STP.L Regulatory News (STP)

29 Jul 2005 07:02

Spiritel PLC29 July 2005 For immediate release 29 July 2005 SPIRITEL PLC ("Spiritel" or "the Company") Financial Results for the 18-month period ended 30 April 2005 Spiritel plc (AIM: STP), the telecommunications services business, todayannounces its financial results for the 18 month period ended 30 April 2005. Theresults cover an 18 month period due to the adoption of reverse takeoveraccounting following the acquisition of Expo Communications Limited in July2004. Spiritel was admitted to the AIM market of the London Stock Exchange inJuly last year. Highlights • Turnover in the period was £32.8 million, compared with £21.8 million in the year to 31 October 2003 • Gross margin of 12.4% (2003: 11.8%), delivering EBITDA of £0.59 million (2003: £0.61m) • Launch of broadband telephony (VoIP) product suite • New customer agreements in voice call termination business - agreements in place with majority of top 10 UK fixed line telcos • Diversification of call termination business into international markets - international volumes grew to 11% of total minutes carried during April 2005 • Self-funding business model - cash generation from call termination business has financed new product development • Successful admission to the AIM market of the London Stock Exchange in July 2004 Lord St John of Bletso, Spiritel's Chairman, said: "Since joining the AIM marketlast year, Spiritel has positioned itself through the development of newproducts to take advantage of the huge opportunity presented by the growing useof broadband as a medium for telephony. We have the products, strategy androutes to market to capitalise on this opportunity. Our business model has theattraction that our move into broadband telephony is supported by cashgeneration from our core call termination business, in addition to which calltermination services remain an essential element of broadband telephonysolutions. " ENDS For further information: Spiritel plc 020 7160 0100Alastair Mills, Chief ExecutiveJohn Vergopoulos, Deputy Chairman Teather & Greenwood 020 7426 9000Jeff Keating Buchanan Communications 020 7466 5000Mark CourtMary-Jane Johnson Notes for Editors: About Spiritel plc Spiritel (AIM: STP) is the holding company for a growing group of companieswhose focus is telecommunications services and products. Spiritel's initialtrading division, Expo Communications, was founded in 2000 and is one ofEurope's leading call termination businesses focussing on calls from fixed linesto mobiles. Expo's client base includes Level (3), Colt, One.Tel and YourCommunications among others. Spiritel has also launched VoIP, or broadbandtelephony, services through its Spiritel Technologies division, which has signedreseller agreements with companies including Entacall Communications andJabbertalk. These VoIP services, aimed at the SME market, are highlycomplementary to Expo's termination services as most phone calls made via VoIPrequire termination in the same way as calls from traditional fixed line phones. Spiritel joined the AIM market of the London Stock Exchange in July 2004. For further information please visit www.spiritelplc.com CHAIRMAN'S STATEMENT The past year has been one of significant progress for Spiritel, not least inits successful admission to the AIM market of the London Stock Exchange in July2004. Since admission we have built on our core specialisation in voice servicesby launching new products and expanding into international markets. Our range ofvoice services embraces mobile, fixed line and broadband telephony, allowing usto offer our customers a full suite of products utilising both traditionaltelephony and new access technologies. Expo Communications has developed a strong position as a strategic partner forthe UK's leading telecoms companies, carrying fixed and mobile calls within theUK and internationally. The launch of our broadband telephony company, SpiritelTechnologies, builds on the success of Expo Communications and positionsSpiritel to exploit the forthcoming migration to internet telephony. In the UK alone in 2004, the spend on calls from traditional fixed line phoneswas around £10 billion, giving some indication of the scale of the opportunityavailable to broadband telephony service providers. The speed with which themigration could take place is highlighted by the rapidly growing take up ofbroadband internet access. During the past year, Spiritel has developed the products and strategy toexploit the broadband voice opportunity, giving us confidence as we drive thebusiness forward. The Board recognises the important contribution from all our employees and wewould like to thank them for their commitment throughout the year. In addition,it is a pleasure to thank both our new and existing investors for their supportat what is an exciting time in the development of the Company. Lord St John of BletsoChairman28 July 2005 CHIEF EXECUTIVE'S REVIEW We are pleased to be reporting preliminary results for the first time sinceSpiritel's successful admission to the AIM market of the London Stock Exchangein July 2004 via the reverse takeover of Roshni Investments plc, an investmentvehicle that joined the AIM market in March 2004. We continue to believe that weare well placed to take advantage of the many changes in the telecommunicationssector, particularly in the growth of broadband telephony or VoIP. The period under review is the 18 months to the 30 April 2005, a period thatreflects the change in the year end at Expo Communications, a Spiritelsubsidiary that began trading in 2000 with a year end of 31 October. FollowingSpiritel's flotation, Expo Communications' year end was moved to 30 April, tobring it into line with Spiritel's year end. The comparative figures in thisstatement are for the year to 31 October 2003, representing Expo Communications'most recent audited results. Spiritel's turnover in the 18 month period under review was £32.79 million (12month period to 31 October 2003: £21.76m), giving a gross profit of £4.05million (2003: £2.57m). The basic loss per share in the period was 1.94p (2003:earnings per share of 0.30p). Spiritel's admission to AIM has created a platform for the future growth of theCompany and we are pleased to report that significant progress has been made interms of the Company's product development, management structure, business modeland customer base. Spiritel holds an enviable position among emerging telecommunications businessesin that it has solid revenues and cash generation from its core ExpoCommunications division, a business that has focussed on the cost effectivetermination of calls from fixed line to mobile phones for a client base ofrecognised UK and European carriers such as Level (3), Colt, One.Tel and YourCommunications. Expo Communications' services have been extended to includetermination to both mobile and fixed line phones in the UK and internationally. The cash flow from this core business has provided Spiritel with the resourcesto develop new products and to address new markets, specifically to position theCompany for the anticipated imminent growth of the broadband telephony market.Broadband telephony is widely expected to replace traditional switched networks.The Office of Communications (Ofcom) has recently indicated that eventually allcalls will be carried using VoIP technology. Spiritel's VoIP offering is particularly persuasive as the Company is able tounderpin its VoIP products with call termination services. While the use of VoIPis expected to increase dramatically, many of the calls made via VoIP to fixedlines, and all calls to mobiles, will require termination outside of theinternet. Spiritel's strategy is to offer its VoIP services to resellers, a channel thatdelivers extended reach and enhanced speed to market to both SME and residentialend users. The complementary offering of VoIP products and call terminationoffers a significant advantage to Spiritel as its resellers are provided with afull range of competitively priced services. Spiritel established its SpiritelTechnologies division towards the end of last year to develop and market itsbroadband telephony services to resellers and to carriers in a "white label"format. The success of Spiritel Technologies is underlined by the signing of tworeseller agreements post the period end. In May, Spiritel Technologies signed anagreement with JabberTalk and in June it signed an agreement with EntacallCommunications Ltd. Both agreements involve Expo Communications carrying allcalls made by end users. Both agreements highlight Spiritel's focus on the SME market, which offersconsiderable attractions not least because SMEs are recognised as having themost to benefit from broadband telephony owing to its combination of costeffectiveness and enterprise-style functionality. Operational Review Expo Communications Expo Communications has performed well during the period under review, reportingall of Spiritel's revenues and was profitable at the EBITDA level. The divisionhas signed important new agreements during the period. In February 2005 itsigned an agreement with Level (3) to provide mobile call termination in the UKand across Europe. This was followed in May, post the period end, by anagreement to provide voice call termination to one of the UK's largest providersof telecoms and entertainment services to residential and business customersthroughout the UK. Expo Communications now has as customers the majority of the top 10 fixed linetelcos in the UK. In September last year Expo Communications absorbed the price reductions imposedby Ofcom in connection with the pricing of fixed line to mobile phone calls.Expo Communications was able to renegotiate its buy price from its suppliers,which resulted in reduced unit sales but increased margins. Ofcom has recentlyindicated that no further price reductions are expected before April 2007. During the period under review, Spiritel's Managed Networks division has beencombined with Expo Communications owing to the similarity of the productofferings. The product range has been diversified to include international products, whosesuccessful launch resulted in international daily volumes representing 11% oftotal minutes by April 2005. Spiritel Technologies Spiritel's broadband telephony service allows customers to make and receivetelephone calls, provides free calls between connected offices and enablesadvanced call handling features using a standard broadband connection. Spiritel Technologies delivers broadband telephony and a range of advancedservice applications to the residential and SME markets. The business deliversto these markets by providing white label services to channel partners who selldirect and own the end customer relationship. Spiritel Technologies' white label services include call termination provided byExpo Communications. The competitive call rates that Expo delivers andSpiritel's advanced telephony services provide a powerful package for thechannel partners to sell to a customer base that is underserved and whereincreased calls to mobiles are causing telephony costs to spiral. Spiritel Technologies' services are "plug-and-play" and will work with themajority of common broadband installations in the field. This is achievedthrough the use of the emerging dominant standard in the industry, SIP (SessionInitiation Protocol). This standard provides many advantages. The plug-and-playcharacteristic also results from the fact that the Company's service platformsinclude technology that will allow the service to work with firewalls, routersand so on that the customer may already have connected to their broadbandconnection. Post the financial period end Spiritel's end user customers have begun using theSpiritel Technologies' VoIP services. These customers are benefiting from theadvanced features and cost effective call termination associated with VoIP. Financial review Turnover in the 18 month period under review was £32.79 million, compared with£21.76 million in the 12 month period to 31 October 2003. Gross profit fromcontinuing operations was £4.05 million (2003: £2.57m) and operating profitbefore amortisation of goodwill was £0.24 million (2003: £0.51m). An exceptionalitem in the period of £2.56 million was a result of writing off goodwill arisingon the reverse acquisition, resulting in an operating loss post the exceptionalitem of £2.32 million. The pre-tax profit before amortisation of goodwill was£0.15 million (2003: £0.52m). The basic loss per share was 1.94p (2003: earningsper share of 0.30p) and the adjusted earnings per share was 0.46p (2003: 0.49p) The net cash outflow in the period under review was £0.07 million, compared witha net cash inflow of £0.49 million in the 12 month period to 31 October 2003.The cash outflow in the period under review reflects the investment in SpiritelTechnologies' suite of broadband products. Outlook We have been pleased by the Company's performance since its admission to the AIMmarket and believe we have the right business model, the right products and theright distribution channels to capitalise on the significant opportunities beingcreated by the rapidly evolving telecoms market. We look forward to the futurewith confidence. Alastair Mills Chief Executive 28 July 2005 CONSOLIDATED SUMMARISED PROFIT AND LOSS ACCOUNT Eighteen Eighteen Eighteen months ended months ended months ended Year ended 30 April 30 April 30 April 31 October 2005 2005 2005 2003 Pre-exceptional Exceptional Total Total Unaudited Unaudited Unaudited Audited £'000 £'000 £'000 £'000 Turnover - continuing operations (Note 2) 32,791 - 32,791 21,761 Cost of sales - continuing operations 28,740 - 28,740 19,195 Gross profit - continuing operations 4,051 - 4,051 2,566 Operating (loss) / profit (Note 3)Continuing operations 925 - 925 511Acquisitions (685) (2,557) (3,242) - 240 (2,557) (2,317) 511 Net interest (payable) / receivable (86) - (86) 13 (Loss) / profit on ordinary activities before 154 (2,557) (2,403) 524taxation Tax on (loss) / profit on ordinary activities (108) - (108) (146) (Loss) / profit transferred (from) / to 46 (2,557) (2,511) 378reserves Loss / earnings per share in pence (Note 5)- basic (1.94) 0.30- diluted (1.93) 0.30Adjusted earnings per share in pence (Note 5)- adjusted 0.46 0.49- adjusted diluted 0.46 0.49 There were no recognised gains or losses other than the loss for the financialperiod CONSOLIDATED SUMMARISED BALANCE SHEET AT 30 APRIL 2005 30 April 31 October 2005 2003 Unaudited Audited £'000 £'000Fixed assets 639 434 Current assetsDebtors 934 694Cash at bank and in hand 430 502 1,364 1,196 Creditors: amounts falling due within one year 1,226 1,726 Net current assets / (liabilities) 138 (530) Total assets less current liabilities 777 (96) Creditors: amounts falling due after more than one year 2,594 - Provisions for liabilities and charges 73 126 2,667 126Capital and reservesCalled up share capital 5,478 -Share premium account 1,128 -Reverse acquisition reserve (5,763) -Profit and loss account (2,733) (222)Shareholders' deficit (including non-equity) (1,890) (222) 777 (96) CONSOLIDATED SUMMARISED CASH FLOW STATEMENT For the period ended 30 April 2005 18 Months ended 30 April Year ended 2005 31 October 2003 Unaudited Audited £'000 £'000 Net cash (outflow) / inflow from operating activities (Note 6) (288) 1,165Returns on investments and servicing of finance 8 (11)Taxation (19) -Capital expenditure (559) (518)Acquisitions and disposals (237) -Financing 1,023 (147)(Decrease) / increase in cash (Note 7) (72) 489 OTHER PRIMARY STATEMENTS For the period ended 30 April 2005 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 18 Months ended Year ended 30 April 2005 31 October 2003 Unaudited Audited £'000 £'000(Loss) / profit for the financial period (2,511) 378Reverse acquisition capital adjustment (5,763) -Issue of shares 6,606 - Net (decrease) / increase in shareholders' deficit (1,668) 378Shareholders' deficit at 1 November 2003 (222) (600)Shareholders' deficit at 30 April 2005 (1,890) (222) Attributable to:Equity shareholders (5,990) (222)Non-equity shareholders 4,100 - (1,890) (222) NOTES TO THE PRELIMINARY ANNOUNCEMENT For the period ended 30 April 2005 1). PRINCIPAL ACCOUNTING POLICIES BASIS OF PREPARATION The financial information in this preliminary announcement has been prepared inaccordance with applicable United Kingdom accounting standards and under thehistorical cost convention except for the adoption of reverse acquisitionaccounting, described below, which constitutes a true and fair overridedeparture from United Kingdom accounting standards. BASIS OF CONSOLIDATION The Group financial statements when approved will consolidate those of theCompany and its subsidiary undertakings drawn up to 30 April 2005. On 28 July 2004 Spiritel plc (formerly Roshni Investments plc) acquired thewhole of the issued share capital of Expo Communications Limited in exchange forthe issue of ordinary shares, preference shares and loan notes. Following thetransaction the former shareholders in Expo Communications Limited became themajority shareholders in Spiritel plc with 93 per cent of the enlarged capital.Following the transaction the Company's continuing operations and executivemanagement were those of Expo Communications Limited. Accordingly, the substanceof the combination was that Expo Communications Limited acquired Spiritel plc ina reverse acquisition. The Companies Act 1985, FRS 6 and FRS 7 would normally require the Company'sconsolidated accounts to follow the legal form of the business combination. Inthat case the pre-acquisition results would be those of Spiritel plc, whichwould exclude Expo Communications Limited. The results of Expo CommunicationsLimited would then be included in the Group from 28 July 2004. However, thiswould portray the combination as an acquisition of Expo Communications Limitedby Spiritel plc and would therefore, in the opinion of the Directors, fail togive a true and fair view of the substance of the business combination.Accordingly, the Directors have adopted reverse acquisition accounting as thebasis of consolidation in order to give a true and fair view. In invoking the true and fair override the Directors note that reverseacquisition accounting is endorsed under International Financial ReportingStandard 3. Furthermore, the Urgent Issues Task Force of the UK's AccountingStandards Board considered the subject and concluded that there are instanceswhere it is right and proper to invoke the true and fair override in such a way. As a consequence of applying reverse acquisition accounting, the results for theGroup for the period ended 30 April 2005 comprise the results of ExpoCommunications Limited for its period ended 30 April 2005 plus those of Spiritelplc from 28 July 2004, the date of the reverse acquisition, to 30 April 2005.The comparative figures for the Group are those of Expo Communications Limitedfor the year ended 31 October 2003. Goodwill amounting to £2,557,000 arose onthe difference between the sum of the fair value of Spiritel plc share capitaland the fair value of its net assets at the reverse acquisition date. Thegoodwill has been written off in the period ended 30 April 2005 because Spiritelplc had no continuing business and therefore the goodwill had no intrinsicvalue. The effect on the consolidated financial statements of adopting reverseacquisition accounting, rather than following the legal form, are widespread.However, the following table indicates the principal effect on the compositionof the consolidated reserves assuming a goodwill amortisation period of twentyyears, but before the Directors' assessment of the carrying value of goodwillunder FRS 11. NOTES TO THE PRELIMINARY ANNOUNCEMENTFor the period ended 30 April 2005 Reverse acquisition Impact of reverse accounting (as acquisition disclosed) Normal acquisition accounting accounting Unaudited Unaudited Unaudited £'000 £'000 £'000Called up share capital 5,478 5,478 -Share premium account 1,128 43,288 42,160Reverse acquisition reserve (5,763) - 5,763Profit and loss account (2,733) (2,062) 671 (1,890) 46,704 48,594 2). SEGMENTAL INFORMATION The turnover and (loss) / profit on ordinary activities before taxation areattributable to the principal activity of the Group. Turnover by destination Eighteen months Year ended 31 October 2003 ended 30 April 2005 Unaudited Audited £'000 £'000United Kingdom 32,741 21,761Europe 49 -United States 1 - Group turnover 32,791 21,761 3). EXCEPTIONAL ITEMS The following exceptional costs were charged in arriving at the operating (loss)/ profit of the Group: Eighteen months ended 30 April 2005 Year ended Unaudited 31 October 2003 Audited £'000 £'000Amortisation of goodwill acquired 2,557 -in reverse takeover (Note 1)Professional costs - 479 The professional costs above relate to professional and arrangement feesincurred by the Company in connection with an investment in the Company by PentaFund 1 Limited Partnership. NOTES TO THE PRELIMINARY ANNOUNCEMENT For the period ended 30 April 2005 4). DIVIDENDS The Directors do not recommend the payment of a dividend. 5). EARNINGS PER SHARE The loss per share is based on the equity losses of £2,511,000 (2003: Profit of£378,000) and 129,628,852 (2003: 124,000,000) ordinary shares of 1p each, beingthe weighted average number of shares in issue during the period. The weightedaverage number of ordinary shares for the period ended 30 April 2005 assumesthat the 124,000,000 ordinary shares issued in relation to the reverseacquisition of Spiritel plc existed for the entire period. Spiritel plc shareshave been included since 28 July 2004, the date of the reverse takeover, and allother shares have been included in the computation based on the weighted averagenumber of days since issuance. The weighted average number of ordinary sharesfor the year ended 31 October 2003 is assumed to be equal to the 124,000,000ordinary shares issued in relation to the reverse acquisition. An adjusted earnings per share has been disclosed in order to show performanceassociated with earnings at the level before interest, tax, depreciation andafter eliminating the distorting effect of goodwill written off in connectionwith the reverse acquisition ("adjustments"). The calculation of diluted earnings per share is based on the basic earnings pershare, adjusted to allow for the issue of shares on the assumed conversion ofall dilutive potential ordinary shares. There were no post tax effects ofdividends or interest requiring adjustment in calculating the earnings fordilutive earnings per share. Reconciliations of the earnings and weighted average number of shares used inthe calculations are set out below. 18 Months ended 30 April 2005 Year ended 31 October 2003 Earnings Weighted Per Share Earnings Weighted Per Share average amount average amount number of pence number of pence shares shares millions millions Unaudited Unaudited Unaudited Audited Audited Audited £'000 £'000Basis EPS (2,511) 129.6 (1.94) 378 124.0 0.30Adjustments 3,105 235Adjusted EPS 594 129.6 0.46 613 124.0 0.49 Dilutive effect of - 0.4 - - - -optionsDiluted EPS (2,511) 130.0 (1.93) 378 124.0 0.30Adjusted diluted EPS 594 130.0 0.46 613 124.0 0.49 NOTES TO THE PRELIMINARY ANNOUNCEMENT For the period ended 30 April 2005 6). NET CASH (OUTFLOW) / INFLOW FROM OPERATING ACTIVITIES Eighteen months ended 30 Year ended 31 October April 2005 2003 Unaudited Audited £'000 £'000Operating (loss) / profit (2,317) 511Depreciation & amortisation 2,911 102Increase in debtors (240) (422)(Decrease) / increase in creditors (642) 974Net cash (outflow) / inflow from operating activities (288) 1,165 7). RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Eighteen months ended Year ended 31 30 April 2005 October 2003 Unaudited Audited £'000 £'000(Decrease) / increase in cash in the financial period (72) 489Loan notes issued in connection with acquisition (Note 1) (2,500) -Other non-cash items (94) -Movement in net (debt) /funds in the financial period (2,666) 489 Net funds at 1 November 2003 502 13Net (debt) / funds at 30 April 2005 (2,164) 502 8). PUBLICATION OF NON-STATUTORY ACCOUNTSThe financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. The summarised balance sheet at 30 April 2005 and the summarised profit and lossaccount, summarised cash flow and associated notes for the period then endedhave been extracted from the Group's draft financial statements. These financialstatements have not yet been delivered to the Registrar, nor have the auditorsreported on them. This information is provided by RNS The company news service from the London Stock Exchange