SPECTRUM INTERACTIVE PLC

Final Results for the Year Ended 30 June 2005

 

Spectrum Interactive plc, (LSE:SIN), a leading operator of payphones and internet terminals in the UK and Germany, announces its maiden final results for the year ended 30 June 2005.

 

Financial highlights:

·          Underlying group turnover rose to £17.0m from £15.9m

·          Underlying gross profit margins maintained at 47%

·          Profit after tax £2.46m

·          Basic earnings per share of 9.81p per share

·          Successful flotation on AIM: raised £5.5m used to restructure company; net debt reduced to £5.1m

·          Strong balance sheet: £2.0m cash at year end

·          Dividend of 1.09p per share

 

Operational highlights:

·          Company has delivered on IPO strategy

·          Internet business growing rapidly now with over 1,200 units from under 200 in June 2004

·          Spectrum now operates over 8,900 payphones up 14%

·          New products introduced including integrated ATM with payphone & instant digital photo kiosks

·          Acquisition of IPN assets in August 2004: added 750 new payphones to the company’s asset base

·          Acquisition of UK Explorer - a leading operator of internet terminals in airports and hotels -  in February 2005, making Spectrum one of the largest independent operators of internet terminals in Europe. 

 

Commenting on the results, Lord Young of Graffham, Chairman, said:

“These have been momentous months for Spectrum Interactive. Having listed on AIM, we have met  our pre-IPO expectations and have delivered growth in UK and Germany. Furthermore, we have not only integrated key acquisitions but also continue to grow organically as well. Given the full year effect of the two acquisitions made in 2004-05, and the company’s strategy for organic growth, I am confident that 2005-06 will be another strong year for Spectrum Interactive.”

 

Enquiries

Spectrum Interactive plc tel:        Mark Lewarne Chief Executive Officer             Philip Congdon Chief Financial Officer Daniel Gray Head of Group Marketing & Communications

Citigate Dewe Rogerson tel: Sarah Gestetner                                                          George Cazenove

CHAIRMAN’S STATEMENT

Introduction

I am delighted to report our maiden results following the company’s admission to AIM in April 2005.  It has been a year of tremendous progress with both our UK and German businesses expanding their core payphone estates and the acquisition of UK Explorer in February 2005 making Spectrum one of the largest independent operators of internet terminals in Europe.  We have also moved into two new exciting product areas in Automated Teller Machines (ATMs) and Digital Photo Printing and plan to introduce other complementary digital-based services in the forthcoming year.  

Spectrum has over 650 customers in the UK and Germany and operates from three offices in Hemel Hempstead, Hamburg and Central London.  We manage over 8,900 payphones and 1,200 internet terminals.  The group employs 120 people.    

 

Financial review

The financial performance for 2004-5 was impressive, and we have met our IPO expectations.  Overall it was a year of growth with turnover from our underlying businesses rising from £15.9m to £17.0m*, which includes £0.9m being derived from the acquisition of UK Explorer.  

On a proforma basis, adding a full year’s revenue from UK Explorer, which we acquired in February 2005, the turnover would have been £18.0m*, a 6% increase.    

Reported turnover for the group increased from £0.5m to £17.0m as 2005 is the first full year of consolidating the results of NWP Spectrum Holdings.

Gross profit margins were 47%, slightly up on the prior year.  With the Internet business showing margins in excess of 50%, group margins should improve further as the Internet business increases its share of group turnover.

Profit after tax was £2.46m, or 8.9p per share on a fully diluted basis, with a tax credit due to capital allowances carried forward from prior years, a position we believe can be maintained for the next two years.

The business is now beginning to leverage its real estate assets and site owner relationships, the former via strategic partnerships and the latter via the introduction of new products and services, and it is this strategy that will drive forward the growth and profitability of the company. 

In April 2005 the company successfully floated on AIM raising net proceeds of £5.5m, the bulk of which was used to restructure the finances of the company.  The company’s gearing has been significantly improved by the IPO with debt reduced by £4.4m to £7.1m and with year-end cash of £2.0m following a year of heavy capital investment.  The company intends to use its strong cashflow to generate further organic growth and undertake strategic acquisitions, underpinned by a commitment to return a reasonable portion of profits to shareholders.  To this end, I am pleased to report that due to the strong financial performance of the last year the Board will be recommending a maiden final dividend of 1.09p per share payable on 16 December 2005 to shareholders on the register on 2 December 2005.

Going forward, it is the group’s intention to pay a dividend in the region of 40% of profits after tax. The dividend this year is 30% of half a year’s profits after tax, reflecting both the heavy capital expenditure during the year and also the fact that the group only went public midway through the second half of the year.

 

Acquisitions

In August 2004, the company purchased 1,000 Public Call Box sites from Interphone Public Networks Limited (IPN).  The IPN sites had suffered from a considerable lack of investment and poor maintenance, and as a result we have undertaken a large capital investment programme to replace the IPN estate, in the process reducing the number of units to 750.  This initiative has been well received by local authorities and residents alike as it has both upgraded the street scene and re-established a vital public service.   Due to traffic and other public highway restrictions, the project has been slower to implement than originally intended, but all works should be completed by the end of September 2005.   

The February 2005 acquisition of UK Explorer, a leading operator of Internet terminals in airports and hotels, has proven to be a significant step forward for the company.   UK Explorer were in the process of rolling out a large contract with BAA, the airports group, and were looking to partner with a larger group who could provide operational support and fund further growth.  As a result, our Internet business has moved strongly into profitability during 2004-5.  In the next year we plan to add several hundred Internet units in the UK and Germany and a string of new web-based innovations to our internet desk product which we believe will significantly enhance the customer experience and increase per unit revenues.

 

Outlook

Growth prospects for 2005-6 are good, driven in particular by the expansion of the Internet business. We have successfully integrated the UK Explorer team and moved into new offices on Baker Street  in Central London.  We expect this business to grow significantly in 2005-6 as we add several hundred new units, making us one of the largest public internet operators in Europe with around 1,500 fixed and WiFi units in service.    

On the payphone side of the business we expect to receive the full-year benefit of the IPN asset acquisition.  Despite the slight delay in the IPN roll-out, this will soon be completed and will generate additional traditional payphone turnover as well as increasing other revenue streams such as advertising and ATMs.  

Our partnerships with ATM operators are expected to fuel growth in profitability.  We expect around 100 kiosks to be deployed by June 2006. The first installations took place in August 2005.  

In Germany we anticipate that growth will come from further expansion of our core payphone business, the expansion of Internet terminals in our airport and travel base and other partnerships that are currently under negotiation based upon successful UK models.  

Further growth is expected to be realised by targeting specific acquisitions in both territories, as well as selectively considering new territories.  In particular we believe Spectrum can be a key consolidator in the Internet area. 

Finally, I would like to extend my thanks to the management and staff for their wholly positive contribution during this exciting year.  They are the steadfast proponents of our corporate objectives of providing high quality, innovative communications services to our site partners and customers and delivering value to our shareholders. 

 

 

 

Lord Young of Graffham

Chairman

 

* For further explanation of the proforma amounts the additional unaudited information.

CONSOLIDATED PROFIT AND LOSS ACCOUNT			2005 £	2004 £
TURNOVER
Existing operations			16,053,271	523,100
Acquisitions			913,856	-
			16,967,127	523,100
Cost of sales			(8,970,108)	(260,275)
Gross profit			7,997,019	262,825
Administrative expenses			(5,359,202)	(417,739)
OPERATING PROFIT (LOSS)
Existing operations			2,450,411	(154,914)
Acquisitions			187,406	-
			2,637,817	(154,914)
Share of operating profit of associate			-	654,189
Share of associate’s interest receivable and similar income			-	29,131
Interest receivable and similar income			68,883	-
Interest payable and similar charges			(979,877)	(157,085)
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION			1,726,823	371,321
Tax on profit on ordinary activities			733,738	(16,533)
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION			2,460,561	354,788
Share of associate’s equity minority interest			-	1,735
Minority interest			(5,620)	-
PROFIT FOR THE FINANCIAL YEAR			2,454,941	356,523
Proposed dividends			(353,676)	-
Share of associate’s dividends proposed on non equity shares			-	(5,727)
RETAINED PROFIT FOR THE FINANCIAL YEAR			2,101,265	350,796
Earnings per share - basic			9.81p	4.45p
Earnings per share - diluted			8.90p	4.38p

 

CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES		2005 £	2004 £
Profit for the financial year		2,454,941	350,796
Currency translation differences on foreign currency net investments		52,807	(7,231)
Total recognised gains and losses recognised since last annual report		2,507,748	343,565

 

BALANCE SHEET
				2005 £	2004 £
FIXED ASSETS
Intangible assets				7,951,652	6,346,302
Tangible assets				6,236,080	3,906,469
				14,187,732	10,252,771
CURRENT ASSETS
Stocks - finished goods				10,714	6,575
Debtors				3,225,247	1,821,517
Cash at bank and in hand				1,980,803	3,482,706
				5,216,764	5,310,798
CREDITORS: amounts falling due   within one year				(4,447,037)	(3,525,217)
NET CURRENT ASSETS				769,727	1,785,581
TOTAL ASSETS LESS CURRENT LIABILITIES				14,957,459	12,038,352
CREDITORS: amounts falling due   after more than one year				(6,134,313)	(10,889,174)
MINORITY INTERESTS				-	(8,176)
				8,823,146	1,141,002
CAPITAL AND RESERVES
Called up share capital				339,035	340
Share premium account Own shares				5,459,283 (14,561)	- -
Profit and loss account				3,039,389	1,140,662
EQUITY SHAREHOLDERS' FUNDS				8,823,146	1,141,002

 

CONSOLIDATED CASH FLOW STATEMENT				2005 £	2004 £
Net cash inflow (outflow) from operating activities				3,500,672	(134,582)
Returns on investments and servicing of finance
Interest paid				(979,877)	(14,919)
Interest received				68,883	-
Net cash outflow from returns on investments and servicing of finance				(910,994)	(14,919)
Taxation
Corporation tax				-	-
Capital expenditure and financial investment
Purchase of tangible fixed assets				(2,951,888)	-
Receipts from sale of fixed assets				85,512	-
Net cash outflow from capital expenditure and financial investment				(2,866,376)	-
Acquisitions and disposals
Purchase of subsidiary and trades				(2,498,688)	(1,840,386)
Cash acquired with business				177,202	4,546,952
Net cash (outflow) inflow from acquisitions and disposals				(2,321,486)	2,706,566
Net cash (outflow) inflow before financing				(2,598,184)	2,557,065
Financing
Repayments of subsidiary’s preference shares				-	(4,082,368)
Issue of shares				5,542,632	240
New borrowings				1,500,000	5,000,000
Repayment of borrowings				(5,938,581)	-
Net cash inflow from financing				1,104,051	917,872
(Decrease) increase in cash				(1,494,133)	3,474,937