RNS Number:7032J
TeleCity PLC
07 April 2003
7 April 2003
Preliminary Results for the year ended 31st December 2002
Key Points
* Q4 EBITDA loss #0.8m, reduced from #1.2m in Q3
* Turnover, before exceptional items, #23.8m (2001: #25.1m)
* Overall cost base reduced by 26%
* Cash balance ahead of forecast at #6.5m
* Company confident of an EBITDA positive result in Q1 2003 (earlier than
anticipated)
* Exit from all surplus properties now complete
* Winner of ISPA's 2003 award as best colocation service provider
Michael Hepher, Chairman, said:
"This has been a year of transition and significant progress for TeleCity and we
have remained focused on the opportunities to consolidate our leadership
position in the colocation sector. During 2002 we have worked hard to address
the financial position, whilst adapting to the market and retaining our high
standards of service, quality and flexibility.
"TeleCity intends to become EBITDA positive in Q1 2003 and so become the first
independent European colocation company to reach this milestone."
For further information:
TeleCity plc 020 7512 4887
Rick Hudson
Citigate Dewe Rogerson 020 7638 9571
Sue Pemberton/Freida Davidson
Preliminary Results for the year ended 31st December 2002
2002 has been a year of transition and significant progress for TeleCity. With
market conditions remaining volatile, the Company has reorganised to increase
new business, whilst reducing its overall cost base by 26%. Despite a sustained
period of significant change, the trend of EBITDA loss reduction has continued,
improving from #2.6m in Q4 2001 to #0.8m in Q4 2002. The recently received the
ISPA Best Colocation Provider award is testament to the fact that the company
has also continued to focus on its customers throughout this period, whilst
maintaining its excellent standards of operational performance. Progress has
been such that the forecast date for TeleCity to become EBITDA positive has been
brought forward to the first quarter of 2003.
Market conditions
Activity levels stabilised across all our geographic markets in 2002 following
the dramatic slowdown witnessed in the previous year. As the Company has
extended its target customer base beyond telecommunications companies and ISP's,
and is putting more energy into driving business generation outside of the UK,
enquiry levels and the pipeline of potential contracts have increased
substantially. The impact of this new sales focus pushed Q4 sales order intake
70% higher than the average quarterly sales order intake in the previous 3
quarters.
The competitive situation has also improved with the exit of a number of
colocation providers continuing to reduce the over-capacity in the sector.
Given these circumstances, we believe TeleCity is winning a significant share of
the colocation space being sold and with the increasing awareness of the brand,
we are particularly well placed to continue improving our competitive position.
Organisation structure
Where previously growth at TeleCity was driven centrally by targeting large,
pan-European carriers, more opportunities now exist with regional value-added
service providers and a diverse range of corporates operating on a national
basis. To successfully penetrate these markets, TeleCity has implemented a new
structure of country management teams with full responsibility for local P&L
performance, sales, business development and customer service.
In the second half of 2002, a number of key appointments were made to implement
this new structure and deliver the pan-European ambitions of the company. The
benefit of local teams being directly responsible for their quarterly EBITDA
performance has been quickly realised. With the appropriate incentives in place,
management has become increasingly proactive in pursuing additional revenue
earning opportunities as well as cost saving measures.
This approach is a natural evolution for TeleCity as a pan-European company, and
aligns resources to the most attractive outsourcing and service opportunities
available. The devolved structure is also far more responsive to local market
conditions, and has allowed TeleCity to make significant headcount savings at
the corporate and head office levels of the Company.
Property portfolio
The nine sites that form the basis of TeleCity's business are located in London
(2), Amsterdam (2), Paris, Frankfurt, Stockholm, Manchester and Dublin. These
sites are operationally well established, with proven resilience, and receive
consistently excellent feedback from customers in terms of service and
responsiveness.
The successful negotiation of exits from leases which are no longer required has
been an essential part of the Company's progress towards positive EBITDA
performance and cash generation. As disclosed in the half-year announcement, the
rationalisation of the company's operations left four leases from which an exit
needed to be secured. The lease at the closed operation in Edinburgh was
terminated without the need for an exit premium. Sub-tenants have been found for
the full term of our leases at both the undeveloped sites in London and
Manchester. The income from these sub-tenants will, after initial rent-free
periods, match our outgoings at these locations. We are pleased to report that,
since the year-end, negotiations have also been concluded to terminate the lease
in Munich. Provisions have previously been made to cover the cost of these
termination premiums and, in the case of London and Manchester, the rent-free
periods. The satisfactory conclusion of negotiations with regard to the Munich
site completes our exit from all surplus properties.
Results
The profit and loss account for the year to 31 December 2002 is dominated by the
exceptional charges, reflecting the degree of change that management has
effected upon the business.
Turnover for the year, before exceptional items, totalled #23.8m (2001: #25.1m).
The exceptional turnover in 2002 of #1.2m relates to the early termination by a
customer of a contract for colocation space. Turnover in 2001 included #7.5m
sales of storage equipment as part of a one-off contract. Before exceptionals,
turnover has remained relatively constant, at approximately #6.0m per quarter,
as the benefit of new business won has been offset by a number of customer
failures, most noticeably KPNQwest. After the disappointing losses in the first
half of 2002, it is encouraging that there were no material customer failures in
the second half of the year. The Company's new strategy means that our
traditional reliance on a small number of large telecommunications companies is
now much reduced, and the customer profile has diversified and spread to a much
broader base of contracts and companies.
The operating loss for the year was #40.7m (2001: #36.5m). Before exceptional
items, the #5.3m EBITDA loss for the year compares to #13.1m in 2001. This
includes an EBITDA loss of #0.8m in Q4, reduced from #1.2m in Q3 through
management's vigorous approach to cost reduction. In addition to the site
rationalisation programme, headcount for the Company as a whole is now 174,
compared to 262 at the end of 2001. The full benefit of these actions is being
seen in the early months of 2003, enabling a confident forecast of an EBITDA
positive result being achieved in Q1 2003.
The #26.2m exceptional charge includes #8.0m asset write-downs and lease
termination premiums for sites now closed, a #17.8m write off of fixed assets
following impairment reviews at certain of the continuing sites, redundancy
costs of #1.9m, offset by the #1.2m exceptional revenue referred to above.
Based on the sales growth achieved in Q4 2002 and Q1 2003, no further impairment
to fixed assets or rationalisation charges are anticipated.
The cash balance of #6.5m is ahead of our forecasts, reflecting continuing good
working capital management. The KPNQwest and other customer failures referred to
above, whilst affecting ongoing revenues, did not result in any material bad
debts as all customers make payments for space quarterly in advance. With the
benefit of the improved sales performance of the last six months, the Board
remains confident that TeleCity is fully funded through to a cash generative
position. Although it is not required to support the current business plan, a
#0.7m loan facility has also been secured as contingency against renewed
economic uncertainty or other factors impacting projected sales performance or
short-term revenues.
Board changes
A number of changes have been made to the Board during the course of the year.
The appointment of Rick Hudson as Chief Executive of TeleCity in June allowed
Michael Hepher to revert to his original Non-Executive Chairman role. Rick's
experience at Netscalibur, and previously with Cable and Wireless, has brought
strong strategic input and detailed market knowledge to TeleCity. Rick has made
an immediate, positive impact, having been instrumental in determining and
implementing the changes to our business focus and future direction. Under the
revised organisation structure the country managers now report directly to Rick.
In August 2002, the Board accepted the resignation of Les Johns as Sales and
Marketing Director. Under the new structure responsibility for sales and
marketing has been devolved to the country management teams.
In March 2003 the Board announced the resignation of Martyn Ellis from his
position as the Group's Finance Director. Martyn has been a key member of the
Board for a number of years, and was heavily involved in the flotation of the
company, the successful rights issue and the recent restructuring activities.
Martyn leaves TeleCity at the end of April to become Finance Director of Nestor
Healthcare plc, and we thank him for his contribution and wish him every success
in his new role.
Josh Joshi will join TeleCity as the new Group Finance Director, effective from
14 April 2003. Josh gained extensive experience with Arthur Andersen before
acquiring significant industry knowledge as CFO of Storm Telecommunications Ltd.
With his strategic vision, European experience and telecommunications
background, Josh is a welcome addition to the TeleCity Board.
Outlook
We remain focused on the opportunities to consolidate our leadership position in
the colocation sector. At the end of 2002, TeleCity has a highly competitive
cost base, a new organisational structure taking it into new markets and,
through its investment in key management resources, the leadership team to take
the company to its next phase of development. TeleCity intends to become EBITDA
positive in Q1 2003 and so become the first independent European colocation
company to reach this milestone.
Whilst the service, quality and flexibility of TeleCity have always positioned
the company very positively in competitive situations, the issues of
profitability and financial stability have also been a concern for some
potential customers. The real success of 2002 is that TeleCity has worked hard
to address the financial position, whilst adapting to the market and retaining
its positive qualities. It has been a tough and challenging year, but all the
effort and achievements leave TeleCity well positioned moving into 2003.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 2002
2002 2001
#'000 #'000
Continuing operations
Turnover before exceptional items 23,750 25,128
Exceptional items 1,204 7,500
Turnover 24,954 32,628
Operating loss before exceptional items (14,481) (21,228)
Exceptional items 2 (26,207) (15,272)
Operating loss (40,688) (36,500)
Net interest receivable 84 1,108
Loss on ordinary activities
before taxation (40,604) (35,392)
Taxation 3 --- ---
Retained loss for the period
attributable to ordinary shareholders (40,604) (35,392)
Loss per ordinary share
- basic and diluted 4 (20.2)p (25.2)p
CONSOLIDATED BALANCE SHEET
at 31 December 2002
2002 2001
Notes #'000 #'000
Fixed assets
Tangible assets 47,130 74,105
Current assets
Stocks 21 38
Debtors 6,635 7,013
Cash at bank and in hand 5 6,476 17,794
13,132 24,845
Creditors - amounts falling due
within one year (14,389) (17,950)
Net current (liabilities)/assets (1,257) 6,895
Total assets less current liabilities 45,873 81,000
Creditors - amounts falling due
after more than one year (1,334) (102)
Provisions for liabilities and charges (5,991) (4,443)
Net assets 38,548 76,455
Capital and reserves
Called up share capital 201 201
Share premium account 111,735 111,735
Merger reserve 17,862 17,862
Profit and loss account (91,250) (53,343)
Equity shareholders' funds 38,548 76,455
Reconciliation of movements in equity shareholders' funds
Loss for the financial year (40,604) (35,392)
Currency translation gains/(losses) on foreign
currency net investments 2,697 (1,629)
Shares issued (net of issue costs) --- 14,116
Net decrease in equity shareholders' funds (37,907) (22,905)
Opening equity shareholders' funds 76,455 99,360
Closing equity shareholders' funds 38,548 76,455
CASH FLOW STATEMENT
for the year ended 31 December 2002
2002 2001
Notes #'000 #'000
Net cash outflow from operations 6 (8,066) (12,579)
Returns on investment and servicing of finance
Net interest received 231 1,152
Taxation paid --- ---
Capital expenditure and financial investment
Net purchase of tangible fixed assets (2,885) (32,176)
Net cash flow before management of
liquid resources and financing (10,720) (43,603)
Management of liquid resources 11,794 24,387
Financing
Proceeds of issue of share capital --- 15,565
New loan raised --- 112
Repayment of loan (10) ---
Capital element of finance lease payments (87) (144)
Expenses paid in connection with
finance raised (706) (1,032)
(803) 14,501
Increase/(decrease) in cash in period 271 (4,715)
Reconciliation of net cash flow to movement in net funds
Increase/(decrease) in cash in period 271 (4,715)
Management of liquid resources (11,794) (24,387)
(11,523) (29,102)
New loan raised --- (112)
Repayment of other loan 10 ---
Capital element of finance lease payments 87 144
Change in net funds arising from cash flows (11,426) (29,070)
New finance leases (1,295) ---
Translation differences 152 (146)
Movement in net funds in period (12,569) (29,216)
Opening net funds 17,627 46,843
Closing net funds 5,058 17,627
Net funds analysed as follows:
Cash at bank available on demand 4,587 4,181
Liquid resources 1,889 13,613
Finance leases (1,309) (65)
Loan (109) (102)
5,058 17,627
Notes to the preliminary financial information
1 Basis of preparation
The Directors consider that the Company has adequate resources to continue in operation for the foreseeable
future. Accordingly, the accounts for the period ended 31 December 2002 have been prepared on the going
concern basis.
This statement constitutes non-statutory accounts within the meaning of Section 240 of the Companies Act 1985
and was approved by the Board of Directors and agreed with the Company's auditors, PricewaterhouseCoopers LLP
on 7 April 2003.
The comparative figures for 31 December 2001 are abridged from the full accounts of TeleCity plc on which the
auditors gave an unqualified opinion. The 2002 statutory accounts will be filed with the Registrar of
Companies and copies of the Group's full report and accounts will be sent to all shareholders in due course.
Additional copies will be available from the Company's registered office, TeleCity plc, Galloway House, 57
Millharbour, London, E14 9TD.
2 Exceptional items
The exceptional items are analysed as follows:
2002 2001
#'000 #'000
Exceptional revenue 1,204 ---
Provisions against fixed assets (24,939) (5,493)
Costs and provisions in respect of exiting property lease contracts (870) (6,326)
Loss on contract relating to storage equipment --- (986)
Costs in respect of aborted raising of debt facilities --- (883)
Redundancy costs incurred (1,880) (1,584)
Other 278 ---
(26,207) (15,272)
The exceptional revenue arises from the early termination of a significant contract.
The provisions against fixed assets arise from the exit of the Edinburgh and Munich sites and an impairment
review at certain of the Group's continuing sites.
The Group has sublet the London 3 and Manchester 2 sites and has reached agreement to surrender the lease on
the Munich site. The future costs relating to these sites have been included in provisions for liabilities and
charges.
Redundancy costs have been incurred as a result of management reviews of the Group's cost base.
The loss on contract relating to storage equipment in 2001 derived from a one-off sale amounting to #7,500,000
at a cost of #8,486,000.
3 Taxation
There is no taxation payable in the current or previous periods. The group has tax losses to carry forward and
offset against future trading profits. The unrecognised deferred tax asset at 31 December 2002 amounted to
#17,338,000 (2001: #11,646,000).
4 Losses per ordinary share
The loss per ordinary share is based on the loss attributable to ordinary shareholders of #40,604,000 (2001:
#35,392,000) and the weighted average number of shares in issue (as adjusted for the effect of Rights and
Bonus Issues) of 200,590,533 (2001: 140,238,777). As the impact of issuing potential ordinary shares is
anti-dilutive, the diluted loss per share is equivalent to the basic loss per share.
5 Cash at bank and in hand
Cash balances at 31 December 2002 include #1,889,000 (2001: #1,821,000) held in deposit accounts which are
pledged to the Bank of Scotland in respect of bank guarantees given on property lease contracts.
6 Reconciliation of net cash outflow from operations
2002 2001
#'000 #'000
Operating loss (40,688) (36,500)
Depreciation and loss on sale of fixed assets 9,223 8,141
Provisions against fixed assets 24,939 5,493
Movement in provision for liabilities and charges 1,326 1,500
Decrease in stocks 17 3,653
Decrease in debtors 510 2,815
(Decrease)/increase in creditors (3,393) 2,319
(8,066) (12,579)
This information is provided by RNS
The company news service from the London Stock Exchange
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