Final Results

RNS Number : 6480U

Coms PLC

31 July 2015

 

31 July 2015                                                        

Coms plc

("Coms", the "Company" or the "Group")

Publication of Audited Annual Accounts for the year ended 31 January 2015

Coms plc (AIM:COMS) a leading provider of Infrastructure and Smart Buildings solutions today announces its audited annual results for the year ended 31 January 2015 and the publication of its annual report and accounts which is now available on the Company's website at www.comsplc.com.

Financial results

·      Revenue grew 228% to £46.0m (2014: £14.0m) reflecting acquisitions and a full year of contribution from Redstone

·      The Group generated a loss for the year of £15.1m (2014: profit of £1.0m) due largely to significant impairments of c.£10m relating to the Telephony Services division

·      Adjusted LBITDA* was £3.5m (2014: EBITDA of £1.0m)

·      Basic loss per share of 1.57p (2014: earnings per share of 0.24p)

·      Year-end net overdraft of £0.4m (2014: net cash of £1.0m)

·      Net cash outflow of £1.4m (2014: inflow of £0.8m) reflecting significant investments and operating losses funded through the Group's overdraft and a placing in February 2014 to raise £7.9m net of expenses.

* Before net finance costs, depreciation, amortisation, integration costs and transactional items, impairment charge and share based payments.

Operating performance

·      All trading losses were generated by the Telephony Services division which despite restructuring attempts continued to incur significant losses.

·      The infrastructure and overhead base of the Telephony Services division would have required significant further investment as well as management focus to achieve profitability. The Board did not think it wise to continue with such investment which is why the trade and assets of the Telephony Services division were sold after the year end.

·      Redstone and Darkside Studios traded profitably but suffered from the uncertainty created by the poor trading in the Telephony Services division.

Post year end developments  

·      Dave Breith resigned as CEO in March 2015 and the Non-Executive Directors have since been responsible for the running of the business.

·      Mark Braund and Guy van Zwanenberg were appointed as Non-Executive Directors in March 2015.

·      The loss making Telephony Services business was sold to Timico Limited for an initial cash consideration of £2.5m on 31 May 2015. Following the disposal the Group can focus on developing Redstone, with its leading infrastructure, Smart Buildings and IT Managed Services business.

·      A successful placing and open offer was undertaken in June 2015 to raise £2.0m net of expenses to provide additional working capital.

·      On 14 July the Company announced the proposed appointment of Mark Braund and Spencer Dredge as CEO and CFO.

Commenting on the results and outlook, Frank Beechinor, Chairman said:

"This past year has proved to be an exceedingly difficult year for the Group. The Group underwent significant change through a number of acquisitions under the previous management, aimed at building an integrated telecommunications group of scale. However, over the course of the year, despite several attempts to integrate the telecoms assets which the Company had acquired, the management team was not able to secure the necessary anticipated savings. As a result we sold the trade and assets of the loss-making Telephony Services division at the end of May.

The Telephony Services division continued to make losses until the date of disposal and, as such, we will report an operating loss for the first half of the current financial year. However, the Board anticipates that the Group's trading will improve thereafter.

With the additional capital injected from the placing and open offer which raised £2.0m net of expenses in June 2015, the cash from the disposal of the telecoms assets and the cessation of the loss-making businesses, the Board is confident that the Group is better placed to embark on a more successful period of stability and growth."

For further information, please contact:

Coms plc                                                                       

Diana Dyer Bartlett (Acting CFO)                                       [phone]

Charles Stanley Securities                                               [phone]

(Nominated Adviser and Broker)

Karri Vuori / Mark Taylor

Dear Shareholder

This past year has proved to be an exceedingly difficult year for the Group. Having seen rapid change through the previous year and into 2014/15, through a number of acquisitions, the expectations for the business were high, however, over the course of the year, and despite several attempts to integrate the telecoms assets which the Company had acquired, the management team was not able to secure the necessary anticipated savings.

With the continued poor trading, in addition to the losses which we identified in the trading update at the end of February, we have also had to recognise the impairment of most of the goodwill, intangible and fixed assets and certain other assets associated with the Telephony Services division as none of the investments made in telecoms assets have generated any value for the Company. The costs associated with the closure of the Brentwood office have also been recognised as integration and transactional items. The operating loss before integration and transactional items and impairment costs amounted to £4.7m and the impairment charges, integration and transactional items amounted to a further £10.0m of write downs. Further detail is provided in the Strategic report.

Board changes

Dave Breith resigned as CEO in March 2015 and since his departure the Non-Executive Directors have been responsible for running the Company, with myself leading the business and Diana Dyer Bartlett working full-time as interim Chief Financial Officer. We were also very fortunate to secure the services of Mark Braund and Guy van Zwanenberg as new Non-Executive Directors in March 2015 at a time when the Company was facing difficult financial decisions. As announced on 14 July 2015, Mark Braund has now agreed to be appointed Chief Executive of the Company and Spencer Dredge will be appointed Chief Financial Officer. Having had the benefit of working with Mark as a Non-Executive Director, and Spencer as Interim Finance Director supporting Diana, over the last few months, I am delighted that both Mark and Spencer are taking over the operational management of the business. I am confident that, with the Board's support, the Company's recent problems will soon be put behind us.

Dave Breith has intimated to the Company that he is intending to make an employment claim against the Company. The Board is additionally looking at what sums are owed to the Group by Mr Breith and companies associated with Mr Breith. Further information is set out in the Strategic report.

Sale of the Telephony Services division

After a detailed review of the finances of the Telephony Services business, the Board concluded that the Telephony Services overhead structure was such that it would take significant further investment and considerable management focus for the business to achieve profitability. The Company did not have the capital required to achieve this and, in any case, the risk involved in such a process was such that the Board did not think it wise to continue with such investment. As a consequence, a decision was taken to sell the Telephony Services businesses and we announced the sale of their trade and assets to Timico Limited on 26 May 2015. Timico has assumed some of the liabilities of the Telephony Services businesses but we are left to deal with certain other liabilities, in particular, the two leasehold properties at Brentwood and Stokenchurch. Further information concerning the disposal is contained in the Strategic report.

The Group's future

Following the disposals of the telecoms assets, the Group now comprises Redstone's infrastructure business and Darkside Studios. It is the Board's intention to focus our efforts on growing our core infrastructure business, Redstone, by developing our leading Smart Buildings product offering and expanding further our successful managed services business. The Board intends to capitalise on accelerating growth in the construction industry and, in particular, the fast growing Smart Buildings sector where Redstone has already delivered solutions to a number of landmark projects. The Board believes that there is significant potential in these markets as they go through both structural and technological change. Redstone is well positioned to service this opportunity and our focus is to develop this capability through a combination of product development, organic growth and acquisitions. One of the new management team's jobs will be to rebrand the organisation to reflect the focus, going forward, on Redstone's business.

To assist the Group in developing this new strategy and to provide some additional working capital to the business, the Company announced a placing and open offer on 29 May 2015 which raised £2.0m net of expenses.

The losses incurred by the Telephony Services division continued until the end of May and, as a consequence, we will report another operating loss for the first half of 2016. However, the Board anticipates that the Group's trading will improve thereafter.

With additional capital injected into the business, the disposal of all of the Group's loss-making businesses and the appointment of a new management team, my Board colleagues and I are confident that the Group is now better placed to embark on a more successful period of stability and growth.

I would like to take this opportunity to thank all the staff who have worked tirelessly to get us through what has been a very difficult period. I would like to thank my fellow Non-Executive Directors for their support and commitment and those shareholders who have continued to support us.

Frank Beechinor

Chairman

Operational review

The Coms Group now comprises Redstone and Darkside Studios, each of which developed their respective businesses during the course of the year ended 31 January 2015, referred to throughout this report as financial year 2015 or 2015.

An overview of the Telephony Services business and the reasons why it was unable to stem its losses and was sold is also set out below.

Redstone

Redstone had a busy year in its first year of Group ownership and saw considerable investment by the Group both in terms of specialist cable testing equipment and fitting out the new office to which it relocated in June 2014 (which it shares with Darkside Studios). Despite the uncertainties surrounding the Group as a result of the trading difficulties in the Telephony Services business, Redstone nevertheless made creditable progress in securing new contracts. Below are just a few of the contracts won in 2015 which give a flavour of both scale and breadth of Redstone's product offering:

·      February 2014: £1.5 million contract for the design, and delivery of an integrated building for a leading insurer;

·      March 2014: £0.8m contract with a leading university for the design, and delivery of a new mission critical data centre;

·      April 2014: £1.1m contract to deliver structured cabling for a major sporting venue;

·      May 2014: £0.5m contract to deliver structured cabling for a leading online retailer across Europe;

·      June 2014: £6.0m 3 year contract with a major international financial services client to provide managed services across critical IT infrastructure throughout the UK;

·      August 2014: £0.5m contract to deliver ICT services to a major commercial property company;

·      November 2014: £1.8m contract with a leading international financial services client for the design, and delivery of a new mission critical data centre;

·      January 2015: £0.8m one year contract with a major petroleum client to provide managed services across IT infrastructure throughout the UK.

The Smart Buildings offering in 2015 was slow to develop but towards the end of the year, a large

contract was secured which will be implemented during 2016. This landmark project will no doubt help Redstone market further Smart Buildings projects.

Darkside Studios

With its motto of "Come over to the Darkside", Darkside is a world-class animation studio, producing beautifully crafted, computer generated, moving imagery. Character animation is the studio's main specialism and the business has talented animators creating a wide range of CGI, 3D and 2D animation projects for cinema, television and corporate clients, working for, amongst others, the BBC, Sky and Disney.

Having been acquired in December 2013 as part of a strategy to work with Coms' telecoms reseller customers to promote the Telephony Services business, Darkside Studios has re-established its market and towards the end of the year secured some substantial external contracts with TV and corporate clients and built a pipeline of new business.

Telephony Services

The division's story for 2015 is one of unfulfilled promise. Fundamentally there was investment in infrastructure predicated on a much larger business, which the division was unable to support. Much of this investment was undertaken in the 2014 financial year but the problems were further exacerbated during 2015. The Group invested a significant amount of capital in the division, nearly all of which will be written off in connection with the sale of the division's business and assets to Timico. The impairment charges, integration costs and transactional items in 2015 totalled some £10.0m.

The Telephony Services division comprised three main elements:

·      An Indirect channel which provided services to wholesale telecoms distributors and resellers largely supplying small businesses. It also included Premium O which was a business supplying non-geographic and premium numbers to business users;

·      The Direct channel, created with the acquisition of the Actimax companies in February 2014, serving larger corporates directly; and

·      A Mobile offering which had a variety of product delivery channels including retail and "MVNO" whereby Coms Mobile was a mobile operator rather than a supplier.

The Indirect channel was part of the original Coms business and although it grew its revenues by 444% per cent in 2015, it nevertheless lacked the scale to cover its overheads. This was exacerbated by the investments in financial year 2014 on a new broadband network.

The Direct Channel was formed in February 2014 following the acquisition of the Actimax companies from administrators for a cash consideration of £2.4m. The £1.0m contingent consideration payable in respect of the following twelve months' trading, was not paid as the business did not meet its targets. Having emerged from administration, Actimax had suffered from a period of instability and it suffered considerable attrition in its customer base soon after acquisition. However, this stabilised in the second half until the announcement of the restructuring and closure of the Brentwood office in early 2015. The business had an impressive client base of medium sized companies for whom it provided and maintained VOIP phone systems.

Having acquired Actimax, the Board expected there to be a consolidation of the Telephony Services division's business to reduce costs. However, management was of the view that this was not appropriate, given the different nature of the Direct and Indirect channels. As a consequence, management relocated the Actimax business to a new office in Brentwood in April 2014, closing the business's existing offices. A ten year lease was taken out on the Brentwood office along with investment of capital expenditure of £0.3m. With the restructuring and closure announced in January 2015, this investment was impaired.

At the same time as the new Brentwood offices were being taken on, management also signed a 5 year lease on an office in Stokenchurch. This building was, with hindsight, too large for the business at this stage of its development and although it had always been expected that acquisitions of further businesses would be made, there was no certainty that they would have needed new offices. The offices were in good order but a further £0.2m was invested in furniture and setting up a specialist facility to facilitate the testing of equipment to be installed by Redstone at customer sites. Along with the Brentwood property this lease also needs to be disposed of, once Timico have relocated the Telephony Services business to their own facilities.

In addition to setting up offices in preparation for expansion, the Group also established telecoms infrastructure to handle large volumes of business. In anticipation of securing what was hoped would be a significant trading relationship with MITIE, a new broadband network was built. A relationship was entered into with TFM Networks in June 2013 to provide a network capable of handling 20,000 users with the capability of expanding this to 250,000 users. As part of this relationship, an asset purchase agreement was signed and £480,000 shares issued to fund the purchase of equipment as the basis for the network. In addition, Dave Breith transferred a further £200,000 assets to the Group in consideration for which 6.7m shares were issued to him. These additional network assets were to provide a third line of resilience to cope with expected very large volumes of business. There is currently a dispute with TFM Networks as to whether title to the assets passed to the Telephony Services division at the time that they were paid for or whether a multi-year support contract (which was never signed) with TFM Networks had to be completed before the Group was entitled to the assets for which it had expended over £0.5m. Since installation of the network, the Group incurred charges totalling £1.2m with TFM Networks relating to the network. Because there were only 5,000 users on the network, this is one of the reasons why the division was unable to achieve profitability. Broadband customers which had generated a profit for the business while being managed on a smaller platform, generated losses as soon as the new platform was set up. The anticipated MITIE business never materialised and indeed the total revenue generated by that relationship amounted to £51,000. The Group paid an introduction fee of £0.2m plus VAT in May 2013 to an intermediary in connection with the MITIE contract and accordingly steps are to be taken to recover this money.

The Mobile business had a variety of product offerings encompassing a wide range of different markets. Before the sale of its trade and assets to Timico, this business focused on developing as a mobile operator, using one of the national networks. Although it had formed relationships with a number of prospective customers, the pricing was such that no customer contracts could be signed until a new supplier agreement had been signed with the network operator, as existing supplier agreements would have resulted in considerable losses. The proposed new network contract had onerous guarantees and commitments and as such the Board concluded that it could not be signed in light of the trading difficulties in the Telephony Services division. As a consequence, this division, in the absence of the new contract with the network operator, would not have been viable. In total Coms invested over £1.0m in the Mobile business including funding losses and acquiring businesses to give it scale. Most of this investment has been written off following the disposal to Timico.

The sale of the business and assets of all of the Telephony Services subsidiaries to Timico Limited at the end of May 2015 brings to a close the Group's activities in the telecoms sector. The Group is left to wind up the operating companies and deal with the property leases and certain other liabilities. Nevertheless, in the circumstances, the sale represents a good solution for the Group's stakeholders, including its customers, suppliers and staff.

Disputes and potential litigation

The Company has been notified of a number of potential claims and disputes, all of which relate to the Telephony Services division. The Board has considered the basis for these claims and made provision, where appropriate, for such sums, if any, which it believes might be payable.

Outstanding issues between the Company and Dave Breith and companies associated with Dave Breith

There are a number of unresolved issues between the Company and its former CEO, Dave Breith and between the Company and parties associated with Mr Breith, which the Company is attempting to resolve. In this context "Company" includes the parent company and any of the Company's subsidiaries. The outstanding issues include:

·      An employment related claim threatened by Mr Breith, which the Company disputes.

·      A further claim for payments under a consultancy agreement, offered to Mr Breith by the Company, the terms of which were not agreed & no material work has been completed, although the Company did pay Mr Breith the first monthly payment of £20,000 under the draft agreement.

·      A claim by Mr Breith in respect of office furniture and equipment, which he claims are his personal property.

·      A claim by Blabbermouth Marketing Limited, a company in which Mr Breith is believed to have a minority shareholding, claiming monies under a terminated contract.

·      A claim by Mr Breith in relation to the payment of a deposit to the Company made by Sugar Cube Animation, a company in which Mr Breith is believed to be a shareholder, in connection with an ongoing project for Sugar Cube Animation.

·      A claim by the Company relating to payments made to develop the AskMerlin Telephony Services billing platform understood to be owned by Mr Breith.

·      A claim by the Company to recover moneys from The Payment Centre, a company of which Mr Breith is the chief executive. The Payment Centre has withheld moneys collected on the Company's behalf from Telephony Services customers.

·      A claim by the Company seeking repayment of moneys expended on Mr Breith's car.

The Board believes the settlement of the above issues will result in moneys being recovered by the Company of approximately £0.1m

Financial review

Set out below is an overview of the trading results for the year ended 31 January 2015, This includes the results of the Telephony Services companies whose business and assets were sold at the end of May 2015, following continuing losses throughout the period under review.

Revenue and gross margin

The revenue and gross margin generated by the Group's three principal activities was as follows:

		2015		2014
		£000		£000
Revenue
Redstone		29,468		8,020
Darkside Studios		1,099		60
Telephony Services		15,387		5,923
		45,954		14,003
Gross  contribution
Redstone	17.5	5,158	27.9	2,241
Darkside Studios	42.1	463	35.0	21
Telephony Services	21.4	3,300	42.1	2,493
	19.4	8,921	34.0	4,755

Redstone

Redstone was acquired in November 2013 and accordingly only three months trading were included in 2014. Redstone's 2014 results also benefited from the reversal of provisions made on amounts recoverable on contracts which were deemed to be at risk at the time of Redstone's acquisition. This resulted in an improvement in the gross contribution of £0.6m, equivalent to 8 percentage points. Excluding this adjustment, Redstone's gross margin for 2014 would have been 20.5%. During 2015 one of the matters for which the provision was released in 2014 was not resolved as management had anticipated, and as result a charge of £0.2m in relation to a pre-acquisition contract was made. Year on year there is a small decline in gross margin which is attributable to a higher proportion of revenue being generated by the lower value added cabling installation projects and the charge in relation to the pre-acquisition contract.

Darkside Studios

Darkside Studios was acquired in December 2013 and accordingly only one month's trading results are included in the comparative information. Darkside is a high value added business which enjoys higher gross margins than other parts of the business. However, it also has to invest significant funds in IT and studio equipment to stay at the cutting edge of its industry. As reported in the Operational review, the business was originally acquired to supply services primarily to Coms' customers but this strategy was changed midway through the year. Although Darkside Studios reported a creditable revenue and gross margin performance, at the operating level it produced a small profit of £0.1m. This was largely thanks to overheads taken on to refocus the business on external sales. It has, nevertheless, built a solid pipeline of new business which, it is hoped, will allow Darkside Studios to generate an improved operating profit in 2016.

Telephony Services

The Telephony Services division revenue in financial year 2015 developed through a combination of organic growth and acquisition. In 2015 two new businesses were acquired: the Actimax companies were acquired in February 2014 and contributed £8.2m to revenue and Smarter Mobile UK was acquired in March 2014 and contributed £0.1m to revenue.

The divisional margin was impacted by the exceptionally low margin Coms Carrier business referred to below, the costs associated with the new networks acquired during financial year 2014 but only operational in financial year 2015 (and which led to a gross loss on the broadband activities of £0.2m compared with a gross contribution of £0.2m in 2014). Premium O's profitability also declined significantly in 2015, as reported below. Actimax margins were lower than the divisional reported margins in 2014, thus also contributing to the decline in gross margins as a percentage of revenue.

Mobile's results include £1.2m revenue generated by the Coms Carrier Services business which the Group commenced in October 2014. This was a new business and Coms Carrier Services was identified as an immediate problem. Although it was expected to generate a very low gross margin of some 3%, it involved some unanticipated risks and operational problems which meant that it lost approximately £0.1m in the brief time that it operated. This business was terminated at the end of November 2014.

Premium O, which was acquired in May 2013 had a poor year. Having generated revenue of £3.0m in the 8 months post its acquisition in financial year 2014 (a run rate of some £4.5m per annum), its revenue dropped to £1.6m for the year to 31 January 2015 and its gross margin fell from 34% in 2014 to 19% in 2015. This trend continued into financial year 2016 such that in the last month before the business was sold, its revenue was less than £20,000. Income from non-geographic numbers is variable but this business was never integrated into the Group which contributed to its poor performance.

Operating costs

As reported in the Operational review, although there were cost reductions, there was little or no integration of any of the Group's businesses during 2015 and accordingly limited cost savings on overheads were secured following the various acquisitions. Overheads as a percentage of revenue amounted to 26% in 2015 compared with 28% in 2014, although 2014 benefited from the profit on sale of fixed assets so 2014 actual overheads were actually running at 30% of revenue. The 2015 operating costs included £0.9m costs associated with the offices occupied by the Telephony Services division and as reported in the Operational review above, the Group now needs to exit the leases on the Telephony Services offices. They also included £0.5m charges in relation to the broadband network (2014: £0.1m).

Depreciation and amortisation

The charges for depreciation and amortisation, together £1.2m (2014: £0.3m) were the result of the significant investments made in 2014 and 2015 on leasehold improvements, Redstone's specialist testing equipment as well as the intangible assets acquired with the Actimax companies. In addition to these in-use charges, the Company impaired a substantial proportion of the investments in the Telephony Services division made in 2014 and 2015 (other than the Actimax intangible assets).

Net finance costs

The net finance costs for the year of £0.2m (2014: £0.4m net income) comprised interest which accrued on utilisation of the Group's bank facilities and the unwinding of the discount related to the deferred consideration on the acquisition of Redstone. In 2014 the net income related to the release of an accrual held in Redstone's balance sheet on acquisition in respect of interest owed to former affiliated companies.

Integration costs, transactional items and impairment charges

The following integration costs, transactional items and impairment charges have been recognised in the 2015 financial statements:

2015
	£000
Integration and transactional items
Integration costs	2,252
Transactional items	(977)
	1,275
Impairment  charges
Goodwill	6,907
Other intangible assets	1,360
Property, plant and equipment	416
	8,683

Integration costs: During 2015, as previously reported, the Group carried out some cost reduction initiatives in the Telephony Services division following the various acquisitions. This initially largely involved consolidating management of the various businesses and culminated in January 2015 with the announcement of the proposed closure of the Brentwood office. The integration costs include the redundancy costs associated with these exercises and provisions for onerous contracts.

Transactional items: Included within transactional items is a £1.0m gain recognised in the Consolidated income statement relating to the release of the provision for contingent consideration in relation of the acquisition of the Actimax companies. The expectation that no performance related contingent consideration would be payable in relation to the Actimax companies was reported at the interim stage and confirmed following completion of the performance period at the end of February 2015.

Impairment charges

There were a number of impairment charges in 2015, all of which related to the Telephony Services division.

Goodwill: The Group had goodwill balances at the prior year end of £12.9m. During the year following the acquisition of the Actimax companies and Smarter Mobile UK the Group added £3.7m of goodwill. At the year-end the Group recorded a £6.9m impairment charge as a consequence of the performance of the Telephony Services division.

Other intangible assets: Included on the Group balance sheet were the following intangible assets: 

·      Database and customers of World Telecom, acquired from Dave Breith for £50,000 in February 2013

·      Network assets of £480,000 acquired from TFM Networks Limited in June 2013

·      Other network assets amounting to £200,000 acquired from Dave Breith in June 2013

·      ADSL broadband customer base acquired in May 2013 from So Purple Limited for a consideration of £800,000

At the year end, the Board concluded that none of these assets would generate any value for the Group and agreed that they should all be written down to nil.

Property, plant & equipment: As reported in the Operational review, management took out leases on new offices for the Telephony Services division and incurred £0.5m in leasehold improvements and furniture and fittings. Some of this expenditure was depreciated during the course of 2015 and a £0.4m impairment charge was recorded in light of the proposed closure of these offices.

Taxation

The losses incurred by the Telephony Services division have been available to relieve any profits made by Redstone and Darkside Studios. As a consequence, there is no corporation tax charge in respect of 2015 (2014: £0.1m). Redstone has the benefit of brought forward trading losses in its ICT business amounting to approximately £7.0m which will be available to relieve future profits in that business. Although the Telephony Services division had substantial losses brought forward, all of these will be lost following the sale of the business and assets of the Telephony Services division to Timico.

The £0.3m taxation charge in 2015 (2014: £0.2m credit) related to the reversal of a deferred tax asset in the Mobile business which related to trading losses which will also not be utilised.

Cash flow statement

During the year the Group had a net outflow of £1.4m (2014: £0.8m inflow) giving rise to a net overdraft at the end of the year of £0.4m (2014: net cash of £1.0m). The £1.0m brought forward balance plus £8.0m of cash raised from share issues was spent on funding operations (£3.4m) and investing in subsidiary companies and fixed assets (£5.9m).

The Loss before tax of £14.9m (2014: profit of £1.2m) translated into an operational cash outflow of £3.4m (2014: £0.4m). Some £8.7m of the 2015 operating loss related to the impairment of assets in the Telephony Services division prior to its sale to Timico in May 2015 and accordingly this did not relate to the movement of cash. Similarly in 2014, there were a number of fair value adjustments and provision unwinds which did not involve cash. The operating cash outflow therefore reflects the fact that the Group was trading at a loss in both years.

During the year, the Group spent £5.9m cash in acquiring businesses and fixed assets. Some £2.2m was spent on property, plant and equipment, £0.4m of which related to fitting out the offices in Stokenchurch and Brentwood which have now been impaired following the sale of the business and assets of the Telephony Services division. £1.1m was also spent on leasehold improvements, furnishings and office equipment in Redstone's new Holborn office and £0.7m replacing specialist testing equipment used by Redstone.

Approximately £3.8m cash (net of cash acquired) was also expended on the acquisition of Actimax, Smarter Mobile UK Limited and deferred consideration in respect of Redstone. With regard to Redstone, the sum due had been £1.8m but this was reduced to £1.6m by settling the sums due early and by settling a number of potential claims. A further £0.2m deferred cash consideration in respect of Redstone is due to be settled in 2016.

The share issues comprised:

·      The placing of 138,333,333 shares at 6p per share at the time of the acquisition of the Actimax companies raising £7.9m net of expenses in February 2014; and

·      13,130,952 shares in relation to the exercise of warrants and share options which raised £0.1m.

Diana Dyer Bartlett

Director

31 July 2015

Consolidated income statement

for the year ended 31 January 2015

Note		2015	2014
		£000	£000
Revenue	4	45,954	14,003
Cost of sales		(37,033)	(9,247)
Gross profit		8,921	4,756
Administrative  expenses		(12,369)	(3,711)
Adjusted (LBITDA)/EBITDA*		(3,448)	1,045
Integration and transactional costs included within administrative expenses	5	(1,275)	-
Depreciation		(820)	(81)
Amortisation		(373)	(111)
Share based payment charge		(54)	(27)
Impairment charge	6	(8,683)	-
Operating (loss)/profit		(14,653)	826
Net finance costs		(245)	415
(Loss)/profit before tax		(14,898)	1,241
Taxation		(172)	118
(Loss)/profit for the year after tax		(15,070)	1,359
Discontinued operations		-	(345)
(Loss)/profit for the year		(15,070)	1,014
Total comprehensive (loss)/income for the year attributable to equity holders		(15,070)	1,014
Basic and diluted (loss)/earnings per share
Continuing operations - Basic	7	(1.57p)	0.24p
Discontinued operations - Basic	7	-	(0.06p)
Total	7	(1.57p)	0.18p
Continuing operations - Diluted	7	(1.57p)	0.22p
Discontinued operations - Diluted	7	-	(0.05p)
Total	7	(1.57p)	0.17p

* Result for the year from continuing operations before net finance costs, depreciation, amortisation, integration and transactional items, impairment charges and share based payment charge.

The (loss)/profit for the period equates to the Comprehensive (expense)/income for the year. The notes on pages 17 to 22 are an integral part of these consolidated financial statements.

Consolidated statement of financial position

as at 31 January 2015

		2015	2014
		£000	£000
ASSETS
Non-current assets
Goodwill		9,651	12,885
Other Intangible assets		1,718	1,851
Property, plant and equipment		1,798	1,031
Deferred tax asset		-	204
		13,167	15,971
Current assets
Inventories		305	364
Trade and other receivables		10,658	8,704
Cash and cash equivalents		492	999
		11,455	10,067
Total assets		24,622	26,038
EQUITY and LIABILITIES
Capital and reserves attributable to equity shareholders
Share capital		3,015	2,864
Share premium		27,816	19,965
Merger reserve		1,911	1,911
Reverse  acquisition reserve		(4,236)	(4,236)
Accumulated deficit		(19,528)	(4,513)
Total equity		8,978	15,991
Current liabilities
Overdraft		878	-
Trade and other payables		13,603	9,996
Provisions		878	-
		15,359	9,996
Non-current liabilities
Deferred tax		285	51
Total liabilities		15,644	10,047
Total equity and liabilities		24,622	26,038

The financial statements were approved by the Board of Directors and authorised for issue on 31 July 2015. They were signed on its behalf by:

Diana Dyer Bartlett

Director

31 July 2015

Company Number: 5332126

Consolidated statement of cash flows

for the year ended 31 January 2015

	2015	2014
	£000	£000
Cash flows from operating activities
(Loss)/profit before taxation	(14,898)	896
Depreciation	820	117
Amortisation	373	146
Share based payment charge	54	27
Release of deferred consideration	(1,294)	-
Net finance costs	245	(415)
Intangible asset impairment	1,360	-
Property, plant and equipment impairment	416	-
Goodwill impairment	6,907	-
Movement in provisions	878	(594)
Loss/(profit) on sale of fixed assets	21	(225)
Operating cash flows before movements in working capital	(5,118)	(48)
Decrease/(increase)  in inventories	101	(63)
Increase in receivables	(325)	(940)
Increase in payables	1,944	675
Net cash used in operating activities	(3,398)	(376)
Cash flows from investing activities
Acquisition of subsidiaries (net of cash acquired)	(3,770)	(7,309)
Acquisition of intangible assets	(15)	(312)
Proceeds from sale of property, plant and equipment	54	-
Acquisition of property, plant and equipment	(2,206)	(470)
Net cash used in investing activities	(5,937)	(8,091)
Cash flows from financing activities
Proceeds from issues of share capital (net of issue costs)	8,003	9,358
Net finance costs	(53)	(63)
Repayment of finance leases	-	(1)
Net cash from financing activities	7,950	9,294
Net (decrease)/increase in cash and cash equivalents	(1,385)	827
Cash and cash equivalents at start of year	999	172
Cash and cash equivalents at end of year	(386)	999

Cash and cash equivalents  comprise cash at bank and other short-term highly liquid investments with maturity of three months or less, as adjusted for any bank overdrafts.

Consolidated statement of changes in equity

attributed to equity holders of the Company

		Share capital	Share premium/ merger reserve	Reverse acquisition reserve	Accumulated deficit	Total
£000			£000	£000	£000	£000
At 1 February 2013		2,363	9,497	(4,236)	(5,553)	2,071
Profit for the year		-	-	-	1,014	1,014
Total comprehensive income for the year		-	-	-	1,014	1,014
Transactions with the owners:
Proceeds from shares issued		501	12,877	-	-	13,378
Share issue costs		-	(499)	-	-	(499)
Share based payment charge		-	-	-	27	27
At 31 January 2014		2,864	21,875	(4,236)	(4,512)	15,991
At 1 February 2014		2,864	21,875	(4,236)	(4,512)	15,991
Loss for the year		-	-	-	(15,070)	(15,070)
Total comprehensive loss for the year		-	-	-	(15,070)	(15,070)
Transactions with the owners:
Proceeds from shares issued		151	8,267	-	-	8,418
Share issue costs		-	(415)	-		(415)
Share based payment charge		-	-	-	54	54
At 31 January 2015		3,015	29,727	(4,236)	(19,528)	8,978

Notes to the financial statements

1.      General information

Coms plc is a company incorporated in England and Wales under the Companies Act 2006 and listed on the AIM market.

These financial statements are presented in pounds sterling as that is the currency of the primary economic environment in which the Group operates. There are no foreign subsidiaries in the Group.

Going concern

As detailed in the Directors' report, the Directors consider that the Company and the Group have adequate resources to continue in existence for the foreseeable future. In assessing the outlook for the Company and Group, the Board took account of the Group's new £2.0m overdraft facility and certain events after the balance sheet date which have materially strengthened the financial position:

-     The disposal of the loss-making Telephony Services division in May 2015 for £2.5m in cash, with the potential of up to another £1.0m cash, conditional on required levels of revenue at a future date.

-     The completion in June 2015 of a placing and open offer, raising a further £2.1m in cash before expenses. The open offer to existing shareholders, was more than 50% oversubscribed.

The Directors have assessed the Group's current forecasts, taking into account reasonable changes in trading performance. The assessment considered stress tests and mitigating actions available to the Group. On the basis of this review, the Directors believe that the Group will continue to operate within the resources currently available to it. The Directors accordingly continue to adopt the going concern basis in preparing these financial statements.

2.      Basis of preparation and significant accounting policies

The consolidated financial statements of Coms plc have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS's as adopted by the EU), IFRS Interpretations Committee and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention.

3.      Business combinations

On 7 February 2014 Coms acquired certain subsidiaries of Actimax Acquisitions Limited for initial cash consideration of £2.4m. The cash consideration was funded by the Company placing 138,333,333 new ordinary shares at 6p per share, with certain institutional and other investors to raise £7.9m net of expenses.

Further consideration of up to £1.0m in cash was payable 13 months from completion of the acquisition, conditional upon the billings achieved for the 12 months following completion, exceeding £7.6m. The performance target was not met and accordingly no further consideration was payable. This resulted in a gain of £1.0m being recognised on the release of the provision for contingent consideration.

The Actimax acquisition consists of a number of related companies, servicing approximately 800 customers, delivering managed network, unified communications and data services.

On 10 March 2014 Coms acquired 100% of the issued share capital of Smarter Mobile UK Limited for a total cash consideration of £0.2m. Smarter Mobile UK Ltd is a mobile service provider, specialising in a family mobile offering.

Both acquisitions were a continuation of the then strategy to build a Telephony Services provider of scale, building on prior year related acquisitions. During the period these acquisitions contributed £8.3m revenue and £0.4m loss before tax, which is also equivalent to the full year result had the Group owned both businesses since 1 February 2014.

Goodwill recognised on these acquisitions has been impaired at the year-end see note 5.

Actimax and Smarter Mobile UK Limited	Book values	Fair value adjustments	Fair values
	£000	£000	£000
Intangible assets	167	1,417	1,584
Property, plant and equipment	621	-	621
Current assets	2,332	(414)	1,918
Current liabilities	(5,712)	1,858	(3,854)
Deferred tax liability	-	( 317)	(317)
	(2,592)	2,544	(48)
Net assets acquired			(48)
Goodwill			3,673
Total consideration			3,625
Satisfied by:
Cash			2,625
Contingent  consideration			1,000
			3,625
Less Cash acquired			(240)
Total cash consideration			2,385

Included within the fair value adjustments is a reduction in current liability of £1.9m which reflects the waiving Actimax Group intercompany balances. On the acquisition of Actimax and Smarter Mobile UK Ltd, all aspects were fair valued and customer contracts and relationships were recognised as intangible assets. The customer contracts and relationships were valued on an income basis. The value is the present value of projected cash flows in excess of returns on contributory assets during the life of the relationship with customers. Management assessed that these customer contracts and relationships would have a useful economic life of at least ten years and therefore the intangible assets recognised would be amortised over this period.

4.      Segmental reporting

In the opinion of the Directors the Group's activities comprise three material business segments which reflect the profiles of the risks, rewards and internal reporting structures within the Group.

These are as follows:

-     Redstone

-     Darkside Studios

-     Telephony Services

All activities were conducted within the United Kingdom and it is the opinion of the Directors that this represents one geographical segment.

Revenue	2015	2014
	£000	£000
Redstone	29,468	8,020
Darkside Studios	1,099	60
Telephony Services	15,387	5,923
	45,954	14,003

(Loss)/profit for the year	2015	2014
	£000	£000
Redstone	246	1,537
Darkside Studios	51	(115)
Telephony Services	(13,597)	586
Central administration costs	(1,770)	(649)
Discontinued operations	-	(345)
	(15,070)	1,014

Balance Sheet analysis by segment	2015		2014
	Assets	Liabilities	Assets	Liabilities
	£000	£000	£000	£000
Redstone	17,458	(8,259)	8,053	(6,351)
Darkside Studios	944	(303)	151	(80)
Telephony Services	5,923	(6,646)	8,894	(1,721)
Central administration costs	297	(436)	8,928	(1,839)
Discontinued operations	-	-	12	(56)
	24,622	(15,644)	26,038	(10,047)

Included in the above table are non-current assets of £9,781,000 (2014: £711,000) for Redstone, £655,000 (2014: £108,000) for Darkside Studios, and £2,731,000 (2014: £6,165,000) for Telephony Services.

5.      Integration and transactional items

	2015	2014
	£000	£000
Integration costs	2,252	-
Transactional items	(977)	-
	1,275	-

The integration costs include both employee and other restructuring costs such as provisions in respect of onerous contracts. Employee costs include salary, redundancy and other exit costs.

Included in transactional items is the £1,000,000 release of the provision for the Actimax contingent consideration. The performance conditions for the Actimax contingent consideration were not met and accordingly no consideration was paid.

6.      Impairment charge

The impairment charge comprises the following:

Note		2015	2014
		£000	£000
Goodwill		6,907	-
Other intangible assets		1,360	-
Property, plant and equipment		416	-
		8,683	-

Goodwill

Goodwill has been impaired as a consequence of the performance of the Telephony Services division, which was sold on 31 May 2015 to Timico Ltd.

Other intangible assets

During the year, the Board conducted a review of the carrying value of the Group's other intangible assets. As a result, the Group recorded a £1,360,000 impairment charge for the period, specific to the following:

·      ADSL 24, a retail customer base acquired in May 2013 for £800,000, was fully written down generating an impairment charge of £794,000. The impairment charge was recognised as the customer base was loss making with no expectation of future profits.

·      World Telecom, a corporate customer base, acquired in February 2013 for £50,000 was fully written down, generating an impairment charge of £46,000. The impairment charge was recognised as the customer base was loss making with no expectation of future profits.

·      The network assets purchased in June 2013 from TFM Networks Ltd for £480,000 were fully written down in the period, generating an impairment charge of £480,000. The cost of running the network far exceeds the profitability of the 'on network' customer traffic and therefore the Directors took the view that there is no value in this investment.

·      In August 2013 the Group made an investment of £40,000 to obtain a G-Cloud license (UK Government procurement). Since obtaining the licence, the Group has failed to sign any significant customers and therefore the Board has taken the decision to impair the asset in full, generating an impairment charge in the period of £40,000.

Property, plant and equipment

During the year, the Directors concluded a review of the carrying value of the Group's property, plant and equipment, specifically in light of the Board's decision to vacate certain Group office locations. An impairment charge of £416,000 has been recorded in the consolidated income statement in the period and relates to £264,000 of leasehold improvements and £152,000 of other office equipment.

7.      Earnings per share

Earnings per share data is based on the Group (loss)/profit for the year and the weighted average number of ordinary shares in issue.

	2015	2014
	Continuing operations	Continuing operations	Discontinued operations	Total
Basic (loss)/profit per share	(1.57p)	0.24p	(0.06p)	0.18p
Diluted (loss)/profit per share	(1.57p)	0.22p	(0.05p)	0.17p
(Loss)/profit for the year attributable to owners of the parent company £000	(£15,070)	£1,359	(£345)	£1,014

	2015	2014
Number of shares	No.	No.
Weighted average number of ordinary shares in issue	957,474,129	559,408,855
Weighted average number of potentially dilutive ordinary shares in issue	957,474,129	612,427,892

Warrants and employee share options are non-dilutive in loss making periods.

8.       Post balance sheet events

On 26 May 2015 the Group announced the disposal of the business and certain assets of its Telephony Services companies to Timico Limited for an initial consideration of £2.5m payable in cash and contingent consideration of up to a further £1.0m payable in cash, based on the trading performance in the period to 30 November 2015. Completion of the disposal took place on 31 May 2015.

The Group retained the benefit of its trade debtors; Timico assumed responsibility for all key supplier arrangements in respect of trading following completion, however, the Group will retain certain liabilities, including the two leasehold properties occupied by the Telephony Services businesses. Under a transitional services agreement, the Group is required to retain the Stokenchurch office for up to six months post completion.

Following the disposal, the Group comprises Redstone and Darkside Studios.

After the sale of the Telephony Services businesses, the Group raised an additional £2.1m through a placing and open offer before expenses. The placing issued 2,000,000 new ordinary shares at 0.5p per share with certain institutional and other investors, including the Directors of Coms Plc, to raise approximately £1.0m before expenses. The open offer involved the issue of 216,278,646 new ordinary shares at 0.5p per share to raise £1.1m before expenses.

 

END

 

 

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