RNS No 9081r
ATLANTIC TELECOM GROUP PLC
11th December 1998
Interim Results for the six months ended 30 September 1998
STATEMENT BY THE CHAIRMAN, GRAHAM J DUNCAN
REVIEW
The performance for the period is a creditable one and we have completed the
period with record customer line numbers.
Turnover for the half-year was #6,906,000 compared to #5,390,000 for the
equivalent period last year. A milestone has been achieved in the period with
telecommunications turnover now predominant at #4,076,000 for the period, or
59% of the total. The loss for the period was #6,884,000, which compares
against #4,012,000 for the equivalent period last year. The increase reflects
the significant costs of building out our telecommunications networks in
Scotland and is a financial characteristic of the early stage of a network
roll out.
At the end of the last financial year, we announced that we had postponed an
issue of senior discount notes due to adverse market conditions. In order to
conserve existing cash resources, your Board took steps during the period to
curtail further development of the network and operations until a new fund
raising could be completed. We continued with the network planning processes
during the period which allowed us to move forward our plans with renewed
vigour once funding was available. Inevitably, activity slowed down until
completion of the fund raising exercise. We decided that it was appropriate to
issue further equity and accordingly we moved forward with a very successful
share issue in mid-August that raised #50m before expenses. We also concluded
a new banking facility of up to #60m. This package of equity and debt fully
funded our Scottish build plans.
In view of the turmoil in the financial markets towards the end of the half-
year, your Board has reconsidered the treatment of certain costs that were
carried forward in the period ended 31 March 1998, associated with the aborted
issue of senior discount notes. We have decided that it would be prudent to
expense the outstanding costs and accordingly, the loss for the half-year is
stated after an exceptional write off of #430,000.
TELECOMMUNICATION OPERATIONS IN SCOTLAND
Our fixed radio access ("FRA") operations in Glasgow continue to perform well.
The penetration of residential and business customers in the City of Glasgow
has reached 3.62% at 30 September 1998, a most promising result and
significantly ahead of our original expectations. After completion of our
fund raising, we were able to continue the build of the FRA network, and the
first of the base stations in Greater Glasgow became operational during the
period. Importantly, we launched service in our home city of Aberdeen on the
very last day of the period. The first phase of the network build in Aberdeen
covers approximately 63,000 homes with 15 base stations, and the network is
the first to deploy underground fibre links to certain base stations. We have
also deployed V5.2 concentration technology on the network back-haul and
deployed SDH ring technology for resilience. These aspects of the design, we
believe, make the network one of the most sophisticated and resilient fixed
access networks in the world. The early take up of service in Aberdeen has
been most promising.
At 30 September 1998, we had 8,617 customers with a total of 18,170 lines
installed or pending installation on our FRA networks. Furthermore, we had
5,319 customers with a total of 5,583 lines on our "Crest" indirectly
connected service that uses BT's network to connect customers rather than
utilise a direct FRA connection. The total telecommunications customer base in
Scotland was therefore close to 14,000 at the period end with, in total, over
20,000 lines installed or pending installation.
The levels of disconnection over the six-month period have been within
acceptable boundaries. The churn of residential customers over the period has
averaged 16% on an annualised basis while churn of business customers on the
same basis has averaged 15%.
Since the period end, Atlantic has launched service in Paisley, within Greater
Glasgow, and, following an important arrangement entered into with Scottish
Hydro Electric, we have been able to fast track development of the network in
the City of Dundee. Hydro Electric is providing us with a fibre link to
Aberdeen from Dundee to allow us to switch the Dundee traffic on our existing
Aberdeen switch. Following early agreement from the local authority in Dundee,
we have also been able to secure base station sites and are pleased to be able
to launch service in Dundee on 15 December 1998, fully six months earlier than
expected. Since the period end, we have also taken delivery of the switch
required for the City of Edinburgh and are now in the process of installing
and commissioning the switch. We hope to be able to commence service in
Edinburgh within the current financial year. We remain on target to complete
the networks during calendar year 1999.
Also, since the period end, a further important milestone was reached on 1
December when we opened our own call centre in Glasgow, to handle our
telephone marketing activities which had been contracted out since we launched
commercial service two years ago. At the same time we initiated our
centralised customer service operations based on our award winning customer
service team located in Aberdeen. These important steps put us in an excellent
position to win and retain customers in the future.
Average revenues per connected customer have been very encouraging and, in the
residential area, remain at levels significantly higher than the industry
norm. In the six months to 30 September 1998, the average revenue has been
#35.81 for residential customers directly connected on the FRA networks and
#89.06 for business customers over the same period. The average revenue for
indirectly connected Crest customers has been #10.62 over the period. Without
the benefit of line rental (which continues to be paid to BT for these types
of customers), an automatic second line, or feature based call usage, Crest
customers will always generate lower revenues. Crest is, however a useful tool
to bring customers onto the Atlantic brand and billing system ahead of the
introduction of FRA to an area. Crest also provides a means for Atlantic to
connect customers outside the key urban areas selected for FRA development and
will therefore remain the only service that is available from Atlantic in many
parts of Scotland.
During the half-year, we introduced further innovative enhancements to our
service packages which reinforce our belief that distance based customer
pricing will eventually be eliminated from the market. These enhancements
included the benefit of local calls for our customers to a range of key UK
cities, as well as the introduction of a special global rate to a range of
worldwide cities. Since the period end, we have introduced a service designed
for the heavy internet user which gives the customer access to two voice lines
and a 64kb data line in a bundled package, and have introduced a very exciting
tariff for directly connected business customers that charges calls to the
whole of the UK at a local call rate. This tariff also dispenses with the
concept of line rental and, in its place, provides the business customer with
a sliding scale of management fees that have the benefit of allowing the
customer to add or remove lines, within certain bands, without additional
charges.
It is our intention to continue to develop innovative features as part of our
service and we will continue to develop and enhance the range of value added
services.
LEAST-COST ROUTING AND MANAGED SERVICES
Our telecom management company, Logicall, has increased its lines under
management by 2,781 in the half-year to a new high of 16,252 at 30 September
1998. As indicated in my full year statement, and following the successful
fund raising, we are now looking at locations and switch specifications to
allow the introduction of switch based least cost routing for this part of our
business. We expect to have made decisions on this by early in the New Year
and have a switch or switches deployed by the summer of 1999.
CABLE TELEVISION
The customer base in our sole broadband cable operation in Aberdeen was at
15,004 at 30 September 1998, compared to 15,420 at 31 March 1998. It has held
up particularly well over the summer, which has historically been a difficult
period for us. This has been due, at least in part, to the introduction of our
Crest indirect telephone service which has been taken up by several thousand
cable customers and which was launched ahead of the introduction of our fixed
radio access service. This has encouraged subscribers to remain with the cable
service over this period, resulting in one of the lowest number of summer
disconnections that we have ever experienced. Churn for the six months ended
30 September 1998 has averaged 24% on an annualised basis. This is
significantly lower than the equivalent period last year when churn reached
41% on an annualised basis.
The average revenue per customer in Aberdeen remains approximately 40% higher
than the UK industry average. Over the six month period, the average monthly
revenue per customer was #30.44, an increase of 5.7% over the equivalent
period last year. The average revenue is expected to decline in the second
half-year as, since the period end, we have repositioned Atlantic Cable in the
Aberdeen market following the introduction of the FRA service in the city. We
have lowered the price of our basic service by #5.00 per month to maintain
Atlantic's competitive position following the market launch of both direct to
home digital satellite and digital terrestrial services, which compete with
our cable services. We have also introduced a package designed to encourage
customers to take both our television and telephone services. Early take up of
the combined packages has been encouraging.
We have also begun to test the feasibility of providing the full package of
digitally transmitted services over the cable system. Early tests on the
Aberdeen cable network have delivered excellent results, and we will continue
the testing process in the New Year, prior to making any decision to proceed
with a digital upgrade of the cable network.
We were very pleased to be re-awarded the cable franchise for the City of
Aberdeen on 1 December 1998. The Independent Television Commission assessed
both the cash bid and percentage of qualifying revenue payments at zero. The
new licence will run from 4 May 1999 and, in common with all cable licences in
the United Kingdom, the licence becomes non exclusive on 1 January 2001.
STRATEGY AND OUTLOOK
Our strategy continues to be to develop the breadth and range of services that
we can deliver to our customers, using appropriate technologies. We believe
that customers will expect to see a range of telecommunications products
billed on a single bill and Atlantic is now in the process of upgrading its
billing systems which will enable the billing of joint services. We are
working therefore to deliver continued innovation in our customer products and
packaging to allow us to achieve that objective.
As noted earlier, the completion of a funding package to complete the build of
our Scottish networks was a significant achievement that was completed in mid
August, ahead of the turmoil experienced in the markets towards the end of the
half-year. With the resources now available to us, we look forward to moving
the business forward on all fronts as quickly as is practicable. We remain on
schedule to complete the four Scottish networks during 1999, and are confident
that we will have an initial presence in all of these areas within the next
three months, well ahead of plan.
Enquiries:
Graham J Duncan, Executive Chairman
Atlantic Telecom Group PLC
Today: 0468-106107
Thereafter: 01224-454000
or
Alex Walters
Citigate Dewe Rogerson
Today: 0171-282 8000
Thereafter: 0121-631 2299
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the six months ended 30 September 1998
6 months to 6 months to 12 months to
30 September 30 September 31 March
1998 (unaudited) 1997 (unaudited) 1998 (audited)
#'000 #'000 #000 #000
TURNOVER
Continuing operations 6,906 5,030 10,595
Discontinued operations - 360 795
-------- -------- --------
6,906 5,390 11,390
Cost of sales (5,069) (3,145) (7,953)
-------- -------- --------
Gross profit 1,837 2,245 3,437
Other operating charges
-ongoing (7,959) (5,920) (12,007)
-exceptional (430) - (325)
-------- -------- --------
(8,389) (5,920) (12,332)
-------- -------- --------
OPERATING LOSS
Continuing operations (6,552) (3,653) (8,733)
Discontinued operations - (22) (162)
-------- -------- --------
(6,552) (3,675) (8,895)
Exceptional items
Discontinued operations:
Loss on sale of discontinued
operations - (1,410) (1,698)
Less release of provision
for operations to be
discontinued - 913 1,028
-------- -------- --------
- (497) (670)
-------- -------- --------
LOSS ON ORDINARY
ACTIVITIES BEFORE INTEREST (6,552) (4,172) (9,565)
Net interest (332) 160 25
-------- -------- --------
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION (6,884) (4,012) (9,540)
Tax on loss on ordinary activities - - -
-------- -------- --------
RETAINED LOSS FOR THE PERIOD (6,884) (4,012) (9,540)
======== ======== ========
Loss per share (11.47)p (7.93)p (18.86)p
======== ======== ========
Fully diluted loss per share (11.35)p (7.83)p (18.55)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 (6,552) (3,675) (8,895)
Depreciation and amortisation of
goodwill 1,886 988 2,364
Cost of network leases 82 82 164
-------- -------- --------
Earnings before interest, tax,
depreciation and amortisation (4,584) (2,605) (6,367)
======== ======== ========
CONSOLIDATED BALANCE SHEET
as at 30th September 1998
30 September 30 September 31 March
1998 (unaudited) 1997 (unaudited) 1998 (audited)
#'000 #'000 #'000
FIXED ASSETS
Intangible assets 3,801 3,965 3,883
Tangible assets 38,506 19,704 29,709
-------- -------- --------
42,307 23,669 33,592
CURRENT ASSETS
Stocks 4,075 909 715
Debtors : amounts falling due
after more than one year 7,694 5,848 6,776
Debtors: amounts falling due
within one year 5,599 3,833 4,046
Cash at bank 27,490 7,675 57
-------- -------- --------
44,858 18,265 11,594
CREDITORS
Amounts falling due within
one year 17,834 9,771 15,517
-------- -------- --------
NET CURRENT ASSETS/
(LIABILITIES) 27,024 8,494 (3,923)
-------- -------- --------
TOTAL ASSETS LESS CURRENT
LIABILITIES 69,331 32,163 29,669
CREDITORS
Amounts falling due after
more than one year 6,827 4,563 7,598
-------- -------- --------
62,504 27,600 22,071
====== ====== ======
CAPITAL AND RESERVES
Called up share capital 21,147 12,644 12,644
Share premium account 61,653 22,840 22,839
Profit and loss account (20,296) (7,884) (13,412)
-------- -------- --------
62,504 27,600 22,071
====== ====== ======
CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 September 1998
6 months to 6 months to 12 months to
30 September 30 September 31 March
1998 (unaudited) 1997 (unaudited) 1998 (audited)
#'000 #'000 #'000 #'000 #'000 #'000
RECONCILIATION OF OPERATING LOSS TO
NET CASH OUTFLOW FROM OPERATING ACTIVITIES
Operating loss from
continuing activities (6,552) (3,675) (8,733)
Depreciation 1,804 988 2,312
Amortisation of
lease prepayment 82 82 164
Network lease
prepayments (1,000) (875) (1,875)
(Increase)/decrease
in stock (3,360) 140 305
Decrease in debtors (271) (836) (1,748)
Increase in creditors 2,496 2,163 6,349
Gain on disposal
of fixed assets (47) (26) (14)
-------- -------- --------
Net cash outflow from
continuing operating activities (6,848) (2,039) (3,240)
Net cash outflow from
discontinued operations - - (562)
-------- -------- --------
Net cash outflow from
operating activities (6,848) (2,039) (3,802)
-------- -------- --------
CASH FLOW STATEMENT
Net cash outflow from
operating activities (6,848) (2,039) (3,802)
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received 296 331 573
Interest paid (628) (250) (588)
-------- -------- --------
Net cash (outflow)/
inflow from returns on
investments and
servicing of finance (332) 81 (15)
CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT
Purchase of tangible
fixed assets (9,630) (7,518) (13,822)
Sale of tangible fixed
assets 155 49 113
-------- -------- --------
Net cash outflow from
capital expenditure
and financial investment (9,475) (7,469) (13,709)
ACQUISITIONS AND DISPOSALS
Sale of subsidiary
undertaking - 100 445
Expenses related to sale
of subsidiary undertaking - - (25)
-------- -------- --------
Net cash inflow from
acquisitions and disposals - 100 420
MANAGEMENT OF LIQUID
RESOURCES
Cash (placed on)/
withdrawn from short
term deposit (26,000) 10,000 16,000
FINANCING
Issue of shares 50,902 23 26
Repayment of borrowing (260) (200) (400)
Capital element of
finance lease rentals (1,452) (675) (1,606)
Expenses paid in
connection with share
issue (3,585) - (4)
Loan finance costs (1,282) - -
-------- -------- --------
Net cash inflow/
(outflow) from financing 44,323 (852) (1,984)
-------- -------- ---------
INCREASE/(DECREASE) IN CASH 1,668 (179) (3,090)
======= ======== =========
Atlantic Telecom Group PLC
NOTE TO THE CONSOLIDATED CASH FLOW STATEMENT
ANALYSIS OF NET FUNDS/(DEBT)
At 1 April Non-cash At 30 September
1998 Cash Flow Items 1998
#'000 #'000 #'000 #'000
Cash 57 27,433 - 27,490
Less cash on deposit - (26,000) - (26,000)
-------- -------- -------- --------
57 1,433 - 1,490
Bank overdraft (2,366) 235 - (2,131)
-------- -------- -------- --------
(2,309) 1,668 - (641)
Liquid resources
Cash on short term deposit - 26,000 - 26,000
-------- -------- -------- --------
(2,309) 27,668 - 25,359
-------- -------- -------- --------
Debt due after one year (1,100) 200 - (900)
Debt due within one year (600) 60 - (540)
Finance leases (8,904) 1,336 (881) (8,449)
-------- -------- -------- --------
(10,604) 1,596 (881) (9,889)
-------- -------- -------- --------
Net (debt)/funds (12,913) 29,264 (881) 15,470
====== ====== ====== ======
Atlantic Telecom Group PLC
NOTES TO THE INTERIM REPORT
1.Preparation of Interim Report
The interim financial information for the six months ended 30 September
1998 was approved by the directors on 11 December 1998. It has been
prepared in accordance with relevant accounting standards on a consistent
basis using accounting policies set out in the 1998 Annual Report. The
interim financial information is unaudited but has been reviewed by the
auditors.
2.Financial information
The financial information set out on pages 6-9 does not constitute full
financial statements for the purposes of section 240 of the Companies Act
1985. Comparative figures for the year ended 31 March 1998 are extracted
from the full 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 of the Companies Act 1985.
3. Loss per share
The loss per share is based on the loss attributable to the Ordinary
Shareholders of #6,884,000 (30 September 1997 - loss of #4,012,000) and on
the weighted average number of Ordinary Shares in issue during the period
of 60,023,993 (30 September 1997 - 50,570,898).
As required by the new Earnings Per Share accounting standard (FRS 14), set
out below is the calculation behind the disclosure of fully diluted loss
per share. Losses continue to be based on the net loss attributable to
Ordinary Shareholders with the dilution effect of the full exercise of all
share options and warrants granted by the Company being arrived at by
comparing the difference between the weighted average exercise price of the
share options with the average daily mid-market closing share price over
the period, as follows :-
6 6 12
months months months
to to to
30 30 31
Septemb Septemb March
er 1998 er 1997 1998
(unaudi (unaudi (audite
ted) ted) d)
WARRANTS
Weighted average exercise 141.56p 133.00p 133.00p
price in the period
Average daily share price in 155.16p 149.62p 152.22p
the period
Dilution ratio applied to 8.77% 11.11% 12.63%
warrants
Weighted average number of 471,277 635.228 721,934
diluted warrants
SHARE OPTIONS
Weighted average exercise 115.00p - 115.00p
price in the period
Average daily share price in 155.16p 149.62p 152.22p
the period
Dilution ratio applied to 25.88% - 24.45%
share options
Weighted average number of 152,146 - 143,731
diluted share options
TOTAL WEIGHTED AVERAGE NUMBER
OF SHARES
Weighted average shares in
issue in the period 60,023,993 50,570,898 50,574,520
Weighted average warrants 471,277 635,228 721,934
Weighted average share options 152,146 - 143,731
Weighted average shares for
calculating diluted EPS 60,647,416 51,206,126 51,440,185
4.Dividend
In view of the deficit on reserves the directors cannot recommend a
dividend and the loss for the period has therefore been transferred to
reserves.
Further copies of this interim report can be obtained from the company's head
office at Holburn House, 475 - 485 Union Street, Aberdeen, AB11 6DB.
END
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