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Keycom PLC (KCO)

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Thursday 28 June, 2012

Keycom PLC

Interim Management Statement


                                                                  28 June 2012

                                  KEYCOM PLC

             INTERIM RESULTS FOR THE SIX MONTHS TO 31 MARCH 2012

Keycom plc (the "Company") announces unaudited interim results for
the six months to 31 March 2012.

Chairman's Statement

2012 will be a year of transition for the Company. I have taken
over the role of non-executive Chairman and have overseen a comprehensive
review initiated by the Chief Executive to examine the financial, strategic
and operational aspects of the Company. The review, which has now been
completed, was to ensure that the Company is focussed on its cost structure
and making the best return on capital for the Shareholders. As a result of the
review we have identified the need for a reassessment of certain prepaid
balances which are being dealt with as an exceptional item and is explained
below in more detail.

From an operational perspective the Company launched a new wireless
product offering to both the tertiary education and military sectors in May
2012 to complement its wired broadband services. This is meeting the demands
the Company is seeing from the increasing number of tablets and Wi-Fi enabled
smartphones being used by our customers.

The Company has successfully renegotiated transit and circuit costs
with its key carrier service providers, which will result in significant
annual cost savings in excess of £350,000. With competitive pressures on
margin in the tertiary education sector, these cost savings will enable the
Company to compete for the larger tenders.

In March 2012 the Company raised £1.4 million net of share issue
costs by issuing new ordinary shares. The funds have been used by the Company
to fund the capital expenditure necessary to increase the number of rooms
serviced in both the tertiary education and military sectors which will
generate future growth for the Company.

Board Changes

As announced in April this year, I have taken over the role of
non-executive Chairman from Rod Matthews and Meri Braziel was appointed Chief
Executive in September 2011.

The Company announces that Graham Robertson has left the Company.
Until a successor has been formally appointed, the role of finance director
will be undertaken by group financial controller Joanne Nixon. A further
announcement will be made in due course.

Trading

Turnover for the six month period ended 31 March 2012 increased 2%
on the prior year to £3,485,000 (2011: £3,422,000), with an increase of 3% in
the core business revenue of broadband services. A 10% decrease in the revenue
from the tertiary education sector was expected following the reduction in the
number of rooms contracted at the start of the year. That reduction was
mitigated by the 86% growth in revenues from the delivery of broadband
services to the military sector.

In the tertiary education sector, the Company successfully extended
the contracts for 3,074 rooms, which were due to expire within the next twelve
months. The Company has been awarded three new contracts for 3,286 rooms at
Heriot-Watt University, Robert Gordon University, and a private landlord in
Aberdeen which all commence in September 2012. Following the completion of a
formal tender procurement process, two Universities have appointed another
provider which will result in a future reduction of the education sector
broadband rooms of 4,892, for a net reduction of 1,606 rooms. The Company now
services 27,300 rooms in tertiary education. The Company has seen an increase
in the amount of activity over previous years and continues to bid for new
contracts. It is hoped that additional contracts for education rooms will be
awarded for the start of the next academic year.

The military revenue for the first half year is £664,000 (2011:
£357,000). The Company started the financial year with 17,100 broadband rooms
in operation in the military sector. During the first six months of the year
this number has been increased by 4,900 to 22,000. The current revenue run
rate is now £1,400,000 per annum and this is expected to continue to grow as
take-up increases and new contracts are implemented. Further contracts have
been executed with Defence Estates to enable the Company to continue
implementation of further military rooms in the coming months. Management
remains confident that the military sector will be a significant contributor
to the future growth of the business.

6 months ended 31 March

                                      2012   2011      Change
Revenue                              £'000   £'000   £'000   %
Broadband & voice managed services:
Tertiary education & key-worker       2,033   2,252  (219) - 10%
sector
Military sector                         664     357    307 + 86%
Total                                 2,697   2,609     88  + 3%
Engineering & maintenance services      638     617     21  + 3%
Training                                150     196   (46) - 23%
Total                                 3,485   3,422     63  + 2%

Gross profit

Broadband & voice managed services  1,508   1,642  (134)  - 8%
Engineering & maintenance services    395     356     39 + 11%
Training                              116     178   (62) - 35%
Total                               2,019   2,176  (157)  -7%

Overall gross margin was 58% (2011: 64%) which is in line with the
gross margin achieved in the broadband and voice managed services of 56%
(2011: 63%). The engineering and maintenance services businesses generated a
gross margin of 62% (2011: 58%), while the training revenue generated a gross
margin of 77% (2011: 91%).

Administrative expenses (excluding depreciation and exceptional
costs) continue to be kept under control; at £1,345,000 for the six-month
period (2011: £1,234,000). The administrative expenses are 39% of revenue
(2011: 36%).

EBITDA for the period before exceptional costs was £742,000 (2011:
£942,000). Keycom's trading loss before tax and exceptional items was £39,000
(2011: £207,000).

In accordance with IFRS accounting rules, with the move into profit
last year, the Company now expects to utilise the historical tax losses and
has continued to recognise the related deferred tax asset. This has resulted
in a credit to the income statement of £200,000 for the six month period
(2011: £200,000).

Exceptional items

As mentioned above as a result of the review we have identified the
need for a reassessment of certain prepaid balances which are explained as
follows.

Firstly, the Company has invested £229,000 over the past two years
in a project to deliver advertising income and that investment has been held
in prepayments on the balance sheet. The project has not realised any bookings
for advertising and therefore the Directors consider it prudent to provide in
full against this investment. Work continues on new projects to increase the
level of advertising income from other sources.

Secondly, the Company has prepaid certain expenses amounting to
£203,000 which relate to the installation and activation of broadband services
for military sites. With the benefit of the review the Directors consider that
these expenses should be included as costs in the income statement and not
included in the prepaid balances. The impact of these changes has not been
material to any one year in isolation and accordingly no restatements are
considered necessary.

Lastly, in March 2012 the Company raised £1.5 million by issuing
new shares at the nominal value of the shares and consequently there was no
share premium arising on the issue. It therefore is not possible to offset the
issue costs against the share premium reserve. The costs of £96,000 associated
with the issue have been included in the income statement as an exceptional
item.

Funding

The Company issued 150,000,000 new ordinary shares on 5 March 2012
at par, which raised £1,404,000 net of expenses.

The Company has made loan repayments during the six month period of
£236,000 and raised new lease and loan finance of £149,000. The new loan
finance has been raised on 4 and 5 year terms. At 31 March 2012 the debt was
£3,816,000, a reduction of £87,000 since 30 September 2012 and a reduction of
£246,000 since 31 March 2011.

The debt and leasing market continues to be difficult in the UK
however the Company continues to seek to refinance its debt with loans of
longer maturity and make progress with fund raising, albeit on a timetable
slower than is preferred.

During the six month period, the Company has made capital
expenditure of £912,000 (2011: £535,000) in respect of new MOD broadband
contracts and upgrades to university contracts. This expenditure has been made
to ensure the continuing development of broadband revenues over future
periods.

Prospects

Keycom now provides broadband services to 49,300 rooms, of which
22,000 are in the military sector. The recent wins of over 3,000 rooms in the
tertiary education sector confirm that the Company has a competitive and
robust service offering to this sector. The Company has a strong pipeline in
the military sector, which should lead to a significantly higher number of
rooms being serviced in the medium term. Focus will remain on the review and
negotiation of all operational costs with a view to maintaining a competitive
cost structure during these economically challenging times.

Les Halpin

Chairman

28 June 2012

Keycom plc

Consolidated statement of comprehensive income

for the six months ended 31 March 2012

                    Note              Six months          Six months      Year to
                                     to 31 March               to 31           30
                                            2012          March 2011    September
                                           £'000               £'000         2011
                                                                            £'000
                                 Pre
                         Exceptional Exceptional   Total
Revenue                        3,485           -   3,485       3,422        6,729
Cost of sales                (1,398)        (68) (1,466)     (1,246)      (2,534)
Gross profit                   2,087        (68)   2,019       2,176        4,195
Administrative               (1,869)       (409) (2,278)     (1,699)      (3,333)
expenses
Operating profit                 742       (477)     265         942        1,654
before depreciation
Profit on disposal                 -           -       -           -          155
of assets
Depreciation                   (524)           -   (524)       (465)        (947)
 
Operating                        218       (477)   (259)         477          862
(loss)/profit
 
Finance charges                (257)        (51)   (308)       (270)        (511)
(Loss)/profit on                (39)       (528)   (567)         207          351
ordinary activities
before taxation
 
Taxation                         200           -     200         200          330
(Loss)/profit                    161       (528)   (367)         407          681
attributable to
ordinary
shareholders
Earnings per share:            Pence       Pence   Pence       Pence        Pence
Earnings per share     2        0.03      (0.08)  (0.05)        0.07         0.11
- basic
Earnings per share     2        0.03      (0.08)  (0.05)        0.07         0.11
- diluted
The Group has no recognised gains or losses other than those
included in the results above. All activities are continuing.

Keycom plc

Consolidated balance sheet

as at 31 March 2012

                                                            As at 30
                                  As at 31     As at 31    September
                                March 2012   March 2011         2011
                                     £'000        £'000        £'000
 
Non-current assets
Goodwill                             8,584        8,584        8,584
Property, plant and                  5,520        4,597        5,108
equipment
Deferred tax asset                     600          200          400
                                    14,704       13,381       14,092
Current assets
Trade and other receivables          1,395        1,785        1,571
Cash and cash equivalents              199          164          433
                                     1,594        1,949        2,004
 
Current liabilities
Trade and other payables           (1,109)      (1,391)      (1,573)
Deferred consideration                (87)        (100)         (87)
Borrowings                         (1,499)      (1,378)      (1,077)
                                   (2,695)      (2,869)      (2,737)
 
Net current liabilities            (1,101)        (920)        (733)
 
Non-current liabilities
Deferred consideration                (39)        (126)         (84)
Borrowings                         (2,317)      (2,684)      (2,826)
                                   (2,356)      (2,810)      (2,910)
 
Accruals & deferred income         (1,503)      (1,314)      (1,838)
 
Net assets                           9,744        8,337        8,611
Equity
Ordinary shares                      7,616        6,116        6,116
Share premium account               18,122       18,122       18,122
Other reserve                          459          459          459
Retained earnings                 (16,453)     (16,360)     (16,086)
Equity shareholders' funds           9,744        8,337        8,611
Keycom plc

Consolidated statement of changes in shareholders' equity

for the six months ended 31 March 2012

                                  Six months   Six months   Year to 30
                                 to 31 March  to 31 March    September
                                        2012         2011         2011
                                       £'000        £'000        £'000
 
Opening equity                         8,611        7,930        7,930
 
New equity issued                      1,500            -            -
Net (loss)/profit for the period       (367)          407          681
attributable to equity
shareholders
 
Closing equity                         9,744        8,337        8,611
Keycom plc

Consolidated statement of cash flows

for the six months ended 31 March 2012

                                             Six months Six months Year to 30
                                            to 31 March      to 31  September
                                                   2012      March       2011
                                                              2011
                                      Note        £'000      £'000      £'000
 
Cash (absorbed)/generated by            3         (534)        300      1,729
operations
 
Net interest paid                                  (60)      (193)      (321)
 
Net cash inflow/(outflow) from                    (594)        107      1,408
operating activities
 
Investing activities
Purchases of property, plant and                  (912)      (535)    (1,348)
equipment
Deferred consideration paid                        (45)      (173)      (233)
 
Net cash used in investing activities             (957)      (708)    (1,581)
 
Financing activities
Proceeds from issue of shares (net of             1,404          -          -
expenses)
Receipt of bank loans                                 -          -          -
Receipt of other loans & lease                      149      1,500      1,882
obligations
Repayment of bank & other loans &                 (236)    (1,205)    (1,746)
lease obligations
 
Net cash generated by financing                   1,317        295        136
activities
 
Net increase/(decrease) in cash and     4         (234)      (306)       (37)
cash equivalents
 
Cash and cash equivalents at start of               433        470        470
period
 
Cash and cash equivalents at end of                 199        164        433
period
Notes to the financial information

1. Segmental information

Revenue and operating profit

                         Six months ended    Six months ended    Year ended 30
                           31 March 2012      31 March 2011      September 2011
                                  Operating          Operating          Operating
                          Revenue    profit  Revenue    profit  Revenue    profit
                            £'000     £'000    £'000     £'000    £'000     £'000
By class of business:
Broadband & voice           2,697       623    2,609       783    4,984     1,458
managed services
Engineering &                 638        70      617        22    1,406        82
maintenance
Training                      150         9      196        65      339        87
                            3,485       702    3,422       870    6,729     1,627
Central costs                         (484)              (393)              (765)
Profit from operations                  218                477                862
before exceptional
costs
2. Earnings per share

The calculation of earnings per share figures for the six months
ended 31 March 2012 is based on the loss attributable to ordinary shareholders
of £317,000 (six months 2011: profit £407,000; twelve months 2011: profit
£681,000) divided by the weighted average number of shares in issue as
detailed in the table below.

                        Six months to                 Six months to                    Year to
                        31 March 2012                 31 March 2011               30 September 2011
                     Number of       Weighted      Number of       Weighted      Number of       Weighted
                        shares        average         shares        average         shares        average
Basic -            761,576,712    633,707,860    611,576,712    611,576,712    611,576,712    611,576,712
shares in
issue
Share
options that
have a dilutive
effect                                      -                             -                             -
Diluted -
adjusted
number of
shares                            633,707,860                   611,576,712                   611,576,712

3. Reconciliation of operating profit to net cash inflow from operating
activities

                                     Six months  Six months  Year to 30
                                    to 31 March to 31 March   September
                                           2012        2011        2011
                                          £'000       £'000       £'000
Operating (loss)/profit before            (259)         477         862
taxation
Exceptional costs                           477           -           -
Depreciation                                524         465         947
Operating cash flow before                  742         942       1,809
movements in working capital
 
(Increase)/decrease in receivables        (256)         207         356
Decrease in payables                    (1,020)       (849)       (436)
 
Cash (absorbed)/generated by              (534)         300       1,729
operations
4. Reconciliation of net cash flow to movement in net debt

                                      Six months  Six months  Year to 30
                                     to 31 March to 31 March   September
                                            2012        2011        2011
                                           £'000       £'000       £'000
 
Net debt at start of period              (3,470)     (3,297)     (3,297)
 
Increase/(decrease) in cash in the         (234)       (306)        (37)
period
Cash outflow from decrease in debt            87       (295)       (136)
and lease financing
 
Net debt at end of period                (3,617)     (3,898)     (3,470)
5. Analysis of net debt

                                 Six months  Six months   Year to 30
                                to 31 March to 31 March    September
                                       2012        2011         2011
                                      £'000       £'000        £'000
 
Cash at bank net of overdrafts          199         164          433
Bank loans                            (390)       (558)        (477)
Other loans                         (2,224)     (2,400)      (2,040)
Lease obligations                   (1,202)     (1,104)      (1,386)
Net debt                            (3,617)     (3,898)      (3,470)
6. Exceptional items

                                      Six months  Six months   Year to 30
                                     to 31 March to 31 March    September
                                            2012        2011         2011
                                           £'000       £'000        £'000
 
Expenses associated with equity               96           -            -
issue
Provision against investment in              229           -            -
advertising project
Reassessment of prepaid balances             203           -            -
 
Total exceptional items                      528           -            -
On 5 March 2012 the Company raised £1,500,000 through the issue of
150,000,000 ordinary shares at a subscription price of 1p per share. The
shares were issued at nominal value, with no share premium. The underwriting
and legal costs associated with the share issue are, therefore, disclosed as
an exceptional item of expenditure in the income statement.

Since June 2010 the Company has invested £229,000 in a project to
deliver advertising income. The directors had been of the opinion that the
advertising income targeted under that project would be forthcoming. However,
recent events have caused the directors to change their view on the likelihood
of income being derived from that source and have ceased funding that specific
project. The directors remain of the view that the end user base will attract
marketing income but at this time have chosen to make full provision against
this investment.

The Company with support from its auditors and advisors has
undertaken a review of the prepaid balances. The balances, all of which
represent accrued amounts that arose in periods prior to the six months
reporting period, have been revised by £203,000. These amounts represent
revisions to estimates previously made and have not been material in any one
year in isolation; accordingly no restatements are considered necessary.

The Interim Statement, which has been reviewed but not audited by
the Group's auditors CLB Coopers, was approved by the Board on 26 June 2012.

Copies of this statement will be sent to shareholders shortly and
are available to the public from the Company website www.keycom.co.uk.

For further information contact:

Keycom plc Les Halpin (Chairman) Meri   Tel: 01785 717 777
Braziel (Chief Executive)
IAF Capital Limited Gary Pinkerton      Tel: 020 7036 6700
Catherine Stott
 
THE DIRECTORS OF THE COMPANY ACCEPT RESPONSIBILITY FOR THE CONTENTS OF THIS
ANNOUNCEMENT

a d v e r t i s e m e n t