TIDMKCOM
RNS Number : 8735X
KCOM Group PLC
25 November 2014
25 November 2014
KCOM GROUP PLC (KCOM.L) ANNOUNCES
UNAUDITED INTERIM RESULTS TO 30 SEPTEMBER 2014
KCOM Group PLC (KCOM.L) ('KCOM Group' or the 'Group') announces
its unaudited interim results for the
half-year ended 30 September 2014.
Highlights
-- Continued strong KC brand performance with top line growth,
strong cash generation and growing fibre uptake
-- Good market share and revenue growth in Eclipse
-- Solid underlying performance and market position in Smart421
-- Good progress in key customer contracts in Kcom, including
HMRC, but broader revenue challenges continue
-- Increased interim dividend to 1.79p, in line with commitment
to increase full-year dividend by 10% per annum through to March
2016
Unaudited Unaudited Movement on
Six months Six months prior
ended ended period
30 Sept 14 30 Sept 13 (%)
(GBP million) (GBP million)
------------------------------------ --------------- --------------- ------------
Results from continuing operations
before exceptional items
Revenue 173.0 185.5 (6.7)
EBITDA 36.1 37.4 (3.5)
Operating profit 28.5 27.3 4.4
Profit before tax 25.4 24.7 2.8
Adjusted basic earnings per share
(pence)(1) (Note 4) 3.98 3.76 5.9
Reported results
Net cash inflow from operations 20.4 20.0 2.0
Net debt (Note 6) 103.0 99.7
Profit before tax 23.6 25.8 (8.5)
Basic earnings per share (pence)
(Note 4) 3.71 3.93 (5.6)
Interim dividend per share (pence) 1.79 1.63 9.8(2)
(1) Adjusted basic EPS is basic EPS adjusted for exceptional
items (including the tax impact of exceptional items).
(2) Full-year dividend will show a 10% year on year increase in
line with previously stated policy.
Bill Halbert, Chief Executive Officer, said
"The Group continues to make progress in terms of its strategic
objectives, in spite of overall revenue performance continuing to
be challenged in some specific activities. We're particularly
pleased with the overall performance in KC brand, (most notably in
the consumer channel). Fibre services continue to see strong levels
of uptake, well above the UK average, and demand remains ahead of
our own initial expectations. Increasingly this investment will
allow us to design and introduce advanced fibre-based services.
In the Kcom reporting segment, Eclipse also has seen high levels
of revenue growth, having begun to introduce a range of hosted
services, and Smart421 continues to enhance its market leading
position in cloud-based services. Within the Kcom brand, we have
seen good progress with key customers, where we are adding
considerable value. This is well in evidence with customers, such
as HMRC, where we are building strong value-based relationships.
Nevertheless, these have not yet developed to a level where they
are able to compensate for the higher than anticipated decline in
certain other activities. We have implemented a plan to reduce
costs and will take further action to accelerate progress to
reposition the overall Kcom brand performance.
The Group remains highly cash-generative and we reaffirm our
existing commitment to increase the full-year dividend by 10% per
annum through to March 2016."
Outlook
The Group remains well positioned to exploit profitable growth
opportunities in most of its target markets.
The consumer activities of the Group are expected to continue to
grow, with the demand for bundled products, broadband and fibre
services outweighing the anticipated decline in legacy products.
The opportunity for continued growth in the SMB market through the
Eclipse brand remains, with the product set continuing to see good
take-up from both existing and new customers.
Overall Group revenue outlook has seen a decline as a result of
insufficient new business order intake in the Kcom brand. Cost
reduction actions have been taken, in order to support full-year
earnings within the current range of expectations and plans are in
place to accelerate further the change in the nature and mix of
services and revenues, within this part of the business.
The Board reconfirms its commitment to increasing the full-year
dividend by 10% per annum until March 2016.
Enquiries:
Bill Halbert, Chief Executive Officer
Paul Simpson, Chief Financial Officer
Cathy Phillips, Investor Relations
KCOM Group PLC
07778 335735
Matt Ridsdale/Lulu Bridges/Mike Bartlett
Tavistock
020 7920 3150
Business and Operating Review
The Group's priorities are:
-- delivery of increasing value-added services across its target
markets, with the aim of generating sustainable profitable growth
and establishing strong market positions;
-- driving operational effectiveness through enhanced back
office systems, processes and efficient resourcing strategies;
-- investing in the development of the talent and leadership in the business; and
-- continued development of market leading partner relationships.
During the last year we have consolidated Group-wide finance
teams into a single location and are nearing completion of an IT
investment programme to support this activity. The Group has also
successfully implemented a new partnership for Cisco based customer
support services and continue to work with BT to develop our
network transformation plans.
Consistent with its strategy, the Group has remained focused on
improving the quality and sustainability of business across its
brands and, as a result, each has demonstrated progress in its key
strategic areas.
KC
The KC segment covers the performance of the KC brand, which
operates telephony and broadband capabilities over its East
Yorkshire network and provides Contact Centre and publishing
services. Key features of the reporting period include:
-- continued growth in consumer revenue and profitability;
-- growing demand for broadband services and increasing penetration of bundled products;
-- accelerating demand for fibre services; and
-- Publishing services contribution reflects anticipated decline
in the Hull Colour Pages directory.
30 Sept 30 Sept 30 Sept 30 Sept
2014 2013 2014 2013
Revenue Revenue EBITDA EBITDA
GBPm GBPm GBPm GBPm
-------------------- -------- -------- ------- -------
KC 47.1 46.7 26.8 26.4
Contact centres 2.4 3.0 (0.2) 0.1
Publishing 3.0 3.6 1.1 1.6
--------------------- -------- -------- ------- -------
Total KC segment(1) 52.5 53.3 27.7 28.1
--------------------- -------- -------- ------- -------
(1) Pre exceptional
KC's performance in the period remained strong, with
contributions from consumer revenue more than outweighing a
slightly weaker business performance, attributable to local
economic factors. Consumer performance benefitted from continued
demand for broadband services and an increasing penetration of
bundled services. Business revenue has consistently outperformed
relevant regional economic data points over recent years.
The demand for fibre services from KC continues to increase. Net
additions for the six-month period to September 2014 were
materially higher than the corresponding period last year. The plan
to provide 45,000 households and business premises with access to
high-speed services by March 2015 remains on target. The current
take-up rate of 29% is comfortably ahead of the national average
with consumer ARPU uplift approximately GBP5 per month.
Publishing services contribution remains strong although it
reflects the anticipated and continuing decline in the revenue and
profitability associated with the publication of the Hull Colour
Pages Directory.
Kcom
The Kcom segment covers the performance of business and public
sector communications activities throughout the national market.
Key features of the reporting period include:
-- Eclipse growing revenue and market share;
-- strategic progress in Smart421, particularly in cloud-based services;
-- HMRC contract progressing well; and
-- revenue and resulting profit reduction in Kcom reflects
insufficient new business order intake.
30 Sept 30 Sept 30 Sept 30 Sept
2014 2013 2014 2013
Revenue Revenue EBITDA EBITDA
GBPm GBPm GBPm GBPm
---------------------- -------- -------- ------- -------
Eclipse 14.7 12.7 3.2 3.8
Smart421 12.8 14.8 1.4 1.6
Kcom 95.6 107.2 7.4 8.5
Total Kcom segment(1) 123.1 134.7 12.0 13.9
----------------------- -------- -------- ------- -------
(1) Pre exceptional
Eclipse has enjoyed a good six-month period, seeing growth in
demand for new services from both new and existing customers,
helping to drive strong level of overall revenue growth. Eclipse
EBITDA margins remain strong with current performance reflecting
the investment in capability being made to support the growth plan.
It should be noted that the prior six-month period benefitted from
a non-recurring item totalling GBP0.6m.
Smart421 has made clear strategic progress, particularly in the
delivery of cloud-based integration services. The revenue decline
is solely attributable to a reduction in consulting revenue with
one financial services customer. Activity to rebuild the pipeline
and order book is progressing well. Overall profit margins remain
consistent and we remain confident the brand will continue to grow
in future periods.
During the period, the expanding cloud-based services portfolio
was successfully deployed, an example being Kcom Workplaces, into
HMRC's contact centre environment. This five-year contract will
provide HMRC with flexibility, multichannel contact capability and
automation to manual call centre processes. It will support 8,000
advisers over 16 sites and will be capable of satisfying peak
demand for up to 12,000 advisers. The successful deployment of
contracts such as Workplaces into HMRC gives us confidence in our
ability to win and deliver high value, managed services
contracts.
Overall performance from the Kcom brand has been challenging
through the first half of the year. Revenue in the period was below
the same period last year and growth in new areas was insufficient
to compensate for those areas where we experienced decline. In
particular there has been reduced activity from multi-site
organisations, especially retailers, including the loss of the
Phones4U contract. Alongside this, lower numbers of opportunities
have been tendered through the PSN framework, as this overall
market developed more slowly than expected and had lower and more
commoditised levels of new activity.
Refinancing, net debt and cash flow
During the period, the Group refinanced through the agreement of
a GBP200 million revolving credit facility, secured on improved
terms. This new arrangement, which expires on 30 June 2019,
provides sufficient funding to support both organic and inorganic
growth.
Net debt at 30 September 2014 is GBP103.0 million (2013: GBP99.7
million), representing a net debt to EBITDA ratio of 1.36 x (2013:
1.33 x). This amount includes GBP5.2 million (2013: GBPNil) of
finance leases supporting major customer contracts.
The Group's debtor management and cash collection remains
strong, and days' sales outstanding at the
half-year were 39 days (2013: 37 days).
Dividend
The Group's interim dividend is 1.79 pence per share (2013: 1.63
pence), which is consistent with the Board's previously stated
commitment to grow full-year dividends at 10% per annum until the
year ending 31 March 2016. The dividend will be paid on 2 February
2015 to shareholders registered on 30 December 2014. The
ex-dividend date is 29 December 2014.
Pensions
The IAS 19 pension liability at 30 September 2014 is GBP34.0
million (30 September 2013: GBP14.8 million and
31 March 2014: GBP26.5 million). The increase from the 31 March
2014 year end arises as a result of:
-- GBP13.9 million increase in liabilities, principally a 0.4%
decrease in the discount rate; offset by
-- GBP6.4 million increase on assets, due to stronger investment
returns (equity and bonds) over the period.
The agreed level of deficit repair payment (across both schemes)
is GBP2.0 million in both the current year and the year ending 31
March 2016.
Group performance
As anticipated, Group revenue (GBP173.0 million) is lower than
the corresponding period (2013: GBP185.5 million)
as a result of lower sales within the Kcom brand. EBITDA before
exceptional items has remained broadly flat at GBP36.1 million
(2013: GBP37.4 million), with Group EBITDA margin improving to
20.9%.
The Group's PLC segment includes central and share scheme
expenses, and administration costs associated with the Group's
defined benefit pension schemes. These costs (before exceptional
items) were GBP3.6 million (2013: GBP4.6 million).
The Group's net exceptional charge is GBP1.8 million. This
includes costs of restructuring (GBP2.2 million) offset by GBP0.4
million relating to the profit on sale of the Group's shareholding
in Spectrum Venture Management Fund.
In the second half of the year, the Group anticipates a further
exceptional charge relating to restructuring activities already
undertaken.
Capital investment
The Group's depreciation and amortisation charge for the period
is GBP7.6 million (2013: GBP10.1 million).
In line with its accounting policy and in light of market
activity relating to network assets, the Group has assessed the
appropriateness of the residual values of its network assets. This
has resulted in higher residual values and a GBP2.7 million
reduction in the depreciation charge for these assets in the
period. We expect a similar impact in the second half of the
year.
The Group continues to invest in line with previous guidance and
cash capital expenditure during the period was GBP21.4 million
(2013: GBP13.5 million). Specific projects include:
-- the continued deployment of fibre;
-- strategic IT investment to allow the Group to move towards
common systems and processes; and
-- targeted customer specific investment.
Tax
The Group's tax charge is GBP4.7 million (2013: GBP5.9 million).
This reflects the corporation tax charge for the period and the
ongoing unwind of deferred tax balances. The effective rate of
20.1% is broadly in line with the prevailing rate of corporation
tax as the effect of re-measuring deferred tax is offset by prior
year tax items.
Tax of GBP1.4 million has been paid in the period, relating to
the year ended 31 March 2014.
Forward looking statements
Certain statements in this interim statement are forward
looking. Although the Group believes that the expectations
reflected in these forward looking statements are reasonable, we
can give no assurance that these expectations will prove to be
correct. Because these statements involve risks and uncertainties,
actual results may differ materially from those expressed or
implied by these forward looking statements.
We undertake no obligation to update any forward looking
statements whether as a result of new information, future events or
otherwise.
Principal risk and uncertainties
The Group has a number of risks and uncertainties which have
been identified through the risk management framework. The risks
set out below could have a material adverse impact on the
Group:
-- customer service and delivery - delivering exceptional
service to our customers is one of our key strategic aims and
therefore the risk of failing to do this is a key risk for us to
mitigate;
-- recruitment and retention of the right people - we need to be
able to recruit and retain people who embody our values as well as
those who have specific technical skills where needed;
-- reliance on key third-party suppliers - our business model
means that we are reliant on several key partners to deliver
service to our customers and to provide the equipment that we need
to deliver the right solutions; such as BT, Comms-Care, ForgeRock,
Cisco, Avaya, Amazon Web Services, Microsoft and IBM;
-- security and resilience of our networks and IT systems - our
networks and IT systems are key to all that we do and are crucial
in delivering service to our customers; and
-- accuracy, security and confidentiality of customer data -
security of customer data is of paramount importance to our
customers and therefore to us.
The risks outlined above are disclosed in more detail on pages
18 and 19 of the Annual report and accounts to 31 March 2014 and it
is the view of the directors that these risks and uncertainties
remain appropriate for this interim statement.
Consolidated interim income statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2014 2013 2014
Note GBP'000 GBP'000 GBP'000
---------------------------------------- ----- ----------- ----------- ----------
Revenue 1 173,004 185,458 370,697
Operating expenses (146,279) (157,017) (315,090)
Operating profit 26,725 28,441 55,607
Analysed as:
EBITDA before exceptional items 1 36,080 37,382 75,291
Exceptional items 2 (1,808) 1,100 588
Depreciation of property, plant
and equipment (5,540) (8,394) (16,882)
Amortisation of intangible assets (2,007) (1,647) (3,390)
Finance costs (3,107) (2,652) (5,075)
Share of profit / (loss) of associates 5 5 (2)
---------------------------------------- ----- ----------- ----------- ----------
Profit before tax 1 23,623 25,794 50,530
Tax 3 (4,740) (5,856) (11,760)
---------------------------------------- ----- ----------- ----------- ----------
Profit for the period attributable
to owners of the parent 18,883 19,938 38,770
---------------------------------------- ----- ----------- ----------- ----------
Earnings per share (pence)
Basic 4 3.71 3.93 7.64
Diluted 4 3.66 3.88 7.55
Consolidated interim statement of comprehensive income
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2014 2013 2014
GBP'000 GBP'000 GBP'000
------------------------------------------- ---------- ---------- --------
Profit for the period 18,883 19,938 38,770
Other comprehensive income:
Items that will not be reclassified
to profit or loss
Remeasurements of retirement benefit
obligations (8,475) (4,754) (16,630)
Tax on items that will not be reclassified 1,509 829 2,997
-------------------------------------------- ---------- ---------- --------
Total items that will not be reclassified
to profit or loss (6,966) (3,925) (13,633)
-------------------------------------------- ---------- ---------- --------
Items that may be reclassified
subsequently to profit or loss
Cash flow hedge fair value movements 736 834 1,377
Tax on items that may be reclassified (147) (175) (275)
-------------------------------------------- ---------- ---------- --------
Total items that may be reclassified
subsequently to profit or loss 589 659 1,102
-------------------------------------------- ---------- ---------- --------
Total comprehensive income for
the period
attributable to owners of the parent 12,506 16,672 26,239
-------------------------------------------- ---------- ---------- --------
Consolidated interim balance sheet
Unaudited Unaudited Audited
As at As at As at
30 Sept 30 Sept 31 Mar
2014 2013 2014
Note GBP'000 GBP'000 GBP'000
----------------------------------- ---- --------- --------- ---------
Non-current assets
Goodwill 85,272 85,272 85,272
Other intangible assets 30,660 18,538 22,669
Property, plant and equipment 129,907 118,766 123,839
Investments 25 27 20
Deferred tax assets 13,837 17,069 15,408
259,701 239,672 247,208
----------------------------------- ---- --------- --------- ---------
Current assets
Inventories 2,136 2,684 2,647
Trade and other receivables 79,161 86,804 74,135
Cash and cash equivalents 6 5,696 4,481 9,441
86,993 93,969 86,223
----------------------------------- ---- --------- --------- ---------
Total assets 346,694 333,641 333,431
----------------------------------- ---- --------- --------- ---------
Current liabilities
Trade and other payables (117,308) (124,341) (129,708)
Derivative financial instruments 10 (1,070) - (137)
Finance leases (1,300) - -
Provisions for other liabilities
and charges (888) (1,137) (365)
Non-current liabilities
Bank loans 6 (103,487) (104,187) (84,417)
Retirement benefit obligations (34,000) (14,800) (26,500)
Deferred tax liabilities (5,111) (2,314) (5,057)
Derivative financial instruments 10 - (2,349) (1,669)
Finance leases (3,868) - -
Provisions for other liabilities
and charges (357) (462) (425)
Total liabilities (267,389) (249,590) (248,278)
----------------------------------- ---- --------- --------- ---------
Net assets 79,305 84,051 85,153
----------------------------------- ---- --------- --------- ---------
Capital and reserves, attributable
to owners of the parent
Share capital 51,660 51,660 51,660
Share premium account 353,231 353,231 353,231
Hedging and translation reserve (250) (1,529) (986)
Accumulated losses (325,336) (319,311) (318,752)
Total equity 79,305 84,051 85,153
----------------------------------- ---- --------- --------- ---------
Consolidated interim statement of changes in shareholders'
equity
Hedging
Share and
Share premium translation Accumulated
capital account reserve losses Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ---- ------- ------- ----------- ----------- --------
At 31 March 2013 (audited) 51,660 353,231 (2,363) (319,886) 82,642
--------------------------------- ---- ------- ------- ----------- ----------- --------
Profit for the period - - - 19,938 19,938
Other comprehensive income - - 834 (4,100) (3,266)
Total comprehensive income
for the
period ended 30 September
2013 (unaudited) - - 834 15,838 16,672
--------------------------------- ---- ------- ------- ----------- ----------- --------
Deferred tax charge relating
to share schemes - - - (134) (134)
Current tax credit relating
to share schemes - - - 86 86
Purchase of ordinary shares - - - (491) (491)
Employee share schemes - - - 619 619
Dividends 5 - - - (15,343) (15,343)
--------------------------------- ---- ------- ------- ----------- ----------- --------
- - - (15,263) (15,263)
--------------------------------- ---- ------- ------- ----------- ----------- --------
At 30 September 2013 (unaudited) 51,660 353,231 (1,529) (319,311) 84,051
--------------------------------- ---- ------- ------- ----------- ----------- --------
Profit for the period - - - 18,832 18,832
Other comprehensive income - - 543 (9,808) (9,265)
Total comprehensive income
for the
period ended 31 March 2014
(audited) - - 543 9,024 9,567
--------------------------------- ---- ------- ------- ----------- ----------- --------
Deferred tax credit relating
to share schemes - - - 268 268
Current tax credit relating
to share schemes - - - 215 215
Purchase of ordinary shares - - - (1,273) (1,273)
Employee share schemes - - - 746 746
Dividends 5 - - - (8,421) (8,421)
--------------------------------- ---- ------- ------- ----------- ----------- --------
- - - (8,465) (8,465)
--------------------------------- ---- ------- ------- ----------- ----------- --------
At 31 March 2014 (audited) 51,660 353,231 (986) (318,752) 85,153
--------------------------------- ---- ------- ------- ----------- ----------- --------
Profit for the period - - - 18,883 18,883
Other comprehensive income - - 736 (7,113) (6,377)
Total comprehensive income
for the
period ended 30 September
2014 (unaudited) - - 736 11,770 12,506
--------------------------------- ---- ------- ------- ----------- ----------- --------
Deferred tax charge relating
to share schemes - - - (113) (113)
Current tax credit relating
to share schemes - - - 134 134
Purchase of ordinary shares - - - (2,042) (2,042)
Employee share schemes - - - 477 477
Dividends 5 - - - (16,810) (16,810)
--------------------------------- ---- ------- ------- ----------- ----------- --------
- - - (18,354) (18,354)
--------------------------------- ---- ------- ------- ----------- ----------- --------
At 30 September 2014 (unaudited) 51,660 353,231 (250) (325,336) 79,305
--------------------------------- ---- ------- ------- ----------- ----------- --------
Consolidated interim cash flow statement
Unaudited Unaudited Audited
Six months Six months Year
Ended Ended Ended
30 Sept 30 Sept 31 Mar
2014 2013 2014
Note GBP'000 GBP'000 GBP'000
------------------------------------------ ---- ---------- ---------- --------
Cash flows from operating activities
Operating profit 26,725 28,441 55,607
Adjustments for:
- depreciation and amortisation 7,547 10,041 20,272
- (increase) / decrease in working
capital (8,617) (15,377) 1,460
- restructuring cost and onerous
lease payments (1,776) (2,223) (3,375)
- pension deficit payments (1,765) (263) (788)
Tax paid (1,394) (300) (1,531)
Loss / (profit) on sale of property,
plant and equipment 150 (355) (456)
Profit on sale of investments (429) - -
------------------------------------------ ---- ---------- ---------- --------
Net cash generated from operations 6 20,441 19,964 71,189
------------------------------------------ ---- ---------- ---------- --------
Cash flows from investing activities
Purchase of property, plant and
equipment (11,411) (7,691) (16,207)
Purchase of intangible assets (9,984) (5,830) (11,705)
Proceeds on disposal of property,
plant and equipment - 540 633
Proceeds on disposal of investments 429 - -
Net cash used in investing activities (20,966) (12,981) (27,279)
------------------------------------------ ---- ---------- ---------- --------
Cash flows from financing activities
Dividends paid 5 (16,810) (15,343) (23,764)
Dividends equivalent paid to participants
of the share schemes 6 (268) (140) (224)
Interest paid 6 (3,505) (2,247) (4,436)
Repayment of bank loans (15,000) - (85,000)
Drawdown of bank loans 35,000 - 65,000
Capital element of finance lease
repayments (572) - -
Purchase of ordinary shares 6 (2,065) (491) (1,764)
------------------------------------------ ---- ---------- ---------- --------
Net cash used in financing activities (3,220) (18,221) (50,188)
------------------------------------------ ---- ---------- ---------- --------
Decrease in cash and cash equivalents (3,745) (11,238) (6,278)
Cash and cash equivalents at the
beginning of the period 9,441 15,719 15,719
Cash and cash equivalents at the
end of the period 6 5,696 4,481 9,441
------------------------------------------ ---- ---------- ---------- --------
Notes to the unaudited interim financial information
1. Segmental analysis
The chief operating decision-maker of the Group is the KCOM
Group PLC Board. The Board considers the performance of the four
brands and the PLC function in assessing the performance of the
Group and making decisions about the allocation of resources. These
are the Group's operating segments.
The KC brand addresses the needs of our East Yorkshire customers
and the Kcom, Smart421 and Eclipse brands serve enterprise, public
sector organisations and small business markets across the UK.
The Board assessed that the Kcom, Smart421 and Eclipse brands
have similar profiles offering similar products and services,
similar production and distribution processes and are operating in
a consistent regulatory environment. In line with IFRS 8, the Kcom,
Smart421 and Eclipse brands are aggregated together and reported as
the 'Kcom' segment. The remaining brands of KC and the PLC function
are reported respectively in the 'KC' segment and 'PLC' segment.
This reporting is also consistent with the reporting to the KCOM
Group PLC Board.
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
30 Sept 30 Sept 31 Mar
2014 2013 2014
GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ------------ -----------
Revenue
KC 52,460 53,279 105,021
Kcom 123,077 134,655 270,891
PLC(1) (2,533) (2,476) (5,215)
Total 173,004 185,458 370,697
--------------------------------- ------------ ------------ -----------
Group EBITDA
KC 27,650 28,097 56,155
Kcom 11,964 13,889 28,714
PLC(1) (3,534) (4,604) (9,578)
Total - before exceptional
items 36,080 37,382 75,291
Exceptional items:
KC (90) (382) (499)
Kcom (1,253) 1,674 1,864
PLC(1) (465) (192) (777)
--------------------------------- ------------ ------------ -----------
Total exceptional items (1,808) 1,100 588
--------------------------------- ------------ ------------ -----------
EBITDA post exceptional
items 34,272 38,482 75,879
(1) PLC includes Public Company central and share scheme expenses,
inter-segment eliminations and the costs of administrating the
Group's defined benefit pension schemes.
A reconciliation of total EBITDA to total profit before income
tax is provided as follows:
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
30 Sept 30 Sept 31 Mar
2014 2013 2014
GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ------------ -----------
EBITDA post exceptional
items 34,272 38,482 75,879
Depreciation (5,540) (8,394) (16,882)
Amortisation (2,007) (1,647) (3,390)
Finance costs (3,107) (2,652) (5,075)
Share of profit / (loss)
of associates 5 5 (2)
Profit before tax 23,623 25,794 50,530
--------------------------------- ------------ ------------ -----------
The split of total revenue between external customers and
inter-segment revenue is as follows:
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
30 Sept 30 Sept 31 Mar
2014 2013 2014
GBP'000 GBP'000 GBP'000
---------------------- ---------- ---------- ----------
Revenue from external
customers
KC 49,968 50,695 99,573
Kcom 122,865 134,445 270,470
PLC(1) 171 318 654
Total 173,004 185,458 370,697
Inter-segment revenue
KC 2,492 2,584 5,448
Kcom 212 210 421
PLC(1) (2,704) (2,794) (5,869)
----------------------- ---------- ---------- ----------
Total - - -
---------------------- ---------- ---------- ----------
173,004 185,458 370,697
---------------------- ---------- ---------- ----------
(1) PLC includes Public Company central and share scheme
expenses, inter-segment eliminations and the costs of
administrating the Group's defined benefit pension schemes
Neither revenue nor operating profit arising outside the United
Kingdom is material to the Group.
2. Exceptional items
Exceptional items are separately disclosed by virtue of their
size or incidence to improve the understanding of the Group's
financial performance.
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
30 Sept 30 Sept 31 Mar
2014 2013 2014
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ---------- ---------- ------------
Exceptional items:
- Restructuring costs relating
to employees 1,343 765 1,121
* Restructuring costs relating to strategic IT
investment 894 - -
* Profit on sale of investments (429) - -
* Credit on termination of contracts - (2,043) (2,587)
- Strategic pensions advice costs - - 700
* Onerous lease costs - 178 178
Charged / (credited) to profit
before taxation 1,808 (1,100) (588)
----------------------------------------------------- ---------- ---------- ------------
Restructuring costs arise as a result of organisational changes.
Restructuring costs relating to strategic IT investment arise
as a result of the Group's finance organisational changes.
The profit on sale of investments relates to the sale of the Group's
shareholding in Spectrum Venture Management Fund.
Credit on termination of contracts arose from a notification of
termination following the closure of a regional government sponsored
network infrastructure.
Strategic pensions advice costs related to the costs incurred
for the agreements reached with the Trustees of the Group's defined
benefit pension schemes to provide the Group with an efficient
mechanism of funding the Schemes' current deficit position. The
level of costs reflected both company and Schemes' advisor costs.
Onerous lease costs arose as a result of continued rationalisation
of the Group's property portfolio.
3. Taxation
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to the expected total annual
earnings. The Group's effective rate is 20.1% (2013: 22.7%).
4. Earnings per share
Unaudited Unaudited Audited
Six months Six months
ended ended Year ended
30 Sept 30 Sept 31 Mar
2014 2013 2014
Weighted average number of shares No. No. No.
---------------------------------- ----------- ----------- -----------
For basic earnings per share 508,386,228 507,407,465 507,645,664
Share options in issue 7,106,810 6,831,748 5,704,438
---------------------------------- ----------- ----------- -----------
For diluted earnings per share 515,493,038 514,239,213 513,350,102
---------------------------------- ----------- ----------- -----------
Earnings GBP'000 GBP'000 GBP'000
---------------------------------- ----------- ----------- -----------
Profit attributable to equity
holders
of the company 18,883 19,938 38,770
---------------------------------- ----------- ----------- -----------
Adjustments:
Exceptional items 1,808 (1,100) (588)
Tax on exceptional items (447) 253 135
---------------------------------- ----------- ----------- -----------
Adjusted profit attributable to
equity
holders of the company 20,244 19,091 38,317
---------------------------------- ----------- ----------- -----------
Earnings per share
Pence Pence Pence
Basic 3.71 3.93 7.64
Diluted 3.66 3.88 7.55
Adjusted basic 3.98 3.76 7.55
Adjusted diluted 3.93 3.71 7.46
5. Dividends
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
30 Sept 30 Sept 31 Mar
2014 2013 2014
GBP'000 GBP'000 GBP'000
----------------------------------- ----------- ----------- -----------
Final dividend for the year ended
31 March 2013 of 2.97 pence per
share - 15,343 15,343
Interim dividend for the year
ended
31 March 2014 of 1.63 pence per
share - - 8,421
Final dividend for the year ended 16,810 - -
31 March 2014 of 3.254 pence per
share
Total 16,810 15,343 23,764
----------------------------------- ----------- ----------- -----------
The proposed interim dividend for the six months ended 30
September 2014 is 1.79 pence per share. In accordance with IAS 10,
"Events after the balance sheet date", dividends declared after the
balance sheet date are not recognised as a liability in this set of
interim financial information.
6. Movement in net debt
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
30 Sept 30 Sept 31 Mar
2014 2013 2014
GBP'000 GBP'000 GBP'000
----------------------------------- ---------- ---------- ----------
Opening net debt (74,976) (88,218) (88,218)
Closing net debt (102,959) (99,706) (74,976)
------------------------------------ ---------- ---------- ----------
(Increase) / decrease in the
period (27,983) (11,488) 13,242
------------------------------------ ---------- ---------- ----------
Reconciliation of movement
in the period
Net cash flow from operations 20,441 19,964 71,189
Capital expenditure (21,395) (13,521) (27,912)
Interest (3,505) (2,247) (4,436)
Dividends (16,810) (15,343) (23,764)
Dividends equivalent paid to
participants of the share schemes (268) (140) (224)
Purchase of ordinary shares (2,065) (491) (1,764)
Finance leases (5,168) - -
Other 787 290 153
------------------------------------ ---------- ---------- ----------
(Increase) / decrease in the
period (27,983) (11,488) 13,242
------------------------------------ ---------- ---------- ----------
Net debt comprises:
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
30 Sept 30 Sept 31 Mar
2014 2013 2014
GBP'000 GBP'000 GBP'000
-------------------------- ---------- ---------- ----------
Cash and cash equivalents (5,696) (4,481) (9,441)
Bank loans 103,487 104,187 84,417
Finance leases 5,168 - -
Total net debt 102,959 99,706 74,976
--------------------------- ---------- ---------- ----------
The Group's bank facilities were refinanced in June 2014 to
replace existing facilities. These bank facilities comprise a
multi-currency revolving credit facility of GBP200.0 million,
provided by a group of five core relationship banks. The facility
matures in June 2019. The Group considers that this facility will
provide sufficient funding to meet the organic investment needs of
the business. In addition, short-term flexibility of funding is
available under the GBP10.0 million overdraft facility provided by
the Group's clearing bankers.
7. Basis of preparation and publication of unaudited interim
results
General information
KCOM Group PLC is a company domiciled in the United Kingdom.
The Group has its primary listing on the London Stock Exchange.
Details of the principal activities of the Group are disclosed on
pages 2 to 3 and in the Strategic report in the Group's 2014 annual
report and accounts.
This condensed consolidated interim financial information was
approved for issue on 25 November 2014.
This condensed consolidated interim financial information does
not comprise statutory accounts within the meaning of section 434
of the Companies Act 2006. Statutory accounts for the year ended 31
March 2014 were approved by the Board of directors on 18 June 2014
and delivered to the Registrar of Companies. The report of the
auditors on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006.
The condensed consolidated interim financial information has
been reviewed, not audited. The review opinion is disclosed on
pages 18 and 19.
This condensed consolidated interim financial information will
be published on the Company's website. The maintenance and
integrity of the website is the responsibility of the directors.
The work carried out by the auditors does not involve consideration
of these matters. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Basis of preparation
This condensed consolidated interim financial information for
the six months ended 30 September 2014 has been prepared in
accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority (previously Financial Services
Authority) and with IAS 34, 'Interim financial reporting' as
adopted by the European Union. The condensed consolidated interim
financial information should be read in conjunction with the annual
financial statements for the year ended 31 March 2014, which have
been prepared in accordance with IFRSs as adopted by the European
Union.
Going-concern basis
The Group meets its day-to-day working capital requirements
through its bank facilities. The Group's forecasts and projections,
taking account of reasonably possible changes in trading
performance, show that the Group should be able to operate within
the level of its current facilities. After making enquires, the
directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. The Group therefore continues to adopt the going concern
basis in preparing its consolidated interim financial
statements.
8. Accounting policies
The accounting policies adopted are consistent with those
published in the Group's 2014 annual report and accounts, except as
described below.
Tax policy
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to the expected total annual
earnings.
IFRS 13 - Fair value measurement
IFRS 13 measurement and disclosure requirements are applicable
for the March 2015 year end in respect of the six months ended 30
September 2014. The Group has included the disclosures required by
IAS 34 para 16A(j). See Note 10. Application of this revised
standard has not had a material impact on the financial
statements.
9. Significant judgements and estimates
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
Group's 2014 annual report and accounts, with the exception of
changes in estimates that are required in determining the provision
for income taxes (see Note 8).
10. Financial risk management and financial instruments
Financial risk factors
The Group's activities expose it to a variety of financial
risks; currency risk, interest-rate risk, liquidity risk, and
credit risk. The Group's overall risk management strategy is
approved by the Board and implemented and reviewed by senior
management. Detailed financial risk management is then delegated to
the Finance departments which have a specific policy manual that
sets out guidelines to manage financial risk. The condensed interim
financial statements do not include all financial risk management
information and disclosures required in the annual financial
statements; they should be read in conjunction with the Group's
annual financial statements as at 31 March 2014. There have been no
changes in the Group's risk management processes or policies since
the year end.
Financial instruments
The Group accounts for financial instruments in accordance with
IFRS 13. This standard requires disclosure of fair value
measurements by level of the following hierarchy;
- Quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1)
- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2)
- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs)
(level 3).
Consistent with the March 2014 year end, all of the Group's
financial instruments fall into hierarchy level 2. The fair value
of financial assets and liabilities is obtained from third party
sources.
The following table analyses the fair value of derivative
financial instruments held by the Group by category:
Unaudited Audited
Six months ended Year ended
30 Sept 31 Mar
2014 2014
GBP'000 GBP'000
Liabilities Liabilities
----------------------------------- ---------------- -----------
Interest rate swaps - cash flow
hedges 1,070 1,806
Forward foreign exchange contracts - -
----------------------------------- ---------------- -----------
Total 1,070 1,806
------------------------------------- ---------------- -----------
Less non-current portion:
Interest rate swaps - cash flow
hedges - 1,669
Forward foreign exchange contracts - -
----------------------------------- ---------------- -----------
- 1,669
----------------------------------- ---------------- -----------
Current portion 1,070 137
------------------------------------- ---------------- -----------
Fair values
For financial instruments with a remaining life of greater than
one year, fair values are based on cash flows discounted at
prevailing interest rates. Accordingly, the fair value of cash
deposits and short-term borrowings approximates to the book value
due to the short maturity of these instruments. The same applies to
trade and other receivables and payables. Where there are no
readily available market values to determine fair values, cash
flows relating to the various instruments have been discounted at
prevailing interest and exchange rates to give an estimate of fair
value.
The fair value of bank borrowings is GBP102.1 million (March
2014: GBP80.7 million) compared to a book value of GBP105.0 million
(March 2014: GBP85.0 million). The fair value of cash flows has
been estimated using a rate based on the weighted average borrowing
rate of 3.90% (March 2014: 3.90%).
11. Related party transactions
There are no material related party transactions.
12. Statement of directors' responsibilities
The directors confirm that these condensed interim financial
statements have been prepared in accordance with IAS 34 as adopted
by the European Union, and that the interim management report
herein includes a fair review of the information required by DTR
4.2.7R and DTR 4.2.8R, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related party transactions in the first six months
and any material changes in the related party transactions
described in the Group's 2014 annual report and accounts.
The directors of KCOM Group PLC are listed in the KCOM Group
Annual Report for 31 March 2014.
Signed by Order of the Board on 25 November 2014 by:
Independent review report to KCOM Group PLC
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed the condensed consolidated interim financial
statements, defined below, in the interim financial report of KCOM
Group PLC for the six months ended 30 September 2014. Based on our
review, nothing has come to our attention that causes us to believe
that the condensed consolidated interim financial statements are
not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
This conclusion is to be read in the context of what we say in
the remainder of this report.
What we have reviewed
The condensed consolidated interim financial statements, which
are prepared by KCOM Group PLC, comprise:
-- the consolidated interim balance sheet as at 30 September 2014;
-- the consolidated interim income statement and statement of
comprehensive income for the period then ended;
-- the consolidated interim cash flow statement for the period then ended;
-- the consolidated interim statement of changes in
shareholders' equity for the period then ended; and
-- the explanatory notes to the condensed consolidated interim financial statements.
As disclosed in note 7, the financial reporting framework that
has been applied in the preparation of the full annual financial
statements of the group is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European
Union.
The condensed consolidated interim financial statements included
in the interim financial report have been prepared in accordance
with International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
What a review of condensed consolidated financial statements
involves
We conducted our review in accordance with 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 of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the interim
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated interim financial statements.
Responsibilities for the condensed consolidated interim
financial statements and the review
Our responsibilities and those of the directors
The interim financial report, including the condensed
consolidated interim financial statements, is the responsibility
of, and has been approved by, the directors. The directors are
responsible for preparing the interim financial report in
accordance with the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Our responsibility is to express to the company a conclusion on
the condensed consolidated interim financial statements in the
interim financial report based on our review. This report,
including the conclusion, has been prepared for and only for the
company for the purpose of complying with the Disclosure and
Transparency Rules of the Financial Conduct Authority and for no
other purpose. We do not, in giving this conclusion, 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.
PricewaterhouseCoopers LLP
Chartered Accountants
25 November 2014
Leeds
This information is provided by RNS
The company news service from the London Stock Exchange
END
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