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RNS Number:7032J TeleCity PLC 07 April 2003 7 April 2003 Preliminary Results for the year ended 31st December 2002 Key Points * Q4 EBITDA loss #0.8m, reduced from #1.2m in Q3 * Turnover, before exceptional items, #23.8m (2001: #25.1m) * Overall cost base reduced by 26% * Cash balance ahead of forecast at #6.5m * Company confident of an EBITDA positive result in Q1 2003 (earlier than anticipated) * Exit from all surplus properties now complete * Winner of ISPA's 2003 award as best colocation service provider Michael Hepher, Chairman, said: "This has been a year of transition and significant progress for TeleCity and we have remained focused on the opportunities to consolidate our leadership position in the colocation sector. During 2002 we have worked hard to address the financial position, whilst adapting to the market and retaining our high standards of service, quality and flexibility. "TeleCity intends to become EBITDA positive in Q1 2003 and so become the first independent European colocation company to reach this milestone." For further information: TeleCity plc 020 7512 4887 Rick Hudson Citigate Dewe Rogerson 020 7638 9571 Sue Pemberton/Freida Davidson Preliminary Results for the year ended 31st December 2002 2002 has been a year of transition and significant progress for TeleCity. With market conditions remaining volatile, the Company has reorganised to increase new business, whilst reducing its overall cost base by 26%. Despite a sustained period of significant change, the trend of EBITDA loss reduction has continued, improving from #2.6m in Q4 2001 to #0.8m in Q4 2002. The recently received the ISPA Best Colocation Provider award is testament to the fact that the company has also continued to focus on its customers throughout this period, whilst maintaining its excellent standards of operational performance. Progress has been such that the forecast date for TeleCity to become EBITDA positive has been brought forward to the first quarter of 2003. Market conditions Activity levels stabilised across all our geographic markets in 2002 following the dramatic slowdown witnessed in the previous year. As the Company has extended its target customer base beyond telecommunications companies and ISP's, and is putting more energy into driving business generation outside of the UK, enquiry levels and the pipeline of potential contracts have increased substantially. The impact of this new sales focus pushed Q4 sales order intake 70% higher than the average quarterly sales order intake in the previous 3 quarters. The competitive situation has also improved with the exit of a number of colocation providers continuing to reduce the over-capacity in the sector. Given these circumstances, we believe TeleCity is winning a significant share of the colocation space being sold and with the increasing awareness of the brand, we are particularly well placed to continue improving our competitive position. Organisation structure Where previously growth at TeleCity was driven centrally by targeting large, pan-European carriers, more opportunities now exist with regional value-added service providers and a diverse range of corporates operating on a national basis. To successfully penetrate these markets, TeleCity has implemented a new structure of country management teams with full responsibility for local P&L performance, sales, business development and customer service. In the second half of 2002, a number of key appointments were made to implement this new structure and deliver the pan-European ambitions of the company. The benefit of local teams being directly responsible for their quarterly EBITDA performance has been quickly realised. With the appropriate incentives in place, management has become increasingly proactive in pursuing additional revenue earning opportunities as well as cost saving measures. This approach is a natural evolution for TeleCity as a pan-European company, and aligns resources to the most attractive outsourcing and service opportunities available. The devolved structure is also far more responsive to local market conditions, and has allowed TeleCity to make significant headcount savings at the corporate and head office levels of the Company. Property portfolio The nine sites that form the basis of TeleCity's business are located in London (2), Amsterdam (2), Paris, Frankfurt, Stockholm, Manchester and Dublin. These sites are operationally well established, with proven resilience, and receive consistently excellent feedback from customers in terms of service and responsiveness. The successful negotiation of exits from leases which are no longer required has been an essential part of the Company's progress towards positive EBITDA performance and cash generation. As disclosed in the half-year announcement, the rationalisation of the company's operations left four leases from which an exit needed to be secured. The lease at the closed operation in Edinburgh was terminated without the need for an exit premium. Sub-tenants have been found for the full term of our leases at both the undeveloped sites in London and Manchester. The income from these sub-tenants will, after initial rent-free periods, match our outgoings at these locations. We are pleased to report that, since the year-end, negotiations have also been concluded to terminate the lease in Munich. Provisions have previously been made to cover the cost of these termination premiums and, in the case of London and Manchester, the rent-free periods. The satisfactory conclusion of negotiations with regard to the Munich site completes our exit from all surplus properties. Results The profit and loss account for the year to 31 December 2002 is dominated by the exceptional charges, reflecting the degree of change that management has effected upon the business. Turnover for the year, before exceptional items, totalled #23.8m (2001: #25.1m). The exceptional turnover in 2002 of #1.2m relates to the early termination by a customer of a contract for colocation space. Turnover in 2001 included #7.5m sales of storage equipment as part of a one-off contract. Before exceptionals, turnover has remained relatively constant, at approximately #6.0m per quarter, as the benefit of new business won has been offset by a number of customer failures, most noticeably KPNQwest. After the disappointing losses in the first half of 2002, it is encouraging that there were no material customer failures in the second half of the year. The Company's new strategy means that our traditional reliance on a small number of large telecommunications companies is now much reduced, and the customer profile has diversified and spread to a much broader base of contracts and companies. The operating loss for the year was #40.7m (2001: #36.5m). Before exceptional items, the #5.3m EBITDA loss for the year compares to #13.1m in 2001. This includes an EBITDA loss of #0.8m in Q4, reduced from #1.2m in Q3 through management's vigorous approach to cost reduction. In addition to the site rationalisation programme, headcount for the Company as a whole is now 174, compared to 262 at the end of 2001. The full benefit of these actions is being seen in the early months of 2003, enabling a confident forecast of an EBITDA positive result being achieved in Q1 2003. The #26.2m exceptional charge includes #8.0m asset write-downs and lease termination premiums for sites now closed, a #17.8m write off of fixed assets following impairment reviews at certain of the continuing sites, redundancy costs of #1.9m, offset by the #1.2m exceptional revenue referred to above. Based on the sales growth achieved in Q4 2002 and Q1 2003, no further impairment to fixed assets or rationalisation charges are anticipated. The cash balance of #6.5m is ahead of our forecasts, reflecting continuing good working capital management. The KPNQwest and other customer failures referred to above, whilst affecting ongoing revenues, did not result in any material bad debts as all customers make payments for space quarterly in advance. With the benefit of the improved sales performance of the last six months, the Board remains confident that TeleCity is fully funded through to a cash generative position. Although it is not required to support the current business plan, a #0.7m loan facility has also been secured as contingency against renewed economic uncertainty or other factors impacting projected sales performance or short-term revenues. Board changes A number of changes have been made to the Board during the course of the year. The appointment of Rick Hudson as Chief Executive of TeleCity in June allowed Michael Hepher to revert to his original Non-Executive Chairman role. Rick's experience at Netscalibur, and previously with Cable and Wireless, has brought strong strategic input and detailed market knowledge to TeleCity. Rick has made an immediate, positive impact, having been instrumental in determining and implementing the changes to our business focus and future direction. Under the revised organisation structure the country managers now report directly to Rick. In August 2002, the Board accepted the resignation of Les Johns as Sales and Marketing Director. Under the new structure responsibility for sales and marketing has been devolved to the country management teams. In March 2003 the Board announced the resignation of Martyn Ellis from his position as the Group's Finance Director. Martyn has been a key member of the Board for a number of years, and was heavily involved in the flotation of the company, the successful rights issue and the recent restructuring activities. Martyn leaves TeleCity at the end of April to become Finance Director of Nestor Healthcare plc, and we thank him for his contribution and wish him every success in his new role. Josh Joshi will join TeleCity as the new Group Finance Director, effective from 14 April 2003. Josh gained extensive experience with Arthur Andersen before acquiring significant industry knowledge as CFO of Storm Telecommunications Ltd. With his strategic vision, European experience and telecommunications background, Josh is a welcome addition to the TeleCity Board. Outlook We remain focused on the opportunities to consolidate our leadership position in the colocation sector. At the end of 2002, TeleCity has a highly competitive cost base, a new organisational structure taking it into new markets and, through its investment in key management resources, the leadership team to take the company to its next phase of development. TeleCity intends to become EBITDA positive in Q1 2003 and so become the first independent European colocation company to reach this milestone. Whilst the service, quality and flexibility of TeleCity have always positioned the company very positively in competitive situations, the issues of profitability and financial stability have also been a concern for some potential customers. The real success of 2002 is that TeleCity has worked hard to address the financial position, whilst adapting to the market and retaining its positive qualities. It has been a tough and challenging year, but all the effort and achievements leave TeleCity well positioned moving into 2003. CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 December 2002 2002 2001 #'000 #'000 Continuing operations Turnover before exceptional items 23,750 25,128 Exceptional items 1,204 7,500 Turnover 24,954 32,628 Operating loss before exceptional items (14,481) (21,228) Exceptional items 2 (26,207) (15,272) Operating loss (40,688) (36,500) Net interest receivable 84 1,108 Loss on ordinary activities before taxation (40,604) (35,392) Taxation 3 --- --- Retained loss for the period attributable to ordinary shareholders (40,604) (35,392) Loss per ordinary share - basic and diluted 4 (20.2)p (25.2)p CONSOLIDATED BALANCE SHEET at 31 December 2002 2002 2001 Notes #'000 #'000 Fixed assets Tangible assets 47,130 74,105 Current assets Stocks 21 38 Debtors 6,635 7,013 Cash at bank and in hand 5 6,476 17,794 13,132 24,845 Creditors - amounts falling due within one year (14,389) (17,950) Net current (liabilities)/assets (1,257) 6,895 Total assets less current liabilities 45,873 81,000 Creditors - amounts falling due after more than one year (1,334) (102) Provisions for liabilities and charges (5,991) (4,443) Net assets 38,548 76,455 Capital and reserves Called up share capital 201 201 Share premium account 111,735 111,735 Merger reserve 17,862 17,862 Profit and loss account (91,250) (53,343) Equity shareholders' funds 38,548 76,455 Reconciliation of movements in equity shareholders' funds Loss for the financial year (40,604) (35,392) Currency translation gains/(losses) on foreign currency net investments 2,697 (1,629) Shares issued (net of issue costs) --- 14,116 Net decrease in equity shareholders' funds (37,907) (22,905) Opening equity shareholders' funds 76,455 99,360 Closing equity shareholders' funds 38,548 76,455 CASH FLOW STATEMENT for the year ended 31 December 2002 2002 2001 Notes #'000 #'000 Net cash outflow from operations 6 (8,066) (12,579) Returns on investment and servicing of finance Net interest received 231 1,152 Taxation paid --- --- Capital expenditure and financial investment Net purchase of tangible fixed assets (2,885) (32,176) Net cash flow before management of liquid resources and financing (10,720) (43,603) Management of liquid resources 11,794 24,387 Financing Proceeds of issue of share capital --- 15,565 New loan raised --- 112 Repayment of loan (10) --- Capital element of finance lease payments (87) (144) Expenses paid in connection with finance raised (706) (1,032) (803) 14,501 Increase/(decrease) in cash in period 271 (4,715) Reconciliation of net cash flow to movement in net funds Increase/(decrease) in cash in period 271 (4,715) Management of liquid resources (11,794) (24,387) (11,523) (29,102) New loan raised --- (112) Repayment of other loan 10 --- Capital element of finance lease payments 87 144 Change in net funds arising from cash flows (11,426) (29,070) New finance leases (1,295) --- Translation differences 152 (146) Movement in net funds in period (12,569) (29,216) Opening net funds 17,627 46,843 Closing net funds 5,058 17,627 Net funds analysed as follows: Cash at bank available on demand 4,587 4,181 Liquid resources 1,889 13,613 Finance leases (1,309) (65) Loan (109) (102) 5,058 17,627 Notes to the preliminary financial information 1 Basis of preparation The Directors consider that the Company has adequate resources to continue in operation for the foreseeable future. Accordingly, the accounts for the period ended 31 December 2002 have been prepared on the going concern basis. This statement constitutes non-statutory accounts within the meaning of Section 240 of the Companies Act 1985 and was approved by the Board of Directors and agreed with the Company's auditors, PricewaterhouseCoopers LLP on 7 April 2003. The comparative figures for 31 December 2001 are abridged from the full accounts of TeleCity plc on which the auditors gave an unqualified opinion. The 2002 statutory accounts will be filed with the Registrar of Companies and copies of the Group's full report and accounts will be sent to all shareholders in due course. Additional copies will be available from the Company's registered office, TeleCity plc, Galloway House, 57 Millharbour, London, E14 9TD. 2 Exceptional items The exceptional items are analysed as follows: 2002 2001 #'000 #'000 Exceptional revenue 1,204 --- Provisions against fixed assets (24,939) (5,493) Costs and provisions in respect of exiting property lease contracts (870) (6,326) Loss on contract relating to storage equipment --- (986) Costs in respect of aborted raising of debt facilities --- (883) Redundancy costs incurred (1,880) (1,584) Other 278 --- (26,207) (15,272) The exceptional revenue arises from the early termination of a significant contract. The provisions against fixed assets arise from the exit of the Edinburgh and Munich sites and an impairment review at certain of the Group's continuing sites. The Group has sublet the London 3 and Manchester 2 sites and has reached agreement to surrender the lease on the Munich site. The future costs relating to these sites have been included in provisions for liabilities and charges. Redundancy costs have been incurred as a result of management reviews of the Group's cost base. The loss on contract relating to storage equipment in 2001 derived from a one-off sale amounting to #7,500,000 at a cost of #8,486,000. 3 Taxation There is no taxation payable in the current or previous periods. The group has tax losses to carry forward and offset against future trading profits. The unrecognised deferred tax asset at 31 December 2002 amounted to #17,338,000 (2001: #11,646,000). 4 Losses per ordinary share The loss per ordinary share is based on the loss attributable to ordinary shareholders of #40,604,000 (2001: #35,392,000) and the weighted average number of shares in issue (as adjusted for the effect of Rights and Bonus Issues) of 200,590,533 (2001: 140,238,777). As the impact of issuing potential ordinary shares is anti-dilutive, the diluted loss per share is equivalent to the basic loss per share. 5 Cash at bank and in hand Cash balances at 31 December 2002 include #1,889,000 (2001: #1,821,000) held in deposit accounts which are pledged to the Bank of Scotland in respect of bank guarantees given on property lease contracts. 6 Reconciliation of net cash outflow from operations 2002 2001 #'000 #'000 Operating loss (40,688) (36,500) Depreciation and loss on sale of fixed assets 9,223 8,141 Provisions against fixed assets 24,939 5,493 Movement in provision for liabilities and charges 1,326 1,500 Decrease in stocks 17 3,653 Decrease in debtors 510 2,815 (Decrease)/increase in creditors (3,393) 2,319 (8,066) (12,579) This information is provided by RNS The company news service from the London Stock Exchange END FR BDLFBXZBFBBB
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