TIDMAN.
RNS Number : 4290I
Alternative Networks plc
09 December 2015
Alternative Networks plc
Results for the year ended 30 September 2015
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 2015.
HIGHLIGHTS
Good growth in revenues and profits and strong cash generation
alongside significant operational enhancements
-- Reported revenue up 9% to GBP146.8m (2014: GBP134.4m(#) )
o Pro forma() revenue up 4%, excluding the effect of Mobile
bonus reduction^
o Pro forma() revenue growth in Advanced Solutions of 10%
o 5% underlying^ revenue growth in Mobile(#) , driven by 9%
growth in the subscriber base
o Pro forma() gross profits up 4%
-- Reported adjusted EBITDA increased 13% to GBP22.1m (2014: 19.6m)
o Pro forma() adjusted EBITDA +10%
-- Continued strong cash generation
o Operating cash conversion of 99% of adjusted EBITDA (2014:
83%)
o Net debt of GBP18.7m (2014: GBP29.3m), materially ahead of the
Board's target of GBP20.0m
o Net debt leverage under 1.0 times adjusted EBITDA
-- Proposed full year dividend increased 13% to 16.4p
o Reiterate intention to progress dividend payments towards 15%
annual growth in the medium term, anticipating growth of no less
than 10% per annum
-- Integration of the 2014 acquisitions now complete with the
businesses rebranded Alternative and all teams now located together
in new facilities
o Increased breadth of products and services facilitating
product penetration opportunities across the Group
o Company-wide systems and processes integrated in most business
disciplines
-- Strong order book at period-end and healthy pipeline for year ahead
KEY FINANCIAL INFORMATION
Audited results for the 2015 2014 Change
year ended 30 September
(restated)
GBP'000 GBP'000 %
Revenue(#) 146,816 134,413 9%
Adjusted operating profit* 19,194 17,593 9%
Adjusted EBITDA* ** 22,053 19,592 13%
Adjusted profit before
taxation* 17,900 16,416 9%
Adjusted earnings per
share*** - basic 28.4p 26.9p 6%
- diluted 27.8p 26.4p 5%
Dividend per share 16.4p 14.5p 13%
Operating profit 15,100 11,540 31%
Profit before tax 13,806 10,363 33%
Earnings per share - basic 23.8p 16.9p 41%
- diluted 23.3p 16.6p 40%
* Operating profit before intangible assets amortisation
excluding software, exceptional items and share based payments
** Earnings before interest, taxation, depreciation and
amortisation
*** Adjusted earnings per share is based on adjusted profit
after tax as set out in note 7
^ Excludes revenue earned directly from network providers based
on sales volumes, that has been terminated in 2014, following the
amendment to commercial agreements with airtime partners
(#) 2014 revenue has been restated as discussed in note 1
() Pro forma (like for like) numbers include a full 2014
financial year's performance for the businesses acquired in January
2014
Mark Quartermaine, Chief Executive of Alternative Networks,
commented:
"2015 has been a good year overall, delivering robust revenue
and profit growth whilst completing several major integration and
operational improvements projects. The business is in a strong
position going forward. The two acquisitions in 2014 and the
transformational projects in 2015 have resulted in Alternative
Networks becoming an IT Services business with a unified
operational structure, a fully invested sales force and a market
leading product portfolio, able to deliver end-to-end solutions to
a larger customer base.
"The improved profit performance in the second half of 2015,
together with the high recurring revenue levels in the group, means
that the Board approaches the coming year confident that the
business can continue to generate good levels of growth in the
future. The first weeks of the current financial year show signs
that the momentum carried through the previous quarter is
continuing and provides sound encouragement."
Enquiries:
Alternative Networks
Mark Quartermaine, Chief Executive
Officer
Gavin Griggs, Chief Financial
Officer 0870 190 7444
Investec Bank PLC - Nominated
Adviser and Joint Broker Patrick
Robb / Carlton Nelson / Andrew
Pinder 020 7597 5970
finnCap Limited - Joint Broker
Stuart Andrews 020 7220 0565
Bell Pottinger
Elly Williamson / Anna Legge 020 3772 2500
CHAIRMAN'S STATEMENT
Introduction
The 2015 financial year has seen Alternative Networks make good
progress in its stated objective to grow the business further. We
have continued to strengthen our offering, armed with an increasing
array of market leading products and services that can meet
customers' communications and data needs. The investment we have
made, both through the acquisition of complementary businesses and
the upgrading of our infrastructure, is delivering good results and
leaves us well positioned for future growth.
Results
Reported revenue for the year ended 30 September 2015 was
GBP146.8m, up 9% on 2014. On a pro forma basis, i.e. including a
full 2014 financial year's performance for the businesses acquired
in January 2014, revenues were up 3% year on year and up 4% after
the effects of the contract changes in Mobile are excluded. Gross
margins remained steady and adjusted EBITDA at GBP22.1m was up by
13% on a reported basis and by 10% on a pro forma basis.
Cash generation has remained strong across the Group with 99% of
adjusted EBITDA converted to cash. Group net debt at 30 September
2015 had reduced to GBP18.7m (30 September 2014: GBP29.3m),
comfortably outperforming the GBP20.0m target we outlined in June
and down from GBP41.3m at the time of the 2014 acquisitions.
Dividend
The continued financial strength of the Group has enabled the
Board to declare a final dividend of 10.9 pence per share,
resulting in a total dividend for the year of 16.4 pence per share,
an increase of 13%. This is in line with the Board's intention to
grow the dividend by at least 10% each year. The objective remains
to progress towards 15% growth in the medium term. The dividend
will be paid on 29 January 2016 to shareholders on the register as
of 4 January 2016.
Review of operations
The acquisitions made in 2014 have been integrated into the
Advanced Solutions division, which now represents more than 50% of
group revenue. Advanced Solutions performed well in the financial
year, especially in the second half, following a slight lull in
orders towards the end of the first half, and we closed the year
with a strong GBP5.2 million order backlog. The division also
enjoyed some excellent new client wins, and reinforced its
particularly strong presence in the Higher Education sector,
signing contracts with 14 universities and 33 schools during the
year.
Mobile Network Services traded in line with expectations and
continued to grow its market share, with an increased number of
subscribers in a competitive market, representing a very creditable
achievement. Fixed Voice was as expected slightly down on the
previous year and in line with market trends, and the division now
represents less than 20% of group revenues. Our market leading
Synapse portal has continued to be a key differentiator, and we
continue to drive further enhancements to its functionality,
stability and reliability.
The move to our new offices in Blackfriars Road, London, has
completed successfully. This, combined with an upgrade of our
entire IT infrastructure and the full integration of the most
recent acquisitions, means our employees are better equipped to
deliver our high quality products and services to the market more
effectively and under a single brand, and has enabled our customers
to derive maximum benefit from them.
We announced on 3 June 2015 that Edward Spurrier would be
stepping down as CEO and as a director of the company and that Mark
Quartermaine would assume the role of CEO. After a four month
handover, Ed's last day with Alternative Networks was 30 September
2015. We are enormously grateful to Ed for the contribution he has
made to the growth of Alternative Networks from its very earliest
days, through to a listing on AIM ten years ago and on to what it
has become today.
Growth strategy
Led by the new executive management team, the Group is well
positioned to continue the growth trajectory seen to date. The last
year has been one of investment for that purpose, and we are well
on our way to becoming one of the UK's leading providers of IT
managed services to UK businesses. This investment has been made to
enable the Group to take maximum advantage of the expanded
portfolio of services it has steadily developed, both in-house and
through acquisition.
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December 09, 2015 02:00 ET (07:00 GMT)
As we look to take advantage of the strong platform we have
built, we will use our breadth of products and services to
establish ourselves the long term supplier of choice for a larger
customer target base and drive organic growth. We continue to
remain open to acquisition opportunities should they be clearly
enhancing to shareholder value and fit our product and capability
set. In addition, we intend to invest further in product
development so as to remain at the cutting edge of the market and
maintain our competitive strengths. The growth of our pipeline, the
increasing number of larger businesses taking more of our services
and the conversion rate of orders suggest that our strategy is
working and will continue to deliver value. We therefore remain
positive about our future prospects.
James Murray
Executive Chairman
8 December 2015
Chief Executive Officer's Review
Overview
2015 has been a good year, delivering solid growth in all key
metrics whilst completing major integration and operational
improvement projects, and creating a strong platform to support
future growth. Most integration related activities are now complete
following the London office move and rationalisation, IT platform
enhancements and back office process integration. This, in addition
to significant investments, most notably across our office
portfolio, but also in our sales force and in product development,
has resulted in a Group that it is well placed to increase sales
and deliver even greater customer satisfaction.
In January 2014 the Group completed two acquisitions, which
contributed for part of the year in 2014 and for the full year in
2015, and as such we refer to pro forma (or like for like) results
in this report where we have included a full year of 2014 results
for the acquisitions as though we had bought them at the start of
2014 financial year.
The major highlights of the year were as follows:
-- Continued gains in market share in key growth areas;
o Mobile subscribers increased 9% to 99,413 (2014: 91,391)
o Advanced Solutions pro forma revenues and orders up 10% and 3%
respectively
-- Major product development with the release of new
propositions as well as enhanced versions of existing products;
-- GBP1.0m investment in increasing ongoing account management
resource to drive product penetration across the existing customer
base;
-- Completion of the integration of 2014 acquisitions with the
businesses rebranded Alternative and all teams now located together
in new facilities; and
-- Shift of all legacy on-premise IT infrastructure and hosted
services into modern managed secure datacentres.
The new premises and IT infrastructure provide the Group with a
sound platform for future growth. The Group is better positioned to
expand both its managed service product portfolio and its selling
capability to deliver the portfolio to new and existing customers
more effectively.
Trading and performance overview
In 2015 the Group has continued to build on a successful 2014,
with momentum seen in 2014 continuing into 2015, and has resulted
in increases in reported revenues, gross profit and adjusted EBITDA
compared with the prior period and on a pro forma basis. Group
reported revenues at GBP146.8m were 9% ahead of 2014, with pro
forma revenues up 3% (2014: GBP134.4m), and up 4% when the
reduction in Mobile bonus revenue impact is excluded.
Cash generation was once again strong, with operating cash
conversion of 99% of adjusted EBITDA. As a result, net debt has
fallen to GBP18.7m, beating the Group's GBP20.0m year-end target
and bringing it comfortably below one times adjusted EBITDA. This
has allowed the Board to propose a final dividend of 10.9 pence per
share which is 14% up on 2014.
The Advanced Solutions business was 10% ahead of the prior year
on a pro forma basis. Total orders signed in the year were 3%
higher than the prior year on a pro forma basis, resulting in a
total backlog of GBP5.2m at the end of the year for delivery in the
coming financial year. New orders have been generated across the
portfolio, with some notable areas of success particularly in
Higher Education, where the Group has signed contracts with 14
universities and 33 schools and colleges during the year.
Hosted Managed Services and On Demand Services, formerly parts
of ControlCircle and Intercept IT, are reported in Advanced
Solutions and are now fully integrated into the Group with all
teams located in a new, single London office and the businesses
rebranded as Alternative. Trading performance has been solid, with
minimal client attrition. As previously reported at our interim
results, performance in the year was moderately impacted by two
major customers putting new orders on hold pending internal
strategic reviews, resulting in lower non-recurring revenues. Of
these, one customer has returned to its pre-review order profile.
Now that the acquisitions are fully integrated we are encouraged to
see improving order trends overall, which we expect to continue
into the new financial year.
The Mobile business has once again delivered a strong
performance in the period, gaining market share with a 9% increase
in the subscriber base year on year, and a further 1,300 signed
that will connect by the end of the first quarter of 2016.
Underlying revenues (which exclude the effect of revised commercial
arrangements with suppliers) grew 5% to GBP39.7m, representing 28%
of the Group's overall revenue.
Fixed Voice revenues were 9% below the prior year, in line with
expectations. Gross profit was more resilient at 6% behind the
prior year due to the positive impact of new commercial agreements
signed in the period. Whilst we continue to manage the product set
for profitability, the key focus remains the migration of the fixed
line base to SIP channels which have grown almost 50% year on year.
Overall the Fixed Voice business now represents 19% of the Group's
revenue, down from 23% in 2014.
Strategy
The Group's strategy remains to become the leading IT managed
services provider for UK businesses via both organic and
acquisitive growth. The Group operates in the UK Telecoms and
Information Technology (IT) market as an IT Managed Services
company covering the full spectrum of services and products from
device to the datacentre.
The financial performance of the Group, including revenues,
profits, cash flows and net debt is set out in the Financial Review
and a discussion of the KPIs of the Group are included in the
Trading Review, both within the Chief Financial Officer's
Review.
Platform for growth
2015 has been a significant year of organisational and
operational change. Major changes revolve largely around the
Group's office space portfolio, product development and IT
infrastructure. The latter has focussed on migrating our
infrastructure and applications to our datacentre facilities and
therefore improving resilience.
These combined investments will not only improve our service
offerings to customers, but will also increase productivity and
collaboration amongst our people and allow easier integration of
future acquisitions.
The Board is committed to building a broader and stronger
platform for growth. We have set out our vision to be the leading
IT managed services provider of choice to UK businesses. We have
invested a total of GBP0.8m non-recurring capital expenditure on
developing the new infrastructure required to provide the services
which customers need to bridge private and public cloud services,
in addition to routine recurring capital investments. The technical
strategy is focussed on three elements:
-- On demand services - to be accessed through the portal and
consumed per user per month (e.g. Email or Unified Communications
("UC")) or per unit of compute (e.g. storage);
-- Infrastructure services - in mobile, WAN, voice and hosting; and
-- Significantly enhanced Synapse customer portal to include IT
services and extend to public cloud services.
The Group infrastructure and hosting services are critical to
the delivery of this strategy and in the second half of 2015 we
have launched our own UC cloud platform as well as a significantly
enhanced "Desktop as a Service".
Strategically, we are positioning ourselves to continue to
support our customers to consume business critical applications via
a variety of communication methods, and this will support our
growth aspirations going forward.
Organic growth
The Group continues to build successfully on the following four
key areas of focus to deliver continued organic growth:
-- Winning larger customers in our target markets;
-- Using improved customer service and Synapse, combined with
the acquired portals, to drive improved customer retention across
the wider product set;
-- Improved product penetration across our customer base; and
-- Product development and innovation to increase value to our customer base.
In 2015 the average spend per client was up 12% on the prior
year demonstrating the successful implementation of the strategy.
At the period end, average monthly spend of our 'large customers'
(i.e., those with a monthly spend in excess of GBP1,000) increased
10% year on year, reflecting a significant increase in the size of
new customers to the Group.
The Group's ability to win large contracts with new customers
has been proven once again in 2015 including sizeable deals with
Homeserve and the London Internet Exchange to provide multiple
services.
Product penetration statistics continue to show a broadening
uptake of services from across our customer base, with increases in
sales per customer showing that our customer service levels
continue to improve.
Product penetration across the customer base remains strong,
with 46% of customers taking more than one product (2014: 46%) and
the proportion taking 4 or more products increasing to 17%
(2014:16%). This is in line with the Group's stated strategy of
growing the average size of the customers, via enterprise sales and
driving product penetration in our existing base.
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Product development
We have always aligned our technical strategy with our
customers' needs and have now successfully transitioned the Group
into IT managed services. We continually look at new product
offerings to further support customers and align their IT with the
needs of the end user, and to deliver bespoke IT solutions for our
customers from the device to the datacentre. As a result we are
well positioned to take increasing amounts of market share with new
services, most importantly PaaS (Platform as a Service) and DaaS
(Desktop as a Service) in which our products are innovative and
market leading and further similar offerings will be launched in
2016.
Year to September 2015 2016 plans
------------- ----------------------------------- ------------------------
Advanced The Group has continued Moving into 2016
Solutions to drive relationships further 'as a
and capabilities with core Service' products
UC vendors with a focus will be launched,
on the higher value application and development
services (primarily contact of the cloud
centre) within the supplier platform will
eco-system, whilst also look toward public
expanding our Skype for cloud integration.
business footprint within
the Online Cloud platform. The Group invested
heavily in the
In the latter part of the Online cloud
year we launched our own platform in 2015
UC cloud platform APaaS to further enhance
(Alternative Platform as its capability,
a Service) utilising the scalability and
capabilities of recent security, providing
acquisitions to deliver a foundation
an Enterprise grade, per from which we
user per month, voice platform build the next
to Group customers. The generation of
APaaS offering is built services in 2016.
on the principle of fast The cloud platform
deployment and easy to enjoyed 30% growth
consume services whilst in 2015, and
also providing customers combined with
with a migration path with the 2015 enhancements,
hybrid and full cloud options. provides a robust
foundation on
Furthermore we have enhanced which the group
the technological capability will develop
through which customer new services.
services are managed. This
is the first in a number
of planned developments
that allows the Group to
provide a differentiated
service offering through
a web based platform that
takes feeds from multiple
monitoring sources and
correlates the data to
understand how an IT environment
is performing. This allows
Alternative to diagnose
and resolve customer issues
faster and understand the
context and impact an IT
service interruption or
performance issue has on
a customer business.
------------- ----------------------------------- ------------------------
Mobile Voice Development in the mobile In 2016 the portfolio
portfolio has remained will expand to
focused on cost control provide these
and device security expanding services in a
the portfolio to deliver cloud delivery
a standalone integrated model and integrate
set of products that allow the management
customers to control their capability into
mobile data costs and secure Synapse.
the company data held on
a device.
------------- ----------------------------------- ------------------------
Fixed Voice With the 2025 date set In 2016 the portfolio
for the withdrawal of traditional will expand to
fixed voice services the incorporate new
group has diversified its suppliers with
SIP offering and focussed unique market
on the convergence of voice capabilities
services with wide area addressing specific
network services as ISDN customer usage
replacement services. cases and increased
development of
capabilities
in synapse.
------------- ----------------------------------- ------------------------
Portal development
Central to this strategy is the use of Synapse, the Group's
dynamic service interface, offering customers significant service
and flexibility benefits. During 2015 the Group has continued
developing Synapse as well as continuing the process of converging
the other, wider Group portal systems into it, providing an
enhanced interface, covering the Group's device to datacentre
portfolio.
As part of the wider transformation of our office and
infrastructure estate, the Group portal systems have been moved
into a fully virtualised environment, alongside our other internal
IT application suite, in order to ensure optimal performance for
end users and greater service resilience.
Significant work has also been performed on key internal systems
to provide the basis for this convergence, with unification of
sales and CRM systems, and with ticketing to follow, this provides
the foundations to significantly expand the Group's portal
functionality.
Growth by acquisition
The Group's cash generative nature has facilitated the
significant reduction in net debt since the 2014 acquisitions;
this, combined with the strong balance sheet leaves us well placed
to capitalise on further opportunities and as such 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
The main focus remains on strategic acquisitions that complement
the existing product set and can be seamlessly integrated, although
the Group also considers bolt on acquisitions that would bring a
customer base where the Group can capitalise on its proven cross
sell capability. The Group will continue to be opportunistic with
regards to acquisitions. We remain well placed to take advantage of
any opportunities as they arise, applying strict selection
criteria.
The Group's long standing and consistently strict criteria for
acquisitions remains unchanged. Targets must:
-- be successful, growing, highly cash generative, and profitable;
-- have customers that provide cross selling opportunities for the Group; and
-- be earnings enhancing in the first full year of ownership.
Outlook
The strategic acquisitions in 2014 and the transformational
projects in 2015 have resulted in an IT Services business with a
unified operational structure, a fully invested sales force and a
market leading product portfolio, able to deliver end-to-end
solutions to a larger and more receptive customer base.
In 2016 we plan to continue to expand, upgrade and improve our
product set, with a full pipeline of new product development. We
are also planning further investment in the technology we use to
service customers, resulting in greater efficiency and improved
service.
Product penetration statistics continue to show a broadening
uptake of services from across our customer base, with increases in
average sales per customer showing that our customer service levels
continues to exceed expectations.
The improved profit performance in the second half of 2015,
together with the high recurring revenue levels in the Group, mean
that the Board approaches 2016 confident that the business can
continue to generate encouraging levels of growth going forward.
The first weeks of 2016 show signs that the momentum carried
through from the fourth quarter is continuing and provides sound
encouragement.
Mark Quartermaine
Chief Executive Officer
8 December 2015
Chief Financial Officer's Review
Results & trading overview
In 2015 the Group has experienced continued growth in the
Advanced Solutions and Mobile Voice products and services, and
continued excellent cash performance. The Advanced Solutions and
Mobile Voice segments together now account for 81% of Group
revenues (2014: 77%), with a reduction in the contribution from
Fixed Voice services, which is in managed decline.
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Year ended 30 September 2015
Advanced
Solutions Group - Pro
- Pro forma Mobile Voice Fixed Voice forma
------------------------------------ ------------------------------------- ------------------------------------- ------------------------------------
Change Change Change Change
GBPm % GBPm % GBPm % GBPm %
Revenue 77.9 10% 40.4 - 28.5 -9% 146.8 3%
Recurring 45.0 6% 40.4 - 28.5 -9% 113.9 -
Non-recurring 32.9 15% - - - - 32.9 15%
Gross
profit 29.3 8% 19.0 6% 12.4 -6% 60.7 4%
Margin 37.7% -50bps 47.0% +250bps 43.3% +110bps 41.3% +50bps
In order to facilitate understanding of business performance,
the Group splits out its operating KPIs, both financial and
non-financial into three distinct revenue groups. These are
Advanced Solutions, Mobile and Fixed Voice. These enable the
Group's performance to be benchmarked against competitors and allow
the Board to control more clearly the underlying drivers to the
Group's business. All recent acquisitions are reported in Advanced
Solutions and have no impact on Mobile or Fixed Voice. 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.
Total reported revenue increased 9% to GBP146.8m (2014:
GBP134.4m), with pro forma revenue growth of 3%. The Advanced
Solutions business was significantly up at 24% on a reported basis
and 10% on a pro forma basis (GBP77.9m). Reported revenue in Mobile
was flat year on year, but underlying revenue (revenue earned
directly from network providers based on sales volumes, which
ceased during the prior year following the redrafting of relevant
commercials) grew at 5% (GBP2.0m). Revenue growth was partially
offset by the managed decline in the Fixed Voice business, which
was down 9% (GBP2.8m).
Reported gross profit increased by 10% (GBP5.4m) to GBP60.7m,
and 4% (GBP2.4m) on a pro forma basis. Gross margins are level year
on year, reflecting the effect of good margin growth in Fixed Voice
and Mobile Voice netted off by some margin pressure across Advanced
Solutions owing to pricing on some larger hardware and maintenance
deals. Further analysis is detailed below by product.
Adjusted EBITDA at GBP22.1m was up GBP2.5m (13%) on a reported
basis and GBP2.0m (10%) ahead on a pro forma basis. As reported in
our interim results, during the period the Group has introduced a
group-wide sales commission scheme encouraging higher margin and
longer term growth, which has had a one off impact on adjusted
EBITDA, increasing commission costs by GBP0.3m. Nevertheless, the
adjusted EBITDA margin has increased to 15.0%, up from 14.5% in
2014, reflecting the continued drive on operational efficiency and
the benefits of integrating the Group, and is set to improve
further with annualisation of the improvements made in 2015.
Advanced Solutions
2015 2014 Change Change
Revenue Reported Reported Pro Reported Pro
forma forma
GBPm GBPm GBPm
Recurring
Managed services 17.6 12.4 18.4 42% -4%
Online desktop 3.3 2.2 2.9 50% 12%
Maintenance 11.6 10.7 10.7 8% 8%
Connectivity 8.3 6.3 6.3 32% 32%
Billing 4.2 4.0 4.0 4% 4%
Subtotal 45.0 35.6 42.3 26% 6%
Non-Recurring
Hardware /
software 26.3 21.1 22.5 24% 17%
Professional
Services 6.6 5.9 6.1 12% 8%
Subtotal 32.9 27.0 28.6 22% 15%
Total 77.9 62.6 70.9 24% 10%
Gross Margins
Recurring 44% 45% 43% -100bps +100bps
Hardware /
software 21% 23% 23% -200bps -200bps
Professional
services 59% 59% 59% - -
Advanced Solutions 38% 39% 38% -100bps -
Advanced Solutions revenues increased by 24% to GBP77.9m on a
reported basis and 10% on a pro forma basis over the prior year.
Growth in the second half of the year was slightly slower than the
first half, owing to Q3 sales pressure arising from wider economic
events and strategic reviews resulting in new business suspensions
from two larger customers, as reported at the interim reporting
stage.
Growth has returned to healthy levels in Q4, producing a total
sales order backlog of GBP5.2m, and signed orders 3% higher than
the prior year on a pro forma basis, giving high levels of
confidence heading into 2016.
New orders have been generated across all industry verticals and
notable contract wins with larger customers include a wide scale
networking contract for the London Internet Exchange and wide scale
WAN and hosted voice migration for Homeserve.
The margin in Advanced Solutions is broadly level with the prior
year at 38% (2014: 39%) as a result of growth in higher margin
services including professional services, netted against some
pricing pressure for larger deals involving legacy hardware and
maintenance solutions.
Managed services
Managed services encompass the Group's offerings in all hosting,
cloud and utility services, including all outsourcing services.
Growth in this area is a key focus with both existing and new
customers. High margins in this area represent the added value
nature of the services provided. The 4% decline in revenue on a pro
forma basis reflects a decrease in the lower margin pure hosting
and colocation revenue as the Group encourages clients to move
towards higher margin, fully managed services.
Online desktop
Online desktop represents the Group's cloud based Desktop as a
Service (DaaS) remote access offering, acquired as part of the 2014
acquisitions. 12% pro forma revenue growth in this product has been
generated under the Group's ownership as we seek to take a key
position in this growing market.
Maintenance
Maintenance revenues have grown by 8% year on year owing to some
large wins at the end of the prior year and start of 2015. Margins
are also consistent year on year as the group has been able to
renew contracts at historical pricing levels due to the service
quality available to clients, and proactively churn any that
involve lower pricing.
Connectivity
Connectivity revenues increased 32% to GBP8.3m in 2015. This
growth was generated from data connectivity sales to both existing
and new customers. Sales growth has also arisen from a number of
key wins, including the UK-wide contract with Menzies Distribution
signed in 2014.
Hardware & software
Hardware and Software revenues comprise all individual
non-recurring direct sales across the Group, and increased 24% to
GBP26.3m (2014: GBP21.1m) on a reported basis and 17% on a pro
forma basis. Gross margins have reduced across the Group due to a
number of large deals where competitive pricing has been offered in
order to secure further growth opportunities in higher margin
products and services with recurring revenue.
Professional services
Professional services revenue, comprising a mix of IT solution
design and installation of data hardware, increased 12% from
GBP5.9m to GBP6.6m on a reported basis and 8% on a pro forma basis
as a result of the high level of hardware orders and also a number
of more complex projects with higher levels of associated
installation requirements. Margins have stabilised during the year
following the integration of the acquisitions and continue to
reflect the efficiency with which the Group is able to apply the
workforce to new and existing projects.
Billing services
Billing Services revenues were up 4% to GBP4.2m (2014: GBP4.0m).
This is as a result of further growth in sales to third party
customers and revenue from providing a hosted managed billing
service. Gross margins were in line with the prior year at 53%, as
the Group maintained its high client retention level and delivered
more consultancy services to clients.
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Telephony Services - Mobile
2015 2014 Change
(restated)
Revenue (GBPm)(#) GBP40.4 GBP40.4 -
Mobile bonus revenue 0.7 2.8
Underlying revenue
(GBPm) 39.7 37.7 5%
Gross profit(#) (GBPm) 19.0 18.0 6%
Gross margin % 47.0% 44.5% 250bps
Subscribers 99,413 91,391 9%
Recurring revenue 93% 89%
Mobile KPIs
Monthly ARPU (GBP) 34 36 -6%
Monthly ADPU (Mb) 170 99 72%
Network churn 16% 14%
Customer churn by
value 14% 11%
% Subscribers in-contract 78% 73%
Monthly average contract
length 26m 24m
(#) 2014 revenue and gross profit has been restated following a
reclassification of mobile customer credits and other costs, as
discussed in note 1.
Headline mobile revenues were flat year on year at GBP40.4m,
whilst underlying revenues grew 5% year on year in the period
(excluding the effect of bonus reductions) as the Group continues
to take significant market share. Margins have once again risen,
from 45% in 2014 to 47% in 2015, primarily as a result of the 2014
signed commercial agreements.
There was continued high growth in the contract base with a 9%
increase in subscribers to 99,413 at the end of 2015. Whilst this
is the result of significant new connections, demonstrating a
continued ability to win in a flat market, slightly higher churn
has been seen in the second half of the year as market pressure has
led to the loss of certain customers where the Group was not
willing to support lower margins.
Mobile gross margins have increased to 47%, from 45%, mostly as
a result of annualisation of the benefits of the new commercial
arrangements signed in 2014, but also other positive factors such
as the value added from the Synapse service platform.
Mobile KPIs
The Group uses three principal KPIs to measure the performance
of Mobile Voice, being "ARPU", "ADPU" and churn.
-- "ARPU" represents the average spend in line rental, voice and
data usage charges per live connection per month in the Group's
contracted base of subscribers. ARPU has reduced by circa GBP2 (6%)
to GBP34 in the year, similar to the 2014 decline (2014: GBP2).
Underpinning this trend is the reduction in line rental charges
associated with bundled packages and the general trend in reduction
in voice usage, partially offset by increased data usage (see
below). Declines in voice ARPU total approximately GBP2.50
(including rental charges) as a result of regulatory changes. Data
usage ARPUs continue to rise, by 21% in 2015, which is lower than
the 72% rise in ADPU due to a change in the mix between European
and higher priced 'rest of world' roaming. Growth in data ARPU has
been dampened somewhat both by general market pressures on pricing,
where increased bundle allowances have been seen and also a slight
decrease in wider global travel, where we have seen a 100bps drop
in 'rest of world' roaming as a proportion of our total customer
base.
-- "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 72% to 170Mb
demonstrating the rapid growth in data usage. The growth in data
usage can be attributed to a number of factors including the rise
of the smartphone (71% of the subscriber base; up from 69% in
September 2014) and the ongoing move from 3G to 4G networks. The
growth seen, combined with the Group's high margin customer base,
gives a strong platform to grow further in 2016.
-- Churn by value, which illustrates the retention value of all
contracted customers to the Group, has risen slightly in 2015 from
11% to 14%, mostly due to the loss of certain customers in the
second half where retention would have led to decreased margins
that the Group was not prepared to accept. Even at 14% the Group is
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. Network churn was 16% which is again up
slightly on 2014 (14%), an excellent performance in a very
competitive marketplace where it is easy to switch between
networks. The generally high retention is a result of the overall
client experience covering the service offering and the benefits of
Synapse, and as we respond to general market changes with
sophisticated tariffs we expect this to improve in 2016.
Telephony Services - Fixed Voice
2015 2014 Change
GBPm GBPm
(restated)
Revenue GBP28.5 GBP31.3 -9%
Gross profit(#) GBP12.4 GBP13.2 -6%
Gross margin % 43% 42% +110bps
Outbound monthly ARPU (GBP) 1,385 1,421 -3%
Number of lines/channels
(inc. SIP) 68,388 72,027 -5%
SIP lines 10,924 7,424 47%
Average customer contract
length (months) 30m 24m +6m
(#) 2014 gross profit has been restated following a
reclassification of other costs, as discussed in note 1.
The market continues to operate on two-tiers with legacy fixed
voice providers seeing network traffic in decline by mid-single
digit rates and resellers and service providers migrating their
customers to IP services at a faster rate resulting in annual
revenue reductions in the order of low double digit (10-14%). On
this basis we consider our performance this year to be good 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 continues to retain its customer base
via migration to SIP based telephony. In the year the number of SIP
lines has increased by 47% from 7,424 to 10,924.
Fixed Voice revenues declined 9% in 2015 to GBP28.5m due to a
combination of customer churn and reduction in call volume to
mobiles, regulatory price reductions and the continuing move to
email and mobile. However the Group has again succeeded in the
proactive management of this base with further commercial gains and
active retention, particularly in the Inbound services base where
year on year gross profits have risen 21%.
The gross margin on this product set has continued to grow in
2015, from 42% to 43%, but with the revenue decline, total gross
profit has reduced 6% year on year. The growth in gross margin is
as a result of improved commercial arrangements from key
suppliers.
Outbound services
-- Outbound revenues decreased by 11% to GBP21.3m. 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.
-- Outbound ARPU has reduced by 3% to GBP1,385 in 2015 as a
result of a general reduction in spend resulting from the shift to
mobile and data communications, tempered by an increase arising
from the signing of new, larger, customers and churn of smaller
customers. Average contract periods are now 6 months longer than
the prior year increasing the viability of future revenues.
-- The number of lines in the estate declined by 5% to 68,388,
with some of the churn being non or low billing analogue lines that
we have helped customers identify using Synapse. The ongoing
transition to SIP has again progressed well with a 47% rise in SIP
lines.
Inbound services
-- Inbound services revenue, at GBP7.3m, was in line with 2014,
as increases in NGN products compensated for the reduction in
customer traffic revenues. As a consequence, gross profit was 21%
up on 2014 at GBP3.7m.
-- Gross margins are up significantly year on year, to 51%, due
to the new commercial terms agreed and increased sales of the
higher margin NGN product.
Financial overview
Adjusted and statutory results
In these results we refer to adjusted and statutory results.
Adjusted results are prepared to provide a more comparable
indication of the group's underlying business performance. Adjusted
results exclude adjusting items as set out below and in note 7.
Non-recurring items
As a result of the various restructuring activities the Group
incurred non-recurring charges of GBP2.4m. This comprised GBP0.6m
of redundancy charges, GBP0.9m of non-cash rent charges on
unoccupied property during the fit-out phase and GBP0.9m on
restructuring and other charges.
As reported at the interim stage, the Group has rationalised its
property portfolio in 2015, reducing the number of properties
around London from five to two, involving the sale of one property
for a gross receipt of GBP3.8m giving rise to a profit on disposal
of GBP2.4m, and the early exit of a leased property yielding a
receipt of GBP0.9m, both of which have been recorded as adjusting
items.
Finance costs
Finance costs were GBP1.3m (2014: GBP1.1m) driven by the Group's
existing debt facilities in place for the whole year. At September
2015 the margin applied to this facility had fallen to 2.50% over
LIBOR based on a leverage position of the balance sheet of less
than 1.0. Throughout 2016 the margin over LIBOR is expected to be
less than 2.50%.
Taxation
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The effective tax rate for the year was 17.0% (2014: 22.0%). The
effective tax rate in the current period is lower than the prior
period due to a further reduction in the standard rate of
corporation tax for the year (from 22.0% to 20.5%) and is lower
than the UK statutory rate due to the recognition of prior year
R&D credits that have been successfully received in the current
year and profit arising on the sale of a property for which
indexation allowances have been applied.
Earnings per share
Basic adjusted earnings per share have increased by 6% from
26.9p to 28.4p. Fully diluted adjusted earnings per share have
increased by 5% to 27.8p (2014: 26.4p). Statutory (unadjusted)
fully diluted earnings per share have increased 40% from 16.6p to
23.3p.
The weighted average number of shares in the year used for
calculating the basic earnings per share has increased by 502,918,
as outlined in note 4. The dilutive share number has increased by
52,057, due to the issuance of new long term retention share option
plans netted off by a reduction in shares relating to the EBT.
Net debt & bank facilities
The Group continues to benefit from access to a GBP36.0m
syndicated bank loan facility split equally between two lenders (a
GBP43m facility reduced by GBP7.0m of term loan repayments), of
which the average interest margin payable throughout the 2015
financial year was below 2.5%.
The year-end net debt balance was GBP18.7m, down from GBP29.3m
at 30 September 2014. This is after GBP5.3m of total capital
expenditure and paying dividends of GBP7.2m. The net debt level is
down from a peak of GBP41.3m at the time of the acquisitions, and
well ahead of the target of GBP20.0m as set by the Board.
Net debt performance is primarily driven by the strong operating
cash conversion of the business (see below) which has been greatly
facilitated by the completion of acquisition integration
activities. The Group closed the 2015 financial year with an
impressive financial position, a key part of the platform for
growth initiative.
Cash flow
Working capital and cash management remains a key priority of
the Group and once again cash flow has been very strong. Cash
inflow from operations was GBP21.9m (2014: GBP16.2m), compared to
adjusted EBITDA of GBP22.1m (2014: GBP19.6m), representing a cash
conversion of 99% (2014: 83%). Alongside this the Group debtor days
have remained below 30 days.
Year ended Year ended
30 Sept 30 Sept
2015 2014 Change
GBPm GBPm GBPm
Cash generated from operations 21.9 16.2 35%
Proceeds from sale of
property - non recurring 3.8 -
Taxation (1.3) (1.4)
Capital expenditure -
underlying (2.1) (2.1)
Capital expenditure -
customer assets (0.5) -
Capital expenditure -
non recurring infrastructure (2.7) -
Finance cost (net) (1.3) (1.1)
Free cash flow 17.8 11.7
Free cash flow before
non-recurring items 16.7 11.7 43%
Dividends (7.2) (6.6)
Acquisitions (net of cash
acquired) - (51.5)
Net cash flow 10.6 (46.4)
Opening (net debt)/cash (29.3) 17.2
Closing (net debt) (18.7) (29.3)
Capital expenditure
Capital expenditure in the period was GBP5.3m compared to
GBP2.1m in 2014, largely due to additional non-recurring
investments in the Group's infrastructure totalling GBP2.7m. This
was primarily comprised of office fit-out and IT infrastructure,
and was funded entirely by the sale of a property during the year
for a total of GBP3.8m. There was a further GBP0.5m of spares and
tooling equipment acquired as part of the signing of a large
hardware and maintenance deal in a new customer vertical.
The remaining GBP2.1m of spend was in line with expectations and
previous periods, and represented further expenditure in respect of
IT development, including additional investment in a consolidated
customer portal service, expanding on the existing Synapse
functionality and investments in the existing CRM platform to
improve our service to customers and reduce operating costs.
In 2016 we expect capital expenditure to reduce back to routine
underlying levels, with some additional investment required across
our product portfolio's, including software development to ensure
our unique proposition is consistent across all service lines.
Dividend per share
The Board has proposed a final dividend of 10.9 pence per share
(2014: 9.6 pence per share) making a total ordinary dividend of
16.4 pence per share for the full year (2014: 14.5 pence per
share).
The dividend will be paid on 29 January 2016 to shareholders on
the register as of 4 January 2016.
Principal risks and uncertainties
Managing the financial, operational and reputational risks
across our business and operations is critical to our success.
Below we highlight the identified key areas of risk that are
monitored on an ongoing basis. The Group's Risk Management
Framework requires a regular review of the key risks facing the
Group.
Contracts with suppliers
The Group resells the products of its suppliers and whilst many
of the Group's products are supplier agnostic and there exists a
freedom to substitute various suppliers' products, the Group
acknowledges that it has reliance in particular on the contracts
with the mobile networks, O2 and Vodafone. Both managed service
agreements run until March 2018.
The Group mitigates this risk by maintaining strong
relationships with its suppliers at various levels of the business,
as well as paying close attention to ensuring the expectations of
suppliers are met, and where possible exceeded.
Acquisition integration
The Group has set out that its strategy includes the acquisition
of businesses where they are earnings enhancing. The Board
acknowledges that there is a risk of operational disturbance in the
course of integrating acquired businesses with existing operations.
The Group mitigates this risk by careful planning, rigorous due
diligence and segregation of the target operations where possible.
Where there is full integration of acquired businesses, the Group
receives a report on the effectiveness of the integration and
variances from business plan. All acquisitions to date have been
fully integrated, with the exception of Aurora (AKJ Limited) where
an independent IT infrastructure is essential to its client
offering.
Technological change
The Group operates in a market of rapid and dynamic technology
changes, and there is a risk that the Group fails to secure the
necessary contracts to supply its customers with a new technology
(disruptive) which substitutes existing technology. The Group
mitigates this risk by maintaining close relationships with its
suppliers, and by employing a Product development team whose duties
include research, review and procurement of appropriate new
technology products for testing prior to release to our
customers.
Ability to continue to attract and retain key sales and customer
management executives
Ability to continue to attract and retain key sales and client
management executives - the Group is a direct sales and marketing
business and whilst the revenues of the Group are largely recurring
on a monthly basis, the Group depends on being able to recruit and
retain staff of the right calibre in order to win and service key
contracts. The Group has sought to mitigate this risk by investing
in a succession and training plan for career development, and
improving the employee benefits and remuneration over the last 3
years, including commissions, and specifically share options and
pension contributions. The Board monitors the results of exit
interviews, recruitment statistics and staff attrition by
department on a regular basis.
Regulatory risk
The Group acknowledges that the pricing of products and services
can be affected by regulatory bodies in the UK and the EU. In
recent years, usage pricing from fixed to mobile destinations and
EU Roaming mobile voice and data retail prices have been
substantially altered. The Board believes that where the pricing
regulations are directed at wholesale prices, the Group is more
able to mitigate the risk through its own buying and pricing
policies. Where the regulator imposes price caps at the retail
level, the Group is more exposed to a reduction in margin where the
operators do not substantially reduce their wholesale prices. The
Group mitigates the risks by careful and detailed research on the
future regulations, and has been involved in lobbying where
applicable. The Group will assess each risk and build it into its
forecasts of income as soon as possible and will amend its pricing
policies accordingly.
IT environment and control risk
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The Group is increasingly dependent on IT systems for delivering
its products and services and for retaining customers, as well as
for running the operations of the Group. To date, the Group has
used its own internal expertise together with external consultants,
where necessary, to build its own IT infrastructure and software
products, and is continuing to invest each year in improving its
systems and adding more resilience. The Board believes the Group
mitigates the IT control risks in a number of ways. Firstly, it
employs a broad range of highly skilled IT personnel and ensures
that there is a succession and retention plan associated with these
highly talented individuals. Secondly, the Board directs its
external auditors to focus on the IT environment in its control
testing at the annual audit, and also instructs additional internal
audit where required. Recommendations from both sets of audits are
tracked through by the Board. Thirdly, the Group operates best
practise in its adherence with standards issued by the
International Organisation for Standardisation and the British
Standards Institute. Currently, the Group has accreditation for: -
ISO 27001: Information Security Management; ISO9001: Quality
Management; ISO 14001: Environmental Management; ISO20000 Service
Management and ISO 22301: Business Continuity Management in the
majority of its operating divisions. In order to retain these
accreditations, the IT control environment is regularly reviewed by
the British Standards Institute.
The Board is confident that there is a satisfactory framework
for monitoring, assessing and reporting on these risks. There is
also a robust regular framework for reporting on predictive KPIs in
the business.
Gavin Griggs
Chief Financial Officer
8 December 2015
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2015
Year Year
ended ended
30 30 September
September 2014
2015 (Restated)
Note GBP'000 GBP'000
Revenue 146,816 134,413
Cost of sales (86,113) (79,101)
----------------------------------- ----- ----------- --------------
Gross profit 60,703 55,312
Operating costs (45,603) (43,772)
----------------------------------- ----- ----------- --------------
Operating profit 15,100 11,540
Operating profit - analysed: 7
Adjusted operating profit 19,194 17,593
Share based payments (1,309) (510)
Amortisation of intangible assets
(excluding computer software) (3,698) (3,496)
Income from property exit 3,299 -
Restructuring, acquisition and
associated costs (2,386) (2,047)
----------------------------------- ----- ----------- --------------
Operating profit 15,100 11,540
Finance income 3 25
Finance costs (1,297) (1,202)
----------------------------------- ----- ----------- --------------
Profit before taxation 13,806 10,363
Taxation (2,339) (2,285)
Profit and total comprehensive
income for the year 11,467 8,078
----------------------------------- ----- ----------- --------------
Earnings per ordinary share:
Basic 4 23.8p 16.9p
----------------------------------- ----- ----------- --------------
Diluted 23.3p 16.6p
----------------------------------- ----- ----------- --------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2015
30 September 30 September
2015 2014
Notes GBP'000 GBP'000
ASSETS
Non-current assets
Intangible assets 5 73,166 76,745
Property, plant and
equipment 4,917 2,319
Investments - -
Deferred tax asset 559 1,446
Property deposits 280 154
78,922 80,664
----------------------------- ------ -------------- --------------
Current assets
Asset held for sale - 1,401
Inventories 1,293 327
Trade and other receivables 28,288 26,788
Cash and cash equivalents 2,362 3,793
31,943 32,309
----------------------------- ------ -------------- --------------
Total assets 110,865 112,973
----------------------------- ------ -------------- --------------
EQUITY AND LIABILITIES
Equity
Called up share capital 62 62
Share premium 6,600 6,563
Capital redemption
reserve 8 8
Merger reserve 2,749 2,749
Retained earnings 33,249 27,728
Total equity 42,668 37,110
----------------------------- ------ -------------- --------------
Current liabilities
Borrowings 6,598 5,111
Current tax liabilities 2,211 1,146
Trade and other payables 41,201 37,079
50,010 43,336
----------------------------- ------ -------------- --------------
Non-current liabilities
Borrowings 14,500 27,970
Deferred tax liabilities 3,687 4,557
18,187 32,527
----------------------------- ------ -------------- --------------
Total liabilities 68,197 75,863
----------------------------- ------ -------------- --------------
Total equity and
liabilities 110,865 112,973
----------------------------- ------ -------------- --------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Called
up Capital
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
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
Shares issued 37 37
Reissue of
shares
by the trust 277 277
IFRS2 share
based
payments 1,078 1,078
Deferred tax
on
share options 4 4
Profit for the
year and
total
comprehensive
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income 11,467 11,467
Dividends paid (7,305) (7,305)
--------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- --------
Balance at 30
September
2015 62 6,600 8 2,749 33,249 42,668
--------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- --------
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 2015
Year Year
ended ended
30 September 30 September
2015 2014
Notes GBP'000 GBP'000
--------------------------------------- ------ --------------------- --------------------
Cash flows from operating activities
Cash generated from operations 6 21,879 16,167
Income tax paid (1,247) (1,376)
Net cash generated from operating
activities 20,632 14,791
--------------------------------------- ------ --------------------- --------------------
Cash flows from investing activities
Purchase of property, plant
and equipment (4,020) (846)
Purchase of intangible assets (1,295) (1,230)
Proceeds from sale of property,
plant and equipment 3,800 -
Interest received 3 25
Purchase of subsidiary undertakings
(net of cash acquired) - (50,880)
Net cash used in investing
activities (1,512) (52,931)
--------------------------------------- ------ --------------------- --------------------
Cash flows from financing activities
Interest paid (1,298) (1,070)
Dividends paid 3 (7,305) (6,564)
Proceeds from issue of share
capital 37 29
Transaction costs in relation
to loan facility - (724)
Proceeds from borrowings - 35,000
Repayments of borrowings (11,985) (2,668)
Net cash (used in)/received
from financing activities (20,551) 24,003
--------------------------------------- ------ --------------------- --------------------
Decrease in cash and cash equivalents (1,431) (14,137)
Cash and cash equivalents at
start of year 3,793 17,930
Cash and cash equivalents at
end of year 2,362 3,793
--------------------------------------- ------ --------------------- --------------------
NOTES TO THE FINANCIAL STATEMENTS
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 5th Floor, 240 Blackfriars Road, London
SE1 8NW. The shares of the Company are listed on the Alternative
Investment Market.
This financial information is abridged and has been extracted
from the Group's full financial statements for the years ended 30
September 2015 and 2014.
The Group's 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 2014
(which received an unqualified audit report) have been filed with
the Registrar of Companies. Financial statements for the year ended
30 September 2015 were approved by the Board of Directors on 8
December 2015 and will be presented to the Members at the
forthcoming Annual General Meeting.
The Group offers discounts to Mobile customers which have
previously been treated as adjustments to cost of sales due to the
nature of the incentive written into contractual agreements. In
light of changes in the contractual agreements these amounts are
now treated as adjustments to revenue. This change has resulted in
a reduction in revenue and a corresponding reduction in cost of
sales in the current year of GBP4.3m. Separately, in order to bring
the basis of reported margins in the Telephony Services segment in
line with the Advanced Solutions segment, certain costs have been
reclassified from operating costs to cost of sales, resulting in an
increase in cost of sales in the current year of GBP1.4m.
In order to aid the comparability of amounts included in these
financial statements, adjustments to revenue and cost of sales of
GBP3.4m and GBP1.5m have been applied to the comparative year for
discounts to customers and cost reclassification respectively.
Accordingly, operating costs have been reduced by GBP1.5m. There
are no earnings per share or equity impacts arising from these
adjustments in any period presented in these financial
statements.
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 reviews 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 and gross
profit. The reportable segments of the Group are Telephony Services
and Advanced Solutions.
Telephony Services consists of the Group's Fixed Voice and
Mobile Voice services. 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 2015
Telephony Advanced
Services Solutions Total
GBP'000 GBP'000 GBP'000
Total segment revenue 68,941 78,189 147,130
Inter segment revenue - (314) (314)
Revenue from external
customers 68,941 77,876 146,816
------------------------ ------------------- ----------- ---------
Gross Profit 31,368 29,335 60,703
Operating costs (45,603)
Finance income 3
Finance costs (1,297)
Profit before taxation 13,806
------------------------ ------------------- ----------- ---------
Adjusted EBITDA 22,051
------------------------ ------------------- ----------- ---------
For the year ended 30 September
2014 (restated)
Telephony Advanced
Services Solutions Total
GBP'000 GBP'000 GBP'000
Total segment revenue 71,760 63,215 134,975
Inter segment revenue - (562) (562)
Revenue from external customers 71,760 62,653 134,413
--------------------------------- ------------------ ----------- ---------
Gross Profit 31,099 24,213 55,312
Operating costs (43,772)
Finance income 25
Finance costs (1,202)
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Profit before taxation 10,363
--------------------------------- ------------------ ----------- ---------
Adjusted EBITDA 19,591
--------------------------------- ------------------ ----------- ---------
Assets and liabilities, operating profit, finance income,
finance costs and taxation 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 Dividends
30 September 30 September
2015 2014
GBP'000 GBP'000
2014 Final Paid - 9.60p (2013:
8.60p) per 0.125p ordinary
share 4,643 4,194
2015 First Interim Paid - 5.50p
(2014:4.90p) per 0.125p ordinary
share 2,662 2,370
7,305 6,564
----------------------------------- ------------- -------------
The 2014 proposed final dividend of 9.60 pence per 0.125p
ordinary share (2013: 8.60 pence) was paid on 30 January 2015. The
amount of dividend paid was GBP4,643,000 (2014: GBP4,194,000).
The Company paid a 2015 interim dividend of 5.50 pence per
0.125p ordinary share (2014: 4.90 pence), with a total payment
value of GBP2,662,000 (2014: GBP2,370,000). This was paid on 15
July 2015 to shareholders on the register on 19 June 2015.
The Directors are proposing a final dividend in respect of the
financial year ended 30 September 2015 of 10.9 pence per 0.125p
ordinary share (2014: 9.60 pence) which will require an estimated
GBP5,280,000 of shareholders' funds (2014: GBP4,644,000). Assuming
it is approved by the shareholders at the Annual General Meeting on
27 January 2016, it will be paid on 29 January 2016 to shareholders
who are on the register of members at 4 January 2016 with an
"ex-dividend" date of 31 December 2015.
4 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 to owners of the Weighted average of
earnings per company GBP0.00125 ordinary shares Per share amount
share GBP'000 Number Pence
--------------- --------------------------------------- ------------------------------- ---------------------------
2015 Earnings
per share -
basic 11,467 48,212,619 23.8
Potentially
dilutive
shares - 940,364 (0.5)
2015 Earnings
per share -
diluted 11,467 49,152,983 23.3
--------------- --------------------------------------- ------------------------------- ---------------------------
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
--------------- --------------------------------------- ------------------------------- ---------------------------
The adjusted EPS is based on the adjusted profit after tax as
set out in note 7, and the weighted average number of shares as
described above.
Basic and
fully diluted Weighted average of
earnings per GBP0.00125 ordinary shares Per share amount
share Adjusted profit after taxation Number Pence
--------------- --------------------------------------- ------------------------------- ---------------------------
2015 Earnings
per share -
basic 13,681 48,212,619 28.4
Potentially
dilutive
shares - 940,364 (0.6)
2015 Earnings
per share -
diluted 13,681 49,152,983 27.8
--------------- --------------------------------------- ------------------------------- ---------------------------
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
--------------- --------------------------------------- ------------------------------- ---------------------------
Share option costs included within adjusted profit attributable
to owners of the company are reducing the earnings per share in
2015 by 2.7p (2014: 1.1p).
There were 49,729,817 shares in issue at 30 September 2015
(2014: 49,688,544). The weighted average number of shares during
the year was 48,212,619 (2014: 47,709,701).
5 Intangible assets
Purchased Computer Customer Trade Technology Goodwill Total
customer software contracts names
contracts and relationships
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ---------------------------- --------------------- ----------------------------- ----------------- --------------------- -------------- ------------
Cost
At 1 October
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
Additions - 1,295 - - - - 1,295
Acquisitions - - - - - - -
At 30
September
2015 1,662 6,349 32,434 757 1,897 51,907 95,006
-------------- ---------------------------- --------------------- ----------------------------- ----------------- --------------------- -------------- ------------
Accumulated
amortisation
At 1 October
2013 1,662 2,208 7,089 736 985 - 12,680
Charge
for the
year - 790 3,286 21 189 - 4,286
-------------- ---------------------------- --------------------- ----------------------------- ----------------- --------------------- -------------- ------------
At 30
September
2014 1,662 2,998 10,375 757 1,174 - 16,966
Charge
for the
year - 1,176 3,476 - 223 - 4,874
At 30
September
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December 09, 2015 02:00 ET (07:00 GMT)
2015 1,662 4,174 13,851 757 1,397 - 21,840
-------------- ---------------------------- --------------------- ----------------------------- ----------------- --------------------- -------------- ------------
Net book
amount
At 30
September
2015 - 2,175 18,583 - 500 51,907 73,166
-------------- ---------------------------- --------------------- ----------------------------- ----------------- --------------------- -------------- ------------
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
-------------- ---------------------------- --------------------- ----------------------------- ----------------- --------------------- -------------- ------------
Amortisation has been charged through the income statement
within operating costs.
The carrying amounts of goodwill by reportable segment are as
follows;
30 September 2015 30 September 2014
GBP'000 GBP'000
-------------------- ------------------------ ------------------------
Telephony Services 5,685 5,685
Advanced Solutions 46,222 46,222
51,907 51,907
-------------------- ------------------------ ------------------------
Each operating segment 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. The Group's operating segments
to which goodwill has been allocated are Mobile Voice and Advanced
Solutions.
During the year 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 2016-2018 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 metric in the forecasts is earnings
before interest, tax and amortisation. Subsequent cash flows were
extrapolated using a 1.0% (2014: 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 9.7% (2014: 10.0%) 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.
6 Cash generated from operations
Year ended Year ended
30 September 30 September
2015 2014
GBP'000 GBP'000
----------------------------------- -------------- --------------
Operating Profit 15,100 11,540
Adjustments for
Depreciation of property, plant
and equipment 1,681 1,208
Amortisation of intangible assets 4,874 4,286
Employee share scheme charges 1,309 419
(Profit)/loss on sale of tangible
assets (2,399) 2
Movements in working capital
Inventories (966) (144)
Trade and other receivables (1,594) 95
Trade and other payables 3,874 (1,239)
Cash generated from operations 21,879 16,167
----------------------------------- -------------- --------------
30 September 30 September
Consolidated movement of net 2015 2014
debt: GBP'000 GBP'000
--------------------------------------- --------------------------- -------------
Net decrease in cash and cash
equivalents (1,431) (14,137)
Capitalisation of loan fees - 724
Net decrease/(increase) in borrowings 12,183 (32,955)
--------------------------------------- --------------------------- -------------
Total cash flows in net debt 10,752 (46,368)
Amortisation of loan fees (197) (132)
Net debt at beginning of year (29,289) 17,211
Net debt at end of year (18,735) (29,289)
--------------------------------------- --------------------------- -------------
7 Reconciliation to adjusted performance
30 September 2015 30 September 2014
(a) Reconciliation of adjusted EBITDA GBP'000 GBP'000
------------------------------------------------------------- ------------------- ----------------------------------
Profit before tax 13,806 10,363
Adjustments
Amortisation of purchased customer contracts and other
intangibles (excluding computer software) 3,698 3,496
Share based payments and associated social security expense 1,309 510
Income from property exit (3,299) -
Restructuring, acquisition and associated costs ( c ) 2,386 2,047
------------------------------------------------------------- ------------------- ----------------------------------
Adjusted profit before tax 17,900 16,416
Finance income (3) (25)
Finance costs 1,297 1,202
------------------------------------------------------------- ------------------- ----------------------------------
Adjusted operating profit 19,194 17,593
Add: Depreciation of property, plant and equipment 1,681 1,208
Add: Amortisation of computer software 1,176 790
Adjusted EBITDA 22,051 19,591
------------------------------------------------------------- ------------------- ----------------------------------
30 September 2015 30 September 2014
(b) Reconciliation of adjusted profits for earnings per share GBP'000 GBP'000
---------------------------------------------------------------------------- ------------------- -------------------
Adjusted profit before tax (see above) 17,900 16,416
Less: Share based payments (1,309) (510)
Less: Taxation per consolidated statement of comprehensive income (2,339) (2,285)
Less: Taxation on amortisation of purchased customer contracts and other
intangibles (excluding
computer software) and exceptionals (571) (769)
Adjusted profit after tax 13,681 12,852
---------------------------------------------------------------------------- ------------------- -------------------
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