RNS Number : 2558U
NetServices PLC
13 May 2008
13 May 2008
NetServices plc
("NetServices", the "Company" or the "Group")
Interim Results Announcement
For the six months ended 29 February 2008
NetServices plc, (AIM:NSV) the specialist provider of converged voice and data networks,
announces its results for the six months ended
29 February 2008.
Key Highlights
* Revenue of £3.68m (2007: £4.04m)
* Gross profit of £1.60m (2007: £1.59m)
* Gross profit margin of 44% (2007: 39%)
* EBITDA of £0.22m (2007: loss £0.33m)
* Break even (2007: loss £0.75m)
* Cash in hand at end of period of £1.28m
* BT Test Labs accreditation of QoS IPStream product
Commenting on these results, Mark Vickers, Chief Executive said:
"I am pleased with these results, delivering a small profit, continued improvement in
margins and delivering on our strategic plan,
which has been validated by our recent BT accreditation. We continue to achieve excellent
customer retention and we are investing in our
chosen partners, as this will improve the reach and quality of our sales operation. We remain
confident that we can achieve our goals for
the full year, supported by our flexible, innovative approach to the development of our
customer relationships."
For further information, please contact:
NetServices Today on Tel No: 0161
236 1352
Mark Vickers, Chief Executive
Ian Winn, Finance Director Thereafter on Tel No: 0870 753 0900
MC2 (Manchester) Ltd Tel No: 0161
236 1352
Sarah Lindgreen
Arbuthnot Securities Tel No:
020 7012 2000
Tom Griffiths/Alasdair Younie
Chairman's STatement to go with Interims May 2008
Overview
I am pleased to announce the results for the six months ended 29 February 2008, our first
under International Financial Reporting
Standards ("IFRS"), and to provide an update on recent developments within the business.
Revenues for the first half of the year were £3.68m (2007: £4.04m) producing a gross
profit of £1.60m (2007: £1.59m). As a result of
a continued focus on the operating costs of the group we have been able to generate earnings
before interest, tax, depreciation and
amortisation ("EBITDA") of £0.22m (2007: loss of £0.33m) which resulted in a profit
before tax of £0.003m (2007: loss of £0.75m).
I am pleased that for the first time as a quoted company we can report a small profit, in
line with my statement after last year's
results. We believe our progress demonstrates both the resilience of the business in
responding to market events and validates our strategy
to provide converged networking solutions to our business customers.
In the last six months we have continued to invest both time and funds in our core network
infrastructure and further development of our
product portfolio. In January we were particularly pleased to receive validation from the BT
Test Laboratories, Martlesham confirming the
efficacy of our "QoS IPStream" product.
Half Year Results
Revenue for the six months ended 29 February 2008 was £3.68m (2007: £4.04m).Revenues from our converged solutions were 10% higher
than the same period last year and the second half of last year.
Gross profit was £1.60m (2007: £1.59m) which equated to a gross margin of 43.6%.
We produced EBITDA of £0.22m for the period (2007: loss of £0.33m). There were no
significant bad debt charges during the period and
little evidence to suggest any material payment problems from any of our customers.
These are the first set of results to be reported under IFRS and we released our
transition statement on 24 April 2008, a copy of which
can be found on our website at www.netservicesplc.com. Adjustments made have not had a
material effect on these results.
The profit for the period of £0.003m (2007: loss £0.75m) is in line with
management's expectations for the period.
Cash balances at 29 February 2008 were £1.28m.
Operations
Our activity in the last six months has been focused in a number of specific areas:
Product Development & Convergence
We have focused significant effort on refining and enhancing our product sets. We reported
in November on our ability to deliver quality
of service ("QoS") over the cheapest connectivity product - BT IPStream - and how we believed
that this could deliver the benefits of
convergence (running data and voice over the same network infrastructure). In January we were
successful in obtaining test results from the
BT Test Laboratories, Martlesham which provided us with a strong third party endorsement that
the technology was effective.
We are now capable of delivering the technology and billing to terminate IP minutes. We
currently provide this service to a small number
of our customers but are seeing an increasing number of opportunities where this requirement
is becoming important.
We are engaged in becoming a Cisco Partner which will allow us to access the markets
opening up for converged networking to support
unified communications. We hope to make substantial progress during the remainder of the
financial year.
Investment in Core Network
The investment in our core network has continued through the period and will complete
during the second half of the financial year.
We are seeing an increasing number of opportunities because of our ability to provide a
scalable MPLS ("Multi Protocol Label Switching")
core which provides the benefits of a low latency, converged network for prospective
customers. In particular we are seeing interest in the
video conferencing arena, with a number of video conferencing resellers expressing interest in
our connectivity solutions.
Sales Pipeline & Partner Agreements
We reported in November 2007 that our sales pipeline was at its healthiest for 18 months
and since then we have continued to see a
healthy level of interest from prospective customers.
We have learned that our products are more attractive to these potential customers when
they are endorsed by organisations with which
they already have good relationships and brand recognition. We have spent a significant amount
of time building partnership agreements with
organisations that have strong sales channels where we offer a point of differentiation for
them; during the period we have secured
partnership agreements with a large systems integrator and a video conference reseller. While
these agreements do not guarantee contractual
revenues, they improve the reach and scale of our sales operations in a cost effective way,
and we hope will assist in building our sales in
the coming months.
We hope to sign further partnership agreements during the remainder of the financial year
and to commence converting the sales
opportunities created by these channels.
We continue to build on the good relations we have with our existing customers. We are
currently working with a number of our larger
customers with a view to implementing our SIP product set to substantially reduce their
telephony costs and leverage the value of the
network connections we currently provide.
Outlook
We have continued to make good progress in the last six months on delivering our strategy.Although we operate in an industry that is
constantly changing, we believe we have the right strategic focus and a significant
opportunity to deliver value. Our business model remains
flexible enough to respond to the needs of the market place, and we see a number of
opportunities ahead, including those arising from the
roll-out of 21CN and from the increasingly bandwidth hungry demands of business. We believe
our range of products and expertise is
attractive to a variety of customers and partners, and remain confident of achieving our goals
for the full year.
As ever we rely upon the hard work and diligence of all our staff and I thank them for
their continuing support and efforts.
Chris Townsend
Non-executive Chairman
12 MAY 2008
Consolidated Income Statement for the six months ended 29 February 2008
Six months Six months Year
ended ended ended
29 February 28 February 31 August
2008 2007 2007
Unaudited Unaudited Unaudited
Notes £000*s £000*s £000*s
Revenue 3,678 4,040 7,442
Cost of sales (2,074) (2,455) (4,450)
Gross profit 1,604 1,585 2,992
Other operating expenses (1,384) (1,919) (2,659)
Profit/(loss) from operations 220 (334) 333
before depreciation,
amortisation and share based
payments
Depreciation (202) (230) (596)
Amortisation of intangibles (23) (27) (56)
Share based payment costs - - (8)
Operating (loss) (5) (591) (327)
Finance income 22 6 18
Finance costs (14) (35) (80)
Profit/(loss) before taxation 3 (620) (389)
Income tax 2 - - 42
Profit/(loss) for the 3 (620) (347)
period/year from continuing
operations
Discontinued operations 3 - (125) (183)
Profit/(loss) for the 3 (745) (530)
period/year
Earnings/(loss) per share
- basic (pence) 4 0.01 (2.56) (1.82)
- diluted (pence) 4 0.01 (2.56) (1.82)
There was no recognised income or expenditure other than the profit/(loss) for the
period/year. Accordingly, no Statement of Recognised
Income and Expenditure has been prepared.
Consolidated Balance Sheet 29 February 2008
As at As at As at
29 February 28 February 31 August
2008 2007 2007
Unaudited Unaudited Unaudited
Notes £000*s £000*s £000*s
Non-current assets
Property, plant and equipment 1,754 2,047 1,701
Goodwill 334 334 334
Intangible assets 155 160 130
Investments 59 59 59
2,302 2,600 2,224
Current assets
Trade and other receivables 857 2,196 843
Cash and cash equivalents 1,280 980 1,883
2,137 3,176 2,726
Total assets 4,439 5,776 4,950
Equity attributable to equity
holders of the parent
Share capital 74 73 74
Share premium reserve 4,293 4,288 4,293
Share based payment reserve 8 - 8
Revaluation reserve 217 217 217
Retained earnings (3,766) (3,984) (3,769)
Total equity 6 826 594 823
Non-current liabilities
Trade and other payables 1 43 2
Financial liabilities 441 471 485
Provisions 7 1,600 2,148 1,600
Deferred tax 67 65 67
2,109 2,727 2,154
Current liabilities
Financial liabilities 162 183 99
Trade and other payables 1,342 2,272 1,874
1,504 2,455 1,973
Total liabilities 3,613 5,182 4,127
Total equity and liabilities 4,439 5,776 4,950
Consolidated Cash Flow Statement for six months ended 29 February 2008
Six months Six months Year
ended ended ended
29 February 28 February 31 August
2008 2007 2007
Unaudited Unaudited Unaudited
Notes £000*s £000*s £000*s
Operating activities
Cash generated from operations 5 (327) (200) 307
Interest paid (14) (35) (80)
Income taxes (paid)/received - - -
Net cash generated from/(used (341) (235) 227
in) operating activities
Investing activities
Purchase of property, plant (185) (75) (148)
and equipment
Intangible assets purchases (48) - -
Saleof business unit - - 532
Proceeds from sale of 12 - 34
equipment
Interest received 22 6 18
Net cash generated from/(used (199) (69) 436
in) investing activities
Financing activities
Proceeds from the exercise of - - 6
share options
Repayment of borrowings (22) (19) (37)
Payment of finance lease (41) (48) (100)
liabilities
Net cash generated from/(used (63) (67) (131)
in) financing activities
Net increase/(decrease) in (603) (371) 532
cash and cash equivalents
Cash and cash equivalents at 1,883 1,351 1,351
beginning of the period
Cash and cash equivalents at 1,280 980 1,883
the end of the period
Notes to the interim statement
1. Basis of preparation
The group*s interim results consolidate the results of the company and its subsidiary
undertakings to 29 February 2008.
The interim financial information has been prepared on the basis of the accounting policies
which will be adopted in the financial
statements for the year ending 31 August 2008, including the adoption of International
Financial Reporting Standards as endorsed by the EU
(*IFRS*).
The financial information contained in this interim statement does not constitute statutory
accounts within the meaning of Section 240 of
the Companies Act 1985. The financial information for the full preceding year is based on the
financial statements prepared under UK GAAP
for the year ended 31 August 2007 (*accounts*) as amended for the adoption of IFRS. These
accounts, upon which the auditors issued an
unqualified opinion, which did not contain a statement under Section 237 (2) or (3) of the
Companies Act 1985, have been delivered to the
Registrar of Companies.
The board of directors approved the interim report on 12 May 2008.
2. Taxation
The tax charge is based on the current rate of UK Corporation tax applicable to the group and
comprises:
Six months Six months Year
ended ended ended
29 February 28 February 31 August
2008 2007 2007
Unaudited Unaudited Unaudited
£000*s £000*s £000*s
UKCorporation tax at 30% - - -
Deferred tax - - 2
Adjustment in respect of prior - - (44)
periods
- - (42)
3. discontinued operations
Discontinued operations relates to the wholesale consumer broadband business, which was
sold in May 2007.
Six months Six months Year
ended ended ended
29 February 28 February 31 August
2008 2007 2007
Unaudited Unaudited Unaudited
£000*s £000*s £000*s
Analysis of income statement
result:
Revenue - (3,734) 5,151
Expense - (3,859) (5, 743)
Loss before tax of discontinued - (125) (592)
operations
Income tax expense - - -
Loss after tax of discontinued - (125) (592)
operations
Gain on sale of discontinued - - 409
operations
Loss on discontinued operations - (125) (183)
Analysis of cash flow movements:
Operating - (85) (538)
Investing - - 532
4. earnings/(Loss) per share
Six months Six months Year
ended ended ended
29 February 28 February 31 August
2008 2007 2007
Unaudited Unaudited Unaudited
Earnings/(loss) per share
- basic (pence) 0.01 (2.56) (1.82)
- diluted (pence) 0.01 (2.56) (1.82)
Earnings/(loss) per share
- basic continuing operations 0.01 (2.13) (1.19)
(pence)
- basic discontinued operations - (0.43) (0.63)
(pence)
The calculation of diluted earnings per ordinary share is identical to that used for the basic
loss per ordinary share for the six months
ended 28 February 2007 and the year ended 31 August 2007. This is because the exercise of the
options would have the effect of reducing the
loss per ordinary share and is, therefore, not dilutive under the terms of IAS 33.
Earnings and the number of shares used in the calculations of earnings per share are set out
below:
Six months Six months Year
ended ended ended
29 February 28 February 31 August
2008 2007 2007
Unaudited Unaudited Unaudited
£000*s £000*s £000*s
Earnings/(loss) for the 3 (745) (530)
period/year
Earnings/(loss) for the
period/year
- from continuing operations 3 (620) (347)
- from discontinued operations - (125) (183)
Weighted average number of shares used in the calculations of earnings/(loss) per share are
set out below:
Six months Six months Year
ended ended ended
29 February 28 February 31 August
2008 2007 2007
Unaudited Unaudited Unaudited
No. No. No.
For basic earnings per share 29,594,788 29,061,031 29,186,285
For diluted earnings per share 30,085,534 29,061,031 29,186,285
5. Reconciliation of profit/(loss) from operations before depreciation, amortisation and share
based payments to net cash flow from
operations
Six months Six months Year
ended ended ended
29 February 28 February 31 August
2008 2007 2007
Unaudited Unaudited Unaudited
£000*s £000*s £000*s
Profit/(loss) from operations
before depreciation,
amortisation and share based 220 (334) 333
payments
Adjustments for:
Loss on disposal of equipment - - 5
Decrease in provisions - - (548)
(Increase)/decrease in receivables (14) 1,408 2,639
Increase/(decrease) in payables (533) (1,189) (1,584)
Discontinued operations - (85) (538)
Net cash inflow/(outflow) from (327) (200) 307
operations
6. Consolidated Statement of Changes in equity
Share based
Share Share payment Revaluation Retained
capital premium reserve reserve earnings
Total
£000*s £000*s £000*s
£000*s £000*s £000*s
Balance at 1 September 2007 74 4,293 8 217 (3,769)
823
Total recognised income and
expense for the period - - - - 3
3
Balance at 29 February 2008 74 4,293 8 217 (3,766)
826
Balance at 1 September 2006 73 4,288 - 217 (3,239)
1,339
Total recognised income and - - - - (530)
(530)
expense for the period
Exercise of options 1 5 - - -
6
Share based compensation - - 8 - -
8
Balance at 31 August 2007 74 4,293 8 217 (3,769)
823
Balance at 1 September 2006 73 4,288 - 217 (3,239)
1,339
Total recognised income and
expense for the period - - - - (745)
(745)
Balance at 28 February 2007 73 4,288 - 217 (3,984)
594
7. Provisions
A provision of £1,599,844 remains in relation to an onerous contract with a supplier.
Six months Six months Year
ended ended ended
29 February 28 February 31 August
2008 2007 2007
Unaudited Unaudited Unaudited
£000*s £000*s £000*s
Other provisions 1,600 2,148 1,600
Independent Review report to NetServices plc
Introduction
We have been instructed by the company to review the financial information set out in the
interim report which comprises the
consolidated income statement, consolidated balance sheet, consolidated cash flow statement
and related notes and we have read the other
information in the interim statement and considered whether it contains any apparent
misstatements or material inconsistencies with the
financial information.
This report, including the conclusion, has been prepared for and only for the company for
the purpose of their interim statement and for
no other purpose. We do not, therefore, in producing this report, accept or assume
responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
Directors' responsibilities
The interim statement, including the financial information contained therein, is the
responsibility of, and has been approved by the
directors. The directors are responsible for preparing the Interim Statement in accordance
with the AIM Market Rules which require that the
accounting policies and presentation applied to the interim figures must be consistent with
those that will be adopted in the company's
annual accounts.
Review work performed
We conducted our review in accordance with guidance contained in International Standard on
Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the Independent Auditor of the Entity"
issued by the Auditing Practices Board for use
in the United Kingdom. A review consists principally of making enquiries of group management
and applying analytical procedures to the
financial information and underlying financial data and based thereon, assessing whether the
disclosed accounting policies have been
consistently applied unless otherwise disclosed. A review excludes audit procedures such as
tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit and therefore
provides a lower level of assurance.Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that should be
made to the financial information as presented
for the six months ended 29 February 2008.
BAKER TILLY UK AUDIT LLP
Chartered Accountants
Brazennose House
Lincoln Square
Manchester M2 5BL
12 MAY 2008
This information is provided by RNS
The company news service from the London Stock Exchange
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