RNS Number:2956P
NetStore PLC
03 September 2003
Immediate release 3 September 2003
Netstore plc
Unaudited Results for the year ended 30 June 2003
"Strong Trading Continues - Record Results"
Netstore plc ("Netstore"), a leading provider of managed IT solutions, announces
record results for the year ended 30 June 2003.
Highlights:
*Turnover increased by 114% to #14.2m (2002:#6.6m)
*Two record contract wins during the year: Housing Corporation and Hackney
- #5.9m and #6.5m respectively in revenue over five years
*Record new sales in final quarter of #5.9m (first year contract value);
well ahead of expectation
*Operating losses reduced substantially to #(3.0)m from #(7.5)m in the
previous year (before charges for share options and goodwill)
*EBITDA positive through the second half with EBITDA losses for the year
reduced to #(0.3)m from #(5.6)m in the previous year (before charges for
share options)
*Cash balances at #12.5m (2002: #15.4m)
*Acquisition of NetConnect successfully completed; profitable since
acquisition
Paul Barry-Walsh, Chairman and Chief Executive, commenting on the results said:
"Netstore continues to make significant progress towards sustainable
profitability. We have passed a number of milestones during the year including
the signing of two #6m contracts, our largest ever, and, importantly, achieving
a positive EBITDA position in the second half. The keys to our success during
the year have been a corporate strategy focussing on larger organisations; a
keen eye on cost reduction and a dedication to first class customer service to
ensure the continuity of income.
Our key priority has been achieved: to build a sustainable platform from which
to grow rapidly a valuable, managed IT service business."
On future prospects he added:
"Looking ahead, we have good visibility of revenue, with approximately #14.0m
flowing forward from contracts signed in the year just ended and before; costs
and cash remain under close control and we have a coherent business strategy
that is delivering. The trading environment for IT remains challenging;
therefore we have set ourselves suitably realistic targets for the current year.
We have good reason to look forward with confidence."
For further information, please contact:
Netstore plc (NES) 01344 444300
Paul Barry-Walsh, Chairman paul.barry-walsh@netstore.net
-------------------------------
Neil Lloyd, CFO neil.lloyd@netstore.net
-------------------------
Buchanan Communications 020 7466 5000
Charles Ryland
Chairman's Statement
I am very pleased to announce record results for the year ended 30 June 2003,
which include approximately four months contribution from NetConnect Limited
("NetConnect"), which was acquired during the year.
Following a year of great change, the year to 30 June 2003 was a period of
stability and concentration on our strategy of selling managed IT services into
medium to large organisations within a limited number of key vertical markets.
Results
Turnover for the year was in line with our expectations increasing by 114% to
#14.2m compared with #6.6m for the year ended 30 June 2002. The amount of new
business signed in the year, measured as the first twelve months contract
revenue, totalled #11.2m and in the final quarter was a record at #5.9m; both
ahead of our expectation.
Our most significant contract wins during the year were with the Housing
Corporation for multiple services including hosted Microsoft Exchange and with
Hackney Council for financial management systems, worth #5.9m and #6.5m over
five years respectively. Given the long implementation phase of such contracts,
only #0.3m of the Housing Corporation contract was recognised in turnover during
the year and nothing was recognised from the Hackney contract. We also renewed
our major contract with Cisco for another two years, providing On Line Backup
services to Cisco employees throughout EMEA.
Income from managed IT services under long-term contracts makes up the major
part of our business, continuing to represent approximately 70% of total
turnover in the year; the balance of turnover being made up of consultancy,
training and product revenues. As we are now focussing on larger more complex
managed service contracts, often there is a higher proportion of set up revenues
(licences, hardware and third party consultancy) in advance of the managed
revenue stream that distorts our sales mix and dilutes gross margins in the
short-term; as is generally the case for this sort of large contract business.
Our recent acquisition, NetConnect, contributed #1.7m to turnover during the
year ended 30 June 2003 of which approximately 30% was recurring revenues under
contract. Excluding NetConnect, the existing business grew by 88%.
Annualised recurring revenues at 30 June 2003 stood at approximately #11.0m,
which represents approximately 45% growth in recurring revenue over the year,
with #1.5m attributable to the NetConnect acquisition. The combination of
contractual income, deals signed still in implementation and consultancy
projects not yet complete provide approximately #14.0m of revenue to be
recognised in the year to 30 June 2004.
The underlying trend of managed service gross margin continued upwards during
the year as new managed service contracts increased the utilisation of our
infrastructure and operational overhead; as a result, gross margin for the year
ended 30 June 2003 was as planned at 48% (2002: 44%) . The longer-term trend
will be for our margin to continue upwards as managed service revenues build.
However, this is subject to short-term fluctuations during the implementation
phases of larger contracts, where lower margin pass through revenues are
recorded, and as new services are launched, which require incremental capital
investment and resource. This will be a factor during the first quarter of the
current year as we work on the implementation of both the Housing Corporation
and Hackney Council contracts.
Gross margin from NetConnect was 54% for the four months to 30 June 2003.
Selling and distribution costs were #6.7m (2002: #6.3m), after paying extra
commissions and bonuses of #0.2m relating to new sales over-performance,
particularly in the final quarter, although very little of this over-performance
has been recognised in the year due to the length of implementation and our
deferred model. Also during the final quarter, we closed one of our data centres
as we consolidated our operations in our Gateshead and Heathrow data centres;
saving approximately #0.2m per annum but leading to a fixed asset write down of
#0.3m.
Administrative expenses were in line with expectation at #3.0m and significantly
reduced compared with #4.2m in the year ended 30 June 2002. Savings in
administrative expenses came from reductions in property costs and management
headcount.
Total overheads (selling and distribution costs plus administrative expenses)
were 7% lower than the previous year at # 9.7m (2002: #10.5m) despite incurring
four months of overhead from NetConnect totalling #0.7m. Excluding NetConnect,
total overheads reduced by 14% in a year when the existing business grew
recognised revenues by 88%.
As a result of the extra commissions and bonuses paid on sales not recognised in
the year and the fixed asset write off , operating loss was slightly more than
expected at #(3.0)m, although greatly reduced compared with #(7.5)m for the
previous year (both prior to adjustments for share options charges and goodwill
write off). EBITDA loss for the year of # (0.3)m was also greatly reduced
compared with #(5.6)m for the year ended 30 June 2002 and we were EBITDA
positive through the second half. However, the extra commissions paid did turn
an expectation for the year of breakeven at EBITDA level into a small EBITDA
loss.
Exceptional Goodwill Write Off
We acquired RedRock Software, an Ofex listed company, in December 2001 giving
rise to goodwill on consolidation of #3.2m. Since that date the market value of
similar companies have declined sharply and RedRock has performed significantly
under our initial expectations. As a result, during the course of the year, the
Board decided to write down the goodwill value of this investment by #2.4m.
Cash Flow and Cash Resources
Operations generated a cash inflow of #0.1m (2002: #(6.3)m outflow), as a result
of the greatly improved trading detailed above and improved cash collections.
The major non-operating cash movements during the year were capital expenditure
of #3.2m: #1.5m to service new sales contracts, including the Cisco renewal and
the Housing Corporation set up, and #1.7m on the purchase of our Gateshead data
centre, part funded by a mortgage of #1.0m. We also spent #1.5m on the
acquisition of NetConnect; the final amount payable of up to #0.8m will not be
determined until completion of the earn out period in September 2003.
Cash balances were #12.5m at 30 June 2003 compared with #15.4m at 30 June 2002.
Acquisition
Netstore's strategy is to grow revenue both through adding new customers and by
providing new services to existing customers; new services that we may either
develop ourselves, provide with partners or acquire.
On 13 March 2003, Netstore acquired NetConnect, an internet security company;
established in 1987, based in London and Cambridge and offering managed
services, consultancy and design services, system integration, and training and
support in the general field of internet security. The acquisition provides a
number of new services from a profitable platform that Netstore can sell across
its current customer base and the majority of NetConnect's existing customer
base is larger organisations; Netstore's target market.
The initial consideration paid on completion for the purchase of NetConnect was
#0.8m, with a further #0.8m paid on 19 June 2003 based on the net asset value on
completion. The final payment to take total consideration to a maximum of #2.3m
is payable during September 2003 and is dependent on the profit performance of
the company.
For the financial year ending 31 March 2002, NetConnect reported turnover of
#6.9m, net losses of #1.5m and had net liabilities of #0.6m, including #1.9m of
deferred income under contract. A pre-condition of the acquisition was that
management complete certain actions to reduce the overhead burden on the
business. As a result of these savings and continued steady sales, NetConnect
has traded profitably since acquisition.
We are very encouraged by the acquisition of NetConnect and particularly by its
positive contribution to the year's results.
Current Trading and Prospects
Trading has been steady since the end of the year, in what traditionally is our
weakest trading period. We have signed approximately #1.0m of new business
(first year contract value). With our focus on larger more complex contracts,
sales cycles have extended and we now expect to sign fewer but larger contracts.
The trading environment for IT in general remains tough; accordingly, we have
set ourselves suitably realistic targets for the current year. Our deferred
recognition model underpins our expectations going forward with approximately
#14.0m of contracted income and our customer proposition is compelling,
particularly as the continuing economic situation forces organisations to
examine the costs of providing their business operations either in-house or
through more traditional outsourcing options.
Also, following on from our successful acquisition of NetConnect, we will
continue to look for acquisition opportunities, focusing on those that will fill
out our managed service portfolio and have an established customer base for
managed solutions amongst medium to large organisations.
The improvement in Netstore continues for a second consecutive year and we have
good reason to look forward to the business turning profitable in the near
future. Once again, a particular debt of thanks is owed to our staff for their
contribution to the substantial progress made by the Company in another record
trading year.
Paul Barry-Walsh
03 September 2003
GROUP PROFIT AND LOSS ACCOUNT
For the year ended 30 June 2003
12 months to 12 months to
30 June 30 June
2003 2002
Note #'000 #'000
Turnover
Continuing operations 12,497 6,644
Acquisitions 1,700 -
--------- ---------
14,197 6,644
Cost of sales (7,433) (3,717)
--------- ---------
Gross profit 6,764 2,927
Selling and distribution costs (6,700) (6,295)
Administrative expenses (3,044) (4,152)
Amortisation of goodwill (210) (509)
(Charges) /Credits arising from share (198) 115
price movements --------- ---------
OPERATING LOSS (3,388) (7,914)
--------- ---------
Continuing operations (3,608) -
Acquisitions 220 -
--------- ---------
Exceptional goodwill write off (2,362) -
Interest receivable and similar income 541 984
Interest payable and similar charges (56) (14)
--------- ---------
LOSS ON ORDINARY ACTIVITIES BEFORE (5,265) (6,944)
TAXATION
Tax on loss on ordinary activities 2 148 -
--------- ---------
LOSS for the PERIOD (5,117) (6,944)
========= =========
Loss per share - basic and diluted 3 (5.33) (7.51)
(pence)
All operations are continuing.
Reconciliation of operating loss to earnings before interest, tax, depreciation
and amortisation ("Ebitda")
#'000 #'000
Operating Loss (3,388) (7,914)
Depreciation 2,729 1,917
Amortisation of goodwill 210 509
Charges/ (Credits) arising from share price movements 198 (115)
--------- ---------
EBITDA (251) (5,603)
========= =========
NB: Operating loss is considered before charges/(credits) arising from share
price movements
GROUP BALANCE SHEET
at 30 June 2003
30 June 30 June
2003 2002
#'000 #'000
FIXED ASSETS
Intangible assets 3,729 3,279
Tangible assets 3,730 3,093
Investments 80 59
---------- ----------
7,539 6,431
========== ==========
Current Assets
Debtors 4,671 4,013
Cash at bank and in hand 12,523 15,407
---------- ----------
17,194 19,420
Creditors: amounts falling due within one year
Deferred income 4,424 3,062
Other creditors 5,113 3,372
---------- ----------
9,537 6,434
---------- ----------
NET CURRENT ASSETS 7,657 12,986
---------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES 15,196 19,417
Creditors: amounts falling due after more than one 1,198 509
year
Provisions for liabilities and charges 694 513
---------- ----------
NET ASSETS 13,304 18,395
========== ==========
CAPITAL and RESERVES
Called up share capital 19,261 19,207
Share premium account 34,706 34,689
Merger reserve (9,789) (9,744)
Profit and loss account (30,874) (25,757)
---------- ----------
SHAREHOLDERS' FUNDS - equity interests 13,304 18,395
========== ==========
GROUP STATEMENT OF CASH FLOWS
For the year ended 30 June 2003
12 months to 12 months to
30 June 30 June
2003 2002
Note #'000 #'000
NET CASH INFLOW/ (OUTFLOW) FROM
OPERATING ACTIVITIES 4 115 (6,275)
RETURN ON INVESTMENTS AND SERVICING OF 485 970
FINANCE
TAXATION 148 -
CAPITAL EXPENDITURE AND FINANCIAL (3,177) (2,829)
INVESTMENT
ACQUISITIONS AND DISPOSALS (1,225) (1,397)
NET CASH OUTFLOW BEFORE MANAGEMENT OF
LIQUID RESOURCES AND FINANCING (3,654) (9,531
-------- --------
MANAGEMENT OF LIQUID RESOURCES 3,810 10,025
FINANCING 770 (138)
INCREASE IN CASH 926 356
======== ========
NOTES
For the year ended 30 June 2003
1. BASIS OF PREPARATION
The financial information contained in this Preliminary report has been prepared
using accounting policies and practices consistent with those adopted in the
2002 Annual Report and Accounts and have not yet been reported on by the
company's auditors.
The financial information contained in this report does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985.
The audited results for the year ended 30 June 2002 are an abridged version of
the company's Annual Report and Accounts which have been filed with the
Registrar of Companies and on which the auditors gave an unqualified audit
report.
2. Taxation
Taxation relates to the receipt of research and development tax credits from the
Inland Revenue.
3. Loss per share
The basic and diluted loss per share has been calculated on a weighted average
number of 96,048,476 shares in issue during the year (30 June 2002: 92,434,524).
4. Notes to statement of cash flows
(a) Reconciliation of operating loss to net cash inflow / (outflow) from
operating activities
12 months to 12 months to
30 June 2003 30 June 2002
#'000 #'000
Operating loss (3,388) (7,914)
Depreciation 2,729 1,917
Amortisation of goodwill 210 509
Increase in deferred income 132 1,616
Decrease/(increase) in debtors 946 (2,439)
Decrease in creditors (668) (35)
Increase/(decrease) in provisions 181 (115)
(Profit)/loss on disposal of fixed assets (27) 186
------- -------
Net cash inflow / (outflow) from operating 115 (6,275)
activities ====== =======
(b) Reconciliation of net cash flow to movement in net funds
12 months to 12 months to
30 June 2003 30 June 2002
#'000 #'000
Increase in cash 926 356
Cash flow from decrease in short term deposits (3,810) (10,025)
Cash flow from decrease in debt and finance 256 143
leases
Loans and finance leases acquired - (181)
New finance leases - (600)
New long term loans (1,000) -
----------- -----------
Movement in net funds (3,628) (10,307)
Net funds at beginning of period 14,691 24,998
---------- -----------
Net funds at end of period 11,063 14,691
========== ===========
This information is provided by RNS
The company news service from the London Stock Exchange
END
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