TIDMKCOM
RNS Number : 2084H
KCOM Group PLC
06 June 2017
KCOM GROUP PLC (KCOM.L)
UNAUDITED PRELIMINARY RESULTS FOR YEARED 31 MARCH 2017
KCOM Group PLC (KCOM.L) announces its full year results for year
ended 31 March 2017.
Highlights
-- Results in line with expectations, reduction from last year
largely due to continuing decline in legacy business and additional
cost of the national fibre network outsource
-- Continued investment in fibre network in Hull & East
Yorkshire ahead of schedule, supporting a 3% increase in consumer
sales
-- Enterprise revenue grown by 5%, with top five customers growing by 16%
-- Continued focus on optimising cost base with year-on-year reduction in indirect costs
-- Strengthened management team and organisation, aligned to deliver our medium term strategy
-- Strong cash management with favourable year-on-year underlying working capital movement
-- Recommended final dividend of 4.00p to make 6.00p per share for the full year
Unaudited Audited Change
Year ended Year ended over
31 March 31 March prior year
2017 2016
(GBPm) (GBPm) (%)
---------------------------------- ------------ ------------ ------------
Performance measures
Revenue 331.3 349.2 (5.1)
EBITDA(1,3) 67.6 74.9 (9.7)
Profit before tax(1) 38.5 47.9 (19.6)
Adjusted basic earnings per
share (pence)(2) 6.10 7.54 (19.1)
Cash capital expenditure(3) (47.2) (31.3)
Reported results
Profit before tax 30.5 88.7 (65.6)
Basic earnings per share (pence) 4.85 13.96 (65.3)
Net (debt)/funds(3) (42.4) 7.4
Proposed final dividend (pence) 4.00 3.94 1.5
Proposed full year dividend
per share (pence) 6.00 5.91 1.5
(1) Before exceptional items
(2) Adjusted basic EPS is basic EPS adjusted for exceptional
items (including the tax impact of exceptional items)
(3) For definition and reconciliation to statutory measure see
glossary
Graham Holden, Non-Executive Chairman said:
"Our objective is to deliver long-term sustainable value for our
shareholders. Our strategy is designed to offer shareholders a
combination of income generation and value accretion. Hull &
East Yorkshire is core to the strategic direction of KCOM, and
receives the majority of the Group's investment. We are fully
committed to completing the fibre deployment across our market to
deliver premium services both to homes and businesses. This should
deliver long-term sustainable cash generation, to continue to
support our dividend policy.
Our Enterprise business is focused on market areas, where we
have seen good growth and where we have market leading skills.
We are targeting development in this area to provide momentum in
shareholder value. A key part of our growth this year comes from
additional business from existing customers who recognise the value
we can add to their business.
While we continue the investment in our fibre deployment and
further develop our Enterprise business, I am pleased to confirm
that the Board is recommending, subject to shareholder approval, a
final dividend of 4.00 pence per share, in accordance with our
existing commitment to deliver a minimum full year dividend of 6.00
pence per share for both this year, and the year ending 31 March
2018. This reflects both our confidence in the strategy being
executed by the management team and longer term prospects"
Bill Halbert, Chief Executive said:
"We are reporting another period of strategic and operational
progress and remain focused on continuing to reposition the
business as a provider of fibre-enabled services and IP-based
solutions. Our fibre deployment in Hull & East Yorkshire
remains on schedule to reach 150,000 premises by December 2017 and
we continue to see high levels of customer take-up. In Enterprise,
we have strengthened our sales, delivery management and technical
capability to respond quickly to customer demand and create a
scalable operating model as demand grows."
Our business is focused on three distinct market segments.
Hull & East Yorkshire: a stable, income-generating segment
focused on our regional market. Our plan here is to grow through
continued broadband penetration and the introduction of additional
services that exploit our continued investment in the market
leading fibre network.
Enterprise: our engine for future growth. Our focus is to grow
scale and capability in the provision of complex IP-related
communications and IT solutions to the enterprise market.
National Network Services: our national, connectivity based
segment, where we seek to maximise the value from our legacy
investment in national network infrastructure with a tight focus on
the mid-market's need for connectivity-based services.
Progress
At the beginning of the financial year, we aligned all of our
business activities under a single brand. This is enabling us to
simplify the way we work and to adapt the size and skills of our
teams to better support our core markets. We strengthened our
management team at Group level and across our Enterprise segment to
help to align the business behind our core market strategy and to
drive performance.
As we indicated at the half year, we have tightened our focus on
the two segments (Hull & East Yorkshire and Enterprise) that
provide sustainable opportunities for the business in terms of
delivering dividend support and future growth in overall
shareholder value.
The disposal of certain national network assets last year was a
fundamental part of this repositioning. The proceeds received from
this sale are being re-invested in the deployment of fibre in Hull
& East Yorkshire and continuing the transformation of the
business.
During the second half of the year we analysed our shared costs
in order to better allocate them to our market segments. This
improved insight is helping us to optimise our cost base going
forward.
Hull & East Yorkshire
In our Hull & East Yorkshire segment, our focus is on
exploiting the value from the continuing investment in our network,
particularly our ultra-fast fibre capability, through the
introduction of quad-play services to consumers and additional
network-based services to businesses. We have a total of
approximately 145,000 consumer and business customers in this
segment.
Demand for our fibre broadband across both business and consumer
markets has remained high during the year with average take-up
rates in excess of 30% where our fibre is available and we remain
on target to make those services available to more than two thirds
of premises by December 2017.
Building on this fibre capability, towards the end of the
calendar year, we plan to introduce an innovative approach to a TV
proposition, which importantly will provide also the platform for
further in-home 'over the top' content services and
applications.
The anticipated decline in revenue generated from our contact
centre and media services has continued and we expect this
contribution to further reduce over the next year.
Enterprise
Our best growth opportunity is within our Enterprise segment
providing IT and integration services to UK-based enterprises. We
have a primary focus on the development and support of IP-based
solutions and services and have particular skills and experience in
taking complex multi-location on premise call centres to the cloud.
This growing market for Contact Centres as a Service and
professional cloud deployment for enterprises should mean that our
Enterprise segment continues to develop as an asset light business
with strong margins.
This segment represents the biggest opportunity for growth and
we remain optimistic about future progress and our ability to
exploit the opportunities available. Current customers include
BUPA, HMRC, Rail Delivery Group and Shoosmiths and each as grown
from its initial contract size. New business has been signed with
clients across a range of sectors, including Hastings Direct
(Insurance), C Hoare & Co (Financial Services) and Dugout
(Entertainment).
The growth in our IP solutions activity is encouraging and the
potential for this continues to develop, exploiting our unique
combination of capabilities across cloud, internet, IT and
communications. While we have seen early signs of revenue growth in
this segment, margins were held back in the year, as we recognised
the impact of incurred and anticipated cost overruns on the
development stages of two fixed price, complex software
implementations for a single customer. We continue to maintain a
strong relationship with the customer, which we expect to continue
to grow successfully.
Following those early successes and the valuable experience we
have gained in their implementation, we have invested in
strengthening our sales leadership and delivery capabilities,
including flexible resourcing systems and resource pooling. We
expect these actions to result in a stronger pipeline of
opportunities and margin expansion in the coming year.
National Network Services
Our National Network Services segment focuses on delivering
connectivity based services to national organisations in both the
direct and indirect market.
This segment seeks to maximise the value of our historical
investment in national network platforms and, while we expect
overall revenues to decline in this segment as a number of legacy
contracts come to an end, there are some areas of this market in
which we can compete without the need for substantial investment.
Primarily this is in the provision of multi-site wide area networks
and other associated services. Existing customers for such services
include RNLI, One Stop, Furniture Village and Domino's.
We continue to seek ways to limit the effect of the decline and
explore other solutions as appropriate.
Outlook
Evidenced by the progress made over the past year, the Board is
confident in the transition of KCOM into a regional fibre-based
services provider and a provider of complex IP solutions to the
enterprise market. We remain focused on creating a simplified
business, with a cost base better aligned to the growth
opportunities in our core markets that the Board believes will
generate long-term sustainable returns and growth for shareholders.
Whilst we expect to make further progress in both Hull & East
Yorkshire and Enterprise, as we transition away from commoditised
services, we expect there to be a further decline in revenues and
margins associated with our legacy activities.
Consistent with our existing commitment to a minimum full year
dividend of 6.00p per share, the Board is recommending a final
dividend of 4.00p per share. Subject to shareholder approval at the
company's Annual General Meeting on 21 July 2017, the final
dividend will be paid on 1 August 2017 to shareholders on the
register as at 23 June 2017.
For further information please contact:
Bill Halbert, Chief Executive Officer
Jane Aikman, Chief Financial Officer
Cathy Phillips, Investor relations
KCOM Group PLC
01482 602595
Lulu Bridges / Mike Bartlett
Tavistock Communications
020 7920 3150
Performance review
-- Overall results in line with expectations, with operational
and strategic progress in focus areas
-- Revenue is lower than the prior year, due to the continuing
decline of legacy network contracts
-- Group EBITDA is lower than prior year, as a result of the
lower revenue, additional costs of the national fibre network
outsource and overrun of project costs in relation to a specific
Enterprise customer
-- Continued focus on the cost base with year-on-year reduction in indirect costs
-- Profit before tax is lower than prior year due to the reduced
EBITDA and higher depreciation and amortisation charges, following
increased investment in recent years
-- Exceptional items of GBP8.0 million as a result of ongoing
business transformation and reductions to our cost base, leading to
a reduction in headcount in the second half of the year
-- Re-investment of proceeds from sale of network assets in the
fibre deployment in Hull & East Yorkshire is progressing
well
-- Strong net debt management with favourable year-on-year underlying working capital movement
-- Intention to a pay a 6.00p dividend for the year ending 31 March 2018 reconfirmed
Group performance
Our results for the period show an anticipated decrease in
revenue and EBITDA. These arose, as expected, from our strategic
repositioning away from our commoditising legacy business towards
IP-based solutions, coupled with the additional cost of our
national fibre network outsource, following the sale of certain
national network assets in the prior year.
The performance in our Hull & East Yorkshire segment
continues to benefit from strong fibre take-up, funded in part by
the proceeds from the sale of these network assets.
In the Enterprise market, where we are uniquely positioned, we
continue to shift our focus towards significant integration and
collaboration contracts with key customers. The results for the
year show growth and good progress strategically. Margins however
were held back, as a result of cost overruns on two fixed price
contracts relating to some complex software development projects
for a particular customer.
In September, we completed the extension of our banking
arrangements, securing a facility of GBP180 million for a further
five years through to December 2021, on existing favourable terms.
This medium-term certainty reduces the Group's risk and provides
further opportunities for growth.
Segmental analysis
In the prior year, we explained the changes to our segments,
which arose as a result of the move to one KCOM brand. During the
year, we have continued to refine our segments to align with the
way the business is managed and financial performance is
analysed.
This included:
-- further analysing our shared cost base in order to allocate
costs to the appropriate market segment
-- refining the customers and related activities allocated to
our Enterprise segment. Contracts that relate to connectivity and
network only business are now managed with our other contracts of
this nature in the National Network Services segment. Enterprise is
now focused on growth IP solutions business.
Management makes decisions and manages the business in line with
the segmental analysis set out below. This information is presented
before exceptional items in order to provide a better understanding
of the Group's underlying performance. A reconciliation of the
Group's pre-exceptional results, along with the definition of
contribution is set out in the glossary.
Hull & East Yorkshire
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
31 Mar 2017 31 Mar 31 Mar 2017 31 Mar 2016 31 Mar 2017 31 Mar 2016
2016
Revenue Revenue Gross margin Gross margin Contribution Contribution
GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------------ --------- ------------ ------------ ------------ ------------
Consumer 56.1 54.7 - - - -
Business 29.7 31.2 - - - -
Wholesale 11.0 11.6 - - - -
Media/contact
centres 5.5 7.0 - - - -
-------------- ------------ --------- ------------ ------------ ------------ ------------
Total 102.3 104.5 78.5 79.2 60.4 59.8
-------------- ------------ --------- ------------ ------------ ------------ ------------
The success of our ultra-fast Fibre-to-the-Premise (FTTP)
continues, in part funded by the sale of certain national network
assets in the prior year. Our FTTP deployment cost compares well
with our peers. We believe both our cost to pass and cost to
connect are the lowest in the UK based on available comparable
benchmark information. In Europe, lower costs exist in areas of
multiple dwellings. Our costs to date are 7% lower than we had
initially anticipated and our take-up rates are 3% higher.
Our deployment is ahead of target and we expect to pass 150,000
premises (more than two thirds of our addressable market) by
December 2017.
During the year we have passed 45,000 premises, taking our total
to 137,000 and take-up remains strong with 19,000 premises
connected in the year (including 1,400 businesses), taking the
total connected to 43,000.
Revenue has increased from prior year by 3% in our consumer
channel. Our fibre deployment has enabled us to access more
customers and has supported a 3% increase in
Average-Revenue-per-User (ARPU(1) ). We continue to achieve market
leading take-up rates in excess of 30% of homes passed to date.
Broadband connection volumes have grown in the year and we have
progressed our product development roadmap and plan to introduce
new over the top services during the remainder of 2017.
The small decline in revenue in the business channel can be
explained by:
-- the impact of the Government's superfast broadband scheme in
the prior year, with over 1,000 small businesses connecting to our
fibre service under this voucher scheme (GBP1.1 million
revenue);
-- lower year-on-year public sector spend, following migration
to a Public Services Network (GBP0.7 million revenue).
After taking account of these factors, underlying revenue
increased in our business channel.
Wholesale revenues have declined slightly during the year as a
result of lower voice revenues and, as anticipated, our non-core
contact centre and publishing revenues have continued to
decline.
Despite a small overall decrease in revenue within this segment,
our underlying contribution has increased by 1% in comparison to
the prior year.
Enterprise
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
31 Mar 2017 31 Mar 31 Mar 2017 31 Mar 2016 31 Mar 2017 31 Mar 2016
2016
Revenue Revenue Gross margin Gross margin Contribution Contribution
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------ --------- ------------ ------------ ------------ ------------
Projects 48.2 49.0 - - - -
Managed service 30.6 24.2 - - - -
Network 12.2 13.5 - - - -
Total 91.0 86.7 25.6 28.6 4.5 8.2
---------------- ------------ --------- ------------ ------------ ------------ ------------
During the year, we have seen year-on-year revenue growth,
through growing relationships with key customers such as HMRC and
NFUM. Our reputation in this segment is continuing to strengthen,
as we develop our unique capability of delivering IP-based
solutions which combine cloud, internet, IT and communications.
Revenue has increased by 5% from prior year and our year-on-year
revenue to our top five customers has grown by 16%.
Despite the revenue growth, margin and contribution for the year
were lower than prior year due to the recognition of an estimated
overall cost overrun on two fixed price, complex software
developments for one customer. These estimated overrun costs have
been recognised as a loss of GBP3.6 million for this stage of the
contract.
We have strengthened the delivery management for those projects,
together with other changes and we continue to maintain a strong
relationship with the customer.
In the prior year we benefited from higher margin project
development based revenues from our largest customer, HMRC.
National Network Services
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
31 Mar 2017 31 Mar 31 Mar 2017 31 Mar 2016 31 Mar 2017 31 Mar 2016
2016
Revenue Revenue Gross margin Gross margin Contribution Contribution
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------ --------- ------------ ------------ ------------ ------------
Large Corporate 47.4 60.9 - - - -
SMB 52.6 55.2 - - - -
Partners 41.8 47.1 - - - -
141.8 163.2 41.0 44.9 16.0 19.3
---------------- ------------ --------- ------------ ------------ ------------ ------------
Without scale, it is increasingly difficult to differentiate our
services in this highly commoditised market and, as expected, this
segment has seen a year-on-year decline in both revenue and
contribution.
Our focus during the year has been at the larger end of the
mid-market, where we can provide more value, this has resulted in
higher churn with some of our smaller customers.
This segment includes network customers which were formerly
reported in our Enterprise segment (Large Corporate). As indicated
previously, revenue from these customers has declined year-on-year.
We anticipate a further decline of cGBP25.0 million in the year
ending 31 March 2018, however, we expect the rate of decline to
slow after the end of that year.
Central
Central costs include PLC and corporate costs, where allocation
to the underlying segments would not improve understanding of those
segments. These costs include share based payments and pensions,
along with the residual Group cost of finance, HR, risk, legal and
communications, once appropriate recharges have been made to the
three business segments.
Year-on-year, underlying central costs remain broadly flat, with
slightly higher overall costs being attributable to a higher share
based payment charge.
Exceptional items
Our continued business transformation has resulted in the need
to continue the restructuring of our business to ensure we have the
right number of employees with the right skill sets as well as
bringing together our activities under a single brand. As a result,
and in line with our accounting policy, the Group incurred
exceptional costs of GBP7.3 million during the period. These costs
relate to the KCOM rebrand, alongside redundancy costs, systems
costs and advisory costs as we 'right-size' the business.
Exceptional items also include GBP0.7 million relating to
regulatory matters (Note 2).
Refinancing, net debt and cash flow
Net debt at 31 March 2017 is GBP42.4 million (31 March 2016: Net
funds of GBP7.4 million), representing a net debt to EBITDA ratio
of 0.6x.
We aim to cover the Group's core obligations (pensions, tax and
run-rate capital investment), as well as our dividends, from the
cash generated from our trading performance. In the year ended 31
March 2017 it covered our core obligations and part of our dividend
commitment. We remain committed to the stated dividend policy of a
minimum of 6.00p per share for the year ended 31 March 2017 and the
year ending 31 March 2018.
The year-on-year increase in net debt arises as a result of
capital investment (GBP47.2 million), dividends (GBP30.7 million),
pensions (GBP7.7 million), tax (GBP8.0 million) and cash
exceptional items (GBP8.3 million). As previously reported, the
movement during the year also includes an GBP18.0 million VAT
payment to HMRC in relation to the disposal of certain network
assets in the prior year.
Underlying working capital was favourable year-on-year. Our
days' sales outstanding was 27 (31 March 2016: 32).
In September 2016, we agreed a new five year GBP180.0 million
revolving credit facility, on the same terms as our existing
arrangements.
Dividend
The Board is proposing a final dividend of 4.00 pence per share
(2016: 3.94 pence), representing a total dividend for the year of
6.00 pence per share (2016: 5.91 pence) consistent with the Board's
previously stated commitment of a dividend of no less than 6.00
pence per annum for both the year ended 31 March 2017 and the year
ending 31 March 2018.
Subject to shareholder approval at the KCOM Group PLC Annual
General Meeting on 21 July 2017, the final dividend will be paid on
1 August 2017 to shareholders registered on 23 June 2017. The
ex-dividend date is 22 June 2017.
Pensions
The IAS 19 pension liability at 31 March 2017 is GBP19.7 million
(31 March 2016: GBP14.4 million). The increase from 31 March 2016
arises as a result of a lower discount rate used to calculate the
schemes' liabilities, offset by a strong asset performance.
Our triennial valuation (as at 31 March 2016) has now been
agreed with deficit repair payments of GBP6.7 million across both
schemes until the year ending 31 March 2020. In addition to this
amount, the Group makes pre-agreed payments to its pension schemes
through the asset backed partnerships. The full year payment for
both the current year and prior year is GBP2.7 million.
Capital investment
The Group's capital investment during the year is consistent
with previous guidance. The disposal of certain national network
assets in the prior year enabled increased capital investment in
order to continue to reposition the business.
Cash capital expenditure during the year was GBP47.2 million (31
March 2017: GBP31.3 million).
The Group's depreciation and amortisation charge for the period
is GBP26.9 million (31 March 2016: GBP24.0 million), the increase
resulting from the higher capital investment in recent years, which
has an ongoing impact on profit before tax.
Tax
The Group's tax charge is GBP5.7 million (31 March 2016: GBP17.6
million). The effective tax rate is 19%, this is slightly lower
than the prevailing rate of corporation tax due the impact of prior
year items, offset by the re-measurement of deferred tax balances.
The prior year tax charge includes the impact of the disposal of
certain national network assets during the year ended 31 March
2016.
Consolidated income statement
Unaudited Audited
Year ended Year ended
31 Mar 31 Mar
2017 2016
Note GBP'000 GBP'000
----------------------------------------------- ----- ------------ ------------
Revenue 1 331,303 349,222
Operating expenses (298,547) (257,438)
----------------------------------------------- ----- ------------ ------------
Operating profit 32,756 91,784
Analysed as:
EBITDA before exceptional items 1 67,645 74,937
Exceptional credits 2 - 47,331
Exceptional charges 2 (7,981) (6,445)
Depreciation of property, plant and equipment (14,279) (13,744)
Amortisation of intangible assets (12,629) (10,295)
----------------------------------------------- ----- ------------ ------------
Finance costs 3 (2,263) (3,057)
Share of profit of associates 12 16
----------------------------------------------- ----- ------------ ------------
Profit before taxation 1 30,505 88,743
Taxation 4 (5,743) (17,609)
----------------------------------------------- ----- ------------ ------------
Profit for the year attributable to owners
of the parent 24,762 71,134
----------------------------------------------- ----- ------------ ------------
Earnings per share
Basic 5 4.85p 13.96p
Diluted 5 4.81p 13.82p
Consolidated statement of comprehensive income
Audited
Unaudited Year ended
Year ended 31 Mar
31 Mar 2017 2016
GBP'000 GBP'000
--------------------------------------------------- ------------- ------------
Profit for the year 24,762 71,134
Other comprehensive (expense)/income
Items that will not be reclassified to
profit or loss
Remeasurements of retirement benefit obligations (12,035) 12,130
Tax on items that will not be reclassified 1,738 (2,426)
--------------------------------------------------- ------------- ------------
Total items that will not be reclassified
to profit or loss (10,297) 9,704
--------------------------------------------------- ------------- ------------
Items that may be reclassified subsequently
to profit or loss
Cash flow hedge fair value movements - (442)
Tax on items that may be reclassified - (569)
--------------------------------------------------- ------------- ------------
Total items that may be reclassified subsequently
to profit or loss - (1,011)
--------------------------------------------------- ------------- ------------
Total comprehensive income for the year
attributable to owners of the parent 14,465 79,827
--------------------------------------------------- ------------- ------------
Consolidated balance sheet
Unaudited as at Audited as at
31 Mar 2017 31 Mar 2016
Note GBP'000 GBP'000
----------------------------------------------------------- ----- ---------------- --------------
Assets
Non-current assets
Goodwill 51,372 51,372
Other intangible assets 45,709 44,637
Property, plant and equipment 106,323 93,592
Investments 45 49
Deferred tax assets 7,836 8,356
----------------------------------------------------------- ----- ---------------- --------------
211,285 198,006
----------------------------------------------------------- ----- ---------------- --------------
Current assets
Inventories 3,075 2,638
Trade and other receivables 68,406 65,431
Cash and cash equivalents 8 16,093 14,857
87,574 82,926
----------------------------------------------------------- ----- ---------------- --------------
Total assets 298,859 280,932
----------------------------------------------------------- ----- ---------------- --------------
Liabilities
Current liabilities
Trade and other payables (110,917) (126,235)
Current tax liabilities - (5,459)
Bank overdrafts 8 (5,903) (1,645)
Derivative financial instruments - (11)
Finance leases 8 (1,942) (3,271)
Provisions for other liabilities and charges (377) (738)
Non-current liabilities
Bank loans 8 (48,587) -
Retirement benefit obligation 7 (19,691) (14,350)
Deferred tax liabilities (7,498) (6,875)
Finance leases 8 (2,094) (3,680)
Provisions for other liabilities and charges (1,962) (2,401)
----------------------------------------------------------- ----- ---------------- --------------
Total liabilities (198,971) (164,665)
----------------------------------------------------------- ----- ---------------- --------------
Net assets 99,888 116,267
----------------------------------------------------------- ----- ---------------- --------------
Equity
Capital and reserves attributable to owners of the parent
Share capital 51,660 51,660
Share premium account 353,231 353,231
Accumulated losses(1) (305,003) (288,624)
----------------------------------------------------------- ----- ---------------- --------------
Total equity 99,888 116,267
----------------------------------------------------------- ----- ---------------- --------------
(1) Included within accumulated losses is a profit after tax of
GBP24.8m (2016: GBP71.1m)
Consolidated statement of changes in shareholders' equity
Hedging
Share and
Share premium translation Accumulated
capital account reserve losses Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
At 1 April 2015 (audited) 51,660 353,231 442 (341,454) 63,879
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
Profit for the year - - - 71,134 71,134
Other comprehensive (expense)/income - - (442) 9,135 8,693
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
Total comprehensive income
for the year ended 31 March
2016 (audited) - - (442) 80,269 79,827
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
Deferred tax charge relating
to share schemes - - - 125 125
Current tax credit relating
to share schemes - - - 90 90
Purchase of ordinary shares - - - (450) (450)
Employee share schemes - - - 1,468 1,468
Dividends 6 - - - (28,672) (28,672)
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
Transactions with owners - - - (27,439) (27,439)
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
At 31 March 2016 (audited) 51,660 353,231 - (288,624) 116,267
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
Profit for the year - - - 24,762 24,762
Other comprehensive expense - - - (10,297) (10,297)
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
Total comprehensive income
for the year ended 31 March
2017 (unaudited) - - - 14,465 14,465
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
Deferred tax charge relating
to share schemes - - - (122) (122)
Purchase of ordinary shares - - - (1,778) (1,778)
Employee share schemes - - - 1,742 1,742
Dividends 6 - - - (30,686) (30,686)
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
Transactions with owners - - - (30,844) (30,844)
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
At 31 March 2017 (unaudited) 51,660 353,231 - (305,003) 99,888
-------------------------------------- ----- --------- --------- ------------- ------------ ---------
Consolidated cash flow statement
Unaudited Audited
Year ended Year ended
31 Mar 2017 31 Mar 2016
Note GBP'000 GBP'000
------------------------------------------------- ---- ----------- -----------
Cash flows from operating activities
Operating profit 32,756 91,784
Adjustments for:
- depreciation and amortisation 26,908 24,039
- (increase)/decrease in working capital (18,302) 23,262
- loss/(profit) on sale of property, plant
and equipment 555 (47,065)
- non-employee-related pension charges 655 656
- share-based payment charge 1,742 1,468
Payments made to defined benefit pension
schemes (7,724) (6,565)
Tax paid (8,019) (7,206)
Net cash generated from operations 8 28,571 80,373
------------------------------------------------- ---- ----------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (28,403) (16,959)
Purchase of intangible assets (15,792) (11,467)
Proceeds from sale of property, plant and
equipment 68 90,000
Net cash (used in)/generated from investing
activities (44,127) 61,574
------------------------------------------------- ---- ----------- -----------
Cash flows from financing activities
Dividends paid 6 (30,686) (28,672)
Interest paid 8 (1,257) (2,794)
Capital element of finance lease repayments (3,025) (2,829)
Payment of loan issue costs (720) -
Repayment of bank loans (15,000) (175,000)
Drawdown of bank loans 65,000 70,000
Purchase of ordinary shares 8 (1,778) (450)
------------------------------------------------- ---- ----------- -----------
Net cash generated from/(used in) financing
activities 12,534 (139,745)
------------------------------------------------- ---- ----------- -----------
(Decrease)/increase in cash and cash equivalents (3,022) 2,202
Cash and cash equivalents at the beginning
of the year 13,212 11,010
Cash and cash equivalents at the end of
the year 8 10,190 13,212
------------------------------------------------- ---- ----------- -----------
The working capital increase in 2017 includes the repayment of
an GBP18.0 million VAT creditor arising from the 2016 exceptional
gain on the sale of the Group's infrastructure in relation to the
sale of certain national network assets.
Notes to the unaudited financial information
1. Segmental analysis
The Group's operating segments are based on the reports reviewed
by the KCOM Group PLC Board which are used to make strategic
decisions. The chief operating decision-maker of the Group is the
KCOM Group PLC Board.
For the year ended 31 March 2017, the Board considered four
segments in assessing the performance of the Group and making
decisions in relation to the allocation of resources. These four
segments are Hull & East Yorkshire, Enterprise, National
Network Services and Central.
In our report and accounts for the year ended 31 March 2016, we
explained the changes to our segments which arose as a result of
the move from four brands (KC, Kcom, Eclipse and Smart 421), to one
brand, KCOM.
The changes included three 'go to market' segments, along with a
shared segment. In our disclosure notes we re-presented our results
for the year ended 31 March 2016 on this new basis.
During the year, and as part of the Group's evolution, we have
continued to refine those segments to align with the way the
business is run and financial performance is analysed.
We have further analysed our shared cost base in order to
meaningfully allocate to our go to market segments. This provides
segmental performance at a lower level in the income statement than
disclosed at the half year. This means that the level of residual
cost relates only to costs of the central functions with all
network costs being allocated to go to market segments. As a
result, the costs shown in our shared segment are materially lower
than disclosed in our re-presented results for the year ended 31
March 2016 and our interim results for the period ended 30
September 2016. As a result of this change, this segment has been
renamed Central.
We have further refined the customers allocated to our
Enterprise segment. These are now fewer in number and relate solely
to our largest customers where the revenue relates to complex
communication and IP-based collaboration services. As a result, a
greater proportion of our legacy network customers are now part of
our National Network Services segment (renamed from SMB
National).
A summary of these changes is set out below:
As reported 31 March As reported 30 September As reported 31 March
2016 2016 2017
---------------------------- ------------------------------ -----------------------------
KC Hull & East Yorkshire
Communication services Hull & East Yorkshire Communication services
for consumers and Communication services for consumers and
small local businesses for consumers and businesses within
within the Hull & small local businesses the Hull & East Yorkshire
East Yorkshire region. within the Hull & region.
East Yorkshire region.
Change from 31 March
Change from 31 March 2016: Allocation principles
2016: Allocation principles around shared costs.
around shared costs.
---------------------------- ------------------------------ -----------------------------
Kcom SMB National
Communication and Communication services National Network Services
collaboration services to our medium-sized Connectivity-based
across the enterprise business customers services for organisations
and SMB markets (excluding outside of Hull & nationwide.
Hull & East Yorkshire), East Yorkshire.
from our former Kcom, Change from 30 September
Eclipse and Smart421 Change from 31 March 2016: Allocation of
brands. 2016: A disaggregation certain network-based
of former Kcom segment. customers formally
Allocation principles in Enterprise. Allocation
around shared costs. principles around
shared costs. Name
change to National
Network Services.
---------------------------- ------------------------------ -----------------------------
Enterprise
Communication and Enterprise
collaboration solutions IP-based communication
to our largest customers and collaboration
services for UK enterprise
Change from 31 March customers.
2016: A disaggregation
of former Kcom segment. Change from 30 September
Changes to cost allocation. 2016: Allocation of
Allocation principles certain network-based
around shared costs. customers to National
Network Services.
Allocation principles
around shared costs.
---------------------------- ------------------------------ -----------------------------
PLC Shared
Shared service functions, Technical and engineering Central
share scheme expenses support, alongside PLC costs and corporate
and certain pension IT, Finance, Estates, costs, where allocation
costs. Legal and HR services. to the underlying
This segment also segments would not
includes PLC costs improve understanding
such as share scheme of these segments.
expenses and certain These costs include
pension costs. share schemes and
pensions, alongside
Change from 31 March the residual cost
2016: Shared costs of finance, HR, risk,
relating to Technical legal and communications
and engineering support, once appropriate recharges
alongside IT, Finance, have been made to
Estates, Legal and go to market segments.
HR services held centrally
and not allocated Change from 30 September
out to segments. 2016: Costs allocated
out to segments, where
they can be allocated
meaningfully. Name
changed to Central.
---------------------------- ------------------------------ -----------------------------
As disclosed in our Annual Report for the year ended 31 March
2016, KCOM Group continues to have one business-wide EBITDA with
segment profitability (contribution) used as the metric of
reporting segmental performance. Following the refinement and
allocation of our shared costs, contribution represents gross
margin less all costs directly attributable to the segment.
The segment information provided to the KCOM Group PLC Board for
the reportable segments, for the year ended 31 March 2017 and for
the year ended 31 March 2016, is as follows:
Revenue Contribution
Unaudited
Year ended Unaudited Unaudited Unaudited
31 Mar Year ended Year ended Year ended
2017 31 Mar 2016 31 Mar 2017 31 Mar 2016
GBP'000 GBP'000 GBP'000 GBP'000
Before exceptional items
Hull & East Yorkshire 102,275 104,515 60,424 59,769
Enterprise 90,966 86,726 4,500 8,192
National Network Services 141,811 163,221 15,959 19,341
Central (3,749) (5,240) (13,238) (12,365)
-------------------------------- ----------- ------------ ------------ ------------
Total before exceptional items 331,303 349,222 67,645 74,937
-------------------------------- ----------- ------------ ------------ ------------
Exceptional items
Hull & East Yorkshire - - (2,338) (2,641)
Enterprise - - (2,624) (395)
National Network Services - - 353 47,362
Central - - (3,372) (3,440)
-------------------------------- ----------- ------------ ------------ ------------
Total - - (7,981) 40,886
-------------------------------- ----------- ------------ ------------ ------------
Total 331,303 349,222 59,664 115,823
-------------------------------- ----------- ------------ ------------ ------------
A reconciliation of total EBITDA to profit before tax is
provided as follows:
Unaudited Audited
Year ended Year ended
31 Mar 2017 31 Mar 2016
GBP'000 GBP'000
------------------------------ ------------ ------------
EBITDA post-exceptional items 59,664 115,823
Depreciation (14,279) (13,744)
Amortisation (12,629) (10,295)
Finance costs (2,263) (3,057)
Share of profit of associate 12 16
------------------------------- ------------ ------------
Profit before tax 30,505 88,743
------------------------------- ------------ ------------
Disclosure has not been made of segmental assets and
liabilities. This is in accordance with IFRS 8 as this measure is
not provided regularly to the KCOM Group PLC Board.
The split of total revenue between external customers and
inter-segment revenue is as follows:
Unaudited Unaudited
Year ended Year ended
31 Mar 2017 31 Mar 2016
GBP'000 GBP'000
-------------------------------- ------------ ------------
Revenue from external customers
Hull & East Yorkshire 97,921 98,797
Enterprise 90,966 86,696
National Network Services 141,811 163,221
Central 605 508
-------------------------------- ------------ ------------
Total 331,303 349,222
-------------------------------- ------------ ------------
Inter-segment revenue
Hull & East Yorkshire 4,354 5,718
Enterprise - 30
Central (4,354) (5,748)
-------------------------------- ------------ ------------
Total - -
-------------------------------- ------------ ------------
Group total 331,303 349,222
-------------------------------- ------------ ------------
Inter-segment sales are charged at prevailing market prices.
None of the revenue, operating profit or net operating assets
arising outside the United Kingdom are material to the Group.
The Group is not dependent upon a single or small number of
external customers.
2. Exceptional items
Exceptional items are separately disclosed by virtue of their
size or incidence to improve the understanding of the Group's
financial performance.
Unaudited Audited
Year ended Year ended
31 Mar 2017 31 Mar 2016
GBP'000 GBP'000
------------------------------------- ----------- -----------
Exceptional items:
- Profit on sale of national network - (44,486)
- Restructuring costs 7,271 4,130
- Regulatory matters 710 (2,845)
- Onerous lease costs - 2,315
Charged/(credited) to operating
profit 7,981 (40,886)
--------------------------------------- ----------- -----------
Our continued business transformation has resulted in the need
to restructure our business in order to provide the right number of
people with the right skills and bring together our activities
under a single brand. As a result, and in line with our accounting
policy, the Group incurred costs of GBP7.3 million (2016: GBP4.1
million) during the period. These costs include:
- GBP3.4 million of redundancy costs;
- GBP2.4 million of advisory and other costs;
- GBP1.0 million in relation to KCOM rebranding; and
- GBP0.5 million of costs supporting the system changes required
as part of our restructuring.
The Group also incurred GBP0.7 million in relation to regulatory
matters. As noted in our interim results announcement, we received
a provisional notification from Ofcom in October 2016, stating that
KCOM may have failed to comply fully with a required "General
Condition" between 2009 and 2015. Following representations in
response, Ofcom, in February, withdrew that provisional
notification. Ofcom has continued its investigation and issued a
revised provisional notification in June 2017, in response to which
we will make further representations, in order to reach a final
conclusion with Ofcom. The regulatory matters item represents a
provision for any potential liability in relation to this matter
and a credit resulting from a further settlement of claims in
relation to an industry wide regulatory ruling dating back to the
previous year (2016: GBP2.8 million credit).
Other exceptional items in the year ended 31 March 2016 relate
to:
- Profit on sale of the Group's national telecommunications
network (GBP44.5 million); and
- Onerous lease costs arising as a result of rationalisation of
the Group's property portfolio (GBP2.3 million).
The combined effect of these items is a credit of GBP1,596,000
(2016: charge of GBP16,520,000) in respect of current tax and
GBPNil (2016: credit of GBP8,343,000) in respect of deferred
tax.
The cash flow impact of exceptional items is GBP8.3million.
3. Finance costs
Unaudited Audited
Year ended Year ended
31 Mar 2017 31 Mar 2016
GBP'000 GBP'000
Finance costs 1,888 2,922
Retirement benefit obligation 375 954
Fair value gain on financial instruments - (819)
----------------------------------------- ------------ ------------
Charged to profit before tax 2,263 3,057
----------------------------------------- ------------ ------------
Notes to the unaudited financial information continued
4. Tax
The charge based on the profit for the year comprises:
Unaudited Audited
Year ended Year ended
31 Mar 2017 31 Mar 2016
GBP'000 GBP'000
UK corporation tax:
- current tax on profits for the year 3,889 10,569
- adjustment in respect of prior years (905) (314)
------------------------------------------------ ------------ ----------------
Total current tax 2,984 10,255
------------------------------------------------ ------------ ----------------
UK deferred tax:
Origination and reversal of timing differences
in respect of:
- profit for the year 1,356 7,128
- change in rate 672 -
- adjustment in respect of prior years 214 (224)
- charge in respect of retirement benefit
obligation 517 450
Total deferred tax 2,759 7,354
------------------------------------------------ ------------ ----------------
Total taxation charge for the year 5,743 17,609
------------------------------------------------ ------------ ----------------
Factors affecting tax charge for the year
Unaudited Audited
Year ended Year ended
1 Mar 2017 31 Mar 2016
GBP'000 GBP'000
Profit before taxation 30,505 88,743
-------------------------------------------- ----------- ----------------
Profit before taxation at the standard rate
of corporation tax in the UK of 20% (2016:
20%) 6,101 17,749
Effects of:
- income not subject to tax (339) -
- expenses not deductible for tax purposes - 398
- adjustments relating to prior year tax (691) (538)
- change in rate reflected in the deferred
tax asset 672 -
-------------------------------------------- ----------- ----------------
Total taxation charge for the year 5,743 17,609
-------------------------------------------- ----------- ----------------
5. Earnings per share
Unaudited Audited
Year ended Year ended
31 Mar 2017 31 Mar 2016
Weighted average number of shares No. No.
----------------------------------------------------- ----------- -----------
For basic earnings per share 510,384,583 509,543,003
Share options in issue 4,643,349 5,225,401
------------------------------------------------------- ----------- -----------
For diluted earnings per share 515,027,932 514,768,404
------------------------------------------------------- ----------- -----------
Earnings GBP'000 GBP'000
----------------------------------------------------- ----------- -----------
Profit attributable to equity holders of the company 24,762 71,134
------------------------------------------------------- ----------- -----------
Adjustments:
Exceptional items 7,981 (40,886)
Tax on exceptional items (1,596) 8,177
------------------------------------------------------- ----------- -----------
Adjusted profit attributable to equity holders
of the company 31,147 38,425
Earnings per share
Pence Pence
Basic 4.85 13.96
Diluted 4.81 13.82
Adjusted basic 6.10 7.54
Adjusted diluted 6.05 7.46
6. Dividends
Unaudited Audited
Year ended Year ended
31 Mar 2017 31 Mar 2016
GBP'000 GBP'000
---------------------------- ------------ ------------
Final dividend for the
year ended
31 March 2015 of 3.58
pence per share - 18,494
Interim dividend for the
year ended
31 March 2016 of 1.97
pence per share - 10,178
Final dividend for the
year ended 20,354 -
31 March 2016 of 3.94
pence per share
Interim dividend for the
year ended 10,332 -
31 March 2017 of 2.00
pence per share
Total 30,686 28,672
----------------------------- ------------ ------------
The proposed final dividend for the year ended 31 March 2017 is
4.00 pence per share amounting to a total dividend of
GBP20,664,000. In accordance with IAS 10 (Events after the balance
sheet date), dividends declared after the balance sheet date are
not recognised as a liability in this financial information.
7. Retirement benefit obligation
Reconciliation of funded status to balance sheet
Unaudited Audited
Year ended Year ended
31 Mar 2017 31 Mar
GBP'000 2016
GBP'000
Present value of defined benefit obligation (271,229) (227,538)
Fair value of plan assets 251,538 213,188
Deficit (19,691) (14,350)
----------------------------------------------- ------------- ------------
Principal financial assumptions
Unaudited Audited
Year ended Year ended
31 Mar 2017 31 Mar
2016
% %
RPI Inflation 3.15 2.95
CPI Inflation 2.15 1.95
Rate of increase to pensions in payment 2.20 2.00
Discount rate for scheme liabilities 2.50 3.45
----------------------------------------- ------------- ------------
8. Movement in net (debt)/funds
Unaudited Unaudited
Year ended Year ended
31 Mar 2017 31 Mar 2016
GBP'000 GBP'000
------------------------------------ ----------- -----------
Opening net funds/(debt) 7,412 (99,348)
Closing net (debt)/funds (42,433) 7,412
-------------------------------------- ----------- -----------
(Increase)/decrease in net debt in
the year (49,845) 106,760
-------------------------------------- ----------- -----------
Reconciliation of movement in the
year
Net cashflow from operations 28,571 80,373
Cash capital expenditure(1) (47,220) (31,255)
Proceeds on sale of property, plant
and equipment 68 90,000
Interest (1,257) (2,794)
Payment of loan issue costs (720) -
Dividends (30,686) (28,672)
Purchase of ordinary shares (1,778) (450)
Finance leases(2) 2,915 (53)
Other 262 (389)
-------------------------------------- ----------- -----------
(Increase)/decrease in net debt in
the year (49,845) 106,760
-------------------------------------- ----------- -----------
(1) For definition of cash capital expenditure see glossary
(2) Represents the movement in finance lease liabilities during
the year
Net (debt)/funds comprises:
Unaudited Audited
Year ended Year ended
31 Mar 2017 31 Mar 2016
GBP'000 GBP'000
------------------------------------- ----------- -----------
Cash and cash equivalents (including
bank overdrafts) 10,190 13,212
Bank loans (48,587) 1,151
Finance leases (4,036) (6,951)
Net (debt)/funds (42,433) 7,412
--------------------------------------- ----------- -----------
Bank facilities comprise a multi-currency revolving credit
facility of GBP180.0 million, provided by a group of five core
relationship banks. The facility matures in December 2021. The
Group considers that this facility will provide sufficient funding
to support the Group's growth. In addition, short-term flexibility
of funding is available under the
GBP10.0 million overdraft facility provided by the Group's
clearing bankers.
9. Basis of preparation and publication of unaudited results
General information
KCOM Group PLC is a company domiciled in the United Kingdom. The
Group has its primary listing on the London Stock Exchange.
Basis of preparation
The Group prepares its annual consolidated financial statements
in accordance with International Financial Reporting Standards
(IFRS) and International Financial Reporting Interpretations
Committee (IFRIC) interpretations endorsed by the European Union
(EU) and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS. The consolidated financial
information contained within this preliminary announcement is
unaudited and has been prepared under the historical cost
convention, as modified by the revaluation of financial assets and
financial liabilities (including derivative financial instruments)
at fair value through reserves. The financial information included
in this preliminary announcement does not include all the
disclosures required by IFRS or the Companies Act 2006 and
accordingly it does not itself comply with IFRS or the Companies
Act 2006.
The unaudited consolidated financial information in this report
has been prepared in accordance with the accounting policies
disclosed in the Group's 2016 Annual report and accounts, except as
disclosed in Note 10.
The financial information set out in this announcement does not
constitute the company's statutory accounts within the meaning of
Section 434 of the Companies Act 2006 for the years ended 31 March
2017 or 2016. The financial information for the year ended 31 March
2016 is derived from the statutory accounts for that year, which
have been delivered to the Registrar of Companies. The auditors'
report on those accounts was unqualified and did not contain a
statement under Section 498 of the Companies Act 2006. The
statutory accounts for the year ended 31 March 2017 will be
finalised on the basis of the financial information presented by
the Directors in this unaudited preliminary announcement and will
be delivered to the Registrar of Companies following the Annual
General Meeting.
The financial information contained within this preliminary
announcement was approved by the Board on
6 June 2017 and has been agreed with the Company's auditors for
release.
This preliminary announcement will be published on the Company's
website. The maintenance and integrity of the website is the
responsibility of the directors. The work carried out by the
auditors does not involve consideration of these matters.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Going concern basis
The Group meets its day-to-day working capital requirements
through its bank facilities. The Group's forecasts and projections,
taking account of reasonably possible changes in trading
performance, show that the Group should be able to operate within
the level of its current facilities. After making enquires, the
directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. The Group therefore continues to adopt the going concern
basis in preparing its consolidated financial statements.
10. Accounting policies
The accounting policies adopted are consistent with those
published in the Group's 2016 Annual report and accounts.
11. Principal risks and uncertainties
As with all businesses, the Group is affected by a number of
risks and uncertainties, some of which are beyond its control. The
key risks that we have identified will be disclosed within the
Annual report and accounts.
12. Related party transactions
The remuneration of the Directors who are key management
personnel of KCOM Group PLC will be disclosed in the audited part
of the Directors' Remuneration report in the Annual report and
accounts.
There are no other material related party transactions.
Signed by Order of the Board on 6 June 2017 by:
Glossary
Alternative Performance Measures
In response to the Guidelines on Alternative Performance
Measures (APMs) issued by the European Securities and Markets
Authority (ESMA), we have provided additional information on the
APMs used by the Group. The Directors use the APMs listed below as
they are critical to understanding the financial performance of the
Group. As they are not defined by IFRS, they may not be directly
comparable with other companies who use similar measures.
APM Definition Reconciliation to equivalent
IFRS measure of performance
------------------ ------------------------------------ -----------------------------
EBITDA Operating profit before finance A reconciliation of
costs, taxation, depreciation, this measure is provided
amortisation and exceptional in Note 1 of these
items results
------------------ ------------------------------------ -----------------------------
Contribution An equivalent measure to A reconciliation of
'EBITDA before exceptional this measure is provided
items' for each of the Group's in Note 1 of these
segments. results
------------------ ------------------------------------ -----------------------------
Net (debt)/ funds Net (debt)/ funds is cash A reconciliation of
and cash equivalents, bank this measure is provided
overdrafts, finance leases in Note 8 of these
(current and non-current) results
and bank loans
------------------ ------------------------------------ -----------------------------
ARPU Average revenue per user. As ARPU values are
This measure is specifically not disclosed within
used when analysing the consumer these financial statements
performance within the HEY a reconciliation is
segment not deemed necessary.
------------------ ------------------------------------ -----------------------------
Cash capital Cash outflow for the purchase Reported in the consolidated
expenditure of 'property, plant and equipment' cash flow: Purchase
and 'other intangible assets' of property, plant
and equipment (GBP28.4m)
plus Purchase of intangible
assets (GBP15.8m) plus
Capital element of
finance lease repayments
(GBP3.0m)
------------------ ------------------------------------ -----------------------------
(1) Refer glossary
This information is provided by RNS
The company news service from the London Stock Exchange
END
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