) |
||
|
Adjusted profit for the period |
13,975 |
12,958 |
23,455 |
||
|
(Loss)/earnings per share |
|||||
|
pence |
pence |
pence |
|||
|
Basic |
(19.71) |
1.41 |
3.65 |
||
|
Diluted |
(19.71) |
1.41 |
3.64 |
||
|
Adjusted basic |
2.71 |
2.52 |
4.56 |
||
|
Adjusted diluted |
2.69 |
2.52 |
4.55 |
||
5. Dividends
|
Unaudited |
Unaudited |
Audited |
|
|
Six months ended |
Six months ended |
Year ended |
|
|
30-Sep |
30-Sep |
31-Mar |
|
|
2008 |
2007 |
2008 |
|
|
£'000 |
£'000 |
£'000 |
|
|
Amounts recognised as distributions to equity holders in the period: |
|||
|
Final dividend for the year ended 31 March 2007 of 1.30 pence per share |
- |
6,691 |
6,691 |
|
Interim dividend for the year ended 31 March 2008 of 0.94 pence per share |
- |
- |
4,849 |
|
Final dividend for the year ended 31 March 2008 of 1.88 pence per share |
9,712 |
- |
- |
|
Total |
9,712 |
6,691 |
11,540 |
The proposed interim dividend for the six months ended 30 September 2008 is 0.5 pence per share. In accordance with IAS 10 "Events after the balance sheet date", dividends declared after the balance sheet date are not recognised as a liability in this set of interim financial information.
6. Consolidated Interim Statement of Changes in Shareholders' Equity
|
Hedging |
|||||
|
Share |
and |
||||
|
Share |
Premium |
Translation |
Retained |
||
|
Capital |
Account |
Reserve |
Earnings |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 April 2007 |
51,493 |
352,450 |
877 |
(227,219) |
177,601 |
|
Employee share schemes |
- |
- |
- |
100 |
100 |
|
Shares issued in the period |
33 |
207 |
- |
- |
240 |
|
Reclassification |
- |
- |
(13) |
13 |
- |
|
Actuarial gains on defined benefit pension schemes |
- |
- |
- |
8,720 |
8,720 |
|
Tax on items taken directly to equity |
- |
- |
- |
(2,988) |
(2,988) |
|
Increase in fair value of financial derivative instruments |
- |
- |
(53) |
- |
(53) |
|
Profit for the period |
- |
- |
- |
7,227 |
7,227 |
|
Dividends |
- |
- |
- |
(6,691) |
(6,691) |
|
At 30 September 2007 |
51,526 |
352,657 |
811 |
(220,838) |
184,156 |
|
Employee share schemes |
- |
- |
- |
58 |
58 |
|
Shares issued in the period |
101 |
454 |
- |
- |
555 |
|
Actuarial losses on defined benefit pension schemes |
- |
- |
- |
(8,196) |
(8,196) |
|
Increase in fair value of financial derivative instruments |
- |
- |
(2,126) |
- |
(2,126) |
|
Tax on items taken directly to equity |
- |
- |
612 |
2,926 |
3,538 |
|
Profit for the period |
- |
- |
- |
11,549 |
11,549 |
|
Dividends |
- |
- |
- |
(4,849) |
(4,849) |
|
At 31 March 2008 |
51,627 |
353,111 |
(703) |
(219,350) |
184,685 |
|
Employee share schemes |
- |
- |
- |
233 |
233 |
|
Shares issued in the period |
33 |
121 |
- |
- |
154 |
|
Actuarial losses on defined benefit pension schemes |
- |
- |
- |
(4,542) |
(4,542) |
|
Tax on items taken directly to equity |
- |
- |
- |
153 |
153 |
|
Increase in fair value of financial derivative instruments |
- |
- |
836 |
- |
836 |
|
Loss for the period |
- |
- |
- |
(101,828) |
(101,828) |
|
Dividends |
- |
- |
- |
(9,712) |
(9,712) |
|
At 30 September 2008 |
51,660 |
353,232 |
133 |
(335,046) |
69,979 |
7. Basis of preparation and publication of interim results
This interim financial information comprises the consolidated balance sheets at 30 September 2008, 30 September 2007 and 31 March 2008 and the consolidated statements of income, recognised income and expense and cash flows for the periods then ended and related notes of KCOM Group PLC, (hereinafter referred to as "the financial information"). This interim financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. In preparing this information management have used the accounting policies set out in the Group's 2008 financial statements on pages 29 to 32.Of the new standards, amendments and interpretations that are in issue and mandatory for the financial year to 31 March 2009, only IFRIC 14 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements' is relevant to the Group. The adoption of this interpretation has had no financial impact on this consolidated interim financial report.This interim financial information does not constitute a set of statutory accounts under s.240 of the UK Companies Act 1985 and is unaudited. The comparative figures for the financial year ended 31 March 2008 are an extract from the Group's 2008 financial statements, which have been reported on by the company's auditors and delivered to the Registrar of Companies. These comparative figures have been restated where necessary for the operational reorganisation. The report of the auditors was unqualified and did not contain statements under section 237(2) or (3) of the UK Companies Act 1985.
This interims results announcement will be published on the company's website. All shareholders will receive a notification of its availability, by post or to their nominated email address, during December. This notice will include details of where the announcement can be viewed on the website. The maintenance and integrity of the KCOM Group PLC website is the responsibility of the directors and the work carried out by the auditors does not involve consideration of these matters. Legislation in the UK governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions
8. Statement of directors' responsibilities
The directors confirm that this condensed set of interim financial statements has 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 the information 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 for 31 March 2008, with the exception of John Carrington who retired from the Board on 25 July 2008 and those management changes announced today.
Signed by Order of the Board on 25 November 2008 by:
Paul Simpson
Chief Financial Officer.
Independent review report to KCOM Group plc
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the six months ended 30 September 2008, which comprises the income statement, balance sheet, statement of recognised income and expense, cash flow statement and related notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 7, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the six months ended 30 September 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP Chartered Accountants
Leeds 25 November 2008
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