RNS Number:1315M
Atlantic Telecom Group PLC
13 June 2000
ATLANTIC TELECOM GROUP PLC
Strategy develops to target SMEs
Atlantic Telecom Group PLC, a leading European broadband telecommunications
provider, reports its preliminary results for the year to 31 March 2000.
Highlights for the year to 31 March
- Overall revenues rise over 43% to #21.3 million, with telecoms revenues
rising over 63% to #15.2 million.
- Gross profit jumps over 65% to #9.6 million.
- Directly connected customer base nearly doubled to 24,394, representing
51,959 lines, compared to 12,478 customers and 26,004 lines at 31 March
1999.
- Strategic partnership completed with Marconi.
- Successfully raised nearly #350 million for network expansion (#150 million
via an equity issue #197 million through high yield issue).
Key activities since the year end
- Acquisition of First Telecom Group for #350 million, giving Atlantic access
to over 300,000 SME and residential customers in UK, Germany and France and
a leading position in DSL technology.
- Agreement with Metromedia Fiber Network to swap access to 16 European city
networks with capacity on Atlantic's national network.
- Launch of high speed service and atlantic-e.com, an ISP service.
- Strategy and capital expenditure to be focused on SME market.
- New management structure outlined.
Graham J Duncan, Executive Chairman of Atlantic Telecom, commented:
"This year has been another of immense progress for the Group, in which we
started our transformation into a leading European broadband integrated
communications provider, offering customers in the UK, Germany and France a
portfolio of services using the best of fibre, fixed wireless and digital
subscriber line ("DSL") technologies. We look forward to expanding our
network reach both in the UK and Europe during this financial year and intend
to deliver the very best portfolio of services to our expanding customer
base, whether they be SMEs or residential customers."
For further information please contact:
Graham J Duncan, Executive Chairman, Atlantic Telecom Group PLC
Tel: 0171 638 9571 (until 4.30pm on 13 June)
Tel: 01224 454000 (thereafter)
Patrick Toyne Sewell/Sara Thomas, Citigate Dewe Rogerson
Tel: 020 7638 9571
CHAIRMAN'S REPORT
SUMMARY
This year has been another of immense progress for the Group, in which we
started our transformation into a leading European broadband integrated
communications provider, offering customers in the UK, Germany and France a
portfolio of services using the best of fibre, fixed wireless and digital
subscriber line ("DSL") technologies.
The transformation began in early December when we successfully completed a
#150 million equity issue and were delighted to enter into a strategic
partnership with Marconi plc, one of the UK's biggest companies and a leader
in the development of new telecommunications technologies. Among other
things, this partnership delivered to us the means to develop a state-of-the-
art UK national fibre network and access to Marconi's expertise and
resources.
The involvement of Marconi allowed us to bring our high-speed, two-way 2.4
Mbs service to market and in April this year this technology obtained all its
final regulatory approvals for deployment by Atlantic anywhere within our
licensed areas. Our own ISP service, atlantic-e.com, was launched alongside
this high-speed service, within the timescales originally outlined. It
offers portals targeted specifically towards residential and SME customers,
called atlantic-live.com and atlantic-info.com respectively. The innovative
bundled pricing package we have created around these products gives our
customers always-on, unmetered high-speed Internet access as well as
unmetered UK fixed voice calls, a first in the UK telecommunications
industry.
In February this year, we also completed an important issue of high yield
securities on the capital markets, raising #197 million. Atlantic, like all
alternative telecommunication companies, will continue to need access to the
capital markets over time in order to advance its plans. However, we are in
the enviable position of having approximately #250 million of cash at our
disposal at the year-end and so will be able to expand the geographical reach
of our networks without needing to return to the markets in the medium term.
We will continue to ensure our capital expenditure remains highly focused,
as has been our style and a key strength in the Group's expansion to date.
Along with pro-forma net assets of over #600 million, following completion of
the acquisition of First Telecom, we believe we are in a very strong position
going forward.
We have now completed our Scottish network build, subject only to in-filling
gaps in our coverage over time and will be launching services in Manchester
in July. Some aspects of the network build in Manchester have been
accelerated by leasing duct space from Norweb, the regional electricity
company, and we were particularly delighted when we were named Communications
Partner to the 2002 Commonwealth Games in Manchester, a very significant win
for Atlantic which was announced on 5 April by the Prime Minister. This
prestigious contract, which was won against competition from major national
telecoms providers, gives us the telecommunications rights to all fixed and
mobile traffic associated with the Games as well as allowing Atlantic to
design and host the official web site for the Games.
Following the year-end, in late April 2000, we announced the significant
acquisition of First Telecom Group plc in an all share transaction involving
the issue of up to 68 million new ordinary shares in Atlantic. The
transaction closed on 8 June 2000, valuing First Telecom at #350 million.
First Telecom provides telephony and Internet services to over 11,000 small
and medium sized businesses ("SMEs") and over 290,000 residential customers
in UK, Germany and France, and it will be launching directly connected
services in Frankfurt during July using DSL technologies. The expertise
gained from the early adoption of this technology in Germany, which is the
largest telecommunications market in Europe, will stand us in good stead when
other European countries, including the UK, open their local telephone
networks to wider competition.
Also in April, the Group reached an in-principle agreement with Metromedia
Fiber Network BV ("MFN") and AboveNet UK Ltd under which we will receive dark
fibre throughout the 16 European city networks currently planned or under
construction by MFN. These networks include London, Paris and Amsterdam as
well as eight major cities in Germany and a number of other key European
cities. In exchange the Group will provide MFN with two dedicated
wavelengths of bandwidth capacity on our UK national network. The ability to
gain access to metropolitan fibre, particularly in Germany, will greatly
assist our ability to role out our DSL plans.
RESULTS
Total revenue for the Group in the year to 31 March 2000 was #21.3 million,
an increase of 43% over the previous year. Revenue from telecommunications
services, both direct and indirect, increased by 64% during the year as a
result of the continued expansion of the business and residential customer
base.
The overall gross margin for the year was 45% compared to 39% for the
previous year reflecting a move to higher margin telephony business compared
to the margin achieved in the cable television business.
Our operating losses widened to #28.4 million as we expanded our networks and
customer base. As we continue to expand the business, our operating losses
will continue to widen until we build our revenues and gross margins to
levels that can sustain our operating costs. This pattern is normal and
planned for in our forward projections.
Our network coverage expanded by 30% during the year and we increased our
employee numbers from an average of 324 last year to 495 this year.
Our balance sheet has been transformed by the transactions completed during
the financial year, particularly the Marconi partnership and fund raising.
Net assets have grown from #53 million at the end of last year to #315
million at 31 March 2000. With the addition of First Telecom after the year-
end, our pro-forma net assets increased to in excess of #600 million at the
completion of that transaction.
First Telecom had a turnover of #59.9 million for the year ended 31 December
1999 and had an operating loss of #33.6 million for the year ended 31
December 1999.
STRATEGY
Atlantic's strategy remains focused on accessing a niche customer base,
although this will be targeted more closely at small and medium sized
business customers. This emphasis allows us to concentrate our resources to
ensure that what we deliver to customers is packaged, priced and delivered in
a way which satisfies their needs both today and in the future. It is only
through having a direct connection from our infrastructure to the customers
premises that we are able to deliver the full service package and this direct
connection can be achieved by using a last mile wireless link, by leasing the
incumbent operator's infrastructure or by building underground
infrastructure. Over time, SME customers will increasingly use electronic
means to do business and we intend to continue to develop our systems and
services to ensure that Atlantic is the company of choice in this market.
We intend to capitalise on our expertise across a number of metropolitan
areas both in the United Kingdom and in Western Europe and will focus the
future build of our wireless access networks, which we have successfully
deployed in Scotland, on the key SME marketplaces in the UK. At the end of
March, we were issued with all our wireless licences in the UK and our
national network will be fully activated by Christmas 2000. It is therefore
our intention to build SME focused networks across all our licensed areas
while reducing, at least in the medium term, the amount of capital that we
commit to accessing the residential market. This changed emphasis will allow
us to secure a meaningful and commercial first mover advantage in the niche
SME market, leveraging off the additional benefits our high speed access
technologies bring to SMEs, particularly in the expanding world of e-
commerce.
MANAGEMENT TEAM
The increased size and scope of the Group's operations has meant we have had
to significantly strengthen the management team to maintain our focus on our
key existing markets while being able to exploit new ones. I am delighted
that we have brought Mark Daeche, one of the founders of the First Telecom
Group, on to our main Board as an Executive Director with responsibility for
special projects, particularly DSL, and Paul Salem, a Managing Director of
Providence Equity Partners Ltd, as a Non-Executive. Their knowledge of First
Telecom's markets, and in particular the German DSL market, will be very
valuable as we move forward. I am also delighted to announce that we have
appointed John Maxwell as a Non-Executive Deputy Chairman of the Group,
effective today. John has enormous experience in business including roles as
Corporate Development Director of Prudential Corporation plc and as Director
General of the Automobile Association and will greatly strengthen our team.
At the same time, Marconi have now exercised their right to appoint a
representative to the Board, and I am delighted to welcome Damian Reid,
Senior Vice-President, Corporate Finance at Marconi, as an additional Non-
Executive Director. The restructuring of the Board is completed with the
departure of Nicholas Berry from the Board, so that he can pursue his many
other business interests. Nicholas has been a Non-Executive Director of the
Group since the Company floated in January 1995 and his experience and wise
words have always been appreciated. We all wish him well for the future.
Importantly, we have now completed the integration of our core management
teams following the creation of the enlarged Atlantic. As from today, we
have put in place a Management Board consisting of 10 members, excluding our
Executive Directors, made up of six senior executives from Atlantic and four
from First Telecom. Their expertise covers all the main disciplines required
to build the business in the UK and Europe and control its development in the
careful style that is our strength. These vastly experienced individuals
have the capabilities to build the Group into a principal supplier of
telecommunication services to the SME market across Europe, and all look
forward to the challenge.
DIRECTLY CONNECTED SERVICES
During the year, we nearly doubled our directly connected customers and
lines, with our directly connected customer base at 24,394 at 31 March 2000,
representing 51,959 lines. Importantly the penetration of our SME services
reached 4.7% at 31 March, ahead of our expectations in this important area.
We added 32 base stations during the year and with over 735,000 premises now
passed by our four Scottish networks, we have completed what we set out to
achieve in Scotland. Our first network in England is under construction in
Manchester, where our new switch is currently being commissioned and we will
launch services in parts of Manchester on schedule in July.
Our high-speed access technology is now installed on a number of base
stations in Central Glasgow. The rest of the base stations in Scotland will
be fitted with the technology during this financial year and all new build
will incorporate the high-speed technology as a matter of course.
Our average revenues per customer continue to hold up well. In the important
SME market, the average was #86.95 per month, an increase of 4.3% over the
last year while our residential revenue averaged #38.44 per month an increase
of 4.7% on last year. Churn also remained subdued at less than 17% per annum
in both markets.
INDIRECTLY CONNECTED SERVICES
Our service package which currently uses BT s access network continues to
move forward. At 31 March 2000 we had 25,870 customers with 46,313 lines, an
increase of 17,302 customers over last year, or over 200%, an excellent
performance. The average revenues vary with mix and remain in line with our
expectations. The activation of our national network in November, coupled
with the addition of First Telecom's significant indirect access base will
give us enhanced margins and scale in this part of our business. We intend
to enhance the service package available to the enlarged base with the
addition of our existing ISP and mobile services while we will also look to
resell BT's ADSL service on an indirect basis, as part of our bundled package
offering.
CABLE TELEVISION
Our cable television service in the City of Aberdeen has had a difficult
year, although not unexpected, in the face of significant competition from
the digital services of Sky and On-Digital and ended the year with 16,074
customers, a decline of 2,145 compared to last year. The average revenue per
customer has averaged #28.71 per month over the year, a marginal decline of
#1.05 from last year. This part of our business, which contributed 28% to
our annual turnover this year, will become relatively insignificant following
the First Telecom transaction. The Board has decided it cannot economically
justify the cost of upgrading the network for digital transmission, which
would cost up to #15 million or nearly #1,000 for every customer on the
system. We therefore plan to further integrate the analogue service into our
telephone packages in Aberdeen to add value to the telephone offering.
SHARE OPTION SCHEMES
With a much-expanded operation in three countries following the acquisition
of First Telecom, it is important to recruit and retain top quality staff who
share our vision and are capable of executing on that vision. We intend to
put proposals to shareholders at the AGM which will expand our limited
existing share option schemes to provide incentives for all our staff, who
have done so much to ensure our transformation has gone so smoothly, as well
as expanded terms for more senior staff. The new schemes will, of course,
comply with best practice and relevant guidelines.
OUTLOOK
The telecommunications world is characterised by change. Our focus is now to
serve an SME customer base over a wide geographic area using state-of-the art
technologies. Consolidating the First Telecom results for the year ended 31
December 1999 with Atlantic's for the year to 31 March 2000, gives us pro-
forma consolidated historical revenues of #81 million, and pro-forma
consolidated net assets of over #600 million. This is a fundamentally
changed position compared to last year and one which gives us an excellent
platform to take the Group further. We look forward to expanding our network
reach both in the UK and Europe during this financial year and intend to
deliver the very best portfolio of services to our expanding customer base
whether they be SMEs or residential customers. As always, we will remain
opportunistic in this highly dynamic industry in order to continue to deliver
excellent shareholder value.
GRAHAM J DUNCAN
Executive Chairman
13 June 2000
CONSOLIDATED SUMMARISED PROFIT AND LOSS ACCOUNT
For the year ended 31 March 2000
Note 2000 1999
# 000 # 000
Turnover 21,307 14,924
---------- ---------
Operating
costs
Ongoing (49,753) (29,647)
Exceptional - (1,121)
---------- ---------
(49,753) (30,768)
---------- ---------
Operating
Loss (28,446) (15,844)
Net interest
payable and
similar charges (4,931) (419)
---------- ---------
Loss on
ordinary
activities
before taxation (33,377) (16,263)
Tax on loss
on ordinary
activities 2 - -
---------- ---------
Retained loss
for the
financial year (33,377) (16,263)
========== =========
Loss per share
- basic and
diluted 3 (31.32)p (22.50)p
========== =========
There were no recognised gains or losses other than the loss for the
financial year.
CONSOLIDATED SUMMARISED BALANCE SHEET
As at 31 March 2000
2000 1999
# 000 # 000
Fixed assets
Intangible
assets 3,754 3,718
Tangible
assets 203,101 56,022
Investments 855 -
---------- ---------
207,710 59,740
---------- ---------
Current assets
Stocks 4,139 6,183
Debtors
Amounts falling
due after more
than one year 10,435 8,600
Debtors
Amounts falling
due within
one year 13,473 6,286
Investments 48,701 -
Cash at bank
and in hand 263,226 5,680
---------- ---------
339,973 26,749
Creditors
Amounts falling
due within
one year (35,070) (25,006)
---------- ---------
Net current assets 304,903 1,743
---------- ---------
Total assets
less current
liabilities 512,613 61,483
Creditors
Amounts falling
due after
more than
one year (197,772) (8,389)
---------- ---------
314,841 53,094
========== =========
Capital and
reserves
Called up
share capital 38,430 21,150
Share premium
account 328,639 61,619
Other reserve 10,690 -
Profit and
loss account (62,918) (29,675)
---------- ---------
Shareholders' funds 314,841 53,094
========== =========
CONSOLIDATED SUMMARISED CASH FLOW STATEMENT
For the year ended 31 March 2000
Note 2000 1999
# 000 # 000
Reconciliation of
operating loss
to net cash
outflow from
operating
activities
Operating loss
from continuing
activities (28,446) (15,844)
Depreciation and
amortisation 7,439 4,309
Amortisation
of lease
prepayment 165 165
Exchange gain 38 -
Network lease
prepayments (2,000) (2,000)
Decrease/
(increase)
in stock 2,094 (5,468)
Increase
in debtors (1,935) (961)
Increase
in creditors 2,984 10,146
Non-cash
consideration
for consultancy (415) -
Gain on
disposal of
tangible
fixed assets (27) (41)
---------- ---------
Net cash
outflow from
operating
activities (20,103) (9,694)
---------- ---------
Cash Flow
Statement
Net cash
outflow from
operating
activities (20,103) (9,694)
Returns on
investments and
servicing of
finance (9,146) (419)
Capital
expenditure
and financial
investment (17,818) (25,904)
Acquisitions (283) -
Management
of liquid
resources 4 (103,885) -
Financing 352,965 43,019
---------- ---------
Increase
in cash 4 201,730 7,002
========== =========
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the year ended 31 March 2000
2000 1999
# 000 # 000
Loss for the
financial year (33,377) (16,263)
Issue of shares
net of expenses 284,434 47,286
Issue of warrants 10,690 -
---------- ---------
Net increase
in shareholders
funds 261,747 31,023
Shareholders
funds at
1 April 1999 53,094 22,071
---------- ---------
Shareholders
funds at
31 March 2000 314,841 53,094
========== =========
NOTES TO THE PRELIMINARY ANNOUNCEMENT
For the year ended 31 March 2000
1. BASIS OF PREPARATION
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards.
The principal accounting policies of the Group have remained unchanged from
the previous year.
2. TAX ON LOSS ON ORDINARY ACTIVITIES
There is no tax charge for the year due to trading losses.
3. LOSS PER SHARE
The loss per share is based on the loss attributable to the Ordinary
Shareholders of #33,377,000 (31 March 1999 - #16,263,000) and on weighted
average number of Ordinary Shares in issue during the period of 106,559,708
(31 March 1999 - 72,273,690).
At 31 March 2000 outstanding warrants and share options were in existence.
The shares that would be issued in respect of these warrants are anti-
dilutive as their issue would decrease loss per share.
4. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS / (DEBT)
2000 1999
# 000 # 000
Increase in
cash in
the period 201,730 7,002
Cash outflow
from movement
in liquid
resources 103,885 -
Cash (inflow)/
outflow from
movement in debt (177,042) 478
Cash outflow
from lease
financing 5,068 2,521
---------- ---------
Change in
net debt
resulting from
cash flows 133,641 10,001
Inception of
finance leases (18,991) (4,512)
Exchange
differences (38) -
Acquisitions (12) -
Other non-cash
items (335) -
---------- ---------
Movement in
net funds/(debt)
in the year 114,265 5,489
Net debt at
1 April 1999 (7,424) (12,913)
---------- ---------
Net funds/(debt)
at 31 March 2000 106,841 (7,424)
========== =========
5. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information set out in this preliminary announcement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985.
The summarised balance sheet at 31 March 2000 and the summarised profit and
loss account, summarised cash flow statement and associated notes for the
year then ended have been extracted from the Group's 31 March 2000 statutory
financial statements upon which the auditors opinion is unqualified and does
not include any statement under Section 237 of the Companies Act 1985.
6. POST BALANCE SHEET EVENT
On 27 April 2000 the Board announced that it had agreed terms for the
acquisition of First Telecom. This transaction was approved at the E.G.M on
7 June 2000. The Company issued up to 67,973,856 new ordinary shares
(representing 29.7 per cent. of the fully-diluted share capital of the
Company) to the Vendors, in consideration for 100% of the share capital of
First Telecom Group plc.
END
FR SFDFAESSSESM
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