RNS No 3843r
ATLANTIC TELECOM GROUP PLC
16th July 1998
PART 1
ATLANTIC TELECOM GROUP PLC
FUNDING PACKAGE OF #110 MILLION
PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS
FOR THE YEAR ENDED 31ST MARCH, 1998
Key Points
- Proposed underwritten Placing of 33.3 million New Ordinary
Shares at 150 pence per share
- Placing will raise #50 million and, conditional on the
Placing, an underwritten Senior Debt Facility has been
secured of up to #60 million
- The funding package will allow Atlantic to finance fully
the Scottish build plan, comprising Greater Glasgow and the
cities of Aberdeen, Dundee and Edinburgh
Trading Highlights
- Substantially completed FRA (Fixed Radio Access) network
build in the City of Glasgow with capacity expanded in line
with growing demand for services
- Grant of national PTO licence in December 1997
- Launch of indirect service, Crest, to satisfy demand from
areas not served
- Record growth at Logicall, Atlantic's least cost routing
and telecom management company
"The Directors are very optimistic that the Group can continue
to develop and build on what it has already achieved. So far
this year the Group has continued to expand its
telecommunications line base at an encouraging rate and at
30th June, 1998, the Group's line base had increased to 35,321
from 31,083 at 31st March, 1998, which the Directors believe
is an encouraging start to the current financial year. I am
pleased that, subject to the necessary shareholder approvals,
we will be moving forward with an enhanced capital base and
importantly, a fully funded business plan, in order to build
on what has already been achieved."
Graham J. Duncan, Executive Chairman
FULL STATEMENT ATTACHED
Enquiries:
Graham J. Duncan, Executive Alex Walters, Citigate
Chairman
Tel: 01224 646644 Mobile: 0468 Tel: 0121 631 2299
106107
Alisdair McKenzie, Group Finance David Arch, Close
Director Brothers
Tel: 01224 646644 Tel: 0171 426 4000
ATLANTIC TELECOM GROUP PLC ("Atlantic")
PROPOSED PLACING OF 33,333,333 NEW ORDINARY SHARES
AT 150 PENCE PER SHARE
Introduction
The Board of Atlantic indicated in a statement issued on 20th
February, 1998 that it was the Group's intention to raise
funds in order to expand rapidly its telecommunications
networks. It was originally intended that these funds would
be provided through an issue of senior discount notes but on
13th March, 1998 the Company announced that it had postponed
the issue due to deteriorating market conditions. Since that
date, the Board has been considering alternative sources of
finance in order to fulfil its business plan. Subject to
Shareholder approval, funding has now been conditionally
secured for the next stage of the Group's expansion. This
comprises the Placing to raise #45 million, net of expenses,
and the Senior Debt Facility, which is conditional on the
Placing, for the provision of up to #60 million.
This financial package will provide the Group with the funding
required to finance fully the Scottish build plan.
The Company today also announces its unaudited preliminary
results for the year to 31st March, 1998.
The Placing comprises a placing of 33,333,333 New Ordinary
Shares and is conditional, inter alia, on the approval of
Shareholders at an Extraordinary General Meeting to be held on
10th August, 1998. The Placing has been fully underwritten by
Close Brothers Corporate Finance Limited ("Close Brothers")
and Hoare Govett Limited ("Hoare Govett") and the Senior Debt
Facility has been underwritten by ABN AMRO Bank NV ("ABN
AMRO")and The British Linen Bank Limited ("British Linen
Bank").
The Group's business plan shows that in the absence of further
funding the Company would exhaust current financial resources
in the very near term. In the event that the Placing did not
go ahead, the Senior Debt Facility would also not be
available. The Directors would therefore have to give urgent
consideration to the options available to secure adequate
finance for the Company's business. In such circumstances,
the Directors believe that the terms on which any finance may
be available would be materially less favourable to
Shareholders than the terms of the Placing and that, if
finance were not available, there would be significantly
adverse consequences for Shareholders.
Business strategy and achievements to date
The Company is a competitive local exchange carrier,
concentrating on building telecommunications access networks
in the local loop in heavily populated urban areas of
Scotland. It is the intention of the Directors that the
Company continues to be a premier provider of high quality
value added services within targeted sectors of the UK
telecommunications market, utilising appropriate technologies
that are tailored to its customer base. Since launching its
commercial service over its fixed radio access ("FRA") network
in the City of Glasgow in October 1996, the Company has
succeeded in capturing a growing share in its target markets
of residential and small business customers. A number of
significant achievements have been made since launch,
including the following:
- The Company has substantially completed its network build
in the City of Glasgow so that by 31st March, 1998 it had
passed approximately 200,000 homes and 21,000 businesses in
the city with its fixed radio access network, achieving a
penetration rate of the homes and businesses passed of 3
per cent. after just 17 months of operation. This
penetration was achieved in almost half the time originally
anticipated by the Directors when the Company first
launched the service.
- The Company's feature rich service packages and innovative
pricing and bundling strategies have resulted in average
revenues per residential customer materially above the UK
average. In the year ended 31st March, 1998, the Company
had an average revenue per residential customer of #36 per
month. At 31st March, 1998, approximately 22 per cent. of
directly connected lines were business lines and the
average revenues per business customer were #89 per month.
- The churn rate has been kept to levels which are considered
satisfactory and which are below those originally
anticipated by the Directors. For the year ended 31st
March, 1998, residential churn has averaged 17 per cent.
per annum and business churn has averaged 10 per cent. per
annum.
- The Directors believe that the Company has established
strong brand recognition in a relatively short time with an
image of high quality and good value.
- The FRA network has been designed and managed to cater for
a high density of customers on each base station. At 31st
March, 1998, the access network had excess capacity of
approximately 48 per cent. compared to the installed line
base at that time, which will allow the Company
significantly to increase its customer base without
capacity constraints.
- The network has performed to a very high standard. In the
year ended 31st March, 1998 it has performed to an
availability in excess of 99.99 per cent.
- When the Company first launched commercial service over its
FRA network, its operations were restricted by licence to
the Strathclyde Region of Scotland. Since then the Company
has obtained further licences which permit it to operate
across substantially the rest of Scotland.
- In December 1997, the DTI issued Atlantic
Telecommunications Limited with a Public Telecommunications
Operator ("PTO") licence for the whole of the UK. This
national PTO licence provides opportunities to expand
certain aspects of the business, although further regional
radio licences will be required in order to construct and
operate FRA networks outside Scotland. The Directors
expect to conclude discussions with the Radiocommunication
Agency on the procedures for further licensing in the next
few months.
- In September 1997, using indirect access technologies, the
Company introduced its Crest service for residential
customers. Crest has succeeded in capturing customers in
Scotland ahead of the Directors' planned expansion of the
Company's fixed radio access network. In addition, Crest
is winning customers in areas where the Directors do not
currently intend to build FRA networks.
- Following the acquisition of Logicall Telecommunications
Limited ("Logicall") in September 1996, this company's line
base has increased by over six times. The Directors
believe that this has been achieved by the successful
penetration of larger business customers as a result of
Logicall's blend of telecommunications management services
and least-cost routing capability.
Scottish build plan
The net proceeds from the Placing and the Senior Debt Facility
will be used principally to fund fully the Scottish build plan
and to upgrade the Group's Aberdeen cable TV network with
digital technology. During 1998, the Directors intend to
expand the Company's fixed radio access network so as to
include substantially all of the Greater Glasgow area,
covering approximately an additional 300,000 homes and 10,000
businesses, as well as to construct its network in Aberdeen, a
city of approximately 100,000 homes and 7,500 businesses. The
Directors also intend to upgrade the backhaul links in the
Company's existing fixed radio access network in the City of
Glasgow with the introduction of V5.2 technology and to build
further resilience into the backhaul portion of the network by
installing SDH rings. All future fixed radio access networks
will be constructed with such technology and resilience
incorporated.
In 1999, the Directors plan that the Company should complete
construction of its Scottish FRA networks covering the
remaining two principal cities in Scotland, Edinburgh and
Dundee, containing approximately 300,000 homes and 16,500
businesses in total. This will give the Company a combined
total coverage by its Scottish FRA networks of approximately
900,000 homes and over 55,000 businesses.
In addition to its telecommunications activities, the Group is
the licensed broadband cable operator for the City of Aberdeen
where its operational headquarters are based. The Company is
in the process of building an FRA network in Aberdeen and when
this is operational will market telecommunications services
jointly with its existing cable television service. The
Directors believe that this will further enhance the service
offered to customers and the added attraction of cable
television will add value to the telephone service. The
Directors expect to complete a digital upgrade of the Group's
cable network in Aberdeen, although the Group will not
undertake this upgrade until it is satisfied with the general
demand for digital services in the UK.
The Directors will continue to develop the Company's indirect
access services in Scotland extending the market by
approximately 1,350,000 homes. Whilst the focus of the
Group's plan is to complete the build-out of Atlantic's FRA
networks in Scotland, the Group will also consider directly
related capital investments in the whole of the UK subject to
strategic and economic justification. The Directors' plans
for the further development of the Group outside Scotland
include the further development of the Company's services to
business customers throughout the UK and the installation of a
switch in the London area to handle anticipated call volumes.
The Directors believe that the net proceeds from the Placing
and the Senior Debt Facility will fully fund the Scottish
build plan and these additional developments.
Build plan outside Scotland
Subject to being awarded the requisite licences, raising the
appropriate funding and the build plan outside Scotland being
demonstrated to be economically attractive, the Directors
intend that the Company should build additional fixed radio
access networks outside Scotland, limited to certain densely
populated regions in other parts of the UK. The Company was
issued with a national PTO licence by the DTI in December 1997
and is working with the RA on the procedures required for
applications to be made for the necessary further regional
licences under the Wireless Telegraphy Act to enable it to
extend its fixed radio access networks into targeted urban
areas in the rest of the UK.
The most appropriate funding to enable the Group to build
networks outside Scotland will be determined by the Board at
the time, although it is the Directors' current expectation
that this phase of the Company's development should be funded
principally through the debt markets.
Background to the Placing
On 20th February, 1998, the Company announced its intention to
raise gross proceeds of up to #95 million through a private
offering of senior discount notes in order to fund the
Scottish build plan. However, conditions in the market for
such issues deteriorated and, as a result, on 13th March, 1998
the Board announced that it had decided to postpone the issue
rather than subject the Company to interest rates which would
have been unacceptably high and not in the best interests of
the Shareholders.
The Directors believe that the terms on which the Company is
able to access the market for such issues remain unfavourable
and, whilst it is their intention to revisit the opportunity
to raise such funding once conditions improve, the Group
requires additional financing in the short term in order to
continue to develop the business. As set out below under
"Current trading and prospects", the Group continues to
perform strongly and it is partly the strength of this
performance which has led to the immediate requirement to
obtain additional capital.
Details of the Placing
The Placing is being effected on a non-pre-emptive basis, that
is to say the New Ordinary Shares are being placed directly
with institutional investors and are not first being offered
for subscription by existing shareholders.
A non-pre-emptive placing has been chosen after taking into
account the size of the issue relative to the Company's
existing capitalisation, the limited financial capacity of
certain existing shareholders (notably the Directors who,
together, hold approximately 31.9 per cent. of the existing
issued share capital) to support the issue and, therefore, the
need to encourage the participation of new investors.
Because the Placing is on a non-pre-emptive basis, it will
require, inter alia, the approval by Shareholders of a special
resolution to disapply their statutory pre-emption rights.
Such a resolution will be proposed at the Extraordinary
General Meeting.
Pending application of the net proceeds from the Placing to
finance the Scottish build plan, the net proceeds will be
placed on interest bearing deposit.
The Warrants
Of the original Warrants issued by the Company on 10th
January, 1995, 5,050,161 Warrants remain outstanding. These
Warrants are currently exerciseable at a price of 133p per
Ordinary Share during the period of 30 days commencing
tomorrow and ending on 15th August, 1998. In the light of the
Placing, the Directors consider that it is appropriate to make
a number of amendments to the terms of the Warrants, in
particular, to extend the period for exercise of the Warrants
and correspondingly to increase the price at which the
Warrants can be exercised. The changes are proposed
principally to increase the level and certainty of proceeds
available to the Company and to enable the Company potentially
to access further equity funding through the exercise of the
Warrants at a later date at a premium to the Placing Price.
Consequently, the Company will today issue a circular to the
Warrant holders convening a general meeting of the Warrant
holders to approve the proposed changes. These changes
involve the extension of the period of exercise of the
Warrants to 30th September, 1999 and the increase in the
exercise price of each Warrant from 133p per Ordinary Share to
160p per Ordinary Share.
Senior Debt Facility
The Company has entered into the Facility Agreement with ABN
AMRO and British Linen Bank under which these banks have
agreed to provide the Group with a new Senior Debt Facility
totalling up to #60 million, conditional upon the Placing
being completed. The drawdown of the Senior Debt Facility is
conditional on the achievement of certain targets set out in
the Facility Agreement. A further condition of the Senior
Debt Facility is that the Company should have, in effect,
spent a minimum of approximately #37 million of the gross
proceeds of the Placing prior to the initial drawdown.
Current trading and prospects
The Company has today announced its unaudited preliminary
results for the year to 31st March, 1998.
The year to 31st March, 1998 has again been one of significant
progress. During the year, the Company concentrated on
expanding the network and increasing the capacity of the
network in line with demand which has been running at
encouraging levels.
Looking forward, the Directors remain highly confident that,
with the benefit of the proceeds from the Placing and the
Senior Debt Facility, the Company can continue to develop and
build on what it has already achieved. So far this year the
Company has continued to expand its line base at an
encouraging rate and at 30th June, 1998 the Company's line
base had increased to 35,321 from 31,083 at 31st March, 1998,
which the Directors believe is an encouraging start to the
current financial year. The first of the base stations for
the rest of Greater Glasgow has been installed and is now
operational. The FRA network in Aberdeen is in the process of
construction with the switch already installed and fully
commissioned.
Working capital
The Directors are of the opinion that, following the Placing
and having regard to the bank facilities available to it, the
Group has sufficient working capital for its present
requirements.
The Placing has been underwritten by Close Brothers and Hoare
Govett and is subject to Shareholder approval. The Senior
Debt Facility, which is conditional upon the Placing, has been
underwritten by ABN AMRO and British Linen Bank. However, in
the event that the Placing does not complete, the Directors
would have to give urgent consideration to the options
available to secure adequate finance for the Company's
business. In such circumstances, the Directors believe that
the terms on which any finance may be available would be
materially less favourable to Shareholders than the terms of
the Placing and that, if finance were not available, there
would be significantly adverse consequences for Shareholders.
--------------------------------------------------------------
Close Brothers Corporate Finance Limited, which is regulated
by The Securities and Futures Authority, is acting for
Atlantic Telecom Group PLC and no one else in connection with
the Placing and will not be responsible to anyone other than
Atlantic Telecom Group PLC for providing the protections
afforded to its customers or for providing advice in relation
to the Placing.
MORE TO FOLLOW
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