RNS Number:3465L
NetStore PLC
21 May 2003
Immediate release 21 May 2003
Netstore plc
Results for the quarter ended 31 March 2003
"Strong trading continues"
"EBITDA profit achieved for the first time since IPO"
Netstore plc ("Netstore"), a leading provider of managed IT solutions, announces
results for the three months ended 31 March 2003.
Highlights:
* Turnover increased by 28% to #3.9m compared with the previous quarter and
by more than one and a half times compared with the previous year (2002:
#2.5m).
* Operating losses reduced to #0.4m compared with losses of #0.7m in the
previous quarter (2002:#1.5m) (before charges for share options and
goodwill).
* EBITDA profit of #0.2m for the quarter, the first EBITDA profit since IPO,
compared with a EBITDA loss in the previous quarter of #0.1m (2002: a loss
of #0.7m).
* Acquisition of NetConnect, an internet security services business, trading
profitably.
Paul Barry-Walsh, Chairman and Chief Executive Officer, commenting on the
results said:
"It is very pleasing to have reached EBITDA positive during the quarter we
planned to achieve this target and to have made so much progress with our
developing corporate strategy. We have delivered very positive trends over the
last 18 months with strong organic growth, careful cost control and an ability
to integrate new businesses successfully."
On prospects he added:
"We are confident that the strategy of focusing on fewer key vertical markets
will produce substantial opportunity in the coming year; we now look forward to
driving Netstore to profitability."
For further information, please contact:
Netstore plc (NES) 01344 444 300
Paul Barry-Walsh, Chairman paul.barry-walsh@netstore.net
Neil Lloyd, CFO neil.lloyd@netstore.net
Evolution Beeson Gregory 020 7488 4040
Mike Brennan
Buchanan Communications 020 7466 5000
Charles Ryland
Catherine Miles
QUARTERLY STATEMENT
for the three months ended 31 March 2003
I am very pleased to announce the results of Netstore plc for the three months
ended 31 March 2003; a quarter in which we have continued to meet the
challenging targets we set ourselves, and, importantly, we have seen further
validation of our developing corporate strategy.
Results
Turnover increased by 28% to #3.9m in line with our expectations, compared with
the three months ended 31 December 2002 (2002: #2.5m), including #0.5m from the
newly acquired NetConnect business for its first month of trading. The amount
of new business signed in the quarter, measured as first year contract value,
was #1.4m; in line with our targets for the seventh consecutive quarter.
Income from managed IT services under long-term contracts continues to make up
the major part of our business, representing 63% of total turnover in the
quarter, including NetConnect, which has a lower proportion of recurring
business in the quarter (32%) than the existing business (68%). We expect to
maintain managed service turnover at over 65% of total turnover on an annualised
basis, however, as we are now focussing on larger more complex contracts, often
there is a high proportion of set up revenues (licences, hardware and third
party consultancy) in advance of the managed revenue stream that may distort our
sales mix in the short-term.
Annualised recurring revenues at 31 March 2003 stood at approximately #12.6m,
which represents a 26% growth in recurring revenue over the quarter, with #2.0m
attributable to NetConnect.
Gross margin for the quarter was 45% compared with 49% for the quarter to 31
December 2002 (2002: 42%). The higher proportion of set up revenues, where
margin is lower than on managed services or professional services delivered by
our own staff, led to gross margin being lower than the previous quarter,
although in line with expectation. We expect the longer-term trend of our
margin to be upwards as managed service revenues build but subject to short-term
fluctuation during the implementation phases of larger contracts. Gross margin
achieved on the NetConnect revenues was 50%, a level we expect that business to
maintain going forward.
Both selling and distribution costs and administration expenses were in line
with expectations at #1.6m and #0.6m respectively; similar to the quarter ended
31 December 2002 (2002: #1.7m and #0.8m), despite the current quarter including
#0.2m of overhead costs from NetConnect. Operating loss, therefore, was as
expected at #0.4m compared with #0.7 m for the quarter ended 31 December 2002
(2002: #1.5m ) (before charges for share options and goodwill).
EBITDA showed a profit of #0.2m for the quarter, the first time we have made a
profit at the EBITDA level, compared with a loss of #0.1m for the quarter ended
31 December 2002 (2002: loss of #0.9m).
Cash Flow and Cash Balances
During the quarter, cash balances reduced by #2.9m. This was as expected due to
the acceleration of cash collections reported in the previous quarter, the
investment in hardware for the Housing Corporation contract and the #0.9m
expended on the purchase of the NetConnect business, including acquisition
expenses.
Cash balances were #12.9m at 31 March 2003, compared with #15.8m at 31 December
2002 (2002: #16.6m).
Acquisition
On 13 March 2003, Netstore acquired NetConnect, an internet security company;
established in 1987, based in London and Cambridge and offering managed
services, consultancy and design services, system integration, and training and
support in the general field of internet security.
The initial consideration payable for the purchase of NetConnect was #766,666.
Additional consideration of up to #766,667 is payable three months after the
completion date and is dependent upon the net asset value achieved by NetConnect
as at the date of completion. Further consideration of not more than #766,667
may become payable six months after completion and is dependent upon the level
of gross profit and earnings before interest and tax achieved by NetConnect in
the six months following completion. Notwithstanding any of the foregoing, the
total consideration for the purchase of NetConnect shall not exceed an aggregate
amount or value of #2,300,000; all satisfied in cash.
For the financial year ending 31 March 2002, NetConnect reported turnover of
#6.9m, net losses of #1.5m and had net liabilities of #0.6m, including #1.9m of
deferred income under contract. Prior to acquisition, a great deal had already
been done to reduce the overhead burden on the business and it is currently
trading profitably.
Netstore's strategy is to grow revenue both through new customers and by
providing new services to existing customers; new services that we may develop
ourselves, provide with partners or acquire, as in the case of NetConnect. The
acquisition provides a number of new services from a profitable platform that
Netstore can sell across its current customer base. Also, the majority of
NetConnect's existing customer base is larger organisations; Netstore's target
market.
Current Trading and Prospects
Current trading is progressing well with #0.6 m of new business (measured as
first year value) signed in the current quarter, in line with where we would
expect to be at this stage in the quarter. Revenue flowing from deferred
revenue and contracted renewals, plus revenue from other projects signed but not
yet completed and billed, will total approximately #12.7 m in the current year.
Our recent contract wins and the larger opportunities we are now seeing in our
pipeline are proof that our corporate strategy is taking the company in the
right direction; we expect our target verticals and local authorities in
particular to provide substantial opportunity in the coming year.
The improvement in the trading of Netstore continues and we have good reason to
look forward with confidence. Once again, thanks are owed to our staff for
their contribution to another good quarter.
Paul Barry-Walsh
21 May 2003
GROUP PROFIT AND LOSS ACCOUNT
For the three months ended 31 March 2003
Unaudited Unaudited Unaudited Audited
3 months to 3 months to 9 months to 12 months to
31 March 31 March 31 March 30 June
2003 2002 2003 2002
Note #'000 #'000 #'000 #'000
TURNOVER
Continuing operations 3,403 813 9,627 2.885
Acquisitions 525 1,703 525 3,759
3,928 2,516 10,152 6,644
Cost of sales (2,169) (1,456) (5,276) (3,717)
GROSS PROFIT 1,759 1,060 4,876 2,927
Selling and distribution costs (1,596) (1,693) (4,888) (6,295)
Administrative expenses (605) (845) (2,034) (3,963)
Amortisation of goodwill (256) (246) (731) (509)
Credit/(Charges) arising from - 213 (84) 115
share price movements
OPERATING (LOSS) (698) (1,511) (2,861) (7,725)
Continuing operations (747) - (2,910) -
Acquisitions 49 - 49 -
Profit/(Loss) on disposal of (6) - 1 (3)
tangible fixed assets
Amounts written off investments - - (186)
Interest receivable and similar 121 206 418 984
income
Interest payable (19) (4) (37) (14)
LOSS ON ORDINARY ACTIVITIES (602) (1,309) (2,479) (6,944)
BEFORE TAXATION
Tax on loss on ordinary 144 - 144 -
activities
LOSS FOR THE PERIOD (458) (1,309) (2,335) (6,944)
Loss per share - basic and 2 (0.48) (1.47) (2.66) (7.51)
diluted (pence)
All operations are continuing. An analysis of operating loss by acquired entity
for the comparative periods has not been given on the face of the profit and
loss due to shared administrative functions and costs.
GROUP BALANCE SHEET
at 31 March 2003
Unaudited Unaudited Audited
31 March 31March 30 June
2003 2002 2002
Notes #'000 #'000 #'000
FIXED ASSETS
Intangible assets 5,928 3,728 3,279
Tangible assets 3,977 3,360 3,093
Investments 80 147 59
9,985 7,235 6,431
CURRENT ASSETS
Stock 15 - -
Debtors 5,016 2,233 4,013
Cash at bank and in hand 12,913 16,579 15,407
17,944 18,812 19,420
CREDITORS: amounts falling due within
one year
Deferred income 4,324 2,018 3,062
Other creditors 5,686 2,642 3,372
10,010 4,660 6,434
NET CURRENT ASSETS 7,934 14,152 12,986
TOTAL ASSETS LESS CURRENT LIABILITIES 17,919 21,387 19,417
CREDITORS: amounts falling due after 1,266 550 509
more than one year
PROVISIONS FOR LIABILITIES AND CHARGES 597 481 513
NET ASSETS 16,056 20,356 18,395
CAPITAL and RESERVES
Called up share capital 19,207 19,175 19,207
Share premium account 34,689 34,689 34,689
Merger reserve (9,744) (9,620) (9,744)
Profit and loss account (28,096) (23,888) (25,757)
SHAREHOLDERS' FUNDS - equity interests 4 16,056 20,356 18,395
GROUP STATEMENT OF CASH FLOWS
For the three months ended 31 March 2003
Unaudited Unaudited Unaudited Audited
3 months to 3 months to 9 months to 12 months to
31 March 31 March 31 March 30 June
2003 2002 2003 2002
Note #'000 #'000 #'000 #'000
NET CASH OUTFLOW FROM OPERATING 5 (2,320) (2,007) (707) (6,275)
ACTIVITIES
RETURN ON INVESTMENTS AND SERVICING
OF FINANCE
Interest received 121 205 418 984
Interest paid under finance lease and (2) (1) (6) (7)
similar agreements
Other interest paid (17) (3) (32) (7)
102 201 380 970
TAXATION 144 - 144 -
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire intangible fixed - 447 (5) (536)
assets
Payments to acquire tangible fixed (352) (122) (2,660) (2,195)
assets
Receipts from sale of tangible fixed 70 - 70 12
assets
Payments to acquire investments - (12) (21) (110)
(282) 313 (2,616) (2,829)
ACQUISITIONS AND DISPOSALS
Payments to acquire subsidiary (767) 2 (767) (1,399)
Acquisition expenses (131) - (131) -
Cash inflow from acquisition of 387 - 387 2
subsidiary
(511) 2 (511) (1,397)
NET CASH OUTFLOW BEFORE MANAGEMENT OF (2,867) (1,491) (3,310) (9,531)
LIQUID RESOURCES AND FINANCING
MANAGEMENT OF LIQUID RESOURCES
(Increase)/Decrease in short term 3,833 1,496 3,235 10,025
deposits
FINANCING
Proceeds from issue of ordinary share - - - 5
capital
Repayment of finance leases (38) (51) (134) (124)
Repayment of long term loans (33) (8) (50) (19)
New long term loans - - 1,000 -
(71) (59) 816 (138)
INCREASE/ (DECREASE) IN CASH 895 (54) 741 356
NOTES
at 31 March 2003
1. BASIS OF PREPARATION
The financial information contained in this Interim report has been prepared
under the historical cost convention and on the basis of the accounting policies
set out in the Group's statutory accounts for the twelve months ended 30 June
2002. The financial information contained in this report does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985.
Statutory accounts for the twelve months ended 30 June 2002 incorporating an
unqualified audit report have been filed with the Registrar of Companies.
The financial information for the nine months ended 31 March 2003 and 31 March
2002 has not been reviewed or audited by the auditors.
2. LOSS PER SHARE
The basic and diluted loss per share has been calculated on a weighted average
number of shares of 95,942,694 shares in issue during the period (three months
ended 31 March 2002: 89,192,982; year ended 30 June 2002: 92,434,524).
3. INVESTMENTS
On 13 March 2003, the Group acquired NetConnect Limited for an initial
consideration of #766,666. Additional consideration of up to #766,667 is payable
three months after completion and is dependent on the net asset value achieved
by NetConnect at the date of completion. Further consideration of not more than
#766,667 may become payable six months after completion and is dependent upon
the level of gross profit and earnings before interest and tax achieved by
NetConnect in the six months following completion. The consideration will be
satisfied in cash. The investment in NetConnect Limited has been included in the
company's balance sheet at its fair value at the date of acquisition.
Analysis of the acquisition of NetConnect Limited:
Net assets at date of acquisition:
Net assets at date of acquisition: Fair Value
to group
Unaudited
#'000
Tangible fixed assets 168
Debtors 1,576
Stock 28
Cash 387
Creditors due within one year (3,102)
-------
Net liabilities (943)
Goodwill arising on acquisition 3,374
-------
2,431
-------
Discharged by:
Cash consideration 767
Deferred cash consideration 1,533
Costs associated with the acquisition 131
-------
2,431
-------
Goodwill is being amortised over fifteen years, its useful economic life.
4. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
Share
Share premium Merger Profit and
capital account reserve loss account Total
#'000 #'000 #'000 #'000 #'000
At 1 April 2002 19,174 34,689 (9,620) (23,888) 20,355
Shares issued 33 - - - 33
Shares issued by subsidiary - - (124) - (124)
Loss for the quarter - - - (1,869) (1,869)
------------ ------------ ------------ -------------- -------------
At 1 July 2002 19,207 34,689 (9,744) (25,757) 18,395
Loss for the quarter - - - (1,050) (1,050)
Exchange difference - - - (3) (3)
------------ ------------ ------------ -------------- -------------
At 1 October 2002 19,207 34,689 (9,744) (26,810) 17,342
Loss for the quarter - - - (830) (830)
Exchange difference - - - (1) (1)
------------ ------------ ------------ -------------- -------------
At 1 January 2003 19,207 34,689 (9,744) (27,641) 16,511
Loss for the quarter - - - (458) (458)
Exchange difference - - - 3 3
------------ ------------ ------------ -------------- -------------
At 31 March 2003 19,207 34,689 (9,744) (28,096) 16,056
------------ ------------ ------------ -------------- -------------
5. NOTES TO STATEMENT OF CASH FLOWS
(a) Reconciliation of operating loss to net cash inflow / (outflow) from
operating activities
Unaudited Unaudited Unaudited Audited
3 months to 3 months to 31 9 months to 31 12 months to
31 March 2003 March 2002 March 2003 30 June 2002
#'000 #'000 #'000 #'000
Operating loss (698) (1,511) (2,861) (7,725)
Depreciation 617 606 1,875 1,914
Amortisation of goodwill 256 246 731 509
Increase/(Decrease) in deferred income (1,031) 508 32 1,616
(Increase)/ Decrease in debtors (922) 368 573 (2,439)
Decrease in creditors (549) (2,011) (1,155) (35)
Increase/(Decrease) in provisions - (213) 84 (115)
Decrease in stock 13 - 13 -
(Loss) /Gain on sale of fixed assets (6) - 1 -
-------- -------- -------- --------
(2,320) (2,007) (707) (6,275)
-------- -------- -------- --------
(b) Reconciliation of net cash flow to movement in net funds
Unaudited Unaudited Unaudited Audited
3 months to 3 months to 9 months to 12 months to
31 March 2003 31 March 2002 31 March 2003 30 June 2002
#'000 #'000 #'000 #'000
(Decrease)/Increase in cash 895 (54) 741 356
Cash flow from increase/(decrease) in (3,833) (1,496) (3,235) (10,025)
short term deposits
Cash flow from decrease in debt and 71 59 184 143
change in lease finance
Loans and finance leases acquired - - - (181)
New finance leases - (600) - (600)
New long term loans - - (1,000) -
------------- ------------- ------------- ---------------
Movement in net funds (2,867) (2,091) (3,310) (10,307)
Net funds at beginning of period 14,248 17,929 14,691 24,998
------------- ------------- ------------- ---------------
Net funds at end of period 11,381 15,838 11,381 14,691
-------- -------- -------- --------
5. NOTES TO STATEMENT OF CASH FLOWS (CONTINUED)
(c) Analysis of net funds
Finance lease
and hire
Cash and purchase Short term Long term
cash deposits agreements loans loans Total
#'000 #'000 #'000 #'000 #'000
At 1 April 2002 16,579 (668) - (73) 15,838
Cash flow (1,172) 50 - 8 (1,114)
Other - - (33) - (33)
-------- ------- ------- ------- -------
At 1 July 2002 15,407 (618) (33) (65) 14,691
Cash flow 10 48 - 9 67
-------- ------- ------- ------- -------
At 1 October 2002 15,417 (570) (33) (56) 14,758
Cash flow 434 48 (100) (892) (510)
-------- ------- ------- ------- -------
At 1 January 2003 15,851 (522) (133) (948) 14,248
Cash flow (2,938) 38 - 33 (2,867)
-------- ------- ------- ------- -------
At 31 March 2003 12,913 (484) (133) (915) 11,381
-------- ------- ------- ------- -------
This information is provided by RNS
The company news service from the London Stock Exchange
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