RNS Number:3917T
BNS Telecom Group plc
30 April 2008
30 April 2008
BNS Telecom Group plc
Interim Results
BNS Telecom Group plc ("BNS" or the "Group"), a leading IP telecoms services
provider and carrier, publishes its interim results for the six months ended 31
January 2008. The Group has adopted IFRS accounting with 2007 comparisons
restated accordingly.
Highlights:
* Revenue from continuing operations increased by 44% to #16.39 million
(2007: #11.41 million)
o Excluding deferred income from IP product sales of #681,000 for future
release.
* Gross margins remain strong in traditional telecoms products.
* Underlying operating profit* #530,000 (2007: #831,000).
* Closure of loss making Network Services Division in October 2007.
* Reported pre tax losses, including discontinued activities, #1.16 million
(2007: profit #0.39 million).
* Adjusted* earnings per share were 0.55p (2007: 1.06p).
* Strong cash generation from continuing operations of #1.21 million
(2007: outflow of #0.43 million).
* Strategic shift to IP telecoms carrier being implemented
o 'New wave technology' suite of products launched
o Contracted IP-based sales order values of #8.5 million at 28 April
2008 including an order book of #2.8 million
o Fully installed total contract value #3.2 million as at 31 January
2008 and #5.7 million as at 28 April 2008
o Further product development for fixed mobile convergence
* Appointed a Vodafone Premier Partner.
* Group net debt unchanged at #2.8 million despite discontinued Network
Services outflow of #1.2 million.
* Excluding discontinued business, exceptional items, share based payments,
amortisation of intangible fixed assets and profit on sale of property
Garry Moat, Chief Executive, said:
"The rapid repositioning of BNS from reseller to IP telecoms carrier continues
to gather momentum. We are confident that the Group is entering a very exciting
period in its development having launched nine new IP-related products in nine
months and with the largest order book to date, currently standing at #2.8
million.
"Following the final closure of the loss making Network Services Division in the
first half of 2007/2008, a continued improvement in trading results in the
second half is anticipated. This will be built on the profitable performance of
our mobile operations and the increasing market penetration of our IP solutions.
"The sales force has been doubled and staff numbers have been increased across
the business to handle the additional sales volume generated by these exciting
new products. Ongoing cash generation is improving and the growing levels of
deferred income provide enhanced forward visibility. As we continue to develop
our suite of IP products, overall our prospects look increasingly favourable."
Enquiries:
BNS Telecom Group plc
Garry Moat, Chief Executive Tel: 01661 839 554
Andrew Goldwater, Finance Director
KBC Peel Hunt Ltd (Nominated Adviser & Broker)
David Anderson Tel: 020 7418 8900
College Hill
Adrian Duffield/Kate Norton Tel: 020 7457 2815
Chairman's and Chief Executive's Statement
Strategic Overview
The Group has continued its shift in strategic direction from being a SME
telecoms reseller towards positioning BNS as a leading supplier of Internet
Protocol (IP) products and network services. BT's roll out of their 21st
Century Network (21CN), a next-generation network underpinned by IP, represents
a clear statement from a market leading provider of their view of the market's
future direction. BNS shares that view and is confident that as Fixed Mobile
Convergence (FMC) gathers pace ISDN will inevitably give way to IP telephony in
the SME market.
The roll out of the Group's IP strategy is transforming the financial
performance of the business and has resulted in a notable jump in total contract
values and strong cash generation from its IP telephony products. These
products and services also provide the Group with considerable enhanced forward
visibility as most are sold with contract lengths of between five and seven
years.
Financials
Group revenue, excluding discontinued operations and deferred income relating to
IP-based products of #680,000, increased by 43.7% to #16.39 million (2007:
#11.41 million excluding discontinued operations). Most of this improvement was
due to the full six month contribution of 3g, which was acquired in March 2007,
strong growth of the new IP products as well as a good performance by the
Group's traditional revenue streams of fixed line, calls traffic, hardware
supply and maintenance.
Fully installed total IP-based contract value as at 31 January 2008 was #3.2
million of which #1.11 million had been invoiced. Deferred income on the
balance sheet of #0.68 million reflects revenues which will be released over the
life of contracts, some up to seven years. This is expected to increase as the
Group grows its long-term contract base with its IP products and services.
Group gross margin has fallen from 38.2% to 33.9% primarily due to the change in
sales mix with more comparatively lower margin mobile sales. Overall, the
traditional revenue streams of fixed line, calls traffic, hardware supply and
maintenance have performed well, broadly in line with the Group's expectations.
Strong margins on IP-based product sales have also helped to offset pressure on
margins in a highly competitive market.
Underlying operating profit from continuing operations was #530,000 (2007:
#831,000) before intangible charges and amortisation of #95,000 (2007: #Nil), a
share-based payment credit of #26,000 (2007: charge of #28,000) and exceptional
items of #150,000 (2007: #118,000). This decrease in operating profit reflects
the change in sales mix towards IP-based products which include a significant
amount of deferred income.
Net finance costs were #375,000 (2007:#112,000). The increase reflects the
higher average net debt levels resulting mainly from the financing of the 3g
acquisition. Pre-tax profit from continuing operations was #107,000 (2007:
#590,000).
The Group had a net tax credit of #341,000 (2007: expense of #122,000) as a
result of utilisation of tax losses arising during the period in the Network
Services Division. The credit has also benefited from the release of an
overprovision in 2006.
As stated in the preliminary results on 28 November 2007, the Group closed its
Network Services Division in late October 2007. The post-tax result of this
discontinued operation has been disclosed separately as a single amount and
includes the outstanding closure charges, provisions and losses incurred by this
unit during the first three months of the financial year.
The Group reported a net loss for the period of #821,000 (2007: profit of
#264,000). Adjusted earnings per share arising from continuing operations were
0.55p (2007: 1.06p). Basic loss per share for the period was 1.64p (2007:
earnings per share 0.57p).
BNS generated strong cash flow of #1.21 million (2007: outflow of #0.43 million)
from its continuing operations and having kept a tight control on cash
maintained its net debt position at #2.8 million (July 2007: #2.8 million) in
spite of cash outflows from discontinued operations of #1.16 million. A VAT
creditor of #800,000 relating to proceeds from the sale and leaseback of the
head office property also reversed during the period.
Capital expenditure on plant and equipment during the period was #0.1 million
representing normal recurring expenditure. The Group continues to operate a
policy of writing off all research and development costs in full in the period
in which they are incurred.
Operating review
The BNS customer base has grown to 9,460 compared with 8,898 at 31 July 2007 and
6,336 at 31 January 2007. A further reduction in average monthly churn to
approximately 1.4% (July 2007: 1.5%) reflects a broadening product range and
improvements in customer service.
The IP-based suite of products was launched during 2007. In total nine new
products have now been launched in the last 12 months including the Group's
Hosted IP Centrex system, the BNS IP Smartbox, WiDial and Call recording.
Average monthly sales order intake has been running at record levels for the
Group throughout the period.
The Group has continued to increase its sales, marketing and engineering
capabilities. Although this recruitment increases up-front costs, it will
enable BNS to take advantage of the growing demand for IP-based products and
convert the growing order book to installed sales. At 28 April 2008 the
outstanding order book for IP-based products had a total term contract value of
#2.8 million. The majority of sales are on contracts of between five and seven
years.
Performance within the traditional revenue streams of fixed line access and
calls and hardware supply and maintenance have remained broadly in line with the
Group's expectations.
Fixed line access and calls H1 H1
2008 2007
Revenue (#'m) 8.5 9.0
Lines volume 43,260 44,708
Call minutes sold ('000) 100,695 110,384
The reduction in fixed line access and call revenue reflects falling call usage
as more business calls are made on mobiles and also a reduction in internet
dial-up usage as the availability of broadband-based internet access becomes
more widespread. Continued pricing pressure in a very competitive market has
also led to a reduction in call margins by approximately 3.0% between H1'2008
and H1'2007. The Group is well positioned to resist these market trends due to
its extended product range and newly negotiated terms with its key supply
partners which will reduce buying costs in H2'2008.
Mobile H1 H1
2008 2007
Revenue (#'m) 5.83 0.63
Subscribers 17,910 2,685
Since the acquisition of 3g in March 2007, which provided the Group with an
immediate increase in scale in the mobile market, progress has continued to be
made across a range of key indicators. Mobile network churn remains well
controlled at 10.4%, giving the Group a solid platform for further growth.
Although monthly ARPU's have reduced in line with industry trends, they remain
strong at #53.
The Group continues to have a highly productive working relationship with
Vodafone as demonstrated by BNS' appointment as a Vodafone Premier Partner, one
of only five in the UK.
Despite the detrimental effect of industry wide pressure on tariffs from factors
such as EU Roaming price reductions, margins have remained strong. This
strength has resulted from focussing on selling to high margin users. The
integration of 3g in to the Group has also resulted in certain synergies and
cost savings being identified and exploited. The Board believes that the
process of cross-selling mobile products to the existing BNS customer base is
still at a comparatively early stage and represents a considerable opportunity
in H2'2008.
Hardware Supply and Maintenance #'m H1 H1
2008 2007
Traditional systems
Revenue 1.37 1.77
IP-based systems
Revenue recognised 0.43 -
Deferred income 0.68 -
Invoiced sales 1.11 -
Total invoiced sales 2.48 1.77
The shifting demand from traditional telephone systems to IP based technology
will inevitably lead to falling sales of traditional hardware supply and
maintenance. The Group had expected the changing sales focus to lead to a
greater fall in sales of traditional systems than has actually been experienced.
Hardware margins are also improving overall due to the higher proportion of IP
systems being sold.
Revenue recognised in H1'2008 for combined traditional and IP-based products at
#1.80 million is higher compared with H1'2007 revenue of #1.77m. Total invoiced
sales for traditional and IP-based systems have increased by 40.1% to #2.48
million (2007: #1.77 million). The difference between revenue recognised and
total invoiced sales represents deferred income in the balance sheet to be
released to profit over the term of the customer contract.
BNS' Network Operations Centre continues to play an important role in supporting
the IP-based product offerings of Group. This strategic role will become even
more important as the Group continues to develop its IP products. Employing its
own network, BNS controls the routing of calls, thereby ensuring the quality of
calls being made. Having launched its first FMC product, WiDial, in 2007, the
Group is well positioned to deliver market leading solutions as this technology
continues to develop.
As an IP telecoms carrier the Group is now able to offer a unique combination of
cutting-edge products including payment for receiving inbound calls (an
industry first) and VoIP on mobile phones, plus significantly cheaper calls.
BNS' VoIP network and technology can be installed or integrated with existing
telephone systems, to ensure SME and corporate customers have enhanced
capability, flexibility and control over their communications.
Current trading and outlook
The transformation of BNS into a leading supplier in IP-based voice solutions
has strengthened the Group's position as a complete service provider to the SME
market. Indeed the Board believes BNS is at the forefront of this
transformation in its chosen market.
The success of the new technology IP-based products introduced during 2007 is
expected to drive strong cash generation within the continuing operations of the
Group as well as providing enhanced forward visibility. The greatest
opportunity for BNS over the coming years will be to enable customers to take
advantage of converged VoIP solutions. Furthermore, the pipeline of
cross-selling activity continues to build and is expected to be an area of
progress for the Group in H2'2008.
BNS has set itself apart from other 'resellers' by investing in its own
switching infrastructure. Now with a proven track record as an IP telecoms
carrier, the Directors believe that the Group is well placed to take advantage
of opportunities arising in a rapidly changing market. It is anticipated that
this will result in continued strong cash generation and further improvements in
earnings visibility as deferred income builds in the balance sheet and is
released to profit over the duration of the long-term contracts.
Following the final closure of the loss making Network Services Division in the
first half of 2007/08, a continued improvement in trading results in the second
half is anticipated. This is expected to be built on the profitable performance
of the Group's mobile operations and the increasing market penetration of the
Group's IP solutions. The sales force has been doubled and staff numbers have
been increased across the business to handle the additional sales volume
generated by these exciting new products.
With a total contract value on IP-based products as at 28 April 2008 of #8.5
million, including an order book of #2.8 million, ongoing cash generation is
improving and the growing levels of deferred income provide enhanced forward
visibility. As the Group continues to develop its suite of IP products, overall
the Group's prospects look increasingly favourable.
Graham Wilson Garry Moat
Chairman Chief Executive
30 April 2008
Consolidated Income Statement
Restated Restated
(Unaudited) (Unaudited) (Audited)
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2008 2007 2007
Note #'000 #'000 #'000
Continuing operations
Group revenue 16,391 11,407 26,201
Cost of sales (10,840) (7,049) (16,838)
Gross profit 5,551 4,358 9,363
Net operating expenses (excluding depreciation, (4,802) (3,194) (7,100)
amortisation, share based payments and exceptional items)
Depreciation of tangible assets (219) (333) (569)
Goodwill charges and intangible amortisation (95) - (71)
Share-based payment credit/(charge) 26 (28) (52)
Exceptional items (150) (118) (68)
Net operating expenses (5,240) (3,673) (7,860)
Group operating profit before sale of property 311 685 1,503
Profit on sale of property - - 1,018
Group operating profit from continuing operations 311 685 2,521
Finance revenue 34 - 21
Finance costs (238) (95) (328)
Profit from continuing operations before taxation 107 590 2,214
Taxation (expense)/credit (48) (182) 208
Profit for the period from continuing operations 59 408 2,422
Discontinued operations
Post tax loss for the period from discontinued operations 3 (880) (144) (5,970)
(Loss)/profit for the period (821) 264 (3,548)
(Loss)/profit for the period attributable to:
Equity holders of the parent (821) 287 (3,525)
Minority interest - (23) (23)
EARNINGS PER SHARE
- basic on continuing operations 4 0.12p 0.86p 4.88p
- diluted on continuing operations 4 0.12p 0.84p 4.79p
- adjusted on continuing operations 4 0.55p 1.06p 3.21p
- basic on all operations for the period 4 (1.64)p 0.57p (7.03)p
- diluted on all operations for the period 4 (1.64)p 0.56p (7.03)p
Consolidated Balance Sheet
Restated Restated
(Unaudited) (Unaudited) (Audited)
As at As at As at
31 January 2008 31 January 31 July
#'000 2007 2007
Note #'000 #'000
Assets
Non-current assets
Property, plant and equipment 2,042 6,689 2,176
Intangible assets 1,353 84 1,450
Goodwill 3,843 2,090 3,843
7,238 8,863 7,469
Current assets
Inventories 372 292 316
Trade and other receivables 4,075 5,706 4,227
Cash and cash equivalents 1,478 736 2,148
Taxation assets 265 - -
6,190 6,734 6,691
Total Assets 13,428 15,597 14,160
Liabilities
Current liabilities
Trade and other payables (4,702) (3,177) (5,007)
Borrowings (1,353) (5,005) (1,556)
Accruals and deferred income (4,303) (3,109) (3,813)
Taxation liabilities - (352) -
Other financial liabilities (41) - (4)
(10,399) (11,643) (10,380)
Non-current liabilities
Borrowings (2,920) (158) (3,340)
Other provisions (69) - (130)
Deferred income (573) - -
Deferred tax liabilities (331) (41) (293)
(3,893) (199) (3,763)
Total liabilities (14,292) (11,842) (14,143)
Net (liabilities)/assets (864) 3,755 17
Capital and reserves
Called up share capital 5 5,012 5,012 5,012
Share premium 5 2,245 2,245 2,245
Other reserves 5 (3,939) (3,821) (3,939)
Revenue reserve 5 (4,182) 319 (3,301)
Total equity (864) 3,755 17
Consolidated Statement of Recognised Income and Expense
Restated Restated
(Unaudited) (Unaudited) (Audited)
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2008 2007 2007
#'000 #'000 #'000
Income and expense recognised directly in equity
Deferred tax on share based payments (34) 11 10
Net income recognised directly in equity (34) 11 10
(Loss)/profit for the year (821) 264 (3,548)
Total recognised income and expense for the year (855) 275 (3,538)
Attributable to:
Equity holders of the parent (855) 298 (3,515)
Minority interest - (23) (23)
(855) 275 (3,538)
Consolidated cash flow statement
Note 6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2008 2007 2007
(Unaudited) (Unaudited) (Unaudited)
#'000 #'000 #'000
Cash flow from operating activities
Cash inflow/(outflow) from operations 6 52 (1,849) (884)
Finance income 31 - 21
Finance expense (200) (112) (320)
Interest element of finance lease payments
Tax received/(paid) 218 (20) (226)
Net cash generated from/(used in) operating activities 101 (1,981) (1,409)
Investing activities
Proceeds from sale of property, plant & equipment 25 49 4,804
Payments to acquire property, plant & equipment (120) (1,263) (1,443)
Acquisition of subsidiaries (net of cash acquired) - (100) (3,307)
Purchase of intangible assets (7) (114) (159)
Net cash used in investing activities (102) (1,428) (105)
Financing activities
Net (decrease)/increase in borrowings (416) 1,124 1,969
Repayment of capital element of finance lease payments (201) (257) (476)
Dividend paid - (251) (251)
Net cash (outflow)/inflow from financing activities (617) 616 1,242
Net (decrease)/increase in cash and cash equivalents 7 (618) (2,793) (272)
Cash and equivalents at the start of the period 7 2,096 2,368 2,368
Cash and equivalents at end of period 1,478 (425) 2,096
Notes
Unaudited results for the six months ended 31 January 2008
1. Summary of significant accounting policies
BNS Telecom Group PLC (the "Company") is a company domiciled in the United
Kingdom. The condensed consolidated interim financial statements of the Company
for the six months ended 31 January 2008 comprise the Company and its subsidiary
undertakings (together referred to as the "Group").
The Group is required to adopt International Financial Reporting Standards
(IFRS) with effect from 1 August 2007. The results for the six months to 31
January 2008 represent the Group's first interim financial statements prepared
in accordance with IFRS. The Group's first IFRS Annual Report and Financial
Statements will be for the year ending 31 July 2008.
Previously, the Group reported under UK GAAP. The accounting policies used in
this statement are consistent with those to be used in the July 2008 annual
report. Detailed reconciliations, showing the impact of transition to IFRS, are
reported in a separate document, which is available on our website
www.bnsplc.com
This interim report has been prepared using those standards that the Group
expects to be endorsed and applicable when the IFRS financial statements are
prepared for the year ending 31 July 2008. These standards are subject to
ongoing review and endorsement by the European Union or possible amendment by
interpretive guidance from the International Accounting Standards Board and the
International Financial Reporting Interpretations Committee and are, therefore,
still subject to change.
The interim results are not reviewed by the auditors, Ernst & Young LLP.
2. Taxation
The interim tax charge is based on an estimate of the likely effective tax rate
for the full year, expressed as a percentage of the expected results for the
year and then applied to the interim profit before tax.
3. Discontinued operations
6 months 6 months ended Year
ended 31 January ended
31 January 2007 31 July
2008 (Unaudited) 2007
(Unaudited) #'000 (Unaudited)
#'000 #'000
Revenue 1,762 4,437 8,710
Expenses (2,860) (4,624) (12,974)
Operating loss (1,098) (187) (4,264)
Impairment of goodwill and P,P&E - - (1,706)
Finance (costs)/income (171) (17) -
Loss before tax from discontinued operations (1,269) (204) (5,970)
Tax credit on loss on ordinary activities 389 60 -
Loss after tax on discontinued operations (880) (144) (5,970)
4. Earnings per share
(a) Basic earnings per share
The calculation of earnings per share is based on the net profit/(loss) for the
financial period and on the weighted average number of ordinary shares in issue
during a six month period.
6 months 6 months ended Year
ended 31 January ended
31 January 2007 31 July
2008 (Unaudited) 2007
(Unaudited) (Unaudited)
Basic earnings per share
Net profit/(loss) attributable to equity holders
of the parent (#'000)
- Continuing operations 59 408 2,422
- All operations including discontinued (821) 264 (3,548)
Weighted average number of shares in issue ('000) 50,123 50,123 50,123
Basic earnings per share (pence)
- Continuing operations 0.12 0.81 4.83
- All operations including discontinued (1.64) 0.53 (7.08)
(b) Adjusted earnings per share
Adjusted earnings per share excludes the after tax effect of amortisation of
goodwill and exceptional operating expenses. The directors believe that this
gives a better indication of underlying commercial performance.
6 months 6 months ended Year
ended 31 January ended
31 January 2007 31 July
2008 (Unaudited) 2007
(Unaudited) #'000 (Unaudited)
#'000 #'000
Adjusted earnings per share
(Loss)/profit after tax (821) 264 (3,548)
Effect of discontinued operations 880 144 5,970
Amortisation of intangible assets 95 - 64
Exceptional items relating to continuing
operations 150 118 68
Profit on sale of property - - (1,018)
Share based payment credit/charge (26) 28 52
Adjusted profit after tax 278 554 1,588
Weighted average number of shares in issue ('000) 50,123 50,123 50,123
Adjusted earnings per share (pence) 0.55 1.11 3.17
(c) Diluted earnings per share
The calculation of diluted (loss)/earnings per ordinary share is identical to
that used for the basic loss per ordinary share for the 6 months ended 31
January 2008 and the year ended 31 July 2007. This is because the exercise of
the options would have the effect of reducing the loss per ordinary share and
is, therefore not dilutive under the terms of IAS 33.
For the 6 months ended 31 January 2007 the effect of the dilution is to reduce
the earnings per share from 0.57p to 0.56p.
5. Movement in reserves
Equity
share Share Other Revenue
capital premium reserve reserves Total
#'000 #'000 #'000 #'000 #'000
At 1 August 2007 (restated) 5,012 2,245 (3,939) (3,301) 17
Total recognised income and expense - - - (855) (855)
Share based payment - - - (26) (26)
At 31 January 2008 5,012 2,245 (3,939) (4,182) (864)
6. Reconciliation of operating profit to net cash inflow from operating
activities
6 months ended 6 months ended Year
31 January 31 January ended
2008 2007 31 July
(Unaudited) (Unaudited) 2007
(Unaudited)
#'000 #'000 #'000
Continuing operations
Operating profit 311 685 2,521
Adjustments for:
Depreciation 211 333 569
Profit on sale of property, plant and - (9) (1,018)
equipment
Amortisation of intangibles 104 - 71
Share option non cash charge (26) 28 52
Changes in working capital
(Increase)/decrease in inventories (58) (1) 87
(Increase)/decrease in other receivables (487) (433) 745
Decrease/(increase) in trade and other 1,156 (1,036) (878)
payables
Cash generated from continuing operations 1,211 (433) 2,149
Discontinued operations
Loss before interest and tax (1,104) (187) (5,970)
Adjustments for:
Depreciation 64 31 972
Impairment of goodwill - - 1,038
Changes in working capital
Decrease/(increase) in inventories 3 (21) (3)
Decrease/(increase) in other receivables 507 (1,396) 35
(Decrease)/increase in trade and other (568) 157 765
payables
(Decrease)/increase in provisions (61) - 130
Cash outflow from discontinued operations (1,159) (1,416) (3,033)
Cash generated from operations 52 (1,849) (884)
7. Analysis of net debt
(Unaudited)
At 1 August Other non At 31 January
2007 cash changes 2008
#'000 Cash flow #'000 #'000
#'000
Cash at bank and in hand 2,148 (670) - 1,478
Bank overdrafts (52) 52 - -
Cash 2,096 (618) - 1,478
Finance leases and hire purchase contracts (495) 201 (46) (340)
Loans (4,349) 416 (43) (3,976)
Net debt (2,748) (1) (89) (2,838)
8. Publication of non-statutory financial statements
The financial information contained in the interim statements does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985 and the results are unaudited. The financial information for the year to
31 July 2007 and the six months ended 31 January 2007 has been extracted from
the Group's IFRS transitional document, which were based on the Group's 2007
Annual Review and the 2007 interim report.
The 2007 Annual Review has been filed with the Registrar of Companies. The
audit report on the Annual Report 2007 was unqualified and did not contain a
statement under Section 237 (2) or (3), of The Companies Act.
9. Approval by the Board of Directors
The interim Report was approved by the Board of Directors on the 29 April 2008.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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