Pipex Communications PLC
25 September 2007
25 September 2007
Pipex Communications plc
Results for the six months ended 30 June 2007
Pipex Communications plc, (PXC), a major provider of telecommunications and
internet solutions including broadband, voice, web hosting and network services,
today reports its results for the six months ended 30 June 2007.
SUMMARY
• Revenue increased to £188.9 million, up 58% over the same period last year.
• Gross margin 36.3%, from 38.5% in the same period last year.
• Operating profit before amortisation of intangibles, depreciation and
share-based payment costs, £9.4 million (H1 2006: £11.2 million)
• Cash and cash equivalents £35.2 million (£37.8 million at 30 June 2006).
• Broadband and Voice Division sold in September 2007.
• Potential de-merger of Pipex Wireless business to be initiated.
• Options for the remainder of the group to be explored.
Peter Dubens, Chairman of Pipex commented:
'The performance of the remaining Group businesses remains robust, with
continuing growth in our hosting and domain names businesses, our Business
Services division well positioned to win additional business, and our wireless
broadband venture representing a significant long-term growth opportunity.
The Board believes that the outcome of the strategic review announced today will
maximise delivery of shareholder value and enable a timely and efficient return
of cash to shareholders. Further details of the actions now being initiated
will be communicated to shareholders during the course of the fourth quarter.'
For further details, contact:
Pipex Communications plc 08703 860 403
Peter Dubens, Chairman
Mike Read, Chief Executive
Stewart Porter, Finance Director
Financial Dynamics 020 7831 3113
Juliet Clarke / Hannah Sloane
Collins Stewart 020 7523 8350
Hugh Field
Disposal of the Broadband and Voice division and redemption of convertible bonds
We announced on 12 March 2007 that the Company had appointed UBS to investigate
various strategic options for the Company, including a possible sale.
I subsequently wrote to you in July stating the Board's belief that the previous
levels of growth enjoyed by Pipex in its Broadband and Voice Division were
unlikely to be sustained in the future and that opportunities for growth through
acquisition had declined as a result of consolidation in the sector. As a
consequence, your Directors recommended the sale of the Broadband and Voice
Division to Tiscali for a total consideration of £210m, on a cash and debt free
basis, before adjustments. This sale was completed on 13 September 2007.
On 12 October 2007, the Group will redeem all the outstanding 3.875% guaranteed
convertible bonds due 2011 for £93.3m, which includes payment of a premium of
£20 per £1,000 denomination of bonds, plus accrued interest.
For the six months to 30 June 2007, the revenues attributable to the Broadband
and Voice Division were £153.1 million (H1 2006: £88.5 million) with an
operating profit before amortisation of intangibles, depreciation and
share-based payment costs of £8.5m (H1 2006: £9.5 million) and a loss before tax
of £0.2 million (H1 2006: profit of £5.7 million) excluding amortisation of
intangibles.
Potential demerger of Pipex Wireless
Pipex Wireless is our joint venture with Intel established to exploit licensed
spectrum operating the WiMAX standard, and the business has now advanced from
successful technical trials to commercial service, which is on track to be
launched in Manchester during the fourth quarter of 2007.
The WiMAX trials in Milton Keynes and Warwick were completed successfully during
the first half of this year. As well as further validating the WiMAX
technology, these trials demonstrated the demand for wireless broadband access
in both the business and consumer markets. Benefits reported by the trial
customers of the service included its ease of connection and use, its
competitive speed and bandwidth, and the lack of requirement for a fixed line
connection.
Manchester has been selected as the first major city for a full scale roll-out
of our WiMAX based services, and a range of attractive and competitive wireless
broadband services will therefore be launched in Manchester during the fourth
quarter of 2007. The trials in Milton Keynes and Warwick will also be converted
into full commercial service offerings. Deployment of the infrastructure to
support this service launch is already well advanced, as are plans to extend
network coverage subsequently to other major cities.
The Board believes that Pipex Wireless continues to represent an excellent
long-term growth opportunity. However, following the sale of the Broadband and
Voice Division, Pipex Wireless no longer provides a compelling strategic fit
with the remaining businesses. During the fourth quarter we therefore intend to
initiate a process leading to a demerger of Pipex Wireless. The Board believes
that this will enable Pipex shareholders to continue to participate in the
growth potential of this wireless broadband venture. Further details will be
communicated to shareholders during the fourth quarter of 2007.
Potential sale of the remaining Group
During the period, and subsequently, we have received a number of expressions of
interest in the remaining parts of the Group, comprising the web hosting and
business services divisions. As a result of these, and following a review of
the remaining operations, we intend to initiate a sale process during the fourth
quarter, for the web hosting and network services businesses, including the net
proceeds from the sale of the Broadband and Voice Division.
Oakley Capital Private Equity LP, in which Peter Dubens is a Limited Partner,
has expressed an interest in exploring a potential acquisition of the Group. As
a result an independent committee of the Board, comprising all members of the
Pipex Board, but excluding Peter Dubens, will be established to consider any
proposals received in relation to the potential sale of the Group.
The Board believes that a sale of the Group will maximise delivery of
shareholder value and provide the most efficient method for returning cash to
shareholders.
FINANCIAL OVERVIEW
This is the first set of financial statements to be reported under International
Financial Reporting Standards. The impact of reporting under IFRS is set out in
the Restatement of Financial Information document.
In addition to the impact of IFRS, the other presentational difference in the
2007 report is the treatment of the Broadband and Voice Division which, given
the recently completed sale, is shown as 'discontinued operations' and 'assets
and liabilities classified as held for sale'.
Group revenue in the period increased by 58% to £188.9 million, of which the
Broadband and Voice Division accounted for £153.1 million. Revenue of
continuing operations was £35.8 million.
Gross profit for the six months increased by 49% to £68.5 million, compared to
£45.9 million for the same period last year. The overall gross margin in the
first half fell to 36.3%% from 38.5% for the first half last year, as a result
of the full period impact of low margin line rental business acquired as part of
the 2006 acquisitions.
EBITDA (operating profit before amortisation, depreciation, integration and
share option costs) fell by £1.8 million to £9.4 million. This was due
principally to the increased investment in customer facing functions, as the
group sought to differentiate its offering through effective customer service.
The Group reported a loss before tax of £8.5 million, compared to a profit
before tax for the same period last year of £0.8 million. As well as the
decrease in EBITDA, this also reflected an increase in amortisation costs
arising from the 2006 acquisitions, a higher depreciation charge, an increase in
the share of the start-up losses of the Wireless business, and additional
interest costs incurred due to the issuing of the convertible bond.
Free cash flow for the six months was £(11.5) million, compared to £1.9 million
for the same period last year, principally due to the lower EBITDA and a working
capital outflow of £10.0 million in 2007.
Net debt increased to £98.2 million from £52.2 million at the same time last
year, reflecting the acquisitions completed during the second half of 2006, free
cash flow described above, and additional funding of £2.1 million provided to
Pipex Wireless as part of the joint venture agreement with Intel. Cash at 30
June 2007 was £35.2 million, similar to the balance at the end of June 2006 of
£37.8 million.
OPERATIONAL REVIEW
BROADBAND AND VOICE
During the period we continued to sell bundled products to our customers with
our customers taking an average of 1.74 services each. These services in general
were mixtures of broadband, line rental and voice, but we also continued to see
demand for a broadband-only service, reflected in a successful broadband-only
new product launch towards the end of the period.
HOSTING AND DOMAIN NAMES
Pipex is a leading provider of hosting and domain names both in the UK and
Germany. Revenue in the first half increased by 12% to £17.3 million and gross
margins were broadly stable at 65%, compared to 68% in the same period last
year. Our hosting business customer base grew by 23% to 262,000 and our domain
names base grew by 28% to 1.97 million.
In the UK, our share of '.uk' domain names market rose to 20.9% compared to
17.9% at the same time last year. We secured a further 6,000 sq ft data centre
in Leeds to provide addition capacity for growth. A number of significant new
products were launched including virtual private servers, e-commerce packages
and enhanced web storage products. During the year we moved our hosting business
from its offices in Nottingham to west London as part of an office consolidation
policy.
In Germany we completed the first phase of our data centre build providing 6,500
square feet initially, expandable to 18,000 square feet, which will allow us to
consolidate away from our other German data centres and also provide for future
growth.
BUSINESS SERVICES
Revenue in the business services division in the first half grew by 19% to £18.5
million, compared to £15.5 million in the same period last year. During the
first half the business was restructured around the vertical business market
sectors that we are targeting. New products and services were launched,
including 'Secure Tele-working'. A significant number of new customers were
added and new contracts closed, including hosting of T-Mobile's Web-n-Walk
platform, and new NHS business. In addition we provided the hosting and
transaction services for the successful Comic Relief charity event.
SUMMARY AND OUTLOOK
The performance of the remaining Group businesses remains robust. In hosting
and domain names we anticipate continuing growth in the UK and Germany, driven
by the global growth of internet traffic. The business services division is
well positioned to win additional new business, following its re-structuring to
focus on its core vertical market sectors. Wireless continues to represent a
major long-term growth opportunity, with successful trials indicating
significant demand for services based on a mainstream wireless access
technology.
The Board believes that the outcome of the strategic review announced today will
maximise delivery of shareholder value and enable a timely and efficient return
of cash to shareholders. Further details of the actions now being initiated
will be communicated to shareholders during the course of the fourth quarter of
2007.
Pipex Communications has grown significantly since I joined in 2003, and I would
like to thank all of the company's shareholders, customers and advisors, whose
support over the years has underpinned the group's success.
PIPEX COMMUNICATIONS PLC
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
as at 30 June 2007, 30 June 2006, and 31 December 2006
___________________________________________________________________________________
30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Notes
ASSETS
Non-current assets
Property, plant and equipment 44,697 40,946 47,069
Goodwill 36,906 138,306 164,954
Intangible assets 7,892 18,772 23,726
_______ _______ _______
89,495 198,024 235,749
Current assets
Inventories - 72 47
Assets classified as held for sale 3 177,755 - -
Trade and other receivables 10,926 35,240 44,679
Cash and cash equivalents 35,174 37,803 48,328
_______ _______ _______
223,855 73,115 93,054
_______ _______ _______
TOTAL ASSETS 313,350 271,139 328,803
====== ====== ======
EQUITY AND LIABILITIES
Equity attributable to the equity holders of the parent
Share capital (23,998) (23,336) (23,931)
Share premium reserve (99,127) (97,567) (98,524)
Translation reserve 36 (7) 61
Other reserves (23,228) (18,906) (23,228)
Retained earnings 53,029 45,164 49,274
_______ _______ _______
(93,288) (94,652) (96,348)
Non-current liabilities
Long-term borrowings (127,971) (86,352) (125,013)
Long-term provisions (987) (1,381) (1,224)
Investments accounted for using the equity method (2,357) (4,461) (5,349)
_______ _______ _______
(131,315) (92,194) (131,586)
Current liabilities
Short-term borrowings (5,429) (3,650) (4,461)
Liabilities classified as held for sale 3 (58,728) - -
Current provisions (337) (375) (337)
Trade and other payables (24,033) (80,027) (95,793)
Current tax liabilities (220) (241) (278)
_______ _______ _______
(88,747) (84,293) (100,869)
_______ _______ _______
TOTAL EQUITY AND LIABILITIES (313,350) (271,139) (328,803)
====== ====== ======
PIPEX COMMUNICATIONS PLC
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
for the six month period ended 30 June 2007
___________________________________________________________________________________
Total operations, including
continuing, discontinued
and acquisitions #
Six month
Period Year
ended ended
Six month period ended 30 June 2007 30 June 31 December
Continuing Discontinued TOTAL 2006 2006
Notes £'000 £'000 £'000 £'000 £'000
REVENUE 4 35,815 153,120 188,935 119,217 294,359
Cost of sales (16,325) (104,077) (120,402) (73,339) (182,067)
_______ _______ _______ _______ _______
GROSS PROFIT 19,490 49,043 68,533 45,878 112,292
Administration expenses before
amortisation of intangibles,
depreciation and share based
payment costs (18,609) (40,522) (59,131) (34,716) (89,195)
Amortisation of intangibles (141) (3,663) (3,804) (1,671) (6,645)
Depreciation (5,186) (2,605) (7,791) (5,271) (12,033)
Share based payment costs (898) (1,114) (2,012) (801) (2,206)
Administration Expenses (24,834) (47,904) (72,738) (42,459) (110,079)
OPERATING PROFIT BEFORE
AMORTISATION OF INTANGIBLES,
DEPRECIATION AND SHARE
BASED PAYMENT COSTS 881 8,521 9,402 11,162 23,097
Amortisation of intangibles (141) (3,663) (3,804) (1,671) (6,645)
Depreciation (5,186) (2,605) (7,791) (5,271) (12,033)
Share based payment costs (898) (1,114) (2,012) (801) (2,206)
Operating (loss)/profit (5,344) 1,139 (4,205) 3,419 2,213
Finance income 469 426 895 369 546
Finance costs (1,617) (2,873) (4,490) (2,688) (6,806)
Net Financing Expenses (1,148) (2,447) (3,595) (2,319) (6,260)
Share of loss of jointly
controlled entity (596) - (596) (262) (1,150)
PROFIT/(LOSS) BEFORE TAX (7,088) (1,308) (8,396) 838 (5,197)
Income tax credit - 10 10 5,218 5,680
_______ _______ _______ _______ _______
PROFIT/(LOSS) FOR THE PERIOD (7,088) (1,298) (8,386) 6,056 483
====== ====== ====== ====== ======
Earnings per share:
Basic 5 (0.34)p (0.01)p (0.35)p 0.26p 0.02p
====== ====== ====== ====== ======
Diluted 5 (0.34)p (0.01)p (0.35)p 0.26p 0.02p
====== ====== ====== ====== ======
# Refer to pages 3 and 4 for the analysis of continuing, discontinued and
acquired operations.
PIPEX COMMUNICATIONS PLC
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
for the six month period ended 30 June 2006
___________________________________________________________________________________
Continuing Operations Discontinued Operations
Existing Acquisitions Existing Acquisitions TOTAL
£'000 £'000 £'000 £'000 £'000
REVENUE 30,653 - 45,387 43,177 119,217
Cost of sales (13,081) - (29,978) (30,280) (73,339)
_______ _______ _______ _______ _______
GROSS PROFIT 17,572 - 15,409 12,897 45,878
Administration expenses before
amortisation of intangibles,
depreciation and share based
payment costs (15,967) - (9,320) (9,429) (34,716)
Amortisation of intangibles (41) - - (1,630) (1,671)
Depreciation (3,410) - (1,147) (714) (5,271)
Share based payment costs (694) - (107) - (801)
Administration Expenses (20,112) - (10,574) (11,773) (42,459)
OPERATING PROFIT BEFORE
AMORTISATION OF INTANGIBLES,
DEPRECIATION AND SHARE
BASED PAYMENT COSTS 1,605 - 6,089 3,468 11,162
Amortisation of intangibles (41) - - (1,630) (1,671)
Depreciation (3,410) - (1,147) (714) (5,271)
Share based payment costs (694) - (107) - (801)
Operating (loss)/profit (2,540) - 4,835 1,124 3,419
Finance income 117 - 209 43 369
Finance costs (2,308) - (380) - (2,688)
Net financing Expenses (2,191) - (171) 43 (2,319)
Share of loss of jointly
controlled entity - (262) - - (262)
_______ _______ _______ _______ _______
PROFIT/(LOSS) BEFORE
TAX (4,731) (262) 4,664 1,167 838
Income tax expense 3 - - 5,215 5,218
_______ _______ _______ _______ _______
PROFIT/(LOSS) FOR THE
PERIOD (4,728) (262) 4,664 6,382 6,056
====== ====== ====== ====== ======
PIPEX COMMUNICATIONS PLC
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
for the year ended 31 December 2006
___________________________________________________________________________________
Continuing Operations Discontinued Operations
Existing Acquisitions Existing Acquisitions TOTAL
£'000 £'000 £'000 £'000 £'000
REVENUE 61,453 283 90,253 142,370 294,359
Cost of sales (25,103) (71) (59,365) (97,528) (182,067)
_______ _______ _______ _______ _______
GROSS PROFIT 36,350 212 30,888 44,842 112,292
Administration expenses before
amortisation of intangibles,
depreciation and share based
payment costs (32,105) (113) (23,031) (33,946) (89,195)
Amortisation of intangibles (421) (586) (365) (5,273) (6,645)
Depreciation (7,469) - (2,240) (2,324) (12,033)
Share based payment costs (1,423) - (160) (623) (2,206)
Administration Expenses (41,418) (699) (25,796) (42,166) (110,079)
OPERATING PROFIT BEFORE
AMORTISATION OF INTANGIBLES,
DEPRECIATION AND SHARE
BASED PAYMENT COSTS 4,245 99 7,857 10,896 23,097
Amortisation of intangibles (421) (586) (365) (5,273) (6,645)
Depreciation (7,469) - (2,240) (2,324) (12,033)
Share based payment costs (1,423) - (160) (623) (2,206)
Operating (loss)/profit (5,068) (487) 5,092 2,676 2,213
Finance income 137 - 237 172 546
Finance costs (6,021) - (770) (15) (6,806)
Net Financing Expenses (5,884) - (533) 157 (6,260)
Share of loss of jointly
controlled entity - (1,150) - - (1,150)
_______ _______ _______ _______ _______
PROFIT/(LOSS) BEFORE
TAX (10,952) (1,637) 4,559 2,833 (5,197)
Income tax expense (8) - - 5,688 5,680
_______ _______ _______ _______ _______
PROFIT/(LOSS) FOR THE
YEAR (10,960) (1,637) 4,559 8,521 483
====== ====== ====== ====== ======
PIPEX COMMUNICATIONS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
for the six month period ended 30 June 2006
___________________________________________________________________________________
ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT
Share
Share premium Translation Other Retained TOTAL
capital reserve reserve reserves # earnings EQUITY
£'000 £'000 £'000 £'000 £'000 £'000
BALANCE AT
1 JANUARY 2006
BROUGHT FORWARD 22,101 84,127 - 11,217 (42,430) 75,015
CHANGES IN EQUITY
FOR THE SIX MONTHS
ENDED 30 JUNE 2006
Exchange differences on
translating foreign operations - - 7 - - 7
Net losses not recognised
in the income statement:
Unrealised loss on
disposal of Pipex
Wireless Limited - - - - (9,672) (9,672)
_______ _______ _______ _______ _______ _______
Net expense recognised
directly in equity - - 7 - (9,672) (9,665)
Profit for the period - - - - 6,056 6,056
_______ _______ _______ _______ _______ _______
TOTAL RECOGNISED
INCOME AND EXPENSE
FOR THE PERIOD - - 7 - (3,616) (3,609)
Issue of share capital 1,090 12,544 - - - 13,634
Exercise of share options 145 896 - - - 1,041
Grant of options - - - - 882 882
Equity component of
convertible bonds issued - - - 7,689 - 7,689
_______ _______ _______ _______ _______ _______
BALANCE AT
30 JUNE 2006
CARRIED FORWARD 23,336 97,567 7 18,906 (45,164) 94,652
====== ====== ====== ====== ====== ======
# Other reserves includes a merger reserve of £7,538,000, a capital reserve of
£207,000, and an acquisition reserve of £3,472,000, in relation to the premium
on shares issued as part of the consideration for the acquisition of Transigent
Limited in 2002 and a bond equity reserve of £7,689,000.
PIPEX COMMUNICATIONS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
for the six month period ended 31 December 2006
___________________________________________________________________________________
ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT
Share
Share premium Translation Other Retained TOTAL
capital reserve reserve reserves # earnings EQUITY
£'000 £'000 £'000 £'000 £'000 £'000
BALANCE AT
1 JULY 2006
BROUGHT FORWARD 23,336 97,567 7 18,906 (45,164) 94,652
CHANGES IN EQUITY
FOR THE SIX MONTHS
ENDED 31 DECEMBER
2006
Exchange differences on
translating foreign operations - - (68) - - (68)
Net gains not recognised
in the income statement:
Unrealised gain on
disposal of Pipex
Wireless Limited - - - - 139 139
_______ _______ _______ _______ _______ _______
Net expense recognised
directly in equity - - (68) - 139 71
Loss for the period - - - - (5,573) (5,573)
_______ _______ _______ _______ _______ _______
TOTAL RECOGNISED
INCOME AND EXPENSE
FOR THE PERIOD - - (68) - (5,434) (5,502)
Issue of share capital 432 - - 4,319 - 4,751
Exercise of share options 163 957 - - - 1,120
Grant of options - - - - 1,324 1,324
Equity component of
convertible bonds issued - - - 3 - 3
_______ _______ _______ _______ _______ _______
BALANCE AT
31 DECEMBER 2006
CARRIED FORWARD 23,931 98,524 (61) 23,228 (49,274) 96,348
====== ====== ====== ====== ====== ======
# Other reserves includes a merger reserve of £11,857,000, a capital reserve of
£207,000, an acquisition reserve of £3,472,000, in relation to the premium on
shares issued as part of the consideration for the acquisition of Transigent
Limited in 2002 and a bond equity reserve of £7,692,000.
PIPEX COMMUNICATIONS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
for the six month period ended 30 June 2007
___________________________________________________________________________________
ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT
Share
Share premium Translation Other Retained TOTAL
capital reserve reserve reserves # earnings EQUITY
£'000 £'000 £'000 £'000 £'000 £'000
BALANCE AT
1 JANUARY 2007
BROUGHT FORWARD 23,931 98,524 (61) 23,228 (49,274) 96,348
CHANGES IN EQUITY
FOR THE SIX MONTHS
ENDED 30 JUNE 2007
Exchange differences on
translating foreign operations - - 25 - - 25
Net losses not recognised
in the income statement:
Unrealised gain on Pipex
Wireless Limited - - - - 1,529 1,529
_______ _______ _______ _______ _______ _______
Net expense recognised
directly in equity - - 25 1,529 1,554
Loss for the period - - - - (8,386) (8,386)
_______ _______ _______ _______ _______ _______
TOTAL RECOGNISED
INCOME AND EXPENSE
FOR THE PERIOD - - 25 - (6,857) (6,832)
Issue of share capital 67 603 - - - 670
Exercise of share options - - - - - -
Grant of options - 2,012 2,012
Equity component of
convertible bonds issued - - - - - -
_______ _______ _______ _______ _______ _______
BALANCE AT
30 JUNE 2007 23,998 99,127 (36) 23,228 (53,029) 86,510
CARRIED FORWARD
====== ====== ====== ====== ====== ======
# Other reserves includes a merger reserve of £11,857,000, a capital reserve of
£207,000, an acquisition reserve of £3,472,000, in relation to the premium on
shares issued as part of the consideration for the acquisition of Transigent
Limited in 2002 and a bond equity reserve of £7,692,000.
PIPEX COMMUNICATIONS PLC
CONSOLIDATED CASH FLOW STATEMENTS (UNAUDITED)
for the six month period ended 30 June 2007,
for the six month period ended 30 June 2006, and
for the year ended 31 December 2006
__________________________________________________________________________________________
Six month Six month
period ended period ended Year ended
30 June 30 June 31 December
2007 2006 2006
Notes £'000 £'000 £'000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations 6 (595) 15,601 34,012
Interest paid (2,939) (1,937) (4,997)
Income taxes (paid)/received (4) (144) 230
_______ _______ _______
NET CASH GENERATED FROM OPERATING
ACTIVITIES 3 (3,538) 13,520 29,245
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries - (1,984) (25,563)
Net overdrafts acquired on acquisition of subsidiaries - (43,146) (40,589)
Acquisition of businesses - - (10,368)
Investment in jointly controlled entity (2,058) - (797)
Purchase of property, plant and equipment (8,552) (12,035) (22,077)
Interest received 587 369 546
_______ _______ _______
NET CASH USED IN INVESTING ACTIVITIES 3 (10,023) (56,796) (98,848)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issue of share capital - 13,634 13,634
Proceeds from the exercise of share options 671 1,041 2,161
Proceeds from the issue of convertible bonds 982 88,277 88,279
Change in bank overdraft 1,402 - -
Proceeds from long-term borrowings - 41,082 76,746
Repayments of long-term borrowings - (75,714) (74,310)
Payment of finance lease liabilities (2,648) (1,205) (2,543)
_______ _______ _______
NET CASH GENERATED FROM FINANCING
ACTIVITIES 3 407 67,115 103,967
_______ _______ _______
NET INCREASE IN CASH AND CASH
EQUIVALENTS (13,154) 23,839 34,364
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE PERIOD 48,328 13,964 13,964
_______ _______ _______
CASH AND CASH EQUIVALENTS AT THE
END OF THE PERIOD 35,174 37,803 48,328
====== ====== ======
PIPEX COMMUNICATIONS PLC
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS (UNAUDITED)
for the six month period ended 30 June 2007
___________________________________________________________________________________
1. BASIS OF PREPARATION
The AIM Rules require that the next annual consolidated financial statements
of the company, for the year ending 31 December 2007, be prepared in accordance
with International Financial Reporting Standards (IFRSs) as adopted by the EU
('adopted IFRSs').
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of adopted IFRSs as at 30 June 2007
that are effective (or available for early adoption) at 31 December 2007, the
Group's first annual reporting date at which it is required to use adopted
IFRSs. Based on these adopted IFRSs, the directors have applied the accounting
policies, as set out in the restatement document, which they expect to apply
when the first annual IFRS financial statements are prepared for the year ending
31 December 2007.
However, the adopted IFRSs that will be effective (or available for early
adoption) in the annual financial statements for the year ending 31 December
2007 are still subject to change and to additional interpretations and therefore
cannot be determined with certainty. Accordingly, the accounting policies for
that annual period will be determined finally only when the annual financial
statements are prepared for the year ending 31 December 2007
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
Pipex Communications plc (the 'company') and enterprises controlled by the
company (its 'subsidiaries', together referred to as the 'group').
Status of financial information
The comparative figures for the financial year ended 31 December 2006 are not
the company's statutory accounts for that financial year. Those accounts have
been reported on by the company's auditors and delivered to the registrar of
companies. The report of the auditors was (i) unqualified, (ii) did not include
a reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report and (iii) did not contain a statement
under section 237(2) or (3) of the Companies Act 1985.
Accounting policies
The accounting policies that the group intends to apply for the year ending 31
December 2007 are set out in the separate document entitled 'Restatement of
Financial Information under International Financial Reporting Standards'. The
accounting policies have been applied consistently to all periods presented in
these interim group financial statements, subject to the exemptions contained in
IFRS 1 that the group has elected to use.
2. POST BALANCE SHEET EVENTS
On 13 July 2007, the company announced that it had entered into an agreement for
the sale, subject to shareholder approval and competition clearance, of the
companies which comprise the group's broadband and voice businesses to Tiscali.
The consideration for the disposal on a cash and debt free basis was £210
million, which sum was subject to adjustment in accordance with the terms of the
sale agreement. This agreement was completed on 13 September 2007.
Although the broadband and voice division had experienced significant growth,
this was not expected to continue due to the declining adoption rate of
broadband in the UK and increasing levels of competition in the sector. These
factors were considered likely to result in a higher cost of customer
acquisition and ongoing margin erosion which would limit the business's ability
to increase profitability. In addition, opportunities for growth through
acquisition have declined considerably as a result of the significant
consolidation which has occurred in the sector.
Pipex's broadband and voice division was a leading UK provider of broadband and
voice services. For the year to 31 December 2006, the revenues attributable to
the division were £232.9 million with an EBITDA of £18.8 million and a profit
before tax of £13.9 million, excluding amortisation of goodwill and
inter-company interest. As at 31 December 2006, the net tangible assets of the
division were £13.1 million, excluding investments and inter-company balances.
At that time, the division had approximately 570,000 broadband customers and
480,000 voice customers.
On 17 September 2007, the company announced that it would redeem all of the
£91,500,000 3.875% guaranteed convertible bonds due 2011 on 12 October 2007. The
redemption will be at their principal amount plus accrued interest together with
payment of a premium of £20 per £1,000 denomination of bonds.
PIPEX COMMUNICATIONS PLC
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS (UNAUDITED)
for the six month period ended 30 June 2007
__________________________________________________________________________________________
3. ASSETS & LIABILITIES CLASSIFIED AS HELD FOR SALE (refer note 2)
The major classes of assets and liabilities classified as held for sale are as
follows:
30 June
2007
£'000
Property, plant and equipment 7,126
Goodwill 123,245
Intangible assets 19,824
Investments accounted for using the equity method -
Deferred tax assets -
Inventories 25
Trade and other receivables 27,535
Cash and cash equivalents -
_______
Total assets classified as held for sale 177,755
Long-term borrowings (3)
Long-term provisions -
Deferred tax liabilities -
Short-term borrowings (117)
Trade and other payables (58,530)
Tax liabilities (78)
_______
Total liabilities associated with assets classified
as held for sale (58,728)
_______
Net assets of disposal group 119,027
======
The information presented in the consolidated income statements of pages 2 to 4
has been reanalysed to show the income and expenditure relating to the disposal
group as arising from discontinued operations.
PIPEX COMMUNICATIONS PLC
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS (UNAUDITED)
for the six month period ended 30 June 2007
___________________________________________________________________________________
3. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE (Continued)
The information presented in the consolidated cash flow statement on page 8 is
the total cash flows arising from all the group's operations. In respect of the
disposal group only, the following cash flows are relevant:
Six month Six month
period ended period ended Year ended
30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Net cash generated from operating activities 6,443 17,965 38,251
====== ====== ======
Net cash used in investing activities (11,966) (1,611) (8,348)
====== ====== ======
Net cash generated from financing activities (59) (46) (92)
====== ====== ======
4. BUSINESS AND GEOGRAPHICAL SEGMENTS
Business segments
For management purposes, the group is currently organised into three operating
divisions - broadband and voice services, hosting services, and business
services. These divisions are the basis on which the group reports its primary
segment information.
The principal activities of each of the divisions are as follows:
Broadband and voice services
The group supplies internet access via broadband and narrowband, and voice
telephony services (carrier pre-select and wholesale line rental) to both
residential and business customers through different brands such as Pipex, Pipex
Homecall, Toucan, Nildram and Freedom 2 Surf.
Hosting services
The group provides a comprehensive suite of hosting services from shared and
virtual private servers through to domain names and security.
Business services
The group provides all aspects of network support for medium and large
businesses, with a range of services including voice, enterprise hosting,
internet, IP VPN's and other IP network applications and security solutions.
PIPEX COMMUNICATIONS PLC
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS (UNAUDITED)
for the six month period ended 30 June 2007
__________________________________________________________________________________________
4. BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)
The segment information for these businesses is as follows:
For the six month period ended 30 June 2007
Broadband
and voice Hosting Business
services services services Adjustments TOTAL
£'000 £'000 £'000 £'000 £'000
REVENUE
External sales 155,528 17,291 16,126 (10) 188,935
====== ====== ====== ====== ======
RESULT
Segment result 9,117 3,241 (1,209) (1,747) 9,402
Amortisation of intangibles (3,663) (141) - - (3,804)
Depreciation (2,533) (1,765) (3,493) - (7,791)
Share based payment costs (1,114) (80) (125) (693) (2,012)
Share of joint venture - - - (596) (596)
Finance Income - - - 895 895
Finance costs (2,339) (165) (2,376) 390 (4,490)
_______ _______ _______ _______ _______
Profit before tax (532) 1,090 (7,203) (1,751) (8,396)
Income tax expense 14 (4) - - 10
_______ _______ _______ _______ _______
(518) 1,086 (7,203) (1,751) (8,386)
====== ====== ====== ====== ======
OTHER INFORMATION
Capital additions (909) (2,537) (7,351) - (10,797)
====== ====== ====== ====== ======
BALANCE SHEET
Assets
Segment assets 111,238 18,990 29,889 153,233 313,350
Unallocated corporate assets - - - - -
_______ _______ _______ _______ _______
111,238 18,990 29,889 153,233 313,350
====== ====== ====== ====== ======
Liabilities
Segment liabilities (57,117) (14,548) (25,196) - (96,861)
Unallocated corporate liabilities - - - (123,201) (123,201)
_______ _______ _______ _______ _______
(57,117) (14,548) (25,196) (123,201) (220,062)
====== ====== ====== ====== ======
PIPEX COMMUNICATIONS PLC
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS (UNAUDITED)
for the six month period ended 30 June 2007
__________________________________________________________________________________________
4. BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)
The segment information for these businesses is as follows:
For the six month period ended 30 June 2006
Broadband
and voice Hosting Business
services services services Adjustments TOTAL
£'000 £'000 £'000 £'000 £'000
REVENUE
External sales 88,553 15,364 15,289 11 119,217
====== ====== ====== ====== ======
RESULT
Segment result 9,384 4,631 (653) (2,200) 11,162
Amortisation of intangibles (1,630) - (41) - (1,671)
Depreciation (1,692) (1,496) (2,080) (3) (5,271)
Share based payment costs (107) (110) (119) (465) (801)
Unallocated corporate expenses - - - (262) (262)
Finance Income - - - 369 369
Finance costs (185) (94) (586) (1,823) (2,688)
_______ _______ _______ _______ _______
Profit before tax 5,770 2,931 (3,479) (4,384) 838
Income tax expense 5,215 3 - - 5,218
_______ _______ _______ _______ _______
10,985 2,934 (3,479) (4,384) 6,056
====== ====== ====== ====== ======
OTHER INFORMATION
Capital additions (15,561) (2,735) (4,309) - (22,605)
====== ====== ====== ====== ======
BALANCE SHEET
Assets
Segment assets 84,002 14,694 81,069 - 179,765
Unallocated corporate assets - - - 91,374 91,374
_______ _______ _______ _______ _______
84,002 14,694 81,069 91,374 271,139
====== ====== ====== ====== ======
Liabilities
Segment liabilities (53,180) (11,152) (24,678) - (89,010)
Unallocated corporate liabilities - - - (87,477) (87,477)
_______ _______ _______ _______ _______
(53,180) (11,152) (24,678) (87,477) (176,487)
====== ====== ====== ====== ======
PIPEX COMMUNICATIONS PLC
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS (UNAUDITED)
for the six month period ended 30 June 2007
___________________________________________________________________________________
4. BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)
The segment information for these businesses is as follows:
For the year ended 31 December 2006
Broadband
and voice Hosting Business
services services services Adjustments TOTAL
£'000 £'000 £'000 £'000 £'000
REVENUE
External sales 232,905 30,687 30,632 135 294,359
====== ====== ====== ====== ======
RESULT
Segment result 18,752 9,285 (1,017) (3,923) 23,097
Amortisation of intangibles (5,858) - (787) - (6,645)
Depreciation (4,177) (2,997) (4,831) (28) (12,033)
Share based payment costs (783) (225) (243) (955) (2,206)
Unallocated corporate expenses - - - (1,150) (1,150)
Finance Income - - - 546 546
Finance costs (283) (261) (616) (5,646) (6,806)
_______ _______ _______ _______ _______
Profit before tax 7,651 5,802 (7,494) (11,156) (5,197)
Income tax expense 5,688 (8) - - 5,680
_______ _______ _______ _______ _______
13,339 5,794 (7,494) (11,156) 483
====== ====== ====== ====== ======
OTHER INFORMATION
Capital additions (16,698) (8,400) (9,480) - (34,578)
====== ====== ====== ====== ======
BALANCE SHEET
Assets
Segment assets 122,808 16,423 36,314 - 175,545
Unallocated corporate assets - - - 153,258 153,258
_______ _______ _______ _______ _______
122,808 16,423 36,314 153,258 328,803
====== ====== ====== ====== ======
Liabilities
Segment liabilities (69,259) (13,067) (24,418) - (106,744)
Unallocated corporate liabilities - - - (125,711) (125,711)
_______ _______ _______ _______ _______
(69,259) (13,067) (24,418) (125,711) (232,455)
====== ====== ====== ====== ======
4. BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)
Geographical segments
The group's operations are located in the United Kingdom and Germany. The
segment information for these geographical locations which is not materially
different to its origin is as follows:
For the six month period ended 30 June 2007
United Kingdom Germany TOTAL
£'000 £'000 £'000
Sales revenue 183,302 5,633 188,935
====== ====== ======
Carrying amount of segment assets 300,592 12,758 313,350
====== ====== ======
Additions to property, plant and
equipment and intangible assets (8,788) (2,010) (10,798)
====== ====== ======
For the six month period ended 30 June 2006
United Kingdom Germany TOTAL
£'000 £'000 £'000
Sales revenue 114,741 4,476 119,217
====== ====== ======
Carrying amount of segment assets 264,052 7,087 271,139
====== ====== ======
Additions to property, plant and
equipment and intangible assets (22,199) (2,735) (24,934)
====== ====== ======
For the year ended 31 December 2006
United Kingdom Germany TOTAL
£'000 £'000 £'000
Sales revenue 284,787 9,572 294,359
====== ====== ======
Carrying amount of segment assets 318,591 10,212 328,803
====== ====== ======
Additions to property, plant and
equipment and intangible assets (26,975) (7,603) (34,578)
====== ====== ======
5. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is based on
the following data:
Six month Six month
period ended period ended Year ended
30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Earnings
Earnings for the purposes of basic earnings per share
(net loss for the period attributable to the
equity
holders of the parent) (8,386) 6,056 483
====== ====== ======
Number Number Number
Number of shares
Weighted average number of ordinary shares
for the purposes of basic earnings per share 2,397,038,867 2,321,397,845 2,337,117,056
========== ========== ==========
6. CASH GENERATED FROM OPERATIONS
Six month Six month
period ended period ended Year ended
30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Operating profit 9,402 11,162 23,097
Adjustments for:
Decrease in provisions (294) (167) (363)
_______ _______ _______
Operating cash flows before movements in 9,108 10,995 22,734
working capital
(Increase)/decrease in inventories 22 (9) 16
(Increase)/decrease in receivables 6,314 813 865
Increase in payables (16,039) 3,802 10,397
_______ _______ _______
Cash generated from operations (595) 15,601 34,012
====== ====== ======
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