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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Alternative Net | LSE:AN. | London | Ordinary Share | GB00B05KXX82 | ORD 0.125P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 333.50 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMAN.
RNS Number : 5026A
Alternative Networks plc
08 June 2016
Alternative Networks plc
Interim Results for the six months ended 31 March 2016
Alternative Networks plc, ('the Company' or 'the Group'), a leading provider of IT managed services and independent business-to-business communications, reports its Interim Results for the six months ended 31 March 2016.
HIGHLIGHTS
-- Trading performance for the six months ended 31 March 2016 mixed but with encouraging underlying trends
-- Continued good growth in recurring revenues in Advanced Solutions, with a higher level of non-recurring revenues expected in the second half
-- Mobile performance impacted by challenging market conditions and reduction in roaming tariffs implemented by the carriers, as announced in February 2016. Evidence of improved performance in Mobile following introduction of new tariffs and arrangements with carriers
-- Mobile subscriber growth strong with 9% increase in the base compared to the equivalent prior year period
-- Continued strong operating cash conversion (96% of adjusted EBITDA). Resigned extended and improved banking facilities
-- High level of backlog and a healthy pipeline of new business together with cost reductions are expected to support H2 performance
-- Progressive dividend policy maintained:
o Interim dividend of 6.2p payable on 8 July 2016, up 13% year on year
o Full year dividend expected to grow by no less than 10% year on year
KEY FINANCIAL INFORMATION
Unaudited results for the 6 months 2016 2015 Change ended 31 March (restated) GBP'000 GBP'000 % Revenue 69,300 71,984 -4% Adjusted EBITDA* ** 7,483 10,270 -27% Adjusted operating profit* 5,889 9,037 -35% Adjusted profit before taxation* 5,351 8,337 -36% Adjusted earnings per share*** - basic 8.7p 13.0p -33% - diluted 8.6p 12.7p -32% Interim dividend per share 6.2p 5.5p +13% Operating profit 3,683 6,301 -42% Profit before tax 3,145 5,601 -44% Earnings per share - basic 5.3p 9.4p -44% - diluted 5.2p 9.3p -44%
* Adjusted profits are stated before intangible asset amortisation excluding software, exceptional items and share based payments.
** Earnings before interest, taxation, depreciation and amortisation.
*** Adjusted earnings per share is based on adjusted profit after tax as set out in note 5
Mark Quartermaine, Chief Executive of Alternative Networks, commented:
"There have been market challenges to our Mobile business, over the past six months. However we have remained competitive, have continued to improve our offering to customers and win new customers. We have taken measures to mitigate the financial impact of changes to roaming tariffs and maintained our focus on becoming one of the UK's leading providers of IT managed services to UK businesses. There are plenty of indicators to give us cause for optimism about the relevance and appeal of our offer and we will continue to drive organic growth. Our increase in the dividend reflects this confidence in the business and its cash generative nature."
Outlook
With changes to Mobile tariffs and carrier arrangements now in place, we have greater confidence on Mobile performance for the second half. Our high level of backlog also gives us a good indication of the level of non-recurring revenue we can expect for in Advanced Solutions, and we continue to develop our offer to attract further new recurring revenues from mid-sized businesses, while controlling our cost base as we have done in the first half. As a consequence, we expect a higher weighting of revenue to the second half than has been the case in previous years.
Enquiries:
Alternative Networks Mark Quartermaine, Chief Executive Officer Gavin Griggs, Chief Financial Officer 0870 190 7444 Investec Bank PLC - Nominated Adviser and Joint Broker Patrick Robb / Carlton Nelson / Andrew Pinder 020 7597 5970 finnCap Limited - Joint Broker Stuart Andrews 020 7220 0565 Bell Pottinger Elly Williamson / Anna Legge 020 3772 2500
CHAIRMANS STATEMENT
Introduction
As announced in our trading update in February, in the first half of 2016 Alternative Networks faced significant pressures in its Mobile business. This has impacted on our results but the business remains strong and we have continued the implementation of our strategy with further investment in our product set and customer service.
Results
Reported revenue, gross profit and adjusted EBITDA decreased 4%, 9% and 27% respectively due to the impact of the pressures on the Mobile business. This is in line with our guidance in February and April and includes the effect of mitigating actions taken by management. Performance has been robust in the face of this challenge. Revenue in Advanced Solutions was broadly flat at GBP37.0m (H1 2015: GBP37.2m), with an increase in recurring revenue offset by a decline in non-recurring revenue after the slippage of a significant contract. We ended the first half of the financial year with a high level of backlog of signed projects of GBP7.7m and the prospect of a relatively stronger second half. Revenue in Mobile declined 7% to GBP18.9m (H1 2015: 20.4m) due to new carrier roaming tariffs compounded by a reduction in roaming usage revenues.
Cash generation remained strong, with 96% of adjusted EBITDA converted to cash. The period end net debt balance was GBP19.0m versus GBP18.7m at 30 September 2015. In addition, we have recently agreed a new syndicated bank loan facility with a further accordion to support our growth plans.
Dividend
The Board has declared an interim dividend of 6.2p, up 13% year on year, in keeping with its intention to grow the dividend at least 10% each year. This is an expression of our confidence in the business regardless of short term challenges and we expect the full year dividend to grow by no less than 10%.
Review of operations
A number of positive indicators underpin our belief in the relevance of our offering to customers and the growth this will allow. In Advanced Solutions these positive indicators include the backlog level, growth of 16% in Online Desktop driven by new customers for our Online Desktop product, and further new client wins across the portfolio, including in our core verticals, notably Healthcare. A decrease in the margin was due to price mix on hardware. In response to the challenges in Mobile, where new carrier roaming tariffs have led to a reduction in roaming usage revenues, we took action to mitigate the impact by negotiation with carriers, and we see potential for an improved second half in this business too. We are also encouraged by the fact that our subscriber base in Mobile grew 9% compared to the equivalent prior year period. Proactive management has been a key feature of our response to a challenging half. Management made efforts to reduce the cost base and devoted time to the continuing development of the customer offering, including enhancement of the mobile workspace proposition, the launch of Alternative Platform as a Service (APaaS), and the improvement of customer service across our portfolio with strategic projects to improve quality and efficiency of service.
Growth strategy
After significant investment in our platform throughout 2015 and continued investment in the first half of 2016, we are well positioned to return to growth. We remain one of the UK's leading providers of IT managed services to UK businesses. We will continue to use our breadth of products and services to establish ourselves as the long term supplier of choice for a larger customer target base and to drive organic growth. Our strong cash generation and our new financing arrangements underpin our active interest in acquisitions which complement our product set and allow us to build further onto our platform. We are seeing opportunities which we will continue to screen to ensure we make only acquisitions which add value for customers and shareholders alike.
James Murray
Executive Chairman
Performance & strategic overview
The Group's strategy remains unchanged; to become a leading IT managed services provider for UK businesses via organic and acquisitive growth.
Business performance
Performance in the first half of 2016 has been robust in the face of a significant challenge to our Mobile business, with positive indicators including a high level of Advanced Solutions order backlog, new wins in Online Desktop and a healthy pipeline of new business opportunities across the portfolio offset by the financial results in the Mobile division.
In Advanced Solutions the solid underlying performance seen over recent periods has continued. Recurring revenue was 5% ahead of the first half of the prior year, while non-recurring revenue was 8% below due to the phasing of project completions into the second half of the current financial year resulting in a high level of non-recurring signed order backlog of GBP7.7m. This growth is due to new orders from both new and existing customers and is expected to result in a higher weighting of revenue to the second half than has been the case in previous years. Hosted Managed Services and On Demand Services continue to perform in line with expectations. In particular, the hosted desktop market continues to grow and the Group has seen 16% revenue growth with our Online Desktop product. New orders have been generated across the portfolio, with notable new clients wins in our core verticals. In the Healthcare vertical, Alternative was chosen by North Lincolnshire & Goole Healthcare Trust to replace their telephony estate with an IP solution covering 3,500 users and to provide five year support. In addition the Group has won a number of new Online Desktop and Unified Communications solution customers demonstrating the Group's credentials in this area.
The gross margin in Advanced Solutions decreased slightly in the period to 38% (2015: 39%) due to the decrease in higher margin professional services completions, mostly held in backlog and therefore expected to execute in the second half of the current financial year together with price mix on hardware orders.
As reported in February, within Mobile, both revenues and profitability have been impacted by the new carrier roaming tariffs which have led to a reduction in roaming usage revenue. Mobile revenue declined by 7% year on year with gross margins declining to 41% (2015: 46%). Mobile revenue now represents 27% of the Group's overall revenue.
In response to this, the Group has negotiated improved cost bases in data roaming, and has mitigated the risks surrounding future operator changes, which are expected to improve Mobile business performance in the second half of the financial year.
Fixed Voice revenues were 7% below the comparative period in the prior year, in line with market trends. Gross profit has declined at a similar rate owing to ongoing churn mitigated by the signing of new commercial agreements. The key focus remains the migration of the fixed line base to SIP channels, the number of which have almost doubled year on year. Overall, the Fixed Voice business now represents 19% of the Group's revenue. During the period we have added a new SIP provider, resulting in improved margins and international capabilities, which will continue to support the healthy growth in this area.
The Group has also reviewed its cost base and taken action that will reduce overheads in the second half of the financial year.
Product development and growth platform
In 2016 the Group is capitalising on the transformational activities of 2015, by expanding the product portfolio, developing the customer service proposition and further improving our portal functionality. Furthermore, we have made key investments into the Group's storage platform. These combined investments are expected not only to improve our service offerings to customers, but also to increase productivity and collaboration amongst our people and allow easier integration of any future acquisitions.
The Board is intent on building a broader and stronger platform for growth. We have set out our vision to be the leading IT managed services provider of choice to UK businesses. The Group's infrastructure and hosting services are critical to the delivery of this strategy and in line with this, the first half of 2016 has seen a number of major initiatives, including:
o Enhancement of our mobile workspace proposition, with new products covering device management, data optimisation and mobile security capabilities; and
o APaaS, has been successfully launched with seven customers (1,500 handsets) signed on to the platform already, and a growing pipeline developing.
In order to further develop the Group's cloud offering, during the second half of the financial year we expect to launch OnlineCompute, a platform designed to provide Infrastructure as a Service (IaaS) for enterprise workloads, complementing existing Hosted Managed Services. This will be delivered under our own monitoring and management, allowing us to offer a range of options and deliver a best fit hybrid solution to our clients' business requirements.
In addition to specific product development, the Group has initiated a number of strategic projects to improve service across the portfolio, including completion of the rollout of ServiceNow (a market leading case management system) allowing us to manage customer's issues, or changes, in a consistent and simplified manner, of which initial customer feedback has all been very positive. Furthermore we have instigated a CPQ (configure, price, quote) process to ensure we improve the quality and efficiency of the bid process for both customers and our own benefit.
Organic growth
The Group continues to build successfully on the following four key areas of focus to deliver further organic growth:
o Winning new customers in our target markets;
o Using improved customer service and Synapse, combined with the acquired portals, to drive improved customer retention across the wider product set;
o Improved product penetration across our customer base; and o Product development and innovation to increase value to our customer base.
Our target customers are in the mid-sized enterprise market, particularly those customers with multi-sites and with 80 to 1,000 employees. With an ever broadening product base, there are multiple entry points to these customers.
The Group's ability to win large contracts with new customers has been proven once again including sizeable deals with North Lincolnshire & Goole Healthcare Trust, Optima, Fellowes and HCC.
We continue to focus on winning "right size" customers (a 'large' customer being defined as having a monthly spend in excess of GBP10,000, increased from a previously reported GBP1,000 reflecting the evolving focus of the Group). The proportion of total Group revenue arising from this larger right size group has remained constant at around 57%, reflecting growth across the entire customer base. At the period end the Group had 181 large customers, (31 March 2015: 185) and the proportion taking more than three products has risen from 30% in 2015 to 32% in H1 2016 demonstrating the success of the upsell strategy.
The number of all customers taking more than one product year on year has been maintained at 46% in line with the Group's stated strategy of growing the average size of the customers, via higher enterprise sales and cross sales.
Portal development
Central to our strategy is the use of Synapse, the Group's dynamic service interface, offering customers significant service and flexibility benefits. In H2 2016 we have released Synapse2, which will ultimately absorb and encapsulate all Group portal functions, including the current Synapse portal. The first phase of this new portal will incorporate support ticketing across all products and services of the Group, bringing these into a single portal. The portal will integrate directly with ServiceNow enabling our customers to engage in real time with our ServiceNow ticketing. The current Synapse portal will continue to be the primary source for all other customer information.
Growth by acquisition
The Group's cash generation has enabled the Group to reduce net debt significantly since the completion of the two acquisitions made in 2014. This, combined with the strong balance sheet and new financing arrangements signed in May 2016, leaves us well placed to capitalise on further opportunities should they arise, and the Group continues to monitor the market proactively for further "right-fit" acquisitions. Acquisitions are being targeted to complement the existing products and to further expand our capabilities and product set in the Advanced Solutions area, with a focus on managed and hosted services.
Results & trading overview
Despite the performance of Mobile, The Group ended the half year with a number of positive indicators, including a high level of Advanced Solutions order backlog, rising Fixed Voice margins, new wins in Online Desktop, a healthy pipeline of new business opportunities over the portfolio and a number of new products and offerings that are expected to be launched in the second half of the financial year.
Advanced Solutions Mobile Fixed Voice Group --------------------- --------------------- -------------------- --------------------- Six months Six months Six months Six months to Change to Change to Change to Change 31 March 31 March 31 March 31 March 2016 % 2016 % 2016 % 2016 % GBPm GBPm GBPm GBPm Revenue 37.0 - 18.9 -7% 13.4 -7% 69.3 -4% Recurring 23.0 5% 18.9 -7% 13.4 -7% 55.3 -2% Non-recurring 14.0 -8% 14.0 -8% Gross profit 14.0 -4% 7.8 -18% 5.9 -7% 27.7 -9% Margin 37.9% -130bps 41.0% -520bps 44.1% - 39.9% -230bps
Total reported revenue decreased 4% to GBP69.3m (2015: GBP72.0m). The Advanced Solutions business was flat overall but recurring products were up 5% (to GBP23.0m). Revenue in Mobile was 7% down on the equivalent period in the prior year, affected largely by new carrier roaming tariffs that have compounded a reduction in roaming usage revenues. The Fixed Voice business continued in managed decline, ending the period down 7% to GBP13.4m revenue.
Gross profit decreased by 9% (GBP2.7m), from GBP30.4m to GBP27.7m, with GBP1.6m of this decline in the Mobile division. Gross margin decreased by 230 basis points from 42.2% to 39.9% due to a reduction in higher margin non-recurring profits in Advanced Solutions and Mobile, offset slightly by improved profitability in Fixed Voice.
Adjusted EBITDA at GBP7.5m was down 27% (GBP2.8m). This is almost entirely due to the decreases in gross profit as the operating cost base has been maintained year on year despite the Group expanding its product set, and moving to new premises in 2015. Actions have been taken to reduce the cost base which will benefit the second half of the financial year.
Adjusted EBITDA is stated before non-cash intangible asset amortisation of GBP1.8m (H1 2015: GBP2.0m), IFRS2 share option costs of GBP0.1m (H1 2015: GBP0.7m) and non-recurring restructuring charges of GBP0.2m. Restructuring charges consist of further redundancies and professional fees as the Group continues to further increase operational efficiencies across core functions.
Advanced Solutions
6 months to 6 months 12 months to 31 March 2016 to 30 September 31 March 2015 2015 GBPm Revenue GBPm GBPm Recurring Managed services 8.6 8.7 17.6 Online desktop 1.8 1.6 3.3 Maintenance 5.6 5.6 11.6 Connectivity 4.7 3.9 8.3 Billing 2.3 2.0 4.2 Subtotal 23.0 21.8 45.0 Non-Recurring Hardware / software 10.9 12.1 26.3 Professional Services 3.1 3.3 6.6 Subtotal 14.0 15.4 32.9 Total 37.0 37.2 77.9 Gross Margins Recurring 43% 44% 44% Hardware / software 21% 25% 21% Professional services 58% 53% 59% Advanced Solutions 38% 39% 38%
In total, Advanced Solutions revenues are broadly level half year on half year at GBP37.0m, with the improvement in recurring revenues offsetting the reduction seen in non-recurring revenues, with the latter seeing slippage on one specific contract which is expected to occur in the second half. As a result of the latter, the backlog of signed projects has risen to GBP7.7m, of which the majority is expected to recognised in the second half.
This growth in backlog is due to new orders from both new and existing customers and is expected to result in a higher weighting of revenue to the second half than in previous years.
As detailed above, new orders have been generated across the portfolio, with notable new clients in core verticals for Alternative, such as Healthcare.
The gross margin in Advanced Solutions is slightly lower than the prior year at 38% (2015: 39%) as a result of lower completions in high margin Professional Services.
Managed services
Managed services encompass the Group's offerings in all hosting, cloud and utility services, including all outsourcing services. Growth in this area is a key focus with both existing and new customers. High margins in this area represent the added value nature of the services provided. The 2% decline in revenue reflects a decrease in the lower margin pure hosting and colocation revenue as the Group encourages clients to move towards higher margin, fully managed services.
Online desktop
Online desktop represents the Group's cloud based Desktop as a Service (DaaS) remote access offering. 16% revenue growth in the period year on year reflects our key position in this growing market.
Maintenance
Maintenance revenues were flat half year on half year as a result of growth in the customer base as we connect a healthy pipeline of new business, offset by the loss of one larger customer in February 2016. The Group continues to offer this service as an ongoing component of longer term contracts. Margins are also consistent year on year as the group has been able to renew contracts at historical pricing levels due to the service quality available to clients, and proactively churn any that involve lower pricing.
Connectivity
Connectivity revenues increased 20% to GBP4.7m in the period. This growth was generated from growth in data connectivity sales solutions for both existing and new customers. Sales growth has arisen from a number of key wins, including Findel plc. Margins have risen slightly year on year reflecting a broadened supplier base.
Hardware & software
Hardware and Software revenues comprise all individual non-recurring direct sales, either as single sales or as part of wider installation and IT service projects. Revenue decreased 9%, owing to lower completions in the period as customers extended lead times on certain large projects due to wider market uncertainties. Gross margins have reduced across the Group due to a number of large deals where competitive pricing has been offered in order to secure further growth opportunities in higher margin products and services with recurring revenue.
Professional services
Professional services revenue, comprising a mix of IT solution design and installation of data hardware, declined 6% to GBP3.1m. On the system installation side of the business, revenues rose 60% to GBP2.1m owing to key sales into larger enterprise clients. However this was offset by an expected decline in revenue on the IT side, as a result of the completion of a large migration contract for a law firm in the comparative period in H1 2015.
Margins have stabilised during the year following the completion of the integration of the acquisitions from 2014, and they continue to reflect the efficiency with which the Group is able to apply the workforce to new and existing projects.
Billing services
Billing Services revenues and margins are up on the prior period by 14% and 5pps respectively reflecting good wins and reduced churn.
Telephony Services - Mobile
6 months 6 months 12 months to to to 30 September 31 March 31 March 2015 2016 2015 (restated) Revenue(#) (GBPm) 18.9 20.4 40.4 Gross profit(#) (GBPm) 7.8 9.4 19.0 Gross margin % 41% 46% 47% Subscribers 103,515 95,260 99,413 Recurring revenue 92% 90% 93% Mobile KPIs Monthly ARPU (GBP) 30 35 34 Monthly ADPU (Mb) 280 143 170 Network churn 21% 14% 16% Customer churn by value 15% 10% 14% % Subscribers in-contract 80% 73% 78% Monthly average contract length 24m 24m 26m
(#) 2015 revenue and gross profit have been restated following a reclassification of Mobile customer credits and other costs, as discussed in note 1.
Mobile revenues declined by 7% half year on half year, with gross profit declining at 18% and gross margins decreasing to 41% (2015: 46%). As detailed above, this is due to the impact of new carrier roaming tariffs that have compounded an ongoing reduction in roaming usage. Significant trends in the period were as follows:
-- The subscriber base has grown 4% organically to 103,515 since 30 September 2015, and 9% organically since 31 March 2015.
-- ARPU on the entire contracted base has declined from GBP35 to GBP30 (period ending September 2015: GBP34). Whilst ARPU related to data usage increased since the prior year (up GBP0.71 to GBP2.06), this was mostly due to domestic effects, as overseas data ARPU declined due to roaming tariffs, ongoing effects of regulation and overseas use of wifi networks. Voice ARPUs continued to decline (down GBP3.53 to GBP10.16), as the combined effects of ongoing switches to data usage continue.
-- The growth in data continues, with ADPU up 96% to 280MB per month year on year. With the predominance of smart phones and the expansion of 4G networks we expect this will continue to grow rapidly.
-- Mobile churn has risen across the base, as we actively churn lower value customers to optimise profitability. Network churn levels have increased slightly in the period resulting from churn of smaller billing customers, as evidenced by the relatively low churn by value of 15% (30 September 2015: 14%). Customer re-sign levels, especially in higher billing customers, have remained high and the number of subscribers in contract grew to 80% (30 September 2015: 78%) reflecting value seen in the Group's service offering and the quality of the Synapse portal for customer retention.
Telephony Services - Fixed Voice
6 months 6 months 12 months to to to 31 March 31 March 30 September Fixed Voice 2016 2015 2015 GBPm GBPm GBPm (restated) Revenue (GBPm) 13.4 14.4 28.5 Gross profit(#) (GBPm) 5.9 6.3 12.3 Gross margin % 44% 44% 43% Outbound monthly ARPU (GBP) 1,373 1,368 1,385 Number of lines/channels (inc. SIP) 67,070 71,985 68,388 SIP lines 13,453 10,196 10,924 Average customer contract length (months) 32m 28m 30m
(#) 2015 gross profit has been restated following a reclassification of other costs, as discussed in note 1.
Fixed Voice revenues declined 7% half year on half year due to a combination of customer churn and reduction in call volume to mobiles, regulatory price reductions and the continuing move to SIP channels. These trends are in line with the wider market. Gross profit has declined at a similar rate owing to ongoing churn versus the signing of new commercial agreements and the rise in SIP profitability. Significant trends in the period were as follows:
-- The Group continues to proactively migrate the Fixed Voice base to SIP based telephony. The migration to SIP lines has increased the number of SIP Channels by 32% in the period to over 13,000, resulting in SIP gross profit rising by 75% from GBP0.45m to GBP0.78m period on period.
-- The gross margin on this product set has remained level year on year, and thus with the revenue decline, total gross profit has reduced 6% year on year. The gross margin has been affected by a combination of rising SIP profitability resulting from improved commercials from greater scale, and an ongoing reduction in usage across the traditional wholesale base.
-- Outbound revenues have decreased by 10% to GBP9.8m. Outbound call revenues were down 7% from GBP5.4m to GBP5.0m, a significantly lower rate than in prior periods, as mobile termination rate reductions and ongoing migration to SIP continued to lower revenues whilst new customer wins in the period have bolstered usage. The average revenue per customer per month ('ARPU') has risen slightly versus the prior year as a result of a general reduction in spend resulting from the shift to mobile and data communications, tempered by an increase arising from the signing of new, larger, customers and churn of smaller customers.
-- Inbound revenues were flat at GBP3.6m year on year as usage decreases offset ARPU increases from larger clients.
Earnings per share and taxation
Adjusted basic earnings per share was down 33% to 8.7 pence, from 13.0 pence in the first half of 2015. The adjustments to earnings relate to non-recurring costs associated with restructuring in the period, amortisation of acquired intangibles and share based payments which have been deducted in full from profits for these earnings calculations.
Basic earnings per share was at 5.3p, down from 9.4p in 2015. The weighted average shares in issue increased by 0.3m shares to 48.4m over the comparative period.
The estimated effective tax rate used for the period to 31 March 2016 is 18.3% as compared to 18.9% in the prior period. Despite the recognition of multiple years of R&D credits in the prior year, the current year rate is reduced by the lowering of UK corporation tax in future years which reduces the value of the deferred tax liability that will be realised in those future periods, plus a further reduction in the UK rate of corporation tax (from 20.5% to 20.0%).
Cash flow and net debt
In May 2016, the Group secured a new GBP40.0m syndicated bank loan facility with a further GBP30.0m accordion facility following an "amend and extend" of the previous facility to May 2020. The new facility consists solely of a revolving credit facility as the term loan element of the previous facility has been removed, and also incorporates fewer covenant tests. The average margin payable throughout the first half of the 2016 financial year was 2.25%, and the new facility margin is expected to be no higher than 1.35% for the remainder of the financial year.
The Group's operating cash conversion was 96% (2015: 93%) of adjusted EBITDA, resulting in a period end net debt balance of GBP19.0m, (GBP18.7m at 30 September 2015), in line with the Board's expectations, and includes non-recurring capital expenditure of GBP0.3m on continued development of the Group's office space and IT infrastructure, and payment of the FY15 final dividend of GBP5.3m. The net debt has however reduced rapidly since the acquisitions in 2014 in a period where there has been significant investment in the Group's infrastructure and funding a progressive dividend policy reflecting the highly cash generative nature of the business.
Capital expenditure
Capital expenditure in the period was GBP1.5m, compared to GBP4.1m in the six months to 31 March 2015, largely due to the non-recurring office, IT functionality and customer related investments in 2015. Of the total capital expenditure in the current year, GBP0.4m was non-recurring investment in the Group's office space and customers, and the remaining GBP1.1m was in line with previous periods being further expenditure in respect of IT development, including the Synapse Portal.
Going concern
After considering the Group's financial projections, available borrowing facilities, covenants on borrowing facilities and other relevant financial matters, the Board is satisfied that on the date of approving the financial statements, there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements.
Dividend
The Group's strong cash generation has enabled the Board to maintain its progressive dividend policy. The Board has declared an interim dividend of 6.2 pence per share on 8 July 2016 which is a 13% increase on the interim dividend of 5.5 pence per share paid in 2015. The Board expects to pay a total dividend for the year at least 10% ahead of the prior year. The interim dividend will be paid on 8 July 2016 to shareholders on the register at 17 June 2016.
Mark Quartermaine
Gavin Griggs
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 March 2016
Six months Six months Year ended to to 31 March 31 March 2015 30 September 2016 2015 Note GBP'000 GBP'000 GBP'000 (Restated) Revenue 69,300 71,984 146,816 Cost of sales (41,639) (41,616) (86,113) ------------------------------- ----- Gross profit 27,661 30,368 60,703 Operating costs (23,978) (24,067) (45,603) ------------------------------- ----- ----------- -------------- ------------- Operating profit 3,683 6,301 15,100 Operating profit - analysed: Adjusted operating profit 5 5,889 9,037 19,194 Share based payments (139) (663) (1,309) Amortisation of intangible assets (excluding computer software) 7 (1,849) (2,026) (3,698) Income from property exit - 1,170 3,299 Restructuring and associated costs 11 (218) (1,217) (2,386) ----------- -------------- ------------- Operating profit 3,683 6,301 15,100 ------------------------------- ----- ----------- -------------- ------------- Finance income - 3 3 Finance costs (538) (703) (1,297) ------------------------------- ----- Profit before taxation 3,145 5,601 13,806 Taxation 6 (575) (1,059) (2,339) ------------------------------- ----- Profit and comprehensive income for the year 2,570 4,542 11,467 ------------------------------- ----- ----------- -------------- ------------- Attributable to: Owners of the company 2,570 4,542 11,467 2,570 4,542 11,467 ------------------------------- ----- ----------- -------------- ------------- Earnings per ordinary share: Basic 4 5.3p 9.4p 23.8p Diluted 4 5.2p 9.3p 23.3p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 March 31 March 30 September 2016 2015 2015 Note GBP'000 GBP'000 GBP'000 ASSETS Non-current assets Intangible assets 7 71,557 74,715 73,166 Property, plant and equipment 4,582 5,164 4,917 Deferred tax asset 555 1,230 559 Property deposits 153 281 280 76,847 81,390 78,922 ------------------------------- ----- --------- --------- ------------- Current assets Asset held for resale - 1,401 - Inventories 1,019 266 1,293 Trade and other receivables 27,558 28,567 28,288 Cash and cash equivalents 9 3,205 4,568 2,362 31,782 34,802 31,943 ------------------------------- ----- --------- --------- ------------- Total assets 108,629 116,192 110,865 ------------------------------- ----- --------- --------- ------------- EQUITY AND LIABILITIES Equity Called up share capital 62 62 62 Share premium 6,600 6,593 6,600 Capital redemption reserve 8 8 8 Merger reserve 2,749 2,749 2,749 Retained earnings 30,681 28,452 33,249 ------------------------------- ----- Total equity 40,100 37,864 42,668 ------------------------------- ----- --------- --------- ------------- Current liabilities Borrowings 9 7,704 6,640 6,598 Current tax liabilities 3,171 1,591 2,211 Trade and other payables 39,926 38,307 41,201 50,801 46,538 50,010 ------------------------------- ----- --------- --------- ------------- Non-current liabilities Borrowings 9 14,500 28,010 14,500 Deferred tax liabilities 3,228 3,780 3,687 17,728 31,790 18,187 ------------------------------- ----- --------- --------- ------------- Total liabilities 68,529 78,328 68,197 ------------------------------- ----- --------- --------- ------------- Total equity and liabilities 108,629 116,192 110,865 ------------------------------- ----- --------- --------- -------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share capital Share premium Capital Merger Profit and loss Total Equity redemption reserve reserve GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Balance at 1 October 2014 62 6,563 8 2,749 27,728 37,110 Shares issued - 30 - - - 30 Reissue of shares held in trust - - - - 277 277 IFRS 2 share based payments - - - - 494 494 Deferred tax on share options - - - - 55 55 Comprehensive income for the period - - - - 4,542 4,542 Dividends paid (note 3) - - - - (4,644) (4,644) --------------- -------------- ---------------- -------------- -------------- ------------------- ------------------- Balance at 31 March 2015 62 6,593 8 2,749 28,452 37,864 Shares issued - 7 - - - 7 IFRS 2 share based payments - - - - 584 584 Deferred tax on share options - - - - (51) (51) Comprehensive income for the period - - - - 6,925 6,925 Dividends paid (note 3) - - - - (2,661) (2,661) --------------- -------------- ---------------- -------------- -------------- ------------------- ------------------- Balance at 30 September 2015 62 6,600 8 2,749 33,249 42,668 Shares issued - - - - - - IFRS 2 share based payments - - - - 206 206 Deferred tax on share options - - - - (60) (60) Comprehensive income for the period - - - - 2,570 2,570 Dividends paid (note 3) - - - - (5,284) (5,284) Balance at 31 March 2016 62 6,600 8 2,749 30,681 40,100 =============== ============== ================ ============== ============== =================== ===================
CONSOLIDATED statement OF Cash flowS
Six months Six months Year ended to to Notes 31 March 31 March 30 September 2016 2015 2015 GBP'000 GBP'000 GBP'000 ------------------- ------ -------------------------- -------------------------- ------------------------------- Cash flows from operating activities Cash generated from operations 8 7,202 9,545 21,879 Income tax paid (130) (923) (1,247) Net cash from operating activities 7,072 8,622 20,632 ------------------- ------ -------------------------- -------------------------- ------------------------------- Cash flows from investing activities;- Purchases of property, plant and equipment (577) (3,602) (4,020) Purchase of intangible assets (software) (936) (468) (1,295) Proceeds from sale of property, plant and equipment - - 3,800 Interest received - 3 3 Net cash used in investing activities (1,513) (4,067) (1,512) ------------------- ------ -------------------------- -------------------------- ------------------------------- Cash flows from financing activities;- Interest paid (538) (703) (1,298) Dividends paid 3 (5,284) (4,644) (7,305) Proceeds from issue of share capital - - 37 Borrowings received/(repaid) 1,106 1,567 (11,985) Net cash used in financing activities (4,716) (3,780) (20,551) ------------------- ------ -------------------------- -------------------------- ------------------------------- Increase / (decrease) in cash and cash equivalents 843 775 (1,431) Cash and cash equivalents at start of period 2,362 3,793 3,793 ------------------- ------ Cash and cash equivalents at
end of period 3,205 4,568 2,362 ------------------- ------ -------------------------- -------------------------- -------------------------------
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
The financial information contained in this interim statement does not constitute financial statements as defined by section 434 of the Companies Act 2006. The interim statement has been reviewed by PricewaterhouseCoopers LLP but has not been audited. The financial information for the year ended 30 September 2015 is derived from the statutory accounts for that period that have been delivered to the Registrar of Companies and included an audit report, which was unqualified and did not contain any statement under section 498 of the Companies Act 2006.
Alternative Networks plc's consolidated financial statements and this interim financial information have been prepared in accordance with IFRS as adopted by the European Union (EU). The accounting policies applied are consistent with those described in the Annual Report and Financial Statements 2015 except as described below. The Interim statement has been prepared in accordance with IAS 34 'Interim Financial Reporting' and should be read in conjunction with the 2015 Annual Report and Financial Statements.
The Group offers discounts to Mobile customers which have previously been treated as adjustments to cost of sales due to the nature of the incentive written into contractual agreements. In light of changes in the contractual agreements, as presented in our financial statements for the year ended 30 September 2015, these amounts are now treated as adjustments to revenue. In the current period this change has resulted in a reduction in revenue and a corresponding reduction in cost of sales of GBP2.4m. Separately, as presented in our financial statements for the year ended 30 September 2015, in order to bring the basis of reported margins in the Telephony Services segment in line with the Advanced Solutions segment, certain costs have been reclassified from operating costs to cost of sales, resulting in an increase in cost of sales in the current period of GBP0.7m. In order to aid the comparability of amounts included in these financial statements, adjustments to revenue and cost of sales of GBP2.0m and GBP0.7m have been applied to the comparative period for discounts to customers and cost reclassification respectively. Accordingly, operating costs have been reduced by GBP0.7m. There are no earnings per share or equity impacts arising from these adjustments in any period presented in this interim statement.
New and amended standards adopted by the Group
There are no IFRSs or IFRIC interpretations that are effective for the first time in this financial period that had a material impact on the Group.
New standards and interpretations not yet adopted and not relevant to the Group's operations
A number of new standards and amendments to standards and interpretations are effective for the annual periods beginning on or after 1 January 2016, and have not been applied in preparing this interim statement. None of these will materially impact the financial reporting of the Group. These are:
Amendment to IFRS 11, 'Joint arrangements' on acquisition of an interest in a joint operation
Amendment to IAS 16, 'Property, plant and equipment' and IAS 38,'Intangible assets', on depreciation and amortisation
Amendments to IAS 16, 'Property, plant and equipment' and IAS 41, 'Agriculture', regarding bearer plants
Amendments to IAS 27, 'Separate financial statements' on the equity method
Amendment to IFRS 5, 'Non-current assets held for sale and discontinued operations' regarding methods of disposal
Amendment to IFRS 7, 'Financial instruments: Disclosures', (with consequential amendments to IFRS 1) regarding servicing contracts
Amendment to IAS 19, 'Employee benefits' regarding discount rates
Amendment to IAS 34, 'Interim financial reporting' regarding disclosure of information
Amendment to IAS 1, 'Presentation of financial statements' on the disclosure initiative
Amendment to IFRS 10 and IAS 28 on investment entities applying the consolidation exception
In preparing the interim financial statements the Directors have considered the Group's financial projections, borrowing facilities and other relevant financial matters, and the Board is satisfied that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements.
This interim statement was approved by the Board on 7 June 2016.
2. Accounting policies
The accounting policies applied for the period are consistent with those of the annual financial statements for the year ended 30 September 2015. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
3. Dividends
The reported dividend in these financial statements represents the 2015 proposed final dividend of 10.9 pence per 0.125p ordinary share, which was paid on 29 January 2016 (2015: represents the 2015 proposed and paid final dividend of 9.6 pence per 0.125p ordinary share). The amount of dividend paid was GBP5,284,000 (2015: GBP4,644,000).
The directors propose an interim dividend of 6.2 pence per 0.125p ordinary share (2015: 5.5 pence), with a total payment value of approximately GBP3,000,000 (2015: GBP2,662,000). The proposed 2016 interim dividend was approved on 26 May 2016, and has not been accrued in the financial statements. It will be paid on 8 July 2016 to shareholders on the register on 17 June 2016. The ex-dividend date is 16 June 2016.
4. Earnings per share
The calculation of basic and fully diluted earnings per ordinary share is based on the profit attributable to equity holders of the Company divided by the weighted average number of ordinary shares in issue during the year.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive ordinary shares. The Group has one category of potential dilutive shares, being those share options granted to employees where the exercise price is less than the average price of the Company's ordinary share during the year.
The profit and weighted average number of shares used in the calculations are set out below:
Basic and fully diluted earnings Profit attributable Weighted average Per share per share to owners of of GBP0.00125 amount the company ordinary shares GBP'000 Number Pence --------------------------------- ------------------------- ---------------- --------- For the 6 months to March 2016 Earnings per share - basic 2,570 48,436,172 5.3 Potentially dilutive shares - 574,104 (0.1) Earnings per share - diluted 2,570 49,010,276 5.2 --------------------------------- ------------------------- ---------------- --------- For the 6 months to March 2015 Earnings per share - basic 4,542 48,071,601 9.4 Potentially dilutive shares - 860,202 (0.1) Earnings per share - diluted 4,542 48,931,803 9.3 --------------------------------- ------------------------- ---------------- --------- For the year to September 2015 Earnings per share - basic 11,467 48,212,619 23.8 Potentially dilutive shares - 940,364 (0.5) Earnings per share - diluted 11,467 49,152,983 23.3 --------------------------------- ------------------------- ---------------- ---------
The adjusted EPS is based on the adjusted profit after tax as set out in note 5, and the weighted average number of shares as described above.
Basic and fully diluted adjusted Adjusted profit Weighted average Per share earnings per share after taxation of GBP0.00125 amount ordinary shares GBP'000 Number Pence --------------------------------- ------------------------- ---------------- --------- For the 6 months to March 2016 Earnings per share - basic 4,224 48,436,172 8.7 Potentially dilutive shares - 574,104 (0.1) Earnings per share - diluted 4,224 49,010,276 8.6 --------------------------------- ------------------------- ---------------- --------- For the 6 months to March 2015 Earnings per share - basic 6,232 48,071,601 13.0 Potentially dilutive shares - 860,202 (0.3) Earnings per share - diluted 6,232 48,931,803 12.7 --------------------------------- ------------------------- ---------------- --------- For the year to September 2015 Earnings per share - basic 13,681 48,212,619 28.4 Potentially dilutive shares - 940,364 (0.6) Earnings per share - diluted 13,681 49,152,983 27.8 --------------------------------- ------------------------- ---------------- ---------
The calculation of the weighted average number of shares in issue excludes 1,298,784 shares held by the Alternative Networks Employee Benefit Trust (EBT) (2015: 1,626,403).
There were 49,741,087 shares in issue at 31 March 2016 (2015: 49,714,010 shares). The weighted average number of shares during the 6 months to 31 March 2016 was 48,436,172 (2015: 48,071,601).
5. Reconciliation to adjusted performance Reconciliation of profit before tax to 31 March 31 March 30 September adjusted EBITDA 2016 2015 2015 GBP'000 GBP'000 GBP'005 --------------------------------------------- --------------- --------------- ------------ Profit before tax 3,145 5,601 13,806 Adjustments Amortisation of purchased customer contracts and other intangibles (excluding computer software) 1,849 2,026 3,698 Share based payments 139 663 1,309 Income from property exit - (1,170) (3,299) Restructuring and other costs 218 1,217 2,386 --------------------------------------------- Adjusted profit before tax 5,351 8,337 17,900 Finance income - (3) (3) Finance costs 538 703 1,297 --------------------------------------------- --------------- --------------- ------------ Adjusted operating profit 5,889 9,037 19,194 Add: Depreciation of property, plant and equipment 898 763 1,681 Add: Amortisation of software (intangibles) 696 470 1,176 Adjusted EBITDA 7,483 10,270 22,051 --------------------------------------------- --------------- --------------- ------------ Reconciliation of adjusted profits for 31 March 31 March 30 September earnings per share 2016 2015 2015 GBP'000 GBP'000 GBP'000 ------------------------------------------------ ------------- ------------- ------------- Adjusted profit before tax (see above) 5,351 8,337 17,900 Less: Share based payments (139) (663) (1,309) Less: Taxation per consolidated statement of comprehensive income (575) (1,059) (2,339) Less: Taxation on amortisation of purchased customer contracts and other intangibles (excluding computer software) and exceptional charges (413) (383) (571) Adjusted profit after tax 4,224 6,232 13,681 ------------------------------------------------ ------------- ------------- -------------
Adjusted EPS is calculated on adjusted earnings after deduction of share option costs. This analysis is provided as the Group considers it provides a more appropriate reflection of the underlying performance of the business.
6. Taxation on profit on ordinary activities
Income tax expense is recognised based on management's best estimate of the weighted average annual effective income tax rate expected for the full year. The estimated effective tax rate used for the period to 31 March 2016 is 18.3% as compared to 18.9% in the prior period. The current year rate reflects a further reduction in the standard rate of corporation tax (from 20.5% to 20.0%) plus the lowering of UK corporation tax in future years which reduces the value of the deferred tax liability that will be realised in those future periods.
7. Intangible assets Group Purchased Computer Customer Trade Technology Goodwill Total customer software contracts names contracts and relationships GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ------------------------- ---------- --------- ------------------ ------- ---------- -------- ------- Cost At 1 October 2014 1,662 5,054 32,434 757 1,897 51,907 93,711 Additions - 1,295 - - - - 1,295 At 1 October 2015 1,662 6,349 32,434 757 1,897 51,907 95,006 Additions - 936 - - - - 936 At 31 March 2016 1,662 7,285 32,434 757 1,897 51,907 95,942 ------------------------- ---------- --------- ------------------ ------- ---------- -------- ------- Accumulated amortisation At 1 October 2014 1,662 2,998 10,375 757 1,174 - 16,966 Charge for year - 1,175 3,476 - 223 - 4,874 ------------------------- ---------- --------- ------------------ ------- ---------- -------- ------- At 1 October 2015 1,662 4,173 13,851 757 1,397 - 21,840 Charge for period - 696 1,738 - 111 - 2,545 At 31 March 2016 1,662 4,869 15,589 757 1,508 - 24,385 ------------------------- ---------- --------- ------------------ ------- ---------- -------- ------- Net book amount At 31 March 2016 -2,417 16,845 -388 51,907 71,557 ------------------ ----- ------ --- ------ ------ At 30 September 2015 -2,176 18,583 -500 51,907 73,166 ------------------ ----- ------ --- ------ ------ At 1 October 2014 -2,056 22,059 -723 51,907 76,745 ------------------ ----- ------ --- ------ ------
Amortisation has been charged through the income statement within operating costs.
8. Cash generated from operations Six months Six months Year ended to to 31 March 2016 31 March 2015 30 September 2015 GBP'000 GBP'000 GBP'000 -------------------------------- ------------------------- ------------------------- ------------ Operating profit 3,683 6,301 15,100 Adjustments for Depreciation of property, plant and equipment 898 431 1,681 Amortisation of intangible assets 2,545 2,495 4,874 Employee share scheme charges 139 663 1,309 Profit on sale of tangible assets - - (2,399) Movements in working capital Inventories 274 61 (966) Trade and other receivables 786 609 (1,594) Trade and other payables (1,123) (1,347) (3,874 Cash generated from operations 7,202 9,545 21,879 ================================= ========================= ========================= ============ 9. Analysis of movement in net debt As at As at 1 October Cash flow 31 March 2016 2015 GBP'000 GBP'000 GBP'000 Net Cash: Cash at bank and in hand 2,362 843 3,205 -------------------------- ------------------- --------- ------------- Debt Debt due within one year (6,598) (1,106) (7,704) Debt due after one year (14,500) - (14,500) --------- ------------- Total debt (21,098) (1,106) (22,204) -------------------------- ------------------- --------- ------------- Net debt (18,736) (263) (18,999) -------------------------- ------------------- --------- -------------
10. Segmental information
Per IFRS 8, operating segments require identification on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance.
The chief operating decision maker has been identified as the Board. The Board review the Group's internal reporting in order to assess performance and allocate resources. The operating segments are Telephony Services and Advanced Solutions which are reported in a manner consistent with the internal reporting to the Board. The Board assesses the performance of the operating segments based on revenue and gross profit.
Telephony Services consists of two revenue streams, fixed voice and mobile. Advanced Solutions includes the installation and maintenance of telephone systems, the integration of computer networks, the provision of managed hosting solutions and the provision of billing facilities.
For six months ended 31 March Telephony Advanced 2016 Services Solutions Total GBP'000 GBP'000 GBP'000 ----------- ----------- --------- Total segment revenue 32,262 37,122 69,384 Inter segment revenue - (84) (84) Revenue from external customers 32,262 37,038 69,300 --------------------------------- ----------- ----------- --------- Gross Profit 13,641 14,020 27,661 --------------------------------- ----------- ----------- --------- Operating costs (23,978) Finance income - Finance costs (538) Profit before taxation 3,145 ----------- ----------- --------- Adjusted EBITDA 7,483 --------------------------------- ----------- ----------- --------- For six months ended 31 March Telephony Advanced Total 2015 (restated) Services Solutions GBP'000 GBP'000 GBP'000 ---------- ---------- -------- Total segment revenue 34,796 37,317 72,113 Inter segment revenue - (129) (129) Revenue from external customers 34,796 37,188 71,984 -------------------------------- ---------- ---------- -------- Gross Profit 15,781 14,587 30,368 -------------------------------- ---------- ---------- -------- Operating costs (24,067) Finance income 3 Finance costs (703) Profit before taxation 5,601 ---------- ---------- -------- Adjusted EBITDA 10,270 -------------------------------- ---------- ---------- -------- For the year ended 30 September Telephony Advanced Total 2015 Services Solutions GBP'000 GBP'000 GBP'000 ---------- ---------- -------- Total segment revenue 68,941 78,189 147,130 Inter segment revenue - (314) (314) Revenue from external customers 68,941 77,875 146,816 -------------------------------- ---------- ---------- -------- Gross Profit 31,368 29,335 60,703 -------------------------------- ---------- ---------- -------- Operating costs (45,603) Finance income 3 Finance costs (1,297) Profit before taxation 13,806 ---------- ---------- -------- Adjusted EBITDA 22,051 -------------------------------- ---------- ---------- --------
Assets and liabilities are not disclosed by segment as they are not reported to the chief operating decision maker.
Transactions with the largest customer of the Company are less than 10% of Group revenue and do not require disclosure for either 2016 or 2015.
All sales have taken place within the United Kingdom and those between segments are all carried out on an arm's length basis.
All non-current assets are located within the United Kingdom.
11. Restructuring and associated costs
Six months Six months Year ended to to 31 March 2016 31 March 2015 30 September 2015 GBP'000 GBP'000 GBP'000 -------------------- ------------------------ ------------------------- ------------ Restructuring costs 51 1,058 1,823 Redundancy costs 167 159 563 218 1,217 2,386 ==================== ======================== ========================= ============
12. Post balance sheet events
Subsequent to the year end the Group has entered into a new loan finance agreement that amends and extends the previous loan finance agreement until May 2020. The new agreement is a rolling credit facility with a fixed GBP40m limit plus a further GBP30m accordion option.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DDLFBQQFBBBZ
(END) Dow Jones Newswires
June 08, 2016 02:00 ET (06:00 GMT)
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