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Keycom PLC (KCO)

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Friday 27 February, 2009

Keycom PLC

Final Results

RNS Number : 9556N
Keycom PLC
27 February 2009
 



KEYCOM PLC

ANNOUNCEMENT OF RESULTS TO 30 SEPTEMBER 2008


CHAIRMAN'S STATEMENT

I am pleased to report on progress for the Group during the year to 30 September 2008, which transforms the financial stability of the Group.


The focus of the business continues to be on the provision of broadband services to student accommodation; with an expansion into other multiple-occupancy sites such as NHS and key-worker locations and Ministry of Defence establishments, using the Group's expertise in markets with similar end-user characteristics. The Group has deployed broadband utilising Ethernet, ADSL or wireless, according to the solutions appropriate for its customers.  


Funding of the business

During the year, the Company raised new finance of £11,780,000 (2007: £1,716,000).  

In February 2008 the Company completed a capital reorganization. At 30 September 2007 the Company had loan stock of £3,287,000 outstanding, loans from its institutional investors of £1,250,000 and accrued but unpaid interest of £667,000. The holders of that debt of £4,537,000, together with the accrued interest thereon, agreed to convert the entirety to ordinary shares. 78,722,805 ordinary shares were issued at an effective cash subscription price of 6.8 pence per share. The Board is particularly grateful to the holders of that debt for their willingness to agree to that conversion and the removal of those liabilities.

At the same time as the loan conversion the Company also raised a further £1,560,000 of equity finance.  In addition, the Company raised further equity capital of £580,000 and £4,413,400 in June and September 2008 respectively, to fund the acquisitions described below. Further details of these acquisitions are set out in these financial statements. All the equity raised during the year was issued at 2.0 pence per share.


The capital reorganization and equity funding were designed to strengthen the balance sheet and create the financial capability to significantly enhance the growth of the business by pursuing the Group's stated acquisition strategy to consolidate a fragmented market.


Acquisitions


The Company has previously reported upon the outsourcing agreement executed with a competitor, Catalyst Management Limited, giving Keycom the right to the economic benefit of the broadband contracts. The financing described above enabled the Company to exercise its right to purchase the contracts outright. Relationships with the customers have been developed during the course of that outsourcing period and new contracts have been signed with a number of those customers. The operations of that business have now been fully integrated into the business.


On 25 September 2008, the Company purchased the entire share capital of MCW Group Limited ('MCW'), a competitor in the market.  These results consequently only include one week of revenue and expenditure for MCW. The unaudited revenue of that company for the past twelve months prior to acquisition was approximately £2.1million with a gross profit of £1.2million, a gross margin of 58%. MCW has contracts for the provision of broadband services to student and key-worker residential accommodation and additionally provides technical, engineering and computer network support services to businesses. MCW is an accredited Microsoft Gold Partner and also provides software training. The operations of that business have now been fully integrated into the business.


At the same time, the Company also purchased Media Force (UK) LLP ('Mediaforce'). Mediaforce is a limited liability partnership executing contracts with military establishments to provide broadband services to residential accommodation for personnel in the armed forces, predominantly single living quarters. Mediaforce only commenced trading in autumn 2007 and has not yet filed accounts. Whilst the revenue for the past twelve months prior to acquisition was modest at £100,000; Keycom has purchased the business because of the significant pipeline of contract business including letters of intent for thousands of rooms. The revenue prospects for the business are considerable and the operations of Mediaforce have now been fully integrated into Keycom's operations.


Since 30 September 2008, the Company purchased the entire share capital of Masterpoint Engineering Limited ('Masterpoint') on 22 December 2008. The unaudited revenue of that company for the past twelve months prior to acquisition was approximately £2.2million with a gross profit of £1.5million, a gross margin of 68%. Masterpoint has contracts for the provision of broadband services to student and key-worker residential accommodation and additionally provides engineering support services to businesses. The operations of that business are currently being integrated.


The activities of those businesses which are not directly supporting students, key-workers and the military are complementary to these services and cross-selling opportunities are already being created.


Trading results


The loss for the period was £1,050,000 (2007: £2,396,000); an improvement over the prior year of £1,346,000.


The turnover for the year was £1,917,000 (2007: £1,766,000), a 9% growth on the same period last year.  


Broadband services revenue increased 18% over the same period in the prior year to £1,690,000. As expected the traditional voice services continue to decline, now contributing only £227,000 of the turnover.


The gross profit for the year has increased to £1,094,000 (2007: £1,051,000). The gross margin for the year was 57%, down from 60% in the previous year; caused by the continued and expected decline in traditional voice, which now contributes a negative gross margin. Broadband gross margin has increased to 69% from 68% in the same period in the prior year.


The broadband services now contribute the entirety of the Company's gross profit, up from 93% in the prior year. The traditional services are now delivering a negative gross profit, arising from the company continuing to deliver voice services to long term customers while an exit route is established, site by site. The Company ceased delivering voice services to four large university customers at the start of the 2008/09 academic year as students increasingly preferred mobile services. The Company maintains contracts for traditional voice to accommodate the needs of long term customers while there remains a prospect of revenue from the provision of managed voice services; and a customer relationship for future broadband services.


Administrative expenses, excluding depreciation, amortisation and exceptional items, has increased by 8% to £1,365,000 (2007: £1,263,000), primarily as a consequence of increasing the sales resource.


Interest payable of £316,000 (2007: £683,000) for the year includes an amount of £86,000 (2007: £186,000) reflecting the difference between the actual rate charged on the convertible loan stock and the effective rate following the adoption of Financial Reporting Standard 25.  


Depreciation and amortisation has decreased to £467,000 (2007: £712,000).


As a result of the above, the loss for the period was £1,050,000 (2007: £2,396,000); an improvement over the prior year of £1,346,000.



Current developments


The Company announced, in May 2008, that it had been awarded the contract for the provision of broadband services to the residential student accommodation at The University of Edinburgh. The contract is for a five year term, commencing September 2009, for in excess of 6,000 student rooms; and expected to generate revenue in excess of £750,000 per annum to Keycom.


The Company is also making progress with other new broadband contracts


The management is delighted with the growth, both organic and inorganic, in the Group's supply of profitable broadband services and the step change in revenue and profits resulting from the acquisitions. The pro-forma revenue of the combined group for the past twelve months exceeded £6.4million. The directors are of the opinion that considerable synergistic savings can be made in the areas of broadband cost of sales and administrative expenses. Accordingly the directors are satisfied that the increase of scale of the enlarged group will generate the profits planned by the move to broadband services.


The Board is grateful to the existing and new shareholders for their confidence in the management team's ability to continue to transform Keycom into a profitable and cash generative business.


Rod Matthews - Chairman 

27 February 2009

 

GROUP PROFIT AND LOSS ACCOUNT


YEAR ENDED 30 SEPTEMBER

2008

2007


GBP'000

GBP'000




Turnover

1,917

1,766

Cost of sales

(823)

(715)




Gross profit

1,094

1,051




Administrative expenses

(1,365)

(1,263)

Exceptional costs

(790)

Depreciation and amortisation

(467)

(712)


(1,832)

(2,765)




LOSS FOR THE PERIOD BEFORE INTEREST & TAXATION

(738)

(1,714)




Interest payable

(312)

(682)

Tax on loss on ordinary activities




Loss for the PERIOD

(1,050)

(2,396)







Loss per share (pence)

(0.74)

(6.69)





  

GROUP BALANCE SHEET



AS AT 30 SEPTEMBER

  2008

2007


GBP'000

GBP'000

Fixed assets



Intangible assets

6,766

184

Tangible assets

1,358

742

Investments

785


8,124

1,711

Current assets



Debtors 

1,499

551

Cash at bank and in hand

1,437

48


2,936

599

Creditors: Amounts falling due within one year

(3,392)

(2,433)




Net current liabilities

(456)

(1,834)




Total assets less current liabilities

7,668

(123)




Creditors: Amounts falling due after more than one year

(1,602)

(4,541)





6,066

(4,664)

Capital & reserves



Called-up equity share capital 

4,822 

358 

Share premium account

17,095

9,246

Equity reserve

992

Other reserves

459

Profit and Loss Account

(16,310)

(15,260)

Shareholders' funds

6,066

(4,664)





NOTES


  • Loss per share is calculated using the weighted average number of ordinary shares in issue of 141,863,103 (200735,835,573) for the year to date.

  • The financial information set out herein in respect of the years ended 30 September 2008 and 30 September 2007 does not constitute the company's financial statements within the meaning of s240 Companies Act 1985 for those periods but has been derived from the audited statutory accounts for those years and the unaudited financial information within the Chairman's Statement in the 2008 accounts. The Group's statutory accounts for the year ended 30 September will be delivered to the Registrar of Companies shortly. The auditors have reported on those accounts; their report was unqualified and does not contain statements under s237(2) or (3) Companies Act 1985.




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