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Pipex Communications (FFG)

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Thursday 07 September, 2006

Pipex Communications

Interim Results

Pipex Communications PLC
07 September 2006



7 September 2006



                            Pipex Communications plc

                 Results for the six months ended 30 June 2006



Financial Highlights

  • Turnover up 86% to £119.2m (H1 2005: £64.1m)
      • Acquisition of Homecall contributed £43.2m
  • Gross profit up 58% to £46.4m (H1 2005: £29.3m)
      •  Acquisition of Homecall contributed £13.1m
  • EBITDA* up 70% to £12.8m (H1 2005: £7.5m)
  • Profit before tax** doubled to £3.2m (H1 2005: £1.6m)
  • Free cash flow of £9.5m before freehold property purchases of £7.6m (H1
    2005: £5.4m)
  • Issue of £91.5m convertible bonds
  • Cash of £37.8m (December 2005: £14.0m) and net debt of £52.2m (December
    2005: £27.7m)

* before integration costs and share option costs

** pre-amortisation



Operational Highlights

  • Acquisition of Homecall in March for £44m:

      • Strengthened position in broadband, voice and line rental
      • Took PIPEX above 1,000,000 customers
      • Leveraged infrastructure investments and local loop unbundling
        strategy (LLU)

  • Increase in customer numbers:

      • Broadband and voice up 287% to 832,000
      • Hosting up 23% to 316,000
      • Domain names increased to 1.5m from 1.2m

  • ARPUs in the broadband/voice business have increased by 8.7% since the
    year end

  • Joint venture with Intel to exploit Pipex Wireless' WiMAX spectrum licence



Post period end

  • Launch of "The Hoff" marketing campaign with early indications of a 50%
    increase in the rate of broadband growth.
  • Brand awareness for Pipex in UK now at 50%
  • Acquisition of Bulldog's broadband customers for £12.5m
      • Brings 110,000 customers
      • ARPU of £34
      • Entered into wholesale agreement with Cable & Wireless
  • Agreement to acquire Toucan for £24m
      • Brings 185,000 customers
      • ARPU of £23
      • Allows Pipex to offer triple play with mobile



Peter Dubens, Chairman, commented:

"We have seen impressive trading in the first half of 2006, with strong revenue
and profit growth.  Our WiMAX joint venture with Intel means there are some
exciting opportunities for Pipex to exploit during the next few years, while our
recent marketing campaign with "The Hoff" has seen early indications of a 50%
acceleration in the take-up of broadband.

"With the acquisitions of Homecall, and today Bulldog's broadband customers, and
an agreement to buy Toucan, we have gained even more scale in the broadband and
voice market, and, as an enlarged group, Pipex now has the size and credibility
to evolve as a leading player in the broader UK telecoms marketplace.  I am
confident that we can continue this momentum throughout the rest of 2006 and
beyond."

                                     -ends-


PIPEX Communications plc                                          020 7766 6909
Peter Dubens, Chairman

Financial Dynamics                                                020 7831 3113
Juliet Clarke / Edward Bridges / Hannah Sloane







Chairman's Statement

I am pleased to report strong trading for the first half of 2006.

Turnover increased by 86% over the same period last year, EBITDA (before
integration costs and share option costs) rose 70%, and free cash flow excluding
freehold property purchases was 75% higher.  Turnover in the broadband and voice
division increased by 146%, of which Homecall contributed 120%, while hosting
and domain names division turnover increased by 31%.

At the end of March 2006, we acquired Homecall, a fixed line telephone business,
from Phones4U for £44m.  The acquisition made Pipex the third largest fixed
voice services provider in the UK and significantly enhanced our capability to
provide bundled services to our customers.  The acquisition also provides
important new sales channels to the group through its extensive out-bound
telesales operation and high street distribution through a network of 381
Phones4U shops.  Importantly, Homecall's broadband customer base provides
additional leverage to Pipex's LLU investment.

The broadband and voice division ended the period with 832,000 customers.  Of
these, 48% took a broadband service, and a further 34% a voice and line rental
bundle. Pipex operates a hybrid cost of service model, blending its own
unbundled exchanges with wholesale services purchased from other operators and
BT's IP Stream.  This allows Pipex to lower its cost of service whilst not
over-committing to future LLU capital expenditure where a payback is uncertain.
This has positioned Pipex to lower its costs of service for the division moving
forward.

In April 2006, we formed a joint venture with Intel, (Pipex Wireless), to
exploit Pipex's spectrum licence that can operate using the WiMAX standard.
Intel agreed to invest $25m for a minority stake in Pipex Wireless, the proceeds
of which are being used to develop the business to commercial launch.  Technical
trials have successfully been completed and Pipex Wireless is in discussion with
a number of local authorities regarding launching commercial service.

Financial Overview

Turnover increased by 86% in the period to £119.2m.  Of the increase, existing
business was 19% and the Homecall acquisition contributed £43.2m.

Gross profit for the six months was £46.4m compared to £29.3m for the same
period last year, an increase of 58%.  Overall, gross margin declined from 46%
to 39%, principally due to the impact of Homecall which, with a high proportion
of low margin line rental revenues in its mix, had a gross margin of 30%.

Operating expenses before amortisation, depreciation and integration and share
option costs improved again as a percentage of turnover, to 28% from 34% for the
same period last year

EBITDA (operating profit before amortisation, depreciation, integration and
share option costs) rose £5.3m to £12.8m.

This period is the first time that the company is required to report under FRS
20.  Under this Standard, share-based incentives provided to employees are
assessed by reference to fair value using an option pricing model which takes
into account expected future movement in the company's share price.  This fair
value is then amortised through the P&L account over the estimated period of the
options.  The half year charge of £0.9m is based on the number of unvested
options as at the 31 December 2005.  This charge does not represent a cash cost
to the company.

Operating loss before share of joint venture loss improved by £1m to £1.8m.

In April 2006 the company issued £91.5m convertible bonds, redeemable in 2011.
The bonds have a reference price of 15.1p and a conversion premium of 26%
(conversion price 19p).  The coupon is 3.875%.  The proceeds of the bond were
used to fund the acquisition of Homecall, to repay the group's debt amounting to
£35.5m, and for general working capital purposes.

Free cash flow for the six months was £9.5m (excluding the cost of purchasing
two freehold properties for £7.6m) compared to £5.4m for the same period last
year.  Cash at 30th June 2006 was £37.8m and net debt was £52.2m.  The bonds
comprise £81.0m of the net debt total, the difference between this and the value
of £91.5m mentioned above relates predominantly to the equity component of the
bonds.  This is calculated as the excess of the issue proceeds over the present
value of the future interest and principal payments discounted at a market rate
of interest.  The interest expense recognised in the P&L account is calculated
using an effective interest rate.

Operational Review

Broadband and voice

As I stated at the year end, our focus has been to sell multiple products to
customers in order to enhance average revenues and margins per customer and to
reduce customer churn.  We are however mindful that any offering must combine
competitive pricing, outstanding customer service and imaginative marketing.
Within the consumer market, this approach has been reinforced by a post-period
end £3m high profile media campaign fronted by David "The Hoff" Hasselhoff, the
majority of which will be charged in the second half. We are promoting 8Mb
nationwide broadband for £6.50 per month when taken with a voice package.
Today, 48% of our broadband and voice customers take bundled service packages
from us.  Average revenues per customer are £25 per month which compares to £23
at the end of last year.

We continue to attract business broadband customers and they consistently
represent 15% of the total broadband base.  These customers provide balance to
the utilisation of our network being mainly daytime users compared to
residential customers who are predominantly evening users.

Pipex has consistently recognised the need to stay competitive and by closely
managing its network costs is able to price its services to match any offers on
the market.  Local Loop Unbundling is a critical factors in network costs and we
continue to analyse opportunities in this area.   The acquisition of Homecall
has enabled us to increase the number of target exchanges from 60 to 175.  Of
these, 45 have so far been completed.  The migration of customers onto our
unbundled exchanges started in July and, to date, we have moved 6,000 customers
on to this network.

While we recognise that competitively priced services are of paramount
importance, we also acknowledge that customer services are a key differentiator
for Pipex.  We continue to invest in systems, facilities and people to deliver a
consistently high level of customer service.  This is due in many ways to the
excellent back office systems that came with the Homecall acquisition and we
will build on this platform to provide services for much of the group going
forward.

Hosting and Domain Names

Pipex is a leading supplier of web hosting and domain name services in the UK
and Germany.  At the end of the period we had 316,000 hosting customers and 1.5m
domain names, representing increases of 23% and 26% respectively over the same
period last year.

Gross margins for this division have been maintained at 68%. EBITDA and free
cash flow contributed by this division remain very strong and are growing.
EBITDA for the half year grew by 20% over that same period last year.

With data centre utilisation now reaching capacity, we are in the process of
securing additional space.  In Germany, we have acquired a freehold property
which will provide 24,000 square feet of new data centre space.  We have also
secured an additional 15,000 square feet of additional capacity in the UK which
should come on line in the second quarter next year.

Outlook

The investment in sales and marketing, and specifically the £3m advertising
campaign featuring "The Hoff", has been extremely successful, resulting in a
doubling in our brand awareness to 50% and early indications of a 50% increase
in the rate of broadband customer growth. These advertisements will continue to
run in print and on TV and radio until the end of November.

The acquisition of Bulldog's broadband customers and agreed acquisition of
Toucan will increase our total broadband and voice customers to 1,140,000 giving
us more scale and providing further cross-selling and cost reduction
opportunities.  Toucan will also give us the ability to provide a triple play
service by adding mobile to our bundle.

We believe that our adoption of a hybrid cost of supply model will continue to
serve us very well in this competitive market by generating cost savings whilst
not exposing us to high risk capital expenditure.

Hosting and domain names will continue to benefit from growth due to increasing
internet usage across Europe.

The next six months will see a step increase in the level of activity in Pipex
Wireless.  We expect to start the commercial roll-out of services within that
timeframe.

In summary, the Board of Pipex believes that the company is developing well and
is well set for future growth for the remainder of the year, and beyond.

Peter Dubens
Chairman
6 September 2006


Consolidated profit and loss account (unaudited)
for the six months to 30 June 2006

                                                   6 months to 30 June 2006
                                                                                       Continuing    Continuing
                                                                                         6 months       Year to
                                                                                       to 30 June        31 Dec
                                                                          Continuing         2005          2005
                                               Existing    Acquisitions        Total     Restated      Restated
                                                  £'000           £'000        £'000        £'000         £'000
Turnover                                         76,040          43,177      119,217       64,070       132,939
Cost of sales                                  (42,757)        (30,080)     (72,837)     (34,756)      (71,782)
Gross profit                                     33,283          13,097       46,380       29,314        61,157

Operating expenses before
amortisation, depreciation,
integration and share
option costs                                   (24,352)         (9,278)     (33,630)     (21,806)      (44,203)
Amortisation of intangibles                     (6,122)         (1,436)      (7,558)      (5,437)      (11,236)
Depreciation                                    (4,557)           (725)      (5,282)      (3,350)       (7,055)
Integration costs                                 (818)            (90)        (908)        (652)       (1,986)
Share option costs                                (801)               -        (801)        (882)       (2,536)

Operating expenses                             (36,650)        (11,529)     (48,179)     (32,127)      (67,016)

Operating profit before
amortisation, depreciation,
integration and share
option costs                                      8,931           3,819       12,750        7,508        16,954
Amortisation of intangibles                     (6,122)         (1,436)      (7,558)      (5,437)      (11,236)
Depreciation                                    (4,557)           (725)      (5,282)      (3,350)       (7,055)
Integration costs                                 (818)            (90)        (908)        (652)       (1,986)
Share option costs                                (801)               -        (801)        (882)       (2,536)

Operating (loss)/profit                         (3,367)           1,568      (1,799)      (2,813)       (5,859)
Share of operating loss
of joint ventures                                     -           (262)        (262)            -             -
Operating (loss)/profit
including joint ventures                        (3,367)           1,306      (2,061)      (2,813)       (5,859)
Other interest receivable
and similar income                                                               369          165           303
Interest payable and
similar charges                                                              (2,688)      (1,215)       (3,068)
Loss on ordinary activities
before taxation                                                              (4,380)      (3,863)       (8,624)
Tax on loss on ordinary
activities                                                                     (412)        (252)          (48)
Loss for the financial period                                                (4,792)      (4,115)       (8,672)
Loss per ordinary share - Basic                                                0.21p        0.19p         0.39p
                        - diluted                                              0.21p        0.19p         0.39p



Consolidated statement of group total recognised gains and losses
(unaudited) for the six months to 30 June 2006

                                                                                  6 months to          Year to
                                                                6 months to      30 June 2005      31 Dec 2005
                                                               30 June 2006          Restated         Restated
                                                                      £'000             £'000            £'000

Loss for the financial period                                       (4,792)           (4,115)          (8,672)
Unrealised loss on disposal to joint venture                        (9,672)                 -                -
Translation difference in respect of net
investment in overseas subsidiary
undertaking                                                               7              (60)             (28)
Total recognised losses in the period                              (14,457)           (4,175)          (8,700)

In accordance with UITF31 "Exchange of business for an interest in joint venture
", the unrealised loss on disposal to joint venture arose on the disposal of
Pipex's WiMAX licence holding company to Pipex Wireless Limited, a joint venture
established between Pipex and Intel.


Consolidated balance sheet (unaudited)
at 30 June 2006

                                                                  At 30 June        At 30 June         At 31 Dec
                                                                        2006              2005              2005
                                                                                                        Restated
                                                                       £'000             £'000             £'000
Fixed assets
Intangible assets
                                Positive goodwill                    145,554            94,888            99,231
                                Patents                                    7                 8                 7
                                Wireless Licence                           -             4,541             4,417
                                                                     145,561            99,437           103,655
Tangible assets                                                       40,935            23,799            25,251
Investments in joint ventures
                               Share of gross assets                   6,112                 -                 -
                               Share of gross liabilities           (10,573)                 -                 -
                                                                     (4,461)                 -                 -
                                                                     182,035           123,236           128,906
Current assets
Stock                                                                     72                42                63
Debtors                                                               35,240            16,308            18,953
Cash at bank and in hand                                              37,803            12,548            13,964
                                                                      73,115            28,898            32,980
Creditors: amounts falling due
within one year                                                     (83,108)          (46,200)          (59,866)
Net current liabilities                                              (9,993)          (17,302)          (26,886)
Total assets less current liabilities                                172,042           105,934           102,020
Creditors: amounts falling due
after one year                                                      (86,352)          (25,932)          (24,871)
Provisions for liabilities and charges                               (1,756)           (2,026)           (2,004)

Net assets                                                            83,934            77,976            75,145

Capital and reserves
Called up share capital                                               23,336            22,065            22,101
Share premium account                                                105,256            83,947            84,127
Other reserves                                                        12,858            12,264            12,858
Profit and loss account                                             (57,516)          (40,300)          (43,941)

Equity shareholders' funds                                            83,934            77,976            75,145



Consolidated cashflow statement (unaudited)
for the six months to 30 June 2006

                                                                 6 months to       6 months to           Year to
                                                                30 June 2006      30 June 2005       31 Dec 2005
                                                                                      Restated          Restated
                                                                       £'000             £'000             £'000
Cash inflow from operating activities                                 15,601            10,944            17,440
Return on investment and servicing of finance
Interest received                                                        369               165               303
Interest paid                                                        (1,708)             (586)           (2,346)
Interest element of finance lease
repayments                                                             (229)             (116)             (288)
                                                                     (1,568)             (537)           (2,331)
Taxation paid                                                          (144)                 -             (182)
Capital expenditure and financial investment
Purchase of tangible fixed assets                                   (12,035)           (5,025)           (7,067)

Free cashflow                                                          1,854             5,382             7,860
Acquisitions
Purchase of subsidiary undertakings
(net of cash acquired)                                               (1,984)           (3,231)          (12,509)
Overdraft acquired with subsidiary
undertakings                                                        (43,146)                 -                 -
Prior year acquisitions                                                    -             (259)               812
                                                                    (45,130)           (3,490)          (11,697)
Cash (outflow)/inflow before

Management of liquid resources
and financing                                                       (43,276)             1,892           (3,837)
Management of liquid resources
Movement in restricted deposits                                        (223)             2,291             2,632
Financing
Issue of ordinary share capital                                       14,170                 -                 -
Expenses on issue of ordinary
share capital                                                          (536)                 -                 -
Exercise of share options                                              1,041               113               310
Capital element of finance lease repayments                          (1,205)             (723)           (1,700)
Proceeds from issue of convertible
bond (net of expenses)                                                88,277                 -                 -
Repayment of loan notes                                                    -           (1,989)           (1,989)
Repayment of loans                                                  (75,714)              (54)             (129)
Drawdown of new loans                                                 41,082             2,000            10,000
Net cash inflow/(outflow) from financing                              67,115             (653)             6,492
Increase in cash in the period                                        23,616             3,530             5,287


Reconciliation of operating loss to operating cashflow
(unaudited) for the six months to 30 June 2006


                                                                6 months to       6 months to          Year to
                                                               30 June 2006      30 June 2005      31 Dec 2005
                                                                                     Restated         Restated
                                                                      £'000             £'000            £'000
Operating loss                                                      (2,061)           (2,813)          (5,859)
Depreciation charge                                                   5,282             3,350            7,055
Amortisation charge                                                   7,558             5,437           11,236
Loss on sale of fixed assets                                              -                 -               43
Share of loss of joint venture                                          262                 -                -
Share option costs                                                      882               882            2,379
Movement in UITF25 share option provision                              (81)                 -              157
Decrease in working capital                                           3,926             4,324            2,971
Movement in other provisions                                          (167)             (236)            (542)
Net cash inflow from operating activities                            15,601            10,944           17,440


Reconciliation of net cashflow to movement in net debt
(unaudited) for the six months to 30 June 2006

                                                                6 months to       6 months to          Year to
                                                               30 June 2006      30 June 2005      31 Dec 2005
                                                                      £'000             £'000            £'000
Increase in cash in the period                                       23,616             3,530            5,287
Net movement in liquid resources                                        223           (2,291)          (2,632)
New loan drawdown                                                  (41,082)           (2,000)         (10,000)
Issue of convertible bond                                          (81,046)                 -                -
Repayment of loans                                                   75,714                54              129
Repayment of loan notes                                                   -             1,989            1,989
Repayments of lease financing                                         1,205               723            1,700
New finance leases                                                  (3,108)             (417)          (3,302)
Finance leases acquired                                                   -                 -            (276)
Movement in net debt                                               (24,478)             1,588          (7,105)
Opening net debt                                                   (27,722)          (20,617)         (20,617)
Closing net debt                                                   (52,200)          (19,029)         (27,722)



Analysis of net debt (unaudited)
at 30 June 2006
                                                              At 1
                                                           January                    New finance     At 30 June
                                                              2006       Cashflow          leases           2006
                                                             £'000          £'000           £'000          £'000
Cash                                                        13,478         23,616               -         37,094
Restricted deposits                                            486            223               -            709
Cash at bank and in hand
per balance sheet                                           13,964         23,839               -         37,803
Bank loans                                                (36,860)         34,632               -        (2,228)
Finance leases                                             (4,826)          1,205         (3,108)        (6,729)
Convertible bonds                                                -       (81,046)               -       (81,046)
Net debt                                                  (27,722)       (21,370)         (3,108)       (52,200)


Reconciliation of movements in shareholders' funds
(unaudited) for the six months to 30 June 2006
                                                                                      6 months to        Year to
                                                                      6 months to         30 June         31 Dec
                                                                     30 June 2006            2005           2005
                                                                                         Restated       Restated
                                                                            £'000           £'000          £'000
Loss for the financial period                                             (4,792)         (4,115)        (8,672)
New share capital subscribed (net of issue costs)                          13,634           1,770          1,770
Translation difference in respect of net investment
in overseas subsidiary undertaking                                              7            (60)           (28)
Unrealised loss on disposal to joint venture                              (9,672)               -              -
Equity element of convertible bond issue                                    7,689               -              -
Exercise of share options                                                   1,041             113            310
Share option costs                                                            882             882          2,379
Net increase/(decrease) in shareholders' funds                              8,789         (1,410)        (4,241)
Opening shareholders' funds                                                75,145          79,386         79,386
Closing shareholders' funds                                                83,934          77,976         75,145


Following the adoption of FRS 20, "Share based payments", there has been a
movement of £164,000 between other reserves and the profit and loss reserve in
year ended 31 December 2005. This is in respect of share options which had not
vested as at 31 December 2005 and which were therefore subject to an FRS 20
charge superseding the charge previously made under UITF 17.

Notes

1. Financial information

The financial information contained in this Interim Report does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
Financial information is presented on the basis of the accounting policies of
the group as set out in the Annual Report for the year ended 31 December 2005
with the exception of FRS 20 - share based payments, which has been adopted in
the period under review.

The fair value of share options granted is recognised as an employee expense
with corresponding increase in equity. Fair value has been determined using the
Binomial and Black Scholes model, taking into account the terms and conditions
upon which the options were granted. The amount recognised as an expense in the
period, £882,000, is adjusted to reflect the number of options that had not
vested as at 31 December 2005. Prior year comparatives have been adjusted
accordingly, the result of this has been to increase the loss for the financial
periods ended 30 June 2005 and 31 December 2005 by £882,000 and £1,765,000
respectively.

In accordance with FRS 26 the convertible bond issued in the period has been
recognised to comprise an equity element of £7.7m calculated as the excess of
the bond issue proceeds over the present value of future interest and principal
payments discounted at a market rate of interest.

The consolidated profit and loss account and cashflow statements for the six
months to 30 June 2006 and 30 June 2005 and the consolidated balance sheets at
30 June 2006 and 30 June 2005 are unaudited. The financial information for the
year ended 31 December 2005 has been extracted from the statutory accounts filed
with the Registrar of Companies, as adjusted for the adoption of FRS 20, which
contained an unqualified audit report and no adverse statement under Section 237
(2) or (3) of the Companies Act 1985.

2. Segmental information

The group operates one class of business, that of telecommunications services,
and consequently does not prepare segmental information by class of business.
However, to provide useful information, turnover is subdivided into three main
service categories shown below.

                                                                6 months to     6 months to
                                                                    30 June         30 June         Year to
                                                                       2006            2005     31 Dec 2005
                                                                      £'000           £'000           £'000
Turnover*
Broadband and voice services                                         88,533          35,931          76,010
Hosting services                                                     15,926          12,465          25,910
Network services                                                     14,758          15,674          31,019
                                                                    119,217          64,070         132,939


Turnover and loss before interest and tax by country of origin
                                                                         Loss        Restated        Restated
                                                                       before     Loss before     Loss before
                         Turnover                                    interest        interest        interest
                         6 months       Turnover       Turnover       and tax         and tax         and tax
                               to    6 months to        Year to      6 months     6 months to         Year to
                          30 June        30 June         31 Dec    to 30 June         30 June          31 Dec
                             2006           2005           2005          2006            2005            2005
                            £'000          £'000          £'000         £'000           £'000           £'000
UK                        114,741         60,702        125,616       (1,691)         (2,705)         (5,415)
Germany                     4,476          3,368          7,323         (370)           (108)           (444)
                          119,217         64,070        132,939       (2,061)         (2,813)         (5,859)

Turnover analysed by destination is not materially different to turnover by origin.
Net assets by country of origin*
                                                                                   Net assets      Net assets
                                                                                           at              at
                                                                Net assets at         30 June          31 Dec
                                                                 30 June 2006            2005            2005
                                                                        £'000           £'000           £'000

UK                                                                     77,431          70,223          68,216
Germany                                                                 6,503           7,753           6,929
                                                                       83,934          77,976          75,145

*June and December 2005 comparatives stated above have been adjusted for
consistency.

3. Dividend

The directors do not recommend the payment of an interim dividend (2005: £nil).

4. Loss per share
                                                                                        Restated         Restated
                                                                    6 months to      6 months to          Year to
                                                                   30 June 2006     30 June 2005      31 Dec 2005
Loss for the financial period attributable to
shareholders                                                         £4,792,000       £4,115,000       £8,672,000
Weighted average number of equity
shares in issue                                                   2,321,397,845    2,191,455,476    2,200,084,032
Basic/diluted loss per equity share*                                      0.21p            0.19p            0.39p

* Since the conversion of potential ordinary shares to ordinary shares would
decrease the net loss per share, they are not dilutive. Accordingly diluted loss
per share is the same as basic loss per share.

5. Acquisition

The following material acquisition took place in the period to 30 June 2006:

The Company acquired Caudwell Communications Limited and Homecall Payment
Services Limited, (together trading as "Homecall"), on 23 March 2006, for
consideration in the form of assumed bank debt of £43 million. Costs of
acquisition were £965,000.

The goodwill of £52.4 million arising on acquisition is being amortised over ten
years, the useful life as estimated by the directors.

The acquisition contributed £43.2 million of turnover in the period to 30 June
2006, and an operating profit of   £1.6 million.

The turnover and operating loss of Homecall for the year ended 31 December 2005
were £162.0 million and £28.5 million respectively. The net liabilities of
Homecall at 31 December 2005 were £102.9 million.

Details of the fair values of the assets and liabilities acquired are set out
below:
                                                         Book value of                       Fair value of
                                                                assets        Fair value            assets
                                                              acquired       adjustments          acquired
                                                                 £'000             £'000             £'000

Fixed assets                                                     4,912               911             5,823
Debtors                                                         15,981             1,591            17,572
Cash                                                          (43,146)                 -          (43,146)
Creditors                                                     (31,671)                 -          (31,671)
Net liabilities                                               (53,924)             2,502          (51,422)
Goodwill                                                                                            52,387
Consideration                                                                                          965
Satisfied by:
Cash                                                                                                     -
Costs of acquisition                                                                                   965
                                                                                                       965

Fair values

The fair value of assets acquired during the Homecall acquisition has been
increased by £2,502,000 during the half year.

This comprises £745,000 in respect of a refund due for discounts on prepaid
circuit rentals and £911,000 in capitalisation of own labour costs. The
remaining adjustment of £846,000 is due to a change in accounting policy to
prepay connection costs for newly acquired customers.

Fair values with respect to acquisitions made in 2005 and 2006 to date, remain
provisional.






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