TIDMPNX
RNS Number : 2696S
Phoenix IT Group PLC
29 November 2012
29 November 2012
Phoenix IT Group plc
Interim Results for the six months ended 30 September 2012
Phoenix IT Group plc ('Phoenix' or 'the Group') the UK IT
services company, announces its results for the six months ended 30
September 2012.
FINANCIAL OVERVIEW
Underlying* performance
-- Group revenues GBP124.0m (30 September 2011 restated: GBP131.0m)
-- Group underlying* operating profit GBP9.9m (30 September 2011 restated: GBP14.0m)
-- Underlying* profit before tax GBP7.8m (30 September 2011 restated: GBP12.2m)
-- Underlying* EBITDA** GBP16.5m (30 September 2011 restated: GBP21.0m)
-- Net debt (including finance leases) GBP78.0m (30 September 2011 restated: GBP72.3m)
-- Underlying* diluted earnings per share were 7.6p (30 September 2011 restated: 11.7p)
-- Interim dividend 3.70p per share (30 September 2011: 3.70p per share)
* Underlying - adjusted for non-recurring items GBP70.0m (30
September 2011: GBP0.9m) and amortisation of acquired intangibles
GBP1.1m (30 September 2011: GBP1.5m).
** EBITDA is group underlying* operating profit GBP9.9m (30
September 2011 restated: GBP14.0m) plus depreciation GBP6.6m (30
September 2011 restated: GBP7.0m).
Statutory performance
-- Loss from operations GBP61.2m (30 September 2011 profit from operations restated: GBP11.6m)
-- Loss before tax GBP63.3m (30 September 2011 profit before tax restated: GBP9.8m)
-- Diluted loss per share (83.9)p (30 September 2011 diluted
earnings per share restated: 9.4p)
-- Basic loss per share (83.9)p (30 September 2011 basic earnings per share restated: 9.7p)
BUSINESS OVERVIEW
-- PwC have concluded their review of the accounting
irregularities. They have found no evidence of cash theft but have
found that the profits of Servo Limited have been manipulated and
overstated for a number of years starting in the financial year
ending 31 March 2009.
-- Cumulative profits after tax up to and including the six
month period to 30 September 2012 had been overstated by GBP17.3m
as a result which is higher than our first estimate of GBP14.0m
announced on 3 September 2012.
-- One-off GBP68.1m (30 September 2011: GBPnil) non-cash charge
for impairment of goodwill and intangible assets has been made in
respect of Servo Limited.
-- New five year contract with one of the major Global IT
Services providers signed - in excess of GBP40.0m over the five
years.
Commenting on these results, Peter Bertram, Executive Chairman
of Phoenix, said:
"The first half results were disappointing. The business
suffered from transitional issues caused by the new structure and
the discovery of the accounting irregularities. As a result we are
cautious in the short term, however, with the new contract win
which we announced on 26 November, along with our strengthening
pipeline of opportunities in the second half of the year, we
believe we are well positioned for the medium to long term."
Enquiries
Phoenix IT Group Tel: +44 (0)20 7562 0327
Peter Bertram Executive Chairman
Jane Aikman Chief Financial Officer & Chief Operating
Officer
FTI Consulting Tel: +44 (0)20 7831 3113
Charles Palmer
Clare Thomas
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
(b) the interim management report includes a fair review of
the information required by DTR 4.2.7R (indication of important
events during the first six months and description of principal
risks and uncertainties for the remaining six months of
the year); and
(c) The interim management report includes a fair review of
the information required by DTR 4.2.8R (disclosure of related
party transactions and changes therein).
On behalf of the Board
Peter Bertram
Executive Chairman
29 November 2012
Interim Management Report to the Members of Phoenix IT Group
plc
This half-year interim management report covers the six months
ended 30 September 2012 and has been prepared to provide additional
information to the shareholders to assess the Group's strategies,
the success of those strategies and the potential for those
strategies to succeed in the future. This report should not be
relied on by any other party or for any other purpose.
Forward looking statements
Any forward looking statements made within this half-year
interim management report have been made in good faith by the
Directors based on the information available up to the date of the
Directors' approval of this report. These forward looking
statements should be treated with caution due to the inherent
uncertainties, including macroeconomic uncertainties, in the
markets that the Group serves and business risk factors which may
affect their outcome.
This interim management report has been prepared for the Phoenix
IT Group as a whole and therefore it gives greater emphasis to
those matters which are significant to Phoenix IT Group plc and its
subsidiary undertakings when viewed as a whole.
Corporate update
Accounting Irregularities
As previously announced on 3 September 2012, following
organisational changes within the finance function and a number of
internal reviews into working capital, information came to light
indicating the misstatement of a number of accounting balances
within Servo Limited and its subsidiaries. As soon as it became
clear that these issues would require the restatement of profit
after taxation relating to prior accounting periods, the Board
appointed PricewaterhouseCoopers LLP ("PwC") and Nabarro LLP
("Nabarro") to conduct an independent forensic investigation and to
validate the Group's findings arising from a review of the impacted
areas. The results of this independent investigation have now been
reported to the Board.
The key findings of the investigation are as follows:
-- The misstatements were isolated to the Servo Limited business and its subsidiaries.
-- The investigation could not find any evidence of cash
misappropriation and hence the misstatements are attributable to
profit overstatement.
-- The misstatements primarily arose from the deliberate and
repeated circumvention of control processes within the finance
function at Servo Limited's Birstall site. Revenue was overstated
and costs were understated over a number of years starting in the
financial year ending 31 March 2009.
-- A number of accounting policies, specifically those in
respect of cost accrual, cost deferment and revenue recognition had
been deliberately incorrectly applied and other accounting errors
and misstatements had been made. The specific accounts that have
been restated are contained within the consolidated income
statement and consolidated balance sheet are set out in note 18.
The scale and complexity of the misstatement of profit along with
the length of time over which the manipulation was perpetrated, has
made it difficult to accurately restate the individual detailed
revenue and cost accounts and therefore a level of judgement has
been applied to the allocation of the profit reduction across the
income statement.
-- The total amount of profit misstatement was GBP17.3m after
taxation, GBP23.4m before taxation. This is higher than our initial
estimate made in our announcement of 3 September 2012 largely as a
result of the profit misstatement being made over a longer period
of time, further work revealing a number of under stated creditor
balances and a number of items which were found to be incorrect
upon further investigation.
In addition to the forensic investigation work undertaken by PwC
and Nabarro, the following actions have been or are in the process
of being implemented:
-- An independent review of accounting and control processes is
being carried out across the Group by PwC. We will review their
findings and consider any recommendations they have to strengthen
our control environment.
-- We are proposing to re-locate the current accounting and
finance activities of Servo Limited and its subsidiaries to a new
centralised accounting shared service function based in
Northampton. Our plan envisages the full closure and re-location to
be effective during the first quarter of the next financial
year.
-- The Financial Controller and the Divisional Finance Director
of Servo Limited have left the Company.
-- A profitability review is being undertaken for the Mid-market business.
Re-organisation update and segmental reporting
From 1 April 2012, the Group has operated under a single Phoenix
brand, comprising customer facing Business Units with service
delivery integrated across the Company organised into a series of
Capability Units. These changes have simplified our operational
structure.
Notwithstanding these changes and in particular as a consequence
of the accounting irregularities uncovered within Servo Limited and
its subsidiaries (Servo Limited and its subsidiaries comprise the
majority of the Mid-market segment) the Board has monitored
performance and made decisions about resources based on the
historical divisions of the Group supported by their knowledge of
the business. Consequently there is no change to the Group's
reportable segments at 30 September 2012. Furthermore, the Board is
of the view that the segmentation of the Group's results in this
way provides a much clearer understanding of the impact of the
accounting irregularities which are confined to the Mid-market
segment.
Historical restatement
Prior year adjustment
As stated above, the independent investigation undertaken by PwC
and Nabarro confirmed the Board's expectation that a reduction to
previously reported profits is necessary for prior accounting
periods. The total amount by which cumulative reported profits
after taxation up to 31 March 2012 have been restated is GBP15.8m
(GBP21.5m before taxation), of which:
-- GBP4.8m (GBP6.4m before taxation) relates to the six month period ended 31 March 2012.
-- GBP1.6m (GBP2.3m before taxation) relates to the six month period ended 30 September 2011.
-- GBP5.7m (GBP7.6m before taxation) relates to the year ended 31 March 2011.
-- GBP3.5m (GBP4.9m before taxation) relates to the year ended 31 March 2010.
-- GBP0.2m (GBP0.3m before taxation) relates to the year ended 31 March 2009.
The adjustments to 31 March 2012 and to 30 September 2011 have
been reflected as prior year adjustments and the restatement of
comparative figures are set out in note 18. In addition to the
restatement made to prior periods, a further GBP1.5m of profit
after taxation (GBP1.9m before taxation) had been incorrectly
reflected in the books and records of Servo in the six month period
ended 30 September 2012. Including this, the total amount by which
cumulative profits after taxation have been overstated is GBP17.3m
(GBP23.4m before taxation).
Results in the reporting period
Group financial performance
Group revenues decreased to GBP124.0m (30 September 2011
restated: GBP131.0m). Underlying* profit before tax was GBP7.8m (30
September 2011 restated: GBP12.2m), with lower underlying*
operating profit of GBP9.9m (30 September 2011 restated:
GBP14.0m).
The business suffered in the first half of the year from
disruption on the transition to the new structure. Service
performance dropped to unacceptable levels resulting in costs
having to be reinvested to bring service performance back to
traditionally higher levels. Significant investment was made in
business units in the first half which is yet to materialise in
revenue although the pipeline is now starting to show improvement.
Synergy savings from the restructuring have been slow to
materialise and have been delayed to the second half of this year.
The Systems Integrators and Communications business units will be
merged from 1 January 2013.
The underlying* tax rate of 23.8% (30 September 2011 restated:
25.4%) is based on the forecast annual effective rate applied to
underlying* profit before tax for the period and takes into account
the impact of the enactment of the Finance Act 2012 which includes
a reduction in the rate of Corporation Tax from 24% to 23% from 1
April 2013.
Underlying* diluted earnings per share (excluding amortisation
of acquired intangibles and non-recurring costs) were 7.6p (30
September 2011 restated: 11.7p).
* Underlying - adjusted for non-recurring items GBP70.0m (30
September 2011: GBP0.9m) and amortisation of acquired intangibles
GBP1.1m (30 September 2011: GBP1.5m).
Net debt and balance sheet
The Group continues to generate cash from its operations and
operates within its banking facility of GBP100m. Net debt
(including finance leases) was GBP78.0m at 30 September 2012 (30
September 2011 restated: GBP72.3m). Net debt at 31 March 2012 was
GBP68.8m (restated). Net cash inflows during the period have been
negatively affected by the impact of the re-organisation and other
non-recurring cash costs which totalled GBP4.3m. After adjusting
for the impact of these one-off cash outflows net debt (including
finance leases) increased by GBP4.9m. Capital investment (net of
disposals) was GBP4.5m (30 September 2011: GBP8.2m).
Working capital during the period increased by GBP10.4m (30
September 2011 restated: GBP8.4m). Excluding the effect of
non-recurring items which amounted to GBP2.4m (30 September 2011:
GBP0.9m) the underlying increase in working capital was GBP8.0m (30
September 2011 restated: GBP7.5m).
The Group consolidated balance sheets at 30 September 2011 and
31 March 2012 have been restated to reflect the impact of
accounting irregularities within Servo Limited and its subsidiaries
(note 18). The effect on the net assets of the Group of the
accounting irregularities was a reduction of GBP11.0m at 30
September 2011 to GBP143.5m and a reduction of GBP15.8m at 31 March
2012 to GBP131.0m.
A non-cash impairment charge of GBP68.1m has been recognised in
the period as a non-recurring expense relating to GBP67.2m of
goodwill and GBP0.9m of intangible assets which arose from the
acquisition of Servo Computer Services Limited on 3 November 2006
and ICM Group Plc on 29 May 2007. The value of goodwill in the
Group consolidated balance sheet has been reduced from GBP181.4m at
31 March 2012 to GBP114.2m and the value of intangible assets has
been reduced to GBP2.8m at 30 September 2012 to reflect this
impairment.
Dividend
The Board has announced the payment of an interim dividend of
3.70p per share (30 September 2011: 3.70p per share), to be paid on
9 January 2013 to shareholders on the register on 7 December
2012.
Impairment of assets
At each balance sheet date, the Group reviews the carrying
amount of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the cash-generating unit (CGU) is estimated in order to
determine the extent of the impairment loss. An intangible asset
with an indefinite useful life is tested annually for impairment
and whenever there is an indication that the asset may be
impaired.
At 30 September 2012 impairment testing has been carried out in
respect of the Group's three CGUs by comparing the recoverable
amount of each CGU with the carrying amount of tangible and
intangible assets applicable to that CGU. An impairment loss is
recognised to the extent that the carrying amounts exceed the
recoverable amount. The recoverable amount is the higher of fair
value less costs to sell and value in use. In assessing the value
in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the specific
risks for which the estimates of future cash flows have not been
adjusted.
The impact of the accounting irregularities in the Mid-market
business has been to reduce the estimated future cash flows arising
from this CGU to such an extent that the carrying value of its
assets are greater than the recoverable amount at 30 September
2012. Consequently a non-cash impairment charge of GBP68.1m has
been recognised in the period as a non-recurring expense. This
charge relates to the value of goodwill and other intangible assets
which arose from the acquisition of Servo Computer Services Limited
on 3 November 2006 and ICM Group Plc on 29 May 2007. After the
impairment charge of GBP68.1m the carrying amount of the Mid-market
CGU is GBP22.8m.
Impairment testing in respect of the Business Continuity and
Partner Services CGUs showed that the recoverable amount exceeded
the carrying value. Therefore no impairment loss has been
recognised in either of these CGUs at 30 September 2012.
Non-recurring items
Total non-recurring charges during the period were GBP70.0m (30
September 2011: GBP0.9m) which includes a non-cash impairment
charge of GBP68.1m (30 September 2011: GBPnil) in relation to the
carrying value of goodwill and intangible assets in the Mid-market
CGU. Further costs relating to the re-organisation of the Group's
operations amounted to GBP1.1m (30 September 2011: GBPnil) and
professional fees charged in relation to the independent forensic
investigations were GBP0.8m.
Review of operations
Business Continuity
Reviewed six
Reviewed six months to 30
months to 30 September 2011
September 2012 (Restated) Change
Revenue GBP27.6m GBP28.2m -GBP0.6m
Underlying profit from operations GBP8.0m GBP7.0m +GBP1.0m
Underlying operating margin 29.1% 25.1%
Order book GBP91.2m GBP108.5m -GBP17.3m
Annual contract value GBP54.0m GBP55.7m -GBP1.7m
The Business Continuity business provides the design,
implementation and hosting of business continuity and disaster
recovery services. Continuing economic uncertainty and the
resultant increase in time taken for some customers to make
decisions, particularly in the financial services sector has had a
consequential impact on the business. Revenues for the period were
slightly lower compared to the same period last year at GBP27.6m
(30 September 2011 restated: GBP28.2m) and the business experienced
a contraction in both its order book and annual contract value.
Underlying profit from operations increased to GBP8.0m (30
September 2011: GBP7.0m). Tight controls over the cost base in the
period combined with a reduction in headcount initiated during the
last quarter of the previous financial year have helped to increase
the underlying operating margin from 25.1% to 29.1%. The business
has good momentum going into the second half of the current
financial year with some encouraging activity during the last few
months which has strengthened the pipeline of opportunities to take
into the next financial year.
Mid-market
Reviewed six
Reviewed six months to 30
months to 30 September 2011
September 2012 (Restated) Change
Revenue GBP42.7m GBP45.3m -GBP2.6m
Underlying (loss) / profit from
operations -GBP2.6m GBP1.3m -GBP3.9m
Underlying operating margin -6.1% 2.9%
Order book GBP62.6m GBP75.3m -GBP12.7m
Annual contract value GBP43.1m GBP46.0m -GBP2.9m
The Mid-market or Servo business provides a range of services
including product supply, professional services, support and
maintenance and managed services. Under the new organisational
structure it comprises primarily Managed Services and Managed
Hosting. This business segment was the segment impacted by the
accounting irregularities already discussed in this report.
The first six months performance has been disappointing.
Revenues were down by GBP2.6m mainly in the Managed Hosting and
Product and Professional Services business lines. The business
generated an underlying loss from operations of -GBP2.6m. Some
additional costs were incurred in the first half in order to
maintain customer service levels during a period of disruption as a
result of the re-organisation last year.
A profitability review of this business and its component parts
is being undertaken.
Partner services
Reviewed six Reviewed six
months to 30 months to 30
September 2012 September 2011 Change
Revenue GBP53.7m GBP57.5m -GBP3.8m
Underlying profit from operations GBP5.8m GBP7.8m -GBP2.0m
Underlying operating margin 10.8% 13.5%
Order book GBP130.8m GBP138.6m -GBP7.8m
Annual contract value GBP90.6m GBP91.8m -GBP1.2m
The Partner services business provides a full range of IT
support and hosting services to large partner organisations. Under
the new organisational structure it comprises the Communications
and Systems Integrator Business Units. Revenues decreased from
GBP57.5m to GBP53.7m reflecting the impact of contracts ending in
the previous financial year combined with a number of contract
reductions, in particular across the more traditional desktop and
network revenue service lines. Whilst there continues to be
encouraging signs of new business activity during the first half of
the current financial year with a number of larger size
opportunities emerging, there remains a lengthening in the time
taken for customers to reach purchasing decisions.
The underlying profit from operations has been impacted by
contract terminations in the previous year and additional costs to
maintain customer service levels during a period of disruption to
operations as a result of the re-organisation announced in the last
financial year. These additional costs combined with a degree of
slippage in the delivery of cost savings related to the Group
re-organisation into the second half of the current financial year
have further diluted underlying operating margins.
On 25 November 2012 a new five year contract with one of the
major Global IT Services providers was signed to undertake a range
of desk-side engineering support services. The contract is expected
to generate revenues in excess of GBP40.0m in the five year period
from December 2012.
Going concern
The Group currently has facilities that consist of a GBP90m
rolling credit facility which runs until August 2014 and an
overdraft facility of GBP10m which is renewable annually in August.
Net debt (including finance leases of GBP3.5m (30 September 2011:
GBP6.9m)) was GBP78.0m at 30 September 2012 (30 September 2011
restated: GBP72.3m). At 30 September 2012 of the total committed
borrowing facilities of GBP90.0m (30 September 2011: GBP90.0m) the
Group had available GBP5.0m (30 September 2011: GBP15.0m) of
undrawn facilities.
The Directors have reviewed the Group's future cash forecasts
and revenue projections which they believe are based on prudent
market data and reflect the impact of the misstatement of
accounting balances related to the Servo Limited business and its
subsidiaries.
Taking into account the level of headroom within the existing
facilities and covenants and the results of sensitivity testing on
the Group's future cash forecasts and revenue projections, the
Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future and therefore continue to adopt the going concern basis in
preparing the financial statements.
Board changes
On 6 August 2012 Jane Aikman was appointed as Chief Financial
Officer. As previously announced on the 4 October 2012 a number of
other changes have been made to the Board: David Courtley resigned
as Chief Executive Officer to pursue other business interests;
Peter Bertram assumed the role of Executive Chairman and Jane
Aikman took on additional duties to become Chief Operating Officer
and Chief Financial Officer. David Garman became the Senior
Independent Director.
Independent Auditor
Following the appointment of PricewaterhouseCoopers LLP to
undertake an independent forensic investigation the Board appointed
PricewaterhouseCoopers as Auditor of the Group with effect from 3
October 2012. Deloitte LLP resigned as Auditor of the Group on 24
September 2012.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Group have
been reviewed in light of the accounting irregularities discovered
and are expected to remain consistent with those described on pages
10 and 11 of the 2012 Annual Report and Accounts. These risks
remain as; macroeconomic, loss of key locations, liquidity,
interest rate, credit, competitor and customer. In addition, the
Summary and outlook section of this statement provides a commentary
concerning the remainder of the current financial year.
Summary and outlook
The first half results were disappointing. The business suffered
from transitional issues caused by the new structure and the
discovery of the accounting irregularities. As a result the Board
are cautious in the short term, however, with the new contract win
which we announced on 26 November, along with our strengthening
pipeline of opportunities in the second half of the year, we
believe we are well positioned for the medium to long term.
CONSOLIDATED STATEMENT OF INCOME
for the six months ended 30 September 2012
Unaudited six months to Unaudited year to 31 March
Unaudited six months to 30 30 September 2011 2012
September 2012 (restated, note 18) (restated, note 18)
Before Amortisation Before Amortisation Before Amortisation
amortisation & non- amortisation & non- amortisation & non-
& recurring & recurring & recurring
non-recurring items non-recurring items non-recurring items
items (note 4) Total items (note 4) Total items (note 4) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----- -------------- ------------- -------- -------------- ------------- ------ -------------- ------------- -------
Continuing
operations
Revenue 3 124.0 - 124.0 131.0 - 131.0 260.8 - 260.8
Profit/(loss)
from operations
before
amortisation of
intangibles 9.9 (70.0) (60.1) 14.0 (0.9) 13.1 24.1 (22.0) 2.1
Amortisation of
intangibles - (1.1) (1.1) - (1.5) (1.5) - (2.9) (2.9)
----------------- ----- -------------- ------------- -------- -------------- ------------- ------ -------------- ------------- -------
Profit/(loss)
from operations 5 9.9 (71.1) (61.2) 14.0 (2.4) 11.6 24.1 (24.9) (0.8)
Investment
income 6 0.6 - 0.6 0.7 - 0.7 1.3 - 1.3
Finance costs 6 (2.7) - (2.7) (2.5) - (2.5) (5.4) - (5.4)
----------------- ----- -------------- ------------- -------- -------------- ------------- ------ -------------- ------------- -------
Profit/(loss)
before tax 7.8 (71.1) (63.3) 12.2 (2.4) 9.8 20.0 (24.9) (4.9)
Tax 7 (1.8) 1.9 0.1 (3.0) 0.6 (2.4) (4.7) 6.0 1.3
----------------- ----- -------------- ------------- -------- -------------- ------------- ------ -------------- ------------- -------
Profit/(loss)
for the
period 6.0 (69.2) (63.2) 9.2 (1.8) 7.4 15.3 (18.9) (3.6)
----------------- ----- -------------- ------------- -------- -------------- ------------- ------ -------------- ------------- -------
Earnings/(loss)
per share
Basic 8 7.9p (83.9p) 12.1p 9.7p 20.1p (4.9p)
----------------- ----- -------------- ------------- -------- -------------- ------------- ------ -------------- ------------- -------
Diluted 8 7.6p (83.9p) 11.7p 9.4p 19.4p (4.9p)
----------------- ----- -------------- ------------- -------- -------------- ------------- ------ -------------- ------------- -------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 September 2012
Unaudited
six Unaudited
Unaudited months to year to
six 30 September 31 March
months to 2011 2012
30 September (restated, (restated,
2012 note 18) note 18)
GBPm GBPm GBPm
------------------------------------------- -------------- -------------- ------------
(Loss)/profit for the period (63.2) 7.4 (3.6)
------------------------------------------- -------------- -------------- ------------
Actuarial loss on defined benefit pension
scheme (1.2) (2.6) (2.0)
Loss taken to equity in respect of cash
flow hedges (0.2) (1.6) (1.4)
Tax on items taken directly to equity 0.3 1.0 0.8
------------------------------------------- -------------- -------------- ------------
Other comprehensive expenditure for the
period, net of tax (1.1) (3.2) (2.6)
Total comprehensive (expenditure)/income
for the period (64.3) 4.2 (6.2)
------------------------------------------- -------------- -------------- ------------
CONSOLIDATED BALANCE SHEET
as at 30 September 2012
Unaudited Unaudited
30 September 31 March
Unaudited 2011 2012
30 September (restated, (restated,
2012 note 18) note 18)
Note GBPm GBPm GBPm
-------------------------------------- ----- -------------- -------------- ------------
Non-current assets
Goodwill 10 114.2 181.4 181.4
Intangible assets 10 2.8 14.3 4.8
Property, plant and equipment 11 61.2 63.7 62.7
178.2 259.4 248.9
-------------------------------------- ----- -------------- -------------- ------------
Current assets
Inventories 11.9 14.6 13.1
Trade and other receivables 61.0 62.5 57.5
Current tax asset 5.6 1.2 6.0
Deferred tax asset 1.3 - 0.1
Cash and cash equivalents 11.0 8.6 15.2
-------------------------------------- ----- -------------- -------------- ------------
90.8 86.9 91.9
Assets held for sale 1.6 2.7 2.3
-------------------------------------- ----- -------------- -------------- ------------
92.4 89.6 94.2
-------------------------------------- ----- -------------- -------------- ------------
Total assets 270.6 349.0 343.1
-------------------------------------- ----- -------------- -------------- ------------
Current liabilities
Trade and other payables (43.2) (51.0) (49.6)
Obligations under finance leases and
hire purchase contracts (2.3) (4.0) (3.0)
Other loans 13 (1.0) - -
Provisions (4.9) (0.6) (5.9)
Deferred revenue (53.3) (55.0) (53.0)
-------------------------------------- ----- -------------- -------------- ------------
(104.7) (110.6) (111.5)
-------------------------------------- ----- -------------- -------------- ------------
Net current liabilities (12.3) (21.0) (17.3)
-------------------------------------- ----- -------------- -------------- ------------
Non-current liabilities
Obligations under finance leases and
hire purchase contracts (1.2) (2.9) (1.7)
Bank loans 13 (84.5) (74.0) (79.3)
Provisions (7.9) (5.2) (9.5)
Deferred tax liabilities - (2.9) (0.6)
Derivative financial instruments 12 (1.7) (1.6) (1.4)
Deferred revenue (1.9) (0.9) (2.8)
Other non-current liabilities (5.7) (5.0) (4.5)
Retirement benefit obligations (1.3) (2.4) (0.8)
-------------------------------------- ----- -------------- -------------- ------------
(104.2) (94.9) (100.6)
-------------------------------------- ----- -------------- -------------- ------------
Total liabilities (208.9) (205.5) (212.1)
-------------------------------------- ----- -------------- -------------- ------------
Net assets 61.7 143.5 131.0
-------------------------------------- ----- -------------- -------------- ------------
Equity
Share capital 0.8 0.8 0.8
Share premium account 37.6 37.6 37.6
Merger reserve 57.5 57.5 57.5
Other reserves 1.7 0.6 1.5
Retained earnings (35.9) 47.0 33.6
-------------------------------------- ----- -------------- -------------- ------------
Total equity 61.7 143.5 131.0
-------------------------------------- ----- -------------- -------------- ------------
The financial statements were approved by the Board of Directors
and authorised for issue on 29 November 2012.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2012
Share
Share premium Merger Other Retained Total
capital account reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------- --------- --------- ---------- ---------- ---------
Balance at 1 April 2012 as
previously stated 0.8 37.6 57.5 1.5 49.4 146.8
------------------------------------ --------- --------- --------- ---------- ---------- ---------
Impact of restatement (note
18) - - - - (15.8) (15.8)
------------------------------------ --------- --------- --------- ---------- ---------- ---------
Balance at 1 April 2012 (restated) 0.8 37.6 57.5 1.5 33.6 131.0
------------------------------------ --------- --------- --------- ---------- ---------- ---------
Loss for the period - - - - (63.2) (63.2)
Loss recognised on cash flow
hedge - - - (0.2) - (0.2)
Actuarial loss on defined
benefit pension scheme - - - - (1.2) (1.2)
Tax on items taken directly
to equity - - - - 0.3 0.3
------------------------------------ --------- --------- --------- ---------- ---------- ---------
Total comprehensive expenditure
for the period ended 30 September
2012 - - - (0.2) (64.1) (64.3)
------------------------------------ --------- --------- --------- ---------- ---------- ---------
IFRS2 share option expense - - - 0.4 - 0.4
Dividends (note 9) - - - - (5.4) (5.4)
Total transactions with owners - - - 0.4 (5.4) (5.0)
------------------------------------ --------- --------- --------- ---------- ---------- ---------
Balance at 30 September 2012 0.8 37.6 57.5 1.7 (35.9) 61.7
------------------------------------ --------- --------- --------- ---------- ---------- ---------
for the six months ended 30 September 2011
Share
Share premium Merger Other Retained Total
capital account reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------- --------- --------- ---------- ---------- --------
Balance at 1 April 2011 as
previously stated 0.8 37.5 57.5 1.4 56.1 153.3
------------------------------------ --------- --------- --------- ---------- ---------- --------
Impact of restatement (note
18) - - - - (9.4) (9.4)
------------------------------------ --------- --------- --------- ---------- ---------- --------
Balance at 1 April 2011 (restated) 0.8 37.5 57.5 1.4 46.7 143.9
Profit for the period (restated,
note 18) - - - - 7.4 7.4
Loss recognised on cash flow
hedge - - - (1.6) - (1.6)
Actuarial loss on defined
benefit pension scheme - - - - (2.6) (2.6)
Tax on items taken directly
to equity - - - 0.3 0.7 1.0
Total comprehensive income
for the period ended 30 September
2011 - - - (1.3) 5.5 4.2
------------------------------------ --------- --------- --------- ---------- ---------- --------
Exercise of share options - 0.1 - - - 0.1
IFRS2 share option expense - - - 0.6 - 0.6
Dividends (note 9) - - - - (5.3) (5.3)
Transfer to retained earnings
on exercise of share options - - - (0.1) 0.1 -
------------------------------------ --------- --------- --------- ---------- ---------- --------
Total transactions with owners - 0.1 - 0.5 (5.2) (4.6)
------------------------------------ --------- --------- --------- ---------- ---------- --------
Balance at 30 September 2011
(restated, note 18) 0.8 37.6 57.5 0.6 47.0 143.5
------------------------------------ --------- --------- --------- ---------- ---------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2012
Share
Share premium Merger Other Retained Total
capital account reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------- --------- --------- ---------- ---------- --------
Balance at 1 April 2011 as
previously stated 0.8 37.5 57.5 1.4 56.1 153.3
------------------------------------ --------- --------- --------- ---------- ---------- --------
Impact of restatement (note
18) - - - - (9.4) (9.4)
------------------------------------ --------- --------- --------- ---------- ---------- --------
Balance at 1 April 2011 (restated) 0.8 37.5 57.5 1.4 46.7 143.9
------------------------------------ --------- --------- --------- ---------- ---------- --------
Loss for the period (restated,
note 18) - - - - (3.6) (3.6)
Loss recognised on cash flow
hedge - - - (1.4) - (1.4)
Actuarial loss on defined
benefit pension scheme - - - - (2.0) (2.0)
Tax on items taken directly
to equity - - - 0.4 0.4 0.8
Total comprehensive expenditure
for the period ended 31 March
2012 - - - (1.0) (5.2) (6.2)
------------------------------------ --------- --------- --------- ---------- ---------- --------
Exercise of share options - 0.1 - - - 0.1
IFRS2 share option expense - - - 1.2 - 1.2
Dividends (note 9) - - - - (8.0) (8.0)
Transfer to retained earnings
on exercise of share options - - - (0.1) 0.1 -
------------------------------------ --------- --------- --------- ---------- ---------- --------
Total transactions with owners - 0.1 - 1.1 (7.9) (6.7)
------------------------------------ --------- --------- --------- ---------- ---------- --------
Balance at 31 March 2012
(restated, note 18) 0.8 37.6 57.5 1.5 33.6 131.0
------------------------------------ --------- --------- --------- ---------- ---------- --------
CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 September 2012
Unaudited
six Unaudited
Unaudited months to year to
six 30 September 31 March
months to 2011 2012
30 September (restated, (restated,
2012 note 18) note 18)
Note GBPm GBPm GBPm
-------------------------------------------- ----- -------------- -------------- ------------
Net cash from operating activities 14 0.9 4.9 17.1
Investing activities
Purchases of property, plant and equipment (5.2) (8.3) (14.0)
Proceeds on disposal of property,
plant and equipment 0.7 0.1 0.1
Net cash used in investing activities (4.5) (8.2) (13.9)
-------------------------------------------- ----- -------------- -------------- ------------
Financing activities
Dividends paid (5.4) (5.3) (8.0)
Decrease of obligations under finance
leases and hire purchase contracts (1.2) (2.5) (4.7)
New other loan raised 1.0 - -
Net drawdown on rolling credit facilities 5.0 5.0 10.0
Net cash used in financing activities (0.6) (2.8) (2.7)
-------------------------------------------- ----- -------------- -------------- ------------
Net (decrease)/increase in cash and
cash equivalents 15 (4.2) (6.1) 0.5
Cash and cash equivalents at beginning
of period 15.2 14.7 14.7
-------------------------------------------- ----- -------------- -------------- ------------
Cash and cash equivalents at end of
period 11.0 8.6 15.2
-------------------------------------------- ----- -------------- -------------- ------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended 30 September 2012
1. Preparation of the interim financial information
The interim financial report for the half year ended 30
September 2012 has been prepared in accordance with the Disclosure
and Transparency Rules of the Financial Services Authority and with
IAS 34 Interim Financial Reporting. This report should be read in
conjunction with the annual financial statements for the year ended
31 March 2012, which have been prepared in accordance with IFRSs
(as adopted by the European Union).
The half year results are unaudited and were approved by the
Board of Directors on 29 November 2012.
The interim financial information does not constitute statutory
accounts as defined in section 434 of the Companies Act 2006. A
copy of the statutory accounts for the year ended 31 March 2012 has
been delivered to the Registrar of Companies. The Auditor's report
on those accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement under section
498 (2) or (3) of the Companies Act 2006. Since these accounts were
filed, accounting irregularities were discovered in the Mid-market
division. Prior year adjustments have been reflected in the
comparative figures set out in this interim report (note 18).
Going concern is discussed in the interim review. The Directors
have reviewed the Group's future cash forecasts and revenue
projections which they believe are based on prudent market data and
reflect the impact of the misstatement of accounting balances
related to the Mid-market division. Based on this assessment and
the level of headroom within the existing facilities and covenants,
the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they adopt the going concern basis
in preparing the interim financial statements.
2. Accounting policies
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 31 March 2012.
The following new standards, amendments to standards or
interpretations are mandatory for the first time for the year
ending 31 March 2013 but have no material impact on the Group's
financial statements:
-- IFRS 7 'Financial instruments: Disclosures' (amended) -
amended to enhance the disclosures about transfers of financial
assets. Effective for accounting periods beginning on or after 1
July 2011.
-- IAS 12 'Income taxes' (amended) - limited scope amendment
(recovery of underlying assets). Effective for accounting periods
beginning on or after 1 January 2012.
The following standards, interpretations, and amendments to
existing standards are not yet effective and have not been early
adopted by the Group:
Presentation of financial statements
* IAS 1
Amendments to revise the way other comprehensive 1 July 2012
income is presented
Amendment to clarify the requirements for comparative 1 January 2013
information
Property, plant and equipment (amended) 1 January 2013
* IAS 16
Employee benefits (amended) 1 January 2013
* IAS 19
Separate financial statements
* IAS 27
(previously IAS 27 'Consolidated and separate 1 January 2013
financial statements')
Financial instruments presentation
* IAS 32
Amendments clarifying tax effect of equity 1 January 2013
distributions
Amendments relating to the offsetting of assets 1 January 2014
and liabilities
Interim financial reporting (amended) 1 January 2013
* IAS 34
Financial instruments: Disclosures
* IFRS 7
Amendments enhancing disclosures about offsetting 1 January 2013
of financial assets
and financial liabilities
Amendments requiring disclosures about the 1 January 2015
initial application of IFRS 9
Financial instruments (amended) 1 January 2015
* IFRS 9
Consolidated financial statements 1 January 2013
* IFRS 10
Fair value measurement 1 January 2013
* IFRS 13
3. Segmental reporting
From 1 April 2012 the Group has operated under a single Phoenix
brand, comprising customer facing Business Units with service
delivery integrated across the Company organised into a series of
Capability Units. This simplification of our operational structure
has enabled greater sales focus and tighter control of costs.
Notwithstanding these changes and in particular as a consequence
of the accounting irregularities uncovered within the Mid-market
business, the Board has continued to monitor performance and make
decisions about resources based on the historical divisions of the
Group supported by their knowledge of the business. Consequently
there is no change to the Group's reportable segments at 30
September 2012.
The Group's operations are based entirely in the UK. The Group
has no significant concentration of sales to a particular
individual external customer.
Segment results include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis.
Corporate costs relate to central Group costs, including finance,
legal and employee costs that are not directly attributable to the
operating segments.
Inter-segment revenue has been eliminated.
Revenue Profit/(loss)
Unaudited Unaudited
6 months 6 months
Unaudited ended 30 Unaudited ended 30
6 months September 6 months September
ended 30 2011 ended 30 2011
September (restated, September (restated,
2012 note 18) 2012 note 18)
GBPm GBPm GBPm GBPm
------------------------------- ----------- ------------ ----------- ------------
Business Continuity 27.6 28.2 8.0 7.0
Mid-market 42.7 45.3 (2.6) 1.3
Partner services 53.7 57.5 5.8 7.8
Corporate - - (1.3) (2.1)
------------------------------- ----------- ------------ ----------- ------------
124.0 131.0 9.9 14.0
------------------------------- ----------- ------------ ----------- ------------
Amortisation of intangibles (1.1) (1.5)
Non-recurring (70.0) (0.9)
----------- ------------
(Loss)/profit from operations (61.2) 11.6
Investment income 0.6 0.7
Finance costs (2.7) (2.5)
----------- ------------
(Loss)/profit before tax (63.3) 9.8
------------------------------- ----------- ------------ ----------- ------------
Revenue Profit/(loss)
Unaudited Unaudited
year ended year ended
31 31
March 2012 March 2012
(restated, (restated,
note 18) note 18)
GBPm GBPm
----------------------------- ------------ --------------
Business Continuity 56.3 14.2
Mid-market 87.3 (1.2)
Partner services 117.2 14.5
Corporate - (3.4)
----------------------------- ------------ --------------
260.8 24.1
----------------------------- ------------ --------------
Amortisation of intangibles (2.9)
Non-recurring (22.0)
--------------
Loss from operations (0.8)
Investment income 1.3
Finance costs (5.4)
--------------
Loss before tax (4.9)
----------------------------- ------------ --------------
4. Non-recurring items
Unaudited Unaudited Unaudited
six months six months year
to 30 to 30 to 31
September September March
2012 2011 2012
GBPm GBPm GBPm
----------------------------------------------- ------------ ------------ ----------
Impairment of goodwill (note 10) (67.2) - -
Impairment of intangible assets (note 10) (0.9) - -
Impairment loss on property held for sale
(a) - - (0.4)
Legal and professional fees in relation
to pension equalisation (b) - (0.9) (0.7)
Contract provisions (c) - - (6.0)
Intangible asset derecognition (d) - - (8.1)
Costs of reorganisation of the Group (e) (1.1) - (6.8)
Professional fees relating to the restatement
(f) (0.8) - -
(70.0) (0.9) (22.0)
----------------------------------------------- ------------ ------------ ----------
Non-recurring items are items of income or expenditure that, in
management's judgement, should be disclosed separately on the basis
that they are material, either by their nature or their size.
Non-recurring items in the current and comparative periods
comprise:
(a) An impairment loss of GBPnil (period ended 30 September
2011: GBPnil, year ended 31 March 2012: GBP0.4m) has been
recognised on properties held for sale.
(b) The assumption regarding the 1997 effective date of the
equalisation of retirement ages between men and women has been
challenged by the Trustees of the scheme who believe that the
effective date of equalisation may be 2005. The Company and the
Trustees have continued to take professional advice and because
they have been unable to agree a definitive position it has been
necessary to seek direction from the courts on the matter. Legal
and professional fees to resolve the issue have been estimated at
GBPnil (period ended 30 September 2011: GBP0.9m, year ended 31
March 2012: GBP0.7m).
(c) Following a review of the Group's contract portfolio and
related balances at 31 March 2012 it was concluded that a provision
for GBP6.0m should be recorded in respect of exceptional contract
exposures which are not expected to recur. GBP5.0m of this relates
to a contract for a leased co-location facility with 4 years to run
which requires a provision for expected lifetime contract losses
from 1 April 2012 resulting in a one off charge of GBP5.0m in the
year ended 31 March 2012.
(d) Following the rebranding and consolidation of brands under
the Phoenix trading name, the ICM brand has been retired. The
intangible asset which arose as a result of the acquisition of the
ICM Group plc during May 2007 in respect of the ICM brand name was
derecognised during the year ended 31 March 2012.
(e) From January 2012 the Business Continuity, Mid-market and
Partner services Divisions have been merged together to form an
integrated business structure. The costs of reorganising the Group
comprised: a headcount reduction programme, recruitment costs,
property rationalisation and consolidation of brands under the
Phoenix trading name. There were GBP1.1m of costs during the period
(period ended 30 September 2011: GBPnil, year ended 31 March 2012:
GBP6.8m).
(f) Professional fees charged in relation to the independent
forensic investigation were GBP0.8m (period ended 30 September 2011
and year ended 31 March 2012 GBPnil).
5. (Loss)/profit from operations
Unaudited
six
Unaudited months to Unaudited
six 30 year to 31
months to September March
30 2011 2012
September (restated, (restated,
2012 note 18) note 18)
GBPm GBPm GBPm
--------------------------------------- ----------- ------------ ------------
Revenue 124.0 131.0 260.8
Raw materials and consumables (3.6) (3.9) (7.8)
Staff costs (44.8) (49.2) (96.7)
Depreciation (6.6) (7.0) (14.0)
Amortisation of intangibles (1.1) (1.5) (2.9)
Impairment of goodwill (note 10) (67.2) - -
Impairment of intangible assets (note
10) (0.9) - -
Intangible asset derecognition - - (8.1)
Other operating charges (61.0) (57.8) (132.1)
--------------------------------------- ----------- ------------ ------------
(61.2) 11.6 (0.8)
--------------------------------------- ----------- ------------ ------------
6. Finance costs and investment income
Unaudited Unaudited
six six
months to months to Unaudited
30 30 year to 31
September September March
2012 2011 2012
GBPm GBPm GBPm
------------------------------------------- ----------- ----------- ------------
Finance costs
Interest on bank overdraft and loans (1.6) (1.4) (3.0)
Interest on obligations under finance
leases and hire purchase contracts (0.1) (0.2) (0.3)
Amortisation of loan issue costs (0.3) (0.2) (0.5)
Other interest (0.1) (0.1) (0.5)
Interest cost on defined benefit pension
scheme liabilities (0.6) (0.6) (1.1)
Total interest expense (2.7) (2.5) (5.4)
Investment income
Expected return on defined benefit
pension scheme assets 0.6 0.7 1.3
Net finance costs (2.1) (1.8) (4.1)
------------------------------------------- ----------- ----------- ------------
7. Taxation
The underlying* tax rate of 23.8% (September 2011 restated:
25.4%, March 2012 restated: 23.8%) is based on the forecast annual
effective rate applied to underlying* profit before tax for the
period and takes into account the impact of the enactment of the
Finance Act 2012 which includes a reduction in the rate of
Corporation Tax from 24% to 23% from 1 April 2013.
The Group's total tax credit of GBP0.1m represents an effective
rate of 0.1% (September 2011 restated: 25.5%, March 2012 restated:
26.3%). The reduction from the underlying* tax rate of 23.8% to
0.1% reflects the tax impact of the non-recurring items, this being
the recognition in the period of a credit for future tax deductions
relating to the impairment of goodwill.
The Government has indicated that it intends to enact further
reductions in the corporation tax rate of 1% per annum, reducing
the rate to 22% by 1 April 2014. This decrease had not been
substantively enacted at the balance sheet date and therefore has
not been reflected in the interim statement.
* Underlying - adjusted for non-recurring items GBP70.0m (2011:
GBP0.9m) and amortisation of acquired intangibles GBP1.1m (2011:
GBP1.5m)
8. Earnings per share
Unaudited
Unaudited Unaudited year to
six months six months 31
to 30 September to 30 September March
2012 2011 2012
(restated, (restated,
note 18) note 18)
---------------------------------------- ----------------- ----------------- -----------
Adjusted earnings per share excluding
amortisation of acquired intangibles
and non-recurring items
Basic 7.9p 12.1p 20.1p
--------------------------------------- ----------------- ----------------- -----------
Diluted 7.6p 11.7p 19.4p
--------------------------------------- ----------------- ----------------- -----------
The calculation of the basic and diluted earnings per share is
based on the following data:
Earnings
GBPm GBPm GBPm
------------------------------------------------ --------- -------- --------
Earnings for the purposes of basic earnings
per share and diluted earnings per share
being net (loss)/profit attributable to
equity holders of the parent (63.2) 7.4 (3.6)
Amortisation of acquired intangibles 1.1 1.5 2.9
Non-recurring items 70.0 0.9 22.0
Tax on amortisation of acquired intangibles
and non-recurring items (1.9) (0.6) (6.0)
------------------------------------------------ --------- -------- --------
Earnings for the purposes of adjusted earnings
per share being net profit attributable
to equity holders of the parent excluding
amortisation of acquired intangibles and
non-recurring items 6.0 9.2 15.3
------------------------------------------------ --------- -------- --------
Number of shares
Number Number Number
m m m
----------------------------------------------- ------- ------- -------
Weighted average number of Ordinary Shares
for the purposes of basic earnings per
share 75.4 75.3 75.4
Effect of dilutive potential Ordinary Shares:
Share options 3.3 2.8 2.8
----------------------------------------------- ------- ------- -------
Weighted average number of Ordinary Shares
for the purposes of diluted earnings per
share 78.7 78.1 78.2
----------------------------------------------- ------- ------- -------
9. Dividends
Unaudited
Unaudited Unaudited year to
six months six months 31
to 30 September to 30 September March
2012 2011 2012
GBPm GBPm GBPm
--------------------------------------------- ----------------- ----------------- ----------
Amounts recognised as distributions to
Shareholders in the year:
Interim dividend for the year ended 31
March 2012 of 3.70p (2011: 3.50p) per
share 2.7 2.6 2.7
Final dividend for the year ended 31
March 2012 of 7.20p (2011: 7.00p) per
share 5.4 5.3 5.3
8.1 7.9 8.0
--------------------------------------------- ----------------- ----------------- ----------
Proposed interim dividend for the year
ended 31 March 2013 of 3.70p (2012: 3.70p)
per share 2.8 2.7 -
Proposed final dividend for the year
ended 31 March 2012 of 7.20p - - 5.4
2.8 2.7 5.4
--------------------------------------------- ----------------- ----------------- ----------
The final dividend was approved at the AGM on 26 July 2012.
The proposed interim dividend was recommended by the Board on 27
November 2012 and will be paid on 9 January 2013.
10. Goodwill and intangible assets
Goodwill
Goodwill acquired in a business combination is allocated, at
acquisition, to the cash generating units (CGUs) that are expected
to benefit from that business combination. CGUs represent the
Group's operating segments by business line, based on the Group's
management and internal reporting structure. Goodwill has been
allocated as follows:
At 30 September 2012 At 30 September 2011 and 31
March 2012
Business Mid-market Partner Total Business Mid-market Partner Total
Continuity services Continuity services
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Goodwill 81.2 - 33.0 114.2 81.2 67.2 33.0 181.4
---------- ------------ ----------- ---------- ------ ------------ ----------- ---------- ------
Intangible assets
The net book value of intangible assets during the period
decreased by GBP2.0m, as a result of a GBP1.1m amortisation charge
and an impairment loss of GBP0.9m.
Impairment testing
The Group tests goodwill annually for impairment at 31 March,
however, given the accounting irregularities uncovered within the
Mid-market business there is an indication that goodwill may be
impaired so an impairment review has been carried out. The
recoverable amount of a CGU is determined on value-in-use
calculations, the key assumptions used in determining the
value-in-use calculations are set out below.
The discount and long-term growth rate assumptions have been
reviewed in light of current market conditions and changes in the
risk profile of each CGU. Except for the discount rate in the
Mid-market CGU, the assumptions remain unchanged from those
reported in the Annual Report and Accounts for 31 March 2012. The
discount rate in the Mid-market CGU has been increased to 12.0% to
reflect the change in risk profile as a result of the accounting
irregularities uncovered.
At 30 September 2011 and
At 30 September 2012 31 March 2012
Business Partner Business Partner
Continuity Mid-market services Continuity Mid-market services
% % % % % %
Growth rate 2.25 2.25 2.25 2.25 2.25 2.25
Pre-tax discount rate 11.0 12.0 12.0 11.0 10.0 12.0
----------------------- ------------ ----------- ---------- ------------ ----------- ----------
Cash flow projections
The Group prepares risk-adjusted cash flow forecasts derived
from the most recent 18 month forecast. Cash flow projections
beyond this period are extrapolated using the growth rates stated
above.
Impairment losses
The impact of the accounting irregularities in the Mid-market
business has been to reduce the estimated future cash flows arising
from this CGU to such an extent that the carrying value of its
assets are greater than the recoverable amount at 30 September
2012. Consequently a non-cash impairment charge of GBP68.1m has
been recognised in the period as a non-recurring expense; GBP67.2m
relating to goodwill and GBP0.9m relating to intangible assets.
This goodwill arose on the acquisition of Servo Computer Services
Limited on 3 November 2006 and ICM Group Plc on 29 May 2007. After
the impairment charge of GBP68.1m the carrying amount of the
Mid-market CGU is GBP22.8m.
Impairment testing in respect of the Business Continuity and
Partner services CGUs showed that the recoverable amount exceeded
the carrying value. Therefore no impairment loss has been
recognised in either of these CGUs at 30 September 2012.
11. Capital expenditure
In the period, there were additions to property, plant and
equipment of GBP5.1m (period ended September 2011 restated:
GBP5.3m, year ended 31 March 2012 restated: GBP12.0m). There were
no significant disposals of property, plant and equipment during
the periods ended September 2012, September 2011 and the year ended
31 March 2012.
12. Derivative financial instruments
Unaudited Unaudited Unaudited
30 September 30 September 31 March
2012 2011 2012
Liability Liability Liability
Fair Fair Fair
value Notional value Notional value Notional
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------- --------- ------- --------- ------- ---------
Cash flow hedges
Interest rate swaps 1.7 30.0 1.6 30.0 1.4 30.0
--------------------- ------- --------- ------- --------- ------- ---------
On 28 April 2011 the Group entered into three interest rate
swaps to hedge risks associated with interest rate fluctuations on
variable rates related to its revolving credit facility. The
combined interest rate swaps hedge GBP30.0m until 28 April 2014 and
GBP15.0m between 29 April 2014 and 28 April 2016. The interest rate
swaps settle on a quarterly basis and were fixed at 2.630% - 2.695%
plus applicable margins based on three months LIBOR.
13. Bank and other loans
The following table analyses bank and other borrowings,
excluding bank overdrafts:
Unaudited Unaudited Unaudited
30 September 30 September 31 March
2012 2011 2012
GBPm GBPm GBPm
------------------ -------------- -------------- ----------
Current:
Other loans 1.0 - -
Non-current:
Bank loans 84.5 74.0 79.3
------------------ -------------- -------------- ----------
Total borrowings 85.5 74.0 79.3
------------------ -------------- -------------- ----------
14. Notes to the cash flow statement
Unaudited
six Unaudited
Unaudited months to year to
six months 30 September 31 March
to 2011 2012
30 September (restated, (restated,
2012 note 18) note 18)
GBPm GBPm GBPm
------------------------------------------ -------------- -------------- ------------
(Loss)/profit from operations (61.2) 11.6 (0.8)
Adjustments for:
Depreciation of property, plant and
equipment 6.6 7.0 14.0
(Profit)/loss on disposal of property,
plant and equipment - - 0.8
Impairment of property - - 0.4
Impairment of goodwill (note 10) 67.2 - -
Impairment of intangibles (note 10) 0.9 - -
Intangible asset derecognition - - 8.1
Amortisation of acquired intangibles 1.1 1.5 2.9
Share option costs 0.4 0.6 1.2
Retirement benefit - difference between
contribution and amount charged (0.8) (0.8) (1.7)
Operating cash flows before movements
in working capital 14.2 19.9 24.9
Decrease/(increase) in inventories 1.2 (1.2) 0.2
Increase in receivables (3.5) (11.0) (6.0)
(Decrease)/increase in payables (7.5) 2.2 8.3
(Decrease)/increase in deferred revenue (0.6) 1.6 1.5
----------------------------------------- -------------- -------------- ------------
Cash generated by operations 3.8 11.5 28.9
Income taxes paid (1.1) (4.8) (8.4)
Interest paid (1.8) (1.8) (3.4)
------------------------------------------ -------------- -------------- ------------
Net cash from operating activities 0.9 4.9 17.1
------------------------------------------ -------------- -------------- ------------
Additions to fixtures and equipment during the period amounting
to GBP0.2m (period ended September 2011: GBPnil, year ended March
2012: GBPnil) were financed by new finance leases.
15. Reconciliation of net borrowings
Unaudited
six Unaudited
Unaudited months to year to
six 30 September 31 March
months to 2011 2012
30 September (restated, (restated,
2012 note 18) note 18)
GBPm GBPm GBPm
--------------------------------------- -------------- -------------- ------------
(Decrease)/increase in cash and cash
equivalents during the period (4.2) (6.1) 0.5
Movement in borrowings (5.0) (2.7) (5.8)
Movement in net borrowings during the
period (9.2) (8.8) (5.3)
Net borrowings brought forward (68.8) (63.5) (63.5)
--------------------------------------- -------------- -------------- ------------
Net borrowings carried forward (78.0) (72.3) (68.8)
--------------------------------------- -------------- -------------- ------------
Cash and cash equivalents 11.0 8.6 15.2
Other current borrowings (3.3) (4.0) (3.0)
Non-current borrowings (85.7) (76.9) (81.0)
--------------------------------------- -------------- -------------- ------------
Net borrowings carried forward (78.0) (72.3) (68.8)
--------------------------------------- -------------- -------------- ------------
16. Contingent liabilities
Provision is made for the Directors' best estimate of all known
legal claims and all legal actions in progress. The Group takes
legal advice as to the likelihood of success of claims and actions
and no provision is made where the Directors consider, based on
advice, that the action is unlikely to succeed or a sufficiently
reliable estimate of the potential obligation cannot be made. The
Group has no material claims or actions as at 30 September 2012 (30
September 2011: GBPnil, 31 March 2012: GBPnil), other than an
outstanding potential claim relating to this period which the Board
believe is fully covered by insurance and the pension equalisation
dispute. The Group has not yet been able to agree a definitive
position with the trustees of the scheme and it has been necessary
for the Group to seek direction from the courts to resolve this
issue. Taking into account the legal advice received by the Group,
this possible change has not been reflected in the IAS 19
assumptions used at 30 September 2012. If such a change in
assumption were to be made the effect would be an increase in the
present value of the defined benefit obligation as at 30 September
2012 of approximately GBP2.5m - GBP3.0m (30 September 2011: GBP2.0m
- GBP2.5m, 31 March 2012: GBP2.0m - GBP2.5m).
17. Related party transactions
There have been no related party transactions, other than
transactions between the Company and its subsidiaries which have
been eliminated on consolidation and remuneration to key
management. Therefore, there have been no changes in the related
party transactions described in the Phoenix IT Group plc Annual
Report and Accounts for the year ended 31 March 2012.
18. Restatement
Error restatement
The accounting irregularities are discussed in the interim
management report. The impact of the prior year adjustments on the
Group's income, equity and cash flows arising from the restatement
exercise are summarised below.
Reconciliation of consolidated income statements
Six months to 30 September
2011
As previously
reported Error restatement Restated
GBPm GBPm GBPm
-------------------------------------------- -------------- ------------------ ---------
Continuing operations
Revenue 132.3 (1.3) 131.0
Profit from operations before amortisation
of intangibles 15.4 (2.3) 13.1
Amortisation of intangibles (1.5) - (1.5)
-------------------------------------------- -------------- ------------------ ---------
Profit from operations 13.9 (2.3) 11.6
Investment income 0.7 - 0.7
Finance costs (2.5) - (2.5)
-------------------------------------------- -------------- ------------------ ---------
Profit before tax 12.1 (2.3) 9.8
Tax (3.1) 0.7 (2.4)
-------------------------------------------- -------------- ------------------ ---------
Profit for the period 9.0 (1.6) 7.4
-------------------------------------------- -------------- ------------------ ---------
Year to 31 March 2012
As previously
reported Error restatement Restated
GBPm GBPm GBPm
-------------------------------------------- -------------- ------------------ ---------
Continuing operations
Revenue 264.6 (3.8) 260.8
Profit from operations before amortisation
of intangibles 10.8 (8.7) 2.1
Amortisation of intangibles (2.9) - (2.9)
-------------------------------------------- -------------- ------------------ ---------
Profit from operations 7.9 (8.7) (0.8)
Investment income 1.3 - 1.3
Finance costs (5.4) - (5.4)
Profit before tax 3.8 (8.7) (4.9)
Tax (1.0) 2.3 1.3
-------------------------------------------- -------------- ------------------ ---------
Profit/(loss) for the period 2.8 (6.4) (3.6)
-------------------------------------------- -------------- ------------------ ---------
Reconciliation of consolidated balance sheets
As at 30 September 2011
As previously
reported Error restatement Restated
GBPm GBPm GBPm
---------------------------------- -------------- ------------------ ---------
Non-current assets
Goodwill 181.4 - 181.4
Intangible assets 14.3 - 14.3
Property, plant and equipment 64.3 (0.6) 63.7
260.0 (0.6) 259.4
---------------------------------- -------------- ------------------ ---------
Current assets
Inventories 15.5 (0.9) 14.6
Trade and other receivables 67.3 (4.8) 62.5
Current tax asset - 1.2 1.2
Cash and cash equivalents 9.8 (1.2) 8.6
---------------------------------- -------------- ------------------ ---------
92.6 (5.7) 86.9
Assets held for sale 2.7 - 2.7
---------------------------------- -------------- ------------------ ---------
95.3 (5.7) 89.6
---------------------------------- -------------- ------------------ ---------
Total assets 355.3 (6.3) 349.0
---------------------------------- -------------- ------------------ ---------
Current liabilities
Trade and other payables (46.0) (5.0) (51.0)
Current tax liabilities (2.8) 2.8 -
Obligations under finance leases
and hire purchase contracts (4.0) - (4.0)
Provisions (0.6) - (0.6)
Deferred revenue (52.5) (2.5) (55.0)
---------------------------------- -------------- ------------------ ---------
(105.9) (4.7) (110.6)
---------------------------------- -------------- ------------------ ---------
Net current liabilities (10.6) (10.4) (21.0)
---------------------------------- -------------- ------------------ ---------
Non-current liabilities
Obligations under finance leases
and hire purchase contracts (2.9) - (2.9)
Bank loans (74.0) - (74.0)
Provisions (5.2) - (5.2)
Deferred tax liabilities (2.9) - (2.9)
Derivative financial instruments (1.6) - (1.6)
Deferred revenue (0.9) - (0.9)
Other non-current liabilities (5.0) - (5.0)
Retirement benefit obligations (2.4) - (2.4)
---------------------------------- -------------- ------------------ ---------
(94.9) - (94.9)
---------------------------------- -------------- ------------------ ---------
Total liabilities (200.8) (4.7) (205.5)
---------------------------------- -------------- ------------------ ---------
Net assets 154.5 (11.0) 143.5
---------------------------------- -------------- ------------------ ---------
Equity
Share capital 0.8 - 0.8
Share premium account 37.6 - 37.6
Merger reserve 57.5 - 57.5
Other reserves 0.6 - 0.6
Retained earnings 58.0 (11.0) 47.0
---------------------------------- -------------- ------------------ ---------
Total equity 154.5 (11.0) 143.5
---------------------------------- -------------- ------------------ ---------
Reconciliation of consolidated balance sheets continued
As at 31 March 2012
As previously
reported Error restatement Restated
GBPm GBPm GBPm
---------------------------------- -------------- ------------------ ---------
Non-current assets
Goodwill 181.4 - 181.4
Intangible assets 4.8 - 4.8
Property, plant and equipment 64.2 (1.5) 62.7
250.4 (1.5) 248.9
---------------------------------- -------------- ------------------ ---------
Current assets
Inventories 13.7 (0.6) 13.1
Trade and other receivables 69.9 (12.4) 57.5
Current tax asset 0.5 5.5 6.0
Deferred tax asset - 0.1 0.1
Cash and cash equivalents 16.2 (1.0) 15.2
---------------------------------- -------------- ------------------ ---------
100.3 (8.4) 91.9
Assets held for sale 2.3 - 2.3
---------------------------------- -------------- ------------------ ---------
102.6 (8.4) 94.2
---------------------------------- -------------- ------------------ ---------
Total assets 353.0 (9.9) 343.1
---------------------------------- -------------- ------------------ ---------
Current liabilities
Trade and other payables (47.8) (1.8) (49.6)
Obligations under finance leases
and hire purchase contracts (3.0) - (3.0)
Provisions (5.9) - (5.9)
Deferred revenue (48.8) (4.2) (53.0)
---------------------------------- -------------- ------------------ ---------
(105.5) (6.0) (111.5)
---------------------------------- -------------- ------------------ ---------
Net current liabilities (2.9) (14.4) (17.3)
---------------------------------- -------------- ------------------ ---------
Non-current liabilities
Obligations under finance leases
and hire purchase contracts (1.7) - (1.7)
Bank loans (79.3) - (79.3)
Provisions (9.5) - (9.5)
Deferred tax liabilities (0.7) 0.1 (0.6)
Derivative financial instruments (1.4) - (1.4)
Deferred revenue (2.8) - (2.8)
Other non-current liabilities (4.5) - (4.5)
Retirement benefit obligations (0.8) - (0.8)
---------------------------------- -------------- ------------------ ---------
(100.7) 0.1 (100.6)
---------------------------------- -------------- ------------------ ---------
Total liabilities (206.2) (5.9) (212.1)
---------------------------------- -------------- ------------------ ---------
Net assets 146.8 (15.8) 131.0
---------------------------------- -------------- ------------------ ---------
Equity
Share capital 0.8 - 0.8
Share premium account 37.6 - 37.6
Merger reserve 57.5 - 57.5
Other reserves 1.5 - 1.5
Retained earnings 49.4 (15.8) 33.6
---------------------------------- -------------- ------------------ ---------
Total equity 146.8 (15.8) 131.0
---------------------------------- -------------- ------------------ ---------
Reconciliation of consolidated cash flow statement
Six months to 30 September 2011
As previously
reported Error restatement Restated
GBPm GBPm GBPm
------------------------------------------- -------------- ------------------ ---------
Net cash from operating activities 5.0 (0.1) 4.9
Investing activities
Purchases of property, plant and
equipment (8.3) - (8.3)
Proceeds on disposal of property,
plant and equipment 0.1 - 0.1
Net cash used in investing activities (8.2) - (8.2)
------------------------------------------- -------------- ------------------ ---------
Financing activities
Dividends paid (5.3) - (5.3)
Repayment of obligations under finance
leases and hire purchase contracts (2.5) - (2.5)
Net drawdown on rolling credit facilities 5.0 - 5.0
Net cash used in financing activities (2.8) - (2.8)
------------------------------------------- -------------- ------------------ ---------
Net decrease in cash and cash equivalents (6.0) (0.1) (6.1)
Cash and cash equivalents at beginning
of period 15.8 (1.1) 14.7
------------------------------------------- -------------- ------------------ ---------
Cash and cash equivalents at end
of period 9.8 (1.2) 8.6
------------------------------------------- -------------- ------------------ ---------
Year to 31 March 2012
As previously
reported Error restatement Restated
GBPm GBPm GBPm
------------------------------------------- -------------- ------------------ ---------
Net cash from operating activities 17.0 0.1 17.1
Investing activities
Purchases of property, plant and
equipment (14.0) - (14.0)
Proceeds on disposal of property,
plant and equipment 0.1 - 0.1
Net cash used in investing activities (13.9) - (13.9)
------------------------------------------- -------------- ------------------ ---------
Financing activities
Dividends paid (8.0) - (8.0)
Repayment of obligations under finance
leases and hire purchase contracts (4.7) - (4.7)
Net drawdown on rolling credit facilities 10.0 - 10.0
Net cash used in financing activities (2.7) - (2.7)
------------------------------------------- -------------- ------------------ ---------
Net increase in cash and cash equivalents 0.4 0.1 0.5
Cash and cash equivalents at beginning
of period 15.8 (1.1) 14.7
------------------------------------------- -------------- ------------------ ---------
Cash and cash equivalents at end
of period 16.2 (1.0) 15.2
------------------------------------------- -------------- ------------------ ---------
INDEPENDENT REVIEW REPORT TO PHOENIX IT GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2012, which comprises the
Consolidated Statement of Income, the Consolidated Statement of
Comprehensive Income, the Consolidated Balance Sheet, the
Consolidated Statement of Changes in Equity, the Consolidated Cash
Flow Statement and related notes. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review. This report, including the
conclusion, has been prepared for and only for the Company for the
purpose of the Disclosure and Transparency Rules of the Financial
Services Authority and for no other purpose. We do not, in
producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2012 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
Milton Keynes
29 November 2012
Notes:
(a) The maintenance and integrity of the Phoenix IT Group plc
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since
they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Advisers and shareholder information
Phoenix IT Group plc
Registered In England 03476115
Registered Office Principal Bankers
Technology House Royal Bank of Scotland
Hunsbury Hill Avenue 152 Silbury Boulevard
Northampton Milton Keynes
NN4 8QS MK9 1LT
Financial Advisers & Stockbrokers Solicitors
Investec Investment Banking Nabarro LLP
2 Gresham Street Lacon House
London 84 Theobalds Road
EC2V 7QP London
WC1X 8RW
Numis Securities Limited
The London Stock Exchange Building Financial Public Relations
10 Paternoster Square FTI Consulting
London Holborn Gate
EC4M 7LT 26 Southampton Buildings
London
Independent Auditor WC2A 1PB
PricewaterhouseCoopers LLP
Chartered Accountants Remuneration Consultants
Exchange House New Bridge Street
Central Business Exchange (an Aon plc company)
Midsummer Boulevard 6 More London Place
Central Milton Keynes London
MK9 2DF SE1 2DA
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Financial calendar
Ex dividend date 5 December 2012
Record date for dividend 7 December 2012
Dividend payment date 9 January 2013
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BVLLLLFFZFBF
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