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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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AT Commun. | LSE:ATCG | London | Ordinary Share | GB00B0C8K346 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 3.875 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
RNS Number:9345R AT Communications Group Plc 09 April 2008 ATCG.L AT Communications Group plc ("ATC," the "Company" or the "Group") Preliminary results for the year ended 31 December 2007 ATC reports strong operating performance and a positive outlook AT Communications Group plc is an award-winning supplier of Information and Communication Technology ("ICT") solutions and today announces preliminary results for the year to 31 December 2007. These are reported under International Financial Reporting Standards ("IFRS"), with 2006 comparisons restated accordingly. Financial highlights: * Group revenue up 63% to £88.4 m (2006: £54.1 m) with 11% underlying organic growth. * Operating profit before amortisation, non-recurring expenses and share based payments increased by 43% to £7.7m (2006: £5.4m). * Pre-tax profit, before amortisation, non-recurring expenses and share based payments up 35% to £6.2m (2006: £4.6m). * Strong cash generation in the 4th quarter resulting in a reduction of net debt to £15.0m at 31 December 2007 compared to £18.0m at 31 December 2006. * Adjusted EPS increased to 8.1p (2006: 7.4p). * Recommended final dividend of 1.0p. Operational highlights: * Completed debt and equity refinancing of the Group with £6.8m of new equity finance raised and a new five year committed loan facility secured in January 2008. Injected £10.3m in the working capital of the business. * 2006 acquisitions fully integrated with the Group reorganised into three operating divisions providing complete non-competing market coverage. * Success of this strategy evidenced by period contract wins with BT, Cable & Wireless, Dixons, HMV and Somerfield. * Contracted and recurring revenues increased to approximately 70% (2006: 60%). * Contracts post period end include Amazon plc and the significant new business wins with De La Rue as well as Avaya, reflecting ATC's success of targeting larger business and associated higher margins. * Board strengthened with the appointment of Ian Crawley as Group Finance Director and Andrew Parsliffe as Commercial Director. Fred Hallsworth joining the Group as Non-Executive Director post period end. Commenting on results, Alex Tupman, Chief Executive, said: "We have achieved tremendous progress during 2007, which has transformed our business. We now have the structures, scale, financing and management in place to continue to grow our business successfully in 2008 and beyond. Contract wins both during the period and after with companies including De La Rue and Avaya reflect the success of our end-to-end capability and will underpin our future growth as we secure larger and higher margin business. We are very confident of future prospects and I look forward to updating shareholders with further news in due course." Enquiries: AT Communications Group plc 08700 558 080 Alex Tupman, Chief Executive Ian Crawley, Finance Director www.atcommunications.co.uk Cenkos Securities plc 020 7397 8924 Stephen Keys www.cenkos.com Biddicks 020 7448 1000 Shane Dolan www.biddicks.co.uk Notes to Editors About AT Communications Group plc ATC is one of the UK's largest independent business communications groups and is listed on the London Stock Exchange (AIM). The Group offers a comprehensive portfolio of voice, data, mobile and video solutions, specialising in IP technology, alongside managed services, e-commerce, design consultancy, installation and maintenance. ATC operates under three divisions to ensure total market coverage. Each division operates independently but shares resources to ensure best practice at divisional level without duplication of effort. www.atcommunications.co.uk ATC Solutions: A leading business systems integrator, ATC Solutions is accredited at the highest level with leading ICT manufacturers and continues to craft best-of-breed solutions, supported by in-house service capabilities to SME and corporate customers directly. ATC Solutions' customer base now totals over 10,000 and includes the majority of the Times 500 companies. www.atc.co.uk Rocom: Rocom has over twenty years of experience in the communications market and focuses on resellers and dealers as well as retail channels for online services. It is the only UK distributor with the ability to distribute IP-based Customer Premises Equipment, Hosted IP Communications, and in-house Network Services to assist channels and their customers in managing the transition to IP-based solutions. www.rocom.co.uk Servassure: A fully independent third party service provider to channel partners in the UK ICT market - including ATC Solutions and Rocom. Servassure was formed in January 2007 to provide traditional and IP-based carrier and engineering services with a 100% channel focus. Servassure targets and supplies large channels including network operators such as BT and Colt and systems integrators such as Siemens who require a more customised level of service and support than a traditional, smaller channel. www.servassure.co.uk AT Communications Group plc Chairman's statement I am pleased to report an excellent set of results for 2007 with turnover and profits increasing significantly and the recommendation of a final dividend payment. This has been achieved despite the challenges faced during the period of integrating four acquisitions made in the previous 13 months as well as the restructuring of the business into three market focused operating divisions. Post restructuring, the Group now consists of a leading ICT solutions integrator and service provider focused on mid tier corporates (ATC Solutions), a leading ICT equipment and service distributor focused on the SME market via indirect channels (Rocom), and an independent network and engineering services company (Servassure), focused on providing services to other telecommunications companies as well as the other two Group divisions. The Group thus addresses the entire business market through a combination of direct and indirect channels. I believe that ATC now possesses the critical mass, best-of-breed industry partners, and in-house service capabilities to lead the UK industry for next generation ICT solutions through both direct and indirect routes to market. I am also very pleased to report that the business has started the new financial year well with recent contract wins across all three business divisions including contracts secured with large global companies such as De La Rue and Avaya. These wins in particular highlight the successes of restructuring and investment in sales in order to secure more complex and higher margin business. On an annualised basis, over 70% of the Group's turnover is now contracted and recurring. Post period end, we refinanced the business by way of a £24m loan facility with HBOS secured during difficult market conditions. I believe this achievement is testimony to the underlying strength and quality of ATC's business and management team. Looking forward, our debt position is being aggressively addressed, our recurring revenue streams continue to grow and our new business pipeline is healthy. We are focused on capitalising on our new divisional structure and we are driving the business via a strengthened and streamlined sales capability which we anticipate will generate strong growth. As a result, the Board is very confident of future prospects. I would like to take this opportunity to thank all our staff for their exceptionally hard work during the period under review. As a result of their efforts our business has evolved and become stronger. Gerry Spencer Non-Executive Chairman 9 April 2008 AT Communications Group plc Chief Executive's statement OVERVIEW 2007 was another exciting and successful year for ATC. The Group delivered on its strategic aims, which were to complete the assimilation of the acquisitions made in the previous 13 months and restructure the business into three market-focused operating divisions whilst maintaining double-digit organic growth. ATC now possesses the critical mass, best-of-breed industry partners, and in-house service creation capabilities to lead the UK industry for next generation ICT solutions through both direct and indirect routes to market. IFRS This is the first year for which the Group is required to report under IFRS, the main effects of which are to alter the treatment of goodwill and intangibles and related amortisation / impairment, and the treatment of share based payments. Prior period accounts have been restated under IFRS and reconciliations between UK GAAP and IFRS are shown in note 8. RESULTS Revenue & profit In the twelve months to 31 December 2007, the Group's revenue increased by 63% to £88.4m (2006: £54.1m). This increase reflects the inclusion of both the acquisitions made during 2006 for a full year. Nevertheless, the underlying organic growth based on unaudited proforma figures for 2006 was 11% and continues the trend of double-digit organic growth that the Group has achieved now for three years. This was achieved despite the significant restructuring and refinancing activities that were undertaken during the year. Gross profit increased by 47% to £35.7m (2006: £24.2m) again principally due to the acquisitions as noted above. Gross margin held up well at 40% (2006: 45%) despite the inclusion of the lower margin businesses acquired in 2006. Operating profit, before amortisation of intangible assets, non-recurring costs and share based payments increased 43% from £5.4m to £7.7m. Underlying EBITDA increased by 40% to £8.3m (2006: £5.9m) The following table sets out the trading and operating performance of the Group's three trading divisions. Revenue Underlying EBITDA 2007 2006 2006 2007 2006 (Proforma) £'m £'m £'m £'m £'m ATC Solutions 41.4 29.4 40.5 4.5 3.1 Rocom 41.5 18.0 31.3 2.9 0.9 Servassure 18.5 13.4 14.0 3.3 2.2 Group/Adjustments (13.0) (6.7) (6.6) (2.4) (0.3) Group Total 88.4 54.1 79.2 8.3 5.9 1) 2006 proforma figures are unaudited and have been calculated to provide a like for like comparison. They assume a full year contribution from the acquisitions made during 2006. 2) Underlying EBITDA is profit before interest, tax, depreciation, amortisation, one-off items and share based payments and is reconciled to the financial statements as follows: 2007 2006 £'000 £'000 Operating profit per financial statements 4,218 4,483 Amortisation of goodwill and intangible assets 1,296 568 Non-recurring costs 1,892 308 Share based payments 284 61 Depreciation 628 526 Underlying EBITDA 8,318 5,946 Non-recurring costs are principally costs incurred during 2007 as a direct or indirect result of the acquisitions made during 2006 and the restructuring of the Group that followed. They include £1.3m of bank and professional fees resulting from the earlier than planned requirement to refinance the debt taken on to finance the acquisitions made during 2006; £300k of consultants and interim management costs; and £135k of redundancy costs. Interest The net interest cost for the Group for the year increased to £1.5m (2006: £0.8m), due to higher average net debt levels resulting mainly from the financing of the Rocom acquisition in August 2006. Profit before tax Group profit before tax for the year declined to £2.8m (2006: £3.7m), due principally to increased amortisation as well as significant non-recurring costs as noted above. Taxation The taxation charge was £362k for the year, (2006: £404k) reflecting the use of losses from prior year as well as credits from over payments made in prior years. Earnings per share Adjusted diluted EPS increased to 8.1p (2006: 7.4p). Basic and diluted earnings per share for the year were 3.5p compared with 5.8p in 2006. Dividend and dividend policy The Group paid its first dividend during the year which resulted in a payment of £662k based on 1p per share. We said that we would operate a progressive dividend policy whilst balancing the cash needs of the business. In line with this policy, the Board has recommended a final dividend of 1p at a cost of £771k based on the increased shareholder base. This 16% increase in dividend payout notwithstanding the level of debt carried by the Group is a reflection of the Board's confidence that the Group will have a robust cash flow in 2008. Cash flow The Group's net cash position improved by £3.0m during the year with net debt reduced to £15.0m (2006: £18.0m). There was a cash outflow from operating activities of £5.9m principally due to a net increase in working capital of £10.3m. This increase mainly reflects the increased working capital requirements of the combined Group and a growing business but we believe that there is scope for improving working capital efficiency as we go forward. Set against these outflows were the completion of the sale and leaseback of the Wetherby freehold acquired as part of the Rocom acquisition which realised £3.5m along with a net £6.8m inflow from the share placings during the year. Debt Since the year end the Group has refinanced its debt and strengthened its balance sheet. The new facility with HBOS comprises a term loan of £16.5m amortising over five years and a committed revolving credit facility for £7.5m. DIVISIONS The Group invested heavily in its sales capability during the period and as part of the restructuring process our direct solutions division was realigned in order to focus on larger higher margin business. We also invested in Servassure recruiting an additional 40 engineers to strengthen our servicing ability, which was a key factor in winning the Avaya account. ATC Solutions ATC Solutions underwent considerable restructuring during the period. In line with our stated strategy and in order to address the significant higher margin and longer term contracted opportunities that exist via servicing global multi sited businesses, we closed down our SME sales operations and recruited 37 experienced sales staff to address this Tier 1 market. We now have the ability to offer global clients high end integrated communication solutions which encompass auditing and professional services, fixed line telephony, convergence solutions, mobility as well as peripherals. I am delighted to add that multi-million pound contract wins with Somerfield, FADS, HMV and Relate during the period and with De La Rue and OCG Buying Solutions post period end, all demonstrate the success of this strategy, which will underpin the Company's accelerating growth. ATC has been particularly successful at marketing its strengthened capabilities with recent high profile ICT seminars held at Wembley Stadium for the telecoms industry as well as with the International Business Development Group, which provides access to senior Chief Information Officers both here in the UK and internationally. Going forward, we will continue to focus on larger, higher margin business and on disruptive market-led propositions, including managed services and hosted VoIP as well as new-wave technology such as fixed mobile convergence, a significant new growth area for the Group. Servassure Servassure was created to provide its customer base with a 'white label' engineering, installation and maintenance service. Following significant recruitment during the period, including 40 additional Engineers, Servassure now has a national work force of over 200 engineers and technical support staff who are trained and accredited to service over 95% of installed vendor products. This enables the delivery of a complete suite of engineering and technical services and is a key component of the Group's integrated strategy and was central to winning significant contracts during the period with Somerfield and BT as well as Avaya, post period end. During the period, Servassure created a focussed BT team of 20 personnel who increased revenues with BT from £3m in 2006 to over £10m in 2007 providing engineering and technical services to over 3,000 BT customer sites. In addition, the team added new product revenues to the existing Third Party Maintenance service, including Stores and Logistics, Service Deliver Management and a 24 hour Network Operations Centre to monitor the data network of a major county council. In January this year, Servassure held a seminar at Kempton Races which attracted 30 new Systems Integrators and other large Carriers, 20 of whom have already signed up to Servassure's white labelled service generating a pipeline of business opportunity outside of BT of over £10m. Going forward, we will not only build on our strong relationship with BT but also on this new activity, which is generating significant traction in the market and a healthy pipeline of new business. Rocom During the period, Rocom has transformed itself into a comprehensive, channel-only supplier of ICT products and services. Rocom's direct sales teams now forms part of ATC Solutions, thus removing any channel conflict, and now supports approximately 3,000 resellers spanning traditional telecoms dealers, data VARs, network resellers, high street retailers and the increasingly prominent online trading community. Key retail customers include Amazon, PC World, Staples, Maplin Electonics and e-Buyer. In support of this transition, during 2007 Rocom further strengthened its reseller support proposition and launched its Total Distribution programme - a suite of 10 reseller support options specifically designed to deliver the channel's most complete and compelling support infrastructure. These additional services have been engineered to provide a one-stop-shop convenience to Rocom's reseller base while simultaneously presenting its resellers the opportunity to both accelerate sales and develop new revenue streams. New brand contracts won during the period included Nortel, which is globally regarded as one of the leading system brands in the SME sector. Significant successes have also been achieved with Siemens Enterprise for which Rocom operates a dedicated business unit, managing 3,000 customers on their behalf. During the period Rocom's Managing Director, Richard Carter, was awarded Channel Personality of the Year, a significant industry accolade against competition from industry leaders from Microsoft, IBM and Cisco. New contract wins The strength of our business post restructuring and its ability to target higher margin business is evidenced by the series of high profile contract wins that were announced during the period and post period end. During the year, our ATC Solutions and Servassure divisions won a multi-million pound, two-year IP voice and data managed service contract to provide services to Somerfield. The contract covers the entire Somerfield estate across 886 UK sites, which includes 873 Somerfield stores, 11 depot locations, and Somerfield's headquarters in Bristol. Our Rocom division won a string of multi-million pound contracts over the period, including a £2m contract with Dixons Stores Group International, a £9m contract with BT (together with Servassure) and £5m of reseller contracts from Cable & Wireless. This momentum has been sustained into the new financial year, with the extension for an additional two years of Rocom's existing relationship with Amazon, the leading online retailer, announced in February. Also following the period end, Rocom won a contract with Avaya to distribute their portfolio of SMB systems throughout the UK. Rocom will utilise its link with Servassure to supply an integrated service providing distribution, installation and maintenance services. This is expected to generate additional revenues to the Group of at least £7m over the next two years. In addition to the contract wins with HMV and Relate announced in September, ATC Solutions has recently been awarded a landmark contract with De La Rue for a full range of consultancy, design, installation and maintenance services for their international voice and data requirements. This, in tandem with the significant contract with Avaya represents a quantum leap for the Group as it shows our capability to service global, multi-sited companies, which in turn will deliver additional revenue and profit for the Group. PRODUCTS The Group divides its product and service offering into five broad product areas, the income from which is shown in the following table: 2007 Actual 2006 Pro forma 2006 % Increase £000 £000 £000 Hardware 11.0 4.3 10.2 8% Peripherals 30.2 11.9 27.8 8% Systems Integration and Engineering 19.4 17.5 18.9 3% Maintenance 10.6 7.8 8.0 32% Network Services 17.2 12.6 14.3 20% Hardware - the distribution of ICT systems to indirect channel customers. Peripherals - the supply of small items (< £200 each), including headsets and conference phones to a broad range of customers via both the indirect channel as well as direct to corporates. Systems Integration and Engineering - the design, project management and installation of ICT Solutions and the provision of engineering services. Maintenance - ongoing-support contracts for installed ICT systems. Network services - the supply of fixed line and mobile voice and data services. The table above demonstrates that our substantive growth is being delivered in the contracted and recurring revenue areas of maintenance services and network services. This has been underpinned with a substantial increase in our third party maintenance business with BT, which has increased year on year by over 50% and significant network services contract wins during the period, including Somerfield and HMV. MANAGEMENT TEAM During the period we made a number of Board appointments, which have strengthened our management team considerably. In June, Ian Crawley was appointed Finance Director. He has nearly 20 years of senior finance and telecoms experience, having held positions with BT, Cable & Wireless and Shell, amongst others. As Chief Financial Officer at BT's Openworld division, he played a key role in transforming the business into one of the UK's leading internet service providers. We also appointed Andrew Parsliffe as Commercial Director. He has 30 years of senior finance and commercial experience within multi sector FTSE 100 and 250 companies, including Scottish and Southern Energy Plc where he spent seven years as Group Financial Controller. Following the period end, we appointed Fred Hallsworth as a non-executive director. Fred has been involved in corporate finance and advisory work for Technology, Media and Communications and life sciences companies for the last 20 years and has over 30 years' experience of assisting companies with their fundraising, merger and acquisition, initial public offering and associated transactions. These appointments strengthen the Board and provide a broad skill set, which will drive the growth of our business during 2008 and beyond. OUTLOOK We have achieved tremendous progress during 2007, which I believe has transformed our business. We believe we now have the structures, scale, financing and management in place to grow our business dramatically in 2008 and beyond. This has already been demonstrated by the success we have had with significant contract wins to date and we are very confident about our future prospects. Alex Tupman Chief Executive 9 April 2008 AT Communications Group plc Consolidated income statement Year ended 31 December 2007 Note 2007 2006 £'000 £'000 Revenue 88,434 54,150 Cost of sales (52,773) (29,939) Gross profit 35,661 24,211 Selling, General & Administrative expenses (29,551) (19,420) Non-recurring restructuring costs (1,892) (308) Underlying EBITDA* 8,318 5,946 Depreciation (628) (526) Underlying operating profit 7,690 5,420 Share based payments (284) (61) Non -recurring restructuring costs (1,892) (308) Amortisation of Goodwill & Intangible Assets (1,296) (568) Operating profit 4,218 4,483 Investment revenues 20 6 Finance costs (1,486) (806) Profit before income tax 2,752 3,683 Income tax expense 2 (362) (404) Profit for the year attributable to equity shareholders 2,390 3,279 Earnings per share Basic 3 3.5p 5.8p Diluted 3 3.5p 5.8p Diluted adjusted 3 8.1p 7.4p *Earnings before interest, tax, depreciation, amortisation of intangible assets and share based payment charges. AT Communications Group plc Consolidated statement of changes in equity Year ended 31 December 2007 Share Share Capital Hedging Retained Total capital premium redemption reserve earnings equity account reserve Note £'000 £'000 £'000 £'000 £'000 £'000 Equity at 1 January 2006 530 11,557 6 - (617) 11,476 Profit for the year - - - - 3,279 3,279 Share-based payments - - - - 61 61 Total recognised income and expense 530 11,557 6 - 2,723 14,816 Issue of share capital 79 3,686 - - - 3,765 Cost of shares issued - (120) - - - (120) Balance at 31 December 2006 609 15,123 6 - 2,723 18,461 Profit for the year - - - - 2,390 2,390 Share-based payments - - - - 284 284 Gain on interest rate hedges - - - 27 - 27 Total recognised income and expense 609 15,123 6 27 5,397 21,162 Dividends 4 - - - - (662) (662) Issue of share capital 162 6,909 - - - 7,071 Cost of shares issued - (261) - - - (261) Balance at 31 December 2007 771 21,771 6 27 4,735 27,310 AT Communications Group plc Consolidated balance sheet 31 December 2007 Note 2007 2006 £'000 £'000 Non-current assets Goodwill 6 27,182 26,975 Other intangible assets 6 7,030 8,326 Property, plant and equipment 1,153 1,232 Deferred tax asset 525 409 35,890 36,942 Current assets Inventories 9,401 7,282 Trade and other receivables 23,390 17,924 Cash and cash equivalents 2,922 3,052 Derivative financial instruments 27 - Assets held for sale - 3,500 35,740 31,758 Total assets 71,630 68,700 Current liabilities Trade and other payables 23,057 25,690 Current income tax liabilities 1,228 833 Obligations under finance leases 41 97 Borrowings 6,508 2,920 30,834 29,540 Net current assets 4,906 2,218 Non-current liabilities Borrowings 11,370 18,115 Deferred income tax liabilities 2,109 2,498 Obligations under finance leases 7 86 13,486 20,699 Total liabilities 44,320 50,239 Net assets 27,310 18,461 Equity Share capital 771 609 Share premium account 21,771 15,123 Capital redemption reserve 6 6 Hedging reserves 27 - Retained earnings 4,735 2,723 Total equity 27,310 18,461 AT Communications Group plc Consolidated cash flow statement Year ended 31 December 2007 Note 2007 2006 £'000 £'000 Net cash from operating activities 7 (5,787) 3,702 Investing activities Interest received 20 6 Proceeds of Property held for resale 3,500 - Proceeds on disposal of property, plant and equipment 25 - Purchases of property, plant and equipment (574) (544) Acquisitions of subsidiaries (207) (23,450) Net cash used in investing activities 2,764 (23,988) Financing activities Dividends paid (662) - Repayments of borrowings (6,680) - Repayments of obligations under finance leases (135) (30) Proceeds on issue of shares 6,809 3,380 New loans raised 458 19,343 Net cash from financing activities (210) 22,693 Net (decrease)/increase in cash and cash equivalents (3,233) 2,407 Cash/(overdrafts) and cash equivalents at beginning of year 2,956 549 Cash/(overdrafts) and cash equivalents at end of year (277) 2,956 AT Communications Group plc Notes to the preliminary results 1. Financial information The financial information set out in this announcement does not constitute the Group's statutory accounts for the years ended 31 December 2007 and 2006. The accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use by the European Union and therefore comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared in accordance with IFRS for the first time with a transition date of 1 January 2006. The disclosures required by IFRS1 concerning the transition from UK GAAP to IFRS are given in note 8. Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, it does not include sufficient information to comply with IFRS. The Group expects to publish full financial statements which comply with IFRS in May 2008. The financial information has been prepared under the same accounting policies as presented in the Group's interim announcement for the period ended 30 June 2007 and can be viewed on the Group's website at www.atcommunications.co.uk. The comparative financial information for the year ended 31 December 2006 is derived from the statutory accounts for the year ended 31 December 2006 as adjusted for the conversion from UK GAAP to IFRS. The statutory accounts for the year ended 31 December 2006 have been delivered to the Registrar of Companies. The auditors have reported on the UK GAAP 2006 accounts; their report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The auditors have yet to sign their report on the 2007 accounts. The statutory accounts for the year ended 31 December 2007 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's Annual General Meeting. The financial information set out in this announcement was approved by the Board of Directors on 9 April 2008. 2. Income tax expense 2007 2006 £'000 £'000 Current tax 1,288 592 Previous period over provisions (421) - Deferred tax (505) (188) Tax charge 362 404 Corporation tax is calculated at 30% (2006: 30%) of the estimated assessable profit for the year. The tax on the Group's profit before tax differs from the theoretical amount that would arise using the 30% tax rate as follows: 2007 2006 £'000 £'000 Profit before tax 2,752 3,683 Tax at the UK corporation tax rate of 30% (2006: 30%) 826 1,105 Tax effect of expenses that are not deductible in determining taxable profit 193 110 Tax effect of depreciation that is not deductible in determining taxable profit 60 60 Tax effect of depreciation in excess of capital allowances 23 24 Other timing differences 436 31 Tax effect of utilisation of tax losses not previously recognised (250) (738) Over provision in previous years (421) - Movement in deferred tax (505) (188) Tax charge 362 404 3. Earnings per share The calculation of the basic, diluted and diluted adjusted earnings per share is based on the following data: 2007 2006 £'000 £'000 Earnings Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 2,390 3,279 Effect of dilutive potential ordinary shares: - - Earnings for the purposes of diluted earnings per share 2,390 3,279 Amortisation of goodwill & intangible assets 1,296 568 Non -recurring expenses 1,892 308 Earnings for the purposes of diluted underlying earnings per share 5,578 4,155 Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 69,231,218 56,231,313 Effect of dilutive potential ordinary shares: Share options 27,898 197,177 Weighted average number of ordinary shares for the purposes of diluted earnings per share 69,259,116 56,428,490 Earnings per share Basic 3.5p 5.8p Diluted 3.5p 5.8p Diluted adjusted 8.1p 7.4p 4. Dividends The dividends paid in 2007 of £662,000 (2006 - £nil) amounted to 1 pence per share (2006 - £nil per share). A dividend in respect of the year ended 31 December 2007 of 1 pence per share, amounting to a total dividend of £771,000 is to be proposed at the annual general meeting. These financial statements do not reflect this dividend payable. 5. Business combinations There were no acquisitions made during 2007. However, the fair value calculations related to the acquisitions made during 2006 have been restated to show the separate identification of intangible assets as part of the transition from UK GAAP to IFRS as well as revised estimates based on additional information reviewed during 2007. Fair value adjustments have been made to the book value of the assets and liabilities in acquired companies to adjust, where applicable, the carrying value of certain assets and liabilities. a) Britannia Telecom Group Limited ("Britannia") On 26 May 2006 the Company completed the acquisition of Britannia. The acquired assets and liabilities of Britannia were: Book Fair value Fair value Value adjustments £'000 £'000 £'000 Trade names and marks - 655 655 Customer lists / contracts - 2,579 2,579 Property, plant & equipment 113 - 113 Deferred tax asset - 15 15 Inventory 7 - 7 Trade & other receivables 530 (50) 480 Trade and other payables (3,204) - (3,204) Deferred tax liability - (970) (970) ------------ ------------ ------------- Net (liabilities) / assets acquired (2,554) 2,229 (325) Goodwill 4,375 ------------- Consideration 4,050 ======== Satisfied by: Cash 3,472 Shares issued 265 Loan notes 98 Acquisition costs 215 The material fair value adjustments to the net assets of Britannia were calculated as follows: (i) Trade debtors have been written down to their recoverable value plus the related deferred tax adjustment. (ii) Intangible assets in the form of the trade name and marks of Britannia, as well as its existing customer contract base, are recognised based on the Directors' assessment of their value taking into consideration the future cash flows that are expected to be derived from them. A corresponding deferred tax liability has been recognised. b) Rocom Limited ("Rocom") On 16 August 2006 the Company completed the acquisition of Rocom. The acquired assets and liabilities of Rocom were: Book Fair value Fair value Value adjustments £'000 £'000 £'000 Trade names and marks - 1,596 1,596 Customer lists / contracts - 4,064 4,064 Property, plant & equipment 645 (288) 357 Deferred tax asset - 86 86 Inventory 3,845 - 3,845 Trade & other receivables 6,142 - 6,142 Asset held for resale 3,500 - 3,500 Cash at bank 622 - 622 Trade and other payables (7,659) - (7,659) Deferred tax liability - (1,698) (1,698) ------------- ------------- ------------- Net assets acquired 7,095 3,760 10,855 Goodwill 7,534 ------------- Consideration 18,389 ======== Satisfied by: Cash 17,611 Acquisition costs 778 The material fair value adjustments to the net assets of Rocom were calculated as follows: (i) Adjustments to depreciation to bring into line with Group policies plus the related deferred tax adjustment. (ii) Intangible assets in the form of the trade name and marks of Rocom, as well as its existing customer contract base, are recognised based on the Directors' assessment of their value taking into consideration the future cash flows that are expected to be derived from them. A corresponding deferred tax liability as been recognised. (iii) Acquisition costs have been revised upwards by £207,000 compared to the calculation provided in the 2006 financial statements which was based on a preliminary assessment. 6. Goodwill and other intangible assets Tradenames Customer Total Goodwill and marks lists / intangible contracts assets £'000 £'000 £'000 £'000 Cost At 1 January 2006 - - - 15,284 Recognised on acquisition of subsidiaries 2,251 6,643 8,894 11,702 Adjustment in respect of 2005 acquisitions - - - 444 At 1 January 2007 2,251 6,643 8,894 27,430 Adjustment in respect of 2006 acquisitions - - - 207 At 31 December 2007 2,251 6,643 8,894 27,637 Accumulated amortisation and impairment At 1 January 2006 - - - (455) Amortisation for the year (91) (477) (568) - At 1 January 2007 (91) (477) (568) (455) Amortisation for the year (189) (1,107) (1,296) - At 31 December 2007 (280) (1,584) (1,864) (455) Carrying amount At 31 December 2007 1,971 5,059 7,030 27,182 At 31 December 2006 2,160 6,166 8,326 26,975 Goodwill and intangible assets acquired in a business combination are allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination as follows: 2007 2006 £'000 £'000 Rocom 10,236 10,599 ATC Solutions 13,295 14,021 Servassure 10,681 10,681 34,212 35,301 The Group tests goodwill and intangible assets annually for impairment, or more frequently if there are indications that they might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using post-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs and the rates used were between 16% and 19%. The growth rates are based on the directors' growth forecasts and the rates used were 10% per annum for five years followed by 3% in perpetuity thereafter. The directors believe that the rate of 10% is justified based on past performance and the Group's positioning in the market which it is believed will allow it to grow faster than general market growth by increasing its market share. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. The amortisation periods used for Tradenames and marks are 6 years with respect to the Britannia acquisition and 20 years for the Rocom acquisition. The amortisation period used for customer lists and contracts is six years. Therefore the remaining amortisation periods are 4 years and 5 months for Britannia Tradenames and customer lists and contracts; 4 years and 8 months for the Rocom customer lists and contracts; and 18 years and 8 months for the Rocom Tradenames. 7. Notes to the cash flow statement 2007 2006 £'000 £'000 Profit before tax 2,752 3,683 Adjustments for: Investment revenues (20) (6) Other gains and losses Finance costs 1,486 806 Depreciation of property, plant and equipment 628 526 Amortisation of intangible assets 1,296 568 Share-based payment expense 284 61 6,426 5,638 Operating cash flows before movements in working capital Increase in inventories (2,119) (1,971) Decrease/(increase) in receivables (5,504) (5,599) Increase/(decrease) in payables (2,633) 6,781 Cash generated by operations (3,830) 4,849 Income taxes paid (471) (287) Interest paid (1,486) (860) Net cash from operating activities (5,787) 3,702 8. Explanation of transition to IFRS As stated in the Basis of Preparation, these are the Group's first full consolidated financial statements prepared in accordance with IFRS. An explanation of how the transition from UK GAAP to IFRS has affected the Group's financial position, financial performance and cash flows is set out below. IFRS 1 permits companies adopting IFRS for the first time to take certain exemptions from the full requirements of IFRS in the transition period. These financial statements have been prepared on the basis of taking the following exemptions: * Business combinations made prior to 1 January 2006, the Group's date of transition to IFRS, have not been restated to comply with IFRS 3 "Business Combinations". Goodwill arising from these business combinations of £15,273,000 (being £14,829,000 as accounted for at 1 January 2006 and an adjustment to the fair value calculation of £444,000 made in 2006) has not been restated other than as set out in note (d) below. Reconciliation of equity at 1 January 2006 UK GAAP a b c d e f IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Non-current assets Goodwill 14,829 - - - - - - 14,829 Property, plant and equipment 913 - - - - - - 913 Deferred tax assets 10 - - - - - 167 177 --------- --------- --------- --------- --------- --------- --------- --------- Total non-current assets 15,752 - - - - - 167 15,919 --------- --------- --------- --------- --------- --------- --------- --------- Current assets Inventories 1,458 - - - - - - 1,458 Trade and other receivables 6,212 - - - - - - 6,212 Cash and cash equivalents 971 - - - - - - 971 --------- --------- --------- --------- --------- --------- --------- --------- Total current assets 8,641 - - - - - - 8,641 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total assets 24,393 - - - - - 167 24,560 --------- --------- --------- --------- --------- --------- --------- --------- Current liabilities Trade and other payables 4,907 - - - - - - 4,907 Short-term borrowings 805 - - - - - - 805 Current tax payable 269 - - - - - - 269 Short-term provisions 4,733 - - - - - - 4,733 --------- --------- --------- --------- --------- --------- --------- --------- Total current liabilities 10,714 - - - - - - 10,714 --------- --------- --------- --------- --------- --------- --------- --------- Non-current liabilities Long-term borrowings 1,770 - - - - - - 1,770 Long-term provisions 600 - - - - - - 600 --------- --------- --------- --------- --------- --------- --------- --------- Total non-current liabilities 2,370 - - - - - - 2,370 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total liabilities 13,084 - - - - - - 13,084 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net assets 11,309 - - - - - 167 11,476 ======== ======= ======= ====== ====== ====== ====== ====== Equity Share capital 530 - - - - - - 530 Share premium account 11,557 - - - - - - 11,557 Capital redemption reserve 6 - - - - - - 6 Profit and loss account (784) - - - - - 167 (617) --------- --------- --------- --------- --------- --------- --------- --------- Total equity 11,309 - - - - - 167 11,476 ======== ======= ======= ====== ====== ====== ====== ====== Reconciliation of equity at 1 January 2007 UK GAAP a b c d e f IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Non-current assets Goodwill 31,904 - 1,398 (6,226) - (101) - 26,975 Other intangible assets - - - 8,894 (568) - - 8,326 Property, plant and equipment 1,232 - - - - - - 1,232 Deferred tax assets 123 - - - - 101 185 409 --------- --------- --------- --------- --------- --------- --------- --------- Total non-current assets 33,259 - 1,398 2,668 (568) - 185 36,942 --------- --------- --------- --------- --------- --------- --------- --------- Current assets Inventories 7,282 - - - - - - 7,282 Trade and other receivables 18,268 - - - - - - 18,268 Cash and cash equivalents 3,052 - - - - - - 3,052 Non-current assets classified as held for sale 3,500 - - - - - - 3,500 --------- --------- --------- --------- --------- --------- --------- --------- Total current assets 32,102 - - - - - - 32,102 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total assets 65,361 - 1,398 2,668 (568) - 185 69,044 --------- --------- --------- --------- --------- --------- --------- --------- Current liabilities Trade and other payables 19,312 - - - - - - 19,312 Short-term borrowings 193 - - - - - - 193 Current portion of long-term borrowings 3,168 - - - - - - 3,168 Current tax payable 833 - - - - - - 833 Short-term 6,378 - - - - - - 6,378 provisions --------- --------- --------- --------- --------- --------- --------- --------- Total current liabilities 29,884 - - - - - - 29,884 --------- --------- --------- --------- --------- --------- --------- --------- Non-current liabilities Long-term borrowings 18,201 - - - - - - 18,201 Deferred tax - - - 2,668 (170) - - 2,498 Long-term provisions - - - - - - - - --------- --------- --------- --------- --------- --------- --------- --------- Total non-current liabilities 18,201 - - 2,668 (170) - - 20,699 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total liabilities 48,085 - - 2,668 (170) - - 50,583 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net assets 17,276 1,398 - (398) - 185 18,461 ======== ======== ======== ======== ======== ======== ======== ======== Equity Share capital 609 - - - - - - 609 Share premium account 15,123 - - - - - - 15,123 Capital redemption reserve 6 - - - - - - 6 Profit and loss account 1,538 - 1,398 - (398) - 185 2,723 --------- --------- --------- --------- --------- --------- --------- --------- Total equity 17,276 - 1,398 - (398) - 185 18,461 ======== ======== ======== ======== ======== ======== ======== ======== Reconciliation of profit for the year to 31 December 2006 UK GAAP a b c d e f IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Continuing operations Revenue 54,150 - - - - - - 54,150 Cost of sales (29,939) - - - - - - (29,939) --------- --------- --------- --------- --------- --------- --------- --------- Gross profit 24,211 - - - - - - 24,211 Administrative costs (20,642) 84 1,398 - (568) - - (19,728) --------- --------- --------- --------- --------- --------- --------- --------- Operating profit 3,569 84 1,398 - (568) - - 4,483 Interest received 6 - - - - - - 6 Finance costs (806) - - - - - - (806) --------- --------- --------- --------- --------- --------- --------- --------- Profit before tax 2,769 84 1,398 - (568) - - 3,683 Income tax expense (592) - - - 170 - 18 (404) --------- --------- --------- --------- --------- --------- --------- --------- Profit for the period from continuing operations 2,177 84 1,398 - (398) - 18 3,279 ======== ======== ======== ======== ======== ======== ======== ======== Notes to the reconciliations a) Under UK GAAP, the Group applied FRS 20, "Share Based Payment" for the first time in December 2006. However, under IFRS 2, the equivalent international standard, a retrospective adjustment was required in the income statement for the year to 31 December 2006 of £84,000. There is no impact on retained earnings as at 1 January 2006. There is no deferred tax provision as the intrinsic value of the options is negligible. b) Goodwill recognised by the Group on acquisition prior to 31 December 2005 under UK GAAP was amortised over a period of 20 years. Under IFRS goodwill is not amortised, but tested annually for impairment. The goodwill amortisation charged in 2006 in accordance with UK GAAP - £1,398,000 has been written back. c) The Group acquired the Britannia Group of companies on 26 May 2006. Application of IFRS 3 to this business combination resulted in the identification of a number of intangible assets other than goodwill, including trade names & marks, and customer contracts. Under UK GAAP these intangible assets were subsumed within goodwill. Under IFRS these have been recognised separately in the balance sheet at their fair value at the date of the combination - £3,234,000, together with an associated deferred tax liability of £970,000. The Group acquired Rocom Limited on 16 August 2006. Application of IFRS 3 to this business combination resulted in the identification of a number of intangible assets other than goodwill, including trade names & marks, and customer contracts. Under UK GAAP these intangible assets were subsumed within goodwill Under IFRS these have been recognised separately in the balance sheet at their fair value at the date of the combination - £5,660,000, together with an associated deferred tax liability of £1,698,000. The result of these adjustments is to decrease goodwill at 31 December 2006 by £6,226,000; to increase the carrying value of other intangible assets by £8,894,000; and to increase the deferred tax liability by £2,668,000. d) Goodwill recognised by the Group on the acquisitions of the Britannia Group and Rocom Limited under UK GAAP was amortised over a period of 20 years. Under IFRS goodwill is not amortised, but tested annually for impairment. The goodwill amortisation charge recognised in accordance with UK GAAP in 2006 has been written back. However, intangible assets other than goodwill identified on these business combinations in accordance with IFRS as described above are amortised in accordance with the Group's accounting policies resulting in an amortisation charge of £568,000 an associated release of associated deferred tax liability of £170,000. e) At the time of the business combinations of the Britannia Group and Rocom Limited a number of fair value adjustments were made, for which no deferred tax was recognised under UK GAAP. Under IAS 12, deferred tax arising on the difference between the carrying value of the asset and its tax base is recognised in the financial statements of the Group. The effect of these adjustments is to increase the deferred tax asset as at 31 December 2006 by £101,000, with a corresponding reduction in goodwill. f) Under FRS 19 deferred tax was recognised only on timing differences that were expected to reverse. In contrast IAS 12 "Income Taxes" generally requires the recognition of deferred tax on all temporary differences. Therefore the restated position at 1 January 2006 creates a deferred tax asset of £167,000 and at 1 January 2007 a deferred tax asset of £185,000. The effect of this adjustment is to create a deferred tax credit in the income statement of £18,000. Explanation of material adjustments to the cash flow statement The definition of cash is narrower under UK GAAP than under IAS 7 "Cash Flow Statements". Under IFRS highly liquid investments, readily convertible to a known amount of cash and with an insignificant risk of changes in value, are regarded as cash equivalents. The cash flow statement in the last UK GAAP financial statements reported movements in cash. The cash flow statement in these IFRS consolidated interim financial statements reports movements in cash and cash equivalents. Application of IFRS has resulted in reclassification of certain items in the cash flow statement as follows: (i) under UK GAAP, payments to acquire property, plant and equipment were classified as part of 'Capital expenditure and financial investment'. Under IFRS, payments to acquire property, plant and equipment have been classified as part of 'Investing activities'. (ii) income taxes of £287,000 paid during 2006 are classified as operating cash flows under IFRS, but were included in a separate category of tax cash flows under previous GAAP. There are no other material differences between the cash flow statement presented under IFRS and the cash flow statement presented under UK GAAP. This information is provided by RNS The company news service from the London Stock Exchange END FR BCGDSXGGGGII
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