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Pipex Communications (FFG)

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Tuesday 25 September, 2007

Pipex Communications

Interim Results

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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