RNS Number:5295U
Phoenix IT Group PLC
23 November 2005
23 November 2005
PHOENIX IT GROUP PLC
INTERIM RESULTS 2005
Phoenix IT Group plc, the UK IT services company, is pleased to announce its
interim results for the six months ended 30 September 2005.
Phoenix provides a range of high quality IT support services, including network
and systems management, network services, service desks, field services and
professional services. These services are increasingly sold and delivered as a
managed service where Phoenix, in conjunction with a partner, manages the end
user's entire IT infrastructure rather than providing individual support
services. In April 2005 the Company added disaster recovery and business
continuity services to its portfolio with the acquisition of NDR.
This is the first set of results to be issued under International Financial
Reporting Standards (IFRS) and comparatives have been restated accordingly.
Highlights
* Revenue up 32% to #54.8m (2004: #41.5m)
- increase of 14% excluding acquisition of NDR
* Profit from operations before share option charges and amortisation of
acquired intangibles up 37% to #11.3m (2004: #8.2m)
- increase of 12% excluding acquisition of NDR
* Profit from operations increased by 17% to #9.6m (2004: #8.2m)
* Profit before tax up 25% to #8.9m (2004: #7.1m)
* Diluted earnings per share of 10.1p (2004: 11.0p)
- 12.0p excluding share option charges and amortisation of acquired
intangibles
* Interim dividend of 1.38p per share
* Order book #143.3m (2004: #108.2m)
* Net cash from operating activities of #13.7m (2004: #2.0m)
Commenting on these results, Nick Robinson, Chief Executive of Phoenix said:
"These results reflect an encouraging start to the year.
During the period we continued to grow in terms of revenue and profits and
worked closely with our customers on new business opportunities and maintaining
a high level of contract renewals. In addition, we broadened the range of
services available to our customers, particularly in disaster recovery and
business continuity services through the acquisition of NDR, and entered into
framework service agreements with a number of the major offshore service
providers and leading business process outsourcing organisations.
The high degree of visibility provided by the recurring nature of our revenues
and level of the order book gives us confidence in the performance of the Group
for the year as a whole."
Enquiries:-
Phoenix IT Group plc - +44 (0)1604 769000
Nick Robinson - Chief Executive
David Taylor - Group Finance Director
Financial Dynamics - +44 (0)207 831 3113
Giles Sanderson
Harriet Keen
Cass Helstrip
Overview
During the six month period we continued to grow in terms of revenue and profits
and further broadened the range of services available to our customers,
particularly in disaster recovery and business continuity services through the
acquisition of NDR in April 2005.
Results
Group turnover rose by 31.8% to #54.8m (2004: #41.5m). This includes a
contribution from the acquisition of NDR of #7.3m. The underlying organic
growth in turnover excluding NDR was 14.1%.
Profit from operations before share option charges and amortisation of acquired
intangibles rose by 37.1% to #11.3m (2004: #8.2m). This includes #2.1m
contributed by NDR. The underlying growth from the Phoenix operation was 12.0%.
Under IFRS 3, we are required to identify intangible assets acquired separately
from goodwill and amortise them over their expected useful life. A provisional
valuation of #9.0m has been attributed to the intangible assets in relation to
the NDR acquisition and results in an amortisation charge within the income
statement of #1.0m in the period.
Profit from operations after share option charges and amortisation of acquired
intangibles was #9.6m (2004: #8.2m).
Profit before tax increased by 25.3% to #8.9m (2004: #7.1m). The tax rate of
31% is based on the estimated full year rate on the full year profit before tax.
Diluted earnings per share decreased to 10.1p (2004: 11.0p). Adjusted diluted
earnings per share excluding share option charges and amortisation of acquired
intangibles increased to 12.0p (2004: 11.0p).
The Group's cash position changed from net cash of #8.1m at the start of the
period to net bank borrowings (excluding finance leases) of #18.7m (see note 8).
This is due to the cost of acquisition of NDR of #30.0m (including costs)
together with the bank borrowings of NDR assumed at the time of acquisition of
#7.9m. The net cash inflow, excluding the cost of the NDR acquisition of
#37.9m, was #11.1m.
International Financial Reporting Standards (IFRS)
These are the first set of results the Group has reported under IFRS accounting
standards. The comparative information for earlier periods has been restated
and reconciliations from UK Generally Accepted Accounting Principles (UK GAAP)
to IFRS can be found at www.phoenixitgroup.com
As a result we have been required to:
* Recalculate share based payment transactions;
* Recognise intangible assets arising on acquisition and amortise over their
expected useful life;
* Review goodwill for impairment as opposed to amortising it; and
* Recognise liabilities on final equity dividends only when approved by
shareholders and interim equity dividends when paid;
* Recognise a holiday pay accrual.
The impact of the change to IFRS has no material impact on the Group's
distributable reserves or ability to pay dividends.
Dividend
The Board has declared an interim dividend of 1.38p per share (2004: nil) which
will be paid on 3 February 2006 to shareholders on the register at 13 January
2006.
Review of Operations
During the period we continued to work closely with our customers on new
business opportunities as well as maintaining a high level of contract renewals.
We have strengthened relationships and entered into framework service
agreements with a number of the major offshore service providers and leading
business process outsourcing organisations and were appointed as a preferred
supplier for Accenture Technology Infrastructure Services. The flow of
opportunities for project work has continued to be strong during the period.
This has included IP project work, an area where we are seeing new potential
opportunities arising out of IP convergence.
In a market where there is increasing price competition for commodity services,
our in-depth understanding of our customers' requirements and the quality of
services we provide are critical diffentiators for Phoenix and we were delighted
to achieve the BS15000:2002 IT Service Management quality accreditation in June.
The order book at the end of the period was #143.3m (2004: #108.2m). This
includes an amount of #23.0m relating to NDR.
We are at an advanced stage of negotiation with our partners to continue to
provide the services to the Department of Work and Pensions (DWP) beyond the
expiry of our contracts on 31 December 2005 and are optimistic that this will
encompass a substantial part of the current range of services provided until the
Department commences a technology refresh of the existing infrastructure. The
final outcome of the commercial negotiation is likely to result in a reduction
of profitability compared to the existing contracts depending on the final
agreement of the scope of services provided. Whilst we are actively negotiating
to secure a satisfactory continuation of the services provided there can be no
certainty as to the outcome until the commercial negotiations have been
concluded. A further announcement will be made in due course.
The acquisition of NDR was completed on 19 April 2005 and during the period
since the business has performed in line with our expectations at the time of
the acquisition. The transition from the previous owner-managers to the new
management team has gone well and should enable the business to continue to grow
and further develop the scope of their offering in a market which remains
active. The new management team is led by Dennis Thomas who has 15 years
experience managing in the disaster recovery and business continuity marketplace
and previously headed up the Business Continuity division of Synstar plc. We
have been encouraged by the potential for the enlarged group to exploit the
combined resources and technical skills of Phoenix and NDR to offer additional
value-added services to our customers. To help us achieve this, we have created
a specialist sales role focused on selling the NDR range of services to the
Phoenix partner customer base. Whilst this has only recently been established
the level of interest from our customers has been encouraging.
Board composition
David Taylor, Group Finance Director, has expressed a desire to leave the
company to pursue other interests. He will remain in his position for a period
of time to allow a successor to be appointed. The search for a new Finance
Director has commenced.
We have also engaged a search and selection agency to find a suitable additional
non executive director as outlined in the prospectus published at the time of
the flotation last year.
Employees
The hard work and commitment of all of our employees is central to our first
half performance and we would like to take this opportunity to thank them for
their continued contribution to the success of the business.
Outlook
Whilst the summer months were slightly slow, we experienced a very active
September and October. These results reflect an encouraging start to the year.
The high degree of visibility provided by the recurring nature of our revenues
and level of the order book gives us continuing confidence in the performance of
the Group for the year as a whole.
Consolidated statement of income
For the six months ended 30 September 2005
Note Unaudited Unaudited Audited
six months six months year
to 30 Sep to 30 Sep to 31 Mar
2005 2004 2005
#'000 #'000 #'000
Continuing operations
Existing operations 47,414 41,549 88,331
Acquisition in period 7,337 - -
Total Revenue 2 54,751 41,549 88,331
Profit from operations before share option
charges, flotation expenses and amortisation of intangible
asset arising on acquisition
Existing operations 9,197 8,213 15,920
Acquisition in period 2,063 - -
Total profit from operations before share
option charges, flotation expenses and
amortisation of intangible asset arising on acquisition 11,260 8,213 15,920
Flotation expenses - - (1,979)
Share option charges:
- Existing operations (623) (21) (911)
- Acquisition in period (15) - -
Amortisation of intangible asset arising on acquisition (999) - -
Profit from operations
Existing operations 8,574 8,192 13,030
Acquisition in period 1,049 - -
9,623 8,192 13,030
Interest receivable 133 65 249
Interest payable (905) (1,192) (2,195)
Profit before taxation 8,851 7,065 11,084
Taxation 3 (2,744) (2,211) (3,428)
Profit for the period 6,107 4,854 7,656
Earnings per share
Basic 6 10.4p 11.3p 15.7p
Diluted 6 10.1p 11.0p 15.4p
Consolidated balance sheet
At 30 September 2005
Unaudited Unaudited Audited
30 Sep 2005 30 Sep 31 Mar
#'000 2004 2005
#'000 #'000
Non-current assets
Goodwill 58,544 22,117 21,745
Intangible asset arising on acquisition 8,014 - -
Property, plant and equipment 12,314 3,901 4,380
Deferred tax assets - 908 1,191
78,872 26,926 27,316
Current assets
Inventories 6,541 6,043 6,271
Trade and other receivables 22,686 20,022 18,949
Cash and cash equivalents 1,243 5,302 8,099
30,470 31,367 33,319
Total assets 109,342 58,293 60,635
Current liabilities
Trade and other payables (19,452) (13,030) (13,479)
Current tax liabilities (3,436) (2,011) (1,248)
Bank overdrafts and loans (4,000) (3,123) (30)
Obligations under finance leases (1,624) - -
Provisions (450) (654) (500)
(28,962) (18,818) (15,257)
Net current assets 1,507 12,549 18,062
Non-current liabilities
Bank loans (15,915) (29,872) -
Obligations under finance leases (3,063) - (58)
Deferred tax liabilities (1,343) - -
Provisions (1,153) - -
(21,474) (29,872) (58)
Deferred income
Due within one year (22,778) (16,347) (14,452)
Due after one year (165) (223) (145)
(22,943) (16,570) (14,597)
Total liabilities (73,379) (65,260) (29,912)
Net assets/(liabilities) 35,963 (6,967) 30,723
Equity
Share capital 593 86 589
Share premium account 36,745 2,576 36,508
Other reserves 756 19 222
Retained earnings (2,131) (9,648) (6,596)
Total equity 35,963 (6,967) 30,723
This interim financial information was approved by the Board of Directors on 22
November 2005.
Statement of changes in shareholders' equity
At 30 September 2005
Unaudited Unaudited Audited
six months six months Year
to 30 Sep to 30 Sep to 31 Mar
2005 2004 2005
#'000 #'000 #'000
Profit for the period 6,107 4,854 7,656
Exchange differences on translation of foreign
operations recognised directly in equity 3 - 4
Total recognised income for the period 6,110 4,854 7,660
New share capital issued 4 - 503
Employee share options - shares to be issued 531 19 218
Share based payments deferred tax reserve (221) 78 328
Premium on issue of shares 237 - 35,341
Share issue costs - - (1,409)
Final dividend for year ended
31 March 2005 (2.4p per share) (1,421) - -
Net increase in shareholders' equity 5,240 4,951 42,641
Balance at start of the period 30,723 (11,918) (11,918)
Balance at end of the period 35,963 (6,967) 30,723
Consolidated cash flow statement
For the six months ended 30 September 2005
Note Unaudited Unaudited Audited
six months six months Year
to 30 Sep to 30 Sep to 31 Mar
2005 2004 2005
#'000 #'000 #'000
Profit from operations 9,623 8,192 13,030
Adjustments for:
Depreciation of property, plant and equipment 1,871 618 1,236
Amortisation of intangible asset arising on acquisition 999 - -
Gain on disposal of property, plant and equipment - - 44
Share option charges 531 19 218
Exchange difference 3 - 4
Operating cash flows before movements
in working capital 13,027 8,829 14,532
Decrease/(increase) in inventories (270) 302 73
Decrease/(increase) in receivables 1,392 (6,645) (5,619)
Increase in payables 1,930 203 767
Increase/(decrease) in deferred income (1,131) 2,093 (299)
Cash generated by operations 14,948 4,782 9,454
Income taxes paid (974) (1,685) (3,130)
Interest received 133 65 249
Interest paid (450) (1,114) (1,569)
Net cash from operating activities 13,657 2,048 5,004
Investing activities
Purchases of property, plant and equipment 7 (1,203) (681) (1,730)
Acquisition of subsidiary undertaking: 5
- Cash consideration (28,825) - -
- Costs of acquisition (1,143) - -
- Cash and cash equivalents acquired 2,018 - -
Net cash used in investing activities (29,153) (681) (1,730)
Financing activities
Dividends paid (1,421) - -
Repayments of borrowings (19,875) (61) (33,604)
Repayments of obligations under finance leases (305) - (2)
New bank loans raised 30,000 - -
Issue of share capital 241 - 34,435
Net cash from/(used in) financing activities 8,640 (61) 829
Net increase/(decrease) in cash and cash equivalents (6,856) 1,306 4,103
Cash and cash equivalents at beginning of the period 8,099 3,996 3,996
Cash and cash equivalents at end of the period 7 1,243 5,302 8,099
Notes to the interim financial statements
For the six months ended 30 September 2005
1. Preparation of the interim financial information
The interim financial information is unaudited but has been reviewed by Deloitte
& Touche LLP and their report is attached.
For the year ending 31 March 2006 the Group will be required to prepare
consolidated financial statements under International Accounting Standards as
adopted by the European Commission. These will be those International
Accounting Standards, International Reporting Standards and related
interpretations (SIC-IFRIC interpretations), subsequent amendments to those
standards and related interpretations, and future standards and interpretations
issued or adopted by the International Accounting Standards Board (IASB) that
have been endorsed by the European Commission. This process is ongoing and the
Commission has yet to endorse certain standards issued by the IASB.
These interim financial statements have been prepared using the best knowledge
of the expected standards and interpretations of the International Accounting
Standards Board, facts and circumstances, and accounting policies that will be
applied when the Group prepares its first set of published IFRS financial
statements as at 31 March 2006. These policies along with the reconciliations
and descriptions of the effect of the transition from UK GAAP to IFRS on the
Group's equity and its net income and cash flows can be found at
www.phoenixitgroup.com.
This interim report does not constitute statutory accounts of the Group within
the meaning of section 240 of the Companies Act 1985. Statutory accounts for the
year ended 31 March 2005, which were prepared under UK GAAP, have been filed
with the Registrar of Companies. The Auditors' report on those accounts was
unqualified and did not contain a statement under section 237 of the Companies
Act 1985.
2. Geographical analysis
Substantially all of the Group's operations are based in the UK. A small part
of the operations are undertaken in France, however this is immaterial to the
operations of the Group as a whole. There is only one class of business activity
undertaken by the Group, being the provision of IT services.
3. Taxation
The Group tax charge represents the estimated annual effective rate of 31%
(2004: 31%) applied to the profit before tax for the period. The interim period
is regarded as an integral part of the annual period and all tax liabilities are
disclosed as such.
4. Dividends
The proposed interim dividend for the year ended 31 March 2006 is #818,000
(1.38p per share). The dividend is subject to approval by the Board and has not
been included as a liability as at 30 September 2005. There were no proposed
interim dividends for the six months ended 30 September 2004 or the year ended
31 March 2005.
5. Acquisition of subsidiary undertaking
On 19 April 2005 the company acquired 100% of the issued share capital of NDR
(Holdings) Limited for cash consideration of #28,825,000. The costs of the
acquisition amounted to #1,142,700. NDR (Holdings) Limited is the parent
company of a group of companies involved in disaster recovery services for
computer systems and networks. This transaction has been accounted for by the
purchase method of accounting.
The following table sets out the book values of the identifiable assets and
liabilities acquired and their provisional fair values to the Group:
Fair value
to Group
Book value Revaluation
#'000 #'000 #'000
Fixed assets
Tangible 9,321 (719) 8,602
Intangible asset arising on acquisition - 9,013 9,013
Current assets
Trade and other receivables 5,127 2 5,129
Cash and cash equivalents 2,018 - 2,018
Total assets 16,466 8,296 24,762
Creditors
Bank loans 6,875 - 6,875
Trade and other payables 11,367 1,144 12,511
Tax liabilities 585 - 585
Deferred tax liabilities - 2,146 2,146
Deferred income 9,476 - 9,476
Total liabilities 28,303 3,290 31,593
Net liabilities (11,837) 5,006 (6,831)
Goodwill 36,799
29,968
Satisfied by:
Cash 28,825
Cash - costs of acquisition 1,143
29,968
Details of the fair value adjustments to the book values of the acquired
identifiable assets and liabilities are as follows:
(a) Tangible fixed assets were revalued in order to reflect their fair value to
the Group.
(b) Intangible assets arising on the acquisition relate to the valuation of the
acquired order book and the customer relationships expected to endure beyond the
minimum contracted order terms. The intangible asset valuation has been derived
using the estimated net present value of the net future after tax cash flows
which are expected to arise from the order book and customer relationships.
(c) Trade debtors were revalued by #18,000 to take account of irrecoverable
amounts. Specific provisions were established after making due allowance for
cash received since the acquisition.
(d) Other debtors were revalued for bank loan interest receivable of #20,000.
(e) Creditors were adjusted to take account of additional liabilities on the
date of acquisition and includes dilapidation provisions of #940,000.
(f) Deferred tax liabilities were revalued to take account of the deferred tax
liability that arises from the fair value adjustments.
(g) The goodwill recognised of #36.8m is attributable to the value of the
established workforce and infrastructure; the future growth potential of the
business continuity and disaster recovery market; and the anticipated synergies
arising from the acquisition.
The above fair values are provisional and may be revised within twelve months
from the date of acquisition in accordance with IFRS 3 Business Combinations.
If the acquisition of NDR (Holdings) Limited had been completed on the first day
of the financial year, Group revenues for the six month period would have been
#55,577,000 and Group profit attributable to equity holders of the parent would
have been #6,174,000.
6. Earnings per share
Unaudited Unaudited Audited
30 Sep 30 Sep 31 Mar
2005 2004 2005
Adjusted Earnings per share excluding share option charges, flotation
expenses and amortisation of intangible asset arising on acquisition
Basic 12.3p 11.3p 20.2p
Diluted 12.0 p 11.0p 19.8p
The calculation of the basic and diluted earnings per share is based
on the following data:
Earnings #'000 #'000 #'000
Earnings for the purposes of basic earnings per share being
net profit attributable to equity holders of the parent 6,107 4,854 7,656
Flotation expenses - - 1,979
Share option charges 638 21 911
Amortisation of intangible asset arising on acquisition 999 - -
Tax on flotation expenses, share option costs and amortisation of
intangible asset arising on acquisition (491) (6) (696)
Earnings for the purposes of adjusted earnings per share being net
profit attributable to equity holders of the parent excluding share
option charges, flotation expenses and amortisation of intangible
asset arising on acquisition 7,253 4,869 9,850
Number Number Number
Number of shares '000 '000 '000
Weighted average number of ordinary shares for the purposes of
basic earnings per share 58,897 42,900 48,708
Effect of dilutive potential ordinary shares:
Share options 1,691 1,403 1,136
Weighted average number of ordinary shares for the purposes of
diluted earnings per share 60,588 44,303 49,844
All activity is derived from continuing operations.
7. Notes to the cash flow statement
Cash and cash equivalents comprise of cash at bank and in hand.
The Group has undrawn borrowing facilities of #20,000,000.
Property, plant and equipment additions during the period amounting to #513,000
were financed by new finance leases.
8. Cash and bank balances
Unaudited Unaudited Audited
30 Sep 30 Sep 31 Mar
2005 2004 2005
#'000 #'000 #'000
Cash and cash equivalents 1,243 5,302 8,099
Bank overdrafts and loans due within one year (4,000) (3,123) (30)
Bank overdrafts and loans due after one year (15,915) (29,872) -
(18,672) (27,693) (8,069)
Independent review report to Phoenix IT Group plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2005 which comprises the income statement,
balance sheet, statement of changes in shareholders' equity, cash flow
statement, comparative figures and related notes 1 to 8. 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.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
International Financial Reporting Standards
As disclosed in note 1, the next annual financial statements of the group will
be prepared in accordance with International Financial Reporting Standards as
adopted for use in the EU. Accordingly, the interim report has been prepared in
accordance with the recognition and measurement criteria of IFRS and the
disclosure requirements of the Listing Rules.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the 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 International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2005.
Deloitte & Touche LLP
Chartered Accountants
Birmingham
22 November 2005
This information is provided by RNS
The company news service from the London Stock Exchange
END
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