TIDMAN.
RNS Number : 3159Z
Alternative Networks plc
10 December 2014
Alternative Networks plc
Results for the year ended 30 September 2014
Alternative Networks plc, ('the Company' or 'the Group'), a
leading provider of IT managed services and business-to-business
communications, reports its Preliminary Results for the twelve
months ended 30 September 2014.
HIGHLIGHTS
Successful year with growth in revenues, profits and underlying
cash generation
-- Reported revenue up 20% to GBP137.8m (2013: GBP114.3m)
o Organic revenue up 1%, excluding the effect of Mobile bonus
reduction^
o Organic gross profits up 5%
-- Gross margin strengthened to 41.2% (2013: 39.2%)
o Reflecting greater proportion of higher margin services and
improved mobile terms
-- Reported adjusted EBITDA increased 23% to GBP19.6m (2013: 15.9m)
o Organic adjusted EBITDA +5%
-- Continued strong cash generation
o Underlying cash generation of 99% (2013: 106%)
o Net debt of GBP29.3m, in line with prior target and
significantly below peak level of GBP40.8m at time of
acquisitions
-- Proposed full year dividend increased 12% to 14.5p
o Reiterated intention to progress towards 15% annual growth,
with no less than 10% growth per annum
-- Strong revenue performance in Advanced Solutions and Mobile
o Organic revenue growth in Advanced Solutions of 3%, with H2
2014 organic revenue +17% on H1 2014
o 4% revenue growth in Mobile, driven by 12% growth in the
subscriber base
-- Strong performance in acquired businesses
o ControlCircle revenue in period since acquisition +10% on
equivalent period last year
o Intercept IT revenue in period since acquisition +18% on the
equivalent period last year
o Integration of the acquired businesses progressing, with the
increased breadth of products and services facilitating numerous
cross sell opportunities across the Group
-- Record order book at period-end and strong pipeline for year ahead
KEY FINANCIAL INFORMATION
Audited results for the year ended 2014 2013 Change
30 September
GBP'000 GBP'000 %
Revenue 137,767 114,346 20%
Adjusted Operating profit* 17,593 15,003 17%
Adjusted EBITDA* ** 19,592 15,939 23%
Adjusted Profit before taxation* 16,417 15,107 9%
Adjusted Earnings per share***
- basic 26.9p 24.7p 9%
- diluted 26.4p 22.9p 15%
Dividend per share - ordinary 14.5p 13.0p 12%
- special - 4.0p
* Total 14.5p 17.0p
Operating profit 11,540 12,381 -7%
EBITDA ** 17,034 15,137 13%
Profit before tax 10,363 12,485 -17%
Earnings per share - basic 16.9p 21.2p -20%
- diluted 16.6p 19.7p -16%
* Operating profit before intangible assets amortisation
excluding software, write off/back of contingent consideration
through comprehensive income statement, exceptional items and share
based payments.
** Earnings before interest, taxation, depreciation and
amortisation.
*** Adjusted earnings per share are based on profits as set out
in note 5
^ Revenue earned directly from network providers based on sales
volumes that has been terminated during the year following the
redrafting of relevant commercials to provide higher margin
opportunities
Edward Spurrier, Chief Executive of Alternative Networks,
commented:
"I am very pleased to report a strong performance by the Group
throughout the year. We have achieved organic growth in a
competitive market and can credibly call ourselves a market leader.
We are delivering innovative and relevant solutions to our existing
customers, increasing our ability to retain them and cross-sell
them more products, and are now penetrating a broader range of new
prospects.
"This has been accompanied by an equally impressive financial
performance. Strong cash generation has enabled a significant
reduction in debt in less than nine months and we have been able to
invest in the business organically whilst increasing dividends more
than 10% year on year.
"2014 has been one of the most important and significant years
in Alternative's history, which saw two acquisitions enable the
transition of the group into an IT Managed Services company
covering the full spectrum between Device and Datacentre. The group
is now better placed than ever to capitalise on the growth
opportunities which lie in the key areas of managed data services,
cloud solutions and hosting. With a record pipeline and order book,
we remain confident of our prospects for further growth."
Enquiries:
Alternative Networks 0870 190 7444
Edward Spurrier, Chief Executive Officer
Gavin Griggs, Chief Financial Officer
Investec Bank PLC - Nominated Adviser and
Joint Broker 020 7597 5970
Patrick Robb / Carlton Nelson / Andrew Pinder
finnCap Limited - Joint Broker 020 7220 0565
Stuart Andrews/Charlotte Stranner
Bell Pottinger 07802 442 486
Archie Berens
CHAIRMAN'S STATEMENT
Introduction
Alternative Networks has had another successful year. We have
delivered a strong financial performance, invested in both
acquisitions and the organic business to support long term growth,
and increased value for shareholders.
Results
Reported revenue for the year ended 30 September 2014 was up 20%
on 2013 and up 1% on an organic basis when the effect of the Mobile
bonus reduction is excluded. Reported adjusted EBITDA is 23% up on
2013, with an equivalent organic rise of 5%.
Organic revenues rose 2% in H2 as compared with H1,
demonstrating the potential of the Group's new expanded product
portfolio and ability to cross sell newly acquired products.
Also pleasing is the rise in gross margins across the Group to
41.2%, up from 39.2% in 2013, reflecting improved terms on mobile
and the increasing contribution from higher gross margin services
including from the acquired businesses.
Alternative Networks' balance sheet remains strong. Net debt of
GBP29.3m is down from the peak of GBP40.8m, in line with the
Board's target, despite incurring additional capital expenditure
inherited from acquisitions, paying 12% higher dividends and
servicing the loan financing for the majority of the year.
Dividend Policy
The Group continued to pursue its progressive dividend policy,
with a proposed final dividend of 9.6 pence per share, resulting in
a total ordinary dividend for the year of 14.5 pence per share
(2013: 13.0 pence per share), an increase of 12% (not including the
2013 special dividend payment). The Board intention remains to
progress towards 15% annual growth over the longer term with at
least 10% growth per annum.
Review of Operations
We completed two corporate transactions during the year which
both met our strict acquisition criteria. Intercept IT and
ControlCircle are highly complementary businesses, both in terms of
customer profile and service offering. They have significantly
increased cross-selling opportunities across the combined group's
existing customer bases; and they also enhance the Group's ability
to offer a full service to a broader range of new customers,
covering all areas of data management, online communication and
telephony from an individual device to a customer's data centre.
Given such a good fit, the integration of both acquisitions is
unsurprisingly progressing well and they have also both been
earnings enhancing in their first year, another key criterion.
Excluding the contribution of the two acquisitions, the Group's
core business was able to achieve modest organic growth in its own
right. In a highly competitive market, this is a very creditable
performance and demonstrates the significant edge the group's
offering has over its rivals. Mobile subscribers continued to grow
and, aided by careful cost control and better commercial
arrangements with the main mobile operators, gross margins also
increased, especially in the second half of the financial year,
when they reached record levels. The Advanced Solutions business
also achieved organic growth during the year. Several new products
and services were introduced with the overall purpose of improving
customer experience and enabling them to make the right commercial
decisions for their business.
The Synapse portal remains fundamental to our offering and our
ability to retain and attract customers. We continued to invest in
improving the portal and marketing its benefits more widely; our
overall billing capabilities will also be enhanced by the addition
of three complementary portals which had been separately developed
by Intercept IT and ControlCircle.
I am delighted to welcome Het Marsh and Mark Quartermaine to the
Board this year and record thanks to Jim Sewell; and am confident
we have the strength in depth to take the business forward.
Growth Strategy
In spite of having made two highly strategic and significant
acquisitions which have transformed the business, we continue to
monitor the market for additional opportunities to improve our
offering even further. Our particular focus is on managed and
hosted services, the market for which offers the best prospects for
growth. Our financial strength and track record of successful
integration underpins our ability to make any such acquisitions,
always in the knowledge that we will apply the same strict criteria
as we have always done.
Cross-selling remains at the heart of our organic growth
strategy and has been enhanced by the two acquisitions we made
during the year. All of the key metrics for customer cross selling
are moving in the right direction, a trend we expect to continue.
We will also target larger customers, which should enable us to
increase average billings per customer, and these efforts will be
supported by the development of new products and services. More
detail of these initiatives is provided in our Chief Executive's
Report.
James Murray
Executive Chairman
9 December 2014
Chief Executive's Report
Overview
This has been a transformational year for the Group following
the acquisitions of ControlCircle and Intercept IT, completing the
transition of the business to an IT Managed Services company
spanning the full spectrum from Device to Datacentre. Cash
generation remains strong enabling us to reduce significantly net
debt from the peak at the time of the acquisitions. We have
increased dividends during the year, with the full year dividend up
12%.
The major operational highlights have been as follows:
o Continued gains in market share in key growth areas:
-- Mobile subscribers increased 12% to 91,391 (2013: 81,396)
-- Advanced Solutions organic revenues were up 3% to
GBP39.1m
o Good progress on the integration of the two acquired companies
with the cross sell benefits already being evident with over 25
contracts signed to date with contracted gross profit in excess of
GBP0.6m
o Significant development of our customer portals as we look to
integrate Synapse with the acquired portals
Financial Results
Group reported revenues at GBP137.8m were 20% ahead of 2013,
with organic revenues of GBP114.2m in line with the prior year
(2013: GBP114.3m), and up 1% after the reduction in Mobile bonus
revenue is excluded.
ControlCircle and Intercept IT contributed GBP23.6m revenue and
GBP10.0m gross profit to the group results. Group reported gross
profit increased 27% to GBP56.8m (2013: GBP44.8m) with a
corresponding increase in gross margin from 39.2% to 41.2%. The key
underlying drivers of this were in mobile telephony, where margins
have benefited from the new commercial arrangements signed in 2014.
Margins per product set are reviewed in more detail below. Gross
margins across the Group in the second half of the year rose to
42.5%, an all-time high for the business.
Group reported adjusted operating profits were up 17% to
GBP17.6m (2013: GBP15.0m), with organic adjusted operating profits
up 5%. This reflects the improvement in gross margins above and
further investment made in sales and marketing.
On a statutory basis, pre-tax profits decreased GBP2.1m (17%) to
GBP10.4m, primarily as a result of exceptional acquisition costs
incurred in the year. The adjustments are shown in the income
statement, and also detailed in Note 12.
Cash generation continues to be excellent. Net cash generated
from operations was GBP16.2m (2013: GBP14.4m) representing 82% of
adjusted EBITDA in the period (2013: 91%). Underlying cash
generation was GBP19.5m giving an underlying cash conversion of
99%. Free cash flow was GBP11.7m (2013: GBP10.3m) after servicing
the loan payments and increased capital investment, enabling the
Group to reduce net debt from a high of GBP40.8m to GBP29.3m.
Adjusted earnings per share increased 9% to 26.9 pence and, on a
fully diluted basis, increased 15% to 26.4 pence. The statutory or
unadjusted fully diluted earnings per share decreased 16% from
19.7p to 16.6p. A detailed reconciliation is set out in the
financial review.
The Group's strong financial performance and cash generation has
enabled the Board to maintain its progressive dividend policy, with
a final dividend of 9.6 pence being proposed. The result is a total
ordinary dividend for the year of 14.5 pence per share (2013: 13.0
pence per share), representing an increase of 12% (not including
the 2013 special dividend payment). Looking ahead, the Board has
reaffirmed its intention to progress to an annual dividend growth
of 15% with no less than 10% growth per annum.
ControlCircle and Intercept IT
Alternative acquired Intercept IT on 9 January 2014 for GBP12.5m
and ControlCircle on 23 January 2014 for GBP39.3m in cash. Both
businesses have performed strongly since acquisition, proving the
anticipated benefits to the combined group. In total GBP23.6m of
revenue and GBP10.0m of gross profit and EBITDA of GBP2.8m was
recognised in 2014 relating to the acquisitions.
ControlCircle revenue from 23 January 2014 to 30 September 2014
was GBP16.6m; 10% ahead of the level recognised in the equivalent
prior year period, reflecting the ongoing momentum in the business
and adjusted EBITDA margins were up from 8% in the first half to
13% in H2 as we have started to integrate the business.
ControlCircle has signed a number of new customers including a
global insurance company plus completion of a number of ongoing
projects for existing customers which has bolstered the level of
recurring revenue going forward.
Intercept IT revenue from 1 January 2014 to 30 September 2014
was GBP7.0m; 18% ahead of the level recognised in the equivalent
prior year period. This reflects the momentum in the business as it
is wins notable new contracts including most recently a major
contract for a global roll out with a "Magic Circle" law firm.
Profitability has also improved with adjusted EBITDA margins
approaching 12% up from 1% in the prior year.
Considerable cross sell opportunities exist across the Group
resulting from the acquisitions, in all product areas and industry
verticals. We have now won 25 contracts with GBP0.63m first year
contracted margin. This includes the sizeable deal with Lark
insurance to provide services from Intercept IT hosted by
ControlCircle in addition to the fixed line, mobile and WAN
products that Alternative already supplied. The pipeline has grown
with now 223 deals up from just over 150 at the interim stage, and
these are worth GBP2.3m first year contracted margin.
We have reasonable progress on integration with the back office
functions of finance, marketing, HR and IT all quickly integrated.
The professional services teams and some operations teams have been
combined, and the client management teams have been integrated. As
a result of the integration to date we have 5% fewer staff, in
spite of increasing the sales teams by 4 heads.
Overall we are pleased with progress and remain confident in
meeting expectations.
Outlook
2014 was a transformational year for Alternative. Our underlying
commercial success was complemented by two acquisitions which have
delivered significant value, both financially, and more importantly
strategically, because they have immediately positioned us a market
leading IT Service business, able to deliver end-to-end solutions
to a larger and more receptive customer base.
We have seen encouraging and improving levels of cross selling
with the new businesses, as well as in the rest of the group, and
we have finished FY 2014 with a record quarter in terms of business
signed. This means we have started the new financial year with a
good following wind. We go into financial year 2015 with
confidence, as unlike many previous years, we have all the people
and skills and customers in place from which to deliver further
growth. The improved profitable performance in the second half of
2014 together with the high recurring revenue levels in the group
mean that the Board approaches 2015 confident that the business can
generate increased levels of growth in this financial year. The
first weeks of 2015 show signs that the momentum carried through
the previous quarter is continuing and provide sound
encouragement.
Edward Spurrier
Chief Executive Officer
9 December 2014
Trading review
The Group has traded well, with continued growth in the Advanced
Solutions and Mobile telephony products and services, which
together now account for nearly 80% of Group revenues on a proforma
basis. The revenue mix across the group has improved as a result of
acquired and organic growth, previously, Advanced Solutions and
Mobile telephony accounted for 70% of group revenues. This means a
reduction in the percentage of revenue relating to legacy Fixed
line voice services, which is in managed decline.
Gross profit for the organic business grew 5% to GBP46.8m (2013:
GBP44.7m). The gross profit had been in line for the 3 years 2011
to 2013.
Advanced Solutions*
2014 2013 Change
Revenue
Reported Underlying Reported
Non-Recurring
Hardware / Software 21.1 15.3 15.6 36%
Professional Services 5.9 2.7 2.5 135%
Subtotal 27.0 18.0 18.1 49%
Recurring
Maintenance 10.7 10.7 10.6 1%
WAN/Data 6.3 6.3 5.3 19%
Colocation 1.6 - - 100%
Managed Hosting 13.1 - - 100%
Billing 4.0 4.0 3.9 3%
Subtotal 35.6 21.0 19.8 80%
Total 62.7 39.1 37.9 65%
Gross Margins
Hardware / Software 23% 27% 26% -300bps
Professional Services 59% 78% 78% -1900bps
Recurring 45% 38% 43% 200bps
Advanced Solutions 39% 36% 38% 200bps
* In order to facilitate understanding of business performance,
the Group splits out its operating KPIs, both financial and
non-financial into three distinct revenue groupings. These are
Mobile, Fixed Line and Advanced Solutions. These enable users to
benchmark the Group's performance against competitors and enable
the Board to control more clearly the underlying drivers to the
Group's business. The acquisitions of ControlCircle and Intercept
IT are reported in Advanced Solutions and have no impact on the
Mobile or Fixed Line. For avoidance of doubt, the business does not
operate separate trading divisions but sells a converged product
offering, with teams of sales and service organised according to
customer size as previously explained
Advanced Solutions revenues increased by 65% to GBP62.7m as a
result of inclusion of ControlCircle and Intercept IT combined with
organic growth which contributed increases of GBP16.6m, GBP7.0m and
GBP1.2m respectively over the previous year.
On an organic basis the existing Alternative business revenue
was GBP39.1m, 3% ahead of the prior year, as a result of growth in
the first and second half of the year at 5% and 1% respectively.
Whilst the rate of growth was lower in the second half of the year,
this lower growth reflects a particularly strong second half in
2013. Organic revenue in the second half of 2014 was 17% up on the
first half of 2014.
There is good momentum as the level of client orders signed in
the second half was 6% ahead of the equivalent prior year's period
and 13% ahead of those achieved in the first half. This has
resulted in a record backlog at 30 September 2014 (GBP3.8m in
hardware). The revenue growth resulted from all areas, and new
orders have been generated across the portfolio but there have been
some notable areas of success, particularly in Higher Education,
where the Group has signed contracts with fifteen universities and
twenty one colleges during the year.
As the Group is being successful with larger, more complex
projects with larger customers, this often results in a lengthening
of the sales cycle from order to income recognition, and the
projects' complexity inevitably creates a longer delivery lead
time. Notable contract wins with larger customers included a three
year agreement with Menzies Distribution for LAN, WAN, mobile and
voice and unified communication services, of which the LAN and WAN
and mobile are new services being provided by Alternative. The
Group has also signed a 7 year contract with Newsquest to provide
managed hosted voices services.
The product data and analysis presented includes the results of
the acquisitions made during the year as these businesses and
products are now integrated.
Hardware & Software
Hardware and Software revenues comprise all individual
non-recurring direct sales across the Group, and increased 36% to
GBP21.1m (2013: GBP15.6m) due to the inclusion of ControlCircle and
Intercept IT sales of GBP5.8m. Gross margins of the ControlCircle
and Intercept IT hardware and software are at similar levels to the
remainder of the group but two larger deals contributed to a
reduction in the year.
Existing Alternative revenues were flat on the prior year, but
32% up on the first half reflecting strong sales of hardware in the
second half, including a number of installations that occurred over
the summer. This was a good result and came from targeted
investment in marketing and client facing technical and selling
skills.
Professional Services
Professional services revenue, which is heavily orientated
towards the installation of data hardware, increased from GBP2.5m
to GBP5.9m, including the addition of GBP3.1m of sales from
ControlCircle and Intercept IT. Existing Alternative sales grew by
8% as a result of the high level of hardware orders and more
complex projects with higher levels of associated installation
requirements.
The existing Alternative business continues to generate a margin
of 78%, reflecting the high quality of service offered by the
Group's technical experts. The margin on professional services of
ControlCircle and Intercept IT was lower due to the use of third
party consultants to complete major contracts.
Maintenance
Maintenance revenues were broadly in line year on year as the
Group continues to offer this service as an ongoing component of
longer term contracts. There has been margin pressure due to the
competitive environment, however the Group resists extreme pricing
pressure and has during the year experienced the loss of one large
customer that was churned due to pricing at a level that would have
damaged service levels.
Data
Data services revenues increased 19% to GBP6.3m in 2014. This
growth is across broadband sales to existing customers, single site
Ethernet sales and from SIP solutions for both existing and new
customers. Sales were boosted by a number of Enterprise customers
for whom we provide WAN solutions and expanding this is a priority
in 2015. Margins have remained stable.
Colocation
Colocation revenue arises purely from ControlCircle and consists
of recurring provision of datacentre hosting services to customers
wishing to outsource and create a more flexible cost base. This
revenue stream is a customer entry point to our data centre
services and the focus is on then migrating that revenue to more
added value managed hosting services. ControlCircle has a
relatively low level of dedicated colocation hosting services
compared to its competitors.
Managed Hosting
Managed hosting encompasses the Group's managed services
offerings in all hosting, cloud and utility services. All revenues
arise from the ControlCircle and Intercept IT acquisitions. Growth
in this area is a key focus with both existing and new customers
and the service offerings and levels provided by ControlCircle and
Intercept IT are differentiators in the market. The ControlCircle
contract signed in the year to provide these services to the EMEA
division of a global insurer will be a larger driver in growth in
this in 2015. High margins in this area represent the added value
nature of the services provided.
Billing
AKJ Billing Services revenues were up 3% to GBP4.0m (2013:
GBP3.9m). This is as a result of further growth in sales to third
party customers and revenue from providing a hosted managed billing
service. Intra group work required for Group companies at a market
value of GBP0.6m was in line with the level in 2013. This includes
work on the billing system and the support of Synapse. Gross
margins at 53% were ahead of expectations, as the Group maintained
its high client retention level and delivered more consultancy
services. The increase on the previous year was driven by
leveraging the existing direct cost to support the increased
revenue.
Telephony Services
Mobile 2014 2013 Change
Revenue (GBPm) 43.8 42.0 4%
Mobile Bonus revenue 2.8 3.8 -28%
Gross Profit (GBPm) 19.0 16.1 18%
Gross Margin % 43.3% 38.3% +500bps
Subscribers 91,391 81,396 12%
Gross new connections 25,089 19,145 31%
Recurring revenue 89% 87%
Mobile KPIs
Monthly ARPU (GBP) 39 41 -4%
Monthly ADPU (Mb) 99 68 45%
Monthly average contract
length 24m 23m +1m
Network churn 14% 15% -100bps
Customer churn by
value 11% 13% -200bps
% Subscribers in-contract 73% 77% -400bps
Mobile revenues
Headline mobile revenues have increased by 4% to GBP43.8m (2013:
GBP42.0m), as the group continues to take significant market share.
Underlying revenue growth in the year was 8%, the difference being
due to the change in the commercial agreements with the networks,
Vodafone and O2, in the year, with the reduction of "bonus"
revenues as both are now on a revenue share basis. The Group will
cease to receive connection bonuses in exchange for a greater share
of the ongoing revenue which has impacted the revenue in the second
half of the financial year and will have a similar impact in the
first half of the coming financial year. The impact on margin is
outlined below. These new commercial agreements run until March
2018 when they are expected to be renewed.
There was high growth in the contract base with a 12% increase
in subscribers to 91,391 since 30 September 2013. This is mostly on
the back of new connections being over 30% higher than the previous
year at 25,089 (2013: 19,145), another record level for the Group,
reaffirming the on-going success in winning market share in a flat
overall market. The success was also underlined by lower churn
rates explained below.
Mobile Margins
Mobile gross margins have increased significantly to 43.3% from
38.3% mostly as a result of the benefits of the new commercial
arrangements in 2014, but also positive factors such as the value
added from the Synapse service platform and a stabilising of ARPU
in the year. The new contracts have improved the mobile margin and
going forward we expect a similar growth trajectory with gross
margin between 42 and 44%.
Mobile Operating KPIs
The performance in the key metrics of Monthly "ARPU" and "ADPU"
and churn are set out below and represent a strong performance in a
very competitive market.
-- "ARPU" represents the average spends in line rental and usage
charges per live connection per month in the Group's contracted
base of subscribers. ARPU has reduced by circa GBP2 (4%) to GBP39.
The key factors underpinning this trend are the reduction in rental
charges associated with more bundled packages and the price
deflation seen in this area which is being offset by increased data
usage with the ongoing shift from voice to data usage. Declines in
voice ARPU total approximately GBP2 ARPU across rental charges.
Although roaming data ARPU is still dampened by the regulatory
changes to roaming prices introduced in 2013 the trend has returned
to growth with roaming outside of the EU driving the ARPU up. It is
worth noting that the ARPU in H2 was GBP39; the same level as H1.
The continuing high growth in data usage is beginning to have an
impact as set out below:
-- "ADPU" represents the average data usage per live connection
per month in the Group's contracted base of subscribers. The
average ADPU for the period has increased by 45% to 99Mb
demonstrating the rapid growth in data usage. The growth in data
usage can be attributed to a number of factors including:
o Increase in the number of "Smartphones" within the base with
the migration away from standard feature phones and Blackberry
devices to higher usage devices. In the mobile base the average per
user usage of an Apple handset is circa 250mb of data per month
compared to 150Mb on a Blackberry and circa 30Mb on a standard
feature phone. As at September 2014, Smartphones represented 69% of
the subscriber base up from 61% in September 2013.
o The move from 3G to 4G networks. Although the penetration
remains lower we are seeing early adopters ADPU at more than 6
times the average usage and 2.5 times that seen on a 3G Apple
device.
-- Churn:
o Churn by value, which illustrates the retention value of all
contracted customers to the Group, has again improved year on year,
at 11% (2013: 13%) setting a market leading benchmark, where the
broader industry sees churn levels of 20% to 25% and demonstrates
the value the Group provides to customers.
o Network churn was 14% which is down 1% on 2013 (2013: 15%) and
down on the 17% at March 2014. This latter trend is due to reducing
level of network switching (which does not impact Alternative's
revenues or margins). This year we have also seen a much higher
churn on data cards. This has happened unsurprisingly as the new
smartphones can act as a tethered hot-spot or to replace the
"dongle" using Bluetooth functionality. The impact in value terms
on the other churn metric is not significant as the ARPU on these
data-only devices is low. Year on year this is an excellent
performance in a very competitive marketplace where it is easy to
switch between networks. The generally high retention is as a
result of the overall client experience covering the service
offering and the benefits of Synapse.
Telephony Services
Fixed Voice Services
Fixed Line 2014 2013 Change
GBPm GBPm
Revenue (GBPm) 31.3 34.4 -9%
Gross Profit (GBPm) 13.7 14.4 -5%
Gross Margin % 44% 42% +200bps
KPIs
Outbound Monthly ARPU
(GBP) 1,421 1,423 -
WLR as a % of total
revenues 52% 52% -
% recurring revenues 97% 97% -
Number of lines/channels
(inc. SIP) 72,027 76,643 -6%
SIP lines 7,424 4,076 82%
Average customer contract
length (months) 24m 22m +2m
The market is two-tier on legacy fixed voice services. The
networks are still focussing on other carriers' traffic as well as
the corporate end user and these are typically in decline by mid
single digit rates, year on year (4-6%). The resellers and service
providers are largely migrating their customers away from digital
and analogue voice to IP services at a faster rate and the market
trends are for annual revenue reductions in the order of low double
digit (10-14%). We consider our performance this year to be more
than satisfactory given the market context.
The Group manages its Fixed Voice Services in the context of the
declining market place whilst improving market share and
profitability, and proactively migrates customers to SIP based
telephony. In the year the number of SIP lines has increased by 82%
from 4,076 to 7,424.
Overall Fixed revenues are down 9% year on year to GBP31.3m, as
a result of the move to SIP combined with the on-going market
performance. Outbound and Inbound revenues were down 10% and 8%
respectively on the prior year as a result of a reduced level of
call spends to mobiles, regulatory price reductions and the
continuing move to email and mobile. However, gross margin
performance was strong, with an increase of 200 basis points to
44%.
Outbound services
-- Outbound revenues decreased 10% to GBP24.0m (2013: GBP26.5m).
The underlying performance was in line with industry trends as the
reduction in call spends to mobiles, due to regulatory price
reductions, and a move to email, mobile and IP based telephony,
continues to cannibalise traditional office based telephony
revenues. Usage revenues per customer were in line year on year, as
the Group churn has been generally at the lower level of ARPU
customers which has offset usage decline.
-- Outbound ARPU has remained flat at GBP1,421. Average contract
periods are now 2 months longer than the prior year increasing the
viability of future revenues.
-- Wholesale Line Rental revenues ('WLR') declined 10% to
GBP11.7m from GBP14.0m. The number of lines in the estate declined
by 8% to 70,392; some of these were non or low billing analogue
lines that we have helped customers identify using Synapse. The
ongoing to transition to SIP has progressed well with an 82% rise
in SIP lines.
Inbound services
-- Inbound services revenue at GBP7.3m was 8% below the prior
year. This fall results primarily from a 4% reduction in the
customer base during the year, including the loss of one large, low
margin, customer, and a 2% fall in average ARPU. The revenue
decline stabilised in the second half of the year, with revenues at
the same level as the first half, as increases in NGN products
compensated for the reduction in customer traffic revenues. As a
consequence, whilst gross profit was down 9% to GBP3.0m year on
year, it grew 15% in the second half of the year. Gross margins for
inbound services are broadly level year on year but include the
changing balance towards NGN in the second half of the year.
Strategic Review
The Group's strategy remains unchanged and is to deliver growth
organically and through acquisitions, to become the managed IT
services provider of choice for UK businesses.
Strategy - Organic growth
The Group continues to build successfully on the following four
key areas of focus to deliver for continued organic growth:
-- Winning larger customers in the SME space and targeting Enterprise customers;
-- Using service and Synapse combined with acquired portals to
drive improved customer retention across the wider product set
-- Cross selling and up selling of products across our customer base; and
-- Product development and innovation to increase value to our customer base
Winning larger customers in the SME space and targeting
Enterprise customers
Our target customers are in the mid Enterprise market,
particularly those customers with multi-sites and with 80 to 1000
employees. With a broadened product base, there are multiple entry
points to these customers.
The Group has two distinct sales and technical support teams
which target:
-- Enterprise customers for those customers with more than 500 employees,
-- Business Markets customers with up to 500 employees.
In addition to this we have a Partner Channel sales arm, which
is focused on winning smaller customer's business through selected
partners.
We continue to focus on winning larger customers (a larger
customer being classified as having a monthly spend in excess of
GBP1,000). Going forward, the data will include the acquired
customer bases, but for the purposes of immediate comparison, the
data below is for the underlying base.
At the period end the Group had 1,136 larger Enterprise
customers (30 September 2013: 1,157). 82 new larger customers were
added during the year and 76 existing customers increased their
monthly spend above the GBP1,000 threshold. 53 larger customers
churned during the period and 126 decreased spend below the
threshold. The proportion of large customers to the total base has
increased from 35% to 37%.
The average monthly spend of these customers increased 5% to
GBP5,663 (2013: GBP5,408). Given that the general trend for
customer spend is deflationary, the increase is a testament to the
Group's success in cross selling new products and attracting larger
customers.
As at September 2014 ControlCircle had 58 customers, of which 54
are large (billing more than GBP1,000 per month), and Intercept IT
had a total of 83 customers, of which 46 are considered to be
large.
Using service and Synapse combined with acquired portals to
drive improved customer retention across the wider product set
The acquisition of ControlCircle and Intercept IT brought
customer portals to the group that complement Synapse and give
complete coverage from Device to Datacentre. We have started the
process of bringing these together, with all customer facing
portals now available from the Synapse homepage. These additional
portals have delivered a significant expansion of our Visibility
and Control suite which is a key platform for Alternative's
customer engagement strategy.
Development of Synapse
The primary focus for Synapse during the year has been improving
the customer end user experience. The main improvements were around
performance and reporting; dealing with many specific requests.
Synapse continues to contribute positively to our above market
mobile growth (8% revenue growth versus Ofcom decline of 1%), and
to complement this we have directly integrated Synapse into
Wandera's Mobile Data Optimisation tool.
Delivering customer led improvement and a targeted
communications plan has delivered strong usage metrics in 2014:
-- Monthly usage has grown 25% to more than 15,000 logins per month
-- More than 1,000 customers with 2,000 users per month with
increased usage with both Enterprise and Business customers
-- 50% of SIM free orders and 22% of overall tickets now fully automated through Synapse
-- 4,000 Mobile SIM transactions performed direct by customers each month
-- Live Chat usage has increased 100% since last year
Further improvements to Synapse in 2014/15
Mobility is the key theme for Synapse development in the next
year, both in terms of the management of a mobile fleet, and the
provision of access to core features on the go. This will deliver
increased cost savings and improved productivity for our
customers.
The key aspects will be to deliver the user interface on the go,
focussing on key features such as Mobile SIM management (barring),
mobile bolt-ons, alerts and current spend. We are also looking to
extend the live chat experience to mobile too, so that customers
can interact directly with their support team, regardless of
location. The second key development will be the management of
mobile boltons.
Wider development of acquired portals
The acquisition of ControlCircle brought the Max 3000 portal
into the Alternative group and Intercept IT gave us the client
portal ControlPanel. Further development of these is portals part
of the ongoing strategy and since acquisition there have been the
following developments:
-- Launch of MaxCloud to allow the monitoring as a service for Amazon Web Services
-- Developments to Hybrix will allow seamless orchestration with
AWS and private environments alongside existing, which will allow a
client to spin up a virtual machine, wherever they want
Alternative Business Cloud The acquisitions have laid the
foundations the business to combine the tooling already in group
into a new platform. ABC will be our next generation of Portal,
aimed at both staff and customers alike, it will cover the entire
portfolio, and be a vehicle to all of our products/services in the
cloud and deliver our next generation of services. A single service
management platform will further drive operational efficiencies
across the business and reduce the time from order to cash.
Cross selling and up selling of products across our customer
base
A key part of our organic growth strategy remains to exploit
cross selling opportunities within the group to improve product
penetration and sell more, higher value products to new and
existing customers, and again we have seen a sustained resilience
in high product penetration. The acquisitions of ControlCircle and
Intercept IT have also significantly enhanced the Group's ability
to cross-sell in 2014, as proven by the base customer
statistics.
Within the underlying Alternative base the number of customers
taking more than one product year on year has been retained at 46%
and the proportion taking 5 or more products has increased from 5%
to 7%.
Of the customers that churned in the year more than 50% were
billing less than GBP100 per month (average of GBP430 per month),
whereas of the customers won during the year only 24% were billing
less than GBP100 per month. The average billing for new customers
to the Group was circa GBP2,000 per month, more than four times the
average churned client level.
Product development and innovation to increase value to our
customer base - Consolidating our Device to Datacentre capability
through Product and Service innovation
The integration of the product and service teams of the Group
with the acquired teams is complete and we have been working to
unify the group portfolio under a common set of service description
documentation and terms and conditions. The main developments in
the year have been:
Mobile Voice Advanced Solutions
------------------------------- ---------------------------- --------------------------------
Year to September 2014 Year to September Year to September 2014
2014
------------------------------- ---------------------------- --------------------------------
Mobile product development With a higher than The launch of MITEL's, MiCloud
has focused on services usual change to Unified Communications ("UC")
that improve security regulatory status, as a Service (UCaaS) product,
of corporate data and due in the next delivers a cloud based UC
protect against financial period. Alternative solution that complements
exposure, due to increased has focused on ensuring the group's wider cloud
mobile data consumption. customer readiness based capability. The service
Our service portfolio for the impending allows customers to consume
now includes: changes. Informing UC on a per user per month
Mobile Device Management customers of the basis. The cloud based product
- to securely manage practical implications allowing SIP and WAN services
devices. of the changes and to be delivered as part
Mobile Application Management establishing strategies of the solution, reducing
- to ensure users have to adapt. the complexity of deployment
access to appropriate Our IP Trunking for a customer.
business applications. (SIP) business has HP Ethernet switching products
Mobile Data Offloading grown steadily further have also been introduced
- to manage mobile data to a re-invigorated to the portfolio extending
usage. proposition. our reach into the SME market
Our commitment to market The integration and complimenting the existing
competitiveness has of the SIP proposition Juniper and Extreme portfolio.
remained strong with into a UC as a Service
continued focus on tariffing product will support
and data sharing packages continued growth.
that have seen high The product meeting
levels of uptake. customer demand
for a simpler consumption
based UC model.
------------------------------- ---------------------------- --------------------------------
Next 6 months Next 6 months Next 6 months
------------------------------- ---------------------------- --------------------------------
In the next period our Our focus on supporting Over the next period we
commitment to competitiveness customer in their will continue to invest
and development of innovative migration from traditional in our UC as a Service product
tariffs continues. ISDN to the next line, leveraging the wider
Our technology development generation of voice group capabilities to increase
will improve access services will continue differentiation and target
for mobile users to in the next period. the Enterprise market.
corporate networks. We will work to Development of our cloud
Mobile technology will increase the level based 'as a Service' products
also be used to expand of control and value and Managed Service remains
customer connectivity that the customers a focus as we move into
via M2M functionality. receive from Alternative 2015. Our objective to reduce
voice services. technical complexity of
solutions for customers
in per user consumption
models.
------------------------------- ---------------------------- --------------------------------
Strategy - Acquisitions
The Group successfully completed two acquisitions in January
2014, in line with the above strategy. The first business acquired
was Intercept IT which has two core propositions; it is an
established provider of hosted desktop solutions to the UK SME
market SMEs; and it consults, designs, builds and runs 'on premise'
managed solutions for Enterprise customers requiring datacentre
virtualisation and cloud based desktop services. The second
business acquired was ControlCircle a provider of complex hosting,
cloud and datacentre services to Enterprise customers. Both
acquisitions met the Group's long standing and consistently strict
criteria for acquisitions which are as follows:
-- targets must be successful, growing, highly cash generative, and profitable;
-- they need to have customers that provide cross selling opportunities for the Group; and
-- they need to be earnings enhancing in the first full year of ownership.
The Group's cash generative nature has facilitated the
significant reduction in net debt since the acquisitions; this,
combined with the strong balance sheet leaves us well placed to
capitalise on further opportunities 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. While we remain on the lookout for exceptional
opportunities, we expect our activity in this area to increase in
the second half of 2015.
Financial review
Bank facilities
As part of the funding of the acquisitions, the Group
renegotiated its financing facilities extending from GBP6m to
GBP43m. The structure of the facility is split equally between two
lenders and is made up of a GBP23m term facility repayable in
instalments by July 2017 and a revolving credit facility of GBP20m
expiring in January 2018. The margin over LIBOR is based on a
leverage grid from 2.25% to 3.25%. It is expected that the average
margin payable in the 2015 financial year will be below 2.5% based
on current forecasts. In the 2015 financial year there are 2
payments against the term loan of GBP2.5m each to be made in
January 2015 and July 2015.
The year-end net debt balance was GBP29.3m as compared to a net
cash balance of GBP17.2m at 30 September 2013. This is after
GBP52.3m gross costs on the two acquisitions and paying dividends
of GBP6.6m. The net debt level is down from a peak of GBP40.8m at
the time of the acquisitions and in line with the target of
GBP30.0m as set by the Board.
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.
Non-recurring charges
As a result of the acquisitions the Group incurred non-recurring
charges of GBP2.0m. This comprised of GBP1.4m relating directly to
acquisition related charges including stamp duty and due-diligence
fees, and a further GBP0.6m related to the subsequent restructuring
and redundancy charges.
Finance costs
Finance costs were GBP1.2m (2013: GBP0.1m) driven by the Group's
new debt facilities in place for the majority of the year. At
September 2014 the margin applied to this facility had fallen to
2.75% over LIBOR based on the leverage position of the balance
sheet, and so we expect the run rate finance cost to decrease in
2015.
Tax
The effective tax rate for the year was 22.0% (2013: 22.6%).
This is in line with the main rate of corporation tax of 22.0%
expected for the year (2013: 23.5%). This results from the benefit
of a claim for allowable research and development expenditure being
offset by high disallowable expenditure incurred in the year.
Earnings per share
Basic adjusted earnings per share has increased by 9% from 24.7p
to 26.9p. Fully diluted adjusted earnings per share ('EPS') has
increased by 15% to 26.4p (2013: 22.9p). The statutory or
unadjusted fully diluted earnings per share has decreased 16% from
19.7p to 16.6p.
The weighted average number of shares in the year used for
calculating the basic earnings per share has increased by
2,214,296. This is outlined in Note 5. In the prior financial year
there were 3,100,000 shares relating to the VCP scheme that were
potentially dilutive for 250 (on average) days of the year which
added 2,100,000 shares to the dilutive share number. There were
also 1,200,000 of potentially dilutive shares from the EBT (1 x
638,400 for the full year, 1 for 99 days and one for 341 days).
This effectively increases the number of shares in the diluted
calculation relating to the VCP/EBT by 3,300,000. In the current
financial year there are no shares relating to the VCP scheme and
578k shares relating to the EBT. The fully diluted number of shares
has decreased by 395,160 due to the conversion of options to shares
under the EBT and VCP schemes.
Reconciliation of Basic EPS - Statutory
to Adjusted 2014 2013
pence pence
Reported basic EPS at 30 September 16.9 21.2
Amortisation of acquired assets/intangibles
(taxed) 5.8 3.1
Tender offer costs - 0.4
Other Exceptional costs 4.2 -
Adjusted Basic EPS at 30 September 26.9 24.7
--------------------------------------------- ------ ------
Cash flow
The focus on cash performance remains a high priority and this
has extended to the acquired entities. The Organic business cash
performance continues to be strong with the underlying cash
generated from operations at 98% of adjusted EBITDA (2013: 106%).
For the acquired businesses, after an anticipated working capital
injection at the time of the acquisition, the underlying
performance is above 100% as we look to improve the working capital
position. Overall, the Group underlying cash generated from
operations conversion to adjusted EBITDA is 99%.
Group Organic Acquisitions Group
Year ended Year ended Year ended Year ended
30 Sept 30 Sept 30 Sept 30 Sept 2013
2014 2014 2014
GBPm GBPm GBPm GBPm
Operating profit 11.5 9.6 1.9 12.4
Depreciation and amortisation 5.5 4.6 0.9 2.8
Share and other costs 0.4 0.4 (0.8)
Movement in working capital (1.3) (0.5) (0.8) 0.0
Cash generated from operations 16.2 14.2 2.0 14.4
Non recurring acquisition
related costs 2.0 1.8 0.2
Acquisition working capital 0.9 0.9
NI on LTIP payments 0.9
Contingent consideration
to existing employees 0.4 0.4 0.4
Supplier payment timing
difference 1.1
Underlying cash generated
from operations 19.5 16.4 3.1 16.8
-------------------------------- ----------- ----------- ------------- -------------
Adjusted EBITDA 19.6 16.8 2.9 15.9
Underlying cash conversion 99% 98% 107% 106%
Reported cash conversion 83% 84% 69% 91%
Cash inflow from operations was GBP16.2m (2013: GBP14.4m),
compared to adjusted EBITDA of GBP19.6m (2013: GBP15.9m). This
represents a cash conversion of adjusted EBITDA of 83% (2013: 91%).
Within this there were a number of one-off movements: a working
capital injection into one of the acquired business of GBP0.9m, the
cash payment of a previously accrued LTIP relating to the AKJ
acquisition of GBP0.4m and a non-recurring of GBP2.0m related to
the acquisitions. Removing these non-recurring, non-standard items
from working capital cash flows results in cash generated of
GBP19.5m (2013: GBP16.8m) and an underlying cash conversion of
adjusted EBITDA of 99% (2013: 106%).
Management continues to place significant emphasis on managing
working capital and cash performance, resulting in a five-year
cumulative cash conversion of 105%.
Year ended Year ended
30 Sept 30 Sept
2014 2013
GBPm GBPm
Cash generated from operations 16.2 14.4
Taxation (1.4) (2.9)
Capital Expenditure (2.1) (1.3)
Finance Cost (net) (1.1) (0.1)
Free cash flow 11.7 10.3
Dividends (6.6) (7.4)
Share options exercised - 0.9
Payments made for share buy-backs - (6.8)
Acquisitions (net of cash acquired) (50.9) (0.4)
Proceeds from borrowings 35.0 -
Repayments of borrowings (2.7) -
Loan transaction costs (0.7) -
------------------------------------- ----------- -----------
(Decrease)/increase in cash and
cash equivalents (14.1) (3.4)
Cash and cash equivalents at start
of period 17.9 21.4
------------------------------------- ----------- -----------
Cash and cash equivalents at end
of period 3.7 17.9
Bank loans (33.1) (0.7)
------------------------------------- ----------- -----------
Net (debt)/cash (29.3) 17.2
------------------------------------- ----------- -----------
Capital expenditure
The Group invested GBP2.1m (2013: GBP1.3m) in tangible fixed
assets and intangible software assets during the year, of which
GBP0.6m was spend associated with the acquired businesses, leaving
GBP1.5m underlying spend. Of the total spend GBP0.4m was spent on
IT hardware, including GBP0.3m on equipment installed in a third
party data centre to host managed services for customers and
support the Group's IT infrastructure.
In 2015 we estimate investing GBP2.0m across the Group on
routine capital expenditure, in line with the level in 2014, the
key focus areas being further investment in a consolidated customer
portal service, expanding on the existing Synapse functionality
(GBP0.6m) and investments in the existing CRM platform to improve
our service to customers and reduce operating costs.
In addition for 2015 there will be one-off costs associated with
the fit out of new office space and extensions to data centre
capabilities. The latter includes the delayed relocation of
Intercept IT infrastructure into a third party datacentre managed
by ControlCircle, which was deferred prior to acquisition. These
are expected to incur a maximum cost of GBP2.2m and GBP0.5m
respectively, and be funded by the disposal of leasehold property,
which will give rise to an excess cash inflow of approximately
GBP3.0m.
Dividend per Share
The Board has proposed a final dividend of 9.6 pence per share
(2013: 8.6 pence per share) making a total ordinary dividend of
14.5 pence per share for the full year (2013: 13.0 pence per
share).
The dividend will be paid on 30 January 2015 to shareholders on
the register as of 30 December 2014, with an "ex-dividend" date of
29 December 2014.
Gavin Griggs
Chief Financial Officer
9 December 2014
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2014
Year ended Year ended
30 September 30 September
2014 2013
Note GBP'000 GBP'000
Revenue 137,767 114,346
Cost of sales (80,951) (69,575)
---------------------------------------- ----- ------------------------ ------------------------
Gross profit 56,816 44,771
Operating costs (45,276) (32,390)
---------------------------------------- ----- ------------------------ ------------------------
Operating profit 11,540 12,381
Operating profit - analysed:
Adjusted operating profit 12 17,593 15,003
Share based payments (510) (625)
Amortisation of intangible assets
(excluding computer software) (3,496) (1,820)
Tender offer and Board changes - (177)
Acquisition costs and associated
items 12 (2,047) -
Operating profit 11,540 12,381
---------------------------------------- ----- ------------------------ ------------------------
Finance income 25 115
Finance costs (1,202) (11)
---------------------------------------- -----
Profit before taxation 10,363 12,485
Taxation 3 (2,285) (2,826)
---------------------------------------- ----- ------------------------ ------------------------
Profit and total comprehensive income
for the year 8,078 9,659
Earnings per ordinary share:
Basic 5 16.9p 21.2p
Diluted 5 16.6p 19.7p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2014
30 September 30 September
2014 2013
Note GBP'000 GBP'000
ASSETS
Non-current assets
Intangible assets 6 76,745 24,900
Property, plant and equipment 2,319 2,277
Investments - -
Deferred tax asset 1,446 398
Property deposits 154 2
------------------------------- ----- -------------------------- --------------------------
80,664 27,577
------------------------------- ----- -------------------------- --------------------------
Current assets
Asset held for sale 1,401 -
Inventories 327 183
Trade and other receivables 26,788 20,829
Cash and cash equivalents 8 3,793 17,930
32,309 38,942
------------------------------- ----- -------------------------- --------------------------
Total assets 112,973 66,519
------------------------------- ----- -------------------------- --------------------------
EQUITY AND LIABILITIES
Equity
Called up share capital 9 62 62
Share premium 6,563 6,534
Capital redemption reserve 8 8
Merger reserve 2,749 2,749
Retained earnings 27,728 25,783
------------------------------- ----- -------------------------- --------------------------
Total equity 37,110 35,136
------------------------------- ----- -------------------------- --------------------------
Current liabilities
Borrowings 11 5,111 53
Current tax liabilities 1,146 304
Trade and other payables 37,079 29,475
43,336 29,832
------------------------------- ----- -------------------------- --------------------------
Non-current liabilities
Borrowings 11 27,970 666
Deferred tax liabilities 4,557 885
32,527 1,551
------------------------------- ----- -------------------------- --------------------------
Total liabilities 75,863 31,383
------------------------------- ----- -------------------------- --------------------------
Total equity and liabilities 112,973 66,519
------------------------------- ----- -------------------------- --------------------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Called Capital
up share Share redemption Merger Retained Total
capital premium reserve reserve earnings equity
a) b) c) d)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------ ---------- -------------- ----------- ----------- ----------
Balance at 30 September
2012 60 6,196 6 2,749 28,910 37,921
Shares issued 4 338 - - - 342
Shares repurchased
and cancelled (2) - 2 - (5,000) (5,000)
Shares repurchased
and held in trust - - - - (1,797) (1,797)
Reissue of shares held
in trust - - - - 554 554
IFRS2 share based payments - - - - 216 216
Corporation tax on
share options - - - - 1,982 1,982
Deferred tax on share
options - - - - (1,339) (1,339)
Profit for the year
and total comprehensive
income - - - - 9,659 9,659
Dividends paid - - - - (7,402) (7,402)
---------------------------- ------------ ---------- -------------- ----------- ----------- ----------
Balance at 30 September
2013 62 6,534 8 2,749 25,783 35,136
Shares issued - 29 - - - 29
IFRS2 share based payments - - - - 419 419
Deferred tax on share
options - - - - 12 12
Profit for the year
and total comprehensive
income - - - - 8,078 8,078
Dividends paid - - - - (6,564) (6,564)
---------------------------- ------------ ---------- -------------- ----------- ----------- ----------
Balance at 30 September
2014 62 6,563 8 2,749 27,728 37,110
---------------------------- ------------ ---------- -------------- ----------- ----------- ----------
a) the balance classified as share capital includes the proceeds
arising on issue of the Company's equity share capital, comprising
0.125p ordinary shares and the cancellation of shares purchased
during the year.
b) Share premium represents the difference between the fair
value consideration received and nominal value of shares
issued.
c) Capital redemption reserve arose from the purchase of own share capital.
d) The merger reserve results from the previous acquisitions of
Integrated Communications for Business (UK) Limited, Aurora
Kendrick James Limited, Scalable Communications plc and The Telecom
Centre Limited. This represents the difference between the value of
the shares acquired (nominal value plus related share premium) and
the nominal value of the shares issued.
CONSOLIDATED statement OF Cash flowS
For the year ended 30 September 2014
Year ended Year ended
30 September 30 September
Note 2014 2013
GBP'000 GBP'000
---------------------------------------------- ----- --------------------- --------------------
Cash flows from operating activities
Cash generated from operations 11 16,167 14,405
Income tax paid (1,376) (2,916)
---------------------------------------------- ----- --------------------- --------------------
Net cash generated from operating activities 14,791 11,489
---------------------------------------------- ----- --------------------- --------------------
Cash flows from investing activities
Purchase of property, plant and equipment (846) (482)
Purchase of intangible assets (1,230) (812)
Proceeds from sale of property, plant
and equipment - 10
Interest received 25 115
Purchase of subsidiary undertakings (50,880) -
(net of cash acquired)
Payments to vendors under sale and purchase
agreement - (378)
---------------------------------------------- ----- --------------------- --------------------
Net cash used in investing activities (52,931) (1,547)
---------------------------------------------- ----- --------------------- --------------------
Cash flows from financing activities
Interest paid (1,070) (11)
Dividends paid 4 (6,564) (7,402)
Proceeds from issue of share capital 29 896
Payments made for share buy-backs - (6,797)
Transaction costs in relation to loan (724) -
facility
Proceeds from borrowings 35,000 -
Repayments of borrowings (2,668) (53)
Net cash used in financing activities 24,003 (13,367)
---------------------------------------------- ----- --------------------- --------------------
Decrease in cash and cash equivalents (14,137) (3,425)
Cash and cash equivalents at start of
year 8 17,930 21,355
---------------------------------------------- -----
Cash and cash equivalents at end of
year 8 3,793 17,930
---------------------------------------------- ----- --------------------- --------------------
1. Basis of preparation
Alternative Networks plc is a company incorporated and domiciled
in the United Kingdom under the Companies Act 2006. The address of
the registered office is Chatfield Court, 56 Chatfield Road, London
SW11 3UL.
This financial information is abridged and does not contain the
Group's full financial statements for the years ended 30 September
2014 and 2013.
These financial statements have been prepared in accordance with
IFRS as adopted by the EU and IFRIC interpretations and the
Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared under the historical
cost convention.
Full financial statements for the year ended 30 September 2013
(which received an unqualified audit report) have been filed with
the Registrar of Companies. Financial statements for the year ended
30 September 2014 were approved by the Board of Directors on 9
December 2014 and will be presented to the Members at the
forthcoming Annual General Meeting.
2. Segmental information
IFRS 8, "Operating Segments" requires identification of the
Group's segments on the basis of the internal reporting about
components of the Group that is regularly reviewed by the chief
operating decision maker to allocate resources and to assess
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 Board assesses the
performance of the operating segments based on revenue, gross
profit, net profit and EBITDA. The reportable segments of the Group
are Telephony Services and Advanced Solutions.
Telephony Services consists of two revenue streams, fixed line
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 the year ended 30 September Telephony Advanced
2014 Services Solutions Total
GBP'000 GBP'000 GBP'000
----------------------- ---------------------- ----------------------
Total segment revenue 75,114 63,215 138,329
Inter segment revenue - (562) (562)
Revenue from external customers 75,114 62,653 137,767
--------------------------------- ----------------------- ---------------------- ----------------------
Gross Profit 32,603 24,213 56,816
--------------------------------- ----------------------- ---------------------- ----------------------
Operating profit 11,384 156 11,540
Finance income 13 12 25
Finance costs (1,190) (12) (1,202)
Taxation (1,790) (495) (2,285)
Profit after tax for the
year 8,417 (339) 8,078
----------------------- ---------------------- ----------------------
EBITDA 12,669 4,365 17,034
--------------------------------- ----------------------- ---------------------- ----------------------
Other information
Additions to non current
assets (other than financial
instruments and deferred
tax assets) 1,282 794 2,076
Depreciation and amortisation 1,285 4,209 5,494
--------------------------------- ----------------------- ---------------------- ----------------------
For the year ended 30 September Telephony Advanced
2013 Services Solutions Total
GBP'000 GBP'000 GBP'000
----------------------- ----------------------- --------------------
Total segment revenue 76,421 38,548 114,969
Inter segment revenue - (623) (623)
Revenue from external customers 76,421 37,925 114,346
--------------------------------- ----------------------- ----------------------- --------------------
Gross Profit 30,485 14,286 44,771
--------------------------------- ----------------------- ----------------------- --------------------
Operating profit 10,870 1,511 12,381
Finance income 70 45 115
Finance costs (11) - (11)
Taxation (2,461) (365) (2,826)
Profit after tax for the
year 8,468 1,191 9,659
----------------------- ----------------------- --------------------
EBITDA 12,353 2,784 15,137
--------------------------------- ----------------------- ----------------------- --------------------
Other information
Additions to non current
assets (other than financial
instruments and deferred
tax assets) 1,146 148 1,294
Depreciation and amortisation 1,483 1,273 2,756
--------------------------------- ----------------------- ----------------------- --------------------
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.
All sales have taken place within the United Kingdom and those
between segments are all carried out on arm's length basis.
All non-current assets are located within the United
Kingdom.
3. Taxation
30 September 30 September
2014 2013
GBP'000 GBP'000
------------------------------------ ------------- -------------
Current tax:
Tax on profit in the year 2,261 3,105
Adjustments in respect of prior
years (43) (32)
Total current tax 2,218 3,073
------------------------------------ ------------- -------------
Deferred tax:
Origination and reversal of timing
differences 67 (247)
Total deferred tax credit 67 (247)
------------------------------------ ------------- -------------
Total tax charge 2,285 2,826
------------------------------------ ------------- -------------
The current tax assessed for the year of 22.1% (2013: 22.6%) is
higher (2013: lower) than the average rate of corporation tax in
the UK of 22% (2013: 23.5%) applied to the profits before tax for
the year. The differences are explained below:
30 September 30 September
2014 2013
GBP'000 GBP'000
Profit before taxation 10,363 12,485
------------------------------------------ ------------- -------------
Profit on ordinary activities multiplied
by average rate of corporation tax
in the UK of 22% (2013: 23.5%) 2,280 2,934
Effects of:
Amounts not deductible 1,441 6
Deduction in relation to exercise
of share options (393) (133)
Share option charge not deductible 92 51
Losses utilised arising on acquisitions (1,092) -
Adjustments in respect of prior
years (43) (32)
Total tax charge 2,285 2,826
------------------------------------------ ------------- -------------
The standard rate of corporation tax in the UK changed from 23%
to 21% with effect from 1 April 2014. Accordingly, the Group's
profits for this accounting period are taxed at an effective rate
of 22%. Further changes to the UK Corporation tax system were
announced in the March 2013 Budget Statement. The 2013 Finance Act
includes legislation to reduce the main rate of corporation tax
from 21% to 20% from 1 April 2015. The reduction in tax rate to 20%
was substantively enacted on 2 July 2013 and, therefore, has been
included in these financial statements to measure the deferred tax
assets and liabilities.
4. Dividends
30 September 30 September
2014 2013
GBP'000 GBP'000
2013 Final Paid - 8.60p (2012: 7.50p)
per 0.125p ordinary share 4,194 3,328
2014 First Interim Paid - 4.90p (2013:
4.40p) per 0.125p ordinary share 2,370 2,134
2014 Special Second Interim Paid - 0.00p
(2013: 4.00p) per 0.125p ordinary share - 1,940
6,564 7,402
------------------------------------------ -------------------- -------------------
The 2013 proposed final dividend of 8.60 pence per 0.125p
ordinary share (2012: 7.50 pence) was paid on 30 January 2014. The
amount of dividend paid was GBP4,194,000 (2013: GBP3,328,000).
The Company paid a 2014 interim dividend of 4.90 pence per
0.125p ordinary share (2013: 4.40 pence), with a total payment
value of GBP2,370,000 (2013: GBP2,134,000). This was paid on 18
July 2014 to shareholders on the register on 27 June 2014.
The Company did not pay a special second interim dividend in
2014 (2013: 4.00 pence per 0.125p ordinary share, with a total
payment value of GBP1,940,000).
In addition, the Directors are proposing a final dividend in
respect of the financial year ended 30 September 2014 of 9.60 pence
per 0.125p ordinary share (2013: 8.60 pence) which will require an
estimated GBP4,600,000 of shareholders' funds (2013: GBP4,271,000).
Assuming it is approved by the shareholders at the Annual General
Meeting on 28 January 2015, it will be paid on 30 January 2015 to
shareholders who are on the register of members at 30 December 2014
with an "ex-dividend" date of 29 December 2014.
5. Earnings per share
The calculation of basic and fully diluted earnings per ordinary
share is based on the profit attributable to owners 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
dilutive potential ordinary shares. The Group has one category of
potential ordinary shares: 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 Profit attributable Weighted average Per share
earnings per share to owners of GBP0.00125 amount
of the company ordinary shares
GBP'000 Number Pence
2014 Earnings per share
- basic 8,078 47,709,701 16.9
Potentially dilutive shares - 888,307 (0.3)
2014 Earnings per share
- diluted 8,078 48,598,008 16.6
----------------------------- ---------------------- --------------------- ----------
2013 Earnings per share
- basic 9,659 45,495,405 21.2
Potentially dilutive shares - 3,497,763 (1.5)
2013 Earnings per share
- diluted 9,659 48,993,168 19.7
----------------------------- ---------------------- --------------------- ----------
The adjusted EPS is based on adjusted profit after tax, and the
weighted average number of shares as described above.
Basic and fully diluted Adjusted Weighted average Per share
earnings per share profit after of GBP0.00125 amount
taxation ordinary shares
GBP'000 Number Pence
2014 Earnings per share
- basic 12,852 47,709,701 26.9
Potentially dilutive shares - 888,307 (0.5)
2014 Earnings per share
- diluted 12,852 48,598,008 26.4
----------------------------- ---------------------- ---------------------- ----------
2013 Earnings per share
- basic 11,228 45,495,405 24.7
Potentially dilutive shares - 3,497,763 (1.8)
2013 Earnings per share
- diluted 11,228 48,993,168 22.9
----------------------------- ---------------------- ---------------------- ----------
Share option costs included within adjusted profit attributable
to owners of the company are reducing the earnings per share in
2014 by 1.1p (2013: 1.3p).
The calculation of the weighted average number of shares in
issue excludes 638,400 shares (2013: 2,201,746) held by the
Alternative Networks Employee Benefit Trust (EBT). These shares are
then added to the total of extant options when calculating the
fully diluted weighted average number of shares.
There were 49,688,544 shares in issue at 30 September 2014
(2013: 49,662,667). The weighted average number of shares during
the year was 47,709,701 (2013: 45,495,405).
6. Intangible assets
Group Purchased Customer
customer Computer contracts Trade
contracts software and relationships names Technology Goodwill Total
-----------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ----------- ---------- ------------------- -------- ----------- --------- --------
Cost
At 1 October
2012 1,662 2,551 11,231 757 1,007 19,560 36,768
Additions - 812 - - - - 812
----------------- ----------- ---------- ------------------- -------- ----------- --------- --------
At 30 September
2013 1,662 3,363 11,231 757 1,007 19,560 37,580
Additions - 1,230 - - - - 1,230
Acquisitions - 461 21,203 - 890 32,347 54,901
At 30 September
2014 1,662 5,054 32,434 757 1,897 51,907 93,711
----------------- ----------- ---------- ------------------- -------- ----------- --------- --------
Accumulated amortisation
At 1 October
2012 1,662 1,837 5,652 604 734 - 10,489
Charge for year - 371 1,437 132 251 - 2,191
----------------- ----------- ---------- ------------------- -------- ----------- --------- --------
At 30 September
2013 1,662 2,208 7,089 736 985 - 12,680
Charge for year - 790 3,286 21 189 - 4,286
At 30 September
2014 1,662 2,998 10,375 757 1,174 - 16,966
----------------- ----------- ---------- ------------------- -------- ----------- --------- --------
Net book amount
At 30 September
2014 - 2,056 22,059 - 723 51,907 76,745
----------------- ----------- ---------- ------------------- -------- ----------- --------- --------
At 30 September
2013 - 1,155 4,142 21 22 19,560 24,900
At 30 September
2012 - 714 5,579 153 273 19,560 26,279
----------------- ----------- ---------- ------------------- -------- ----------- --------- --------
Amortisation has been charged through the income statement
within operating costs.
The carrying amounts of goodwill by reportable segment are as
follows;
30 September 30 September
2014 2013
GBP'000 GBP'000
-------------------- --------------------- ---------------------
Telephony Services 5,685 5,685
Advanced Solutions 46,222 13,875
51,907 19,560
-------------------- --------------------- ---------------------
Each group business, comprising individual acquired companies,
is deemed to be a Cash Generating Unit (CGU), being the lowest
level for which cash flows are separately identifiable. Goodwill is
attributed to each CGU and reviewed for the purposes of the annual
impairment review as this is the level that management monitors
goodwill.
During the year the goodwill in respect of each cash generating
unit was tested for impairment in accordance with IAS 36. All CGUs
were assessed to have a value in use in excess of their respective
carrying values, and hence no impairments to goodwill were
considered necessary.
The key assumptions in the value in use calculations were:
The forecasts were based on pre-tax cash flows derived from
approved budgets for the 2015-2018 financial years. Management
believes the forecasts are reasonably achievable based on market
performance and its expectations of market developments. The
directors consider that the key assumptions in the forecasts are
earnings before interest and tax and revenue. Subsequent cash flows
were extrapolated using a 1.0% (2013: 1.0%) growth rate reflecting
an approximate forecasted long term growth rate for the UK economy,
the Group's principal market.
The pre-tax discount rate used to assess the carrying value of
goodwill is 10.0% (2013: 11.6%) which approximates the Group's
weighted average cost of capital. This discount rate has been
calculated on a consistent basis.
The review performed at the year-end did not result in the
impairment of goodwill for any cash generating unit as the
estimated recoverable amount exceeded the carrying amount in all
cases. The Group undertakes sensitivity analysis based on
reasonably possible changes in assumptions by increasing the
weighted average cost of capital and reducing future growth
expectations in the model. The results of this analysis show no
indication of impairment.
7. Trade and other receivables
30 September 30 September
2014 2013
GBP'000 GBP'000
------------------------------------ -------------------- ---------------------
Trade receivables 12,095 7,711
Amounts owed by Group undertakings - -
Prepayments 6,723 4,870
Accrued income 7,870 8,149
Other receivables 100 99
26,788 20,829
------------------------------------ -------------------- ---------------------
8. Cash and cash equivalents
30 September 30 September
2014 2013
GBP'000 GBP'000
------ ------------------- -----------------
Cash 3,793 17,930
------ ------------------- -----------------
9. Called up share capital
30 September 30 September
2014 2013
GBP'000 GBP'000
--------------------------------------- ----------------------- ----------------------
Authorised
80,000,000 (2013: 80,000,000) ordinary
shares of 0.125p (2013: 0.125p) each. 100 100
--------------------------------------- ----------------------- ----------------------
Issued fully paid up
49,688,544 (2013: 49,662,667) ordinary
shares of 0.125p (2013: 0.125p) each. 62 62
--------------------------------------- ----------------------- ----------------------
Movement in shares in issue
2014 2013
Shares Shares
------------------------------------------- --------------- --------------
Ordinary shares of 0.125p each
At 1 October 49,662,667 48,321,557
Issued under share option schemes 25,877 3,317,151
Share repurchased and cancelled (tender
offer) - (1,992,012)
Purchased by employees under bonus schemes - 15,971
At 30 September 49,688,544 49,662,667
------------------------------------------- --------------- --------------
During the year 25,877 shares were issued under share option
schemes as follows;
9,905 issued at 102.5p resulting in a share premium of
GBP10,140
15,972 issued at 150.5p resulting in a share premium of
GBP24,018
10. Trade and other payables
30 September 30 September
2014 2013
GBP'000 GBP'000
--------------------------- ------------------ ------------------
Trade payables 13,764 8,895
Amounts owed to group - -
undertakings
Other taxation and social
security costs 2,877 2,302
Other payables 882 1,182
Accruals and deferred
income 19,556 17,096
37,079 29,475
--------------------------- ------------------ ------------------
11. Cash generated from operations
Year ended Year ended
30 September 30 September
2014 2013
GBP'000 GBP'000
------------------------------------------ ---------------------- --------------------
Operating profit 11,540 12,381
Adjustments for
Depreciation of property, plant and
equipment 1,208 565
Amortisation of intangible assets 4,286 2,191
Employee share scheme charges 419 216
Loss/(Profit) on sale of tangible assets 2 (10)
Provisions for other liabilities - (946)
Movements in working capital
Inventories (144) 279
Trade and other receivables 95 (1,825)
Trade and other payables (1,239) 1,554
Cash generated from operations 16,167 14,405
------------------------------------------ ---------------------- --------------------
Consolidated movement of net debt
30 September 30 September
2014 2013
GBP'000 GBP'000
--------------------------------------- ------------- ------------------
Net decrease/(increase) in cash and
cash equivalents (14,137) (3,425)
Capitalisation of loan fees 724 -
Net increase/(decrease) in borrowings (32,955) 52
--------------------------------------- ------------- ------------------
Total cash flows in net debt (46,368) (3,373)
Amortisation of loan fees (132) -
Net debt at beginning of year 17,211 20,584
-------------
Net debt at end of year (29,289) 17,211
--------------------------------------- ------------- ------------------
12. Reconciliation to adjusted performance
Reconciliation of adjusted EBITDA 30 September 30 September
2014 2013
GBP'000 GBP'000
---------------------------------------------- -------------------- ------------------
Profit before tax 10,363 12,485
Adjustments
Amortisation of purchased customer
contracts and other intangibles (excluding
computer software) 3,496 1,820
Share based payments and associated
social security expense 511 625
Tender offer costs and Board changes - 177
Acquisition costs and associated items 2,047 -
----------------------------------------------
Adjusted profit before tax 16,417 15,107
Finance income (25) (115)
Finance costs 1,202 11
---------------------------------------------- -------------------- ------------------
Adjusted operating profit 17,593 15,003
Add: Depreciation of property, plant
and equipment 1,208 565
Add: Amortisation of computer software 790 371
Adjusted EBITDA 19,592 15,939
---------------------------------------------- -------------------- ------------------
Reconciliation of adjusted profits for 30 September 30 September
earnings per share 2014 2013
GBP'000 GBP'000
--------------------------------------------- ------------------ ----------------
Adjusted profit before tax (see above) 16,416 15,107
Less: Share based payments (510) (625)
Less: Taxation per consolidated statement
of comprehensive income (2,285) (2,826)
Less: Taxation on amortisation of purchased
customer contracts and other intangibles
(excluding computer software) (769) (428)
Adjusted profit after tax 12,852 11,228
--------------------------------------------- ------------------ ----------------
Adjusted EPS is calculated on adjusted earnings after deduction
of share option costs.
This analysis is provided as the Group considers it provides a
truer reflection of the underlying performance of the business, and
is common practice in the investment analyst community.
Acquisition costs and associated items consist of the
following;
30 September 30 September
2014 2013
GBP'000 GBP'000
----------------------------- ------------------- ------------------
Direct costs of acquisitions 1,263 -
in the year
Restructuring and redundancy 784 -
costs
2,047 -
----------------------------- ------------------- ------------------
13. Acquisition of Intercept IT Limited
On 9 January 2014 the Group acquired 100% of the ordinary shares
of Intercept IT Limited (Intercept) and obtained control of the
Company. Based in London, Intercept is one of the UK's leading
cloud computing and virtualisation service providers. As a result
of the acquisition, the Group expects to broaden its range of IT
services offered, have greater cross-selling opportunities and to
reduce costs through increased Group purchasing power.
The revenue included in the consolidated statement of
comprehensive income since 9 January 2014 contributed by Intercept
was GBP7,044,000. Intercept also contributed profit after tax of
GBP613,000 over the same period.
The following unaudited pro forma summary presents consolidated
information of the Group as if the business combination had
occurred on 1 October 2013.
Pro forma period ended 30 September 2014 Group
GBP'000
Revenue 9,034
Profit on ordinary activities after taxation 817
These amounts have been calculated after applying the Group's
accounting policies from 1 October 2013, together with the
consequential tax effects.
The following tables summarise the consideration transferred to
acquire Intercept and the amounts of identified assets acquired and
liabilities assumed at the acquisition date.
Fair value of consideration transferred
At 9 January 2014 GBP'000
Cash 12,458
Total consideration transferred 12,458
----------
Fair value of identifiable assets acquired
and liabilities assumed
Fair value
At 9 January 2014 GBP'000
Cash and cash equivalents 68
Trade and other receivables 1,534
Customer related assets (included in intangibles) 4,627
Technology (included in intangibles) 423
Property, plant and equipment 196
Deferred tax assets 138
Trade and other payables (1,672)
Borrowings (218)
Deferred tax liabilities (1,010)
Total identifiable net assets 4,086
---------------
Goodwill 8,372
Total consideration 12,458
---------------
There is no contingent consideration to be paid as part of the
acquisition.
The fair value of trade and other receivables was GBP1,534,000
and included trade receivables with a fair value of GBP1,313,000.
The gross contractual amount for trade receivables due was
GBP1,320,000, of which GBP7,000 was impaired at the acquisition
date.
The residual goodwill of GBP8,372,000 arising from the
acquisition consists largely of the workforce of the acquired
business and the significant synergies and economies of scale
expected from combining the operations of the Group and
Intercept.
None of the goodwill recognised is expected to be deductible for
income tax purposes.
The Group incurred GBP222,000 of third-party costs related to
this acquisition. These expenses are included in operating costs in
the Company's consolidated statement of comprehensive income for
the year ended 30 September 2014.
14. Acquisition of Control Circle Limited
On 23 January 2014 the Group acquired 100% of the ordinary
shares of Control Circle Limited (Control Circle) and obtained
control of the Company. Control Circle is a UK-based provider of
complex managed hosting and cloud based services to enterprises and
online businesses. As a result of the acquisition, the Group will
now have a comprehensive and compelling data and IT services
portfolio including managed and cloud based services, such as
managed hosting, datacentre visualisation and application
management. Furthermore the enlarged Group offering will allow
clients to choose private or public hosted cloud services.
The revenue included in the consolidated statement of
comprehensive income since 23 January 2014 contributed by Control
Circle was GBP16,554,000. Control Circle also contributed profit
after tax of GBP421,000 over the same period.
The following unaudited pro forma summary presents consolidated
information of the Group as if the business combination had
occurred on 1 October 2013.
Pro forma year ended 30 September 2014 Group
GBP'000
Revenue 22,077
Profit on ordinary activities after taxation 468
These amounts have been calculated after applying the Group's
accounting policies from 1 October 2013, together with the
consequential tax effects.
The following tables summarise the consideration transferred to
acquire Intercept and the amounts of identified assets acquired and
liabilities assumed at the acquisition date.
Fair value of consideration transferred
At 23 January 2014 GBP'000
Cash 39,315
Total consideration transferred 39,315
----------
Cash and cash equivalents 825
Trade and other receivables 4,520
Deposits 150
Customer related assets (included in intangibles) 16,576
Technology (included in intangibles) 467
Software licences (included in intangibles) 461
Property, plant and equipment 1,613
Deferred tax assets 1,712
Trade and other payables (7,095)
Borrowings (480)
Deferred tax liabilities (3,409)
Total identifiable net assets 15,341
--------------
Goodwill 23,975
Total consideration 39,315
--------------
There is no contingent consideration to be paid as part of the
acquisition.
The fair value of trade and other receivables was GBP4,520,000
and included trade receivables with a fair value of GBP3,467,000.
The gross contractual amount for trade receivables due was
GBP4,279,000, of which GBP811,000 was impaired at the acquisition
date.
The residual goodwill of GBP23,975,000 arising from the
acquisition consists largely of the workforce of the acquired
business and the significant synergies and economies of scale
expected from combining the operations of the Group and Control
Circle.
None of the goodwill recognised is expected to be deductible for
income tax purposes.
The Group incurred GBP1,041,000 of third-party costs related to
this acquisition. These expenses are included in operating costs in
the Company's consolidated statement of comprehensive income for
the year ended 30 September 2014.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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