RNS Number:8459F
Atlantic Telecom Group PLC
26 June 2001
PART 2
NOTES TO THE PRELIMINARY ANNOUNCEMENT
For the year ended 31 March 2001
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.
The Directors confirm that, having reviewed the Group's budget and forecasts
for 2001 and 2002, they consider that the Group has adequate resources to
continue in existence for the foreseeable future. Accordingly they continue to
adopt the going concern basis in preparing the financial statements.
2. 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.
3. TAX ON LOSS ON ORDINARY ACTIVITIES
There is no tax charge for the year due to trading losses.
4. SEGMENTAL INFORMATION
Geographical segments:
Turnover by United United The
Origin
Kingdom Kingdom Germany Netherlands France Group
Continuing Acquisition Acquisition Acquisition Discontinued
#'000 #'000 #'000 #'000 #'000 #'000
Sales to 21,840 31,907 15,830 42 7,398 77,017
third
parties
---------- ----------- ------------ ---------- ------------ -------
Segment
operating
(loss)/ (72,070) (24,408) (7,733) 89 (5,347)(109,469)
profit
---------- ----------- ------------ ---------- ----------- --------
Segment
operating
assets/ 595,370* -* 11,254 (2,423) - 604,201
(liabilities)
---------- ----------- ------------ ---------- ----------- --------
Net funds (90,534)* -* 2,501 5,635 - (82,398)
---------- ----------- ------------ ---------- ----------- --------
Net assets 504,836* -* 13,755 3,212 - 521,803
---------- ----------- ------------ ---------- ----------- --------
* In the United Kingdom the trade and assets and liabilities of the acquired
company were transferred into Atlantic Telecommunications Limited on 31
December 2000. Therefore the assets and liabilities of this entity cannot be
determined separately at the end of the year.
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.
5. LOSS PER SHARE
The loss per share is based on the loss attributable to the Ordinary
Shareholders of #135,713,000 (31 March 2000 - #33,377,000) and on weighted
average number of Ordinary Shares in issue during the period of 206,793,433
(31 March 2000 - 106,559,708).
At 31 March 2001 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 reduce loss per share.
6. EXCEPTIONAL ITEMS
The Group provided fully against its investment in Skyline S.A, #1,265,000,
following the failure to obtain licences to provide wireless local loop
connectivity in France.
In January 2001, the Group made an announcement in respect of the refocus of
its investment on the SME market and an associated restructure of its
operations primarily through the reduction of residential sales and support
staff. A provision of #4,672,000 has been made in respect of the costs which
are incremental and as a direct result of this restructure.
The Group also sold its operation in France, Atlantic Telecom S.A., which was
acquired as part of the acquisition of First Telecom Group plc. The loss on
sale amounted to #2,784,000.
7. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING
ACTIVITIES
Continuing Discontinued 2001 2000
Total Total
#'000 #'000 #'000 #'000
Operating loss from operations (104,122) (5,347) (109,469) (28,446)
Depreciation and amortisation 44,568 728 45,296 7,439
Amortisation of lease prepayment 2,838 - 2,838 165
Exchange loss/(gain) 1,646 (715) 931 38
Network lease prepayment (1,000) - (1,000) (2,000)
Increase in stock (5,517) - (5,517) 2,094
Increase in debtors (7,685) (1,301) (8,986) (1,935)
Increase/(decrease) in creditors 16,061 (892) 15,169 2,984
Non- cash consideration for - - - (415)
consultancy
Gain on disposal of tangible fixed (28) - (28) (27)
assets
----------- ----------- -------- ----------
Net cash outflow from operating (53,239) (7,527) (60,766) (20,103)
activities
----------- ----------- -------- ----------
In 1999 and 2000 net cash outflow arises from continuing operating activities.
8. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS / (DEBT)
2001 2000
#'000 #'000
(Decrease)/increase in cash in the period (188,817) 201,730
Cash outflow from movement in liquid resources 8,463 103,885
Cash outflow from restricted deposits 1,608 -
Cash outflow/(inflow) from movement in debt 4,122 (184,949)
Cash outflow from lease financing 7,404 5,068
--------- ---------
Change in net funds resulting from cash flows (167,220) 125,734
Inception of finance leases (688) (18,991)
Exchange differences (373) (38)
Acquisitions (11,987) (12)
Other non-cash items (1,064) (335)
--------- ---------
Movement in net (debt)/funds in the year (181,332) 106,358
Net funds/(debt) at 1 April 2000 98,934 (7,424)
--------- ---------
Net (debt)/funds at 31 March 2001 (82,398) 98,934
======= =======
9. ANALYSIS OF NET FUNDS / (DEBT)
At 1 Cash Acqui- Non-cash Exchange At 31
April Flow sition items movement March 2001
2000
#'000 #'000 #'000 #'000 #'000 #'000
Cash at bank and in 207,960 (189,073) - - (724) 18,163
hand
Bank overdrafts (856) 256 - - - (600)
--------- -------- --------- -------- -------- ----------
207,104 (188,817) - - (724) 17,563
Short term deposits* 55,266 32,439 - - 2,135 89,840
Restricted cash - 1,608 - - (242) 1,366
deposits
Restricted current 48,701 (23,976) - 4 478 25,207
asset investments
Debt due after one (186,885) (2,780) - (1,068) (2,020) (192,753)
year
Debt due within one (422) 6,902 (7,000) - - (520)
year
Finance leases (24,830) 7,404 (4,987) (688) - (23,101)
--------- ------- -------- -------- --------- -----------
Net funds/(debt) 98,934 (167,220) (11,987) (1,752) (373) (82,398)
======= ======= ======== ======== ======== ========
* Short term deposits (held on deposit for between 1 and 3 months) are
included within cash at bank and in hand in the balance sheet.
10. FORWARD-LOOKING STATEMENTS
This announcement contains certain forward-looking statements within the
meaning of the United States Private Securities Litigation Reform Act 1995
with respect to the financial condition, results of operations and business of
Atlantic Telecom Group PLC and certain of its business plans and objectives.
In particular, among other statements, certain statements relating to the
future development of the business and trends in results of operations,
including, but not limited to, contributions of various business activities to
total turnover, the development of networks, the development of commercial
partnerships and capital expenditure are forward-looking in nature. By their
nature, forward-looking statements involve risk and uncertainty because they
relate to events and depend on circumstances that will occur in the future.
There are a number of factors that could cause actual results and developments
to differ materially form those expressed or implied by these forward-looking
statements. These factors include, but are not limited to, changes in economic
conditions in the United Kingdom and the European Union, levels of competition
from other telecommunications companies and prices for telephony and data
services in the United Kingdom, Germany and the Netherlands
RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING POLICIES (U.S.
GAAP)
The consolidated financial statements have been prepared in accordance with
U.K GAAP and on the basis of presentation as set out in the accounting
policies, which differ in certain respects from U.S GAAP. The main differences
between U.K GAAP and U.S GAAP which affect the Group's consolidated net loss
and net equity are set out below.
(a) Impact on net loss 2001 2000
#'000 #'000
Net loss per U.K. GAAP (135,713) (33,377)
U.S GAAP adjustments:
Development expense (1) (350) 147
Amortisation expense (2) (171) (171)
Stock-based compensation (3) 2,505 (1,680)
--------------- -------------
Net loss per U.S. GAAP (133,729) (35,081)
======== ========
(b) Impact on net equity
Closing Shareholders' equity per U.K. GAAP 521,803 314,841
U.S GAAP reconciling items:
Goodwill (2) 4,732 4,732
Amortisation expense (2) (1,420) (1,250)
Development expense (1) (2,946) (2,596)
Difference in gain on disposal (2) (1,483) (1,483)
-------------- --------------
Closing Shareholders' equity per U.S. GAAP 520,686 314,244
======= ========
(c) Changes in Shareholders' equity on a U.S. GAAP
basis
Shareholders' equity at beginning of period 314,244 52,521
Net loss per U.S GAAP (133,729) (35,081)
Stock-based compensation (3) (2,505) 1,680
Foreign exchange differences 91 -
Issuance of shares, net of related costs 342,585 295,124
--------------- -------------
Shareholders' equity at end of period 520,686 314,244
======== ========
RECONCILIATION TO UNITED STATES 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. Prior
to 31 March 2000, under U.K. GAAP, no compensation expense was recognised.
During the year, the Group adopted UITF Abstract 17 which requires the
difference between the fair value of the shares at the date of award and
amount of consideration employees are required to pay to be recognised
through the profit and loss account over the period of the performance
criteria.
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. In June 2000 Financial Accounting Standards Board
issued SFAS 138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an amendment of FASB Statement No. 133" which
addresses a limited number of issues causing SFAS 133 implementation
difficulties. The effective date of this statement is for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The company
does not use derivative instruments, therefore these statements have no
effect on the financial position or operations of the company.
2. The SEC staff has issued Staff Accounting Bulletin SAB 101, 'Revenue
Recognition in Financial Statements', to provide registrants with the
staff's position on the requirements for revenue recognition under
generally accepted accounting principles (U.S. GAAP). To recognise revenue
in the financial statements, U.S. GAAP requires that the revenue be
realised or realisable and earned. That generally occurs when all of the
following criteria are met: (1) persuasive evidence that an arrangement
exists (2) delivery has occurred or services have been rendered and (3)
the price is fixed or determinable. This bulletin is effective for the
fourth quarter of fiscal years beginning after December 15, 1999. We have
adopted SAB 101 does not have a material effect on Atlantic Telecom
Group's financial position or results of operations.
(d) Cash flow statement
The Group's financial statements present cashflow statements prepared using
the principles of U.K Accounting standard FRS1 (Revised), "Cash Flow
Statements". The statement prepared under FRS 1 (Revised) presents
substantially the same information as that required under U.S Statement of
Financial Accounting Standard No 95 (SFAS 95).
Under FRS 1 (Revised) cashflows are presented for operating activities;
returns on investments and servicing of finance; taxation; capital expenditure
and financial investments; acquisitions and disposals; equity dividends paid;
management of liquid resources and financing. Cash equivalents under U.S GAAP
are considered liquid resources under U.K GAAP.
SFAS 95 requires presentation of cashflows from operating, investing and
financing activities. The following statements summarise the statement of
cashflows for the Group as if they had been presented in accordance with U.S
GAAP.
2001 2000
#'000 #'000
Net cash outflow from operating activities (76,837) (29,249)
Net cash used in investing activities (66,139) (66,720)
Net cash (used)/provided by financing (13,403) 352,965
activities
Effects of exchange differences 1,412 681
--------------- ---------------
Net (decrease)/increase in cash and cash (154,967) 257,677
equivalents
Cash and cash equivalents under U.S GAAP at 262,370 4,693
beginning of period
--------------- ---------------
107,403 262,370
Differences in presentation of cash and cash 1,366 -
equivalents under
U.S. GAAP at end of period --------------- ---------------
Cash and cash equivalents at end of period 108,769 262,370
under U.K. GAAP
======== ========
(e) Income taxes
Under U.K. GAAP, deferred income taxes are accounted for to the extent that it
is probable that a liability or asset will materialise in the foreseeable
future. Under U.S. GAAP, deferred taxes are accounted for on all temporary
differences between book income and tax income and a valuation allowance is
established to reduce deferred tax assets to the amount which are likely to be
realised in future tax returns. The deferred tax asset can be reconciled to
the U.S. GAAP net deferred tax asset as follows:
2001 2000
#'000 #'000
Deferred tax asset in financial statements (U.K. - -
GAAP)
Tax effects of timing differences:
Tax losses:
United Kingdom 53,672 17,256
Germany 6,662 -
The Netherlands - -
Capital allowances and other timing differences 9,228 1,801
------------ -------------
Gross deferred tax assets under U.S. GAAP 69,562 19,057
Deferred tax valuation allowance (69,562) (19,057)
--------------- --------------
Net deferred tax assets under U.S. GAAP - -
======== ========
QUARTERLY GROUP FINANCIAL RESULTS
YEAR ENDED 31 MARCH 2001
Q1 Q2 Q3 Q4 Total
#'000 #'000 #'000 #'000 #'000
Turnover: continuing operations 5,030 5,575 5,890 5,345 21,840
Acquisitions 4,524 13,488 13,799 15,968 47,779
--------- --------- ------- ------- ---------
9,554 19,063 19,689 21,313 69,619
Discontinued operation 900 2,488 2,377 1,633 7,398
--------- --------- ------- ------- ---------
Total Turnover 10,454 21,551 22,066 22,946 77,017
Operating costs before (23,201) (36,463) (42,510) (36,178) (138,352)
depreciation and amortisation
Depreciation and amortisation (5,658) (12,092) (11,133) (19,251) (48,134)
--------- -------- -------- -------- ---------
Operating costs (28,859) (48,555) (53,643) (55,429) (186,486)
--------- -------- -------- -------- ---------
Operating Loss: continuing
operations (14,460) (15,109) (19,121) (23,380) (72,070)
Acquisitions (3,452) (10,648) (9,922) (8,030) (32,052)
-------- --------- -------- ------- ---------
(17,912) (25,757) (29,043) (31,410) (104,122)
Discontinued operation (493) (1,247) (2,534) (1,073) (5,347)
-------- --------- -------- ------- ---------
Group Operating Loss (18,405) (27,004) (31,577) (32,483) (109,469)
Exceptional items:
Provision for diminution in - (1,265) - - (1,265)
value of investment
Provision for cost of - - - (4,672) (4,672)
fundamental restructuring
Loss on disposal of discontinued - - - (2,784) (2,784)
operation
--------- --------- -------- -------- --------
Total exceptional items - (1,265) - (7,456) (8,721)
Net interest payable and similar (2,851) (4,002) (5,062) (5,608) (17,523)
charges
--------- -------- -------- ------- ---------
Loss on ordinary activities (21,256) (32,271) (36,639) (45,547) (135,713)
before taxation
Tax on loss on ordinary - - - - -
activities
--------- --------- -------- -------- ---------
Retained loss for the period (21,256) (32,271) (36,639) (45,547) (135,713)
======== ======= ======= ======= =======
Loss per share (11.34)p (15.39)p (17.33)p(21.57)p (65.63)p
======== ======= ======= ======= =======
EBITDA (12,747) (14,912) (20,444) (13,232) (61,335)
======== ======== ======= ======= =======
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