27 Sep 2010 07:00
27 September 2010
SpiriTel plc
("SpiriTel" or "the Company")
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 APRIL 2010
SpiriTel plc (AIM: STP), the business communications group, is pleased to announce preliminary results for the year ended 30 April 2010.
Commenting on the audited results, Chairman, Lord St. John of Bletso said: "I am delighted to report a period of further growth across all key operational and financial performance criteria and that our current financial performance is far higher than the reported results. The Group successfully integrated five earnings enhancing acquisitions during the second half of the year and completed one further acquisition post year end. The business continues to perform well in difficult times and I am confident that we are well positioned to exploit opportunities arising from the anticipated recovery of the wider economy."
Highlights:
·; Business Division revenues up 71% to £17.7 million (2009: £10.3 million)
·; Business Division Underlying EBITDA* up 70% to £3.1 million (2009: £1.8 million)
·; 15% organic growth in Business Division revenues
·; Current Group trading significantly ahead of the reported results for the year to 30 April 2010
·; Cross sales contracts totalling over £4 million signed during the year
·; £5 million contract signed with Punch Taverns post year end
·; Customer base increased by 74% to 4,055 at year end (2009: 2,337)
*Operating profit after adding back charges for depreciation, amortisation, share-based payments and exceptional costs
Chief Executive, Alastair Mills added: "The year to 30 April 2010 was another period of significant progress for SpiriTel, our third consecutive year of growth in revenues, underlying EBITDA and customer numbers. I remain confident in the Group's strategy of increasing shareholder value through acquisition led growth combined with organically generated growth from cross selling."
For further information please visit www.spiritelplc.com or contact:
| SpiriTel plc | Tavistock Communications | finnCap |
| Alastair Mills | Simon Hudson | Geoff Nash |
| Chief Executive | James Midmer | Marc Young |
| Tel: 020 7160 0100 | Tel: 020 7920 3150 | Tel: 020 7600 1658 |
CHAIRMAN'S STATEMENT
Introduction
SpiriTel is fast developing into a business of genuine scale, delivering significant underlying profits. Although the results for the year under review do not reflect the full extent of our progress, I am delighted to report a period of further growth across all key operational and financial performance criteria. The Group successfully integrated five earnings enhancing acquisitions during the second half of the year to 30 April 2010 and completed one further acquisition post year end. As a result, our current financial performance is far higher than the reported results. Importantly, we also generated significant organic growth of 15% from our proven strategy of cross selling our complete business communications portfolio to existing and acquired customers. Our value proposition continues to resonate with businesses and organisations operating in an era of austerity.
Post year end almost 90% of revenues are attributable to our Business Division, which features a significant proportion of long-term contracts and the associated visibility of future earnings. In addition, we continue to benefit from the strong support of both Clydesdale Bank and Penta Capital, who were key in financing the initial turnaround of the Group and whose financial support during the year to 30 April 2010 allowed us to achieve a further step forward in the performance and scale of the Group. Their ongoing financial support and backing of our management team will provide the springboard for us to continue to grow our share of the market.
SpiriTel's value proposition was well illustrated by the recent award of a £5 million contract from Punch Taverns, to provide a converged voice and data service to 800 of their 7,100 UK sites. The contract win demonstrates that SpiriTel can now compete strongly in terms of price, technology and breadth of product offer and we believe that the Group remains well positioned to capitalise on improving market conditions.
Results
Revenues for the year to 30 April 2010 were up 8% year-on-year to £21.3 million (2009: £19.7 million). More significantly, Business Division revenues increased by 71% which more than offset the previously indicated decline of Technologies Division revenues. SpiriTel Technologies is now focused on supporting the networking requirements of our rapidly growing Business Division. Underlying EBITDA* for the Group increased by 6% to £1.6 million (2009: £1.5 million), which masks a 70% rise in the Business Division underlying EBITDA* to £3.1 million (2009: £1.8 million). SpiriTel Technologies underlying EBITDA* declined from £1.1 million in the previous year to £0.1 million in the year to 30 April 2010 and is no longer a significant contributor to Group earnings. The Group's results include only part-year contributions from the five acquisitions that we completed during the year under review. In our interim results announced in January, we noted that the Business Division was delivering an annualised underlying EBITDA* run rate in excess of £3.5 million and we are now trading significantly above this level.
Dividend
SpiriTel is still pursuing its consolidation strategy and is continuing to invest any surplus funds into the business. The Directors are therefore not recommending the payment of a dividend for the year to 30 April 2010.
Outlook
Whilst SpiriTel continues to operate in a challenging economic environment, we are realising the benefits of our increasing scale and a broad and innovative product set. These benefits are evident both in terms of the contracts we are winning and the Group's ability to bolt-on acquisitions swiftly and efficiently with the cost and revenue synergies they bring. SpiriTel has a superb staff, all of whom have put in sterling work over the past year to open up pathways to growth at a time when general economic conditions have been less than favourable. The business continues to perform well in difficult times, significantly ahead of the reported results, and I am confident that we are well positioned to exploit the opportunities arising from the anticipated recovery of the wider economy.
Lord St John of Bletso
27 September 2010
CHIEF EXECUTIVE'S REVIEW
Introduction
I am delighted to report that SpiriTel continues to move forward, driven by a strong performance from all segments of our Business Division. SpiriTel Mobile increased total connections by 39% to 16,500 during the year, and by a further 91% to 31,500 post year end as a result of the acquisition of Housing Communications Limited. The number of minutes per month carried by SpiriTel Networks increased 233% to a rate of 14.2 million minutes per month by year end, whilst maintenance and hosted revenues in SpiriTel IP Communications increased 106% to a run rate of £3.3 million (2009: £1.6 million). This growth derived from a combination of acquisitions and an impressive 15% organic growth rate, which was predominantly driven by cross selling. Our acquisitions, which are a key aspect of our tried and tested "Acquire, Integrate and Grow" strategy, have delivered a host of benefits in terms of customer numbers, engineering geographic coverage, sector breadth, product expertise and substantially increased revenues and profits. This increase in scale across the Group has also given us a greater ability to secure major contracts and we are increasingly able to win customers from much larger competitors. We now service 4,200 corporate customers across England, Scotland and Wales and are proud that, despite our rapid growth, we continue to achieve market leading low customer churn rates.
Results
Despite trading in challenging economic conditions, and the fact that our results show only part year contributions for our five acquisitions, the results for the 12 months to 30 April 2010 show real progress. Significantly, our key financial performance indicators demonstrate substantial improvement:
• Revenues increased by 8% to £21.3 million (2009: £19.7 million)
• Gross profit increased by 12.4% to £8.6 million (2009: £7.6 million)
• Underlying EBITDA increased by 5.6% to £1.6 million (2009: £1.5 million)
SpiriTel Business
SpiriTel Business is the main focus of the Group and now represents 90% of revenues and 98% of Underlying EBITDA before central costs. During the year we continued to invest in growing the Division further and the results highlight the progress we have made. Although the headline numbers demonstrate significant progress, as previously mentioned, they do not represent the current performance of the Division which is significantly ahead of these levels.
Our key financial results were:
• Revenues increased by 71% to £17.7 million (2009: £10.3 million)
• Gross profit increased by 44.8% to £7.9 million (2009: £5.4 million)
• Underlying EBITDA increased by 70% to £3.1 million (2009: £1.8 million)
This is our first year of reporting separate financial results for the three principal lines of business that constitute SpiriTel Business. These are Mobile, Networks and IP Communications. Performance by line of business is described below in more detail.
Mobile
SpiriTel Mobile has achieved the highest level of accreditation as an O2 Centre of Excellence and provides mobile voice and data, including BlackBerry, services to business users. Almost all revenues are generated from contracts of 24 months or longer. SpiriTel Mobile acquired MoboTel Management Limited on 11 February 2010. Mobile revenues increased by 47% to £4.897 million (2009: £3.340 million) largely by organic growth, with MoboTel contributing £510,000 to revenues during the last quarter of the year under review. Removing the MoboTel revenue reveals annual organic growth of 22%. The gross profit increase of 48% to £2.271 million (2009: £1.539 million) was commensurate with growth in revenues and improved to 46.4% of revenues (2009: 46.1%). The acquisition of MoboTel allowed us to realise substantial cost savings as we were able to rapidly incorporate most of their back office activities into our Wigan office. Underlying EBITDA from Mobile grew by 74% to £879,000 (2009: £506,000). The operational gearing in our Mobile business, which allows us to increase revenues without commensurate increases to overheads, meant that Underlying EBITDA increased to a 17.9% return on sales (2009: 15.1%). Operating profit increased by 69% to £526,000 (2009: £311,000) after deducting increased exceptional costs of £134,000 (2009: £6,000) incurred in relation to the acquisition and integration of MoboTel.
Networks
SpiriTel Networks provides fixed line telephony services, including inbound and outbound calls, line rental and broadband to business users. Almost all revenues from Networks are received under contracts which range from rolling monthly to five-year agreements. SpiriTel Networks acquired Edge Solutions Limited on 2 November 2009 and ADK Communications Limited on 6 November 2009. Networks revenues increased by 216% to £8.085 million (2009: £2.555 million) during the year by a combination of organic growth, achieved largely by cross sales into existing customers, and acquisition. Stripping out the revenue from acquisitions reveals annual organic growth of 32%. The acquisition of Edge Solutions Limited added substantial scale and expertise to our Networks activities and allowed the swift integration of ADK Communications and the network activities of Nessco. The increased purchasing power of our Networks line of business and a focus on managed services allowed us to increase gross profit to 33.1% of revenues (2009: 32.3%). Underlying EBITDA from Networks grew by 288% to £1.410 million (2009: £363,000), a 17.4% return on sales (2009: 14.2%). Operating profit increased significantly to £573,000 (2009: £459,000 loss).
IP Communications
SpiriTel IP Communications provides a range of voice and data services to business customers, including hosted VoIP and WiFi, traditional telephony equipment, maintenance and structured cabling. A substantial part of revenues are generated under maintenance contracts, some of which are for three years, and hosted VoIP where contracts are for up to seven years. SpiriTel IP Communications acquired Boucon Network Solutions Limited on 29 January 2010 and Nessco Limited on 18 March 2010. IP Communications supplies all business sizes, including large corporates and has particular expertise in the hospitality sector. The business also holds the highest level of Mitel accreditation. IP Communication revenues increased by 5.3% to £4.656 million (2009:£4.420 million), with £732,000 of revenues from acquisitions offsetting a decrease of 10% in historic revenues. Gross profit decreased to £2.946 million (2009: £3.083 million) due to ongoing pricing pressure and revenue mix.
Underlying EBITDA from IP Communications decreased to £773,000 (2009: £930,000), a 16.6% return on revenues (2009: 21.0%). The operating loss of £237,000 (2009: £135,000 profit) was largely due to increased exceptional costs of £373,000 (2009: £203,000) incurred on the acquisition and integration of Boucon and Nessco. These results reflect the difficult trading conditions in the year under review and their adverse effects on pricing and on investment in voice and data equipment. At Boucon and Nessco, acquired during the last quarter of the year under review, we were able to achieve substantial cost savings. Most of these were from relocating their office based functions to our Wigan office and reducing staff numbers. These savings and the full year earnings potential of Boucon and Nessco are not fully reflected in these financial statements. We have started the current financial year to 30 April 2011 with several substantial contract wins, including Punch Taverns, which will contribute materially to revenues and profits over the next few years. After a challenging period, IP Communications is now trading well and we expect it to make a strong contribution to Group profits in the current year.
SpiriTel Technologies
The Group results were achieved in spite of SpiriTel Technologies revenues declining by 61% to £3.646 million (2009: £9.403 million) and Underlying EBITDA decreasing to £58,000 (2009: £1.103 million). The decline in SpiriTel Technologies has been highlighted in previous financial reports. In line with our strategic objectives, the Division is now no longer a significant component of Group revenues and profits. However, SpiriTel Technologies continues to provide wholesale call termination services to a small number of carrier customers and, more importantly, provides network infrastructure and support to SpiriTel Business, for which it receives no revenue.
Central costs
Central costs comprise the costs of SpiriTel plc, including the Board of Directors, group finance team and professional services including M&A activity. Our policy, whenever possible, is to charge costs directly to the relevant Division or line of business.
Finance costs
Finance costs include interest paid or payable in cash on bank debt and the convertible loan notes ("cash interest") and non-cash finance costs recognised under IAS 39. Of the total finance costs of £10.128 million, total cash interest paid during the year was only £1.297 million of which £1.051 million was charged against profits. The balance of £8.768 million which has no cash requirement at any time, relates to finance costs recognised under IAS 39.
Taxation
The principal component of the tax credit is deferred tax of £432,000 (2009:£335,000) relating to intangible assets recognised on acquisitions. There was no current tax charge due to the Group having tax losses of £9.5 million, of which £8.9 million are not recognised as a deferred tax asset. Corporation tax paid of £456,000 and the corporation tax creditor of £72,000 are both almost entirely due to pre-acquisition liabilities.
Balance sheet
During October 2009 we strengthened our balance sheet with the conversion into ordinary shares of £6.85 million of indebtedness to Penta Capital. This was followed by an injection of £10.0 million of new funding in November and December 2010, led by Penta Capital. This funding has been used, in conjunction with additional bank facilities, to complete the acquisitions referred to above. The £10.0 million of new funding was raised by issue of convertible loan notes repayable in 2014. The long-term maturity gives us greater certainty of future cash flows. The loan notes carry a 10% annual paid yield and a 20% redemption premium and are convertible at 40p per ordinary share. SpiriTel's accounts are presented using IFRS accounting rules. Specifically, IAS 39 requires that the liability in respect of the £10.0 million convertible loan notes is stated on our balance sheet at £15.0 million, of which £5.0 million represents IAS 39 finance costs referred to above. The other component of IAS 39 non-cash finance costs of £8.768 million is a charge of £3.768 million related to the modification of the conversion terms of the £6.85 million of debt that was converted during the year. During March 2010, at the time of the Nessco acquisition, we consolidated several loans from Clydesdale Bank into a single £8 million facility, of which £4.8 million was drawn at year end and the balance allocated to meet expected obligations in respect of deferred consideration and earn out agreements. The support of Clydesdale Bank has been instrumental in completing 12 acquisitions over the past few years and they remain positive supporters of our strategy.
Strategy
SpiriTel's strategy remains focused on the twin tracks of acquisition led growth complemented by organic growth derived from cross selling our integrated product portfolio to existing and acquired customers. Despite the continuing consolidation in our sector, the UK telecommunications market remains highly fragmented with few competitors able to provide the converged, IP-based services that customers are increasingly demanding. This provides the opportunity for us to further execute the Group's "Acquire, Integrate, Grow" strategy. Having now reached a level of critical mass, we have the ability to extract a significant level of synergies from acquisitions and increase the return on our cost of investment. Further upside opportunity is derived from organic growth and cross selling.
At the heart of our progress this year has been our success in cross selling, powered by our ability to deliver integrated systems to customers at a reduced overall cost. This has allowed us to grow revenues despite the fact that, like all businesses, we currently face a challenging economic environment. This delivery of organic growth alongside an aggressive acquisition strategy is a key differentiator for SpiriTel amongst its competitors. Whilst many competitors aspire to deliver cross selling success, we have a proven record of delivery and it remains a key contributor to our organic growth. During the year to 30 April 2010 we made a total of 325 cross sales to 140 customers with aggregate contract values of over £4 million and this success has continued post year end, including a single £5 million contract signed in August. This was our largest ever contract award across any line of business - to provide a converged IP hosted voice and data service to 800 units of Punch Taverns' UK estate. Punch is a pre-existing voice client which we were able to present with an integrated solution and win the contract against much larger competitors.
Our acquisitions during the year have borne out our continuing commitment to this strategy of targeted cross selling. We have bought a number of exciting businesses and, with the exception of Nessco, none of these had any sales of significance outside their single areas of core competence in either Mobile, Networks or IP Communications prior to acquisition. This presents us with an exciting opportunity to focus cross sales efforts on their respective client bases in the current year. In total, we have cross sold 547 products to 210 customers, representing only 5% of our total customer base, demonstrating the significant upside that exists for ongoing progress in this area.
Acquisitions
Aided by a £10 million fundraising led by our principal shareholder Penta Capital in November 2009, and an increased facility from Clydesdale Bank, SpiriTel completed the acquisition of five companies across each of the segments of SpiriTel Business during the year under review: Mobile, Networks and IP Communications. As well as increasing our scale and enhancing our product proposition in each of these areas, the newly acquired businesses each presented significant cross selling opportunities. The acquisitions comprised:
• Edge Solutions Limited based in London, is a leading provider of voice and data services to almost 200 corporate customers, which include Guoman Thistle, Boden and several blue chip financial institutions. Edge's client base delivers a market leading average customer spend of over £2,000 per
month, with an annual churn rate of less than 2%. Edge was historically focused on Network Services with minimal sales of Mobile and IP Communications products and services.
• ADK Communications Limited based in Hertfordshire, is a provider of voice and data services to almost 300 SME customers with an above average customer spend of approximately £500 per month. ADK had only focused on selling Network Services to its customers and the base presented a significant cross selling opportunity for our Mobile and IP Communications lines of business.
• Boucon Network Solutions Limited based in Cardiff, is a leading provider of Internet Protocol (IP) based telephony solutions and has Mitel Premier Partner status, the highest level of Mitel accreditation, which SpiriTel has possessed for several years. Boucon serves a high quality customer base including DVLA and several NHS Trusts and County Councils. Prior to our acquisition, Boucon focused exclusively on IP Communications products and services.
• MoboTel Limited is a specialist mobile voice and data reseller, based in London and has grown rapidly over the last five years to become one of the UK's largest independent B2B suppliers of
BlackBerry solutions with particular strength in the legal and financial sectors. MoboTel had not previously sold any Networks or IP Communications products and services.
• Nessco Limited based near Glasgow, is a provider of IP Communications services and networks services to approximately 800 customers. Nessco is particularly strong in the healthcare, local government and hospitality sectors and its customers included NHS Highland, Aberdeen City Council and Macdonald Hotels. The base is a focus for cross selling our Mobile and Networks solutions in the current year.
In addition, post year end we acquired Housing Communications Limited, a mobile reseller based in Shropshire. HCL brings an exciting opportunity in the niche Housing Association market and has over 15,000 mobile connections. As with all our acquisitions, HCL did not have an integrated product offering and we are already talking to several of their large customers about the Networks and IP Communications services that SpiriTel is able to offer. In a highly fragmented market we maintain a constant watch for earnings-enhancing acquisition opportunities that could add either scale to an existing line of business and/or bring new product or service capabilities to the Group. Our track record of successful completion and swift integration puts us in a strong position to attract potential sellers of businesses. We are currently reviewing several potential targets, a number of which are larger companies than previously acquired.
Operations
SpiriTel is now a business of genuine scale and one of the country's larger independent service providers to business customers. The Group's customer base now comprises 4,200 businesses and public sector organisations across the UK. Number of customers is a key performance indicator for the Business Division and the current customer base is 80% larger than at 30 April 2009 and some 175% bigger than two years ago.
We continue to focus on providing the highest possible level of customer care and support which we have been able to deliver throughout another period of rapid growth by acquisition. In our Networks line of business, our churn for the year to April 2010 was below 5% in comparison to several competitors which operate with attrition levels between 1% and 2% per month. For Mobile, our annual churn was also market leading at less than 8% against an industry average approaching 20%. In a recent customer service review undertaken by O2, we were ranked second out of 13 partners in their Centre of Excellence channel. We are immensely proud of these impressive, market leading results and they reflect the hard work and dedication of the SpiriTel team.
Since 30 April 2009, staff numbers have grown from 109 to 160 and we now have a nationwide sales and engineering presence, with offices in London, Cardiff, Wigan and Glasgow. Our technical operations and customer services continue to be based in Wigan and in the London headquarters. Fast and effective integration was a key focus for management during the year and continues to be a priority. We have an excellent track record of integration, having completed 12 acquisitions. Implementation of our bespoke integration framework, which has been developing since its introduction in 2007, has been a key success factor. The results of this considerable experience have been evident with several companies being integrated ahead of plan. For example, one of our mobile acquisitions was 90% integrated within 11 working days and the integration process for the six companies acquired in the last 10 months is complete for four companies and overall is now more than 90% complete. We also have a thorough and targeted due diligence process that we use to identify cost synergies from each transaction, in advance of completion. The management teams have been successful in delivery of these synergies and during the last 10 months, approximately £1.6 million of annual overheads have been taken out of acquired businesses.
Summary and outlook
The year to 30 April 2010 was a period of significant progress for SpiriTel. We continued our strategy of targeted acquisitions which bring immediate earnings enhancement. Combined with a sustained focus on cross-sell opportunities, these acquisitions have seen revenue and Underlying EBITDA rise substantially. These results will improve even further once a full year contribution from recent acquisitions and contract wins is included, as our current financial performance is significantly ahead of the reported results.
I remain confident in the Group's strategy of increasing revenues and profits through acquisition led growth combined with organically generated growth from cross sales. This strategy has been executed successfully despite challenging market conditions. Our ability to drive cross sales from existing customers and new customers gained by acquisition is a key differentiator for the Group amongst its peers and one that offers significant upside for future organic growth.
SpiriTel has a well established, experienced and energised management team, and a highly skilled and committed staff who have together proved their ability to execute our strategy. We are increasingly seeing the fruits of their hard work in laying the foundations for sustained growth and I look forward to further nurturing this development over the coming year as we continue to deliver value for our stakeholders.
Alastair Mills
Chief Executive
27 September 2010
Consolidated income statementYear ended 30 April 2010
|
| 2010 £000 | 2009 £000 |
| Continuing operations |
|
|
| Revenue | 21,284 | 19,718 |
| Cost of sales | (12,705) | (12,087) |
| Gross profit | 8,579 | 7,631 |
| Administrative expenses | (9,870) | (8,280) |
| Underlying EBITDA | 1,600 | 1,514 |
| Depreciation | (225) | (212) |
| Share-based payments | (204) | (204) |
| Exceptional costs | (1,045) | (663) |
| Amortisation of other intangible assets | (1,417) | (1,084) |
| Operating loss | (1,291) | (649) |
| Operating loss | (1,291) | (649) |
| Finance income | 4 | - |
| Finance costs on bank debt and convertible loan notes | (1,360) | (462) |
| Finance costs under IAS39 | (8,768) | (597) |
| Finance costs | (10,128) | (1,059) |
| Loss before taxation | (11,415) | (1,708) |
| Tax credit | 390 | 774 |
| Loss for the financial year | (11,025) | (934) |
| Loss per share in pence |
|
|
| Basic and diluted | (92.1) | (16.1) |
Consolidated statement of changes in shareholders' equity
|
| Share capital £000 | Share premium £000 | Reverse acquisition reserve £000 | Other reserves £000 | Retained losses £000 | Total £000 |
| Balance at 1 May 2008 | 3,162 | 4,550 | (5,763) | 565 | (9,810) | (7,296) |
| Loss and total recognised loss for the financial year | - | - | - | - | (934) | (934) |
| Credit for equity-settled share-based payments | - | - | - | 204 | - | 204 |
| Issue of share capital (net of expenses) | 3,114 | 385 | - | - | - | 3,499 |
| Modification and conversion of financial instruments - equity component | - | - | - | 1,545 | - | 1,545 |
| Transfer between reserves | - | - | - | (349) | 349 | - |
| Balance at 30 April 2009 | 6,276 | 4,935 | (5,763) | 1,965 | (10,395) | (2,982) |
| Loss and total recognised loss for the financial year | - | - | - | - | (11,025) | (11,025) |
| Credit for equity-settled share-based payments | - | - | - | 204 | - | 204 |
| Issue of share capital (net of expenses) | 114 | 6,692 | - | - | - | 6,806 |
| Modification and conversion of financial instruments - equity component | - | - | - | 3,768 | - | 3,768 |
| Transfer between reserves | - | - | - | (3,776) | 3,776 | - |
| Balance at 30 April 2010 | 6,390 | 11,627 | (5,763) | 2,161 | (17,644) | (3,229) |
Consolidated statement of financial positionAs at 30 April 2010
|
| 2010 £000 | 2009 £000 |
| Assets |
|
|
| Non-current assets |
|
|
| Goodwill | 9,953 | 5,695 |
| Other intangible assets | 12,347 | 4,484 |
| Property, plant and equipment | 787 | 696 |
|
| 23,087 | 10,875 |
| Current assets |
|
|
| Inventories | 345 | 384 |
| Trade and other receivables | 5,928 | 2,493 |
| Cash and cash equivalents | 901 | - |
|
| 7,174 | 2,877 |
| Total assets | 30,261 | 13,752 |
| Current liabilities |
|
|
| Trade and other payables | (10,340) | (4,471) |
| Borrowings | (558) | (1,536) |
| Obligations under finance leases | (15) | (61) |
| Current tax payable | (69) | (36) |
|
| (10,982) | (6,104) |
| Non-current liabilities |
|
|
| Trade and other payables | (414) | (116) |
| Borrowings | (12,198) | (9,468) |
| Derivative financial instruments | (6,600) | - |
| Deferred tax liabilities | (3,296) | (1,046) |
|
| (22,508) | (10,630) |
| Total liabilities | (33,490) | (16,734) |
| Net liabilities | (3,229) | (2,982) |
| Equity attributable to equity holders of the parent |
|
|
| Capital and reserves |
|
|
| Share capital | 6,390 | 6,276 |
| Share premium | 11,627 | 4,935 |
| Reverse acquisition reserve | (5,763) | (5,763) |
| Other reserves | 2,161 | 1,965 |
| Retained losses | (17,644) | (10,395) |
| Total equity | (3,229) | (2,982) |
Consolidated statement of cash flowsYear ended 30 April 2010
|
| 2010 £000 | 2009 £000 |
| Cash flows from operating activities |
|
|
| Loss before taxation | (11,415) | (1,708) |
| Adjustments for: |
|
|
| Net finance costs | 10,124 | 1,059 |
| Depreciation and amortisation | 1,642 | 1,296 |
| Impairment of intangible fixed assets | 123 | 113 |
| Impairment of goodwill | - | 199 |
| Decrease/(increase) in inventories | 287 | (31) |
| Increase in receivables | (1,176) | (146) |
| Increase/(decrease) in payables | 715 | (1,168) |
| Equity-settled share-based payments | 204 | 204 |
| Finance costs paid | (1,296) | (230) |
| Cash used in operating activities | (792) | (412) |
| Income taxes paid | (456) | (259) |
| Net cash used in operating activities | (1,248) | (671) |
| Cash flows from investing activities |
|
|
| Acquisition of subsidiaries net of cash acquired | (6,805) | (797) |
| Payment of deferred and contingent consideration | (1,270) | (382) |
| Purchase of property, plant and equipment | (111) | (470) |
| Net cash used in investing activities | (8,186) | (1,649) |
| Cash flows from financing activities |
|
|
| Net (costs)/proceeds from issue of share capital | (45) | 333 |
| Proceeds from borrowings (net) | 10,973 | 480 |
| Payment of finance lease liabilities | (66) | (78) |
| Net cash from financing activities | 10,862 | 735 |
| Net increase/(decrease) in cash and equivalents | 1,428 | (1,585) |
| Cash and cash equivalents at beginning of year | (527) | 1,058 |
| Cash and cash equivalents at end of year | 901 | (527) |
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
The financial information in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU) under the accounting policies set out in the financial statements of SpiriTel plc for the year ended 30 April 2009. These accounting policies have remained unchanged for the financial year ended 30 April 2010.
This financial information has been prepared under the historical cost convention, except for the revaluation of certain financial instruments. The financial information set out in this announcement does not constitute the Group's statutory accounts for the years ended 30 April 2010 or 30 April 2009, but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts and their reports were unqualified.
2. Finance costs
|
| 2010 £000 | 2009 £000 |
| Interest payable on bank loans and overdrafts | 1,051 | 273 |
| Interest on finance leases | 7 | 8 |
| Unwinding of discount on deferred and contingent consideration | 302 | 181 |
| Loss arising on modification and conversion of convertible preference shares | 3,768 | 1,026 |
| Fair value of embedded derivative on issue of convertible loan notes | 7,416 | - |
| Change in fair value of embedded derivative during year | (816) | (429) |
| Fair value adjustment on convertible loan notes | (1,600) | - |
|
| 10,128 | 1,059 |
3. Revenue and segmental information
Year ended 30 April 2010
|
| SpiriTel Mobile £000 | SpiriTel Networks £000 | SpiriTel IP Comms £000 | SpiriTel Business £000 | SpiriTel Technologies £000 | Other/ Central costs £000 | Total £000 |
| Continuing operations |
|
|
|
|
|
|
|
| Revenue | 4,897 | 8,085 | 4,656 | 17,638 | 3,646 | - | 21,284 |
| Gross profit | 2,271 | 2,674 | 2,946 | 7,891 | 688 | - | 8,579 |
| Underlying EBITDA | 879 | 1,410 | 773 | 3,062 | 58 | (1,520) | 1,600 |
| Depreciation | (23) | (27) | (143) | (193) | (24) | (8) | (225) |
| Share-based payments | - | - | - | - | - | (204) | (204) |
| Exceptional administrative expenses | (134) | (83) | (373) | (590) | - | (455) | (1,045) |
| Amortisation of other intangible assets | (196) | (727) | (494) | (1,417) | - | - | (1,417) |
| Operating profit/(loss) | 526 | 573 | (237) | 862 | 34 | (2,187) | (1,291) |
| Operating profit/(loss) | 526 | 573 | (237) | 862 | 34 | (2,187) | (1,291) |
| Net finance costs |
|
|
|
|
|
| (10,124) |
| Loss before taxation |
|
|
|
|
|
| (11,415) |
| Tax credit |
|
|
|
|
|
| 390 |
| Loss for the financial year |
|
|
|
|
|
| (11,025) |
3. Revenue and segmental information continued
Year ended 30 April 2009
|
| SpiriTel Mobile £000 | SpiriTel Networks £000 | SpiriTel IP Comms £000 | SpiriTel Business £000 | SpiriTel Technologies £000 | Other/ Central costs £000 | Total £000 |
| Continuing operations |
|
|
|
|
|
|
|
| Revenue | 3,340 | 2,555 | 4,420 | 10,315 | 9,403 | - | 19,718 |
| Gross profit | 1,539 | 826 | 3,083 | 5,448 | 2,183 | - | 7,631 |
| Underlying EBITDA | 506 | 363 | 930 | 1,799 | 1,103 | (1,388) | 1,514 |
| Depreciation | (24) | (2) | (134) | (160) | (46) | (6) | (212) |
| Share-based payments | - | - | - | - | - | (204) | (204) |
| Exceptional administrative expenses | (6) | (359) | (203) | (568) | (28) | (67) | (663) |
| Amortisation of other intangible assets | (165) | (461) | (458) | (1,084) | - | - | (1,084) |
| Operating profit/(loss) | 311 | (459) | 135 | (13) | 1,029 | (1,665) | (649) |
| Operating profit/(loss) | 311 | (459) | 135 | (13) | 1,029 | (1,665) | (649) |
| Net finance costs |
|
|
|
|
|
| (1,059) |
| Loss before taxation |
|
|
|
|
|
| (1,708) |
| Tax credit |
|
|
|
|
|
| 774 |
| Loss for the financial year |
|
|
|
|
|
| (934) |
4. Borrowings
|
| 2010 £000 | 2009 £000 |
| Borrowing at amortised cost |
|
|
| Bank loans | 4,649 | 2,326 |
| Bank overdraft | - | 527 |
| Convertible loan notes | 8,107 | - |
| Loan notes - Other | - | 300 |
| Loan notes - Penta | - | 770 |
| Other loans - Penta | - | 5,122 |
| Redeemable preference shares | - | 1,959 |
|
| 12,756 | 11,004 |
| Total borrowings |
|
|
| Amounts due for settlement within 12 months | 558 | 1,536 |
| Amounts due for settlement after 12 months | 12,198 | 9,468 |
Bank loans
Bank loans comprise a term loan from Clydesdale Bank plc of £4,800,000 (2009: £2,527,500). Deferred arrangement fees of £151,000 (2009: £201,000) have been netted against the amount disclosed above.
The Group also has a £750,000 overdraft facility, repayable on demand. This facility replaces an overdraft facility of £250,000 and invoicing discounting facility of £650,000 that were in place at 30 April 2009. The loans and overdraft carry interest charged at approximately 3.75% above the Clydesdale Bank base rate.
All Clydesdale Bank plc facilities are secured by debentures over the assets of the Group.
Other loans
On 1 May 2009 an interest free loan note of £300,000 issued to the vendors of WN1 Limited was repaid.
Penta loans, loan notes and redeemable preference shares (the "Penta facilities")
At 1 May 2009, the company had outstanding loans and loan notes in favour of Penta amounting to £5,122,000 and £770,000 respectively. These loans carried the right of conversion into the company's ordinary shares.
Convertible loan notes
On 2 November 2009 the company issued convertible loan notes of £9,200,000 to Penta (£7,450,000) and Synergy Capital LLP (£1,750,000). The loan notes have a 10 per cent yield, payable quarterly, are repayable at the Company's option but no later than November 2014 and have a 20 per cent redemption premium. The loan notes, including the redemption premium and accrued yield are convertible at the holders' option at the lower of (a) 40p per ordinary share; and (b) 5% above the share price at which acquisition related share issues are made by the company. The notes are secured by a second-ranking debenture over the assets of the Group. Since these terms meet the definition of a financial liability, the loan notes have been classified as a host debt with an embedded derivative.
On 17 December 2009 the company issued convertible loan notes of £800,000 on identical terms to those issued on 2 November 2009. The total fair value amount due under the convertible loan notes is £8,400,000. Deferred arrangement fees of £293,000 have been netted against the amount disclosed above.
A reconciliation of the movements on the carrying value of the loans and loan notes (together "Penta debt"), convertible loan notes, and the preference shares during the year is as follows:
|
| Derivative financial instruments £000 | Convertible loan notes £000 | Penta debt £000 | Preference shares £000 | Total £000 |
| Carrying value at 30 April 2009 | - | - | 5,892 | 1,959 | 7,851 |
| Debt issued during the year | - | 10,000 | - | - | 10,000 |
| Fair value adjustment on convertible loan notes (discounted) | - | (1,600) | - | - | (1,600) |
| Deferred arrangement fees on debt issued during the year | - | (293) | - | - | (293) |
| Fair value of embedded derivative on issue | 7,416 | - | - | - | 7,416 |
| Change in fair value of embedded derivative | (816) | - | - | - | (816) |
| Debt repaid during the year | - | - | (1,000) | - | (1,000) |
| Preference shares and debt converted during the year | - | - | (4,892) | (1,959) | (6,851) |
| Carrying value at 30 April 2010 | 6,600 | 8,107 | - | - | 14,707 |
The modification and conversion of the Penta facilities and convertible loan notes has resulted in the following charge/credit to the income statement and equity (other reserves).
|
| Note | Income statement £000 | Other reserve £000 |
| Change in fair value of embedded derivative on modification | 1 | 3,768 | (3,768) |
| Transfer between reserves |
| - | 3,768 |
| Total charged to income statement |
| 3,768 | - |
Notes:
1) This charge is based on the fair value of the incremental number of shares issued on conversion, compared to the number of shares which would have been issued under the previous conversion terms.
Derivative financial instruments
Management has applied certain judgements and estimates in arriving at the fair value of the embedded derivative under the terms of the convertible loan notes, both at the date of issue and as at 30 April 2010. Taking into account (a) there is no restriction on the loan note holders ability to convert the outstanding debt; (b) the current share price of the company; (c) the variable conversion price; and (d) an estimated conversion date, management has concluded that the fair value of the embedded derivative was £7,416,000 at the date of issues and is £6,600,000, at 30 April 2010.
5. Post balance sheet events
On 27 May 2010, the Company acquired 100% of the issued share capital of Housing Communications Limited ("HCL"), a UK based mobile reseller, for an initial consideration of £1.6m, settled in cash. Under the terms of the acquisition, performance related earn-out payments of up to £0.4 million may also be payable in cash by August 2011. In the financial year ending 30 September 2009, HCL reported revenues of £2.9 million, EBITDA of £461,000 and profit before tax of £490,000. Due to ongoing finalisation of the completion balance sheet, it is not possible to estimate reliably the classes of assets and liabilities acquired at this time.
Copies of the Annual Report and Accounts will be posted to shareholders shortly. Copies are available from the Company's head office at 18 King William Street, London, EC4N 7BP. It will also be possible to download the Annual Report and Accounts from the Group's website at www.SpiriTelplc.com