26th Sep 2007 07:02
Fonebak plc26 September 2007 For Immediate Release: 07:00hrs, Wednesday 26 September 2007 FONEBAK PLC Preliminary Announcement Year ended 30th June 2007 Fonebak plc, a leading provider of outsourcing services including the repair,remarketing and recycling of consumer based technology products, is pleased toannounce its Preliminary Results for the twelve months to 30 June 2007. Highlights: • Recovery plan for Fonebak is progressing well establishing the foundations from which the enlarged group can trade profitably in all of its key markets • CRC acquisition is performing ahead of management expectations and is reporting an underlying operating profit (before amortisation, exceptional items and FRS20 adjustments) of £1.9m for the five months post acquisition • Jeff Hewitt is confirmed as new Non-Executive Chairman • Banking facilities are in place to support recovery programme • New contract wins in 2007 will add £10m to revenues on an annualised basis • Group revenues increased by 59% to £96.1m, an underlying increase of 9.4% • Underlying operating losses of £0.3m (2006; profit £3.7m) before impairment and restructuring costs totalling £8.6m • Net cash inflow of £8.3m generated from operating activities • Total net borrowings reduced to £10.9m • Current year has started well and the benefits of restructuring are starting to come through Commenting Gary Stokes, Chief Executive of Fonebak, said: "The Group is now in much better shape. The recovery plan for Fonebak isprogressing well and trading at CRC is ahead of our expectations. We now have aplatform from which we can start to realise the full benefits of the CRCacquisition and move the combined business forward" "I would also like to welcome Jeff Hewitt to the Board. He has considerablerelevant public company experience, which will prove invaluable to the futuredevelopment of the Group". Contacts FonebakGary Stokes Chief Executive 01865 487235David Kelham Chief Financial Officer 01865 487235 KBC Peel Hunt Ltd (Nominated Adviser and Broker)Jonathan Marren 020 7418 8900Gordon Suggett 020 7418 8900 Pelham (Financial PR)Philip Dennis 020 7743 6363 Financial Results I am pleased to be reporting the first set of full year results since theappointment of the new executive team. Along with David Kelham, Chief FinancialOfficer, I joined the Group earlier this year from CRC where I was ChiefExecutive from 2006, together putting in place that company's successfulrecovery plan. Overall the performance of the Group in the second half of the year has beenmixed. As previously announced Fonebak endured a difficult start to 2007,however I can report that the recovery plan outlined in the latest tradingstatement in June is progressing well. In addition, the CRC business continuesto make solid progress with trading to 30th June 2007 ahead of expectations. For the twelve months ended 30th June 2007 the Group achieved sales of £96.1magainst £60.4m in the previous year. This increase in revenues includes £26.1mas a result of the acquisition, completed in January 2007, of CRC Group PLC. Afurther £4.0m arises from the Stoke based mobile phone repair operation,acquired from DSGi in September 2006. On a like-for-like basis overall salesgrew by 9.4% excluding these acquisitions. Over the year the volume of phones processed by Fonebak increased by 18.8% toover 3.6m handsets. As previously reported the fall in the average pricerealised per handset has contributed to a marked decline in the margins achievedwithin the Fonebak operations. In aggregate the Group achieved a gross profit £0.7m below 2006 at £6.3m.Included in gross profit is a £4.7m contribution from businesses acquired duringthe year, of which CRC accounts for £4.5m. Therefore, in real terms, thedecrease in margin resulted in a fall in gross profit from the Fonebak businessof £5.4m year-on-year. This decline is partially explained by additional provisions taken against thecarrying value of inventories, which totalled £2.3m for the year. In March thisyear Fonebak also advised of the loss of a significant contract, the full yearprofits have been adversely impacted by a further £2.1m. Given these issues the Group as a whole is reporting an underlying operatingloss (before amortisation, exceptional items and share based payments) of £0.3mfor the year (2006: underlying operating profit £3.7m). The reported lossincludes a contribution from CRC of £1.9m for the five months post acquisition.For the twelve months ended 31st December 2006 the continuing CRC operationsacquired by the Group reported an equivalent operating profit of £2.6m. In addition exceptional charges totalling £3.1m have been incurred in relationto the implementation costs of the recovery plan. A further £5.5m charge hasbeen made to reflect the impairment of the carrying value of goodwill arisingfrom the losses and restructuring in the Fonebak businesses. Taken togetherthese additional charges increase the loss before tax to £11.0m (2006: profitbefore tax £1.6m). Basic losses per share for the year were 47.32p per share compared to a profitof 3.31p per share in 2006. On an adjusted basis the basic loss was 5.90p pershare (2006: profit 11.10p per share). Given the extent of the losses the Board will not be recommending the payment ofa dividend. Recovery plan progress Following the introduction of the new executive team in early 2007 a fulloperational review was instigated. The outcome of this review was announced on6th June 2007. Of necessity much of the recovery plan has been focused onshort-term actions and the elimination of loss making activities. Progress issignificant and in line with our expectations. Closure of the Stoke site is due to complete by end September 2007 and theoperations at Barnet have already ceased. The exceptional closure provisionstotalled £1.9m, of which the future cash cost will be £0.4m. The underlyingoperating losses incurred by both sites in 2007 totalled £1.5m. The DSGi callcentre services managed in Stoke are being transferred to Huntingdon and mobilerepair activities from both Stoke and Barnet are being supported through ourNottingham facility. The activities in Romania have been scaled back whilst discussions continue witha number of OEM's to secure accreditation for warranty repair. Whilst costs havebeen reduced, the Romanian facility is dependent on Group support until moresustainable business is secured. These costs, previously running at £2m perannum, have been more than halved at the current run rate. Fonebak offices in Italy, Portugal and Turkey have now been closed. Work iscurrently underway to explore more profitable options to develop the Continentalmarkets including partnerships other than through direct ownership. The Fonebak business is today a much smaller but better focused operation. Thebusiness primarily services the mobile networks and will, through thedevelopment of its core environmental credentials, be increasingly focusing ondeveloping new and value-adding service offerings for its clients. Whilst thereis still much to be done, without the burdens of managing multiple sites anddiverse operations, Fonebak's management will be able to concentrate exclusivelyon profitable activities within its target market. Financing On 14th December 2006 Fonebak entered into a new loan facility with KBC Bank NVtotalling £25m and in January 2007 the Group also raised £10m of new equity.Taken together these two amounts were used to finance the acquisition of CRC andreplace existing Fonebak bank facilities. The bank has been supportive of the new management team in its efforts toaddress the performance issues within the business. On 18th September 2007negotiations were completed with the Bank, which will result in a more flexiblelending structure whilst retaining the benefits of an interest rate fix for themajority of the borrowings. Total facilities available to the Group remain at£25m; as at 30th June 2007 net borrowings were £10.9m. CRC Whilst management's focus has been directed to addressing the performance issuesin Fonebak, the CRC businesses acquired earlier in the year have been tradingahead of plan. CRC itself has been completing its own recovery programmefollowing a difficult period through 2005 and early 2006. The benefits of theactions taken are now evident in the trading performance of the continuingbusiness. Germany As at 30th June the satellite repair centre in Berlin was closed, costs were inline with expectations having been fully provided for pre-acquisition. Customercontracts have been successfully transferred to the main German site atPaderborn. Negotiations are progressing with the Paderborn unions on the restructuring ofthe employment conditions of the workforce. There is recognition that labourrates contracted before CRC acquired the business from Siemens in 2003 are highrelative to the market and as such directly impact the competitiveness andviability of the plant. The agreed objective is to complete the negotiationsbefore the end of the current calendar year. In July this year a new repair centre was opened in Sommerda, former EastGermany. This project has been in negotiation for some time and is a co-locationwith one of our major clients in Germany, Fujitsu Siemens. The investment issupported with the commitment of a new four-year contract and the start up isprogressing well. The new repair centre gives us access to a lower cost facilitywith which to service the 'in country' market for Germany and additionalbusiness has already been won as a result. Poland The facility in Warsaw has recently been restructured to improve the short-termcapacity of the site. Volumes of mobile phones have been steadily increasingthroughout the year; current through put is significantly ahead of a year ago.Strong consumer demand, growing market share of our clients within Poland andincreased demand from Western Europe are all contributing to our growth. In addition, IT volumes have also been increasing, which is particularlypleasing as we only entered this market within the last year. Given the combineddemand for phone and IT repair capacity, negotiations are also in progress toopen a second site. This additional site will offer increased capacity as wellas affording greater operational focus on the respective technologies. We arehoping to have the new site operational by early 2008. UK The consolidation of the UK operations was largely completed with the disposalof the Thame site earlier in the year. The three remaining service centres inGlenrothes, Nottingham and Huntingdon have all been trading profitably, albeitthe Nottingham site is processing less volume as Vodafone business progressivelytransfers to Unipart. This programme was announced as far back as 2005 and thelost business will be partly offset by a realignment of repair volumes fromStoke, Barnet and Huntingdon. Once volumes have settled down the future scopeand scale of activity for Nottingham will be clearer. The main UK hub in Glenrothes is being expanded with the addition of another8,000m2 of space currently coming on stream. This will facilitate theconsolidation onto one site of operations at present carried out by twosatellite facilities. The expansion is being supported with funding from theScottish Executive. At Huntingdon greater emphasis is being placed on the development of clientsupport facilities including the expansion of the call centre capability. Thetransfer from Stoke of the DSGi support programme is a positive step in thisdirection. The Future The Group provides a wide range of after sales support services to an impressiveclient list that includes many of the worlds pre-eminent consumer brands. Thetechnologies we work with are fast evolving and our role is to enhance ourclients' brand and reputation through the excellence of our service. The scopeof the services we currently offer are primarily based around product supporteither through the initial warranty period, or through subsequentout-of-warranty services including remarketing, recycling and environmentalcompliance. Recognising the strength of our client list and the scope of our servicecapability it is clear that we now have to make a more concerted effort tointegrate our businesses and present a more cohesive and value-adding front tothese clients. As part of this process the commercial activities of the Group are being pulledtogether under one management team. This will enable us to invest in our keyaccount management and to develop sales expertise in each of our coretechnologies. In a more public statement of our commitment to 'one business' the Group will bere-branded including the phasing out of the Fonebak, CRC and Intec names. TheGroup will therefore trade and market itself as one integrated, full-serviceprovider. The timescale for the re-launch is targeted towards the end of 2007and work is already well progressed. Despite the considerable demands that the restructuring plan has placed on theGroup and its people, there are many positive developments to report. Fonebak,for example, is working hard to take a more direct role in the remarketing ofreturned mobiles, including within the emerging economies. Fonebak already hasstrong connections with Africa and is currently establishing a sales office inHong Kong to service markets in the Far East. With so much attention focused on the environment the Fonebak business modelwill continue to promote its ethical and environmental policies. We seesustainability as the key issue and will promote new and differentiated servicesto our clients; protecting their brand and driving added value for both of us. As part of this programme Fonebak continues to support the efforts of leadingcharities. The highest profile of these is Children in Need; in 2006 Fonebakraised £0.3m for the charity and a new contract has recently been signed insupport of the 2007 campaign. Intec Distribution has traded well throughout the year and has also beensuccessfully developing the insurance fulfilment market. We are in the processof finalising a three-year contract with the market leader, Homecare, whichshould be the springboard for further growth. In addition the warranty repair businesses under CRC have recently added Navman,Thales, Daimler, Hitachi, Tyco and Pure Digital to the Group's client list.Including new contracts previously reported in 2007 such as Tom Tom, Epson and TCom, business wins are expected to exceed £10m on a full-year basis. From the work done already it is clear that there is an opportunity to expandthe Group in a number of directions. For now though our priority is toconsolidate our position with existing clients and drive more business bycross-selling our full service capability and geographical reach. As we do thisthere will also be opportunities to follow our clients and support them in newmarkets. Board In the trading update communicated earlier in June it was stated that the Boardwas planning for the succession of Gordon Shields, the original Founder ofFonebak and current Chairman. Since that time a nominations committee has beenappointed to identify and recommend a candidate of appropriate standing. This process has recently completed, with the aid of an external agency. It hasbeen reassuring to see that the Group, despite the short-term challenges thebusiness has been facing, has been able to attract interest of a very highcalibre. I am pleased therefore to confirm that Jeff Hewitt will be joining the Group asNon-Executive Chairman, the appointment to become effective from 1st November2007. Jeff has considerable experience and enjoyed a very successful careerincluding latterly positions of Deputy Chairman and Finance Director atElectrocomponents plc until his retirement from his executive career in 2005.Previously Jeff had been Finance Director at Unitech plc and Strategy Directorat Coats Viyella plc. Currently Jeff is a Non-Executive Director at Cookson plc and External Chairmanof the audit committee of John Lewis Partnership. In addition Jeff hasNon-Executive roles at Whatman plc, Plasmon plc and TDG plc. Jeff's experiencewithin the public company sector is considerable and includes recoverysituations as well as exposure to the technologies and services managed by theFonebak Group. As originally stated Gordon will continue to work with the Group as aNon-Executive Director and will assist the executive team with the recovery andsubsequent development plans for the Fonebak business. Incentives In recognition of the challenges presented by the recovery programme the Boardhas agreed, in consultation with our major institutional shareholders, to bringinto effect a new share incentive scheme. A total of 2.15m shares were issued on 26th June 2007 at the mid-market price onthe day of 55.5p. These shares are held in trust, for the benefit of designatedemployees and will vest from 1st July 2010 subject to the achievement ofspecific targets. These conditions include that the compound growth in earningsper share over the three years ended 30th June 2010 must exceed 5% per annum andthat the mid-market value of the shares at that time are at least double theissue price. The current share option scheme has been progressively wound down as theprevious management team have left the business. There are minimal options stillin issue today. As such the number of outstanding options taken together withthe total number of shares held under trust are within the 10% limit authorisedby shareholders. People During 2007 the business has seen considerable disruption and change. The Grouphas had to absorb both the acquisition of the larger, in headcount terms, CRCbusiness and support the recovery programme within the original Fonebakbusiness. Since Fonebak and CRC came together at the end of January three sites have beenclosed and another considerably reduced in scale with the loss of nearly 300jobs to date. In total the Group currently has 1,900 employees representing areduction in total headcount of approximately 15%. Such circumstances, married to an aggressive change programme inevitably causesuncertainty, which in itself has a further cost to the business. It is to thegreat credit then of the current management and the workforce as a whole thatthe Group has been able to make such rapid progress. It is appropriate toacknowledge the significant contribution made by our employees in the last yearand we look forward to a more stable and rewarding future. Outlook In the two months completed following the year-end the Group has shown goodprogress against the objectives set. The continuing activities are, so far,ahead of management's expectation and the Group is trading profitably in all ofits key markets. Our strong client list inevitably presents some challenges as competitivepressures within their own markets forces downward pressure on suppliers. We seesome challenges in the UK and German markets and we have to recognise this as weseek to ensure we have an efficient and competitive cost base. To reduce therisk of our services becoming commoditised we also have to accelerate ourcommitment to developing innovative and value-adding services that leverage ourbroader capabilities. To this end our new Sales Director, Martin Gossling commenced work with us inAugust and is in the process of integrating our sales teams. We recognise theneed to strengthen our organisation and have set aside a proportion of thesavings realised in reducing costs elsewhere to fund investment in our sales andmarketing capabilities. We expect that a greater number of better-focused salesspecialists will benefit our sales push as we look to the future. With our plans to integrate the Groups business activities more effectively andprogress being made towards a common brand; the marketing of the combinedbusiness is entering a phase where the emphasis must shift to a more coordinatedgrowth focus. Whilst it is too early to pronounce the turnaround complete,progress over recent months has been good and the foundations are beingestablished from which the Group can move profitably forward. Consolidated profit and loss accountfor the year ended 30 June 2007 2007 2006 Note Acquisitions Ongoing Total Total activities (as restated) £000 £000 £000 £000 Turnover 1 30,081 66,049 96,130 60,361Cost of sales (25,342) (64,517) (89,859) (53,389) Gross profit 4,739 1,532 6,271 6,972 Administrative expenses (3,640) (13,014) (16,654) (4,753) Operating profit/(loss) before goodwill,amortisation, exceptional items andshare based payments 1 1,786 (2,110) (324) 3,747 Amortisation of goodwill 3 (304) (1,277) (1,581) (1,274)Exceptional goodwill impairment 3 - (5,469) (5,469) -Exceptional costs 3 (383) (2,750) (3,133) (130)Share based payments 3 - 124 124 (124) Operating profit/(loss) 1 1,099 (11,482) (10,383) 2,219 Net interest payable (646) (600) (Loss)/profit on ordinary activitiesbefore taxation (11,029) 1,619 Tax on (loss)/profit on ordinary 611 (984)activities (Loss)/profit on ordinary activitiesafter taxation and for the financial year (10,418) 635 (Loss)/earnings per ordinary share Basic 4 (47.32) 3.31p Diluted 4 (46.86) 3.24p Underlying (loss)/earnings per ordinaryshare Basic 4 (5.84p) 11.10 Diluted 4 (5.86p) 10.87 All activities relate to continuing operations. Details of exceptional items and acquisitions are set out in notes 3 and 2respectively. Consolidated balance sheetat 30 June 2007 Note 2007 2006 £000 £000 £000 £000Fixed assetsIntangible assets 25,350 19,120Tangible assets 2,667 728 28,017 19,848Current assetsStock 6,079 7,879Debtors 5 18,938 6,570Cash at bank and in hand 9 9,072 1,137 34,089 15,586 Creditors: Amounts falling due within one 6 (33,574) (15,631)year Net current assets/(liabilities) 515 (45) Total assets less current liabilities 28,532 19,803 Creditors: Amounts falling due after more 9than one year (14,000) (3,754) Net assets 14,532 16,049 Capital and reservesCalled up share capital 12 566 384Share premium account 12 25,304 15,076Profit and loss account (11,338) 589 Equity shareholders' funds 14,532 16,049 Consolidated cash flow statementfor the year ended 30 June 2007 Note 2007 2006 £000 £000 Net cash inflow from operating activities 7 8,296 2,900 Returns on investment and servicing of financeInterest received 175 18Interest paid (785) (486) (610) (468) Taxation (600) (888) Capital expenditure and financial investmentPurchase of intangible fixed assets - (5)Purchase of tangible fixed assets (654) (172)Sale of tangible fixed assets 7 72 (647) (105) AcquisitionsPurchase of interest in subsidiary undertaking 2 (14,044) (1,789)Cash acquired with subsidiary undertakings (net of (1,302) (669)overdrafts)Deferred consideration in respect of previous (2,682) -acquisitions (18,028) (2,458) Equity dividends paid (192) - Net cash (outflow) before financing (11,781) (1,019) FinancingIncrease in share capital 10,004 -Costs associated with issue of shares (787) -New borrowings 19,500 2,000Repayment of borrowings (9,365) (900)Repayment of finance lease (capital element) (70) (98) 19,282 1,002 Increase/(decrease) in cash in the year 7,501 (17) Consolidated statement of total recognised gains and lossesfor the year ended 30 June 2007 2007 2006 (as restated) £000 £000 (Loss)/profit for the financial year (10,418) 635Foreign currency translation differences - 2 Total recognised gains and losses relating to the year (10,418) 637 Reconciliation of movement in consolidated shareholders' fundsfor the year ended 30 June 2007 2007 2006 (as restated) £000 £000 (Loss)/profit for the financial year (10,418) 635Foreign currency translation differences - 2Dividend paid (192) -FRS 20 share option (debit)/credit (124) 124Issue of share capital 9,217 - Net (decrease) / increase in equity shareholders' funds (1,517) 761Opening equity shareholders' funds 16,049 15,288 Closing equity shareholders' funds 14,532 16,049 There is no impact on equity shareholders' funds from the adoption of FRS 20. FONEBAK PLC - NOTES TO THE FINANCIAL STATEMENTS 1 - Segmental Reporting The Fonebak group has two classes of business; (1) the repair, remarketing andre-cycling of mobile phones, accessories and related products and relatedservices ("Environmental Resale") and (2) the provision of repair and logisticsof technology products including mobile communications equipment, computercomponents and other electronic equipment and peripherals. Turnover by geographical destination Year ended 30th June 2007 Year ended 30th June 2006 Ongoing Acquisitions Total Total Actvities £'000's £'000's £'000's £'000's United Kingdom 13,238 19,975 33,213 17,056Continental Europe 1,966 10,106 12,072 2,146Africa 5,376 0 5,376 6,266Asia Pacific 45,469 0 45,469 34,893 ------ ------ ------ ------Total 66,049 30,081 96,130 60,361 ====== ====== ====== ====== Turnover by class of business Year ended 30th June 2007 Year ended 30th June 2006 Ongoing Acquisitions Total Total Activities £'000's £'000's £'000's £'000's Environmental Resale 61,193 0 61,193 55,393Repair 4,856 30,081 34,937 4,968 ------ ------ ------ ------Total 66,049 30,081 96,130 60,361 ====== ====== ====== ====== All intra segment revenue has been consolidated out. Operating (loss)/ profit by geographic origin Year ended 30th June 2007 Year ended 30th June 2006 Operating Operating (loss) Operating Operating (loss) before after goodwill (loss) before (loss) after goodwill amortisation, goodwill goodwill amortisation, exceptional amortisation, amortisation, exceptional items and share exceptional exceptional items and share based items and items and share based payments payments share based based payments payments £'000's £'000's £'000's £'000's United Kingdom 1,227 (8,730) 4,401 2,873Continental Europe (1,551) (1,653) (654) (654) ------- ------- ------- -------Total operating profit (324) (10,383) 3,747 2,219 ======= ======= ======= ======= The figures included in the 2006 accounts for Profit by geographic location werepreviously reported as the profit of the overseas subsidiaries rather than truebusiness generated from the continent. The totals of all origins were correct. Are-statement of the comparatives has also been necessary in accordance with FRS20. Operating (loss)/ profit by class of business Year ended 30th June 2007 Year ended 30th June 2006 Operating Operating Operating (loss) Operating (loss) (loss) before (loss) after before goodwill after goodwill goodwill goodwill amortisation, amortisation, amortisation, amortisation, exceptional exceptional exceptional exceptional items and share items and share items and items and based payments based payments share based share based payments payments £'000's £'000's £'000's £'000's Environmental Resale (786) (8,684) 4,216 2,688Repair 462 (1,699) (469) (469) ------ ------ ------ ------Total operating (loss)/ (324) (10,383) 3,747 2,219profit ====== ====== ====== ====== Net assets by geographic origin As at 30th June 2007 As at 30th June 2006 £'000 £'000 United Kingdom 10,080 15,774Continental Europe 4,452 275 14,532 16,049 ====== ====== Net assets by class of business As at 30th June 2007 As at 30th June 2006 £'000 £'000Environmental Resale 4,118 15,972Repair 10,414 77 ------ ------ 14,532 16,049 ====== ====== 2 - Impact of acquisitions On 15 September 2006 Fonebak was awarded a rolling annual contract by DSG Retail("DSG") for the provision of mobile phone repair and administration services.At the same time, Fonebak acquired the Stoke based mobile phone repair andadministration business of DSG. The total consideration, including costs was£0.4m. This business is being closed in September 2007. In the year Fonebak also paid £2.4m in respect of deferred consideration for theacquisition of Intec Group Limited - comprising the Intec Distribution businessand the Intec Cellular business at Barnet. The Barnet business was closed inSeptember 2007. £58,000 of the deferred consideration remained outstanding at30th June 2007 and was paid at the beginning of September 2007. On 14th December 2006 the Board announced it had made an agreed bid for CRCGroup Plc ("CRC") at 50p per share for its then 24.6million shares. On 24thJanuary the offer was declared unconditional having been accepted by over 90% ofCRC shareholders. The remaining shares were then acquired over the next 6 weeks. The total consideration including fees for the CRC acquisition was £13.6m. The net assets of CRC at the time of the acquisition comprised Tangible assetsof £2.5m, Intangible assets of £7.0m, Current assets of £16.8m, Currentliabilities of £13.3m and Bank Loans and overdrafts of £5.6m. 3 - Goodwill amortisation, impairment and exceptional items The goodwill amortisation charge rose from £1.3m in 2006 to £1.6m in 2007 as aresult of the acquisitions of CRC and Stoke. The significant downturn in the profitability of the Fonebak business has forcedthe new Board to carry out an impairment review of all investments and carryingvalues. This review has been based on the groups 3-year plan, which has beenprepared following the trading statement made in March. The discountedcash-flows of the various business streams has been calculated using a discountrate of 20%. This rate reflects, in the board's opinion, a fair rate to evaluatethe business carrying value and risk profile. An impairment in the originalFonebak business of £3.4m, from the carrying value prior to the impairment of£14.5m, has been charged. The carrying value of Goodwill for Stoke (£0.1m),Barnet (£1.1m) and Romania (£0.9m) have been totally written off following theannouncements to close Stoke and Barnet and reduce the capacity in Romania. One off Exceptional Items totalling £2.1m have been charged reflecting closureand restructuring provisions for Barnet, Stoke and Romania , the major elementof this reflects asset write downs and losses to closure. The post year- endcash costs to be incurred are approximately £0.4m. Costs associated with the refinancing and turnaround plan of £0.8m and theexceptional write off of previously capitalised IT and building costs of £0.2mhave also been charged. Finally a credit of £0.1m has been processed reflecting the reversal of prioryear charges for share-based payments. 4 - Earnings/(loss) per share The calculation of the basic earnings/(loss) per share is based on the earnings/(loss) attributable to ordinary shareholders divided by the weighted averagenumber of shares in issue during the year. The calculation of diluted earnings/(loss) per share is based on the basicearnings/(loss) per share, adjusted to allow for the issue of shares on theassumed conversion of all dilutive options. Reconciliations of the earnings/(loss) and weighted number of shares used in thecalculations are set out below: 2007 2006 (as restated) Earnings Weighted Earnings Earnings Weighted Earnings average per share average no. per share no. of of shares shares £000 Number Pence £000 Number Pence Basic (Loss)/earnings per (10,418) 22,015,310 (47.32)p 635 19,199,995 3.31pshare Effect of dilutive options - 231,990 0.50p - 404,006 (0.07p) Diluted (Loss)/earnings per (10,418) 22,247,300 (46.82)p 635 19,604,001 3.24pshare An adjusted earnings per share has also been presented, which the directorsconsider gives a useful additional indication of the group's performance. It isbased on adjustments to profit after taxation for the year in respect ofexceptional items (net of tax), the amortisation of goodwill and share basedpayment charges. The effects of the adjustments are as follows: 2007 2006 (as restated) Earnings Weighted Earnings Earnings Weighted Earnings average per share average no. per share no.of of shares shares £000 Number Pence £000 Number Pence Basic (Loss)/earnings per (10,418) 22,015,310 (47.32)p 635 19,199,995 3.31psharePost tax effect of excludingamortisation of goodwill andexceptional items 9,119 - 41.42p 1,497 - 7.79p Adjusted basic earnings per (1,299) 22,015,310 (5.90)p 2,132 19,199,995 11.10pshare Diluted earnings/(loss) per (10,418) 22,247,300 (46.82)p 635 19,604,001 3.24psharePost tax effect of excludingamortisation of goodwill andexceptional items 9,119 - 40.96p 1,497 - 7.63p Adjusted diluted earnings perShare (1,299) 22,247,300 (5.86)p 2,132 19,604,001 10.87p 5 - Debtors Amounts falling due within one year 30th June 2007 30th June 2006 Trade Debtors 13,869 5,221Deferred tax asset 1,240 42Corporation Tax asset 1,287 0Other debtors 343 305Prepayments and accrued income 2,199 1,002 --------- --------- 18,938 6,570 --------- --------- 6 - Creditors - amounts falling due within one year 30th June 2007 30th June 2006 Bank Loans and other borrowings 5,934 1,400Trade Creditors 5,272 2,795Finance Leases 8 24Corporation Tax 0 527Other taxes and social security 856 205Other creditors 3,012 73Deferred consideration 153 2,463Accruals and deferred income 18,339 8,144 --------- --------- 33,574 15,631 --------- --------- 7 - Reconciliation of operating (loss)/ profit to net cash inflow from operatingactivities 2007 2006 (as restated) £000 £000 Operating (loss)/profit (10,383) 2,219Depreciation charge 1,282 391Amortisation of goodwill 7,050 1,274Share option scheme (124) 124Decrease / (increase) in stock 4,759 (2,514)Decrease / (increase) in debtors 2,249 (1,109)Increase in creditors 3,463 2,515 Net cash inflow from operating activities 8,296 2,900 8 - Reconciliation of net cash flow to movement in net debt 2007 2006 £000 £000 Increase/(decrease) in net cash 7,501 (17)Cash inflow from increase in debt and lease financing (10,065) (337) Change in net debt resulting from cash flows (2,564) (354)Loans and finance leases acquired with subsidiaries (4,265) (841) Movement in net debt in the year (6,829) (1,195)Net debt at the start of the year (4,041) (2,846) Net debt at end of year (10,870) (4,041) 9-Analysis of changes in net debt Cash in Overdrafts Total net Debt due Debt due Total Net hand and cash within after debt debt at bank one one year year £000 £000 £000 £000 £000 £000 £000 At beginning of year 1,137 - 1,137 (1,424) (3,754) (5,178) (4,041)Cash flow 7,935 (434) 7,501 181 (10,246) (10,065) (2,564)Acquisition (excluding cash and - - - (4,265) - (4,265) (4,265)overdrafts) At end of year 9,072 (434) 8,638 (5,508) (14,000) (19,508) (10,870) 10 - New bank facilities and equity On 14th December 2006 Fonebak entered into a new loan facility with KBC Bank NVtotaling £25m. This comprises two tranches as follows: a) £17.5m sterling term loan, drawn in February 2007, repayable over 5 years on a straight-line basis commencing at the end of September 2007. This term loan was supported by an interest rate swap arrangement to effectively fix the interest rate. b) A multicurrency revolving credit facility (RCF) of £7.5m. In February 2007 £2m of the RCF was drawn in cash, £5m was set aside as security for Letters of Credit in favour of the groups clearing banks and £0.5m remained un-drawn. In January 2007 the group also raised £10m of new equity by the issuing, at£1.48 per share, of 6,756,757 new shares. The combination of the cash drawings on this bank debt of £19.5m and the newequity of £10m financed the acquisition of CRC for £13.6m, including fees, andthe repayment of the existing CRC and Fonebak bank loans of £9.4m. Following the trading statement issued in March the Group has been indiscussions with KBC Bank NV. On 18th September 2007 the Group concluded are-shaping of the overall facility. The Group has not drawn, and does not needto draw, any further funds. It will be making all repayments as originallyscheduled - the first £1.75m being on 28th September 2007. The Group has alsoagreed a more flexible structure, which will allow it to effectively offset thepositive cash balances it holds with its clearers. The Group's new facility of £25m is now fully structured on an RCF basis, givingthe Group the ability to retain all or part of the existing interest rate swaparrangements. Repayment terms remain as set out above. The facility is securedon all of the Group's assets. 11 - Employee Benefit Trust On 21st June 2007 the Company set up an Employee Benefit Trust("EBT")and formeda subsidiary company,Fonebak Trustees Limited,to administer the EBT("the Trustee")The Company agreed to make a loan of £1,193,250 to the Trustee to enable the Trustee to subscribe for 2,150,000 ordinary shares of 2p each in the issued share capital of the Company at a price of 55.5 pence per share("theSubscription Shares") in order that the Trustee could make awards over interestsin the Subscription shares to certain directors and employees of the Companyunder a new Executive Share Plan("the Executive Plan") approved by the Board on26th June 2007.The following directors were invited to participate in theExecutive Plan("the Awards")on 26th June 2007: Name Number of Shares over which interests to be held Base Award Value G.Stokes 750,000 60.5 penceD.W.Kelham 500,000 60.5 pence The Board agreed to make these awards subject to the following performancecriteria: Immediately following the announcement of the Company's results for the periodending 30 June 2010 • Real annual growth in earnings per share for the Company,measured over a three year period from 1st July 2007 until 30 June 2010 is equal to or in excess of 5%;and • The market value of an ordinary share in the Company(as derived from AIM) is no less than twice the market value of an ordinary share on 30 June 2007 The Executive Plan also contains certain earlier vesting provisions where theparticipant leaves the Company for reasons of ill health or early retirement ora change of control. 12 - Share Capital The shares in issue in the group have increased from 19,199,995 at 30th June2006 to 28,342,577 at 30th June 2007. This increase has arisen as a result ofthe 6,756,757 shares issued in January at £1.48 to help fund the CRC acquisitionand repay existing Fonebak debt, the taking up, prior to his leaving, of 235,825options granted to the former Finance Director at 2p and the issue of the2,150,000 shares to the EBT. 13 - Basis of Preparation The financial information set out above does not constitute the company'sstatutory accounts for the year ended 30th June 2007 or 2006 but is derived fromthose accounts. Statutory accounts for 2006 have been delivered to the registrarof companies and those for 2007 will be delivered in due course. The auditorshave reported on these accounts; their reports were unqualified and did notcontain a statement under section 237(2) or (3) of the companies act 1985. 14 - Copies Copies of this announcement will be available from the Group's administrativecentre of 7200 The Quorum, Oxford Business Park North, Oxford, OX4 2JZ or fromits nominated advisor and broker KBC Peel Hunt Ltd, 111 Old Broad Street,London, EC2N 1PH. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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