29th Nov 2005 07:02
Kingston Communications(Hull)PLC29 November 2005 KINGSTON COMMUNICATIONS (HULL) PLC (KCOM.L) ANNOUNCES UNAUDITED INTERIM RESULTS TO 30 SEPTEMBER 2005 "In a period of significant change within the market and our business, we havecontinued to improve the underlying financial performance of the business with aparticularly strong improvement in cash flow from operations. In light of thatimprovement, the Board is paying an increased interim dividend of 0.39 pence." Michael Abrahams, Chairman Kingston Communications (HULL) PLC (KCOM.L) ("Kingston" or the "Group") todayannounces its unaudited interim results for the half year ended 30 September2005. Summary Six months Six months Change ended ended over 30 Sept 05 30 Sept 04 prior year (£ million) (£ million) (%) Results from continuing operations before exceptional items Revenue 223.9 152.8 46.5 EBITDA 35.9 29.4 22.1 Group profit from operations 9.5 12.0 (20.8)Adjusted Group profit from operations (1) 13.2 12.0 10.0 Reported results Profit before tax 3.1 8.9 (65.2)Basic earnings per share (pence) 0.71 1.83 Adjusted basic earnings per share(pence) (2) 1.49 2.35Dividend per share (pence) 0.39 0.36 (1) Adjusted Group profit from operations excludes amortisation of intangible assets arising on acquisitions of £3.7 million (2004: £nil) (2) Adjusted basic earnings per share excludes discontinued operations, exceptional items, amortisation of intangible assets relating to acquisitions and taxation Highlights • Revenue up 46.5 per cent to £223.9 million (2004: £152.8 million) • EBITDA from continuing operations and before exceptional items of £35.9 million (2004: £29.4 million), an increase of 22.1 per cent • Group profit from continuing operations including exceptional items of £8.7 million (2004: £12.0 million) • Adjusted Group profit from operations of £13.2 million, an increase of 10.0 per cent (2004: £12.0 million) • Cash flow from operations of £43.4 million (2004: £19.6 million) before purchase of property, plant and equipment and intangible assets of £26.4 million (2004: £18.6 million) • Proposed interim dividend of 0.39 pence per share (2004: 0.36 pence per share) • Integration of acquisitions progressing well Chairman, Michael Abrahams said, "Our transformation of the Group continues toprogress well. In a period of significant change within the market and ourbusiness, we have continued to improve the underlying financial performance ofthe business, with a particularly strong improvement in cash flow fromoperations. "In light of that improvement, the Board is paying an increased interim dividendof 0.39 pence." Chief Executive, Malcolm Fallen said, "In a changing and dynamic market, we havecontinued to focus on our strategy of broadening our integrated communicationsoffering and reducing our overall exposure to the continued commoditisation ofbasic voice services. "We have made good progress integrating our acquisitions with minimaldisruption, allowing us to end the first half year with improving activitylevels. "The continued repositioning of our business both nationally and locally in EastYorkshire, presents significant opportunities and challenges. Our performance sofar underpins our confidence that the strategy we have adopted is the right onegiven the trends in our market, creating a business built on longer termcustomer relationships, delivering sustainable profits and cash flows." For further information please contact: Kingston Communications (HULL) PLC:Corporate Communications & Investor RelationsKingston Communications: Anita Pace Tel: 01482 602666 Mobile: 07770 744322 The Maitland Consultancy:Colin Browne Tel: 020 7379 5151 Mobile: 07733 103800 Business and Operating review We are firmly on track to deliver our strategy of: - broadening our capabilities to meet our customers' changing needs in key vertical markets, through the delivery of integrated communications solutions - reducing our dependency on basic voice services whilst increasing the level of direct recurring service revenues - achieving sustainable, profitable growth and delivering returns to our shareholders The communications services market in which we operate is increasingly dynamic.We are seeing convergence both in terms of services being delivered using acommon technology, IP, and in the increasing overlap in services provided by thetelecommunications and IT services industries. At the same time we have seen thevalue and volume of some traditional voice services continue to declinereflecting the impact of regulation, vigorous competition and substitution. Key to the implementation of our strategy has been the creation of Affiniti, ourbusiness-to-business communications integrator. We will execute our strategy byexploiting the breadth of skills, technology and services we have created. Indoing this, we deliver tangible business benefit to our customers throughimproving productivity, providing business continuity and creating an effectiveconnected enterprise. Our proposition is based on our ability to connectcustomers, enable them to communicate, help them store their information, ensuretheir networks are secure and provide a fully flexible managed servicecapability to them. At the same time, in responding to the trends in the market, we have continuedto reposition Kingston Communications, our regional consumer, business andinternet service provider. Through a combination of service innovations, newconsumer propositions and geographic expansion, this business is now lessdependent on traditional voice services, delivering increased value frombroadband services. In the first six months of the year the Group has performed well, whilstundertaking the challenges of integrating the acquisitions completed last year.During the first half of the year revenue increased 46.5 per cent to £223.9million (2004: £152.8 million) with EBITDA before exceptional items increasing22.1 per cent to £35.9 million (2004: £29.4 million), including the full impactin the period of the acquisitions of Eclipse, Omnetica and Technica. The Group reported an Adjusted Group profit from operations of £13.2 million(2004: £12.0 million). Year on year, this profitability reflects theacquisitions of Eclipse, Omnetica and Technica and has been adversely impactedby a decline of £2.3 million in our Information Services business, following theanticipated reduction in work on the BT directories contract. Financing costs have risen by £2.6 million as a consequence of the acquisitionscompleted in the second half of last year. Adjusted basic earnings per share, excluding discontinued operations,exceptional items, amortisation of intangible fixed assets arising onacquisitions and taxation, was 1.49 pence (2004: 2.35 pence). The Group will payan interim dividend of 0.39 pence per share (2004: 0.36 pence). Affiniti 2005 2004 Change over prior year (£ million) (£ million) (%)Revenue 161.3 97.4 65.6EBITDA before exceptional items 16.3 8.7 87.4 Affiniti has performed well over what is traditionally the quieter half of theyear. Revenue has increased by 65.6 per cent to £161.3 million (2004: £97.4million), including the full impact in the period of the acquisitions ofOmnetica and Technica, whilst EBITDA before exceptional items rose 87.4 per centto £16.3 million (2004: £8.7 million). EBITDA margin to sales has expanded to10.1 per cent (2004: 8.9 per cent) reflecting the improved revenue mix. Revenues generated from our direct business-to-business relationships of £129.8million (2004: £60.5 million) now represent approximately 80 per cent of ourtotal Affiniti revenues (2004: approximately 60 per cent). The balance of £31.5million (2004: £36.9 million), delivered through Partner Services, our indirectsales channel, shows a decline of 14.6 per cent reflecting the impact ofregulation, substitution and competition on certain fixed line voice services.During the first half, cash paid on the purchase of property, plant andequipment was £13.0 million (2004: £10.7 million) consistent with higheractivity levels. The integration of the Affiniti business is progressing well. Our key objectivein the integration phase is to define and deliver the quality of experiencecustomers require. This will then improve our ability to retain and growexisting relationships and acquire new customers. During the first quarter we made significant progress in the realignment of ourcustomer proposition and the resultant restructuring of our sales teams. Thesecond quarter saw clear evidence that the focus we have around key verticalmarkets, underpinned by the breadth of our service proposition, would deliverhigher activity levels. This was reflected in stronger order intake in thesecond quarter providing a robust platform for the second half of the year. Over the course of the half year we also completed our review of the structureof our service delivery capabilities, which resulted in a re-shaping of ourservice organisation undertaken shortly after the end of the first half. We havenow begun the migration of our systems designed to rationalise and simplify howwe manage the business. Growth is being driven by increased activity in the delivery of secure convergedcommunications services over IP networks, both local and wide area, enabling arange of communication applications to be provided. At the same time theopportunity to deliver managed services for our larger enterprise and publicsector customers continues to increase, as more applications are delivered overcommon infrastructure and customers look to a partner to manage the day-to-daytasks around their communications infrastructure. The strength of this part of our business endorses our strategy to reduce ourdependency on increasingly commoditised basic voice services and move towardslonger term recurring revenues through the delivery of integrated communicationsservices. In contrast, a combination of regulation, vigorous competition andsubstitution of services continues to impact on the value of some basic voiceservices, particularly those delivered through our indirect sales channels. The quality and sustainability of our revenues are clearly reflected in the newcustomers we have secured, together with existing customers renewing and buyingadditional services, in the course of the first half. New customers includeToyota (GB), NHS Tayside Lancashire Ambulance Service and Royal London Insurancewith the Environment Agency, Hogg Robinson and Virgin Atlantic being some of thecustomers extending their contracts. Kingston Communications (including broadband) 2005 2004 Change over prior year (£ million) (£ million) (%)Revenue 53.8 44.8 20.1EBITDA 20.2 18.3 10.4 Kingston Communications, our consumer, business and internet services business,has seen revenue increase 20.1 per cent year on year to £53.8 million (2004:£44.8 million). EBITDA rose 10.4 per cent to £20.2 million (2004: £18.3 million)including the full impact in the period of the acquisition of Eclipse. EBITDAmargins reduced to 37.5 per cent (2004: 40.8 per cent) reflecting the impact ofthe Eclipse acquisition. In the first half of the year, we have continued to reposition the business, asthe revenues from traditional voice services continue to decline, impacted byboth substitution and the migration to broadband. In August we launched new inclusive call packages ('KC Talk') for our fixed-lineresidential customers combining line rental, unlimited local calls and a rangeof bundled national and mobile calls. This rebalancing of our revenues towardsinclusive tariffing is designed to mitigate the trend of falling fixed callvolumes. We have completed the first phase of our expansion into North Lincolnshirehaving invested approximately £2 million in new network infrastructure and arenow offering communications services to businesses. During the half year we havesecured contract wins from customers including Humberside Police, Linkwave, RawPower and the Sewell Group. Broadband remains a key growth area. We have increased our broadband customerbase to 97,371 at the end of September, an increase of 88 per cent year on year.Around 30 per cent of the broadband base are business customers. We arecurrently developing new products and services for the online market and haverecently introduced bundled packages including telephony for our EclipseInternet customers across the UK. Information Services 2005 2004 Change over prior year (£ million) (£ million) (%)Revenue 9.3 12.1 (23.1)EBITDA 3.6 5.9 (39.0) Our Information Services business, which includes our directory publishing andcontact centre activities was, as expected, adversely impacted in the half yearby a material reduction in activity undertaken on behalf of BT's directorypublishing business. Revenue decreased 23.1 per cent to £9.3 million (2004:£12.1 million) and EBITDA fell 39.0 per cent to £3.6 million (2004: £5.9million). However, within our directory publishing business, we have seen our directoryadvertising sales campaigns in both our East Yorkshire area and in the Isle ofMan, on behalf of Manx Telecom, show encouraging improvement. We are also seeinggood momentum in our online directory sales activity. Our contact centre business has delivered improved performance during the halfyear. Diversification into the outsourced 118 directory enquiry services market,for customers including Maureen (the Independent Radio News service), ShareCommunications and All Points North, has helped bring the business toprofitability. The business was awarded the Best Wholesale Service Provider atthis year's Directory Enquiry Awards organised by 118 Tracker, an independentmarket review body. Group Earnings Group Adjusted profit from operations has increased 10 per cent to £13.2 million(2004: £12.0 million), assisted by stronger performance within Affiniti anddespite the expected reduced contribution from Information Services. This alsoincludes the full impact in the period of the acquisitions of Eclipse, Omneticaand Technica. Group depreciation costs from continuing operations have increased year on yearto £20.0 million (2004: £15.4 million). This increase is a result of the fullsix month inclusion of the acquisitions undertaken during 2005 and the ongoingcapital expenditure we continue to make in support of the Group's activities. Amortisation of intangible assets of £6.4 million (2004: £2.1 million) hasincreased as a result of the acquisitions undertaken in 2005 and reflects thereclassification, in the current and prior year, of costs associated withcapitalised software previously shown within depreciation, in accordance withIFRS. Intangible assets recognised in respect of the acquisitions undertaken in 2005relate to the valuation of order backlog, customer relationships, supplierrelationships, technology and brand. Such assets are being amortised over theirestimated useful economic lives of between six months and eight years.Exceptional items of £0.8 million primarily relate to provisions in respect ofthe rationalisation of the Group property portfolio. Group profit from continuing operations before exceptional items reduced to £9.5million (2004: £12.0 million) reflecting the increase in amortisation costs.Finance costs of £5.6 million (2004: £3.0 million) increased as a result ofincreased debt levels following the acquisitions undertaken in the priorfinancial period. Profit before taxation from continuing operations is £3.1 million (2004: £8.9million). A net taxation credit of £0.5 million (2004: charge of £2.0 million)in the period arises as a consequence of the recognition of additional deferredtax assets of £1.1 million less a charge of £0.6 million relating to therestatement of goodwill and intangible assets within Omnetica. Profit for the period from continuing operations, before exceptional items, is£4.4 million (2004: £7.0 million). A loss on discontinued operations of £1.7million has been incurred resulting in profit for the period attributable toequity holders of the Company of £2.0 million (2004: £9.7 million). An Adjusted basic earnings per share of 1.49 pence compares to 2.35 pence in theprior year. This performance, coupled with the underlying improvement in ouroperations, particularly cash flow, has resulted in an interim dividend of 0.39pence (2004: 0.36 pence). Group Financing and Investment Group net debt at 30 September 2005 was £127.9 million (2004: £70.1 million).Whilst net debt has increased on prior year levels as a result of theacquisitions undertaken in 2005, we have seen a reduction of £35.7 million innet debt from £163.6 million at 31 March 2005. Cash inflow from operating activities of £43.4 million represents a significantincrease against £19.6 million inflow in 2004. At the end of June 2005, the Group received £30.3 million from the sale of ArcheSAS, its French operations. Investment in the Group's operations (purchase of property, plant and equipmentand intangible assets) continued in the period totalling £26.4 million (2004:£18.6 million). This is driven directly by customer activity in addition toinvestment to improve our IT infrastructure and expansion of our networkfootprint into Lincolnshire. Dividend In the light of the progress made during the first half, the Board will bepaying an interim dividend of 0.39 pence per share. This will be payable inFebruary 2006 to shareholders registered at the close of business on 23 December2005. At the time of the Preliminary results announcement in May 2006, subjectto the Group's continued satisfactory performance, the Board expects torecommend a final dividend for the current financial year. International Financial Reporting Standards (IFRS) As outlined in the pre-close statement, the interim results for the half yearhave been reported under IFRS. The restated primary financial statements for thesix months ended 30 September 2004 and the year ended 31 March 2005 are set outin a detailed presentation published on the Group's website at www.kcom.com/investorrelations. Approach As announced on 10 November, the Group has received an approach that may or maynot lead to an offer for Kingston Communications. Further announcements will bemade as appropriate. Outlook The continued transformation of the Group remains a priority over the secondhalf. As we seek to take advantage of the opportunities we have identified, weare not immune from the accelerating changes in the marketplace, including thecontinued decline in basic voice services. However, we are confident that thestrategy we have adopted will enable us to maximise the benefits and minimisethe risks from these changes in the market as we exploit the strength of ourportfolio of skills, technology and services in building long term recurringrevenues. The Group continues to perform in line with our overall expectations. ENDS Consolidated Income Statement Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 Note £'000 £'000 £'000 ---------------------------------Continuing OperationsRevenue 1 223,864 152,756 348,426 ---------------------------------Group EBITDA before exceptional items 35,887 29,419 61,346Exceptional items 2 (758) - (3,836) --------------------------------- Group EBITDA 1 35,129 29,419 57,510 ---------------------------------Group profit from operations beforeexceptional items 9,464 11,985 20,461Exceptional items 2 (758) - (3,836) --------------------------------- Group profit from operations 1 8,706 11,985 16,625 Finance costs (5,567) (3,042) (8,638) --------------------------------- Profit before taxation 2 3,139 8,943 7,987 Taxation 3 517 (1,982) 7,051 --------------------------------- Profit for the period from continuingoperations 3,656 6,961 15,038 Discontinued Operations(Loss)/profit for the period fromdiscontinued operations 6 (1,658) 2,708 2,446 ---------------------------------Profit for the period attributableto equity holders of the Company 1,998 9,669 17,484 --------------------------------- Earnings per share from continuingoperations Basic 4 0.71p 1.83p 3.60pDiluted 4 0.71p 1.83p 3.59p Adjusted basic 4 1.49p 2.35p 3.82pAdjusted diluted 4 1.48p 2.35p 3.81p Earnings per share from total operations Basic 4 0.39p 2.54p 4.19pDiluted 4 0.39p 2.54p 4.18p Consolidated Balance Sheet Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 ---------------------------------Non-current assetsGoodwill 158,290 32,988 184,352Other intangible assets 39,483 12,068 43,333Property, plant and equipment 221,151 212,197 222,599Investments 1,087 1,578 1,087Deferred tax assets 11,046 6,275 9,924 --------------------------------- 431,057 265,106 461,295 ---------------------------------Current assetsInventories 18,956 2,514 13,042Trade and other receivables 76,896 71,675 123,340Cash and cash equivalents 16,662 9,055 28,189 --------------------------------- 112,514 83,244 164,571 ---------------------------------Total assets 543,571 348,350 625,866 --------------------------------- Current liabilitiesTrade and other payables (132,937) (88,975) (166,727) ---------------------------------Net current liabilities (20,423) (5,731) (2,156) --------------------------------- Non-current liabilitiesBank loans (144,241) (79,168) (191,280)Retirement benefit obligation (29,557) (26,110) (30,000)Long term provisions and other payables (5,902) (5,922) (5,767) ---------------------------------Total liabilities (312,637) (200,175) (393,774) ---------------------------------Net assets 230,934 148,175 232,092 --------------------------------- EquityShare capital 51,454 38,640 51,454Share premium account 352,231 284,799 352,229Hedging and translation reserve (573) 26 210Retained earnings (172,178) (175,290) (171,801) ---------------------------------Total equity 230,934 148,175 232,092 --------------------------------- Consolidated Statement of Recognised Income and Expense Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 --------------------------------- Exchange differences on translation offoreign operations 1 26 210Currency translation difference on foreign currency net investments - - (534)Currency translation difference on relatedborrowings - - 534Cash flow hedges (note 7) (784) - 0Actuarial losses on defined benefitpension schemes - - (3,500)Tax on items taken directly to equity - - 1,050 ---------------------------------Net (expense)/income recognised directlyin equity (783) 26 (2,240)Profit for the period 1,998 9,669 17,484 --------------------------------- Total recognised income and expense forthe period 1,215 9,695 15,244 --------------------------------- Consolidated Statement of Changes in Equity Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 ---------------------------------Profit for the period 1,998 9,669 17,484Dividends (2,778) - (1,390)Exchange movements 1 26 210Issue of ordinary shares (net of issuecosts) - 607 13,421Employee share schemes 403 (374) (860)Actuarial loss on defined benefit schemes - - (3,500)Tax on actuarial loss on defined benefitschemes - - 1,050Share premium arising on issue of newordinary shares 2 2,425 69,855Cash flow hedges (note 7) (784) - - ---------------------------------(Decrease) / increase in equity (1,158) 12,353 96,270Opening equity 232,092 135,822 135,822 ---------------------------------Closing equity 230,934 148,175 232,092 --------------------------------- Consolidated Cash Flow Statement Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 ------------------------------------Net cash flow from operating activitiesProfit from operations (note 8) 7,956 11,795 16,003Adjustments for:Depreciation and amortisation 26,686 17,891 41,916Gain on sale of property, plant &equipment - - (300)Decrease/(increase) in working capital 8,098 (9,727) (6,795)Employee share schemes 403 (373) (860)Income taxes refund/(paid) 246 - (101) ------------------------------------ Cash inflow from operations 43,389 19,586 49,863 ------------------------------------ Cash flows from investing activitiesPurchase of businesses (2,971) (7,644) (108,894)Sale of businesses 30,336 34,000 36,667Purchase of property, plant and equipment (23,875) (14,052) (27,747)Proceeds from sale of property, plant &equipment 4 - 402Purchase of intangible assets (2,547) (4,563) (9,280)Purchase of investments - - (266)Proceeds from sale of investments - - 939 ------------------------------------ Net cash from/(used in) investingactivities 947 7,741 (108,179) ------------------------------------ Cash flows from financing activitiesDividends paid (2,778) - (1,390)Issue costs of long term loans (115) (19) (3,467)Interest paid (5,865) (2,969) (7,838)Interest received 487 52 173Capital element of finance leaserepayments (150) (5) (142)Repayment of bank loans (47,444) (22,000) (22,000)New loans - - 114,500Proceeds from new share issue 2 80 80 ------------------------------------ Net cash (used in)/from financingactivities (55,863) (24,861) 79,916 ------------------------------------(Decrease)/increase in cash and cashequivalents (11,527) 2,466 21,600 Cash and cash equivalents at the beginningof the period 28,189 6,589 6,589 ------------------------------------Cash and cash equivalents at the end ofthe period 16,662 9,055 28,189 ------------------------------------ 1. Segmental Analysis Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 -------------------------------------------Revenue Affiniti 161,322 97,359 232,946Kingston Communications 53,820 44,762 98,015Information Services 9,271 12,129 18,110Other includingeliminations (549) (1,494) (645) -------------------------------------------Total - continuingactivities 223,864 152,756 348,426Discontinued activities 9,944 2,255 18,111 -------------------------------------------Group total 233,808 155,011 366,537 ------------------------------------------- Group EBITDA Affiniti 16,328 8,656 23,376Kingston Communications 20,156 18,344 38,799Information Services 3,625 5,879 7,486Other (4,222) (3,461) (8,315) -------------------------------------------Total - continuing activities beforeexceptional items 35,887 29,419 61,346Exceptional items:Affiniti (758) - (3,794)Information Services - - (212)Other - - 170 ------------------------------------------- (758) - (3,836) -------------------------------------------Total - continuing activities 35,129 29,419 57,510Discontinued activities (487) 267 579 -------------------------------------------Group total 34,642 29,686 58,089 ------------------------------------------- Depreciation Affiniti 13,352 10,326 22,035Kingston Communications 6,321 4,552 9,557Information Services 241 379 788Other 112 106 209 -------------------------------------------Total - continuing 20,026 15,363 32,589activitiesDiscontinued activities 263 457 1,031 -------------------------------------------Group total 20,289 15,820 33,620 ------------------------------------------- Amortisation Affiniti 5,466 1,697 7,092Kingston Communications 931 374 1,204 -------------------------------------------Group total 6,397 2,071 8,296 ------------------------------------------- 1. Segmental Analysis (continued) Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 -------------------------------------------Profit/(loss) from operations Affiniti (2,490) (3,367) (5,751)Kingston Communications 12,904 13,418 28,038Information Services 3,384 5,500 6,698 -------------------------------------------Segment result -continuing activitiesbefore exceptional items 13,798 15,551 28,985Exceptional items:Affiniti (758) - (3,794)Information Services - - (212)Other - - 170 ------------------------------------------- (758) - (3,836) -------------------------------------------Segment result -continuing activities 13,040 15,551 25,149Head office and otherunallocated costs (4,334) (3,566) (8,524) -------------------------------------------Profit from continuingoperations 8,706 11,985 16,625Segment result -discontinued activities (1,891) 2,708 2,446 -------------------------------------------Group total 6,815 14,693 19,071 ------------------------------------------- Assets Affiniti 269,357 187,420 341,495Kingston Communications 125,720 103,038 107,849Information 2,837 4,127 4,028ServicesOther 116,862 34,410 117,806Unallocated assets 28,795 19,355 54,688 -------------------------------------------Total assets 543,571 348,350 625,866 ------------------------------------------- Liabilities Affiniti 94,550 130,471 123,173Kingston Communications 33,807 26,455 31,380Information 1,133 1,993 4,511ServicesOther 37,753 8,457 12,701Unallocated liabilities 145,394 32,799 222,009 -------------------------------------------Total liabilities 312,637 200,175 393,774 ------------------------------------------- Capital expenditure on property,plant and equipment andintangible assets Affiniti 14,652 8,764 20,426Kingston Communications 9,435 5,321 12,422Information Services 56 151 285Other 201 126 210 -------------------------------------------Total - continuing activities 24,344 14,362 33,343Discontinued operations 277 - 629 -------------------------------------------Group total 24,621 14,362 33,972 ------------------------------------------- 1. Segmental Analysis (continued) The split of total revenue between revenue from external customers andinter-segment revenue is as follows: Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 -------------------------------------------Revenue from external customers Affiniti 161,322 97,359 232,946Kingston Communications 52,070 43,286 95,437Information Services 8,379 11,103 16,329Other 2,166 1,008 3,714Discontinued operations 9,871 2,255 18,111 -------------------------------------------Total 233,808 155,011 366,537Inter-segment revenueAffiniti - - -Kingston Communications 1,750 1,476 2,578Information Services 892 1,026 1,781Other includingeliminations (2,715) (2,502) (4,359)Discontinued operations 73 - - ------------------------------------------- Total - - - -------------------------------------------Group total 223,808 155,011 366,537 ------------------------------------------- None of the revenue, operating profit or net operating assets arising outsidethe United Kingdom are material to the Group. The geographical analysis ofrevenue by destination is given below. Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 -------------------------------------------Geographical analysis of revenue United Kingdom 223,056 154,539 349,860Europe 10,253 174 15,734Other 499 298 943 -------------------------------------------Group total 233,808 155,011 366,537 ------------------------------------------- 2. Profit before taxation The profit before taxation from continuing operations is stated after charging/(crediting): Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 -------------------------------------------Exceptional items:Restructuring costs 758 - 4,006Gain on sale of investments - - (311)Amounts written offinvestments - - 141 ------------------------------------------- 758 - 3,836 Depreciation 20,026 15,363 32,589 Amortisation of intangible assets- Intangible assets arising on acquisitions 3,742 - 4,111- Software and development costs 2,655 2,071 4,185 ------------------------------------------- 6,397 2,071 8,296 Release of prior yearnetwork operating accruals (981) (1,493) (2,378) Restructuring costs relate to redundancy and excess property costs. 3. Taxation The taxation charge/(credit) on continuing activities is set out below: Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 ------------------------------------------------Corporation tax 605 - 21Deferred tax (1,122) 1,982 (7,072) ------------------------------------------------Group total (517) 1,982 (7,051) ------------------------------------------------ 4. Earnings per share Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March 2005 2004 2005 £'000 £'000 £'000 Weighted average number of shares For basic earnings pershare 513,658,176 380,159,838 417,503,168Exercise of shareoptions 1,054,830 1,136,596 1,046,401 -------------------------------------------For diluted earningsper share 514,713,006 381,296,434 418,549,569 ------------------------------------------- Earnings Profit for the periodattributable to equityholders of the Company 1,998 9,669 17,484 Adjustment to exclude profit / loss for theperiod fromdiscontinuedoperations 1,658 (2,708) (2,446) -------------------------------------------Profit for the periodfrom continuingoperations 3,656 6,961 15,038 Adjustments:Exceptional items 758 - 3,836Amortisation of intangible assets arisingon acquisition 3,742 - 4,111Taxation (517) 1,982 (7,051) Adjusted profit for the period -------------------------------------------from continuingoperations 7,639 8,943 15,934 ------------------------------------------- Earnings per share fromcontinuing operations pence pence pence Basic 0.71 1.83 3.60Diluted 0.71 1.83 3.59 Adjusted basic 1.49 2.35 3.82Adjusted diluted 1.48 2.35 3.81 Earnings per share fromdiscontinued operations Basic (0.32) 0.71 0.59Diluted (0.32) 0.71 0.58 Total earnings per sharefrom continuing and discontinuedoperations Basic 0.39 2.54 4.19Diluted 0.39 2.54 4.18 5. Dividends Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000Amounts recognised as distributions toequity holders in the period: -------------------------------------Final dividend for the yearended 31 March 2005 of 0.54pence per share 2,778 - - -------------------------------------Interim dividend for theyear ended 31 March 2005 of0.36 pence per share - - 1,390 ------------------------------------- The proposed interim dividend for the six months ended 30 September 2005 is 0.39pence 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 these financial statements. 6. Discontinued operations On 28 April 2004, the Group disposed of its Satellite and Broadcast division fora cash consideration of £34,000,000. On 31 May 2005, the Group disposed of Arche, the French operations acquired withOmnetica, for a cash consideration of £30,336,000. The results of discontinued operations, which have been included in consolidatedincome statement, were as follows: Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 ------------------------------------------------ Revenue 9,944 2,255 18,111Expenses excluding financecosts (10,694) 2,445 (18,563) ------------------------------------------------Loss from operations (750) (190) (452)Finance costs (43) - - ------------------------------------------------Loss before tax (793) (190) (452)Attributable tax 276 - - ------------------------------------------------Loss after tax (517) (190) (452)(Loss)/profit on sale ofdiscontinued operations (1,141) 2,898 2,898 ------------------------------------------------Net (Loss)/profitattributable todiscontinued operations (1,658) 2,708 2,446 ------------------------------------------------ During the current period, Arche contributed £634,000 to the Group's netoperating cash flows, paid £301,000 in respect of investing activities and paid£43,000 in respect of financing activities. The effect of discontinued operations on segment result is shown in note 1. 7. IAS 32 and IAS 39 transitional adjustment On 1 April 2005, in accordance with IAS 32 and IAS 39, all financial derivativeswere recorded at their fair value. The difference between the fair value andbook value of all financial derivatives at 1 April 2005 was an additional assetof £35,000. The movement on this difference in the six months to 30 September2005 is a decrease of £819,000, giving a liability of £784,000, which has beenrecognised as a movement in the Consolidated Statement of Recognised Income andExpense. Due to the inherent uncertainty over whether fair value movements associatedwith adopting IAS 32 and IAS 39 will be taxable or not, the Group has notrecognised any deferred tax on its transitional adjustment. 8. Reconciliation of profit from operations Unaudited Unaudited Audited Six months Six months Year ended ended ended 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 ------------------------------------------------ Group profit fromcontinuing operations 8,706 11,985 16,625Loss from discontinuedoperations (750) (190) (452) ------------------------------------------------Group profit fromoperations 7,956 11,795 16,173Profit on sale of fixedasset investments - - (311)Loss on write down of fixedasset investments - - 141 ------------------------------------------------ 7,956 11,795 16,003 ------------------------------------------------ 9. Contingent Liabilities During the period to 30 September 2005 contingent liabilities existed in respectof guarantees given by the Parent Company on behalf of subsidiary undertakings,together with contingencies arising in the normal course of business in respectof the Group's banking facilities. None of these guarantees are consideredmaterial in the context of the net assets of the Group. As reported previously, the Company has responded to the European Commission(EC) in connection with its investigation into a third party complaint that theGovernment's rating of the Company's network infrastructure (and that of BT)constitutes illegal state aid. The Company has submitted a robust response tothe EC and based on external advice the Board considers the complaint is withoutfoundation. To date the Company has recieved no response from the EC and as at30 September 2005 no claim has been made against the Company. Accordingly noprovision has been made in the accounts for the six months ended 30 September2005. 10. Basis of preparation The interim financial information was approved by the Board of Directors on 28November 2005. The financial information set out in the interim report isunaudited. The Group's interim financial information has been prepared in accordance withInternational Financial Reporting Standards ("IFRS") in issue that are expectedto be endorsed by the European Union and are effective or available for adoptionat the Group's first IFRS annual reporting date, 31 March 2006. Comparativeinformation for the six months ended 30 September 2004 and the year ended 31March 2005 has been restated under IFRS from the UK Financial Reporting Standard("UK GAAP") values originally reported by the Group. The financial information has been prepared under the historical cost conventionexcept that derivative financial instruments are stated at their fair value. Theinterim financial information includes the accounts of the Company and all itssubsidiaries. The IFRS that will be effective or available for adoption in the annualfinancial statements for the year ended 31 March 2006 are subject to review andamendment by the International Accounting Standards Board ("IASB") andsubsequent endorsements by the European Union and are subject to change. In determining the Group's IFRS accounting policies the Board of Directors hasused its best endeavours in making assumptions about those IFRS expected to beeffective or available for adoption when the first IFRS annual financialstatements are prepared for the year ended 31 March 2006. The Group has adopted all IFRS with the exception of IAS 34 "Interim FinancialReporting" which is not mandatory for UK Groups. The Group has anticipated thatthe amendment to IAS 19 "Actuarial Gains and Losses, Group Plans and Disclosure"which has yet to be formally adopted for use in the European Union, will be soadopted in time to be applicable to its first IFRS annual reporting date, 31March 2006. 10. Basis of preparation (continued) IFRS 1 permits those companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. TheGroup has taken advantage of the following exemptions: a) IFRS 3 "Business combinations" - the Group has elected not to apply IFRS 3 retrospectively to acquisitions that took place before 1 April 2004. b) IAS 19 "Employee benefits" - in accordance with the amendment to IAS 19 which was issued on 16 December 2004, the Group has elected to recognise actuarial gains and losses in full in the period in which they occur in the Consolidated Statement of Recognised Income and Expense. c) IFRS 2 "Share based payments" - the Group has elected to apply IFRS 2 only to those share based payment options that were granted after 7 November 2002 and remain unvested at 1 April 2005. d) IAS 32 "Financial Instruments: Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement"- the Group has elected to apply UK GAAP to its comparative financial statements (i.e. 1 April 2004 to 31 March 2005) and implement IAS 32 and IAS 39 at 1 April 2005. On 1 April 2005, in accordance with IAS 32 and IAS 39, all financial instruments were recorded at their fair value. The difference between the fair value and book value of all financial instruments at 30 September 2005 has been recorded in 2005 through the Consolidated Statement of Recognised Income and Expense. On 30 September 2005, the Group released an IFRS Restatement Document called'Adoption of International Financial Reporting Standards ("IFRS")' that containsthe following: i. the restatement of 2005 comparative financial information from UK GAAP to IFRS; ii. a summary of principal accounting policies; and iii. an unqualified independent auditors' report on the Restatement Document This document can be found on the Company's website, www.kcom.com/investorrelations and is also available in hard copy from the Company Secretaryof Kingston Communications (HULL) PLC at the registered office. The documentcalled 'IFRS 1 reconciliations' can also be found under the same section of theCompany's website and these provide all the information required by thisstandard. 11. Publication of non-statutory accounts The financial information included in this statement does not constitutestatutory accounts within the meaning of Section 240 of the Companies Act 1985.The interim results to 30 September 2005 and 2004 are neither audited norreviewed. The financial information for the full preceding year is based on theUK GAAP statutory accounts for the financial year ended 31 March 2005 as amendedfor IFRS as set out in the Group's IFRS Restatement Document. Those 2005 UK GAAPaccounts, upon which the auditors issued an unqualified opinion, have beendelivered to the Registrar of Companies. The auditors' report contained nostatement under Section 237(2) or 237(3) of the Companies Act 1985. 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