RNS Number:7354R
NetStore PLC
06 November 2003
Immediate release 6 November 2003
Netstore plc
Results for the Quarter ended 30 September 2003
"Another Significant Step Towards Profitability"
Netstore plc ("Netstore"), a leading provider of managed IT solutions, announces
results for the quarter ended 30 September 2003.
Highlights:
*Turnover increased by 70% to #5.4m against the same period last year
(2002:#3.2m)
*Gross margin better than expected at 49% (2002: 51%)
*Operating losses reduced substantially to #(0.2)m (2002: #(1.0)m); ahead
of expectation
*EBITDA positive through the quarter (2002: EBITDA loss of #(0.3)m)
*Cash balances at #12.1m compared with #12.5m at 30 June 2003 (2002:
#15.4m)
*Recent acquisition NetConnect successfully met "earn out" targets; final
#0.8m of consideration paid during the quarter; continues to trade
profitably
Paul Barry-Walsh, Chairman and Chief Executive, commenting on the results said:
"Netstore continued to make very pleasing progress, during what is traditionally
a quiet period for new sales. Higher than expected revenue from two of our
existing large contracts plus our continuing cost discipline led to results
being better than expected."
On future prospects he added:
"Looking ahead, we have good visibility of revenue with approximately #16m
secured for the current year and good prospects for new managed service
contracts. We have every reason to look forward with confidence."
For further information, please contact:
Netstore plc (NES) 0870 3006600
Paul Barry-Walsh, Chairman paul.barry-walsh@netstore.net
Neil Lloyd, CFO neil.lloyd@netstore.net
Buchanan Communications 020 7466 5000
Charles Ryland
Catherine Miles
Evolution Beeson Gregory 020 7071 4300
Mike Brennan
Chairman's Statement
I am very pleased to announce results for the quarter ended 30 September 2003.
The first quarter of the year is traditionally a quiet period for new sales yet
we progressed well towards our target of operating profit.
Results
Turnover for the quarter was ahead of our expectations increasing by 70% to
#5.4m compared with #3.2m for the quarter ended 30 September 2002, including
#1.2m from NetConnect. This performance was as a result of better than expected
revenue from our largest contracts with Hackney Council and Housing Corporation.
The amount of new business signed in the quarter, measured as the first twelve
months contract revenue, was lower than expected, totalling #1.7 m. However, as
our new contracts grow larger our new sales number per quarter may be more
irregular than in the past but the effect on recognised revenue is smoothed
considerably by our deferred revenue recognition model.
Income from managed IT services under long-term contracts continues to make up
the major part of our business. However, and as anticipated, during the quarter
the mix of managed service revenues fell to approximately 50% as we completed
implementation phases of the Hackney Council and Housing Corporation contracts,
which contained consultancy, training and product revenues. Longer term and for
the full year, we expect the sales mix of the business to trend back towards a
70% proportion of managed services.
We had anticipated that the higher proportion of implementation revenues in the
quarter would have a dilutive effect on gross margins as much of the
implementation is delivered by third parties at lower margin to us; however,
this was countered by improved revenue recognition from the contract elements
delivered by Netstore. In addition, capital expenditure was lower in the quarter
than expected, deferred rather than cancelled, hence depreciation charges were
slightly lower than planned. Gross margin was higher than expected at 49% (2002:
51%).
Selling and distribution costs were as expected at #1.9m (2002: #1.7m),
including #0.4m from NetConnect, which was acquired in March this year. During
the quarter we incurred extra planned costs of approximately #0.1m relating to
the relocation of the majority of our operational resource to Gateshead; we do
not expect these costs to recur and expect to see resultant savings from the
relocation from the current quarter onwards.
Administrative expenses were also in line with expectation at #1.0m (2002:
#0.8m). During the quarter, we moved our Bracknell offices to smaller premises
nearby as a result of the relocation of a number of staff to Gateshead;
dilapidations and move costs totalled approximately #0.1m but these costs will
not recur and we are already seeing the savings in the current quarter.
As a result of the better than anticipated performance at turnover and gross
margin level, coupled with costs remaining under tight control, operating loss
was also better than expected at #(0.2)m (2002: #(1.0)m) (before charges for
goodwill). Despite the one-off costs incurred, we were also EBITDA positive
through the quarter, compared with an EBITDA loss of #(0.3)m for the same period
last year.
Cash Flow and Cash Resources
Operations generated a cash inflow of #0.5m (2002: #0.6), and total cash out was
only #0.4m, including #0.8m for the final tranche payment for NetConnect,
acquired in March 2003.
The only other major non-operating cash movement during the quarter was capital
expenditure of #0.1m; lower than expected due to later timing of new sales
opportunities and deferral of other internal projects.
Cash balances were #12.1m at 30 September 2003 compared with #12.5m at 30 June
2003 (2002: #15.4m). The current quarter is when we bill and collect a large
proportion of our contracts on annual payment terms.
Acquisition
NetConnect continues to trade profitably, as it has done since acquisition in
March 2003. The final tranche payment was paid in September 2003 at the maximum
value of #0.8m to give a final gross acquisition cost of #2.3m and an earnings
multiple of approximately five times, based on annualised profit achievement to
date.
Current Trading and Prospects
Trading has continued steadily since the end of the quarter. We have signed
approximately #0.4m of new business (first year contract value) since the end of
the quarter, with some good prospects for material managed service contracts in
our sales pipeline; most of the opportunities continue to come from local
authorities and the banking, finance and insurance sector.
Visibility of revenue is strong with the combination of completed sales,
contractual income not yet recognised, deals signed still in implementation and
consultancy projects not yet complete providing approximately #16m of revenue to
be recognised in the current year.
Now that we have had a considerable period of stability in our business model,
we have been able to look more carefully at our cost base and our key suppliers
in particular; we expect to continue to reduce key areas of cost through the
remainder of the year.
We also continue to look for acquisition opportunities, focusing on those that
will fill out our managed service portfolio and have an established customer
base for managed solutions amongst medium to large organisations, in keeping
with our business model.
Our continuing strong progress is due entirely to our staff to whom we owe
considerable thanks for their dedication and expertise.
We have good reason to look forward with confidence.
Paul Barry-Walsh
06 November 2003
GROUP PROFIT AND LOSS ACCOUNT
For the quarter ended 30 September 2003
Unaudited Unaudited Audited
3 months to 3 months to 12 months to
30 September 30 September 30 June
2003 2002 2003
Note #'000 #'000 #'000
TURNOVER
Continuing operations 5,362 3,157 12,497
Acquisitions - - 1,700
--------- --------- ---------
5,362 3,157 14,197
Cost of sales (2,719) (1,547) (7,433)
--------- --------- ---------
GROSS PROFIT 2,643 1,610 6,764
Selling and distribution (1,887) (1,744) (6,700)
costs
Administrative (984) (795) (3,044)
expenses
Amortisation of (101) (238) (210)
goodwill
Charges arising from (14) (36) (198)
share price movements --------- --------- ---------
OPERATING LOSS (343) (1,203) (3,388)
--------- --------- ---------
Continuing operations (343) (1,203) (3,608)
Acquisitions - - 220
--------- --------- ---------
Exceptional goodwill - - (2,362)
write off
Interest receivable and 86 158 541
similar income
Interest payable and (15) (4) (56)
similar charges
--------- --------- ---------
LOSS ON ORDINARY (272) (1,049) (5,265)
ACTIVITIES BEFORE
TAXATION
Tax on loss on ordinary - - 148
activities --------- --------- ---------
LOSS FOR THE PERIOD (272) (1,049) (5,117)
========= ========= =========
Loss per share - basic 2 (0.28) (1.11) (5.33)
and diluted (pence)
All operations are continuing.
RECONCILIATION OF OPERATING LOSS TO EARNINGS BEFORE INTEREST, TAX, DEPRECIATION
AND AMORTISATION ("EBITDA")
#'000 #'000 #'000
Operating Loss (343) (1,203) (3,338)
Depreciation 231 642 2,729
Amortisation of goodwill 101 238 210
Charges arising from share price movements 14 36 198
--------- --------- ---------
EBITDA 3 (287) (251)
========= ========= =========
NB: Operating loss is considered before charges arising from share price
movements
GROUP BALANCE SHEET
at 30 September 2003
Unaudited Unaudited Audited
3 months to 3 months to 12 months to
30 September 30 September 30 June
2003 2002 2003
#'000 #'000 #'000
FIXED ASSETS
Intangible assets 3,645 3,046 3,729
Tangible assets 3,611 3,131 3,730
Investments 80 59 80
---------- ---------- ----------
7,336 6,236 7,539
========== ========== ==========
CURRENT ASSETS
Debtors 3,745 2,373 4,671
Cash at bank and in hand 12,088 15,417 12,523
---------- ---------- ----------
15,833 17,790 17,194
CREDITORS: amounts falling due
within one year
Deferred income 3,914 2,500 4,424
Other creditors 4,412 3,169 5,129
---------- ---------- ----------
8,326 5,669 9,553
---------- ---------- ----------
NET CURRENT ASSETS 7,507 12,121 7,641
---------- ---------- ----------
TOTAL ASSETS LESS CURRENT 14,843 18,357 15,180
LIABILITIES
CREDITORS: amounts falling due 1,117 467 1,182
after more than one year
PROVISIONS FOR LIABILITIES AND 694 549 694
CHARGES
---------- ---------- ----------
NET ASSETS 13,032 17,341 13,304
========== ========== ==========
CAPITAL and RESERVES
Called up share capital 19,260 19,206 19,260
Share premium account 34,706 34,689 34,706
Merger reserve (9,789) (9,745) (9,789)
Profit and loss account (31,145) (26,809) (30,873)
---------- ---------- ----------
SHAREHOLDERS' FUNDS - equity 13,032 17,341 13,304
interests ========== ========== ==========
GROUP STATEMENT OF CASH FLOWS
For the quarter ended 30 September 2003
Unaudited Unaudited Audited
3 months to 3 months to 12 months to
30 September 30 September 30 June
2003 2002 2003
Note #'000 #'000 #'000
NET CASH INFLOW 3 476 591 115
FROM OPERATING
ACTIVITIES
RETURN ON 71 154 485
INVESTMENTS AND
SERVICING OF
FINANCE
TAXATION - - 148
CAPITAL (112) (678) (3,177)
EXPENDITURE AND
FINANCIAL
INVESTMENT
ACQUISITIONS (784) - (1,225)
AND DISPOSALS
--------------- -------- --------
NET CASH (349) 67 (3,654)
OUTFLOW BEFORE
MANAGEMENT OF
LIQUID
RESOURCES AND
FINANCING
MANAGEMENT OF 1,221 1,067 3,810
LIQUID
RESOURCES
FINANCING (86) (57) 770
INCREASE IN 786 1,077 926
CASH =============== ======== ========
NOTES
For the quarter ended 30 September 2003
1. BASIS OF PREPARATION
The financial information contained in this quarterly statement has been
prepared using accounting policies and practices consistent with those adopted
in the 2003 Annual Report and Accounts and have not yet been reported on by the
company's auditors.
The financial information contained in this report does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985.
2. LOSS PER SHARE
The basic and diluted loss per share has been calculated on a weighted average
number of 96,117,486 shares in issue during the period. (30 September 2002:
94,147,783; 30 June 2003: 96,048,476).
3. NOTES TO STATEMENT OF CASH FLOWS
(a) Reconciliation of operating loss to net cash inflow from operating
activities
Unaudited Unaudited Audited
3 months to 3 months to 12 months to
30 September 30 September 30 June
2003 2002 2003
#'000 #'000 #'000
Operating loss (343) (1,210) (3,338)
Depreciation 231 642 2,729
Amortisation of goodwill 101 238 210
(Decrease) / increase in (510) (563) 132
deferred income
Decrease in debtors 926 1,640 946
Increase / (decrease) in 71 (192) (668)
creditors
Increase in provisions - 36 181
Profit on disposal of fixed - - (27)
assets
--------- --------- ---------
Net cash inflow from operating 476 591 115
activities ========= ========= =========
(b) Reconciliation of net cash flow to movement in net funds
Unaudited Unaudited Audited
3 months to 3 months to 12 months to
30 September 30 September 30 June
2003 2002 2003
#'000 #'000 #'000
Increase in cash 786 1,077 926
Cash flow from decrease in short (1,221) (1,067) (3,810)
term deposits
Cash flow from decrease in debt 86 57 256
and finance leases
New long term loans - (1,000)
-------- --------- ---------
Movement in net funds (349) 67 (3,628)
Net funds at beginning of 11,064 14,692 14,692
period -------- --------- ---------
Net funds at end of period 10,715 14,759 11,064
======== ========= =========
3. 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 July 15,407 (617) (33) (65) 14,692
2002
Cash flow 10 48 - 9 67
-------- ------- ------- ------- -------
At 1 15,417 (569) (33) (56) 14,759
October
2002
Cash flow 434 48 (100) (892) (510)
-------- -------- ------- ------- -------
At 1 15,851 (521) (133) (948) 14,249
January
2003
Cash flow (2,938) 37 - 33 (2,868)
-------- ------- ------- ------- -------
At 1 April 12,913 (484) (133) (915) 11,381
2003
Cash flow (390) 40 - 33 (317)
-------- ------- ------- ------- -------
At 1 July 12,523 (444) (133) (882) 11,064
2003
Cash flow (435) 52 - 34 (349)
-------- ------- ------- ------- -------
At 30 12,088 (392) (133) (848) 10,715
September ========= ======== ======== ======== ========
2003
This information is provided by RNS
The company news service from the London Stock Exchange
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