RNS Number:9722U
Atlantic Telecom Group PLC
30 November 2000
ATLANTIC TELECOM GROUP PLC
RESULTS FOR SIX MONTHS ENDED 30 SEPTEMBER 2000
UK NATIONAL FIBRE NETWORK LIVE FROM TODAY
Atlantic Telecom Group PLC, a leading European broadband telecoms provider,
today announces its results for the six months ended 30 September 2000.
Financial key points
* Overall revenue increases threefold to #32m including First Telecom
(1999: #10.2m), with underlying revenue growth of 20%.
* Six-fold increase in net assets - excluding goodwill - to #237m (1999:
#40m)
* Approximately #200m available cash at bank plus #36m of escrowed cash for
interest payments
* additional unused vendor finance of around #100m from Nokia and Marconi
* Fully funded for rollout of UK fixed wireless and German DSL networks as
well as partial Dutch DSL roll out
* EBITDA remains in line with expectations with a loss of #27.6m (1999:
loss of #9.3m)
Operational highlights
* Full integration of First Telecom completed
* Strategy developed to target SMEs - maximising revenue, reducing capital
expenditure
* Vodafone awards UK fixed line contract to Atlantic
Network rollout - ahead of schedule
* UK national network lit today
* German SDSL services rolled out ahead of schedule - Dusseldorf launched
today
* Acquisition of 65% stake in DSL operator Telepartner Plus secures
first-mover advantage in Holland
* 13 partner ISPs signed up in Germany
* UK fixed wireless services launched in Manchester
Commenting on the results, Executive Chairman Graham J Duncan said:
"These results are a reflection of the transformation that has taken place in
the Group over the past year, taking it from a local loop operator in four
Scottish cities to a pan-European broadband group serving over 400,000
customers across the UK, Germany and France.
The sharp rise in turnover is the result of our acquisition of First Telecom,
as is the increase in the retained loss figures, which are indicative of the
speed and scale of our investment in broadband networks and technology.
"In a market where first-mover advantage is crucial our acquisition of First
Telecom and subsequent investment in our European rollout has placed Atlantic
in an enviable position. Atlantic's European rollout is significantly ahead
of schedule. In Germany, Europe's largest telecommunications market, we
estimate that a competitor starting today would take around 10 years to match
the position currently enjoyed by Atlantic.
"In addition, opportunistic deals such as our recent contract to provide
Vodafone's new indirect service will maximise the benefit of Atlantic's
infrastructure in advance of building our retail, directly connected services.
"It is this level of investment, coupled with our trademark opportunistic
approach which have created the opportunities and advantages now facing the
Group, and we will continue to invest to press home these advantages in line
with the business plan. I am particularly pleased that Atlantic's national
broadband network has gone live today, one month ahead of schedule and we
expect to start to see revenue and cost benefits from this as early as the
first quarter of 2001.
"In a volatile market, I am satisfied that the Group is continuing to operate
consistently within its plans, and I am pleased that we have exceeded
expectations in many areas.
For further information contact:
Graham J Duncan,
Executive Chairman, Atlantic Telecom 020 7638 9571 (today only)
01224 454000 (thereafter)
Susy Atkinson,
Corporate Affairs Manager, Atlantic Telecom 07808 397374
Patrick Toyne Sewell/Sara Thomas,
Citigate Dewe Rogerson 020 7638 9571
CHAIRMAN'S STATEMENT
REVIEW
The half-year has been one of significant operating progress for the Group.
We have also seen considerable corporate activity with three acquisitions
during the period, including the #350 million acquisition of First Telecom
plc, which concluded in early June. Highlights for the period include:
* Turnover increases threefold to #32m (1999: #10.2m)
* Approximately #200m of cash available plus #36m to cover interest on
high yield debt
* Unused vendor finance of approximately #100m to fund future capital
requirements
* Announcement today of launch of UK national network
* Network roll out in Germany materially ahead of schedule with 325 central
offices equipped by 31 December
* Award of Vodafone fixed line contract
* Continued focus on controlled growth allowing us to develop our plans on a
modular fully funded basis
Since April sentiment has turned against the telecommunications sector on a
worldwide basis and this has significantly affected our share and bond prices.
Many of the industry-wide concerns are associated with the viability of
certain business models, the time to profitability and the need for further
funding.
We remain very active at promoting Atlantic to as wide an audience as possible
as it is our belief that the advantages of operating local access networks,
where one controls the customer relationship and can therefore provide a
packaged bundled solution to customers, will be seen as an important strength
going forward. We firmly believe that this market opportunity has not
diminished in any way, notwithstanding capital market concerns.
Atlantic's strategy, to be the leading European provider of broadband local
loop integrated communication services to SMEs, has taken a significant step
forward in the period with the acquisition of First Telecom. First Telecom
had established a significant first mover advantage in Germany in establishing
a broadband platform to exploit its established relationships with SMEs. In
late June, we launched broadband data services in Frankfurt using digital
subscriber line technologies ('DSL'). We believe the faster we build networks
the greater the opportunity to build the business.
At the end of June we had DSL technology installed in 7 central offices (local
telephone exchanges) in Frankfurt. By 30 September this had increased to 97
with commercial services now also being offered in Berlin, Hamburg and Munich
with service launched in Dusseldorf today. The build is progressing very
rapidly and materially better than we expected, with five further metropolitan
areas to launch before the calendar year end. We have now lifted our
expectations for the end of December to around 325 installed exchanges, a very
material improvement on our previous expectation of around 250. Moreover, we
now expect the German build to approximately 750 exchanges to be completed by
the summer of next year, fully six months ahead of plan. Our aim is to build
an addressable footprint of 1.25 million potential small and medium sized
business ('SME') customers in this important market.
Also during the half-year we launched services in Manchester, using the FRA
wireless technologies we have been offering in Scotland since late 1996. Our
network build is now focused on areas with the highest density of SMEs and we
have spent some time redesigning the network to address the deepest
concentration of SMEs while expanding the geographic reach in the north of
England. We are now progressing well with the redesigned build and expect to
see an increase in installed base stations in the quarter to 31 December.
We have also concluded the acquisition of a majority stake in Telepartner
Plus BV, based in Rotterdam, Holland. This acquisition gives us entry into
the #5 billion Dutch market, using DSL as the last mile solution. We are
focused on maximising the opportunity in three cities initially and expect to
have 15 central offices equipped by 31 December. In Holland, we are able to
leverage off our relationship with Nokia, which increases the speed of our
deployment while reducing our capital expenditure requirements due to
economies of scale.
In the UK, our national broadband network will be fully operational from
today one month ahead of schedule. This is expected to have a positive effect
on our margins in the second half of the year as we migrate our considerable
level of traffic onto our own network. This network also allows us to carry
the significant indirect traffic expected from the contract to provide a
fixed line solution for Vodafone's residential and small business customers,
which was announced recently.
FUNDING
Atlantic has a very strong balance sheet and is fully funded for its
modular-based business plan.
At 30 September 2000, we had net assets of #604m (1999:#40m), equivalent to
approximately #3.00 per ordinary share. We also had total usable cash balances
of approximately #200m plus #36m set aside to pay escrowed interest on our
high yield debt.
We are also pleased to have agreed, in principle, a vendor finance agreement
with Nokia for approximately Euro 70m (#40m), sufficient to fully fund our
entire projected German DSL build and fund customer installations and
equipment for up to 40,000 lines. We are also in discussions with Nokia in
respect of finance for the Dutch market and other DSL builds. We also continue
to benefit from an unused vendor finance facility of #50m from Marconi plc,
which was put in place in November 1999. We see vendor finance, within the
context of our other debt agreements, as an important component in our
financing capability going forward.
Funding is an important issue in the telecoms market today. Atlantic has cash
and access to debt funding which will enable us to execute our current
business plan:
* Build a national DSL footprint in Germany with the ability to address a
significant SME market of 1.25 million businesses by mid 2001
* Build a focused three city build in Holland, with the ability to address
150,000 SMEs, which could be expanded if additional vendor finance became
available
* Build additional base stations in the UK to obtain a meaningful SME
footprint with broadband capable wireless technologies. Should DSL become
viable in an appropriate time scale, we can and would utilise this
technology as required and would seek to maximise our addressable footprint.
In the UK as well as in Holland, we are able to take advantage of 'distant
colocation' using technology developed by Nokia
* Fund our operational and other costs to break-even from a cash perspective
This modular approach, to which in this current funding environment we
are absolutely committed, retains our traditionally conservative approach to
funding and roll out, and allows us to maintain a fully funded business plan.
Further developments will be a function of access to incremental capital.
At this time, the opportunity in France remains dependent on the regulatory
climate, as France has not yet unbundled the local loop. Therefore, the
deployment of DSL is dependent on that framework being in place and acceptable
from a business perspective as well as having access to incremental capital.
Atlantic is an opportunistic company which will take opportunities as they
arise. The Board remains highly focused on ensuring that we run the business
at all times within our funding capacity and that our operational and other
costs are kept under full control.
RESULTS FOR THE PERIOD
Turnover for the half-year was #32m, a threefold increase compared to the
previous half-year. This increase was helped by the acquisition in June of
First Telecom which has been consolidated for a four-month period and which
contributed 66% of the half-year total.
The turnover from our single cable TV operation in Aberdeen fell from
#3.1m in the half-year to 30 September 1999 to #2.4m this period. As
we have already highlighted to shareholders, we are experiencing, and
will continue to experience, falling customer numbers in this
operation, which has now become marginal to our overall business mix.
Excluding Aberdeen Cable and First Telecom, the underlying revenue of
Atlantic increased by 20% in the period compared to the equivalent
period last year. As we commit the capital to significantly increase
the build of our networks we expect to see an improving growth in this
core area.
Our negative earnings before interest, tax, depreciation and
amortisation increased to #27.7m this half-year, from #9.4m last half-
year, in line with expectations. The half-year loss for the period
came in better than market expectation at #53.5m (1999; a loss of
#13.7m).
Competitive carriers, such as Atlantic, incur losses until networks
are built and customer numbers build up to cover operating costs.
Establishing networks requires capital expenditure to be incurred, in
many cases well in advance of customer revenues. This is an ongoing
feature of the business, is fully factored into our business models
and is a measure of the underlying investment we are making to build
the business.
Turnover for the three months ended 30 September 2000 was #21.6m
compared to #5.3m for the corresponding period in 1999. For the three
months ended 30 September 2000, our negative earnings before interest,
tax, depreciation and amortisation were in line with expectations at
#14.9m compared with #5.1m for the three months ended 30 September
1999.
CUSTOMER NUMBERS AND LINES
We reported customer numbers and line numbers to the market on 11 October. We
continue to make excellent progress in our core areas, with 400,957 lines
installed and pending installation at 30 September 2000. In particular the
penetration of directly connected business customers increased from 4.7% to
reach 5.7% over the six-month period. In the residential market, the
penetration reached 4.0% from 3.2% over the period. The rate of increase
remains encouraging and ahead of plan.
Churn levels are also running better than expected at 18.95% and 15.08% in the
business and residential market respectively.
The summer period tends to be a period when average monthly revenues
per customer slow as the result of holiday non-use, particularly in
the residential market. We are pleased to report that in our, directly
connected SME market, the average revenues experienced no slow down
but continued to grow, reaching #87.36 per customer per month. In the
directly connected residential market the average revenue continues at
encouraging levels and has averaged #35.81 over the period,
significantly higher than any other UK operator.
Our cable TV operation had 14,944 customers, with average revenue at
#27.17 per month.
HIGH SPEED ACCESS
We launched limited high-speed services on three base stations in
Glasgow at the end of April. The new technology can provide, among
other things, data speeds up to 2.4Mbs for high-speed Internet access.
Following our announcement earlier in the year to focus our capital on
the SME market, we have been working to determine the best areas to
roll out SME focused high-speed services. This has also given us time
to work with a selected group of SME customers to ensure we were
delivering the type of services they were seeking and that the
technology and operational support systems were scaleable.
In Germany, high-speed access, at up to 2.3Mbs using DSL technologies,
was launched as a wholesale service on 21 June and as an SME-focused
service on 1 September. The technology we use allows us to have a low
entry cost per central office and, importantly, the operational
support system is very sophisticated, allowing us to provision and
test the unbundled line remotely. In practice therefore, we have been
able to provision the lines with only one customer visit, unlike some
of the experiences in the US market where multiple visits have been
necessary so slowing DSL growth in that market. Germany also has a
better copper infrastructure than the US, which also allows us to
start offering services to customers more quickly and cost-
effectively.
As at 30 September we had 4,300 lines committed from 13 partner ISPs for
wholesale connectivity and have installed and successfully provisioned a
number of retail unbundled lines.
OUTLOOK
Our target SME market is a significant opportunity worth over #10 billion in
the UK and #15 billion in Germany, of which over 80% is still in the hands
of the incumbent operators. Pricing pressure is less evident in this
section of the market compared to other areas of the telecommunications
landscape, while the concept of bundled single priced services is innovative
and tends to be unavailable from the incumbents. Moreover, we have our own
facilities, including network access and switches, which allow us to
maintain and enhance margin over time, particularly as we develop a
wider range of value added services.
Over the next six months our main efforts will be focused
incompleting the German DSL roll out. We also intend to commence our
targeted build in Holland. The UK remains a core market for Atlantic
and we will continue to exploit our existing networks, whilst
developing the opportunities presented from UK unbundling.
The team at Atlantic remains focused on further controlled growth and
looks forward to delivering on our plans.
Graham J Duncan
Executive Chairman
CONSOLIDATED SUMMARISED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED
30 SEPTEMBER 2000
6 months to 6 months to 12 months to
30 September 30 September 31 March
2000 (unaudited) 1999 (unaudited) 2000 (audited)
#'000 #'000 #'000
TURNOVER:
Continuing Operations 10,605 10,202 21,307
Acquisitions 21,400 - -
--------- --------- ---------
32,005 10,202 21,307
Operating costs - ongoing (77,414) (22,853) (49,753)
--------- -------- --------
OPERATING LOSS:
Continuing Operations (29,569) (12,651) (28,446)
Acquisitions (15,840) - -
------- --------- --------
GROUP OPERATING LOSS (45,409) (12,651) (28,446)
Provision for diminution
in value of investment (1,265) - -
Net interest (6,853) (1,065) (4,931)
-------- -------- --------
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION (53,527) (13,716) (33,377)
Tax on loss on ordinary
activities - - -
-------- -------- --------
RETAINED LOSS FOR THE PERIOD (53,527) (13,716) (33,377)
======== ======== ========
Loss per share (26.73)p (16.18)p (31.32)p
======== ======== ========
The directors regard earnings before interest, tax, depreciation and
amortisation, which is set out below and is often used in the
telecommunications and cable industry, as an important measure of the
operating cash flow of the business.
Operating loss (45,409) (12,651) (28,446)
Depreciation and amortisation
of goodwill 17,750 3,274 7,604
-------- -------- --------
Earnings before interest, tax,
depreciation and amortisation (27,659) (9,377) (20,842)
======== ======== ========
There are no recognised gains or losses other than the loss for the period.
CONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 2000
30 September 30 September 31 March
2000 (unaudited) 1999 (unaudited) 2000 (audited)
#'000 #'000 #'000
FIXED ASSETS
Intangible assets 373,451 3,645 3,754
Tangible assets 239,737 71,594 203,101
Investments - - 855
---------- -------- ----------
613,188 75,239 207,710
---------- -------- ----------
CURRENT ASSETS
Stock 7,365 5,528 4,139
Debtors :
amounts falling due
after more than one year 11,353 9,518 10,435
Debtors:
amounts falling due
within one year 29,265 9,868 13,472
Investments 36,242 - 48,701
Cash at bank 202,555 1,079 263,226
---------- -------- ----------
286,780 25,993 339,973
CREDITORS
Amounts falling due
within one year (100,674) (27,350) (35,070)
---------- ---------- ----------
NET CURRENT ASSETS /
(LIABILITIES) 186,106 (1,357) 304,903
---------- ---------- ----------
TOTAL ASSETS LESS CURRENT
LIABILITIES 799,294 73,882 512,613
CREDITORS
Amounts falling due after
more than one year (195,041) (33,498) (197,772)
Equity Minority interest 235 - -
---------- ---------- ----------
604,488 40,384 314,841
========== ========== ==========
CAPITAL AND RESERVES
Called up share capital 53,278 21,313 38,430
Share premium account 340,224 62,462 328,639
Provision for unallocated
share capital 32,354 - -
Merger reserve 277,306 - -
Other reserves 17,258 - 10,690
Profit and loss account (115,932) (43,391) (62,918)
---------- --------- ---------
604,488 40,384 314,841
========== ========= =========
CONSOLIDATED SUMMARISED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30
SEPTEMBER 2000
6 months to 6 months to 12 months to
30 September 30 September 31 March
2000 (unaudited) 1999 (unaudited) 2000 (audited)
#'000 #'000 #'000
RECONCILIATION OF OPERATING LOSS TO NET
CASH OUTFLOW FROM OPERATING ACTIVITIES
Operating loss from
operating activities (45,409) (12,651) (28,446)
Depreciation and amortisation
of lease prepayment 11,658 3,274 7,604
Amortisation of goodwill 6,092 - -
Exchange (gain) / loss (140) - 38
Network lease prepayments (1,000) (1,000) (2,000)
(Increase)/decrease in stock (3,226) 655 2,094
Increase in debtors (3,433) (3,121) (1,935)
Increase in creditors 5,804 10,947 2,984
Non-cash consideration
for consultancy - - (415)
Gain on disposal of
fixed assets - (12) (27)
-------- -------- --------
Net cash outflow from
operating activities (29,654) (1,908) (20,103)
-------- -------- --------
CASH FLOW STATEMENT
NET CASH OUTFLOW FROM OPERATING
ACTIVITIES (29,654) (1,908) (20,103)
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE (4,427) (1,065) (9,146)
CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT (34,642) (18,679) (17,818)
ACQUISITIONS
- Purchase of subsidiaries (9,142) - (218)
- Expenses related to
acquisition (7,450) - (12)
- Bank balances at subsidiary 17,990 - (53)
-------- -------- --------
1,398 - (283)
MANAGEMENT OF LIQUID RESOURCES (119,715) - (103,885)
FINANCING (8,132) 16,047 352,965
-------- -------- ---------
(DECREASE)/INCREASE IN CASH (195,172) (5,605) 201,730
======== ======== =========
NOTES TO THE CONSOLIDATED SUMMARISED CASH FLOW STATEMENT
1. ANALYSIS OF NET FUNDS
At 1 April Cash
2000 Acquisitions Flow
#'000 #'000 #'000
Cash 207,960 - (190,807)
Bank overdraft (856) - (4,365)
--------- --------- ----------
207,104 - (195,172)
--------- --------- ----------
Short term deposits 55,266 - 131,516
Restricted current
asset investments * 48,701 - (11,801)
Debt after one year (186,885) - 300
Debt within year (422) (7,000) 3,199
Finance Leases (24,830) (4,987) 4,214
--------- --------- ---------
Net funds 98,934 (11,987) (67,744)
========= ========= =========
At
Non-cash Exchange 30 September
Items Movement 2000
#'000 #'000 #'000
Cash - - 17,153
Bank overdraft - - (5,221)
--------- -------- ---------
- - 11,932
--------- -------- ---------
Short term deposits - (1,380) 185,402
Restricted current
asset investments * (238) (420) 36,242
Debt after one year (544) 2286 (184,843)
Debt within year - - (4,223)
Finance Leases (375) - (25,978)
--------- -------- ---------
Net funds (1,157) 486 18,532
========= ======== =========
2. RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET FUNDS/(DEBT)
6 months 6 months to 12 months to
to 30 September 30 September March 2000
2000 (unaudited) 1999 (audited)
(unaudited)
#'000 #'000 #'000
(Decrease) / increase in
cash in the period (195,172) (5,605) 201,730
Cash outflow from movement
in liquid resources 119,715 - 103,885
Cash outflow / (inflow)
from movement in debt 3,499 (17,800) (184,949)
Cash outflow from lease
financing 4,214 2,298 5,068
--------- -------- --------
Change in net funds
resulting from cash flows (67,744) (21,107) 125,734
Inception of finance leases (375) (10,948) (18,991)
Exchange differences 486 - (38)
Acquisitions (11,987) - (12)
Other non-cash items (782) - (335)
--------- -------- --------
Movement in net (debt)/
funds in the period (80,402) (32,055) 106,358
Net funds / (debt) at 1 April 98,934 (7,424) (7,424)
--------- -------- --------
Net funds / (debt) at 30 September 18,532 (39,479) 98,934
========= ======== ========
*Restricted investments are held in escrow by Bankers Trust Company, an
independent agent to meet the first four interest payments on the
unsecured senior notes issued on 3 February 2000. Bankers Trust Company
will hold the investments to maturity when they will distribute the
interest payment to the bond holders. The investments comprise UK and
European listed Government Bonds.
NOTES TO THE INTERIM REPORT
1.Preparation of Interim Report
The interim financial information for the six months ended 30
September 2000 was approved by the directors on 29 November 2000. It
has been prepared in accordance with relevant accounting standards on
a consistent basis using accounting policies set out in the 2000
financial statements. Goodwill arising on the acquisition of First
Telecom Group plc in the current year, representing the excess of the
fair value of the consideration given over the fair values of the
identifiable net assets acquired is capitalised and amortised on a straight
line basis over its estimated useful economic life which has been assessed
as 20 years.
The interim financial information is unaudited but has been reviewed
by the auditors and their report is set out on page 15.
2.Financial information
The financial information set out on pages 4 to page 7 does not
constitute full statutory accounts for the purposes of section 240 of
the Companies Act 1985. Comparative figures for the year ended 31
March 2000 are extracted from the statutory financial statements,
which have been delivered to the Registrar of Companies. The report
of the auditors on those financial statements was unqualified and did
not contain a statement under section 237 (2) of the Companies Act
1985.
3.Segment Information
Geographical segments:
Turnover by origin United Kingdom Rest of Europe Group
#'000 #'000 #'000
Sales to third parties 23,413 8,592 32,005
---------- --------- -----------
Segment operating loss (40,712) (4,697) (45,409)
---------- --------- -----------
Segment operating assets/
(liabilities) 620,495 (34,539) 585,956
---------- --------- -----------
Net funds 10,023 8,509 18,532
---------- --------- -----------
Net assets / (liabilities) 630,518 (26,030) 604,488
---------- --------- -----------
Prior to the acquisition of First Telecom Group plc on 7 June 2000 the
Group's turnover originated in the United Kingdom.
There is no material difference between turnover by origin and
turnover by destination.
4.Loss per share
The loss per share is based on the loss attributable to the Ordinary
Shareholders of #53,527,000 (30 September 1999 - loss of #13,716,000
and 31 March 2000 - loss of #33,377,000) and on the weighted average
number of Ordinary Shares in issue during the period of 200,253,194
(30 September 1999 - 84,771,637 and 31 March 2000 - 106,559,708). The
increase is due to the purchase of First Telecom Group plc as detailed
in Note 7. Shares issued to date in relation to this acquisition total
59,388,932.
At 30 September 2000, there were 75,000 Sterling and 200,000 Euro
outstanding share warrants, 2,916,923 outstanding share options in
existence and 6,282,661 shares to be issued in respect of deferred
considerations. The shares that would be issued in respect of these
warrants, options and deferred shares are not treated as dilutive as
their issue would decrease the loss per share. Accordingly no diluted
loss per share figure is shown.
5.Provision for diminution in value of investment
At 31 March 2000, the group held a 10% shareholding in Skyline S.A.
Of this, 5% of the share capital was received in consideration for
consultancy and advice given in relation to Skyline's application to
the ART (French Telecommunications Regulatory Authority) for
telecommunications licences. During the current year a further option
on 5% of share capital was taken up.
Subsequent to the year end Skyline S.A. were unsuccessful in their
application for telecommunication licences and therefore the
investment has been written down to nil value.
NOTES TO THE INTERIM REPORT
6.Dividend
In view of the deficit on reserves the directors cannot recommend a dividend
and the loss for the period has therefore been offset against reserves.
7.Acquisitions
(i) On 7 June 2000, the Group issued 56,592,858 new ordinary shares,
5,278,704 share options and 6,103,113 deferred shares in
consideration for 100% of the share capital of First Telecom Group
plc.
The provisional fair value of the assets and liabilities of First Telecom
Group plc acquired were as follows:
#'000
Net liabilities acquired
at provisional fair value (18,956)
Goodwill 369,829
--------
Consideration 350,873
========
Satisfied by:
Issue of shares 291,453
Issue of share options 20,539
Deferred consideration 31,431
Acquisition costs paid 7,450
--------
350,873
========
The summarised profit and loss account of First Telecom Group plc from
1 January 2000, the beginning of its financial year, to the date of
acquisition was as follows:
#'000
Turnover 29,181
--------
Operating loss (22,442)
--------
Loss before tax (19,901)
--------
Taxes -
--------
Loss after tax (19,901)
========
(ii) On 22 September 2000 the Group acquired 42,250 ordinary shares
of #1 each in Tele Partner Plus BV, being 65% of the Company's
increased nominal share capital for a consideration of #9,142,000.
NOTES TO THE INTERIM REPORT
8.Quantitive information about market risk
The Group uses financial instruments comprising borrowings, cash,
liquid resources and various items, such as trade debtors and trade
creditors that arise from its operations. The Group does not use
derivatives. The main purpose of these financial instruments is to
raise finance for the Group's operations. The Group is exposed to
various market risks, including changes in foreign currency exchange
and interest rates. Market risk is the potential loss arising from
adverse changes in market rates and prices such as foreign currency
exchange and interest rates. The main risks arising from the Group's
financial instruments are interest rate risk, liquidity risk and
foreign currency risk. The Directors review and agree policies for
managing each of these risks and they are summarised below. These
policies have remained unchanged from previous years.
Short term debtors and creditors
Short term debtors and creditors have been excluded from all of the
following disclosures, other than the currency risk disclosures.
Interest rate risk
The Group's exposure to market risk for changes in interest rates
relates primarily to investments, senior notes, bank deposits and
borrowings and leasing. The Group's exposure to interest rate
fluctuations is managed by the use of both fixed and floating
facilities. The Group also mixes the duration of its deposits and
borrowings to reduce the impact of interest rate fluctuations. The
floating rate assets bear interest at rates based on Euro and UK bank
base rates. The weighted period to maturity of zero coupon financial
assets is one year. The floating rate borrowings bear interest rates
based on the six month US LIBOR and UK bank base rates.
Currency risk
The Group is exposed to transaction and translation foreign exchange
risk. The Group does not enter into hedge arrangements in relation to
foreign currency transactions.
Foreign exchange differences on re-translation of assets and
liabilities denominated in foreign currencies are taken to the profit
and loss account of the Group companies and the Group. Exchange
differences arising on translation of the opening net assets and
results of overseas operations are dealt with through reserves.
Liquidity risk
The Group seeks to manage financial risk, to ensure sufficient
liquidity is available to meet foreseeable needs and to invest cash
assets safely and profitably.
9.Post Balance Sheet Event
On 20 October 2000, the Group acquired the customer base and ISP
services of ISE-Gulliver, an internet access provider in South East
France for a consideration of approximately #740,000.
Further copies of this interim report can be obtained from the company's
registered head office at Atlantic House, 475 - 485 Union Street,
Aberdeen, AB11 6BL, Scotland.
CONSOLIDATED INCOME STATEMENTS FOR THE THREE AND SIX MONTHS ENDED 30
SEPTEMBER 2000
3 months ended 3 months ended 6 months ended 6 months ended
30 September 30 September 30 September 30 September
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudited)
#'000 #'000 #'000 #'000
Turnover:
Continuing operations 5,575 5,326 10,605 10,202
Acquisitions 15,976 - 21,400 -
---------- ---------- ---------- ---------
Total turnover 21,551 5,326 32,005 10,202
---------- ---------- ---------- ---------
Operating loss:
Continuing operations (15,109) (6,735) (29,569) (12,651)
Acquisitions (11,895) - (15,840) -
---------- ---------- ---------- ---------
(27,004) (6,735) (45,409) (12,651)
---------- ---------- ----------- ---------
Provision for
diminution
in value of investment (1,265) - (1,265) -
Net interest (4,002) (649) (6,853) (1,065)
---------- ---------- ---------- ---------
Loss on ordinary
activities
before taxation (32,271) (7,384) (53,527) (13,716)
Tax on loss on ordinary
activities - - - -
---------- ---------- ---------- ---------
Retained loss for the
period (32,271) (7,384) (53,527) (13,716)
========== ========== ========== =========
NOTES TO THE CONSOLIDATED INCOME STATEMENTS
1. Earnings before interest, taxes, depreciation and amortisation
(EBITDA)
Operating loss: (27,004) (6,735) (45,409) (12,651)
Depreciation and
amortisation of Goodwill 12,092 1,684 17,750 3,274
-------- -------- -------- -------
(14,912) (5,051) (27,659) (9,377)
======== ======== ======== =======
RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING POLICIES (U.S. GAAP)
3 months ended 3 months ended 6 months ended
30 September 30 September 30 September
2000 1999 2000
#'000 #'000 #'000
Net loss per U.K. GAAP (32,271) (7,384) (53,527)
Development expense (1) 37 37 74
Amortisation expense (2) (43) (43) (86)
Stock-based compensation (3) 1,679 (392) 857
----------- ---------- -----------
Net loss per U.S. GAAP (30,598) (7,782) (52,682)
----------- ---------- -----------
Closing Shareholders'
equity per U.K. GAAP 604,488 40,384 604,488
Goodwill (2) 4,732 4,732 4,732
Amortisation expense (2) (1,336) (1,164) (1,336)
Development expense (1) (2,522) (2,670) (2,522)
Difference in gain on disposal (2) (1,483) (1,483) (1,483)
----------- ---------- -----------
Closing Shareholders' equity
per U.S. GAAP 603,879 39,799 603,879
----------- ---------- -----------
Shareholders' equity at
beginning of period per U.S.
GAAP 634,631 46,183 314,244
Net loss (30,598) (7,782) (52,682)
Stock-based compensation (3) (1,679) 392 (857)
Foreign exchange differences (32) - 64
Issuance of shares,
net of related costs 1,557 1,006 343,110
----------- ---------- -----------
Shareholders' equity at end
of period per U.S. GAAP 603,879 39,799 603,879
----------- ---------- -----------
6 months ended 12 months ended
30 September 1999 31 March 2000
#'000 #'000
Net loss per U.K. GAAP (13,716) (33,377)
Development expense (1) 74 147
Amortisation expense (2) (86) (171)
Stock-based compensation (3) (298) (1,680)
----------- -----------
Net loss per U.S. GAAP (14,026) (35,081)
---------- -----------
Closing Shareholders' equity
per U.K. GAAP 40,384 314,841
Goodwill (2) 4,732 4,732
Amortisation expense (2) (1,164) (1,250)
Development expense (1) (2,670) (2,596)
Difference in gain on disposal (2) (1,483) (1,483)
----------- -----------
Closing Shareholders' equity
per U.S. GAAP 39,799 314,244
----------- -----------
Shareholders' equity at
beginning of period per U.S. GAAP 52,521 52,521
Net loss (14,026) (35,081)
Stock-based compensation (3) 298 1,680
Foreign exchange differences - -
Issuance of shares, net of
related costs 1,006 295,124
----------- -----------
Shareholders' equity at end
of period per U.S. GAAP 39,799 314,244
----------- -----------
RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING POLICIES (U.S. GAAP)
The following are descriptions of U.S. GAAP reconciling items:
(1) Under U.K. GAAP, the Group capitalises development expenditures
related to specific projects when recoverability can be assessed with
reasonable certainty and these expenditures are amortised over the
licence period of the project or its expected economic life, whichever
is shorter. Under U.S. GAAP, development expenditures are expensed in
the period incurred.
(2) In 1995 the Company completed a reverse stock take-over
acquisition. Under U.K. GAAP, the acquiror, Worth Investment Trust PLC
("Worth") is considered the continuing entity. Under U.S. GAAP, the
Company is considered the acquiror. Accordingly, under U.S. GAAP, the
post reverse acquisition historical financial statements are those of
the Company and additional goodwill is recorded in connection with the
acquisition of Worth. Under U.K. GAAP, prior to December 23, 1998
depending on the circumstances of each acquisition, goodwill is either
written off directly against reserves or amortised through the profit
and loss account over the Directors' estimate of its useful life (not
to exceed 40 years). If a subsidiary or a business is subsequently
sold or closed, any goodwill arising on acquisition that was written
off directly to reserves or that has not been amortised through the
profit or loss account is taken into account in determining the profit
or loss on sale or closure. For U.S. GAAP purposes, the Company has
amortised goodwill over 20 years.
(3) Under U.S. GAAP, the Group's Share Option Scheme results in
compensation cost which is measured by the excess of the quoted market
price of the shares over the option price per share to be paid by the
employee. Compensation costs are charged to expense over the vesting
period prior to exercise with the offsetting increase to the share
premium account. Under U.K. GAAP, no compensation expense is
recognised.
Additional disclosures are as follows:
1. In June 1998 the Financial Accounting Standards Board issued SFAS
133 "Accounting for Derivative Instruments and Hedging Activities". This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognise all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value.
Subsequent to the issuance of this statement, the Financial Accounting
Standards Board issued SFAS 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133 - an amendment of FASB Statement No. 133" that deferred the effective
date of SFAS 133 to all fiscal quarters of all fiscal years beginning after
June 15, 2000. We have not yet determined the effect of these statements on
the financial statements of the Company.
2. There are recent interpretations in the United States related to stock
compensation. The company is in the process of analysing the effect of
these interpretations on the stock options issued in connection with the
acquisition of First Telecom Group plc. The company believes the effect of
these interpretations will not have a material effect on the consolidated
position or result of operations.
PRO-FORMA PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000
Financial performance on a pro-forma basis (assumes the First Telecom
acquisition had taken place on 1 April 1999). This represents an aggregation
of each company's data without making full consolidation adjustments. The
table should be considered for illustrative purposes only.
Pro-forma Combined Group
2000 1999
Pre Post
Exceptional Exceptional Exceptional
items items items
#'000 #'000 #'000 #'000
Turnover 43,601 - 43,601 40,628
---------- ---------- ---------- ----------
EBITDA (36,647) (i) (4,200) (40,847) (17,087)
---------- ---------- ---------- ----------
Operating loss
before interest (59,609) (ii) (1,265) (60,874) (22,723)
---------- ---------- ---------- ----------
Retained loss for
the period (60,394) (5,465) (65,859) (25,215)
======== ======== ========= =========
Net loss per share (30.87)p (14.56)p
========= =========
(i) These are costs incurred by the First Telecom Group plc pre-acquisition
for professional fees associated with preparing the Group for either an
IPO or takeover.
(ii) This relates to the provision for diminution in value of the investment
in Skyline S.A. which is shown on the face of the consolidated profit and
loss account.
INDEPENDENT REVIEW REPORT TO THE MEMBERS OF ATLANTIC TELECOM GROUP PLC
INTRODUCTION
We have been instructed by the group to review the financial information set
out on pages 4 to 13 and we have read the other information contained in the
interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.
DIRECTORS' RESPONSIBILITES
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing
Rules of the Financial Services Authority require that the accounting policies
and presentation applied to the interim figures should be consistent with
those applied in preparing the preceding financial statements except where any
changes, and the reasons for them are disclosed.
REVIEW WORK PERFORMED
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 'Review of Interim Financial Information', issued by the Auditing
Practices Board. A review consists principally of making enquiries of
management and applying analytical procedures to the financial information and
underlying financial data and, based thereon, assessing whether accounting
policies and presentation have been consistently applied unless otherwise
disclosed. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially
less in scope than an audit performed in accordance with Auditing Standards.
Accordingly we do not express an audit opinion on the interim financial
information.
REVIEW CONCLUSION
On the basis of our review we are not aware of any material modifications that
should be made to the interim financial information as presented for the six
months ended 30 September 2000.
Grant Thornton
Chartered Accountants
Glasgow
29 November 2000
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