RNS Number:4556M
XKO Group PLC
18 June 2003
FOR IMMEDIATE RELEASE 18 June 2003
XKO GROUP plc
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2003
XKO Group, the managed services and solutions provider, announces its
preliminary results for the twelve months ended 31 March 2003.
KEY POINTS
* Turnover increased 12 per cent. to #43.6 million (2002:#38.9 million);
excluding acquisitions, turnover increased 1 per cent. to #39.3 million;
* Adjusted pre-tax profit increased 31 per cent. to #2.7 million* (2002:#2.0
million*);
* Adjusted earnings per share increased 46 per cent. to 8.9p* (2002:6.1p*);
* Final dividend of 0.5p per share, total dividend of 0.7p per share, up 40
per cent. (2002:0.5p);
* Strong cashflow leaving low indebtedness of #675,000 at 31 March 2003,
after total expenditure on acquisitions and related restructurings of over
#3.5 million;
* Profitability greatly increased at Aran, acquired in June 2002. Control
Group, acquired since the year end, brings attractive customer base as well
as Supply Chain Management technology.
(* adjusted for goodwill amortisation, exceptional items and discontinued
activities, reported loss before taxation #545,000, see note seven)
Commenting on the outlook, Simon Beart, Chief Executive said:
"There is, as yet, little evidence that spending will increase in the current
year and sales cycles remain extended. Our strategy is not to wait for a
recovery in our markets. We continue to engage actively with our very large
customer base whilst searching for attractive, sensibly priced acquisitions that
can enhance total shareholders' return."
FOR FURTHER INFORMATION, PLEASE CONTACT:
XKO Group plc:
Brian Beverley, Chairman 07770 680085
Simon Beart, Chief Executive 07710 444370
Rob Kimber, Group Finance Director 01932 575208
Evolution Beeson Gregory:
Chris Callaway 020 7071 4309
Rob Collins 020 7071 4311
Buchanan Communications:
Richard Darby 020 7466 5000
Nicola Cronk
CHAIRMAN'S STATEMENT
The Group has made further progress in a busy year. Turnover has increased to
#43.6 million from #38.9 million and we have achieved organic growth in sales of
1 per cent., after adjusting for acquisitions made during the year. Against the
background of a difficult environment for IT companies, this is an achievement
reflecting the diversity and stability of the Group.
The Group's profit before tax, goodwill amortisation, exceptional items and
discontinued activities (defined as "Adjusted PBT") was #2.67 million (2002:
#2.04 million), an increase of some 31 per cent. This excellent performance
translates into adjusted earnings per share of 8.9p (2002:6.1p). Following
deduction of goodwill amortisation, exceptional items and discontinued
activities the reported loss before taxation was #545,000 (2002:#14,938,000).
Cashflow in the year was again good and as a result, the Board is now prepared
to recommend a final dividend of 0.5p per share payable on 2 October 2003 to all
shareholders on the register as at 5 September 2003. The total dividend for the
year represents an increase of 40 per cent. over the prior year. Future
dividend increases will be aligned with earnings growth and will also take into
account the availability of earnings enhancing acquisitions.
The Group's strategy during current markets remains unchanged. We intend to
take advantage of our proven financial strength and management to continue to
build and acquire market share in our selected markets. We have a significant
and rapidly growing presence in the mid-range Business Applications market and a
large scale Solutions capability operating nationwide. We are looking to expand
both areas of activity.
Consistent with this strategy we have continued to make acquisitions during the
year and in addition we purchased The Control Group shortly after the year end
for #1.2 million. This latest acquisition brings to the Group an attractive
customer base as well as specialist Supply Chain Management ("SCM") technology.
The SCM capabilities of the Control product are installed with global and FTSE
scale customers. As a Group we now have the scale and skills to meet the
requirements of such customers and we will be investing further in this product
range for the benefit of all Group customers.
Whilst it is possible that trading conditions in the sector may not deteriorate
further, prospects remain unclear and customer budgets for IT spend in the
current year are at best flat. However, our business is structured to operate
profitably in these conditions. XKO will prosper by continuing to offer branded
solutions, delivered by a publicly listed Group with financial resources and
scale.
Brian Beverley
Chairman
CHIEF EXECUTIVE'S REVIEW
The XKO market proposition
The Group has a broad product offering tailored, primarily, for the mid-range
corporate market. We offer customers a range of well supported and actively
developed enterprise applications, complemented by the provision of all their
infrastructure and communications needs. We also have specialist skills in the
financial services markets for the delivery of large scale infrastructure
solutions. Customers now look to purchase the full range of our services to
avoid the high cost of ownership and increasing complexity of IT. The Group has
a competitive advantage in owning all the elements of the end to end solution.
This is proving increasingly attractive as our customers increasingly look to
devolve their technology problems to a competent and large scale provider.
This broad business model is well suited to current market conditions and it is
pleasing to note that an ever increasing number of customers purchase across the
Group. As a result, the Group now enjoys annual, contracted revenues in excess
of #15 million and a high level of repeat business.
Financial Results
Turnover from existing businesses for the year rose by 1 per cent. When
compared to falling revenue levels across the sector this illustrates the
benefits of our broad customer base, high level of contracted revenues and a
diversified offering. The Group is not dependent on any one product set and has
therefore proved resilient. Adjusted PBT was #2.67 million, a significant
increase over #2.04 million in the prior year. This achievement reflects both
profit growth in existing businesses and a good contribution from recent
acquisitions, primarily Aran.
Each acquisition requires substantial restructuring and often a material
adjustment to the cost base. This is possible due to the scale of XKO's
existing management team and resources. Creating these efficiencies involves
significant exceptional costs in the year of acquisition, much of which is a
cash spend. This year, restructuring and reorganisation costs relate primarily
to Aran with associated costs incurred in reorganising existing units. In
addition, we undertook a rationalisation of our UK Solutions businesses
including a relocation of our London office and the consolidation of duplicated
services. This also gave rise to significant one off costs. Finally, we are
investing selectively in management change and this invariably has a cost.
In the current year we expect minimal reorganisation costs and these will be
absorbed within operating profit, unless further acquisitions are made. The
reorganisation costs relating to the acquisition of Control will be separately
disclosed.
The strategy of acquisition at this stage in the cycle is only valid if the
Group can generate sufficient cashflow to meet the cost of purchase and
subsequent restructuring. Yet again, the Group has been highly cash generative
as a result of which funding was available for the acquisition of The Control
Group after the year end. We will continue to look for new acquisitions since
we have the management and the appropriate methodology to create value from
acquisitions in our selected market areas.
Acquisitions
The principal acquisition in the year was the purchase of Aran for a cost of
#2.6 million which was completed in June 2002. We moved rapidly to rationalise
the business and absorb the product set within our existing structure. We are
pleased to report that following these actions turnover has been very
satisfactory and profitability greatly increased. We have also invested in all
of the key applications within Aran including the development of a new windows
based alternative for many of our text users should they wish to have a choice
of system. As a result we now have two directly comparable and equally
functional solutions to suit the wishes of the customer.
The Group has a broad portfolio of applications and it is our strategy to
maintain and develop these applications as customers demand enhancement and
development. In this manner we retain customer loyalty and revenues continue to
flow from acquired units.
Shortly after the year end, we acquired The Control Group for #1.2 million. The
Control product set contains highly advanced technology particularly in respect
of warehousing and Supply Chain Management ("SCM"). Control Group's customer
base also contains many installations with major corporates. We intend to
invest further in Control's product since we see considerable opportunity in the
area of SCM, as customers seek to optimise the systems they already own.
Development
We are continually developing new offerings and solutions to our customer base.
We see good opportunities in the provision of managed infrastructure services
and for those customers with installed applications, we believe there will be a
demand to develop functionality and we are well placed to offer these services.
We retain our commitment to research and development therefore and following the
acquisition of The Control Group this spend will increase. We will also be
investing in the development of our core new business applications to reinforce
our vertical presence in chosen markets.
Outlook
It is now several years since spending was buoyant in our sector. Recognising
this, the Group was reorganised and selective acquisitions made in order to
trade profitably in any environment.
There is, as yet, little evidence that spending will increase in the current
year and sales cycles remain extended. Our strategy is not to wait for a
recovery in our markets. We continue to engage actively with our very large
customer base whilst searching for attractive, sensibly priced acquisitions that
can enhance total shareholders' return.
Simon Beart
Chief Executive
FINANCIAL COMMENTARY
Summary
The Group recorded an Adjusted PBT of #2.67 million, a significant improvement
on the prior year comparative of #2.04 million. The statutory pre tax loss for
the year was #545,000 but this includes non-cash charges, in particular the
amortisation of goodwill relating to recent acquisitions and exceptional items.
The Group is managed and staff are rewarded against the achievement of adjusted
operating profit and cash generation targets. Returns on acquisitions are
evaluated by cash ROCE.
The Group incurred substantial exceptional charges in the year of #1.71 million
and a further loss on discontinued activities of #238,000. The principal
component of the exceptional items is the costs arising from the rationalisation
of recent acquisitions which amounted to #1,034,000. These costs were primarily
redundancy and reorganisation costs incurred in order to achieve the desired
level of profitability.
Acquisitions
The principal acquisition made in the year was the purchase of the Aran group of
companies in June 2002. The cash amount paid and payable to the vendors and
debt assumed amounted to approximately #2.6 million. Rationalisation and
reorganisation costs were also incurred which will bring the total cost to #3.5
million. In November a small acquisition of the business and assets of Informed
Systems Limited was made. Immediately after acquisition both companies were
integrated into the financial and management structure of the Group.
Following the year end, the Group purchased The Control Group for a cash
consideration of #1.2 million. Control was acquired on a debt free, cash free
basis with recurring revenues approximating to the consideration paid to
vendors.
Cashflow and indebtedness
Continuous attention to working capital and the careful management of project
deliveries has resulted in improved debtor days of 40 (2002:42 days).
The Group was able to convert 112 per cent. of operating profit before goodwill
amortisation and exceptionals into cashflow. The equivalent percentage in the
previous year was 98 per cent. Total net indebtedness at the year end was low at
#675,000 despite total expenditure on acquisitions and related restructurings of
over #3.5 million.
As a result of the Group's record of strong cashflows, the Group enjoys flexible
bank facilities. Following the acquisition of Control Group, the Group has
drawn down a three year term loan with #3.1 million currently outstanding. The
Group has access to a total overdraft facility of #3 million in order to finance
working capital needs and smaller acquisitions.
Profitability
The Board examines carefully returns on capital employed and the free cash
return from existing operations and acquisitions. The operating ROCE for the
year was 86 per cent. (2002:51 per cent.) being operating profit before goodwill
and exceptionals, losses on discontinued activities and LTIP costs as a
percentage of year end fixed assets, stocks and trade debtors less trade
creditors. The free cash return rate at this level, after capital expenditure
was 88 per cent. (2002:50 per cent.). Cash generation was therefore
satisfactory and enabled the Board to propose a substantial dividend increase.
Goodwill
The Group continues to take a realistic view of the appropriate time over which
acquisition related goodwill should be amortised. In the current market
environment the Board is of the opinion that any amortisation period beyond
three years is difficult to justify. This reflects the need to invest in and
improve software applications and the very rapid changes in the technology
marketplace. The Board has therefore continued to use this shorter timescale
for amortising the goodwill which has arisen on the acquisition of Aran and
Informed Systems Limited. The Board believes that this is a prudent application
of the accounting policy.
Dividend payment, capital expenditure, taxation
The Board has recommended the payment of a final dividend of 0.5p per ordinary
share which will be paid to all shareholders on the share register at 5
September 2003 with a payment date of 2 October 2003. Coupled with the interim
dividend paid on 20 February 2003 of 0.2p per share this amounts to 0.7p per
share which represents an increase of 40 per cent. on the total annual dividend
last year. The total cash cost of the annual dividend is #193,000. Dividend
cover remains at conservative levels in order to help fund the organic growth of
the Group.
The Group does not have material capital expenditure requirements and in the
year to 31 March 2003 the net spend after disposals was #40,000.
The effective tax rate, taking into account the exceptional items and other tax
deductible expenses was 33 per cent. It is the Board's expectation that the
underlying Group rate will continue in the range 20 per cent. to 22 per cent.
for the foreseeable future.
Financial instruments
The Group's financial instruments during the period comprised a secured term
loan from The Royal Bank of Scotland plc, bank overdrafts and cash. The main
purpose of these financial instruments was to raise finance for the Group's
operations. After the year-end, the Group has entered into an Amortising Base
Rate Swap agreement, covering an initial amount of #1.5 million with The Royal
Bank of Scotland plc in order to manage its interest rate risk.
Interest rate risk
The Group finances its operations through external borrowings. Group borrowings
are denominated in sterling and bear interest with reference to floating LIBOR,
with the exception of the Swap agreement mentioned in the previous paragraph.
Liquidity risk
The Group's policy to manage liquidity risk is to maintain its term loan at a
level of between #2 million and #3.4 million and to ensure that sufficient
overdraft facilities are in place.
Foreign currency risk
During the period the Group made minimal sales or purchases in foreign
currencies. No foreign currency hedging was therefore undertaken during the
period.
Robert Kimber
Group Finance Director
Consolidated Profit and Loss Account
for the year ended 31 March 2003
Total year Total year
Existing Continuing Discontinued ended ended
business Acquisitions operations activities 31 March 31 March
2003 2003 2003 2003 2003 2002
#'000s #'000s #'000s #'000s #'000s #'000s
Turnover 39,279 4,088 43,367 260 43,627 38,880
Operating profit/(loss)
before
goodwill amortisation and
exceptional costs 2,196 649 2,845 (238) 2,607 2,094
Goodwill amortisation - (1,275) (1,275) - (1,275) (16,019)
Exceptional items (672) (1,034) (1,706) - (1,706) (783)
Operating profit/(loss) 1,524 (1,660) (136) (238) (374) (14,708)
Net interest payable (171) (230)
Loss on ordinary
activities
before taxation (545) (14,938)
Tax on loss on ordinary
activities (247) (227)
Loss on ordinary
activities
after taxation (792) (15,165)
Dividends (193) (135)
Retained loss for the (985) (15,300)
year
Adjusted earnings per ordinary share 8.9p 6.1p
Basic loss per share (2.9p) (56.4p)
Diluted loss per share (2.9p) (56.4p)
Dividend per share 0.7p 0.5p
There are no other recognised gains or losses in the year other than the loss
for the year and accordingly a Statement of Total Recognised Gains and Losses is
not provided.
Consolidated Balance Sheet
As at 31 March 2003
As at As at
31 March 31 March
2003 2002
#'000s #'000s
Fixed assets
Intangible assets 3,405 -
Tangible assets 423 842
3,828 842
Current assets
Stocks 711 931
Debtors 6,747 6,463
Cash at bank and in hand 1,325 922
8,783 8,316
Creditors: amounts falling due within one year (9,979) (8,177)
Net current (liabilities)/assets (1,196) 139
Total assets less current liabilities 2,632 981
Creditors: amounts falling due after more than one
year (1,159) (755)
Provisions for liabilities and charges (633) -
Accruals and deferred income (5,857) (4,224)
Net (liabilities)/assets (5,017) (3,998)
Capital and reserves
Called up share capital 7,212 7,039
Shares to be issued 239 550
Share premium account 9,611 9,507
Profit and loss account (22,079) (21,094)
Shareholders' (deficit)/funds (5,017) (3,998)
Equity (5,317) (4,298)
Non-equity 300 300
Shareholders' (deficit)/funds (5,017) (3,998)
Consolidated Cashflow Statement
For the year ended 31 March 2003
Year Year
ended ended
31 March 31 March
2003 2002
#'000s #'000s #'000s
Cash inflow from operating activities 2,928 1,911
Returns on investments and servicing of finance
Interest paid (152) (216)
Interest element of finance lease rental payments - (14)
Net cash outflow from returns on investments
and servicing of investments (152) (230)
Taxation
Corporation tax paid (85) (244)
Capital expenditure
Payments to acquire tangible fixed assets (174) (330)
Proceeds from sale of fixed assets 134 326
Net cash outflow from capital expenditure (40) (4)
Acquisitions
Payments to acquire investments in subsidiaries
(including expenses) (2,955) (163)
Overdraft acquired with subsidiaries (47) -
(3,002) (163)
Equity dividends paid (190) -
Net cash (outflow)/inflow before financing (541) 1,270
Financing
Issue of ordinary share capital 158 -
Bank loans drawn/(repaid) 786 (1,020)
Capital element of finance leases repaid - (157)
Net cash inflow/(outflow) from financing 944 (1,177)
Increase in cash in the year 403 93
NOTES
1. Operating loss
Year ended Year ended
31 March 31 March
2003 2002
#'000s #'000s
Turnover 43,627 38,880
Cost of Sales (18,939) (17,538)
Gross Profit 24,688 21,342
Administrative expenses before goodwill amortisation,
discontinued activities and exceptional items (21,747) (19,071)
Discontinued consultancy unit costs (334) (177)
Amortisation of goodwill (1,275) (16,019)
Exceptional items (1,617) (633)
LTIP (89) (150)
Total administrative expenses (25,062) (36,050)
Operating loss (374) (14,708)
2003 2002
Operating loss is arrived at after charging/(crediting): #'000s #'000s
Research and development costs 1,170 1,134
Discontinued consultancy unit loss 238 177
Amortisation cost of Long Term Incentive Plan 89 150
Depreciation of tangible fixed assets:
Assets held under hire purchase contracts or finance leases - 59
Other owned assets 511 708
Amortisation of intangible fixed assets 1,275 16,019
Auditors' remuneration:
Audit services 78 70
Non-audit services 31 40
Rentals under operating leases:
Plant and other machinery 94 112
Other operating leases 887 778
Profit on sale of tangible fixed assets (26) (36)
2. Exceptional items
2003 2002
#'000s #'000s
Redundancies and reorganisations 1,796 933
Debtor recovery (179) (300)
LTIP 89 150
1,706 783
3. Tax on loss on ordinary activities
2003 2002
The taxation charge comprises: #'000s #'000s
UK Corporation tax on profit of the period - -
Overseas tax 209 168
Current tax 209 168
Deferred tax - current year 38 59
247 227
The tax charge is disproportionate to the accounting loss before taxation since
the amortisation of goodwill is not tax deductible.
Reconciliation to current tax charge:
2003 2002
#'000s #'000s
Loss on ordinary activities before tax 545 14,938
Loss on ordinary activities before tax multiplied by standard rate of
UK Corporation tax: 30% (164) (4,481)
Expenses not deductible for tax purposes 469 4,823
Capital allowances in excess of depreciation 34 (27)
Movement in short term timing differences 141 17
Foreign tax charged at lower rates than UK (181) (164)
Trade losses acquired (90) -
Current corporation tax charge for the period 209 168
The standard rate of tax used in the above reconciliation is the average United
Kingdom corporation tax rate for the period concerned.
4. Reconciliation of movement in shareholders' funds
Group
2003 2002
#'000s #'000s
Opening shareholders' (deficit)/funds (3,998) 11,502
Loss for the financial year (792) (15,165)
Dividends payable (193) (135)
Movement as to shares to be issued (311) (200)
New share capital subscribed 277 -
Closing shareholders' (deficit)/funds (5,017) (3,998)
5. Notes to cashflow statement
Reconciliation of operating loss to net cash inflow from operating activities
2003 2002
#'000s #'000s
Operating loss (374) (14,708)
Depreciation and amortisation 1,786 16,786
Profit on sale of fixed assets (26) (36)
Decrease in stocks 220 13
Increase/(decrease) in creditors 541 (1,602)
Decrease in debtors 781 1,458
Net cash inflow from operating activities 2,928 1,911
6. Analysis of net debt
At 31 March Cash At 31 March
2002 Flow 2003
#'000s #'000s #'000s
Cash in hand and at bank 922 403 1,325
Overdrafts - - -
922 403 1,325
Debt due within 1 year (1,214) 214 (1,000)
Debt due after 1 year - (1,000) (1,000)
Total debt (292) (383) (675)
7. Earnings per share
Basic loss per ordinary share is calculated by dividing the loss attributable to
ordinary shareholders of #792,000 (2002: loss #15,165,000) by the weighted
average number of shares in issue during the year of 27,386,987 (2002:
26,909,154).
FRS 14 requires presentation of diluted earnings per share when a company could
be called upon to issue shares that would decrease net profit or increase net
loss per share. For a loss making company with outstanding share options, net
loss per share would only be increased by the exercise of out-of-the-money
options. It seems unlikely that option holders would act irrationally,
therefore no adjustment has been made to diluted loss per share for
out-of-the-money share options. Accordingly, the diluted loss per share equals
the basic loss per share of 2.9p (2002:56.4p).
2003 2002
#'000s #'000s
Loss on ordinary activites after taxation (792) (15,165)
Goodwill amortisation 1,275 16,019
LTIP 89 150
Exceptional items 1,617 633
Loss on discontinued activities 238 177
Adjusted profit after tax 2,427 1,814
Tax 247 227
Adjusted profit before tax 2,674 2,041
Adjusted earnings per share 8.9p 6.1p
Earnings per share in the prior year has not been restated for discontinued
activities.
8. The financial information set out in the announcement does not constitute
the Company's statutory accounts for the years ended 31 March 2003 or 2002. The
financial information for the year ended 31 March 2002 is derived from the
statutory accounts for that year which have been delivered to the Registrar of
Companies. The auditors reported on those accounts; their report was
unqualified and did not contain a statement under s237(2) or (3) Companies Act
1985. The statutory accounts for the year ended 31 March 2003 will be finalised
on the basis of the financial information presented by the Directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the Company's Annual General Meeting.
9. Copies of this preliminary statement may be obtained from the Company
Secretary, XKO Group plc, Systems House, Foundry Court, Gogmore Lane, Chertsey,
KT16 9AP or by visiting the Company's web site: www.xko.co.uk.
18 June 2003
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DBGDLGDBGGXR
